Emerald Group Holdings Ltd & Banfi Ltd v Moran and Others

JurisdictionIreland
JudgeMs. Justice Finlay Geoghegan
Judgment Date08 October 2009
Neutral Citation[2009] IEHC 440
Docket NumberNo. 211 COS/2008
CourtHigh Court
Date08 October 2009

[2009] IEHC 440

THE HIGH COURT

No. 211 COS/2008
No. 132 COM/2008
Emerald Group Holdings Ltd & Banfi Ltd v Moran & Ors
COMMERCIAL
IN THE MATTER OF SECTION 205 OF THE COMPANIES ACTS 1963 -2005
AND IN THE MATTER OF EMERALD GROUP HOLDINGS LIMITED
AND IN THE MATTER OF A PETITION BY BANFI LIMITED
PETITIONER

AND

NOEL MORAN

AND

KARINA RAY

AND

BEST CHRISTMAS TREES LIMITED
RESPONDENTS

COMPANIES ACT 1963 S205

COMPANIES ACT 1963 S205(1)

VISITING MOTORISTS BUREAU LTD, IN RE UNREP KENNY 7.2.1972

SCOTTISH COOPERATIVE WHOLESALE SOCIETY LTD v MEYER & ANOR 1959 AC 324 1958 3 WLR 404 1958 3 AER 66

COMPANIES ACT 1948 S210 (UK)

GREENORE TRADING CO LTD, IN RE 1980 ILRM 94 1980/13/2367

VIA NET WORKS (IRL) LTD (FORMERLY MEDIANET (IRL) LTD), IN RE 2002 2 IR 47 2002/27/7100

COMPANIES ACT 1963 S205(3)

COMPANY LAW

Shareholders

Oppression - Related companies - Transactions between related companies alleged to be oppressive to member's interests in one company - Timing of conduct alleged to constitute oppression - Respondents alleging that conduct occurred while applicant not member of related companies - Appropriate remedy - Breakdown of personal relationship - Timing of valuation of shares - Accountants' evidence -Whether conduct continuing at time of presentation of petition - Whether appropriate to take account of prospective crops in valuing shares - Re Greenore Trading Company Ltd [1980] ILRM 94 applied; Re Via Net Works (Ireland) Ltd [2002] 2 IR 47 and In re Visiting Motorists' Bureau Limited (Unrep, Kenny J, 7/2/1972) considered - Companies Act 1963 (No 33) s 205 - Relief granted, respondents ordered to purchase applicant's shares at value on particular date (2008/132COM & 2008/211COS - Finlay Geoghegan J - 8/10/2009) [2009] IEHC 440

In re Emerald Group Holdings

JUDGMENT of
Ms. Justice Finlay Geoghegan
delivered on the 8th day of October, 2009
1

The petitioner, Banfi Limited ("Banfi"), is the registered holder of 16,525 ordinary shares in Emerald Group Holdings Limited ("EGHL"). This represents approximately 19.5% of the issued share capital of EGHL. Mr. David Hasslacher is the beneficial owner of the issued share capital of Banfi.

2

Mr. Moran, the first named respondent, and Ms. Ray, the second named respondent, are husband and wife. They are the directors of EGHL. The third named respondent, Best Christmas Trees Limited ("BCTL"), is the registered holder of either 75.5% or 80.5% of the issued ordinary shares in EGHL. Mr. Moran and Ms. Ray jointly hold 100% of the issued ordinary shares in BCTL.

3

Banfi claims, as a member of EGHL, pursuant to s. 205 of the Companies Act,1963, that the affairs of EGHL are being conducted, or the powers of the directors of EGHL are being exercised, in a manner oppressive to it or in disregard of its interests as a member of EGHL. It is not in dispute that Banfi is a member of EGHL and has been a member since 2007. The present claim must be considered in the context of the corporate structure and Christmas tree business of the group of companies of which EGHL is part, which commenced in 1989, and to which I will refer as the "Emerald Group". The corporate structure and participation of the Emerald Group has varied since that date.

4

By 1988, Mr. Hasslacher and Mr. Andrew Kavanagh had a business idea for the planting, raising and selling of Christmas trees. They made contact with Mr. Moran who was already known to Mr. Kavanagh. At that time, Mr. Moran and Ms. Ray were in practice together as chartered accountants.

5

Plans were put in place for the business and in February, 1989 Mr. Hasslacher, Mr. Kavanagh and Mr. Moran arranged for the incorporation of Irish Christmas Trees Management Limited ("ICTML"). ICTML was established to carry on the business of growing, marketing and selling Christmas trees. Each of the above three gentlemen, and a Mr. Godwin, controlled in equal shares the majority of the issued share capital. ICTML subsequently changed its name to Emerald Group Limited ("EGL"), and will be referred to by that name in this judgment.

6

Initially, Mr. Hasslacher was the managing director of EGL. The original business concept appears to have been that monies were raised through Investor Funds or Companies ("Investor Companies") for yearly plantations. The Investor Companies owned the plantations. The trees were planted on leased lands. The management of the plantations and planting, husbandry, harvesting, marketing and selling of the trees was carried out by EGL for a management fee to the Investor Companies. Whilst it was envisaged that EGL would carry on its business at a profit, the main attraction of the Christmas tree business appears to have been the potential tax-free dividends from selling trees at a profit. EGL also had a 'profit share' in certain of the Investor Companies.

7

EGHL was incorporated on 22nd April, 1995. It was incorporated to become the holding company of EGL and buy out the shareholding of Mr. Godwin. Subsequent to its incorporation, EGHL acquired all the issued share capital of EGL from its then shareholders in consideration for the issue of shares other than to Mr. Godwin. Mr. Godwin did not become a shareholder of EGHL. However, Mr. Moran (either alone or jointly with Ms. Ray), Mr. Kavanagh and Mr. Hasslacher each, became, directly or indirectly, the beneficial owners of 30% of the issued share capital of EGHL. The remaining 10% was issued to Mr. Williams and Mr. McKenzie, both employees. In 1995, Mr. Hasslacher's interest in the shares in EGHL was a shareholding registered in the name of ICT Nominees Limited. ICT Nominees Limited became a member of EGHL but held the shares in trust for Banfi. Mr. Hasslacher was the beneficial owner of the entire share capital of Banfi.

8

In 1995, Mr. Moran became the Managing Director of EGL in place of Mr. Hasslacher who continued to be employed by EGL and focused on the plantations.

9

EGL procured the incorporation of a wholly owned UK subsidiary, Emerald Trees (UK) Ltd., for the purpose of UK sales. It acquired a property in England. That corporate structure continues.

10

Subsequent to the incorporation of EGHL, the plantations for the next few years continued to be funded and made through Investor Companies. It appears from the evidence of Mr. Wallace, chartered accountant, who gave expert evidence on behalf of the respondents, that EGHL held, at all material times, what is referred to as a "profit share" in most if not all of the Investor Companies. EGL had a minority interest in two such companies. Those companies were primarily owned by the relevant individual investors. The holding by EGHL of a profit share appears to have been for the purpose of permitting EGHL to participate in profits which might be made by the Investor Companies on the sale of the Christmas trees. The normal cycle for the Christmas trees is stated to be seven to ten years: sales commencing in year seven and continuing, on average, through year ten. It is of importance to the issues in these proceedings that the shareholders of EGHL, through the holding by EGHL of "profit shares" in the Investor Companies, had the opportunity of participating in the profits from the sale of plantations and, in particular, the valuable aspect of potentially tax-free dividends.

11

Anglo Irish Bank commenced financing plantations in 1998, through First Irish Christmas Trees plc-an Investor Company.

12

Regretfully, in the early years the plantations did not prove profitable and no profits arose in the Investor Companies. On the contrary; very significant financial difficulties arose, not only for the Investor Companies but, by reason of their inability to pay EGL for the husbandry and management services performed by it, EGL, and the Emerald Group in general, also had severe financial difficulties. By 1999, it was not possible to organise the plantation for that year through an Investor Company. EGHL, with the assistance of bank borrowings from Anglo Irish Bank, carried out the plantation itself in that year. It also had to enter into arrangements with investors in one of the Investor Companies as a result of which, in return for the transfer of plantations, it created and allotted "A" ordinary shares with preference rights to dividends after January, 2002. Loan notes were also issued by EGHL to certain investors.

13

In early 1999, each of ICT Nominees Ltd. (at the direction of Banfi) and Mr. Kavanagh transferred to Mr. Moran and Ms. Ray, jointly, 8,800 shares in EGHL, which represented approximately 10% of the issued ordinary shares. A consideration of IR£1.25 per share was paid by Mr. Moran and Ms. Ray. These transfers formed part of the matters relied upon by Banfi in these proceedings and will be referred to further below. Subsequent to those transfers, Mr. Moran and Ms. Ray became the majority shareholders, jointly holding approximately 56% of the issued share capital in EGHL, and each of Banfi and Mr. Kavanagh was beneficially entitled to 19.5%. Those transfers were made in connection with additional bank borrowings obtained by EGHL and personal guarantees given therefor by Mr. Moran and Ms. Ray.

14

In 2001, the Emerald Group continued to be in financial difficulty. It had significant borrowings from Anglo Irish Bank. Anglo Irish Bank appointed McStay Luby who prepared a report dated 12th June, 2001, considering various options for the Emerald Group. The report which was the first of three was prepared in the context of requests for additional funding by EGHL to Anglo Irish Bank.

15

The name 'Best Christmas Trees' was first used for a website intended for the benefit of the business of the Emerald Group and for the purpose of protecting that name for the Christmas tree trading of the Emerald Group. BCTL was incorporated by Mr. Moran and Ms. Ray in 2001. They were the only...

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