O'Flynn and Another v Carbon Finance Ltd and Others

• Jurisdiction: Ireland
• Judge: Ms. Justice Irvine
• Judgment Date: 13 August 2014
• Neutral Citation: [2014] IEHC 458
• Court: High Court
• Docket Number: [2014 No. 378 COS]
• Date: 13 August 2014

[2014] IEHC 458

THE HIGH COURT

THE HIGH COURT

[2014 No. 378 COS]

[2014 No. 6669 P]

IN THE MATTER OF O’FLYNN CONSTRUCTION CO.AND IN THE MATTER OF O’FLYNN CONSTRUCTION (BTC), O’FLYNN CONSTRUCTION, ROCHESTOWN AND EASTGATE DEVELOPMENTS (CORK) AS RELATED COMPANIES WITHIN THE MEANING OF SECTION 4 (5) OF THE COMPANIES (AMENDMENT) ACT 1990(AS AMENDED) AND IN THE MATTER OF THE COMPANIES (AMENDMENT) ACT 1990 (AS AMENDED)

AND

BETWEEN

MICHAEL O’FLYNN AND JOHN O’FLYNN

PLAINTIFFS

AND

CARBON FINANCE LIMITED, PAUL MCCANN, PATRICK DILLON, MARK BYERSAND MARCUS WIDE

DEFENDANTS

Companies – Commercial - Petition – Interim Protection order – Application to dismiss petition – Companies Act 1990 – Material Non-Disclosure – Improper use of Petition

The facts of this case involved an ongoing dispute between companies and various individuals. The plaintiff in this case sought two applications to dismiss the petition presented by the defendants Carbon Finance Limited (Carbon) and to discharge the order of McGovern J. made under s. 3A of the Companies Act 1990 (the 1990 Act), whereby he afforded interim protection to the companies named in the title. Irvine J. in the High Court decided on the matter.

Irvine J considered the submissions from the plaintiff against the defendants and vice versa. The plaintiff submitted that there was a material non-disclosure by Carbon of all relevant facts in the presentation of the petition and in seeking the relief sought. Additionally, that the circumstances necessary to obtain interim protection under the provisions of s. 3A of the 1990 Act did not and do not exist and finally that the petition was presented for an improper purpose and/or otherwise than in good faith. In this regard it is asserted that the presentation of the petition was part of a commercial strategy by the defendants. Irvine carefully extrapolated the facts on the matters and deduced that an order of this kind in question, i.e. interim protection, must be viewed as provisional in nature and is liable to be set aside on the application of an affected party, in particular if the information before the court is found to have been incomplete. Furthermore Irvine J. evaluated the non disclosure by the petitioners and the court was satisfied that the appropriate consequences for the petitioner’s breaches of obligations under s. 4A of the 1990 Act was to discharge the interim examiner and to dismiss the present petition. Applying the threshold set out in American Cyanamid, Irvine J. was satisfied that the plaintiffs had established that they had raised a fair question to be tried as to whether the demands for repayment of the personal loans in the circumstances of this case may be deemed to be invalid on the grounds that Carbon did not allow reasonable time for repayment. As for the petition being used for an improper purpose Irvine was satisfied that plaintiffs had established a serious issue to be tried as to whether Carbon, in issuing the demand letters for the admitted sole purpose of seeking to procure an event of default that would incur financial benefit in an unreasonable manner such as to call into question the validity of such demands. The plaintiffs demonstrated that the balance of convenience lies in favor of granting the injunctions sought. Irvine reached this conclusion having weighed the injustice that is likely to be perpetrated upon the plaintiffs should the relief sought be refused against the likely injustice and damage which will occur to the Carbon, if the relief is granted. Irvine concluded that most of the grants of relief claimed by the plaintiff, specifically at paragraph 2 to 6 inclusive of the notice of motion, should be granted.

Ms. Justice Irvine

JUDGMENT of Ms. Justice Irvine delivered on the 13th day of August, 2014.

1 There are two applications before this Court. The first is an application brought by O’Flynn Construction Co and the three related companies named in the title hereto, (“the Companies”) to dismiss the petition presented by Carbon Finance Limited (“Carbon”) on 29th July, 2014 and to discharge the order of McGovern J. made under s. 3A of the Companies (Amendment) Act 1990 (“the 1990 Act”), whereby he afforded interim protection to the companies named in the title hereto and appointed Mr. Michael McAteer, Interim Examiner of the said companies.

2 The basis for this application can be stated in simple terms:-

(i) that there was a material non-disclosure by Carbon of all relevant facts in the presentation of the petition and in seeking the relief sought;

(ii) that the circumstances necessary to obtain interim protection under the provisions of s. 3A of the 1990 Act did not and do not exist; and

(iii) that the petition was presented for an improper purpose and/or otherwise than in good faith. In this regard it is asserted that the presentation of the petition was part of a commercial strategy on the part of the petitioner to take over control of all of those companies in respect of which Michael O’Flynn and John O’Flynn enjoy control (“the O’Flynn Group”) and to displace present management for its own benefit.

3 The application to set aside the petition and the order made pursuant to s. 3A of the 1990 Act, was grounded on three affidavits the first of which was sworn by Brendan Lenihan, Chartered Accountant and group finance director of the O’Flynn Group. The others were sworn by Declan McDonald, a partner in Price Waterhouse Coopers and Michael O’Flynn, a director of each of the companies in the O’Flynn Group. Replying Affidavits were sworn on behalf of Carbon by Mr. Declan Taite, insolvency practitioner of Duff and Phelps (Ireland), and Lorna Brown, a director of Carbon.

4 The second application, wherein interlocutory relief is claimed, is brought in plenary proceedings (record no 2014/6669P) instituted by the principal shareholders of the O’Flynn Group, namely Michael O’Flynn and John O’Flynn. The Defendants to those proceedings are Carbon, Paul McCann, Patrick Dillon, Mark Byers and Marcus Wide. The second and third named defendants are sued in their capacity as joint receivers appointed by Carbon over certain assets of the plaintiffs. The fourth and fifth named defendants, along with the third named defendant, are sued in their capacity as joint receivers appointed by Carbon over certain shares the property of the plaintiffs.

5 The plaintiff’s claim as against Carbon in the plenary summons proceedings relates, inter alia, to three demand letters (“the demand letters”) dated 29th July, 2014. In those letters Carbon sought immediate repayment by the plaintiffs of sums allegedly due on foot of certain personal Facility Agreements. The sums so demanded were €11,555,481, €1,672,935 and € 3,535,935. The plaintiffs maintain that the demand letters are invalid for a number of reasons including Carbon’s failure to afford them any notice or reasons for their actions, or any reasonable time to meet the said demands. They also claim that the demands themselves were unfair, unreasonable and made for an improper purpose.

6 The plaintiffs also seek declarations to the effect that all steps allegedly taken by Carbon on foot of the demand letters are invalid. These include the appointment of the second, third, fourth and fifth named defendants as receivers. More importantly, the plaintiffs maintain that Carbon acted unlawfully in issuing a demand letter directed to the O’Flynn Group, dated 29th July, 2014, claiming immediate payment of a sum of approximately €1.4 billion. In that letter, Carbon maintained that the appointment of the receivers to the plaintiffs’ shareholding in Colebridge Limited (“Colebridge”), the parent company of the O’Flynn Group, constituted an event of default under a Facility Agreement dated 28th February, 2013, (“the Facilities Agreement”) entitling it to demand repayment of all monies then due thereunder.

7 In addition to the last mentioned claims, the plaintiffs also seek the Court’s determination in relation to the true construction of a number of provisions contained in the Facilities Agreement which was made between O’Flynn Construction Holdings and Others and National Asset Loan Management Limited (“NALM”), to which terms Carbon is contractually bound as the assignee of the rights and obligations of NALM under that agreement.

8 In the application for interlocutory relief the plaintiffs seek orders restraining the defendants from taking any steps on foot of the demand letters such as to call in and/or enforce their securities and/or to call in and/or enforce the corporate loans of the companies within the O’Flynn Group. It also asks the Court to revoke the appointment of the second, third fourth and fifth named defendant as receivers over the assets of the plaintiffs or the assets of any of the entities within the O’Flynn Group. Finally they seek an order restraining the persons nominated by the defendants from purporting to act as directors of Colebridge International Limited or any other entity within the O’Flynn Group.

9 The grounding affidavit in respect of that application was sworn by Mr. Michael O’Flynn and was supported by an affidavit of Mr. Tom Daly. On the defendant’s behalf, a further affidavit was sworn by Ms. Lorna Brown which was also directed towards the examinership application.

Background to the relationship between the parties

10 The O’Flynn Group, as appears from the affidavit of Michael O’Flynn, comprises over eighty entities and has for many years been engaged in the business of property development and construction in numerous countries including Ireland, United Kingdom, Germany and Spain. For the purpose of conducting its business it had access to credit facilities in several Irish banks. When the property market collapsed, the corporate loans of the O’Flynn Group were...