Re Beauty Holdings Ltd (in voluntary liquidation); Re Hairspray Wholesalers Ltd (in voluntary liquidation)

• Jurisdiction: Ireland
• Judge: Mr. Justice Tony O'Connor
• Judgment Date: 23 May 2019
• Neutral Citation: [2019] IEHC 387
• Docket Number: [2017 No. 36 COS]
• Court: High Court
• Date: 23 May 2019

[2019] IEHC 387

THE HIGH COURT

O'Connor Tony J.

[2017 No. 36 COS]

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

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

AND IN THE MATTER OF SECTION 261 OF THE COMPANIES ACTS 1963 - 2012

Recovery of fees – Alternative dispute resolution – Expert determination – Mr Luby seeking recovery of fees overpaid by Mr Lennon – Whether Mr Stafford erred in his expert determination

Facts: Mr Luby, Chartered Accountant, was appointed on 6th May, 2014, at a meeting of creditors of Beauty Holdings Ltd (in voluntary liquidation) and Hairspray Wholesalers Ltd (in voluntary liquidation). Mr Luby, in that role, sought recovery of fees estimated or calculated to have been overpaid by Mr Lennon, who described himself in his three affidavits as an insolvency practitioner or accountant. He was appointed a liquidator by members of the companies in May 2013, and advised a creditors’ meeting on 17th April, 2014, that the companies were insolvent. The notice of motion dated 1st February, 2017, with an indexed and paginated lever arch folder with 39 leaves of affidavits, exhibits and legal submissions, ultimately led to an agreement dated 21st December, 2017 “with a view to resolving the proceedings” (2017 agreement). The terms of the 2017 agreement were negotiated and ultimately agreed by the parties, who were professionals in their own right, with the assistance and advice of counsel and solicitors. Mr Stafford, FCA, was duly appointed to give the expert determination which was dated 13th March, 2018. Mr Stafford’s report addressed the four issues at para. 1(a) – (d) of the 2017 Agreement (the Stafford report). After the payment of Mr Stafford’s fees and the release of his report in April 2018, intricately involved reports of consideration by Mr Lennon and his solicitors alleged that Mr Stafford had erred in his consideration particularly of the issue posed at para. 1(d). Mr McCarthy, for Mr Lennon, submitted to the High Court that it should refuse Mr Luby’s application because: (a) the expert did not do what he was asked to do; (b) the expert did not consider the books and records and the affidavit of Mr Lennon that he should have done; and (c) the report was not concluded as the expert had made it clear that he needed to consider the matter further (the email of 21st March, 2019 from Mr Stafford to Mr Luby which was copied to each of the solicitors involved).

Held by the High Court (O’Connor J) that Mr Lennon was advised upon and contributed to the 2017 agreement. O’Connor J held that Mr Lennon may not have liked the result but it was a genuine effort to adopt an Alternative Dispute Resolution approach which the Court would not interfere with lightly. O’Connor J noted that Mr Lennon agreed to that approach and that Mr Stafford’s reputation and integrity had not been challenged.

O’Connor J held that, for those reasons, Mr Luby was entitled to orders. O’Connor J held that the Court would hear counsel in order to be as specific as possible.

Application granted.

EX TEMPORE JUDGMENT of Mr. Justice Tony O'Connor delivered on the 23rd day of May, 2019

1 These are applications by way of a notice of motion issued in December 2018, on behalf of Mr. Jim Luby, Chartered Accountant. He was appointed on 6th May, 2014, at a meeting of creditors of Beauty Holdings Limited, in voluntary liquidation, (‘ Beauty’) and Hairspray Wholesalers Limited, in voluntary liquidation, (‘ Hairspray’), both referred to in this judgment as (‘ the companies’).

2 Mr. Luby, in that role, is seeking recovery of fees estimated or calculated to have been overpaid by Mr. Gary Lennon, who describes himself in his three affidavits as an insolvency practitioner or accountant. He was granted leave yesterday to file his last affidavit sworn on 20th May, 2019. He was appointed a liquidator by members of the companies in May 2013, and advised a creditors” meeting on 17th April, 2014, that the companies were insolvent.

3 Background facts can be gleaned from the judgments delivered by Allen J. on 30th April, 2019, in the applications by Mr. Luby to restrict the directors of the companies; Luby v. Logan [2019] IEHC 260 and Luby v. Logan & Mackenzie [2019] IEHC 261.

4 It is not necessary to summarise those facts for the purpose of determining these applications which were cited to the Court on behalf of Mr. Lennon to indicate the commonly-held view that the records of the companies were, in my words, in ‘rag order’ and that the failure to pay the correct amount of VAT due by the companies ‘can be traced directly to the failure to keep records and make tax returns’.

Introduction

5 The verbosity of correspondence and affidavits, which started after an earlier notice of motion dated 1st December, 2017, about the reasonableness of the fees paid by Mr. Lennon to himself and the companies for what he described as agreed rates, tends to indicate a lack of focus. This was ultimately tackled in a positive way by counsel following the direction of this Court yesterday for written outline points to be submitted to the Court by both sides before the hearing resumed at 11am this morning for another two and a half hours of hearing. Mr. Luby is seeking recovery of €122,126 plus VAT and €31,677.42 of, what is described as ‘overcharged fees’ in respect of Beauty and Hairspray respectively.

6 The notice of motion dated 1st February, 2017, with an indexed and paginated lever arch folder with 39 leaves of affidavits, exhibits and legal submissions, ultimately led to an agreement dated 21st December, 2017 ‘ with a view to resolving the proceedings’ (‘ 2017 agreement’). The terms of the 2017 agreement were negotiated and ultimately agreed by the parties, who are professionals in their own right, with the assistance and advice of counsel and solicitors. The following clauses of the 2017 agreement are most relevant to this application:-

‘1. Joint appointment of an independent expert

The parties agree to jointly appoint Mr. Jim Stafford to act as an independent expert (the ‘Independent Expert’) to determine the following issues:-

(a) 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

(b) whether the Respondent ought to have undertaken the tasks that he did as liquidator prior to the conversion of the liquidation to a creditors” voluntary liquidation; and

(c) whether the Respondent ought to have undertaken the tasks that he did as liquidator and in particular the recalculation of the VAT liabilities of the Companies without the consent of the directors and/or the creditors of the company; and

(d) if it was necessary for the Respondent to carry out the VAT recalculation prior to conversion to a creditors” voluntary liquidation, the level of fee that would reasonably be charged by the liquidator having regard to the fact that the companies were likely to be insolvent and transpired to be insolvent (the ‘Expert Determination’).

2 Access to Documents

The parties agree that the Independent Expert shall have access to the documentation listed in the Schedule hereto, comprising the pleadings exchanged in the Proceedings, the books and records of the Companies, timesheets of Mr. Lennon together with and any other documents which the Independent Expert may reasonably request in order to reach a determination. Any additional documentation subsequently provided to the Independent Expert must also be furnished to other party hereto within 7 days thereof.

3 Af...