Millstream Recycling Ltd -v- Companies Acts, [2009] IEHC 571 (2009)

Docket Number:2009 684 COS
Party Name:Millstream Recycling Ltd, Companies Acts
Judge:Laffoy J.







Judgment of Miss Justice Laffoy delivered on the 23rd day of December, 2009.

The application

This is an application by Millstream Recycling Limited (the company) for an order pursuant to s. 201(1) of the Companies Act 1963 (the Act of 1963) and for further directions. Before outlining the specific reliefs sought on the application, I consider it appropriate to outline the history of the application briefly.

This matter first came before the Court on Tuesday, 3rd November, 2009, on an ex parte application on which the company sought directions as to the proceedings to be taken on foot of the original originating notice of motion, which had been issued on 2nd November, 2009 and which was returnable before the Court on 16th November, 2009. On that occasion, the Court (Murphy J.) made orders that -

(a) the notice of motion and grounding documents be served on the parties set out in Appendix V to the notice of motion (being creditors) insofar as their addresses were known or could reasonably be obtained,

(b) that the notice of motion be advertised in certain publications, namely, the Irish Independent, the Farmers Journal, the Financial Times, the Belfast Telegraph and Iris Oifigiúil, and

(c) that until Monday 16th November, 2009 all proceedings instituted against the company be stayed and that the institution of further proceedings against the company be restrained.

When the matter came before the Court on the return date, 16th November, 2009, counsel for the company sought an adjournment for one week to consider affidavits which had been filed by creditors of the company. On 23rd November, 2009 the Court (Laffoy J.) acceded to an application by the company for a further adjournment and adjourned the matter for two weeks. The stay on proceedings was continued subject to the condition that any existing litigant in the Commercial Court should be at liberty to prosecute any motion before that Court and should be at liberty to comply with any existing directions given by that Court. It was further directed that any revision of the scheme referred to in the notice of motion was to be furnished to the creditors referred to in the order of 3rd November, 2009 together with any supporting affidavit by close of business on 2nd December, 2009. A revised scheme was in fact before the Court when the matter came on for hearing on 8th December, 2009 and the company sought leave to amend the originating notice of motion.

As I have stated, the relief now sought by the applicant is an order pursuant to s. 201(1) of the Act of 1963, specifically directing the summoning of a meeting of the creditors of the company who have made claims against the company arising out of the contamination of food products manufactured by the company (the contamination creditors) to be held on 1st July, 2010 to consider, and if thought appropriate, to approve (with or without modification) a scheme of arrangement the subject of the application. I will refer to this as the primary direction. Additionally, the company seeks directions, which I will refer to as ancillary directions, as to the notification and holding of the creditors' meeting including:(i) that Mr. Jim Luby, of McStay Luby, Chartered Accountants, or a named substitute, be appointed as chairman of the meeting,

(ii) that Mr. John McGee, a loss adjustor, of OSG Outsource Services Group Ltd., (the Expert) be appointed "as Expert" and that Ronan Dolan, Senior Counsel, be appointed as legal assistant in order to assess the claims made by the contamination creditors,

(iii) that the decision of Mr. McGee be final and binding on all contamination creditors who have made a claim against the company for the purposes of valuing the claim under the scheme, and

(iv) various other directions as to advertising for claims, furnishing information to claimants, the prescribed form of claim, the timeframe within which the Expert could request information and when it should be supplied and the timeframe within which the Expert should determine the value of the claims of the contamination creditors for voting and dividend purposes (14th May, 2010),

(v) that at the creditors' meeting that the voting be determined by the value of the claim of each contamination creditors and that the votes might be given personally or by proxy, with details of when proxies were to be received and the form of the proxy and

(vi) that the entitlement to attend and vote at the meeting or any adjournment thereof should be determined by reference to the value of each of the contamination creditors' claims as assessed by the Expert. Apart from variations in the timeframe, the principal change sought by the company in relation to the ancillary directions relates to the identity of the Expert, the Expert originally nominated by the company having been objected to by some of the creditors.

Further relief is now sought, which had not originally been sought, namely, an order for specified directions in relation to the construction of the meaning of the policy of insurance which is at the heart of the scheme, which I will refer to as the construction proceedings directions, namely that -(a) the contamination creditors or one of them, shall have two weeks to notify the company's solicitors in writing of their wish to have the High Court determine the interpretation of the policy, setting out the facts upon which they say the policy has been wrongly interpreted by FBD Insurance Plc. (FBD), the insurer,

(b) the company shall "within seven days of such written notification (if any)" issue a Special Summons (or such other proceedings as they be deemed necessary) with FBD named as respondent, and the said notifying party, or parties, named as third party or parties and being the effective moving party, and

(c) that the company shall seek directions from the Court in respect of exchange of pleadings with a view to having the Special Summons, or such other proceedings that might be issued, determined prior to the meeting of the creditors on 1st July, 2010. Finally, the company seeks a stay on the further prosecution of all claims to which the scheme relates against the company and/or the issuing of any further proceedings against the company.

Proposals for a scheme of arrangement

The proposals for a scheme of arrangement, as modified, have been prepared by Mr. Luby. In explaining the background to, and the reasons for, the scheme it is disclosed that the company was engaged in the collection of food by-products, which were processed by it and sold in bulk as pig and cattle feed ingredients. On 4th December, 2008, the Department of Agriculture, Fisheries and Food (the Department) found that certain of the company's feed products were contaminated with dioxins and polychlorinated biphenyls (PCBs) and issued an order restricting the movement of cattle and pigs on all farms which used feed products supplied by the company. In Northern Ireland, the Department of Agriculture and Rural Development (the N.I. Department) issued a similar order. In both jurisdictions it was ordered that pigs and some cattle on farms which used the company's feed products between September 2008 and November 2008 be slaughtered. In each jurisdiction, government funded ex gratia compensation arrangements for parties affected by the orders were put in place, which dealt with some material losses suffered by affected parties. However, claims are being made against the company for material loss and also for consequential loss and third party claims arising from the use of the contaminated feed products. Taking into account such claims which have been notified and also potential further claims, it is currently estimated that the claims against the company will exceed 40m and will render the company insolvent.

The scheme is designed to make provision for what are referred to in the proposals for the scheme as "Scheme Creditors", that is to say, parties entitled to compensation arising from a contamination event, defined as the discovery of dioxins and PCBs in animal feed supplied by the company. It is not designed to make any provision for the ordinary creditors of the company. As I understand it, "Scheme Creditors" is synonymous with "contamination creditors" referred to in the notice of motion.

The proposals for the scheme envisage two sources of funding to meet the claims of the contamination creditors: the proceeds of insurance cover which the company had in place with FBD; and the proceeds of a pending action by the company against Gerard Tierney and Newtown Lodge Limited (the Tierney/Newtown Lodge proceedings), which have been admitted to the Commercial Court.

In relation to the first source of funding, the proceeds of the FBD policy, the position of the company and FBD is that there is a limit of liability in the sum of 6.5m on the policy. That has been questioned by some of the contamination creditors. Hence the reliefs sought on this application in relation to the initiation of proceedings to have the policy construed by the Court. Aside from that issue, what is envisaged is that the insurance fund will be artificially divided into two sub-funds, so that approximately five-sixths thereof will meet what are described as material loss claims, that is to say, claims arising from a contamination event which fall within the product liability section of the FBD policy, and the remaining one-sixth will meet what are described as non-material loss claims, which fall outside the product liability section of the FBD policy. As regards the insurance fund, the function of the Expert will be twofold: to determine the quantum of each contamination creditor's claim and to categorise it as a...

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