Re Frederick Inns Ltd

• Jurisdiction: Ireland
• Judge: BLAYNEY J.
• Judgment Date: 01 January 1994
• Neutral Citation: [1993] IESC 1
• Court: Supreme Court
• Date: 01 January 1994

FREDERICK INNS LTD

IN THE MATTER OF FREDERICK INNS LIMITED (IN LIQUIDATION)

IN THE MATTER OF THE RENDEZVOUS LIMITED (IN LIQUIDATION)

IN THE MATTER OF THE GRADUATE LIMITED (IN LIQUIDATION)

IN THE MATTER OF MOTELS LIMITED (IN LIQUIDATION)

AND

IN THE MATTER OF THE COMPANIES ACTS 1963– 1990

[1993] IESC 1

O'Flaherty J.

Blayney J.

Denham J.

217/91

218/91

219/91

220/91

THE SUPREME COURT

Synopsis:

COMPANY

Insolvency

Assets - Alienation - Propriety - Moneys - Pay G7:G7 ment - Revenue claim - Appropriation by Revenue of sum paid - Portion of sum credited to third party - ~Ultra vires~ arrangement - Insolvent companies - Parent and subsidiary companies paying Revenue debts of other subsidiaries in group - Payments made by arrangement with Revenue Commis sioners - Companies insolvent when making payment - Prejudice of general creditors - Commissioners being trustees of sum misappropriated - Set-off not available to Commissio ners being such trustees - European Communities (Companies) Regulations, 1973 (S.I. 163/73), article 6 - Companies Act, 1963, s. 8 - (217-20/91 - Supreme Court - 5/11/93) - [1994] 1 ILRM 387 - [1994] ITR 779

|In re Frederick Inns Ltd.|

PRACTICE

Set-off

Principles - Mutuality - Necessity - Tax - Payment ~ultra vires~ paying company - Revenue Commissioners constructive trustees for company - Company indebted to commissioners - Set-off not avail able to commissioners - (217-20/91 - Supreme Court - 5/11/93)

|In re Frederick Inns Ltd.|

REVENUE

Corporation tax

Receipt - Appropriation - Company - Property - Disposition - Propriety - Revenue claim - Appropriation by Revenue of sum paid by taxpayer - Portion of sum credited to third party - ~Ultra vires~ arrangement - Insolvent companies - Parent and subsidiary companies paying Revenue debts of other subsidiaries in group - Payments made by arrangement with Revenue Commissioners - Companies insolvent when making payment - Prejudice of general creditors - Commissioners being trustees of sum misappropriated - Set-off not available to Commissioners being such trustees - (217-20/91 - Supreme Court - 5/11/93) - [1994] 1 ILRM 387 - [1994] ITR 779

|In re Frederick Inns Ltd.|

TRUSTS

Creation

Company - Insolvency - Property - Disposition - Moneys paid ~ultra vires~ company - Payment of tax debt of associated company - Revenue Commissioners being trustees for paying company - (217-20/91 - Supreme Court - 5/11/93) - [1994] 1 ILRM 387 - [1994] ITR 779

|In re Frederick Inns Ltd.|

Citations:

COMPANIES ACT 1963 S214

COMPANIES ACT 1963 S8

EUROPEAN COMMUNITIES (COMPANIES) REGS 1973 SI 163/1973 ART 6

AYERST V C & K (CONSTRUCTION) LTD 1974 1 AER 676

ORIENTAL INLAND STEAM CO, IN RE (1874) 9 CH APP 557

COMPANIES ACT 1963 S235

KINSELA & ANOR V RUSSELL KINSELA PROPERTY LTD 1986 4 NSWLR 722

BELMONT FINANCE CORPORATION LTD V WILLIAMS FURNITURE LTD (NO 2) 1980 1 AER 393

LANDS ALLOTMENT COMPANY, IN RE 1894 1 CH 616

RUSSELL V WAKEFIELD WATERWORKS COMPANY 1875 LR 20 EQ 474

ROLLED STEEL LTD V BRITISH STEEL CORPORATION 1986 1 CH 246

COMPANIES ACT 1963 S284(1)

EUROPEAN COMMUNITIES (COMPANIES) REGS 1973 SI 163/1973 ART 6(1)

1 JUDGMENT delivered on the 5th day of November 1993 by BLAYNEY J. [NEM DISS]

2 The well-known Belton group of companies, which owned and managed nine public houses in Dublin, comprised ten separate companies, a holding company, Motels Limited, and nine subsidiaries. This appeal is concerned with that company and with three of its subsidiaries, namely, Frederick Inns Limited, The Rendezvous Limited and The Graduate Limited.

3 Since the late 1970s the group was in a position of constant indebtedness to the Revenue in respect of VAT, PAYE/PRSI and Corporation Profits Tax. In April, 1984 the group's liabilities stood at approximately £1.6 million and by June, 1986 this had risen to £2.8 million. On the 12th June, 1986 the Collector General sent to each of the ten companies a separate letter demanding the amount due from such company and giving notice that in the event of its failure to pay, the letter would be used for the purposes of s. 214 of the Companies Act, 1963as evidence that the company was unable to pay its debts, and a petition for winding-up would be issued.

4 Subsequent to the receipt of that letter, negotiations took place between a representative of the Revenue Commissioners and some of the directors of the Belton group and their accountants, as a result of which an arrangement was reached whereby the licensed premises in which Frederick Inns Limited, The Rendezvous Limited and The Graduate Limited carried on business (two of which were leased from Motels Limited) would be sold, and £1.4 million would be paid to the Revenue Commissioners out of the proceeds. The precise terms of the arrangement were set out in a letter from the group's solicitor to the Revenue Commissioners dated the 22nd August, 1986:

"Motels Limited, The Graduate Limited, Frederick Inns Limited and The Rendezvous Limited."

5 Dear Sirs

6 With reference to our interview of the 21st inst. we confirm that we act for the above companies. We further confirm that Motels Limited and The Graduate Limited have agreed to sell The Graduate public house at Rochestown Avenue to Terence E. Dickson, solicitor in trust for the sum of £650,000. We have received the contract duly signed and a cheque for the deposit. Motels Limited, The Rendezvous Limited have agreed to sell The Rendezvous at Shantalla Road, Beaumont to Dermot Carew for the sum of £550,000. We sent out the contracts for signature on the 15th inst. and anticipate receiving same back in the next day or so. We have to-day received instructions that Frederick Inns Limited have agreed to sell the premises The Hunters, South Frederick Street, for the sum of £400,000. We are awaiting particulars of the purchaser's solicitors and will be sending you out contracts for the sale immediately we receive such particulars.

7 We are instructed by our clients and hereby undertake to pay to the Revenue Commissioners the sum of £1,400,000 out of the sale of the above three premises. We anticipate that all sales will be closed by the 30th approx. and it is hoped that The Rendezvous sale will close in or about the 5th approx. and The Graduate sale in the middle of September.

8 Yours faithfully".

9 The arrangement outlined in that letter was duly carried out, with one variation, £1.2 million being paid instead of £1.4 million. It was paid in three instalments as follows:

10 £400,000 on the 3rd October, 1986

11 £600,000 on the 24th October, 1986, and

12 £200,000 on the 8th December, 1986.

13 The £1.2 million was made up of the following contributions made by the four companies:

Frederick Inns Limited:	£200,000
The Rendezvous Limited:	£100,506
The Graduate Limited:	£122,517
Motels Limited:	£776,977
TOTAL:	£1,200,000

14 All four companies were insolvent when each of the instalments was paid and the Revenue Commissioners were aware that they were insolvent. Mr. Ray Jackson was appointed official liquidator of Motels Limited on the 15th December, 1986, the petition having been presented on the 3rd December, 1986, and he was appointed official liquidator of the other three companies on the 30th March, 1987 on foot of petitions presented on the 13th March, 1987.

15 The Revenue Commissioners appropriated the £1.2 million to reducing the amounts owing by all ten companies in the group, the division being made rateably according to the amount of tax owed by each. It is not disputed that such an appropriation was what both sides intended.

16 The issue in the High Court was whether the payments made in reduction of the amounts owing by the other six companies were ultra vires and, if so, if they could be recovered by the official liquidator. The learned trial judge held that they were. He held that each of the companies in the group was a separate company and that the Revenue Commissioners were not entitled to treat the group as a single entity. He further held that none of the four companies had power in its memorandum of association to pay the debts of any associated company in the group and that accordingly the payment made in reduction of the amounts owing by the other six companies was ultra vires. He held also that as the four companies were insolvent at the time the payments were made, the payments were in breach of the duty owed by the companies and their directors to the general creditors of the companies and accordingly were misapplications of the respective companies" assets.

17 The learned trial judge made a separate order in respect of each of the four companies. The orders made in respect of Frederick Inns Limited, The Rendezvous Limited and The Graduate Limited were all in the same form. Each of these companies owed the Revenue more than the amounts they respectively contributed to the £1.2 million. The learned trial judge found that the payment of the parts of their contributions which had been appropriated to other companies was ultra vires and directed that such parts should be credited to the companies themselves in reduction of the amounts owing respectively by them. Accordingly there was no order for the repayment of any part of the amounts contributed by them to the £1.2 million.

18 The position of Motels Limited was different. Its contribution to the £1.2 million was much greater than the amount it owed to the Revenue. It contributed £776,977 whereas it only owed £125,058. The Revenue had appropriated £30,000 of the £776,977 in reduction of its debt and the balance in reduction of what was owing by the other nine companies. The learned trial judge found that the payment of so much of the amount contributed by Motels Limited as exceeded what it owed, (which came to a sum of £651,919) was ultra vires the company and he directed the Revenue Commissioners to repay this sum...