Re Star Elm Frames Ltd

JurisdictionIreland
JudgeMs. Justice Laffoy
Judgment Date10 December 2013
Neutral Citation[2013] IESC 57
CourtSupreme Court
Date10 December 2013

[2013] IESC 57

THE SUPREME COURT

Denham C.J.

O'Donnell J.

Laffoy J.

Appeal No. 449/2013]
Star Elm Frames Ltd, In re
IN THE MATTER OF STAR ELM FRAMES LIMITED

AND

IN THE MATTER OF THE COMPANIES ACTS 1963 - 2012

COMPANIES (AMDT) ACT 1990 S2(1)

COMPANIES (AMDT) ACT 1990 S3(3A)

COMPANIES (AMDT) ACT 1990 S3(3B)

GALLIUM LTD T/A FIRST EQUITY GROUP, IN RE 2009 2 ILRM 11 2009/22/5449 2009 IESC 8

COMPANIES (AMDT) ACT 1990 S2(1)(A)

COMPANIES (AMDT) ACT 1990 S2(1)(B)

COMPANIES (AMDT) ACT 1990 S2(1)(C)

COMPANIES (AMDT) ACT 1990 S2(2)

COMPANIES (AMDT) ACT 1990 S2

COMPANIES (AMDT) ACT 1990 S24

COMPANIES (AMDT) ACT 1990 S4A

COMPANY LAW

Examinership

Appeal from refusal of company petition seeking order appointing examiner - Viability of company - New evidence on appeal - Interim examiner appointed - No reasonable prospect of survival as going concern - Liabilities - Absence of creditor opposition to petition - Discretion - Report of independent accountant - Report of interim examiner - Prospective investor - Availability of funds - Utmost good faith - Prejudice - Whether reasonable prospect of survival as a going concern - Whether to exercise discretion in favour of appointing examiner - In the Matter of Gallium Limited [2009] IESC 8, [2009] 2 ILRM 11 - Companies (Amendment) Act 1990, ss s 2(1), 2(2), 3(3A), (3B), 4A and 24 - Appeal allowed (449/2008 - SC - 10/12/2013) [2013] IESC 57

In re Star Elm Frames Limited

Facts: These proceedings concerned a petition to the High Court brought by the petitioner (‘the Company’) seeking an order pursuant to s. 2(1) of the Companies (Amendment) Act 1990 as amended (the ‘1990 Act’) appointing an examiner to the Company. By the 26th September 2013, the Company had a deficit of €277,638 on a ‘going concern’ basis with the Revenue Commissioners being the Company”s largest creditor. The petition was brought as a result of the Revenue Commissioners placing an attachment on the Company”s bank account on the 1st October 2013, in consequence of which the Company was going to be unable to discharge wages to its employees, which were due to be paid on 3rd October 2013. On the 4 th October 2013, the Company”s application was refused by the High Court as it was determined that the Company had failed to demonstrate that it was in a position where it had a reasonable prospect of survival as a going concern or that the court”s discretion should be used in favour of the Company.

The Company subsequently initiated an appeal, and a stay of the order of the High Court was sought and granted pending the determination of the appeal. Similarly to their stance before the High Court, the Revenue Commissioners indicated that they had no objection to an examiner being appointed though they did raise doubts as to the reasonability of the conclusions outlined in the evidence of the Independent Accountant and Interim Examiner. A number of other creditors outlined their support for the petition.

Held by Laffoy J (with Denham CJ and O”Donnell J concurring) that pursuant to s. 2(1) of the 1990 Act, the Court was empowered to appoint an examiner to a company that complied with the requirements set out in paragraphs (a), (b) and (c) of that sub-section. It was clear that the Company complied with those requirements. However under s. 2(2) of the 1990 Act, the Court could not make such an appointment unless it was satisfied that there was a reasonable prospect of the survival of the company and the whole or any part of its undertaking as a going concern. All relevant interests had to be considered in this regard.

According to the report of an Independent Accountant, the Company had a reasonable prospect of survival as a going concern, subject to certain conditions. The Interim Examiner (who had been in place since the petition was first brought) stated in a number of reports that these conditions were achievable. More importantly, it was noted that the Interim Examiner”s Scheme Proposals, which had not been before the High Court, outlined proposals for the Company”s survival as a going concern. On the basis of this evidence, it was held that the Company had satisfied the test outlined in s. 2(2) of the 1990 Act. It was further held that the Court would use its discretion to appoint the Interim Examiner as examiner for the purposes of s. 2(1) of the 1990 Act as it was determined that an examinership would be more advantageous to the creditors as a whole than a winding up of the Company.

Order appointing an examiner pursuant to s. 2(1) of the 1990 Act made.

1

Judgment of Ms. Justice Laffoy delivered on.10th December, 2013

2

Judgment delivered by Laffoy J.

Background
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1. Star Elm Frames Limited (the Company) was incorporated on 19 th July, 2011. In September 2011 it acquired the assets and goodwill of the business of another company, Star Elm Limited (SEL), which was being wound up, from the liquidator at the price of €130,000, of which the sum of €65,000 remains due and owing to SEL (in liquidation). Since the acquisition was completed, the Company has carried on the business acquired, the manufacture and delivery of casement windows, doors and patio doors, from premises at Raheen Business Park, Raheen, County Limerick, which are held by it on lease. At present the Company has thirty one employees.

4

2. During its first year of trading, to mid-August 2012, the Company incurred an operating loss of €329,739, which represented 8.28% of turnover. In the following trading year, to mid-August 2013, it incurred an operating loss of €166,276, which represented 4.85% of turnover, which had diminished by 14.03% in that year. However, expenses as a percentage of turnover had also been reduced in that year.

5

3. On 26 th September, 2013, the first date in respect of which the Court has an estimated statement of affairs, the Company had a deficit of €277,638 on a "going concern" basis. The Revenue Commissioners were the Company's largest creditor. According to the Revenue Commissioners, the Company has a total tax liability of €418,237, comprising €384,374 in respect of VAT for periods November/December 2012, March/April 2013, May/June 2013 and July/August 2013 and €33,863 in respect of PAYE/PRSI for 2013. While there had been engagement between the Company and the Revenue Commissioners prior to October 2013, what appears to have precipitated the Company's actions which led to these proceedings was the fact that on 1 st October, 2013 the Revenue Commissioners placed an attachment on the Company's bank account, in consequence of which the Company was going to be unable to discharge wages which were due to be paid on 3 rd October, 2013.

The petition
6

4. On 3 rd October, 2013 the Company presented a petition to the High Court seeking an order pursuant to s. 2(1) of the Companies (Amendment) Act 1990, as amended (the Act of 1990) appointing an examiner to the Company, On the same day, the Company applied ex parte to the High Court for the appointment of an interim examiner. By order of the High Court (Butler J.) made on 3 rd October, 2013, Joseph Walsh (the Interim Examiner) of Hughes Blake, Chartered Accountants, was appointed as interim examiner until after the hearing of the petition on 4 th November, 2013. There was before the Court on the hearing of the ex parte application a report dated 2 nd October, 2013 of John Tobin, Certified Public Accountant, of J. P. O'Donohoe & Co., which was presented as the report of an independent accountant for the purposes of s. 3(3 A) and (3B) of the Act of 1990 (the Independent Accountant's Report).

7

5. When the petition came on for hearing before the High Court (Charleton J.) on 4 th November, 2013, in addition to the Independent Accountant's Report, there was before the Court an affidavit of the Interim Examiner, which exhibited a report of the Interim Examiner covering the period from his appointment on 3 rd October, 2013 to 4 th November, 2013 (the Interim Examiner's First Report). There was also before the Court an affidavit sworn by Philip Moloney, an officer of the Revenue Commissioners, on 1 st November, 2013. It was made clear in that affidavit that, while the Revenue Commissioners were bringing certain concerns they had to the attention of the Court to assist the Court's adjudication on the petition, they were neutral as to the Company's application for protection. At the hearing of the petition counsel for the Revenue Commissioners maintained the "guardedly neutral" approach to the application to appoint an examiner.

The decision of the High Court on the petition
8

6. By order of the High Court (Charleton J.) made on 4 th November, 2013 it was ordered that the protection of the Court afforded to the Company be lifted forthwith and that the Interim Examiner be discharged as Interim Examiner of the Company. On 5 th November, 2013 the said order was stayed until 8 th November, 2013.

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7. In an ex tempore judgment Charleton J. set out his reasons for refusing the application. First, the petitioner had failed to satisfy him that the Company was in a position where it had a reasonable prospect of survival as a going concern. Secondly, he was not satisfied that he should exercise the discretion conferred on the Court by the Act of 1990 in favour of the Company, which had collected VAT but had not remitted it to the Revenue Commissioners over a period of a year going back to November 2012, in circumstances where the Company had already defaulted on a "scheme to repay" insisted on by the Revenue Commissioners.

The Appeal
10

8. The Company served notice of appeal against the decision of the High Court on 6 th November, 2013. Subsequently, the Company applied for a stay on the order of the High Court. That relief was granted and the position is that the Court...

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