Lestown Property Ltd

• Jurisdiction: Ireland
• Judge: Ms. Nuala Butler
• Judgment Date: 22 July 2021
• Neutral Citation: [2021] IEHC 513
• Court: High Court
• Docket Number: [Record No. 2021/21 COS]

In the Matter of Lestown Property Limited

and

In the Matter of the Companies Act 2014

[2021] IEHC 513

[Record No. 2021/21 COS]

THE HIGH COURT

Petition – Rent – Companies Act 2014 s. 570 – Petitioner seeking rent – Whether the dispute raised by the company was a bona fide one

Facts: The petitioner was the company’s landlord under a 25-year lease entered into on 25th November, 2015. The demised premises comprised a unit at Charlestown Shopping Centre used by the company, consistent with the planning permission governing the shopping centre, as a “Leisureplex”. The petition was brought because the company had not paid the rent prima facie due under the lease since the introduction of restrictions on public health grounds on 8th April, 2020. The first tranche of rent subsequent to that date fell due on 1st May 2020. By the time this application was heard at the end of April 2021, rent had not been paid by the company for a full year. On 12th October, 2020 the petitioner served by registered post a formal demand on the company under s. 570 of the Companies Act 2014. Because an issue was raised as to whether this method of service complied with s. 570, a further letter demanding payment of the sum of €153,233.75 was delivered by hand to the company’s registered office on 20th November, 2020. The petitioner claimed that by mid-November another quarter’s rent and service charge had become due and that at the time the petition was brought on 8th February, 2021 the amount outstanding was €338,572.77 although the full of this amount had not been the subject of a formal statutory demand. The company acknowledged that these sums had not been paid although it claimed that the amounts owed should take account of some monies due to it by way of repayment. However, as the petitioner pointed out, the taking account of any repayment would not reduce the amounts owed by the company below the statutory threshold of €50,000. The petitioner did not deny that for significant periods of time since 8th April, 2020 the company was legally required to and did shut its business. There was a dispute as to the extent of any shorter period within that longer period during which the company could have legally opened its business, the extent to which it actually did so and, insofar as it did not, the extent to which it was precluded from doing so because the cinema premises through which the company’s patrons normally access the Leisureplex remained shut or was required to remain shut. More significantly, the company disputed liability to pay rent at all during the public health restrictions due to a rent suspension clause in the lease.

Held by the High Court (Butler J) that there was a bona fide dispute raised by the company on substantial grounds in response to the claim that it was liable for the monies claimed by the petitioner. Butler J held that when these matters are finally determined, whether that be in the course of an arbitration or by way of further litigation, the company may or may not succeed in establishing that it does not owe the sums claimed by the petitioner. However, Butler J held that there was sufficient merit in the arguments that had been raised by the company for the court to take the view that the requirements of s. 570(ba) had not been satisfied. Consequently, Butler J was not prepared to deem the company unable to pay its debts.

Butler J refused the reliefs sought by the petitioner in this application.

Reliefs refused.

JUDGMENT of Ms. Nuala Butler delivered on the 22nd day of July, 2021.

Introduction

1 Under s.569(1)(d) of the Companies Act 2014, the High Court may make an order winding up a company if the company is unable to pay its debts. Under s.570 of the 2014 Act a company shall be deemed to be unable to pay its debts if a demand for a sum allegedly due has been served on the company (by leaving it at its registered office) and the company has failed to pay the amount or to secure it to the satisfaction of the creditor within 21 days. Special provision was made by the Companies ( Miscellaneous Provisions) (COVID-19) Act 2020 increasing the minimum amount of the debt which may be subject to a demand under s.570 during what is termed an “interim period”. The interim period reflects the time during which restrictive measures are in place on public health grounds. In its long title the 2020 Act states that it has been enacted “in response to the economic difficulties caused by that disease”. As the events giving rise to this application took place during the interim period the higher threshold of a €50,000 debt applied under s.570. Nothing turns on this as the amount claimed by the petitioner exceeds that figure.

2 The parties to this application are landlord and tenant. The petitioner is the company's landlord under a 25-year lease entered into on 25th November, 2015. The demised premises comprise a unit at Charlestown Shopping Centre used by the company, consistent with the planning permission governing the shopping centre, as a “Leisureplex”, i.e. an indoor area at which paying patrons can use a bowling alley, a children's play area, pool tables, a laser games room and amusement machines. The public access to the Leisureplex at Charlestown Shopping Centre is through the lobby of an adjacent cinema premises which is leased to a different tenant. Although there are other access points, these are emergency fire exits and the court was informed and is satisfied that these would not be suitable for public access from either a fire safety or a planning perspective.

3 This petition has been brought because the company has not paid the rent prima facie due under the lease since the introduction of restrictions on public health grounds on 8th April, 2020. These restrictions have at various times required the closure of commercial premises and at other times have placed a maximum limit on the numbers that may be present at an indoor gathering. The first tranche of rent subsequent to that date fell due on 1st May 2020. By the time this application was heard at the end of April 2021, rent had not been paid by the company for a full year.

4 On 12th October, 2020 the petitioner served by registered post a formal demand on the company under s.570 of the 2014 Act. Because an issue was raised as to whether this method of service complied with s.570, a further letter demanding payment of the sum of €153,233.75 was delivered by hand to the company's registered office on 20th November, 2020. In fact, the petitioner claims that by mid-November another quarter's rent and service charge had become due and that at the time the petition was brought on 8th February, 2021 the amount outstanding was €338,572.77 although the full of this amount had not been the subject of a formal statutory demand. The company acknowledges that these sums have not been paid although it claims that the amounts owed should take account of some monies due to it by way of repayment. However, as the petitioner points out, the taking account of any repayment would not reduce the amounts owed by the company below the statutory threshold of €50,000.

5 The petitioner does not deny that for significant periods of time since 8th April, 2020 the company was legally required to and did shut its business. There is a dispute as to the extent of any shorter period within that longer period during which the company could have legally opened its business, the extent to which it actually did so and, insofar as it did not, the extent to which it was precluded from doing so because the cinema premises through which the company's patrons normally access the Leisureplex remained shut or was required to remain shut. More significantly, the company disputes liability to pay rent at all during the current public health restrictions due to a rent suspension clause in the lease.

6 According to established case law relating to the precursor provisions to s.569 and s.570, namely ss. 213 and 214 of the Companies Act 1963, where there is a bona fide dispute regarding liability for the debt claimed, the court should not make an order winding up the company. Keane J in Truck and Machinery Sales Limited v. Marubeni Komatsu Limited [1996] 1 IR 12 following the adoption of certain UK authority by O'Hanlon J in Re Pageboy Couriers [1983] ILRM 510 put it thus:-

“It is clear that, where 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 the court before the petition is issued, its presentation will in normal circumstances be restrained. This is on the ground that a winding-up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed. That was the effect of the decision of Ungoed-Thomas J. in Mann v. Goldstein [1968] 1 WLR 1091 which was subsequently approved of by the Court of Appeal in Stonegate Securities Limited v. Gregory [1980] Ch 576, both of which decisions were expressly adopted by O'Hanlon J in Re Pageboy Couriers Limited [1983] ILRM 510.

The words “any liability” are, however, important: Where a company admits its indebtedness to the creditor in a sum exceeding £1,000 but disputes the balance, even on substantial grounds, the creditor should not normally be restrained from presenting a petition.”

7 Thus the task of the court is firstly to ascertain whether on the basis of the materials before me there is a bona fide dispute as to the company's liability for rent and service charge since the first unpaid quarter's rent fell due on 1st May 2020 and, secondly, taking account of the extent of any amount in respect of which there is a bona fide dispute, whether there is an undisputed liability or a liability in respect of which no bona fide grounds have been raised, for a residual amount of €50,000 or more. Given that the company does not...