Re Sugar Distributors Ltd
| Jurisdiction | Ireland |
| Judge | Keane J |
| Judgment Date | 01 January 1996 |
| Neutral Citation | 1995 WJSC-HC 5564 |
| Docket Number | [1995 No. 129 COS],129 COS/1995 |
| Court | High Court |
| Date | 01 January 1996 |
1995 WJSC-HC 5564
THE HIGH COURT
AND
AND
AND
Citations:
COMPANIES ACT 1990 S227
COMPANIES ACT 1963 S89(1)
FINANCE ACT 1980 S38
FINANCE ACT 1980 S39
FINANCE ACT 1980 S40
FINANCE ACT 1980 S41
FINANCE ACT 1980 S42
FINANCE ACT 1980 S43
FINANCE ACT 1980 S44
FINANCE ACT 1980 S45
FINANCE ACT 1980 S46
FINANCE ACT 1980 S47
FINANCE ACT 1980 S48
FINANCE ACT 1980 S49
FINANCE ACT 1980 S50
FINANCE ACT 1980 S51
CORPORATION TAX ACT 1976 S156
CORPORATION TAX ACT 1976 S155
PARKER & COOPER LTD V READING 1926 1 CH 975
BUCHANAN LTD & ANOR V MCVEY 1954 IR 89
ATHENAEUM LIFE ASSURANCE SOCIETY, IN RE 1858 CH 4 KAY & J 304
BANK OF IRELAND V ROCKFIELD LTD 1979 IR 21
BOWSTEAD ON AGENCY 15ED 53–55
EUROPEAN COMMUNITIES (COMPANIES) REGS 1973 SI 163/1973
NORTHERN BANK FINANCE CO LTD V QUINN & ACHATES INVESTMENT CO 1979 ILRM 221
ROYAL BRITISH BANK V TURQUAND 1856 E & B 327
AIB LTD V ARDMORE STUDIOS INTERNATIONAL (1972) LTD UNREP FINLAY 30.5. 73
ULSTER INVESTMENT BANK LTD V EURO ESTATES & DRUMKILL LTD 1982 ILRM 57
SUPERWOOD HOLDINGS PLC V SUN ALLIANCE INSURANCE GROUP UNREP SUPREME 27.6.95 1995/13/3385
ALPHA RESOURCES LTD, IN RE 1987 AUST COMP LAW CASES 57
SWAN BREWERY CO LTD (NO 2), IN RE 1976 AUST COMP LAW CASES 168
EBRAHIMI V WESTBOURNE GALLERY LTD 1973 AC 379
MURPHS RESTAURANTS, IN RE 1979 ILRM 141
MIN FOR JUSTICE V SUICRE EIREANN 1992 2 IR 215
MILLHEIM V BAREWA OIL & MINING CO NL 1971 WAR 65
Synopsis:
COMPANY
Shares
Issue - Procedure - Validity - Doubt - Remedy - Court - Discretion - Exercise - Declaration of validity of transaction - Court to be satisfied that it would be just and equitable to make declaration - Companies Act, 1963, s. 89 - Companies Act, 1990, s. 227 - (1995/129 Cos - Keane J. - 2/10/95) - [1995] 2 I.R. 194
|In re Sugar Distributors Ltd.|
WORDS AND PHRASES
"Just and equitable"
Shares - Issue - Procedure - Validity - Doubt - Remedy - Court - Discretion - Exercise - Declaration of validity of transaction - Court to be satisfied that it would be just and equitable to make declaration - (1995/129 Cos - Keane J. - 2/10/95) [1995] 2 I.R. 194
|In re Sugar Distributors Ltd.|
JUDGMENT delivered the 2nd day of October 1995 by Keane J.
This is an application by Sugar Distributors Limited (hereafter "S.D.L.") for an Order pursuant to S. 89 of the Companies Act 1963as amended by S. 227 of the Companies Act 1990declaring that an allotment of 900,000 convertible redeemable preference shares in the capital of S.D.L. to Irish Sugar Plc. during the financial year ending the 30th September, 1990, is and was valid.
Section 89(1) of the Companies Act 1963as subsequently amended provides that:-
"If a company has created or issued shares in its capital, or acquired any of its shares by a redemption or purchase in purported compliance with Part 11 of the Companies Act 1990, and if there is reason to apprehend that such shares were invalidly, created issued or acquired as aforesaid, the Court may, on the application of the company, any holder or former holder of such shares or any member or former member or creditor, or the liquidator, of the company declare that such creation, issue or acquisition shall be valid for all purposes if the Court is satisfied that it would be just and equitable to do so and thereupon such shares shall from the creation, issue or acquisition thereof, as the case may be, be deemed to have been validly created, issued or acquired".
On the 29th May last, on an application for directions as to the parties to whom notice of the application should be given, McCracken J. ordered that Christopher Comerford, Michael Tully and the Revenue Commissioners should be joined as Notice Parties. The former were joined because they were at the time of the events giving rise to the application officers of both Irish Sugar Plc. and S.D.L. The Revenue Commissioners were joined because of a possible interest in the outcome of the application, the nature of which will become clearer from the outline of the facts which immediately follows.
Irish Sugar Plc. (hereafter "Irish Sugar") was originally a semi-State body, all its shares being owned by the Minister for Finance. In June 1990, the Minister exchanged all the shares which he owned in the company for shares in a new company, Greencore Group Plc., as part of the process of privatising the enterprise. The shares in the latter company were then the subject of a Stock Exchange flotation, as a result of which 70% of the shares are now held by private investors, the remaining 30% being still in the ownership of the Minister.
The principal business of Irish Sugar was and is the manufacture of sugar from sugar beet. The principal business of S.D.L. was and is the distribution of the sugar products manufactured by Irish Sugar. The precise relationship, present and past, of Irish Sugar and S.D.L. is somewhat complicated and is of importance in the context of the present application.
100% of the shares in S.D.L. were at all times held by a company called Sugar Distributors (Holdings) Limited (hereafter "S.D.H."). Until 22nd March, 1990, the shares in S.D.H. were held as to 51% by Irish Sugar and as to 49% by a company called Gladebrook Company Limited (hereafter "Gladebrook"). The shareholders of Gladebrook at all material times were Charles Lyons, Thomas Keleghan, Charles Garavan, Michael Tully and a company called Talmino Limited. In January 1990, Irish Sugar agreed to acquire from the shareholders of Gladebrook all the issued share capital in Gladebrook and that acquisition was completed on the 22nd March, 1990. As a result, Irish Sugar owned, directly or indirectly, all the issued share capital in S.D.L. as from that date.
In 1988, the financial and legal advisers to Irish Sugar considered the possibility of restructuring the share capital of its associated companies so as to improve its tax position. Under Ss 38 to 51 of the Finance Act, 1980, a company is entitled to manufacturing tax relief on its profits arising from the sale of goods manufactured by itself within Ireland. Where such relief is available, the Corporation Tax Rate of a company is effectively reduced to 10% in respect of the profits arising from such activities. Section 39 provides that where there are two companies, one of which manufactures goods (called the "manufacturing company") and the other of which sells the goods in the course of its trade (called the "non-manufacturing company"), the goods sold by the non-manufacturing company are deemed to have been manufactured by it if one of the companies is a 90% subsidiary of the other or both companies are 90% subsidiaries of a third company. The term "90% subsidiary" is defined by S. 156 of the Corporation Tax Act, 1976which provides that:-
"A company shall be deemed to be a 90% subsidiary of the other if and so long as not less than 90% of its ordinary share capital is directly owned by that other company".
Since 90% of the share capital of S.D.L. (the non-manufacturing company) was not held by Irish Sugar (the manufacturing company), it was obvious that the manufacturing tax relief would not be available. Three options were considered, one of which was the issuing by S.D.L. to Irish Sugar of 900,000 redeemable preference shares of £1 each. The share capital of S.D.L. consisted of 100,000 ordinary shares of £1 each, which, as already noted, were held by S.D.H.. Because of the definition of "ordinary share capital" in S. 155 of the Corporation Tax Act, 1976, the issue of the redeemable preference shares to Irish Sugar would mean that, for the purposes of that Act, 90% of the ordinary share capital was held by them, provided certain conditions were met in relation to the issue of the shares. Since the redeemable preference shares would not carry any voting rights, the position as to control of S.D.L. for all other purposes would remain as before, i.e. 51% of the voting shares being owned by Irish Sugar and 49% by Gladebrook. Senior Counsel, the late Mr. Raymond O'Neill, advised that, if carried out in this form the transaction would enable the desired tax relief to be obtained, while leaving the actual control of S.D.H. and, through it, S.D.L. as it was.
The transaction was not carried out in that form at that time. However, following the agreement already referred to under which Irish Sugar agreed to acquire the entire issued share capital in Gladebrook, the tax advisers to S.D.H. and S.D.L., Messrs. Pannell Kerr Forster (hereafter "P.K.F.") advised Mr. Mark Maguire, the secretary of S.D.L., that they were seeking on their behalf from the Revenue Commissioners a concession by virtue of which the manufacturing tax relief would be available to S.D.L., notwithstanding the indirect nature of the ninety per cent holding of the shares by Irish Sugar. P.K.F. also advised Mr. Michael Tully that, if the concession sought from the Revenue Commissioners was not forthcoming it would be necessary to establish the ninety per cent direct subsidiary relationship between Irish Sugar and S.D.L., either by way of a transfer of shares in S.D.L. from S.D.H. to Irish Sugar or by way of an issue of shares by S.D.L. to Irish Sugar. At the time of the sale of the shares in Gladebrook to Irish Sugar, P.K.F. prepared a document setting out the projected earnings of S.D.H. and its subsidiaries on the assumption that S.D.L. would be entitled to manufacturing tax relief for the entire of the period ending on September 28th 1990.
On the 19th June, 1990, the Revenue Commissioners advised P.K.F. that they were not prepared to grant the concession requested. On...
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