Dessie Morrow v Donworth Capital Ltd
| Jurisdiction | Ireland |
| Judge | Mr. Justice Quinn |
| Judgment Date | 06 August 2021 |
| Neutral Citation | [2021] IEHC 558 |
| Docket Number | [2019 No. 455 COS] |
| Court | High Court |
In the Matter of Cold Move Dublin Limited (In Examinership)
And in the Matter of Malonevale Limited (In Examinership)
And in the Matter of the Companies Act 2014
[2021] IEHC 558
[2019 No. 455 COS]
THE HIGH COURT
Costs – Examinership – Companies Act 2014 s. 557 – Respondents seeking costs – Whether costs should follow the event
Facts: The applicant, Mr Morrow, was the examiner of Cold Move Dublin Ltd and of Malonevale Ltd. He brought an application pursuant to s. 557 of the Companies Act 2014 against each of the respondents, Donworth Capital Ltd, Mr Casey, Galmere Fresh Foods Ltd, Katap Properties Ltd, Coldmove Logistic Solutions Ltd and Loadwise Logistics Ltd, which sought orders directing the respondents to deliver to the applicant certain assets and/or sums of money in respect of the said assets. That application was struck out by the High Court on the application of the applicant following what he described as an abrupt termination of the examinership and his discharge as examiner. The immediate cause of the termination was the decision of an intended investor to withdraw from the process, which left the examiner unable to proceed with his proposals for a scheme of arrangement. The applicant submitted that in the particular circumstances which arose and which, on his account, compelled him to make the application to strike out the proceedings under s. 557, no order should be made as to the costs of those proceedings. The respondents submitted that an order should be made against the applicant for their costs incurred in opposing the proceedings. They submitted that the court should apply what they described as the “normal rule” that costs follow the event unless the court first finds special reasons to direct otherwise. They submitted that the relevant “event” was the striking out of the motion. The applicant submitted that no “event” in the sense identified in case law on the subject had occurred and that instead the proceedings had become moot due to factors outside the control of all the parties.
Held by Quinn J that it would be inequitable if as a consequence of the applicant’s pursuit of the investment arrangements in the performance of his statutory function of examiner, which came to an abrupt end by no fault on his part, he should carry the burden of the costs associated with the s. 557 application. Quinn J held that it would be unjust to make an order for costs against the applicant in the events which had occurred in this case.
Quinn J held that no order would be made as to costs between the applicant and the respondents.
No order as to costs.
JUDGMENT of Mr. Justice Quinn delivered on the 6th day of August, 2021
This judgment relates to the costs of an application pursuant to s. 557 of the Companies Act 2014 (“the Act”) which sought orders directing the respondents to deliver to the applicant certain assets and/or sums of money in respect of the said assets. The application was struck out in unusual circumstances which I describe later.
Section 557 provides as follows:-
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“557. (1) Where, on the application of an examiner of a company that is under the protection of the court it can be shown to the satisfaction of the court that —
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(a) any property of the company of any kind whatsoever was disposed of either by way of conveyance, transfer, mortgage, security, loan, or in any way whatsoever whether by act or omission, direct or indirect; and
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(b) the effect of such disposal was to perpetrate a fraud on the company, its creditors or members,
the court may, if it deems it just and equitable to do so, make the following order.
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(2) That order of the court is one requiring any person who appears to have the use, control or possession of such property or the proceeds of the sale or development of it to deliver it or pay a sum in respect of it to the examiner on such terms or conditions as the court sees fit.
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(3) Subsection (1) shall not apply to any conveyance, mortgage, delivery of goods, payment, execution or other act relating to property made or done by or against a company to which section 604 [unfair preference] applies.
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(4) In deciding whether it is just and equitable to make an order under this section, the court shall have regard to the rights of persons who have bona fide and for value acquired an interest in the property the subject of the application”.
The applicant was the examiner of Cold Move Dublin Limited (“Cold Move”) and of Malonevale Limited (“Malonevale”), to which I shall refer collectively as the “companies”. He brought an application pursuant to s. 557 against each of the respondents. That application was struck out by the court on the application of the applicant following what he described as an abrupt termination of the examinership and his discharge as examiner. The immediate cause of the termination was the decision of an intended investor to withdraw from the process, which left the examiner unable to proceed with his proposals for a scheme of arrangement.
The applicant submitted that in the particular circumstances which arose and which, on his account, compelled him to make the application to strike out the proceedings under s. 557, no order should be made as to the costs of those proceedings. The respondents submit that an order should be made against the applicant for their costs incurred in opposing the proceedings.
Section 557 provides that the application be made by the examiner of the relevant company, and not the company itself. Therefore, the only parties to the application are the examiner as applicant and the respondents. Any order this court would make in favour of the respondents can only be against the applicant as the moving party.
A separate question may arise as to whether in respect of any liability of an examiner for costs awarded against him in connection with such proceedings the examiner would be entitled to on indemnity pursuant to s. 554 (2) of the Act, enjoying the priority conferred by s. 554 (3). Such a question does not fall to be determined on this application before me. Nonetheless, it was referred to in submissions and therefore I shall return to this subject later.
Before I turn to the chronology of events which gave rise to these proceedings and to this application it is informative to refer to a number of anomalous features of s. 557.
A section corresponding to s. 557 and similarly headed “return of assets improperly transferred” appears in s. 443 of the Act, where it can be invoked by a receiver, and in s. 608 where it can be invoked by a liquidator.
Like s. 557, those sections provide that an order can be made for the delivery of assets or a sum of money to the appointed office holder, being the receiver or liquidator as the case may be. This is logical where a core function of a receiver or liquidator is to take possession of and realise assets of the company to which he has been appointed. By contrast, it is not the function of an examiner to realise assets of the company to which he has been appointed. It is strange that the provision corresponding to ss. 443 and 608 was imported into Part 10 of the Act (which governs examinerships) in precisely the same form, notwithstanding the fact that an examiner has no function or authority in relation to the realisation of assets. It is however, clear that where an examiner issues such an application he, like a receiver and liquidator, is doing so not for his own personal benefit or gain, but for the benefit of the company and, the company being insolvent, the general body of its creditors.
In this case the applicant has stated that it was his intention that any proceeds of the application would be applied to finance what he has described as a “secondary dividend to creditors of the companies”.
The second difficult feature of the section is that it will always be challenging for such proceedings, if defended, to be brought to a final conclusion within the statutory timeframe of an examinership provided for in Part 10 of the Act.
Part 10 provides for the examinership to be concluded within a period of 70 days of the presentation of the petition, extendable and frequently extended to 100 days, and thereafter only for such period as the court considers necessary to take a decision as to whether to confirm a scheme of arrangement pursuant to s. 541 of the Act.
The protection period under examinership is currently capable of being extended for an additional 50 days pursuant to s. 13 of the Companies ( Miscellaneous Provisions) (COVID-19) Act 2020. That additional 50 days was not available in these proceedings, which predated the Act of 2020.
O. 74A r. 25 of the Rules of the Superior Courts (“RSC”) provides that an application under s. 557 shall be brought by motion on notice to the parties against whom relief is to be sought.
In a case where such an application is opposed there is potential, if not a likelihood, that the disposal of the matter could require cross-examination of deponents or even a plenary hearing. The respondents submit that this is such a case. Neither the Act or the Rules address the tension between the achievability of an outcome to such a proceeding and the statutory timeframe referred to above.
There are other provisions of Part 10 which can be equally contentious and opposed, notably repudiation of contracts by the company pursuant to s. 557. In many cases such applications, even vigorously opposed ones, have been disposed of within the timeframe of examinership.
A point made by a number of the respondents is that the commencement of such proceedings was on their description, utterly...
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