Devey Enterprises Ltd & Stafford v Devey

• Jurisdiction: Ireland
• Judge: Ms. Justice Laffoy
• Judgment Date: 24 August 2011
• Neutral Citation: [2011] IEHC 340
• Docket Number: [2009 No.
• Court: High Court
• Date: 24 August 2011

[2011] IEHC 340

THE HIGH COURT

[No. 147 COS/2009]

Devey Enterprises Ltd & Stafford v Devey

IN THE MATTER OF THE COMPANIES ACTS 1963 - 2006

AND IN THE MATTER OF DEVEY ENTERPRISES LIMITED (IN VOLUNTARY LIQUIDATION)

BETWEEN

DEVEY ENTERPRISES LIMITED (IN VOLUNTARY LIQUIDATION)

AND

JAMES STAFFORD LIQUIDATOR OF DEVEY ENTERPRISES LIMITED (IN VOLUNTARY LIQUIDATION)

APPLICANTS

AND

MARK DEVEY AND JACINTA DEVEY

RESPONDENTS

COMPANIES ACT 1963 S286

COMPANIES ACT 1963 S139

COURTNEY LAW OF PRIVATE COMPANIES 2ED 2002 PARA 27.096

COMPANIES ACT 1963 S139(1)

MACCANN & COURTNEY COMPANIES ACTS 1963-2009 2010ED 1302

COMPANIES ACT 1990 S150

COMPANIES ACT 1990 S160

COMPANY LAW

Fraudulent disoposition

Liquidation - Test to be applied - Disposition of company assets - Whether payments made perpetrated fraud on company and creditors - Whether company deprived of something to which lawfully entitled - Re Frederick Inns Ltd [1994] 1 ILRM387 and In re Comet Food Machinery Co Ltd (in liq) [1999] 1 IR 485 considered; Le Chatelaine Thudichum Ltd v Conway [2008] IEHC 349, [2010] 1 IR 529 and In re Clasper Group Services Ltd [1989] BCLC 143 followed - Companies Act 1990 (No 33), s 139 - Relief granted (2009/147Cos - Laffoy J - 24/8/2011) [2011] IEHC 340

Re Devey Enterprises Ltd: Stafford v Devey

Facts The applicants sought by way of originating notice of motion a declaration in relation to each payment identified by reference to a so called "directors loan account" and the analysis thereof exhibited in the liquidator's grounding affidavit of 25 March 2009 that the said payments constituted a fraudulent preference within the meaning of section 286 of the Companies Act 1963 of the respondents or one or other of them and were void or invalid accordingly. The applicants also sought a declaration that each of the aforementioned payments constituted a fraudulent disposition within the meaning of section 139 of the Companies Act 1990 in favour of the respondents or one or other of them and the applicants sought an order that the respondents do repay to the applicants the said sums together with interest. The respondents had initially engaged in these proceedings but ultimately failed to attend the oral hearing. The second named applicant who was the liquidator of the company gave oral evidence at the hearing and confirmed that in his opinion the company, which was incorporated on 8 May 1998, became insolvent from 16 February 2007 onwards. A creditor's voluntary liquidation of the company commenced on the 10 October 2007 and the second named applicant was appointed as liquidator. The respondents were the directors of the company. The second applicant complained that the company failed to maintain proper books and records and he maintained that certain personal expenditure of the respondents was recorded as being business expenditure on behalf of the company. Following engagement with the respondent's accountant the applicant whittled down the respondents' liability to the sum of €1,241,677.99. In his replying affidavit, the first named respondent alleged that certain payments should not have been treated as payments on account of the respondents. In the case of four small amounts, the applicant accepted that the expense in question was a business expense of the company and accepted that the respondents should not be charged with the liability therefore. In relation to other items, the applicant set out the reasons why he considered that the payments could not be regarded as business expenses of the company. The first named respondent also contended that the respondents ought to be given credit for the sum of €2,043,332 because of payments made by the respondents to the company. However, the applicant took the view that the lodgements itemised by the respondents in this respect were in fact monies due by them to the company for works carried out by the company for or on behalf of the respondents. As a result of the adjustment made in respect of genuine business expenses the balance considered due and owing by the respondent was €1,234,508.99.

Held by Laffoy J. in granting the relief sought: That the court could not ignore the expert opinion of the second named applicant. The case made by the applicant was that the company's money was misapplied in that it was gifted to or used to discharge the personal debts of the respondents, who were the directors of the company. The case made out was that the respondents had no entitlement whatsoever to the money in issue, being sums either paid to them or to third parties at their direction. In the circumstances, section 286 of the 1963 Act had no application to this case. The effect of the making of the payments identified by the applicant, which were made by the company to the respondents or in discharge of the respondents' liabilities, was to perpetrate a fraud on the company and its creditors. It was just and equitable that the respondents, who procured benefits from the depletion of the assets of the company to the extent assessed by the applicant, should be directed to repay an equivalent sum to the applicant on behalf of the company in liquidation. It was appropriate in all the circumstances to regard the actions of the respondents in procuring the payments made by the company as giving rise to dispositions which came within s. 139 of the Act of 1990 and the respondents were herein ordered to repay the sum due and owing to the applicant.

Reporter: L.O'S

1 JUDGMENT of Ms. Justice Laffoy delivered on the 24th August, 2011

1. The Proceedings

2 2 1.1 These proceedings are one of three matters which are pending in this Court between the same parties and arising out of the same circumstances. The other two matters are:-

3 (a) Plenary proceedings (Record No. 2008/1606 P) between the first applicant (the company), as plaintiff, and the respondents, as defendants, in which there is extant an undertaking given by the respondent on the discharge of a Mareva type injunction restraining the respondents from removing from the State or dealing with their assets save insofar as the value of the assets shall exceed the sum or value of €2.8m, and in which proceedings the company seeks repayment of the sum of €2.8m from the respondents; and

4 (b) Summary proceedings (Record No. 2009/1176S),between the company, as plaintiff, and the respondents, as defendants, for recovery of the sum of €1,241,677.99 from the respondents.

5 3 1.2 These proceedings were initiated by an originating notice of motion dated the 26 ^th March, 2009, wherein, in addition to seeking directions in relation to the trial of the action and the related plenary proceedings and summary proceedings and, if necessary, an order linking or consolidating these proceedings with the plenary proceeding and the summary proceedings, and seeking an order for summary judgment in the sum of €1,241,677.99, the applicants sought the following reliefs at paras. 4, 5, 6, 7 and 8:-

6 (a) a declaration in relation to each payment identified by reference to a so called "directors loan account" and the analysis thereof exhibited in the liquidator's grounding affidavit of the 25 ^th March, 2009 that the said payments constituted a fraudulent preference within the meaning of s. 286 of the Companies Act 1963 (the Act of 1963) of the respondents or one or other of them and are void or invalid accordingly (para. 4.);

7 (b) an order that the respondents do repay to the applicants the said sums referred to para. 4. (para. 5);

8 (c) a declaration in relation to each of the said payments referred to in para. 4 that it constituted a fraudulent disposition within the meaning of s. 139 of the Companies Act 1990 (the Act of 1990) in favour of the respondents or one or other of them (para. 6);

9 (d) an order that the respondents do repay to the applicants the said sums referred in para. 4(para. 7); and

10 (e) an order that the respondents do pay to the applicants such interest pursuant to statute or pursuant to contract as to the court seems fit (para. 8).

11 4 1.3 The progress of these proceedings has been tortuous. It is necessary to outline the manner in which the issues with which this judgment is concerned came before the court. The originating notice of motion was returnable for the 27 ^th April, 2009. In the early stages of the proceedings the respondents, who live in Funchal, Madeira, were represented by a firm of solicitors and counsel. As the notice of motion discloses, the application was grounded on an affidavit sworn by the liquidator on the 25 ^th March, 2009. A replying affidavit was sworn by the first respondent on the 6 ^th July, 2009, in which he disputed certain averments which had been made by the liquidator in the grounding affidavit. Those matters were responded to by the liquidator in his second affidavit sworn on the 8 ^th October, 2009. At that stage it appeared that the proceedings would go to plenary hearing in the ordinary way, and in accordance with a request by the first respondent in his replying affidavit. An order for discovery was made on the 16 ^th November, 2009, in favour of the applicants against the respondents. That order was not complied with by the respondents and this led to a motion to strike out the defendants' defence, which came before the court on the 14 ^th January, 2010. The respondents were given certain leeway. However, the affidavit of discovery was not forthcoming. On the 1 ^st March, 2010, the court acceded to an application by the solicitors on record for the respondents to be allowed to come off record in these proceedings and in the plenary and summary proceedings. The liquidator was anxious to proceed with the matter, but, as it appeared likely that the respondents would not appear in court to answer the proceedings, the court considered it important that...