Re Bula Ltd

• Jurisdiction: Ireland
• Judgment Date: 01 January 1990
• Date: 01 January 1990
• Docket Number: [1986 No. 1442P]
• Court: Supreme Court

In re Bula Ltd.

In the matter of Bula Limited and In the matter of the Companies Acts

1963-1983

[1986 No. 1442P]

High Court

Supreme Court

Company - Winding up - Opposition - Secured creditors - Insolvency - Receiver already appointed - Opposition of judgment mortgagee - Opposition of other creditors - Discretion - Burden of proof - Ulterior motive - Whether right to a winding up order had been displaced by evidence - Justification for bringing petition - Abuse of the process of the court - Whether power of sale of receiver was as great as that of a liquidator - Conveyancing Act, 1881 (44 & 45 Vict. c. 41), s. 21 - Minerals Development Act, 1940 (No. 31) - Companies Act, 1963 (No. 33), ss. 213 and 309.

A petition for the winding up of Bula Limited (in receivership) ("the company") was presented to the court by certain secured creditors of the company. The petition was brought on the grounds that the company was insolvent and unable to pay its debts and that in the circumstances it would be just and equitable to make the order.

One of the parties opposing the petition, Munster Base Metals Limited (MBM), had made payments amounting to approximately £690,000 on behalf of the company to certain banks. Having obtained judgment for that sum, MBM registered the judgment as a judgment mortgage against certain property of the company. Four days before MBM would have achieved priority as a secured creditor on foot of their judgment mortgage, the petition for the winding up of the company was presented. If granted, the winding up order would have nullified MBM's claim to priority over unsecured creditors.

It was argued inter alia in opposition to the petition that the receiver's intended course of action in relation to the receivership would be frustrated by the winding up. It was accepted by all parties that the company was hopelessly insolvent and unable to pay its debts.

On the hearing of the application it was held by Costello J., in making the winding up order sought, 1, that a petitioning creditor who was unable to secure payment of his debt had a right to a winding up order ex debito justitiae and, although the court had a discretion to decline to make the order, it would not do so without good cause.

2. That in the circumstances of the case the prior appointment of a receiver to the company was not a good reason for the court to decline to make the order as it appeared the only viable course of action to be followed would be a sale of assets of the company and furthermore, the receiver had indicated that he did not contemplate following any course of action which would be frustrated by a winding up order.

Bula Holdings (a major shareholder in and creditor of the company) and MBM appealed against the judgment and order of the High Court, and it was

Held by the Supreme Court (Finlay C.J., Henchy and McCarthy JJ.), in allowing the appeal and dismissing the petition, 1, that ss. 213 and 309 of the Act of 1963 gave to the Court a true discretion which should be exercised in a principled manner that was fair and just.

2. That a creditor was prima facie entitled to an order for winding up so as to shift the burden to those who opposed the winding up. However, when a case was made that the petition was not in fact for the benefit of the class of creditors to which the petitioner belonged, but was for an ulterior motive, then the burden shifted back to the petitioner.

3. That nowhere in the affidavits was there any purported justification for bringing the petition other than the indebtedness itself and the defeat of the MBM registration, which made the presentation of the petition an abuse of the process of the Court.

4. That the learned trial judge erred in holding that the petitioners' prima facie right to a winding up order had not been displaced in any of the evidence filed or in the submissions made. That prima facie right had in fact been displaced by their own evidence.

5. That where a petition was brought by secured creditors whose security attached to the entire assets of the debtor company and who had appointed a receiver whose power of sale was, effectively, at least as great as that of a liquidator, the Court should refuse its aid.

Cases mentioned in this report:—

In re A Company (1983) Butterworth's Company Law Cases 402.

Bowes v. Hope Life Insurance Co. (1865) 11 H.L.C. 389.

In re Borough of Portsmouth (Kingston, Fratton and Southsea) Tramways Company [1892] 2 Ch. 362.

In re Brighton Hotel Company (1868) 6 L.R. Eq. 339.

In re Chapel House Colliery Co. (1883) 24 Ch. D. 259.

In re Great Western (Forest of Dean) Coal Consumers' Company (1882) 21 Ch. D. 769.

In re Greenwood & Co. [1900] 2 Q.B. 306.

In re Irish Attested Sales Ltd. [1962] I.R. 70.

In re Ithaca Shipping Co. Ltd. (1951) 84 Ll.L.R. 507.

In re Krasnapolsky Restaurant and Winter Garden Co. [1892] 3 Ch. 174.

In re (P. & J.) Macrae Ltd. [1961] 1 W.L.R. 229; [1961] 1 All E.R. 301.

In re Portstewart Tramway Co. [1896] 1 I.R. 265.

In re Strong [1940] I.R. 382; (1940) 74 I.L.T.R. 177.

In re St. Thomas' Dock Company (1876) 2 Ch. D. 116.

In re Vuma Ltd. [1960] 1 W.L.R. 1283; [1960] 3 All E.R. 629.

In re Western of Canada Oil, Lands, and Works Co. (1873) 17 L.R. Eq. 1; (1877) 6 Ch. D. 109.

Petition.

A petition seeking the winding up of Bula Ltd. was presented by the petitioning creditors, (Northern Bank Finance Corporation Ltd., Allied Irish Investment Bank plc., and Ulster Investment Bank Ltd.), on the 14th February, 1986. The petition was brought on the grounds that the company was insolvent and unable to pay its debts and that, in the circumstances, it was just and equitable to wind up the company. Bula Holdings and MBM opposed the petition. The Minister for Energy and the Revenue Commissioners neither supported nor opposed the petition.

The judgment which MBM obtained against the company was registered in the Land Registry as a judgment mortgage on the 18th November, 1985, against the lands and orebody of the company, which lands and orebody were the subject matter of several folios of the Register, County of Meath.

The facts and arguments are summarised in the headnote above and are fully set out in the judgments, infra.

Section 213, sub-ss. (e) and (f) of the Companies Act, 1963, provide as follows:—

"A company may be wound up by the court if—

• (e) the company is unable to pay its debts;

• (f) the court is of opinion that it is just and equitable that the company should be wound up."

Section 286 of the Act of 1963 provides:—

"(1) Subject to subsection (2), any conveyance, mortgage, delivery of goods, payment, execution or other act relating to property made or done by or against a company within 6 months before the commencement of its winding up which, had it been made or done by or against an individual within 6 months before the presentation of a bankruptcy petition on which he is adjudged a bankrupt, would be deemed in his bankruptcy a fraudulent preference, shall in the event of the company being wound up be deemed a fraudulent preference of its creditors and be invalid accordingly.

(2) In relation to things made or done before the operative date, subsection (1) shall have effect with the substitution, for references to 6 months, of references to 3 months.

(3) Any conveyance or assignment by a company of all its property to trustees for the benefit of all its creditors shall be void to all intents."

Section 309 of the Act of 1963 provides:—

"(1) The court may, as to all matters relating to the winding up of a...