Harley Mechanical Services Ltd & The Companies Act
| Jurisdiction | Ireland |
| Judge | Ms. Justice Baker |
| Judgment Date | 20 February 2018 |
| Neutral Citation | [2018] IEHC 80 |
| Docket Number | [2017 No. 222 COS] |
| Court | High Court |
| Date | 20 February 2018 |
[2018] IEHC 80
THE HIGH COURT
Baker J.
[2017 No. 222 COS]
IN THE MATTER OF HARLEY MECHANICAL SERVICES LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 2014
Companies – The Companies Act 2014 – Non-payment of tax liabilities – Cost in examinership – Jurisdiction
Facts: The liquidator sought an order for setting aside the order of the High Court whereby the Court held that the amount of tax due pursuant to the P30 for the company for the relevant period should be deemed to be a cost in examinership. The liquidator argued that the Court had no jurisdiction under Part 10 of the Companies Act 2014 or otherwise in its inherent jurisdiction to make the order.
Ms. Justice Baker set aside the part of the order whereby the amount of tax due on the P30 for the Company for the relevant time period was deemed to be a cost or expense in the examinership. The Court held that it had no inherent jurisdiction outside the statutory scheme to deem Revenue liabilities to be an expense in the examinership. The inherent jurisdiction was that the Court had to guard its own orders and enforce the performance of undertakings in liquidation. The Court stated that it had power to review the certification by an examiner of liabilities as expenses. The Court, however, held that it had no express jurisdiction under Part 10 of the Act to deem the liabilities as having the status of certified expenses.
This judgment concerns the treatment of tax liabilities incurred by a company in the course of the examinership process and what consequence should flow from a breach of an undertaking that current tax returns will be filed and made.
By motion issued on 1st December, 2017 application was made on behalf of the liquidator of Harley Mechanical Services Limited (‘the Company’) for an order setting aside that part of an order made by me on 5th September, 2015 that the amount of tax due pursuant to the P30 for the Company for July 2017 be deemed to be a cost in the examinership.
Following the presentation of a petition on 28th June, 2017 by the Company pursuant to Part 10 of the Companies Act 2014 (‘the Act’), Aengus Burns was appointed examiner of the Company on an interim basis. At the hearing of the petition on 11th July, 2017 Mr. Burns was appointed examiner.
At the scheduled hearing on 5th September, 2017 and because the examiner was unable to obtain funding to propose a scheme of arrangement, the protection of the court was lifted and an order was made pursuant to s. 535(2) of the Act that the Company be wound up and Mr Burns appointed liquidator. Later that day after 4pm counsel for Revenue appeared and informed me that the Company had failed to file and pay the P30 return for the period 1st July, 2017 to 31st July, 2017 due to be filed and paid by 23rd August, 2017 and in respect to which an undertaking had been given at the hearing of the petition. Revenue applied for an order that the sum due on foot of that return be treated as a priority expense in the examinership and I made an order accordingly, and gave the liquidator liberty to apply. The motion under consideration in the present judgment is the liquidator's application to set aside that order.
The order had the practical effect that the Revenue liabilities were deemed to be expenses in the examinership, and thus given special status, such that the relevant amount will be not available to the liquidator to deal with his costs and expenses of the liquidation and to discharge some of the liabilities to creditors.
The order was made ex parte and without the knowledge of counsel or solicitor who appeared on behalf of the examiner. The events on 5th September 2017 have given rise to the exchanges of several affidavits and the liquidator and Revenue argue that the other is to be faulted.
When the motion was opened by counsel for the liquidator, he first approached the matter by reference to the jurisdiction of the court to set aside an order made ex parte and the heightened obligation of good faith on a legal practitioner or litigant making an ex parte application. As the matter evolved, it became clear that Revenue did not contest the proposition that the order could be set aside and the matter then proceeded to be determined on its merits.
Before I consider the arguments on the merits I will deal with the allegations regarding alleged lack of candour or good faith.
The transcript of the DAR recording was available for the hearing of the present motion.
The Company was wound up and Mr. Burns appointed liquidator in the early afternoon on 5th September, 2017, and at 16:04, as the normal court business was ending, counsel on behalf of Revenue attended and indicated that she had ‘omitted’ to make an application earlier with regard to the treatment of the tax liability. She said she had been unable to contact counsel who appeared on behalf of Mr. Burns, but that the application was being made without any objection from the directors of the Company, or from the largest creditor, both of whom had attended at the earlier hearing. Counsel identified that the filing and payment of the relevant return had not been made, the tax due was circa €107,000, and asked that the unpaid tax be deemed to be an expense or cost in the examinership. In response to my question whether I was competent to make an order of such consequence without hearing Mr. Burns, counsel suggested, and I accepted, that I would make the order and give the liquidator liberty to apply.
Both parties argue that the other failed to exercise good faith in the course of the hearing on 5th September, 2017. Mr. Burns argues that Revenue failed to identify to the court that Revenue saw the making of the order as a form of sanction, and that the order made was not one that ought to have been made ex parte. Having reviewed the DAR, I consider that insofar as counsel for Revenue might have encouraged me to make the order, she did so having regard to the fact that the application was made during the Long Vacation, and that it was not anticipated that I would be available to hear the matter until the following week at the earliest. I had seisin of the examinership and it would therefore not have been appropriate for counsel to have sought the order before another judge. Even if the matter had been brought on notice, as a matter of high probability the matter would have been returned to my court at a later date.
A number of affidavits were filed for the motion and both sides levy criticism against the other. In the case of the liquidator, his counsel argues that Revenue ought to have instructed counsel early in the day, and before the order was made winding up the Company, that the tax return had not been made and argues that the circumstances that gave rise to counsel's returning to court later in the day ought not to have occurred. Criticism is also levied against Revenue for making the application ex parte when there was, it was argued, no real urgency in having the matter dealt with on that day.
For its part, Revenue levies criticism against Mr. Burns for not noticing that the P30 return had not been made and not returning to the court for directions, including directions for the termination of the examinership process, once he ascertained this position. It was argued that the examiner breached his fundamental duty to report to the court once he knew that the Company had breached its undertaking to pay current taxes as they fell due during the period of examinership.
Mr. Burns replies to this criticism by pointing out that he was not in control of the Company or its management as no order had been made pursuant to s. 524(7)(b) of the Act giving him executive powers. The examiner's role, it is argued, is to liaise with the Company, its management and creditors with a view to formulating a scheme of arrangement to ensure the survival of a company. The examiner must perform that function with independence, transparency and professionalism and without any obligation to any one interested party or group.
I do not consider that the examiner failed to act in good faith or displayed a lack of candour. The examiner expressed a belief that up to close of business on 4th September, 2017 he believed the Company could survive as a going concern, and that a cash investment would be made which would have dealt with inter alia ongoing Revenue liabilities.
Following the appointment of Mr. Burns as interim examiner of the Company, he prepared a report on 7th July, 2017, in which he dealt, inter alia, with the position of Revenue and at p. 11 thereof, he stated the following: -
‘My staff have liaised with the Revenue Commissioners further by telephone and they are in the process of formalising their claim.
I instructed the Company to ensure that there is an adequate provision for payment of all taxes relating to the period of examinership.’
Mr. Burns prepared a report dated 4th September, 2017, in which he outlined, inter alia, the position of Revenue: -
‘My staff have liaised with Revenue further by both email and telephone with regard to the Company formalising its pre and post-petition claim.
The Company has filed its pre-petition tax return with the exception of the Company's Corporation Tax return (CT 2017) for 1st January, 2017 to 28th June, 2017….’
In his report presented to the court on 5th September 2017, the examiner made it clear that the P30 liability remained unpaid and explained why this had happened, although the examiner mistakenly said that the return had been filed.
I do not accept the argument of Revenue that the examiner ought to have attended immediately at court once he became aware some time after 23rd August, 2017, that the Revenue liability had not been...
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