Red Sail Frozen Foods Ltd ((in Receivership))Red Sail Kilmore Ltd ((in Receivership)) and Red Sail Exports Ltd ((in Receivership)) Tom Grace

• Jurisdiction: Ireland
• Court: High Court
• Judge: Miss Justice Laffoy
• Judgment Date: 20 October 2006
• Neutral Citation: [2006] IEHC 328
• Docket Number: [2005 No. 292 COS]
• Date: 20 October 2006

[2006] IEHC 328

THE HIGH COURT

No. 292 COS/2005

In re Red Sail Frozen Foods Ltd

IN THE MATTER OF: RED SAIL FROZEN FOODS LIMITED (IN RECEIVERSHIP) RED SAIL KILMORE LIM ITED (IN RECEIVERSHIP) RED SAIL EXPORTS LIMITED (IN RECEIVERSHIP)

AND

IN THE MATTER OF AN APPLICATION FOR DIRECTIONS UNDER SECTION 316 OF THE COMPANIES ACT, 1963–2003 TOM GRACE, RECEIVER

APPLICANT

COMPANIES ACT 1963 S316

COMPANIES ACT 1963 S285

MINIMUM NOTICE & TERMS OF EMPLOYMENT ACT 1973 S12

UNFAIR DISMISSALS ACT 1977 S8

PROTECTION OF EMPLOYEES (EMPLOYERS INSOLVENCY) ACT 1984 S6

PROTECTION OF EMPLOYEES (EMPLOYERS INSOLVENCY) ACT 1984 S6(2)

HAYDEN v SEAN QUINN PROPERTIES LTD 1994 ELR 45

NAPIER v NATIONAL BUSINESS AGENCY LTD 1951 2 AER 264

LEWIS v SQUASH IRELAND LTD 1983 ILRM 363

UNFAIR DISMISSALS (AMDT) ACT 1993

UNFAIR DISMISSALS ACT 1977 S8(11)

MINIMUM NOTICE & TERMS OF EMPLOYMENT ACT 1973 S13

TINSLEY v MILLIGAN 1994 1 AC 340

HALL v WOOLSTON HALL LEISURE LTD 2001 1 WLR 225

EEC DIR 76/207

PROTECTION OF EMPLOYEES (EMPLOYERS INSOLVENCY) ACT 1984 S10

COMPANIES ACT 1963 S318

CONVEYANCING ACT 1881 S24(6)

CONVEYANCING ACT 1881 S24(8)

CONVEYANCING ACT 1881 S19

CONVEYANCING ACT 1881 S20

CONVEYANCING ACT 1881 S21

CONVEYANCING ACT 1881 S22

CONVEYANCING ACT 1881 S23

CONVEYANCING ACT 1881 S24

CONVEYANCING ACT 1881 S19(1)(iii)

CITY CAR SALES LTD, IN RE 1995 1 ILRM 221

CONVEYANCING ACT 1881 S24(8)(i)

CONVEYANCING ACT 1881 S24(8)(ii)

CONVEYANCING ACT 1881 S24(8)(iii)

MARSHALL v COTTINGHAM 1981 3 AER 8 1982 CH 82

LAW OF PROPERTY ACT 1925 S109(6)

LAW OF PROPERTY ACT 1925 S109(8)(i)

LAW OF PROPERTY ACT 1925 S109(8)

MIRROR GROUP NEWSPAPERS PLC v MAXWELL 1998 BCLC 638

COTTERELL v STRATTON LR 8 CH APP 295

BALDWINS ESTATE, IN RE 1900 1 IR 15

COMPANY LAW

Receiver

Remuneration - Costs of receivership - Whether receiver entitled to be paid more than 5% of gross amount of monies received - Whether obliged to account for expenses incurred - Costs of enforcing security - Costs paid out in settlement of proceedings against bank - Whether bank entitled to recover monies against company - Cotterell v Stratton (1872) 8 Ch App 295; Re Baldwin's Estate [1900] 1 IR 15; Parker-Tweedale v Dunbar Bank plc (No 2) [1991] Ch 26; Gomba Holdings UK Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 and In re City Car Sales Ltd [1995] 1 ILRM 221 followed; Mirror Group Newspapers plc v Maxwell [1998] BCLC 638 considered - Conveyancing Act 1881 (44 & 45 Vict, c 41), ss 19, 21, 22, 23, 24(6) and (8) - Companies Act 1963 (No 33), ss 285, 316 and 318 - Directions given to receiver (2005/292COS - Laffoy J - 20/10/2006) [2006] IEHC 328

In re Red Sail Frozen Foods Ltd

Facts: The applicant in this case was the receiver and manager of the companies named in the title to the proceedings by virtue of appointments made by Ulster Bank Ireland Limited (the Bank) pursuant to the powers contained in various security documents. In this application, the receiver sought the directions of the court pursuant to section 316 of the Companies Acts, 1963 to 2003 on three discrete and unrelated issues, firstly, whether it was lawful for the receiver to pay the preferential claims made by the Minister of Enterprise, Trade and Employment through his department and by employees of two of the companies under s. 285 of the Act of 1963 relating to arrears of wages, holiday pay, minimum notice and unfair dismissal in circumstances where there was a pre-receivership practice in the companies of making payments to employees without deducting PAYE and PRSI. The second issue related to the remuneration of the receiver and the discharge of costs, charges and expenses incurred by him. Thirdly, the receiver sought directions as to whether the Bank was entitled to be paid by the receiver out of the assets of the Companies the legal costs and other expenses the Bank incurred in connection with the appointment of the receiver, proceedings taken against the Bank and the receiver by the Companies and the receivership of the Companies generally.

Held by Laffoy J. in issuing directions:

1. That it was lawful for the receiver to pay the preferential claims of the Minister's and the employee's residual claims in relation to arrears of wages, holiday pay, minimum notice and unfair dismissal.

2. That the receiver conducted the receivership in a proper and bona fide manner and the basis on which his remuneration was claimed confirmed with the normal practice in the accountancy profession. Consequently, he was entitled to receive remuneration by way of commission at a rate higher than 5 %. The receiver's out of pocket expenses and legal costs were payable separately.

3. That the Bank, in making a contribution towards the plaintiff's legal costs in the proceedings taken against the Bank, had waived its entitlement to recover its own costs or to reclaim the sum paid as a contribution towards the plaintiff's costs. However, the Bank was entitled to be reimbursed out of the secured assets of the company, the costs and expenses incurred in relation to the appointment of the receiver.

Reporter: L.O'S.

1 Judgment of Miss Justice Laffoy delivered on 20th October, 2006 .

The application

2 The applicant (the Receiver) is receiver and manager of the companies named in the title by virtue of the following appointments:

3 (1) In the case of Red Sail Frozen Foods Limited (Frozen Foods), an appointment dated 10th January 2002 by Ulster Bank Ireland Limited (the Bank) pursuant to the powers contained in the following security documents:

4 (a) a debenture dated 21st February, 1978 given by Frozen Foods to the Bank;

5 (b) a mortgage dated 4th October, 1978 made between Frozen Foods of the one part and the Bank of the other part of unregistered land at Clogherhead, County Louth;

6 (c) a supplemental charge (on book and other debts) dated on 18th February, 1985 made between Frozen Foods of the one part and the Bank of the other part.

7 (2) In the case of Red Sale Kilmore Limited (Kilmore), an appointment dated 10th January, 2002 by the Bank made pursuant to the powers contained in the following security documents:

8 (a) a debenture dated 21st February, 1978 given by Kilmore to the Bank;

9 (b) a charge over registered land in County Wexford dated 11th September, 1978 executed by Kilmore in favour of the Bank; and

10 (c) a supplemental charge (on book and other debts) dated 18th February, 1985 made between Kilmore of the one part and the Bank of the other part; and

11 (3) In the case of Red Sail Exports Limited (Exports), an appointment made on 11th January, 2002 by the Bank pursuant to the powers contained in a debenture dated 1st February, 1982 given by Exports to the Bank.

12 By virtue of a guarantee dated 16th October, 1990 the indebtedness of Frozen Foods to the Bank was guaranteed by, inter alia, Kilmore and Exports. By virtue of a guarantee of the same date the indebtedness of Kilmore to the Bank was guaranteed by, inter alia, Frozen Foods and Exports.

13 The receivership is nearing completion. Frozen Foods and Kilmore are insolvent. On this application the Receiver has sought the directions of the court pursuant to s. 316 of the Companies Act, 1963(the Act of 1963) on three discrete unrelated issues. I will deal with each issue separately.

The first issue

14 The Receiver seeks directions as to whether it is lawful for the Receiver to pay the preferential claims made by the Minister of Enterprise, Trade and Employment (the Minister) through his department (the Department) and by employees of Frozen Foods and Kilmore under s. 285 of the Act of 1963 in circumstances where there was a pre-receivership practice in Frozen Foods and Kilmore of making payments to employees without deduction of PAYE and PRSI. Both the subrogated claims of the Minister/Department and the residual employees" claims are made in respect of payments where PAYE and PRSI deductions were properly operated.

15 Exports had no employees.

16 In dealing with this issue, it is important to stress at the outset that the Receiver sought directions as to service of the originating notice of motion. In consequence of directions given by the court, notice of the proceedings was given to the following:

17 (1) The Minister and the Department;

18 (2) the Revenue Commissioners; and

19 (3) employees of Frozen Foods and Kilmore with residual claims in excess of €1,000.

20 None of those notice parties participated in the proceedings. Notice of the proceedings was also served on Frozen Foods, Kilmore and Exports (collectively referred to as "the Companies"), who participated in the proceedings. The Bank also participated, but in relation to the third issue only.

21 Following his appointment the Receiver discovered that prior to the receivership "under the counter" payments had been made to employees of Frozen Foods and Kilmore. Payments were made in cash and no PAYE/PRSI were deducted. The payments were recorded in the books of the Company as the purchase of fish. The Receiver informed the Department of the practice and of his concerns as to the impact the practice might have on employment contracts. He raised the question of the consequential uncertainty as to the status of any subrogated claims the Department would have based upon payments made by it to the employees of Frozen Foods and Kilmore. It was agreed between the Receiver and the officials of the Department that the claims which would be confirmed by him, as employers" representative, in respect of employee entitlements the subject of claims against the Department would exclude payments in respect of which the appropriate PAYE/PRSI deductions had not been made. Subsequently, when submitting the relevant forms to the Department, the Receiver reminded the Department of the pre-receivership practice and confirmed...