Ecolegacy Ltd & Companies Act

• Jurisdiction: Ireland
• Judge: Ms. Justice Murphy
• Judgment Date: 11 June 2018
• Neutral Citation: [2018] IEHC 380
• Docket Number: [2017 No. 180 COS.]
• Court: High Court
• Date: 11 June 2018

IN THE MATTER OF ECOLEGACY LIMITED

AND IN THE MATTER OF THE COMPANIES ACT 2014

[2018] IEHC 380

[2017 No. 180 COS.]

THE HIGH COURT

Winding up company – Insolvency – Abuse of process – Petitioner seeking an order to wind up a company – Whether the presentation of the petition was an abuse of process

Facts: The William Jay Gencarella Family Trust petitioned the High Court to wind up EcoLegacy Ltd on the grounds that the company was insolvent and unable to pay its debts and on the further ground that it was just and equitable that the company be wound up. The company asserted that the presentation of the petition was an abuse of process because the petitioner had an ulterior motive and/or improper motive in its presentation and on that basis it sought an order dismissing the petition.

Held by Murphy J that, having referred to In Re Bula Ltd [1990] 1 IR 440 and Tweedswood Ltd & Ors v Revenue Commissioners [2017] IESC 81, the respondent in the circumstances had not discharged the burden on him to establish on cogent evidence that not only was the petition actuated by reasons other than the ostensible motive but that the actual underlying motive was improper in the sense of being tantamount to an abuse of process such as would shift the burden back to the petitioner to establish that it was fair and just to grant the petition.

Murphy J held that the petitioner was entitled to the order to wind up the company. The Court would make that order and direct that the liquidator investigate payments made by the company to both Mr Ennis, former CEO, and Mr McKimm, former COO and acting CEO, in the course of the liquidation.

Order granted.

JUDGMENT of Ms. Justice Murphy delivered on the 11th day of June, 2018

1 Before the court is the petition of the William Jay Gencarella Family Trust to wind up EcoLegacy Ltd on the grounds that the company is insolvent and unable to pay its debts and on the further ground that it is just and equitable that the company be wound up. The material facts upon which the petition is based are as follows:-

i. EcoLegacy Ltd. (hereinafter ‘the company’) is a private company limited by shares bearing company number 499517 and was incorporated in the State under the Companies Acts 1963 to 2012 in the month of June 2011.

ii. The registered office of the company is situated at No. 1 Grants Row, Second Floor, Mount Street Lower, Dublin 2.

iii. The nominal share capital of the company is €1,000,000 dividend in to €89,870,650 ‘A’ ordinary shares of €.01 and €10,129,350 ‘B’ ordinary shares of €.01 each. The amount of the capital paid up or credited as paid up is €2,853,840 being comprised of a called up share capital of €13,916 together with a share premium account of €2,839,924.

iv. The object for which the company was established are to market, promotor, sell and/or lease new technology to the international funeral industry, maintain and support the technology, supply technological and operational consultancy to the international funeral industry, source and supply consumables to the international funeral industry for use in existing and new technologies and other objects set forth in the constitution thereof.

v. Council Regulation (EC) 1346/2000 of 29th May, 2000 on insolvency proceedings (‘the Insolvency Regulation’) does apply to these proceedings as the centre of main interests of the company is located within State. Furthermore, the registered office of the company is located within the State per Chapter 1, Article 3(1) of the Insolvency Regulation.

vi. To your petitioner's knowledge, no insolvency proceedings have been opened in respect of the company in a Member State of the European Union to which the Insolvency Regulation applies.

vii. All necessary inquires having been made by your petitioner, the company has no obligations in relation to a bank asset that has been transferred to the National Asset Management Agency (NAMA) or a NAMA group entity (each within the meaning of the National Asset Management Agency Act, 2009).

viii. The petitioner is a creditor and shareholder of the company. The petitioner holds 32,650 ‘A ordinary’ class shares since in or about January 2012, the company has continued to operate a trading loss. Between January 2012 and Marc 2014, the company operated a trading loss in excess of €416,000.

ix. The petitioner being a creditor of the company and seeking reassurance regarding the security of its investments, inquired by correspondence through its solicitor as to the financial position of the company. By letters dated 24th March, 2017 and the 27th March 2017 the petitioner formally called upon the company to assure the petitioner that all debts, actual or contingent, could be discharged as they fell due. No response confirming this position was forthcoming.

x. Your petitioner was desirous of securing the repayment of the sum of €750,000 outstanding on foot of loans certificates issued 12th February, 2016 and the 25th April, 2016 and demanded same of the company by letter dated 27th March, 2017. It was an express element of the demand that should the company fail to discharge the sums due and owing that the petitioner would rely upon same as evidence of the company's insolvency within the meaning of s. 570 of the Companies Act, 2014.

xi. More than twenty one days have now passed since the demand was made. To date the company as neglected to discharge or otherwise to satisfy the sum in whole or in part are to make any offer to your petitioner to secure same.

xii. The company is insolvent and unable to pay its debts.

xiii. In the circumstances it is just and equitable that the company be wound up.

2 The company, through its current Managing Director, Mr. Andrew Dorn, has not contested the substance of the petition, nor the insolvency of the company, but has asserted that the presentation of the petition is an abuse of process because the petitioner had an ulterior motive and/or improper motive in its presentation and on that basis he seeks an order dismissing the petition.

3 The court has before it three affidavits from William Gencarella, trustee of the William Jay Gencarella Family Trust and three affidavits from Andrew Dorn, current managing director of EcoLegacy Ltd, upon which they were cross examined during the course of the hearing. In addition the court had evidence from Mr. Thomas Kavanagh of Deloitte on behalf of the petitioner and Mr. Jim Luby of Luby MacStay who prepared a report on behalf of the company. Each accountant was dependent on instructions received from their respective clients and neither had conducted an independent audit of the company's accounts.

4 Two founding members of the company Tony Ennis and Brian McKimm, featured extensively in the evidence adduced on the hearing, both on affidavit and on cross-examination, but neither provided direct evidence to the court. The hearing was not so much “ Hamlet” without the prince as “ Two Gentlemen of Verona” without the two gentleman. During the course of the hearing there were allegations and counter-allegations that both had misappropriated company funds over the years. The court has the impression that in many respects the hearing of this petition was a proxy war between the two founding members, in which the petitioner has been ill-served and was liable to suffer collateral damage. The court is conscious that neither was directly represented at the hearing. The court wishes to make it clear that the allegations and counter-allegations that have been made are just that, allegations, which in due course will have to be explored elsewhere.

General background

5 In April 2017 Mazars, at the request of the then board, produced a draft report which summarised the issues then facing the company. While it is based on the instructions of Mr. Brian McKimm, in whom the current Managing Director, Andrew Dorn, has not merely no faith, but in fact a deep mistrust, the court considers that it presents a fair reflection of the issues that ultimately gave rise to this petition and accordingly proposes to adopt it as a summary of the general background.

6 EcoLegacy Ltd was incorporated on 1st June, 2011, having been set up by Mr. Tony Ennis who acted as CEO, along with Mr. Brian McKimm, the company's financial adviser and Mr. Alan O'Driscoll, the company secretary. The company is the brainchild of Mr. Ennis, whose idea it was to develop an environmental and ethical alternative to burial and cremation, called “ecoLation” which results in organic nutrient rich remains which can be buried or scattered without harm to the environment. The company's shareholder agreement requires the consent of 100% of the shareholders to pass any shareholder resolution. This as shall be seen below created significant difficulties in 2016 and 2017.

7 Under the heading “Route to Market” Mazars reported as follows:

‘ecoLation is a new technology, commercially unproven in its target market, and the company is still in start-up phase. Funding of circa €7.2m has been secured through a number of investment rounds, which has been used to fund engineering development, sales and marketing and corporate overheads.

In early 2016, the company entered into agreements with the Dublin Cemeteries Committee t/a Glasnevin Trust (GT) for the installation, commission and operation of an ecoLation unit at the Trust's Dardistown cemetery. The agreements envisaged the parties forming a Joint Venture (JV) for operation of the facility, with each party investing €750k by way of a loan to fund the cost of the machine (which was expected to cost in the region of €1.5m). The objective of the partnership was for GT to assist ecoLegacy with both bringing the ecoLation technology to market, but also refining the commercial and operating model for ecoLation, in particular with funeral directors. The intention was for the Dardistown installation to serve as a reference site for ecoLegacy, to...