Rathmond Ireland v Companies Act

• Jurisdiction: Ireland
• Judge: Ms. Justice Costello
• Judgment Date: 08 May 2017
• Neutral Citation: [2017] IEHC 273
• Date: 08 May 2017
• Docket Number: [2017 No. 132 COS]
• Court: High Court

[2017] IEHC 273

THE HIGH COURT

Costello J.

[2017 No. 132 COS]

IN THE MATTER OF THE COMPANIES ACT, 2014

AND IN THE MATTER OF RATHMOND IRELAND LIMITED

Company – The Companies Act, 2017 – Appointment of examiner – Conduct of directors of company – Interests of employees – Discretionary remedy

Facts: The Company had presented a petition to place the company under the protection of the Court and for the appointment of an examiner pursuant to the Companies Act, 2014. The Revenue Commissioners had objected to the said petition on the basis that the company was unable to pay its debts.

Ms. Justice Costello granted an order for the appointment of the named person as an examiner. The Court, however, remitted the case to the Circuit Court for full hearings with the directions that the conduct of the directors of the company should specifically be pointed out to the Circuit Court judge for consideration before permitting the named director of the company to continue to manage the affairs of the company. The Court held that the power to appoint the examiner was discretionary and the Court should be mindful of the impact that would be caused to the employees while refusing or allowing the petition under s. 509 of the Companies Act, 2014. The Court found that the directors of the company had concealed the information from the Court about the misuse of funds deducted from the earnings of the employees for tax purposes. The Court found that the directors had also misled the Revenue Commissioners. The Court held that despite the aforesaid wrongdoings, it was not appropriate to refuse the present petition. The Court took into account two factors for allowing the present petition namely, the prospects of saving potentially viable enterprise and jobs of the employees working therein and the lack of evidence showing any financial benefits accrued to the directors of the company.

JUDGMENT of Ms. Justice Costello delivered on the 8th day of May, 2017

1 In this case Rathmond Ireland Ltd. ('the Company'), having its registered office situated at 5 South Richmond Street, Dublin 2, presented a petition seeking to place the Company under the protection of the court and the appointment of Mr. Dessie Morrow as examiner pursuant to s. 509 of the Companies Act, 2014 (the Act of 2014). The petition was presented on the 7th April, 2017. On that day I declined to appoint Mr. Morrow as an interim examiner pursuant to s. 512(7) of the Act of 2014. I directed that certain creditors of the Company, including the Revenue Commissioners, be put on notice for the hearing of the petition.

2 The matter was heard on the 3rd May, 2017. The Revenue Commissioners appeared and opposed the application. No other creditors of the Company appeared and two creditors of the Company expressed their support for the application.

3 The formal proofs required are in order. The Revenue Commissioners appeared to contest that the Company was unable to pay its debt within the meaning of s. 509 of the Act of 2014. I am satisfied that the Company is unable to pay its debts as they fall due within the meaning of section 509. While it is paying some creditors, and in particular it is paying its suppliers on a cash on delivery basis, it cannot pay the historic debts which have built up due to trade creditors and cannot pay its liabilities to the Revenue Commissioners. The IER states that the Company is insolvent and unable to meets its obligations as they fall due. The deficit is €696,539.00. Mr. Sheehan, in his second affidavit, gives a slightly higher figure for the Company's liabilities and there is no explanation for the discrepancy in the figures. However, I am satisfied on the evidence before the court that it is clear that the Company is unable to meet its obligations as they fall due. Therefore, I am satisfied that the requirements for the appointment of an examiner have been satisfied and accordingly the court has jurisdiction to appoint Mr. Morrow as examiner to the Company.

4 The petition was accompanied by an Independent Expert's report in compliance with the provisions of s. 511 of the Companies Act 2014. The IE stated that he was of the view that the Company has a reasonable prospect of survival subject to the conditions set out in his report. It follows that the issue for decision is whether the court should exercise its discretion in the circumstances to appoint Mr. Morrow examiner to the Company.

Background

5 The Company was incorporated on the 5th July, 2010, but it did not commence to trade until November 2014. The business now operated by the Company was previously operated by Aussie Barbecue Ltd. ('ABL'). ABL ceased to trade on 31st October, 2014 following a disagreement at Board level which saw two of the Company's current directors transferring the business of ABL to the Company. All assets, liabilities and staff of ABL transferred to the Company in November 2014. The Company trades under the name of 'Aussie BBQ'.

6 At the date of the presentation of the petition the Company operated two Australian style barbecue restaurants in Dublin. The first restaurant was located at 5 South Richmond Street, Dublin 2. It opened its doors in March, 2012 (with ABL) and can accommodate up to 72 customers. The second restaurant opened in February 2016 and was located in Unit 128/129 The Square Shopping Centre, Tallaght, Dublin 24. It could accommodate up to 32 customers.

7 The Company's main source of turnover is their Australian style burgers which account for approximately 37% of the total turnover of the business. The burgers are produced and served on site with a wide range of wraps, sandwiches and sides also included on the menu. The Company offers alcoholic and non-alcoholic beverages to its customers and therefore requires an alcohol licence.

8 The restaurant at South Richmond Street is held under a licence agreement between the landlord and a director of ABL. Thus, while the Company has a good relationship with the owner of the premises at South Richmond Street and has made the required licensed payments, its occupancy of the premises requires to be regularised.

9 The restaurant at Tallaght was held under a lease and as of the date of the presentation of the petition the Company was in arrears in the amount of €6,150.00 which equated to one month's rent.

10 As of the date of the presentation of the petition the Company had 32 employees employed on a combination of full and part-time basis. Mr. Barry Sheehan, a director of the Company and its sole shareholder works full time as the managing director of the Company. Mr. Sean Allen, a director of the Company, is employed as head of operations.

11 The Company's turnover for the eighteenth month period end of 31st of December, 2015 was €1,546,723.00. It's turnover for the year ended 31st of December, 2016 was €1,873,201.00. Given the average number of employees and the turnover of the Company it is clear that the Company is a small company within the meaning of s. 350 of the Act of 2014.

12 The Company's restaurant at South Richmond Street has been and continues to be a successful, profitable enterprise. The opening of a second restaurant in Tallaght was not. The failure of the Tallaght restaurant lead to the Company sustaining very significant losses for the years ended 31st of December, 2015 and 31st of December, 2016. The IER identifies four issues facing the Company and which led to its current difficulties.

The Company's Difficulties

13 The restaurant at Tallaght caused the Company to sustain significant losses and ultimately the directors realised that the Company would have to close this restaurant. On the 14th April, 2017, the Company agreed a surrender of its lease with its landlord and that restaurant has now been closed down. The directors were able to secure alternative employment for the employees working in this restaurant. Thus, this haemorrhage on the Company's assets has ceased but the damage that it has done to the Company still remains.

14 By reason of the expenses incurred in running a loss making restaurant in Tallaght, the Company started to experience significant cash flow difficulties. Its trade creditors increased from €103,439.00 as at 31st of December, 2015 to €263,669.00 as at 31st of March, 2017, an increase of 155%. The Company is operating on a pay on delivery basis with the majority of its suppliers due to the arrears built up on the Company's account.

15 On the 8th October, 2015, the Company took out a loan with Allied Irish Banks plc. in the amount of €231,500.00 in order to fit out the unit at Tallaght. The interest rate is 4.5% per annum with monthly capital and interest repayments in the amount of €4,390.94. As of 7th April, 2017, the balance due on this loan is €169,331.18.

16 Due to the Company's cash flow difficulties the Company obtained a further loan facility from AIB on the 18th August, 2016, in the amount of €50,000.00 together with two overdraft facilities each in the amount of €10,000.00. The monthly capital and interest repayments in respect of the loan are €2,098.76. The balance on the loan as of the date of the petition is €36,416.06.

17 The 2015 loan by AIB is secured by way of a charge on all assets of the Company and has been personally guaranteed by Mr. Barry Sheehan. The charge has been registered with the Company registration office. The Company has made the repayments due to AIB in respect of these facilities and is not in default.

18 The Company has managed to pay its landlords and its bank because it has not paid its taxes. The IER notes that the Company has not paid PAYE for the year 2016 in the sum of €78,633.00. VAT 3 for the year 2016 is outstanding in the sum of €38,058.00. The Company has not forwarded PAYE for the first three months of 2017 in the amount of €18,037.00. Neither has it paid VAT for the periods of January/February...