K4S real estate Ltd ((in Liquidation)) v Companies Act 2014

• Jurisdiction: Ireland
• Judge: Ms. Justice Butler
• Judgment Date: 25 April 2023
• Neutral Citation: [2023] IEHC 203
• Docket Number: Record No. 2021 207 COS
• Court: High Court

In the Matter of K4S Real Estate Limited (In Liquidation)

and

Section 631 of the Companies Act 2014

[2023] IEHC 203

Butler J.

Record No. 2021 207 COS

THE HIGH COURT

Contract – Sale – Undervalue – Liquidator seeking to have the sale of a house by the company set aside – Whether the contract for the sale of the house was at an undervalue

Facts: The liquidator of K4S Real Estate Ltd (the company) applied to the High Court ostensibly seeking directions under s. 631 of the Companies Act 2014 but in reality, seeking relief under ss. 238 and 608, in effect, to have the sale of a house by the company set aside. The proceedings as originally instituted concerned three separate properties and also sought relief under ss. 604 and 615 of the 2014 Act. However, by the time the application was heard the dispute concerned only one property, No. 12 Willouise, Sallins, County Kildare (No. 12). This was a three bedroomed terrace house in a development of some forty houses in turn part of a larger estate in County Kildare which the company was developing between the date of its incorporation in 2017 and the date on which it went into voluntary liquidation on 4 June 2021. Under a contract dated 20 December 2018 the company agreed to sell No. 12 to Ms McCormack, the mother of the company’s then solicitor, for the sum of €250,000 subject to the immediate payment of a deposit of €150,000. On 29 November 2019 a series of transactions were entered into the overall effect of which was the transfer of Ms McCormack’s interest in the contract to purchase No. 12 to Ms Meade who then charged the property as security for a loan made to her father, Mr Meade, by Tulfarris Ronaver Ltd (Tulfarris). The company joined the assignment to Ms Meade to confirm its consent (a requirement of special condition 27 of the December 2018 contract) and consented to a further assignment of the contract by way of security between Ms Meade and Tulfarris. Both of those documents were signed by Mr Keane who was the only director and shareholder of the company at the material time. In the course of examining the company’s affairs, the liquidator took the view that the contract for the sale of No. 12 and two other similar contracts entered into around the same time were at an undervalue. Ultimately, the case made in respect of No. 12 was either that the sale was in breach of s. 238 of the 2014 Act as Ms Meade was a “connected person” and the transaction was not approved by resolution of the shareholders at an EGM or, alternatively, that the effect of the sale was a fraudulent disposition within the meaning of s. 608 because the company was deprived of the full value of its lawful assets. Either way the liquidator sought the directions of the court pursuant to s. 631 of the 2014 Act to allow him to proceed with the sale of No. 12 in order to realise its market value for the benefit of its creditors.

Held by Butler J that she was not satisfied that the liquidator had established that the contract entered into in December 2018 was at an undervalue. In those circumstances, Butler J held that it would be inappropriate for the Court to grant relief under s. 608. Further, Butler J held that whilst the grant of relief under s. 238 was not dependent on the impugned contract being at an undervalue, it was dependent on the liquidator establishing that the transaction was one between the company and either a director or a person connected with such a director. Butler J was not satisfied that the liquidator had discharged that onus of proof either.

Butler J refused the relief sought.

Relief refused.

Judgment of Ms. Justice Butler delivered on 25 ^th day of April 2023

Introduction

1 . This is an application made by the liquidator of K4S Real Estate Limited ( “the company”) ostensibly seeking directions under s.631 of the Companies Act 2014 but in reality, seeking relief under s under ss.238 and 608, in effect, to have the sale of a house by the company set aside. The proceedings as originally instituted concerned three separate properties and also sought relief under ss.604 and 615 of the 2014 Act. However, by the time the application was heard the dispute concerned only one property, No. 12 Willouise, Sallins, County Kildare (No.12). This is a three bedroomed terrace house in a development of some forty houses in turn part of a larger estate in County Kildare which the company was developing between the date of its incorporation in 2017 and the date on which it went into voluntary liquidation on 4 June 2021.

2 . Under a contract dated 20 December 2018 the company agreed to sell No.12 to Olive McCormack, the mother of the company's then solicitor, for the sum of €250,000 subject to the immediate payment of a deposit of €150,000. The liquidator contends that this price represented a significant undervalue of the property and thus deprived the company of the full value of that asset to the detriment of its creditors. There is an issue as to whether that property was bought by Olive McCormack on her own behalf or on trust for Louise Meade. On 29 November 2019 a series of transactions were entered into the overall effect of which was the transfer of Olive McCormack's interest in the contract to purchase No.12 to Louise Meade who then charged the property as security for a loan made to her father, John Meade, by Tulfarris Ronaver Limited ( “Tulfarris”). The company joined the assignment to Louise Meade to confirm its consent (a requirement of special condition 27 of the December 2018 contract) and consented to a further assignment of the contract by way of security between Louise Meade and Tulfarris. Both of these documents were signed by Noel Keane who was the only director and shareholder of the company at the material time.

3 . In January 2021 the company entered into a group sale of thirty-one units in the Willouise development to an approved housing body for the sum of €8.8m. That transaction gave rise to a VAT liability to the Revenue Commissioners in excess of €1m. However, the purchase monies were used by the company to discharge other debts including the sums then owed to its principal financer, Lotus DAC, which exceeded €7m. and the VAT liability was not discharged. Some months later on 4 June 2021 at a duly convened EGM the company's sole director and shareholder placed the company into voluntary liquidation and a liquidator was appointed. In the intervening period the company had made efforts to complete outstanding sales of the property in the development. A completion notice was served in respect of No.12 on 26 April 2021 which expired on 24 May 2021.

4 . In the course of examining the company's affairs, the liquidator took the view that the contract for the sale of No.12 and two other similar contracts entered into around the same time were at an undervalue. Ultimately, the case made in respect of No.12 was either that the sale was in breach of s.238 of the Companies Act as Louise Meade was a “ connected person” and the transaction was not approved by resolution of the shareholders at an EGM or, alternatively, that the effect of the sale was a fraudulent disposition within the meaning of s.608 because the company was deprived of the full value of its lawful assets. Either way the liquidator seeks the directions of the court pursuant to s.631 of the 2014 Act to allow him to proceed with the sale of No.12 in order to realise its market value for the benefit of its creditors.

5 . Prior to the hearing of the application, the High Court directed that a number of persons be put on notice of it. Of these notice parties, affidavits have been sworn by or on behalf of Louise Meade, John, Meade, Olive McCormack and Tulfarris. Louise Meade and Tulfarris were represented at the hearing and opposed the application. Written legal submissions were filed on behalf of John Meade but at the opening of the application counsel on his behalf informed the court that whilst he stood over his affidavit evidence, John Meade would not be playing an active part in the proceedings. For the avoidance of doubt, counsel for Tulfarris formally adopted John Meade's written submissions.

6 . This is necessarily only a very brief outline of what is a very complex and unclear factual matrix. In order to consider the legal issues, I propose to look at the history of the disputed transactions in greater detail, at the relevant legislative provisions and the respective positions adopted by the parties. I will then address whether it is appropriate to grant the relief sought by the liquidator.

The Disputed Transactions – Relations Between the Parties

7 . In order to understand why the transactions in respect of No.12 are impugned by the liquidator it is necessary to appreciate the relationships between the various parties involved. The company was incorporated by John Meade in 2017 for the purposes of carrying out a phase of the Willouise development comprising forty units. The original plan was that Noel Keane and Louise Meade would be appointed directors and that the shareholding in the company would be split between them with Louise Meade holding 80% and Noel Keane holding 20% in trust for John Meade. This plan changed when, due to ill health, Louise Meade was unable to participate. Instead, Noel Keane, a long-standing friend of John Meade, became a 100% shareholder and the sole director of the company. Noel Keane, in an e-mail to the liquidator the contents of which were confirmed by him on affidavit, states that he did not have decision making authority on behalf of the company but took all of his instructions from John Meade and Louise Meade. Noel Keane identifies a large number of payments made to Meade family members who were put on the company payroll including Louise Meade who worked as a project supervisor for the company.

8 . John Meade accepts that, when his daughter became ill and could not take up her intended...