Luby v Lennon

• Jurisdiction: Ireland
• Judge: Mr. Justice Binchy
• Judgment Date: 04 November 2020
• Neutral Citation: [2020] IECA 297
• Court: Court of Appeal (Ireland)
• Docket Number: Record Number: 2019/436
• Date: 04 November 2020

IN THE MATTER OF BEAUTY HOLDINGS LIMITED (IN VOLUNTARY LIQUIDATION)

AND IN THE MATTER OF HAIRSPRAY WHOLESALERS LIMITED (IN VOLUNTARY LIQUIDATION)

AND IN THE MATTER OF SECTION 261 OF THE COMPANIES ACT 1963

BETWEEN/

JIM LUBY

APPLICANT/RESPONDENT

-AND-

GARY LENNON

RESPONDENT/APPELLANT

[2020] IECA 297

Haughton J.

Murray J.

Binchy J.

Record Number: 2019/436

THE COURT OF APPEAL

Liquidations – Quantum of fees – Repayment – Respondent seeking repayment from the appellant – Whether the appellant had a defence in the proceedings

Facts: Beauty Holdings Ltd (Beauty) and Hairspray Wholesalers Ltd (Hairspray) were placed in members’ voluntary liquidation on 31st May 2013 and 1st May 2013 respectively. The appellant, Mr Lennon, was appointed liquidator of each company. In the course of the liquidations, it became apparent that both companies were insolvent, as a result of which, on 6th May 2014, the liquidations of the companies were in each case converted into a creditors’ voluntary liquidation, and the respondent, Mr Luby, was then appointed liquidator of both companies. A dispute ensued between the appellant and the respondent as regards the quantum of fees charged by the appellant in the course of the liquidations. The respondent issued proceedings against the appellant by way of notice of motion pursuant to s. 261 of the Companies Act 1963 whereby he sought repayment from the appellant. On 21st December 2017, the parties entered into an agreement whereby they agreed to the appointment of an independent expert, Mr Stafford, to determine the issues in dispute. Mr Stafford delivered a report dated 13th March 2018, in which he expressed a view as to the fees that in his opinion were properly payable to the appellant in connection with the liquidations of the companies. From this, the respondent extrapolated that the appellant was liable to pay to the respondent, as liquidator of the companies, the total sum of €153,803.63 by way of reimbursement of fees (and VAT) which the appellant drew down from the companies during his tenure as liquidator. The appellant took issue with Mr Stafford’s conclusions. The matter came back before O’Connor J in the High Court, by way of a notice of motion for judgment issued by the respondent. O’Connor J, in an ex tempore decision of 23rd May 2019, held in favour of the respondent and ordered the appellant to pay the respondent the sum of €122,126.21 in the case of Beauty, and the sum of €31,677.42 in the case of Hairspray. The court further ordered the appellant to pay the costs incurred by the respondent in connection with the motion. The appellant appealed to the Court of Appeal against that decision.

Held by Binchy J that the independent expert had, in the report, identified the fees that should reasonably have been charged by the appellant in respect of the work undertaken by him in the liquidations of both companies. Binchy J held that any ambiguity in his report had been resolved in favour of the appellant. That being the case, Binchy J held that it was a simple exercise to identify the extent of overpayment of fees, and the balance which should be repaid by the appellant to the respondent; that was the balance sought by the respondent in the motion dated 19th December 2018, and in respect of which judgment was given by O’Connor J. Binchy J noted that, in the agreement, the appellant consented to judgment if the amount payable by him pursuant to the agreement was not paid within 60 days of the date of the expert determination. Against all of that background, Binchy J considered that the appellant had no defence in these proceedings, and this appeal should be dismissed.

Binchy J held that, subject to consideration of any submissions the appellant may wish to make, the appropriate order was that costs should follow the event, and that the respondent, having been entirely successful in this appeal shall be entitled to recover from the appellant the costs incurred by him both in this appeal, and in the court below, when taxed and ascertained.

Appeal dismissed.

JUDGMENT of Mr. Justice Binchy delivered on the 4 ^th day of November 2020

1 Beauty Holdings Limited (“Beauty”) and Hairspray Wholesalers Limited (“Hairspray”) were placed in members' voluntary liquidation on 31 ^st May 2013 and 1 ^st May 2013 respectively. The appellant was appointed liquidator of each company. In the course of the liquidations, it became apparent that both companies were insolvent, as a result of which, on 6 ^th May 2014, the liquidations of the companies were in each case converted into a creditors' voluntary liquidation, and the respondent (to this appeal) was then appointed liquidator of both companies.

2 A dispute subsequently ensued between the appellant and the respondent as regards the quantum of fees charged by the appellant in the course of the liquidations, up to the point that the liquidations were converted into creditors' voluntary liquidations and were taken over by the respondent. Total fees paid to the appellant came to €234,264 exclusive of VAT for work done during the 12 month period. The respondent contended that the fees paid to the appellant during the period were excessive, and furthermore that the appellant had undertaken a great deal of work which was unnecessary and should not have been undertaken once it became apparent to the respondent that the companies were insolvent.

3 This dispute resulted in proceedings being issued by the respondent against the appellant by way of notice of motion pursuant to s. 261 of the Companies Act. 1963 whereby he sought repayment from the appellant in the sum of €122,126.21 inclusive of VAT in the case of Beauty and €31,677.42 inclusive of VAT in the case of Hairspray. On 21 ^st December 2017, the parties entered into an agreement (the “Agreement”) whereby they agreed to the appointment of an independent expert to determine the issues in dispute. That expert was Mr. Jim Stafford (the “Independent Expert”), a chartered accountant, whose credentials in insolvency practice are well established. Mr. Stafford delivered a report dated 13 ^th March 2018 (the “Report”), in which he addresses the matters referred to him by the Agreement for determination. In the Report, Mr. Stafford expresses a view as to the fees that in his opinion were properly payable to the appellant in connection with the liquidations of the companies. From this, the respondent extrapolated that the appellant was liable to pay to the respondent, as liquidator of the companies, the total sum of €153,803.63 by way of reimbursement of fees (and VAT) which the appellant drew down from the companies during his tenure as liquidator.

4 The appellant took issue with Mr. Stafford's conclusions and instead of making payment to the respondent, entered into correspondence with both Mr. Stafford and the respondent in relation to the Report. This correspondence did not result in any conclusion and eventually the matter came back before O'Connor J. in the High Court, by way of a notice of motion for judgment issued by the respondent within the existing proceedings already issued by him under s. 261 of the Companies Act, 1963. O'Connor J., in an ex tempore decision of 23 ^rd May 2019, held in favour of the respondent and ordered the appellant to pay the respondent the sum of €122,126.21 in the case of Beauty, and the sum of €31,677.42 in the case of Hairspray. The court further ordered the appellant to pay the costs incurred by the respondent in connection with the motion. It is against that decision that the appellant now appeals.

Relevant terms of the Agreement

5 Pursuant to clause 1 of the Agreement, the parties required the Independent Expert to determine the following issues:

(i) “A reasonable fee having regard to market hourly rates and the number of hours which would generally be spent by a liquidator carrying out a members' voluntary liquidation of a similar entity up to the date of conversion to a creditors' voluntary liquidation, on the assumption that no VAT recalculation was carried out by the liquidator: and

(ii) Whether [the appellant] ought to have undertaken the tasks that he did as liquidator prior to the conversion of each liquidation to a creditors' voluntary liquidation; and

(iii) Whether [the appellant] ought to have undertaken the tasks that he did as liquidator and in particular the recalculations of the VAT liabilities of the Companies without the consent of the directors and/or the creditors of the companies; and

(iv) If it was necessary for [the appellant] to carry out a VAT recalculation for each company prior to conversion to a creditors' voluntary liquidation, the level of fee that might reasonably be charged by the liquidator having regard to the fact that the Companies were likely to be insolvent and transpired to be insolvent.”

6 Clause 5 of the Agreement provides as follows:

“5. Repayment of any remuneration

[The appellant] shall repay to each Company the sum(s) (if any) as determined by the Independent Expert within a period of 60 days from the date of the Expert Determination or any other period as agreed in writing between the Parties.

In the event that [the appellant] fails to pay any such sum within the 60 day period or any other period as agreed in writing between the Parties, [the appellant] shall consent to judgment in the Proceedings in the amount as determined by the Independent Expert.”

7 In the Report, the Independent Expert determined the questions above as follows:

(i) He stated that members' voluntary liquidations are generally very price sensitive and are also competitively priced. Usually they would command a price of about €5.000 plus VAT. In the case of the companies herein, he opines that if the appellant had quickly determined that the companies were insolvent and had carried out no VAT re-calculation work, then the liquidations could have been converted into creditors' voluntary...