Re WMG (Toughening) Ltd (No. 2)

• Jurisdiction: Ireland
• Judge: Mr. Justice Roderick H. Murphy
• Judgment Date: 06 April 2001
• Neutral Citation: [2001] IEHC 65
• Court: High Court
• Docket Number: [2000 No. 117 COS]
• Date: 06 April 2001

[2001] IEHC 65

THE HIGH COURT

No. 117 COS/2000

WMG (TOUGHENING) LTD, RE

IN THE MATTER OF WMG (TOUGHENING) LIMITED

AND

IN THE MATTER OF THE COMPANIES ACTS, 1963– 1999

Citations:

COMPANIES ACT 1963 S214

TRUCK & MACHINERY SALES LTD V MARUBENI KOMATSU LTD 1996 1 IR 12

KINSELLA V RUSSELL KINSELLA PTY LTD 1986 4 NSWLR 722

A COMPANY, RE 1997 1 BCLC 639

BANQUE DE PARIS 1984 1 LR 21

CLAYBRIDGE SHIPPING COMPANY SA, RE 1981 CLR 107

GERMAN DATE COFFEE COMPANY 1882 CHD 169

KITSON 1946 1 AER 435

COMPANIES ACT 1963 S213(3)(e)

STONEGATE LTD V GREGORY 1980 1 AER 241

PAGE BOY COURIERS, RE 1983 ILRM 510

MALAYAN PLANT LTD V MOSCOW NARODNY BANK LTD 1980 2 MLJ 53

SHINKWIN V QUIN-CON LTD 2001 2 ILRM 154

LHF WOODS LTD 1970 CH 27

BAYOIL, RE 1999 1 AER 374

BULA LTD, RE 1990 1 IR 440

STEELRING LTD 1921 CHD 349

A COMPANY, RE 1985 BCCC 37

Synopsis:

Company Law

Company law; winding-up petition; petitioner claiming he is owed sum of money from company; petitioner claiming company is insolvent and unable to pay its debts; company instituted proceedings against, inter alia, the petitioner; petitioner is chairman of another company, one of whose subsidiaries had been sole customer of company; company contending that existence of bona fide dispute in respect of amount to be collected renders it improper to allow winding-up; shareholder in company had sold controlling interest in company to petitioner on certain date; letter of that date from managing director and petitioner to controlling shareholder of company in which they undertook to establish a sinking fund in company to ensure redemption of certain investors in company and to leave existing financial parameters of company in place; company alleging breach thereof; whether statutory letter of demand pursuant to s.214, Companies Act, 1963 was delivered to the company's registered office by leaving it at the registered office within the meaning of section; whether letter signed by managing director binding on company; whether undertakings therein adhered to; whether court should endeavour to give effect to intention of parties at time letter was written; whether company had grounds of substance to dispute its liability; whether petition was being presented for the benefit of all the members and creditors.

Held: Petition dismissed.

WMG (Toughening) Ltd., In re - High Court: Murphy J. - 06/04/2001 - [2001] 3 IR 113

The petitioner sought an order for the winding up of a company. Murphy J was not satisfied that the petition was being presented for the benefit of all of the members and creditors. The application would be refused.

1 Mr. Justice Roderick H. Murphy delivered the 6th day of April, 2001.

1. SUMMARY

2 Mr. Oliver Brady, the Petitioner herein, says he is owed £138,000 by WMG (Toughening) Limited (the Company) to whom he lent that sum on the 9th July, 1998. While it appears that the loan was, in fact, from Elgrove Limited, there is no issue that he was, at the time of the presentation of the petition, the owner of all the shares therein.

3 WMG Group Limited (the Group) had at all material times a 21% share holding in the Company. Mr. Barry was and continues to be the Chairman of the group.

4 Mr. Barry called on the Company to repay the loan. The loan was not repaid either to him or to Elgrove Limited.

5 On the 13th April, 2000 he petitioned for the winding up of the Company on the ground that the Company was insolvent and unable to pay its debts. On the 16th June he filed a verifying Affidavit. On the 27th and 28th June he advertised the petition in the national newspapers and on the 5th July in Iris Oifigiuil.

6 The matter came before this Court for hearing on the 8th, 13th and 14th February last. Over 20 Affidavits were filed with extensive exhibits.

2. ISSUES

7 The issues raised in this petition extend from the service of the statutory demand by the Petitioner on the Company, the solvency of the Company at the date of the presentation of the petition, to the control and management of the Group and the Company itself.

8 In addition, issues arise regarding the relationship between the Company and the Group after the controlling shares in the Group was sold by Mr. James Barber, who resists the application for the winding up of the Company, to Mr. Brady, the Petitioner herein, on the 9th July, 1998.

9 Mr. Barber, who had not been a Director at the time he sold his controlling interest to the Petitioner, became a Director of the Company after the sale.

10 He appears to have done so in order to promote the interests of the Business Expansion Scheme Shareholders, many of whom were the clients of his accountancy practice.

11 Certain disputes arose between the date of the agreement of the 9th July, 1998 and the calling of an EGM which was held on the 5th May, 2000, almost two years thereafter which resolved a change in the board of directors.

12 The Petitioner was chairman of the group. One of the group's subsidiaries was the sole customer of the Company. The Petitioner was never a Director of the Company.

13 Mr. Don O'Gorman was Managing Director of the Company having worked previously for the group as had Mr. Brugha who was also Director of the Company. In addition, Mr. Brian Neville, Financial Controller and Mr. James Punch, Production Manager had previously been employed by the group.

14 In fact the difference between the Company, which had no premises of its own and the group appeared to have been in name only. The Company was formed for the purposes of attracting grant aid and BES investors.

3. CAPITALISATION OF THE COMPANY

15 The Company was, from its incorporation on the 11th February, 1995 funded by a Forbairt grant in the sum of £125,000, by the loan from Elgrove Limited of £138,000 and from two tranches of BES funds of £55,000 on the 31st July, 1995 and £157,000 on the 28th February, 1996.

4. CHRONOLOGY

16 In order to understand events prior to and subsequent to the agreement for sale of shares on the 9th July, 1998 it might be useful to refer to the chronology appended hereto.

17 11.02.95 Incorporation of Company

18 31.07.95 £55,000.00 BES invested

19 28.02.96 £157,000.00 BES invested

20 21.06.99 agreement O'Gorman-Barber re: sale of 80% share holding in Group for £650,000.00

21 25.06.98 Supplemental Agreement of Sale

22 10.07.98 Completion deadline extended

23 09.07.98 Agreement Re: financial parameters.

24 09.07.98 Sale by Barber to Mr. Brady

25 13.12.99 Directors Meeting Re: audited accounts y/e 1998.

26 Attended by Directors, Petitioner and Mr. Barber

27 12.04.00 Letter Re: Dispute of Minutes of 13.12.99

28 13.04.00 Statutory letter of demand by Petitioner faxed to Company

29 14.04.00 EGM called

30 17.04.00 Letter of termination: Group to Company

31 26.04.00 Letter O'O'o'gorman to Shareholders

32 05.05.00 EGM: Board of Directors change

33 14.06.00 Presentation of petition

34 22.06.00 Letter Company to Petitioner threatening proceedings

35 04.07.00 Issue of Summons: Company -v- Group, Petitioner and Directors

36 07.07.00 First Affidavit of Mr. Barber

37 07.07.00 Supplemental Affidavit of Claire Cowhig

38 22.07.00 Affidavit of Brian Neville

39 25.07.00 Affidavit of Petitioner

40 25.07.00 Affidavit of James Punch

41 27.07.00 Service of Summons

42 10.08.00 Affidavit of Mr. O'Gorman

43 28.09.00 Affidavit of Mr. Brugha, Director

44 19.10.00 Second Affidavit of Mr. Barber

45 06.12.00 Second Affidavit of Mr. Neville

46 06.12.00 Affidavit of Mr. Murphy Re: Insurance

47 06.12.00 Second Affidavit of Mr. O'Gorman

48 06.12.00 Second Affidavit of Mr. Brugha

49 06.10.00 Third Affidavit of Petitioner

50 31.01.01 Third Affidavit of Mr. Barber

51 31.12.01 Affidavit of Barry Collins

52 31.01.01 Affidavit of Mr. Toomey

53 06.02.01 Third Affidavit of Mr. Brugha

54 06.02.01 Third Affidavit of Mr. Neville

55 06.02.01 Third Affidavit of Mr. O'Gorman

56 06.02.01 Fourth Affidavit of Petitioner

57 06.02.01 Second Affidavit of Mr. Murphy

5. CONFLICT OF FACT

58 The multiplicity of Affidavits raises some conflict as to facts. What is abundantly clear, and indeed would seem to be common case, is that both before and after the change in ownership, the Company was set up for the purpose of financing, through Grant Aid and through BES funding, an operation which was entirely dependent on a subsidiary of the Group as its sole customer. It did not have separate premises nor, indeed, at all material times a separate trading bank account. It was perhaps inevitable that its management and final accounts depended on what overheads were ascribed to it and, to an extent, on pricing policy. It is also perhaps inevidible that there should emerge some disputes regarding the accounts prepared by the Directors to its auditors.

6. DIRECTORSHIPS

59 It is curious that neither the Petitioner nor Mr. Barber were ever Directors of the Company up to the time of the agreement of the 9th July, 1998. Mr. Barber, was, of course, the controlling shareholder before that date as was the Petitioner after that date.

60 It also significant that all but two of the BES shareholders - Mr. O'Gorman, the Managing Director, and Mr. James Punch, the Production Manager, were clients of Mr. Barber's accountancy practice.

7. AGREEMENTS FOR SALE OF SHARES

61 The agreement of the 21st June, 1998 between Mr. Barber and Mr. O'Gorman provided, inter alia, for the BES Shareholders to be redeemed on their due dates. The Petitioner was not a party to that agreement.

62 Neither is the Petitioner a party to the agreement to extend the closing date made the 25th June, 1998. In the event the Petitioner took over as purchaser.

63 The critical agreement is, that of the 9th July, 1998 in relation to financial parameters which states as follows:

64 James Barber Esq.,

65 We the Directors of WMG (Toughening) Limited (WMGT) and WMG...