O'Keeffe v Ferris

• Jurisdiction: Ireland
• Judge: O'Flaherty J.
• Judgment Date: 19 February 1997
• Neutral Citation: 1997 WJSC-SC 1954
• Court: Supreme Court
• Docket Number: [S.C. No. 302 of 1993],(302/93)
• Date: 19 February 1997

O' KEEFFE V. FERRIS

AN CH ÚIRT UACHTARACH

BETWEEN

SANDRA O'KEEFFE

Plaintiff/Appellant

.v.

MARTIN V. FERRIS, IRELAND AND THE ATTORNEY GENERAL

Defendants/Respondents

1997 WJSC-SC 1954

(302/93)

THE SUPREME COURT

Synopsis:

Company

Winding up process - challenge to validity of statute - s.297(1) Companies Act, 1963 - s.21 Interpretation Act, 1937 - whether proceedings in substance criminal in nature - whether inconsistent with Article 38(1) - due course of law - indicia of a criminal offence - whether punitive element of sanction permitted by legislation - Held: Sanctions available do not encroach on Constitution - appeal dismissed - (Supreme Court: Hamilton C.J., O'Flaherty J., Denham J, Barrington J., Keane J. - 19/02/1997) - [1997] 3 IR 463 - [ 1997] 2 ILRM 161

|O'Keeffe v. Ferris & Ors.|

Citations:

O'KEEFFE V FERRIS 1993 3 IR 165

COMPANIES ACT 1963 S297

COMPANIES ACT 1963 S297(1)

COMPANIES ACT 1929 (UK)

REPORT OF THE COMPANY LAW REFORM COMMITTEE 1958 PARA 4223

NETWORK AGENCIES INTERNATIONAL LTD, IN RE 1992 3 NZLR 325

COMPANIES ACT 1990 S137

COMPANIESAACT 1990 S138

COMPANIES ACT 1963 S297(3)

COMPANIES ACT 1963 S297A

INTERPRETATION ACT 1937 S21

GERALD COOPER CHEMICALS LTD, IN RE 1978 CH 262

CYONA DISTRIBUTORS LTD, IN RE 1967 CH 889

CONSTITUTION ART 38.1

MELLING V MATHGHAMHNA 1962 IR 1

DEATON V AG 1963 IR 170

BANCO AMBROSIANO SPA V ANSBACHER & CO 1987 ILRM 669

CONWAY V IRISH NATIONAL TEACHERS ORGANISATION (INTO) 1991 2 IR 305

COMPANIES ACT 1963 S297(4)

NORTHERN BANK FINANCE V CHARLTON 1979 IR 149

DILLON V DUNNES STORES (GEORGES ST) LTD UNREP SUPREME 20.12.68

MCINTYRE V LEWIS 1991 1 IR 121

CIVIL LIABILITY ACT 1961 S14(4)

1 Judgment of the Court delivered on the 19th day of February, 1997, by O'Flaherty J.

2 This is an appeal brought by the plaintiff, Mrs. Sandra O'Keeffe, from the judgment and order of the High Court (Murphy J.) of the 28th July, 1993, [1993] 3 IR 165, dismissing her action.

3 The action was for a declaration that s. 297 of the Companies Act, 1963, was unconstitutional, or alternatively that the manner in which the first defendant, being the liquidator of the company, Aluminium Alloy Refiners Limited, sought to invoke s. 297(1) against the plaintiff was invalid as it amounted to a trial of a criminal offence without due procedures for such a trial.

Background

4 As recited in the judgment of the High Court, by a special resolution passed on the 15th July, 1988, it was resolved that Aluminium Alloy Refiners Limited be wound up voluntarily and that Martin V. Ferris be appointed liquidator thereof. At the date of the resolution and for some years prior thereto the plaintiff was a director of the company. The company is hopelessly insolvent and the Revenue Commissioners are said to be owed a sum in excess of £1m. By notice of motion dated the 26th August, 1992, the liquidator sought declarations that the plaintiff was knowingly party to the carrying on of the business of the company and that the plaintiff should be personally responsible without limitation of liability for all, or alternatively any part of the debts or liabilities of the company as the Court might direct, and an order that the plaintiff should pay to the liquidator the amount of the debts or other liabilities of the company as the Court might determine.

The Impugned Section

5 Section 297 of the Companies Act, 1963is as follows:-

6 (1) If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the court on the application of the liquidator or any creditor or contributory of the company, may, if it thinks proper so to do, declare that any persons who were knowingly parties to the carrying on of the business in manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities or the company as the court may direct.

7 On the hearing of an application under this subsection the liquidator may himself give evidence or call witnesses.

8 (2) Where the court makes any such declaration, it may give such further directions as it thinks proper for the purpose of giving effect to that declaration and in particular may make provision for making the liability of any such person under the declaration a charge on any debt or obligation due from the company to him, or on any mortgage or charge or any interest in any mortgage or charge on any assets of the company held by or vested in him or any company or person on his behalf, or any person claiming as assignee from or through the person liable or any company or person acting on his behalf, and may from time to time make such further order as may be necessary for the purpose of enforcing any charge imposed under this subsection.

9 For the purpose of this subsection, "assignee" includes any person to whom or in whose favour, by the direction of the person liable, the debt, obligation, mortgage or charge was created, issued or transferred or the interest created, but does not include and assignee for valuable consideration (not including consideration by way of marriage) given in good faith and without notice of any of the matters on the ground of which the declaration is made.

10 (3) Where any business of a company is carried on with such intent or for such purpose as is mentioned in subsection (1), every person who was knowingly a party to the carrying on of the business in manner aforesaid, shall be liable, on conviction on indictment, to imprisonment for a term not exceeding 2 years or to a fine not exceeding £500 or to both or, on summary conviction, to imprisonment for a term not exceeding 6 months or to a fine not exceeding £100 or to both.

11 (4) This section shall have effect notwithstanding that the person concerned may be criminally liable in respect of the matters on the ground of which the declaration is to be made.

12 This provision appeared in the State's company legislation for the first time in 1963. It had been introduced in the Companies Act, 1929, Britain, and the inclusion of such a provision was recommended by the report of the Company Law Reform Committee, 1958, (pr. 4223). It would appear that there are similar provisions throughout the common law world and the Court was referred in particular to a New Zealand decision Re: Network Agencies International Limited [1992] 3 NZLR 325

Amendment of Section in Question

13 Section 297 was amended by ss. 137–138 of the Companies Act, 1990, which came into force on the 1st August, 1991. Section 137 introduces a new version of s. 297 which deals exclusively with criminal liability and is broadly similar to the original s. 297(3), although it increase the penalties applicable. Section 138, which inserts a new section 297A, deals with civil liability. It is different from the original s. 297 in that it applies to examinership as well as to winding up proceedings and it applies to reckless trading carried out knowingly by officers of the company in certain circumstances. Much of s. 297A is devoted to detailing the circumstances and conditions which must be present for liability for reckless trading to occur.

Section still Applicable

14 Since the liquidation proceedings commenced on the 15th July, 1988, and the claim is in respect of conduct which predated that liquidation, s. 297 of the Act remains in force in its original form, as far as the liquidator's pending proceedings are concerned, having regard to s. 21 of the Interpretation Act, 1937.

15 For the purposes of this judgment, therefore, the section will be referred to in the present tense.

Analysis of the Section

16 A person cannot be made amenable under the section unless he has actively participated in the management of the company. To impose liability on a shareholder it must be shown...