Re WMG (Toughening) Ltd (No. 2)

• Jurisdiction: Ireland
• Judge: Mr Justice McCracken
• Judgment Date: 29 January 2003
• Neutral Citation: [2003] IESC 4
• Court: Supreme Court
• Docket Number: 304/01,[S.C. No. 30 of 2001]
• Date: 29 January 2003

[2003] IESC 4

THE SUPREME COURT

Murray J

McGuinness J

McCracken J

304/01

WMG (TOUGHENING) LTD, IN RE

IN THE MATTER OF WMG (TOUGHENING) LTD AND

IN THE MATTER OF THE COMPANIES ACTS 1963-1999

Abstract:

Company law - Liquidation - Petition to wind-up on grounds that company unable to meet its debts - Whether bona fide dispute over debt in existence - Whether cross-claim by company made in good faith and on substantial grounds - Whether petition should be dismissed - Companies Act, 1963 (No33).

Facts: the company owed £138,000 to the petitioner who was the chairman of a holding company controlling the company and who owned 80% of its shares. The company opposed the petition on the basis that the debt grounding the petition was the subject of a bona fide dispute as the company had a cross-claim against the petitioner for alleged breaches of undertakings given by him for monies in excess of the amount claimed. On that basis, the petition was dismissed in the High Court. The petitioner appealed that decision to the Supreme Court.

Held by McCracken J in dismissing the appeal that the issue was not whether the company would succeed in its claim but whether there was a bona fide dispute over the debt owed to the petitioner. As the cross-claim by the company was made in good faith and on substantial grounds which, if it succeeded, would more than wipe out the petitioner's claim, the trial judge had been correct to dismiss the petition.

1 Judgment of Mr Justice McCracken delivered the 29th day of January 2003.

2 This is an appeal from the decision of Mr Justice Roderick Murphy dismissing the petition of Oliver Brady to wind up WMG (Toughening) Ltd (hereinafter called "the Company").

3 WMG Group Ltd (hereinafter called "Group") is the holding Company of a Group of companies who import and distribute glass and manufacture double-glazed units. In the middle 1990s Group decided to set up a Company which would carry out the specialist job of toughening glass and in due course the Company was formed on 15 ^thFebruary 1995. Group was unable to finance the new Company itself, and organised that the capital be provided through a business expansion scheme. Group retained 21% of the shares in the Company and further capital was raised by funding from An Forbairt and a loan of £138,000 from Elgrove Ltd, £100,000 of which was subordinated to all the other obligations of the Company. In due course the debt of £138,000 owing to Elgrove Ltd was assigned to the petitioner. While some questions have been raised about the validity of the assignment, I am quite satisfied that for the purposes of the legal arguments in this case it can be assumed that the assignment was valid, and there is no doubt that the petitioner did discharge the £138,000 to Elgrove Ltd.

4 While the Company is not a subsidiary of Group, nevertheless commercially it was totally dependent on Group. It operated within premises owned by Group and it would appear that many of the overheads were common to some or all of the companies controlled by Group. This becomes of considerable significance because there was an arrangement whereby the Company would be charged a proportionate percentage of overheads by Group, which practice has led to one of the disputes which have now arisen. The Company did not operate independently of Group, and was totally dependant on Group for its business.

5 Prior to 1998 Group was owned as to 80% by Mr James Barber, who was a chartered accountant and who had been responsible for obtaining the business expansion scheme financing, largely from his own clients. By an agreement of 21 ^st June 1998, he agreed to sell his shareholding in Group to Mr Don O'Gorman. Subsequently, the petitioner replaced Mr O'Gorman as the purchaser of the shares and the sale of the shareholding was completed on 9 ^th July 1998.

6 On the same date, a side letter was signed by Don O'Gorman and the petitioner and addressed to Mr Barber. It provided, inter alia:-

"We the directors of WMG (Toughening) Ltd (WMGT) and WMG Group Ltd (WMG) and being the shareholders of WMG are putting in place a sinking fund in WMGT to ensure that funds shall be available to comply with the redemption of the BES investors at the due times."

7 The letter then set out the amounts and dates of the proposed funding and then continued:-

"Such funding is dependent on WMGT being sufficiently profitable.

We shall be leaving the current financial parameters in place as heretofore."

8 The reference to the current financial parameters clearly means the then current arrangements between Group and the Company, including the allocation of overheads to the Company. The petitioner is and was at all relevant times the chairman of the board of directors of Group and of its subsidiary companies as well as being an 80% shareholder, and clearly is in a position to direct the policy of Group and its subsidiaries.

9 Under the Business Expansion Scheme the first tranche of shares issued under that scheme were due to be repurchased on 30 ^th April 2000, and a meeting of shareholders took place on 4 ^th April 2000, at which they were informed by Mr O'Gorman that their shares were worth 18 pence each, a figure with which those shareholders were highly dissatisfied. A few days later Mr O'Gorman offered to purchase the shares at a price of 50 pence each, which offer was rejected.

10 On 13 ^th April 2000, the petitioner's solicitors sent a letter by facsimile to the...