Irish Asphalt Ltd & Companies Act 2014

• Jurisdiction: Ireland
• Judge: Mr. Justice Tony O'Connor
• Judgment Date: 31 July 2017
• Neutral Citation: [2017] IEHC 524
• Docket Number: [2017 No. 58 COS]
• Court: High Court
• Date: 31 July 2017

[2017] IEHC 524

THE HIGH COURT

O'Connor Tony J.

[2017 No. 58 COS]

IN THE MATTER OF IRISH ASPHALT LIMITED

AND IN THE MATTER OF THE COMPANIES ACT 2014

Company – The Companies ACT 2014 – Appointment of liquidator – Realisation of debt – Initiation of other proceedings – Ulterior motive – Winding up

Facts: Following the grant of an order by the High Court that the petitioner could recover its debt from the company, the petitioner made an application for winding up of the company and appointment of the liquidator for the company. The company's director and counsel submitted that the petitioner had already initiated deceit proceedings against the company, and thus, the present application for the appointment of the liquidator was made with an ulterior motive of gaining litigation advantage. The company's solicitors contended that by deferring the winding up, the company would be able to exercise its right of access to the courts and to protect its property.

Mr. Justice Tony O'Connor adjourned the proceedings with specific directions to the effect of making submissions in relation to the perceived litigation, which would be conferred to the petitioner or the submissions in connection with an application for the dismissal of the deceit proceedings. The Court also directed the parties to provide details concerning the actions that were needed to minimise the litigation advantage to the petitioner in the deceit proceedings. The Court instructed the parties to make submissions which the Court might consider while making an order appointing the liquidator for empowering him to preserve or give access to property or imposing any leave sought by the petitioner to proceed against the company under s. 678 of the Companies Act 2014. The Court observed that a creditor of the company had a prima facie entitlement to a winding up order. The Court held that when a creditor had alleged that the petitioner was seeking the winding up order with some ulterior motive, the burden shifted to the petitioner to prove that it was not such a case. The Court noted that before making an order for the winding up of the company, the Court might consider the impact of litigation on the creditors and the nature of the ulterior motive.

JUDGMENT of Mr. Justice Tony O'Connor delivered on the 31st July, 2017

Introduction

1 The issue in this petition is when a liquidator should be appointed to Irish Asphalt Limited (‘ IAL’).

Disclosure of Insolvency.

2 IAL knew in 2011, or earlier, that its liabilities exceeded its assets. The Petitioner, James Elliott Construction Limited (‘ JECL’) learnt of that position after the secretary and financial controller of IAL (‘ Ms. Cassidy’) swore an affidavit on 4th July, 2011, following delivery of the judgment by Charleton J. on 25th May, 2011, in proceedings brought by JECL against IAL (‘ the Contract proceedings’). Ms. Cassidy's affidavit was delivered in advance of the 60th day of the hearings in the Contract proceedings which gave rise to a further judgment of Charleton J. on 14th July, 2011. The order made by Charleton J. on that day granted a conditional stay to IAL for its appeal which required it to pay €1million to JECL and €500,000 towards JECL's costs pending the determination of that appeal.

Chronological Summary

3 The Petitioner on the fourth hearing day of this petition on Friday 21st July, 2017, submitted at my request a three page ‘Chronology of key events’ as agreed with the other parties represented. Appendix 1 to this judgment contains that document for ease of reference and understanding of the litigation and reorganisation sagas involving IAL.

Time to Execute

4 The conditions for the stay were fulfilled and ultimately on 1st December, 2016, the order of the Supreme Court dismissing the appeal of JECL was perfected. This entitled JECL to recover the balance of the award made in 2011 with interest.

5 Following a demand dated 7th December, 2016, for the discharge of the balance of the award within 21 days pursuant to s. 570 of the Companies Act 2014 (‘ the 2014 Act’), JECL issued the petition before this Court now on 14th February, 2017. €2,411,228.83 together with continuing interest at the rate of 2% per annum is the undisputed balance due and owing by IAL to JECL as of 14th February, 2017. No payment has been made by or on behalf of IAL to discharge this debt.

Statutory Returns

6 IAL did not deliver its annual returns to the Registrar of Companies (‘ the Registrar’) in respect of the years ending in 2010 to 2014 until after its successful applications pursuant to s. 343(5) of the 2014 Act on 19th June, 2017 and 27th June, 2017, for leave to file outside the prescribed periods.

7 Ms. Cassidy in her affidavit sworn on 27th March, 2017, averred that IAL had ‘ made a commercial decision’ not to deliver those returns until after either it received a threat from the Registrar to strike IAL off the Register of Companies ‘ and/or the Contract proceedings concluded’ because ‘ the accounts contained very sensitive financial information’. I describe the explanations and support for non-compliance offered in various affidavits sworn at the request of IAL as timorous.

8 The effort to minimise the significance of non-compliance for this petition continued into the letter from IAL's solicitors dated 5th July, 2017, which copied the two orders of Keane J. to JECL's solicitors. That letter, while mentioning the copying of the 2010 – 2014 financial statements to JECL's solicitors on Friday, 27th January, 2017, did not comment upon the finalisation of the statements for 2015 or 2016. The Court notes that ‘ draft and tentative for discussion purposes only’ financial statements for the year ending 31st December, 2015, were also copied to JECL's solicitors on 27th January, 2017. Statutory notes numbered 1-24 were included in revised draft statements for 2015 exhibited to the second replying affidavit of Ms. Cassidy sworn on 2nd May, 2017. By letter dated 31st May, 2017, IAL's solicitors forwarded copy financial statements for 2016, marked on p. 13: ‘ draft notes to the financial statements to be agreed by lawyers’. Attached to same was a cover letter from IAL's auditors confirming that there would be future amendments to the accounts.

9 The above detail distracts from IAL's current stance that its non-compliance with its statutory obligations should not be a significant factor if and when the Court exercises such discretion as it has in considering the petition and particularly in view of an ulterior motive for the petition.

The Reorganisation

10 Mr. Mark Mulcahy, Chartered Accountant and Financial Advisory Partner in Mazars, was engaged to advise JECL on whether there were circumstances to warrant an investigation into the affairs of IAL by an independent person such as a liquidator, with a view to recovering assets of IAL for the benefit of unsecured creditors of IAL.

11 It is instructive to attach the following prepared by Mr. Mulcahy's team as further appendices to this judgment because they are not contradicted and are based on publicly available documents in the company registration offices in Ireland and Northern Ireland:-

(i) Appendix 2 – summary profit and loss accounts and balance sheets for the periods which ended from 31st March, 2006, to 31st March, 2010, and the periods which ended from 31st March, 2010, to 31st March, 2015, with the proviso that the 2015 material was based on ‘ draft and tentative’ statements.

(ii) Appendix 3 – organogram of Lagan Holdings Limited (‘ LHL’) up to March 2010 which shows IAL as a subsidiary of Antrim Asphalt Limited (‘ AAL’) which was itself a subsidiary of LHL owned 55% by Kevin Lagan (‘ KL’) and 45% by Michael Lagan (‘ ML’).

(iii) Appendix 4 – organogram showing a reorganisation wherein many subsidiaries of LHL were transferred after March 2010 up to 2012, to other corporate groups controlled by KL and ML. IAL remained a subsidiary of AAL which was a subsidiary of LHL (in turn a subsidiary of Runlin Limited).

(iv) Appendix 5 – organogram showing a reorganisation which existed after 2012 and up to the date of review by Mr. Mulcahy's team. Some issue of controversy arises from the implication in Mr. Mulcahy's averment that ‘ the result of the 2012 reorganisation has been to remove valuable entities (by reference to net asset positions) from’ the company of which IAL is a subsidiary and the trade of IAL to another group.

(v) Appendix 6 – a spreadsheet showing the net asset positions of the entities which formed part of LHL before and after the 2012 reorganisation.

(vi) Appendix 7- a spreadsheet showing fixed asset disposals from the periods which ended from 31st March, 2009, to 31st Dec, 2014.

12 The following are particular facts or realistic conclusions from the information and explanations given by Mr. Mulcahy and in respect of which there is little disagreement from any other deponent in the petition proceedings save for the effect or significance arising from those facts:-

(i) The directors of IAL included a note under contingent liabilities in the financial statements for the year ending 31st March, 2008, which referred to a claim for the supply of allegedly defective stone. Given that the Hansfield/Mennolly proceedings, mentioned in the chronology of key events, were commenced in 2007, it is reasonable to infer that the note refers to that claim or a similar claim.

(ii) The financial statements for the period which ended on 31st December, 2010, referred to the settlement of the Hansfield/Mennolly proceedings and also referenced JECL's claim which indicated that IAL was aware of its potential liability, although it continued to avow having no liability until after the making of the Supreme Court's final order in December 2016.

(iii) During the year which ended on 31st March, 2010, IAL paid a dividend of €3.75m, which payment appears...