McCarthy v Gibbons and Gibbons

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan
• Judgment Date: 19 December 2008
• Neutral Citation: [2008] IEHC 423
• Court: High Court
• Date: 19 December 2008

[2008] IEHC 423

THE HIGH COURT

[No. 41 COS/2007]

McCarthy v Gibbons

IN THE MATTER OF KRANKS KORNER LIMITED (IN VOLUNTARY

LIQUIDATION)

AND IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT 1990

AND SECTION 56 OF THE COMPANY LAW ENFORCEMENT ACT 2001

BETWEEN

SHANE McCARTHY

APPLICANT

AND

AUSTIN GIBBONS AND JACQUELINE GIBBONS

RESPONDENTS

COMPANIES ACT 1963 S251(1)(B)

COMPANIES ACT 1963 S267(1)

COMPANY LAW ENFORCEMENT ACT 2001 S56

COMPANY LAW ENFORCEMENT ACT 2001 S56(2)

COMPANIES ACT 1990 S150

COMPANIES ACT 1990 S149

MURPHY v MURPHY & ORS 2003 4 IR 451 2003/39/9322 2004 IEHC 27

RSC O.99 r1

RSC O.99 r1(4)

USIT LTD & ANOR v COMPANIES ACTS UNREP PEART 16.11.2005 2005 IEHC 481

STAFFORD v BEGGS & ORS UNREP O'LEARY 14.7.2006 2006 IEHC 258

COMPANIES ACT 1990 S150(4)

COMPANY LAW ENFORCEMENT ACT 2001 S56(1)

PRACTICE AND PROCEDURE

Costs

Costs following event - Liquidator - Company not insolvent at time of liquidation - Doubt as to whether insurance policy covered personal injury claims - Failure of directors to provide all necessary detail - Failure of liquidator to engage with directors as to question of solvency - Report provided to Director of Corporate Enforcement notwithstanding that company solvent - Director of Corporate Enforcement directed liquidator to seek to restrict directors - Application to restrict directors unsuccessful as company not insolvent - Whether liquidator liable for costs when obliged by Director of Corporate Enforcement to seek restriction - Murphy v Murphy [2003] 4 IR 451 applied; Re USIT Ltd [2005] IEHC 285 (Unrep, Peart J, 10/08/2005) and Stafford v Beggs [2006] IEHC 88 (Unrep, O'Leary J, 13/03/2006) considered - Company Law Enforcement Act 2001 (No 28), s 56 - Companies Act 1990 (No 33), ss 149 & 150 - Rules of the Superior Courts 1986 (SI 15/1986), O 99, r 1 - No order as to costs made (2007/41COS - Finlay Geoghegan J - 19/12/2008) [2008] IEHC 423

Re Kranks Komer Ltd: McCarthy v Gibbons

Facts: The applicant was the liquidator of the company the subject of the proceedings and provided a report to the Director of Corporate Enforcement pursuant to s. 56 of the Company Law Enforcement Act 2001. He was informed by letter in 2005 that he was not relieved of his obligations to bring restriction proceedings pursuant to s. 150 of the Companies Act 1990, as amended. The applicant subsequently brought such proceedings in 2007. The issue arose as to whether the Company was insolvent at the commencement of the winding up and whether the respondents had acted honestly and responsibly as directors as to the affairs of the company. The Court held that the directors had acted honestly and responsibly and the issue arose as to costs, in light of the silence of the Act of 1990 as amended in this regard and the application of O. 99 r.1, RSC.

Held by Finlay Geoghegan J. that the liquidator failed to make appropriate enquiries before deciding to make a report to the Director and had failed to give the respondents any opportunity of commenting on what must have been his determination then. The respondents also failed to make all relevant enquires before responding to the letter in question. The applicant was put to the expense of continuing to deal with proceedings which might have been resolved at an earlier time by reason of this failure. The Court would exercise its discretion pursuant to O. 99 r.1, RSC and would make no order for costs.

Reporter: E.F.

1 Ms. Justice Finlay Geoghegan delivered the 19th day of December 2008

2 The applicant is the Liquidator of Kranks Korner Limited (in voluntary liquidation) ("the Company"). By special resolution passed on 22 ^nd April, 2004, it was resolved, pursuant to s. 251(1) (b) of the Companies Act, 1963, that the Company be wound up. It was proposed at that meeting that the applicant be appointed as Liquidator. A meeting of creditors of the Company was called and held on 23 ^rd April, 2004. No creditors attended and it was adjourned until 30 ^th April, 2004, and again there were no creditors in attendance. Accordingly, pursuant to s. 267(1) of the Act of 1963, the applicant was confirmed as Liquidator.

3 The respondents were the directors of the Company at the date of commencement of the winding up. A Statement of Affairs of the Company as of 23 ^rd of April, 2004, was prepared by the respondents. This disclosed an excess of assets over liabilities of €10,594.12.

4 The Company carried on a restaurant business from premises at 6, Thomas Street, Limerick. The lease to the premises had been sold prior to the commencement of winding up and the Company had ceased to carry on business.

5 The applicant provided a report to the Director of Corporate Enforcement ("the Director") pursuant to s. 56 of the Company Law Enforcement Act, 2001 in May 2005. By letter dated 14 ^th October, 2005, he was informed by the office of the Director that, in respect of the reports submitted, he was not relieved of his obligation, pursuant to s. 56 (2) of the Act of 2001, to make an application pursuant to s. 150 of the Companies Act, 1990 seeking the restriction of the directors of the Company. It was pointed out to him that he was therefore obliged to make an application pursuant to s. 150 of the Act of 1990, for the restriction of all the directors of the Company, within five months from the date of the receipt by the office of the report of May 2005, which was stated to have been received on 17 ^th June, 2005.

6 The applicant did not bring the application pursuant to s. 150 until 25 ^th January, 2007, when he issued a motion seeking a declaration of restriction of the respondents.

7 Thereafter, a number of affidavits were filed, both by the applicant and the second named respondent, and one affidavit from the first named respondent and from a Mr. Gearóid McGann, solicitor, in support of the respondents.

8 Those affidavits essentially raised two issues. The first was whether or not the Company was insolvent at the commencement of the winding up, or was, or is, insolvent in the course of the winding up and, secondly, if it was, or is, whether the respondents have satisfied the court that they had acted responsibly as directors in relation to the conduct of the affairs of the Company. On this latter issue there was really only one adverse matter brought to the attention of the court by the applicant, namely, the fact that the directors had permitted the Company to continue in business without insurance from a date that was initially thought to be 1 ^st January, 2003, until the completion of the already contracted for sale of the property on 4 ^th April, 2003.

9 The respondents following an exchange of affidavits issued a motion returnable for 18 ^th February, 2008, seeking inter alia an order dismissing the application on the grounds that the Company was, and is, solvent and, accordingly, did not meet the requirements of s. 149 of the Companies Act, 1990. In the alternative, they sought an order striking out the application on the grounds that the decision of the Director not to relieve the Liquidator was predicated on an erroneous assertion in the s. 56 report submitted, as personal injuries claims against the Company were then covered by a policy of insurance. On 3 ^rd March, 2008, having read all the affidavits in the substantive application and in support of the motion and, having heard counsel for the applicant in relation to the substantive application without determining the issues on the respondents' motion, I determined on the facts then before the court, in all the affidavits then sworn, that the court was satisfied that no issue arose on the facts in relation to the honesty of the respondents and that the respondents had satisfied the court that they acted responsibly in relation to the conduct of the affairs of the Company.

10 By that time, the following material facts had emerged from the affidavits and information obtained principally by the respondents from third parties and, in particular, insurance agents, since the commencement of the application pursuant to section 150:

11 (i) The insurance of the Company, which at the date of the s. 150 application both parties appear to have believed expired on 1 ^st January, 2003, in fact had been extended to 17 ^th January, 2003. The importance of that extension was that there were two personal injuries claims notified against the company, one alleged to have occurred on 1 ^st January, 2003, and the other on 14 ^th January, 2003. The applicant had taken the view, both at the time of the making of the s. 56 report and the commencement of this application, that such claims were not covered by insurance.

12 (ii) The respondents had explained to the court, on affidavit, that the reason for which they had continued to trade without insurance after January 2003 was that they had contracted to sell the leasehold interest in the premises with a closing date in October 2002, but through no fault of the respondents the closing date had been deferred. There appears to have been a genuinely held belief that the purchasers were attempting to avoid completing the purchase of the leasehold interest in the premises. The respondents were advised by their solicitors that if they ceased trading it might permit the purchasers to avoid completing the contract to purchase the property. Further, despite what the court is satisfied were strenuous efforts to obtain a renewal of the Company's insurance, they were unable to do so.

13 (iii) The respondents had obtained information, and in one instance secured agreement from the insurers, which appeared to exclude the potential liability of the Company for excesses pursuant to the insurance...