Eamonn Leahy v Eamonn Richardson (joint official liquidators)

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan
• Judgment Date: 25 October 2013
• Neutral Citation: [2013] IEHC 507
• Court: High Court
• Docket Number: [2011 No. 457 COS]
• Date: 25 October 2013

[2013] IEHC 507

THE HIGH COURT

[No. 457 COS/2011]

Home Payments Ltd (in liquidation), In re

[2013] IEHC 507

IN THE MATTER OF HOME PAYMENTS LIMITED (IN LIQUIDATION) AND IN THE MATTER OF THE COMPANIES ACTS 1963 TO 2009

EAMONN LEAHY

AND

EAMONN RICHARDSON (JOINT OFFICIAL LIQUIDATORS)

APPLICANTS

CUSTOM HOUSE CAPITAL LTD (IN LIQUIDATION) & THE COMPANIES ACTS 1963-2009, IN RE UNREP FINLAY GEOGHEGAN 9.10.2012 2012/8/2219 2012 IEHC 382

COMPANIES ACT 1963 S249

BERKELEY APPLEGATE (INVESTMENT CONSULTANTS) LTD 1988 3 AER 71

G.B. NATHAN & CO PTY LTD (IN LIQUIDATION), IN RE 1991 24 NSWLR 674

COMPANIES ACT 1963 S244

INVESTMENT INTERMEDIARIES ACT 1995

INVESTOR COMPENSATION ACT 1998

COMPANIES ACT 1990 S150

Practice and procedure- Company law- Liquidator- Reconcilement- Deduction from customers funds- Whether there was jurisdiction to make the order

Facts: The joint liquidators sought the determination of the Court as to the quantum for certain of their remuneration, legal costs and expenses and the assets and funds out of which they would be discharged. There was Eur 2,089,601 in the company account and AIB asserted an entitlement to set these monies off against sums due by the Company to it on other accounts. The Court had previously directed that the liquidators take steps to identify the potential beneficial ownership of the monies. The Court had also mad an order sanctioning the payment by the joint liquidators to be distributed to customers in the customer ledger. The Court considered whether the work undertaken by the liquidator in respect of reconciliation was properly a task for the liquidator and whether the joint liquidators" remuneration and fees, costs and expenses could be properly charge to or deducted from the customer funds.

Held by Geoghegan J. that the Court should exercise its discretion to make an order that assets of the Company be used to discharge the total remuneration, costs and expenses in relation to both the company and customer related work in equal priority. There would be a reduction of 5% applied to all of the liquidators remuneration. The decisions reached would permit an early determination of the amount which the Court would permit to be deducted and retained as a contribution to the remuneration costs and expenses. The Court could not determine the actual amounts.

1 1. On 24 ^th August, 2011, Mr. Eamonn Leahy of Leahy & Company, Chartered Accountants and Mr. Eamonn Richardson of KPMG were appointed joint official liquidators of Home Payments Ltd. ("the Company"). The joint official liquidators had previously been appointed provisional joint liquidators on 5 ^th August, 2011, on the presentation of the petition. The order for winding up was made on 24 August, 2011. In this application, the joint liquidators seek the determination of the Court as to the quantum of certain of their remuneration, legal costs and expenses and the assets or funds out of which same may be discharged. The application raises important points of principle.

2 2. When the application was first made, there was no legitimus contradictor available to the Court. At the direction of the Court, the joint liquidators put in place arrangements whereby a committee of customers (the Customer Committee) was formed. The Customer Committee was represented by solicitor and counsel, an affidavit filed by one member, Ms. Andreucetti, legal submissions filed and oral submissions made at the hearing of the application.

Background

3 3. The Company was a nationwide household budgeting and bill paying company which commenced trading, initially in the Dublin area, in 1963. The Company consolidated its customers' annual overheads into one fixed weekly or monthly payment, spreading payments evenly and keeping customers' household expenses on track by ensuring bills were paid on time. For this service, customers were charged a once-off registration charge and an ongoing management fee. The Company also earned interest on customer money held on deposit and dividend income from investments in shares and rental income from property investments.

4 4. The Company traded successfully for many years. At the commencement of the winding up, there were 2,239 customers. All customer payments were lodged into a current account (no.l) in the name of the Company held with Allied Irish Bank plc. ("AIB"). At the date of commencement of the winding up, the balance on the account was €2,089,601.59.

5 5. The Company maintained a ledger which recorded transactions for each customer. At the date of commencement of the winding up, this disclosed that the customers were owed a combined total of €6,667,402. The reports of the joint liquidators indicate the following to the primary causes of the failure of the Company.

6 6. Historically, the Company had operated with a liquidity provision of 30% which had been sufficient to pay customer bills as and when they fell due for payment. The balance of the surpluses generated from customer payments were put on bank deposit accounts until the mid-1990s. However, in 1996, there was change of policy. The Company commenced investing in property using, in part, surplus funds from customer payments but also with bank borrowings. In total, twelve properties were purchased, three of which were disposed of prior to liquidation. There were also guarantees given by the Company for liabilities of subsidiary companies. The Company was significantly exposed to the Irish property market and suffered from its dramatic fall.

7 7. In addition, there was a drop in customer numbers and despite cost cutting exercises by the directors, it became clear that the Company could no longer service all its loans and subsequent to negotiations with AIB, the Company presented a petition for the winding up on 5 ^th August, 2011.

Customer Funds

8 8. As already stated at the commencement of the winding up, there was €2,089,601 in the Company No. 1 current account with AIB ("the Account"). Initially, AIB asserted an entitlement to set these monies off against sums due by the Company to it on other accounts including property loan accounts. In August 2011, agreement was reached with AIB that it would not maintain a claim to the monies in the Account provided the liquidator brought an application for directions as to the beneficial ownership of same. That undertaking was given and the monies transferred to the liquidation account.

9 9. In October 2011, with a view to avoiding the costs of a full application for directions, if there was no dispute as to the ownership of the monies, the Court directed the liquidators to take steps to identify the potential beneficial ownership of the monies. The joint liquidators di this and reported to the Court in their report of 16 ^th January 2012 that they had been advised by Counsel that the monies held in the Account at the date of commencement of the winding up were impressed with a trust having regard to the following.

10 10. The monies paid into the Account were monies paid by customers to the Company for a specific purpose, namely, the discharge by the Company of certain nominated bills and only for that purpose. The Company had agreed with each customer to perform such task on his or her behalf. Upon the winding up of the Company, the purpose for which the monies had been paid by the customers failed in the sense that the Company was no longer in a position to pay the specified bills. In such circumstances, the joint liquidators were advised by Counsel that the monies in the Account were impressed with a trust, the beneficiaries of which were the customers who had paid money into the Account.

11 11. The joint liquidators, upon advice, also carried out an exercise to ascertain whether it was possible to identify the individual ownership of the funds standing to the credit of the Account at the commencement of the winding up or whether the funds had been so intermingled and the terms upon which they were held so breached such that it was not now possible to ascertain the beneficial owners of individual amounts in the Account. The joint liquidators set out the detailed methodology used in doing this and their results in a report to the Court of 16 ^th January, 2012. The joint liquidators selected ten sample customers and looked at transactions, both in the customer ledger system and the Account for the period 1 ^st October, 2011, to 4 ^th August, 2011. The conclusion of the joint liquidators was that by reason, in particular, of the volume of non-specific customer transactions through the Account and their review of the records of the Company, that it was not practically possible to trace individual customer entitlement to specific funds in the Account.

12 12. Whilst it now appears that no formal order of the Court was drawn subsequent to the presentation of the report of 16 ^th January 2012,1 am satisfied that the Court approve of the proposed approach of the joint liquidators, in accordance with the advice received from Counsel, that the monies in the Account at the date of commencement of the winding up be treated in the liquidation as funds in trust for the customers. Further, the Court at that hearing accepted the conclusions reached by the joint liquidators that by reason of the facts set out in their report, it was not practically possible to trace specific individual customer funds in the account.

13 13. With the approval of the Court, the joint liquidators then set about ascertaining whether the Company's own customer ledger was reliable in identifying the amount due to each of the then 2,239 customers at the date of commencement of the winding up. Each customer was written to and asked to state the sums owed to them by the Company at the date of commencement of this winding up and those responses were compared with the Company's...