Kasam Investments Ireland Ltd & The Companies Acts

• Jurisdiction: Ireland
• Judge: Ms. Justice Laffoy
• Judgment Date: 18 December 2012
• Neutral Citation: [2012] IEHC 553
• Docket Number: [No. 578 COS/2012]
• Court: High Court
• Date: 18 December 2012

[2012] IEHC 553

THE HIGH COURT

[No. 578 COS/2012]

Kasam Investments Irl Ltd, In re

IN THE MATTER OF KASAM INVESTMENTS IRELAND LIMITED AND IN THE MATTER OF THE COMPANIES ACTS

COMPANIES ACT 1963 S214(A)

WMG (TOUGHENING) LTD, IN RE; BRADY v WMG (TOUGHENING) LTD (NO 2) 2003 1 IR 389 2003/49/12045

Company Law - Winding up order - Shareholdings - Investment - Loan - Companies Acts 1963-2012 - Terms of agreement - Oral agreement - Substantial grounds

Facts: Kasam Investments Ireland Ltd (the "Company") received a winding up petition from Mark Foran (the "Petitioner") on the 18th October 2012 on the basis of a loan of €499,500 which the Petitioner claimed he made to the company on the 13th August 2008 by way of investment which was unpaid despite a demand for payment being made on the 24th July 2012 pursuant to s. 214(a) of the Act of Companies Act 1963. The Company was described as a special purpose vehicle company which held shares on behalf of a property investment company called MASK Investments Ltd. The Petitioner was the owner of 500 ordinary-B shares in the Company which did not entitle voting rights. He was supported in his petition by the estate of his late brother who also owned 500 ordinary B-shares, totalling 23.26% of the nominal value of the ordinary-B shares. Seventeen other ordinary-B shareholders totalling 55.81% of the nominal value opposed the petition. Due to the lack of voting rights for these shareholders, their role in the Company was regarded as that of investors.

It was the Company's contention that the debt claimed was not due to the petitioner and in fact his conduct amounted to a serious abuse of process. It was not disputed that the figure of €499,500 had been invested by the Petitioner as a loan but it was averred that the loan had not yet become due. The Petitioner claimed that he had only invested in the Company on a short term basis which he had made clear to Mr Kevin Dawe, one of the promoters of the Company. The Company argued that the terms upon which the loan was made had been laid out in an "Investment Memorandum" which had been supplied to the Petitioner prior to the investment being made. These terms described how any repayment of a loan was to be made out of the net profits of the property development the Company had been specifically created for. The Petitioner denied he had been provided with this.

Held by Laffoy J that the test to be applied when adjudicating a winding up petition is whether or not the company is disputing a debt is owed is doing so in good faith and on substantial grounds, and not whether the company is likely to be successful in its defence. In the present case, the Company had easily met this test. The Company's argument was that the existence of a loan was accepted but that it was not yet repayable on the basis of the terms agreed. The Petitioner's argument that an oral agreement had been made with Mr Kevin Dawe that the investment was to be short term could not be determined with the evidence that was before the court. There was clearly an issue to be tried on that basis.

Order dismissing the petition.

Ms. Justice Laffoy

1 On 18^th October, 2012 Mark Foran (the Petitioner) presented a petition seeking an order that Kasam Investments Ireland Limited (the Company) be wound up by the Court under the provisions of the Companies Act 1963 (the Act of 1963). The basis of the petition was that the Company owed €499,500 to the Petitioner in respect of a loan made by the Petitioner to the Company by way of investment on 13^th August, 2008, that the Petitioner had served a demand for payment pursuant to s. 214(a) of the Act of 1963 on 24^th July, 2012, that the demand had not been complied with and that, accordingly there was a deemed insolvency and the Petitioner, as a creditor, was entitled to petition to have the Company wound up.

2 All the formal proofs have been complied with. The petition has been advertised in accordance with the requirements of the Rules of the Superior Courts and proof of that has been put before the Court. Randal N. Gray, a Fellow of Accounting Technicians Ireland, has consented to act as liquidator if appointed by the Court. An affidavit of suitability of Mr. Gray sworn by Mark Edmund Doyle, solicitor, has been filed.

3 The petition has been resisted by the Company on the ground that the debt alleged to be due and owing by the Company to the Petitioner is not owing. Indeed, the Company's deponent, Martin McDonnell (Mr. McDonnell), who is a director of the Company, goes so far as to say that the petition represents a very serious abuse of process.

4 The law is well settled on the test to be applied by the Court when adjudicating on a petition to wind up a company where the petitioning creditor is relying on an unpaid debt alleged to be due to him by the company and the company is disputing that the debt is due and owing. InRe WMG (Toughening) Ltd. (No. 2) [2003] 1 I.R. 389, McCracken J., with whom the other Judges of the Supreme Court agreed, stated (at p. 392):

"The company is opposing the petition on the basis that the debt referred to therein is the subject matter of abona fide dispute and that the company has a cross-claim against the petitioner for monies in excess of the amount claimed by him ...."

5 There is no real dispute between the parties as to the proper test to be applied by the court in the circumstances. That test is set out in the judgment of Buckley L.J. inStonegate Securities v. Gregory [1980] Ch. 576 at p. 579, and has already been approved … in In re Pageboy Couriers Ltd. [1983] I.L.R.M. 510. The passage reads at p. 512:-

6 'If the Company in good faith and on substantial grounds disputes any liability in respect of the alleged debt, the petition will be dismissed, or if the matter is brought before a court before the petition is issued, its presentation will in normal circumstances be restrained. That is because a winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed.'

7 It is also accepted by the parties that the subject matter of thebona fide dispute may in fact not be the debt itself but rather a cross-claim by the company against the petitioner. The issue, therefore, is whether the company's claim in the present case is a claim made in good faith and on substantial grounds. It is clear that the issue is not whether the company will succeed in its claim, but whether it is a bona fide dispute which should be determined by the courts in the normal way without putting the company's existence at risk."

8 Translating those principles to the situation on this petition, where the Petitioner's debt is disputed by the Company, the issue for the Court is whether, in so disputing that the debt is now due and owing, the Company is doing so in good faith and on substantial grounds, not whether the Company can successfully defend the claim.

9 5. That issue is a question of fact to be determined on the basis of the affidavit evidence before the Court, which, as almost invariably happens in these cases, is not an easy task, and, as frequently happens, is an impossible task.

10 6. The Company was incorporated on 11^th March, 2008 as a limited liability company. The annual return (Form B1) filed in the Companies Registration Office (CRO) on 13^th April, 2012 for the period up to 11^th March, 2012 discloses that the issued share capital of the Company comprises:

11 (a) €100 comprising 100 Ordinary-A shares at a nominal value of €1 each fully paid up; and

12 (b) €4,300 comprising 4,300 Ordinary-B shares at a nominal value of €1 each fully paid up.

13 The Ordinary-A shares are registered in the name of the promoters of the Company, namely, Kevin Dawe (now deceased), Alan Farrelly, Sean Hession and Mr. McDonnell in equal shares. As regards the Ordinary-B shares, twenty nine distinct shareholdings are registered. The registered owners of seventeen of the said shareholdings, which have a total nominal value of €2,400 representing 55.81% of the nominal value of the issued Ordinary-B shares, have furnished letters to the Company, which have been exhibited in affidavits sworn by Mr. McDonnell, in which they oppose the making of the winding up order. The Petitioner is the owner of 500 Ordinary-B shares. His late brother, John Foran, who died on 9^th April, 2011, is registered as owner of 500 Ordinary-B shares. The personal representatives of John Foran, deceased, under a grant of administration intestate which issued to them on 3^rd September, 2012 pursuant to an order of the Court dated 23^rd July, 2012, have supported the Petitioner's application to have the Company wound up. The Petitioner and the estate of John Foran, deceased, are the owners of 1,000 Ordinary-B shares at a nominal value of €1,000, which represents 23.26% of the nominal value of the Ordinary-B shares. The directors of the Company, as shown on the Annual Return, are Kevin Dawe (since deceased) and Mr. Donnell.

14 7. Under the Articles of Association of the Company, holders of Ordinary-B shares have no voting rights. What the evidence discloses is that the owners of the Ordinary-B shares are "investors" in the Company, who between them have invested approximately €4,300,000 in the Company.

15 8. The most recent abridged financial statements of the Company put before the Court are for the year ended 31^st December, 2011. They were audited by Frank Lynch & Co. The balance sheet as at 31^st December, 2011 discloses debtors in the sum of €4,300,724 and creditors (amounts falling due within one year) in the sum of €4,314,932. As I understand the evidence put forward by the Company, there is one debtor, a company incorporated in Poland, Kasam Investments Sp. zo.o (Kasam Poland), which is a wholly owned subsidiary of the Company. The creditors are the Ordinary-B...