Revenue Commissioners v Fitzpatrick

JurisdictionIreland
CourtCourt of Appeal (Ireland)
JudgeMs. Justice Irvine
Judgment Date26 July 2016
Neutral Citation[2016] IECA 228
Docket NumberAppeal No. 2016/218 2015/443 2015/394
Date26 July 2016

[2016] IECA 228

THE COURT OF APPEAL

Irvine J.

Appeal No. 2016/218

2015/443

2015/394

Finlay Geoghegan J.

Irvine J.

Hogan J.

In The Matter of Ballyrider Limited (In Voluntary Liquidation) And In The Matter Of The Companies Act 1963 - 2012

Between/
REVENUE COMMISSIONERS
APPLICANT RESPONDENT
- and -
ANTHONY J. FITZPATRICK
RESPONDENT/APPELLANT

Companies – Liquidation – Removal of liquidator – Respondent seeking removal of appellant as liquidator – Whether High Court identified the correct legal principles to be applied on the respondent?s application to remove the appellant

Facts: The appellant, Mr Fitzpatrick, was appointed liquidator of Ballyrider Ltd, which traded from premises known as the Hazel Hotel, Monasterevin, Co. Kildare, at a creditors meeting held on 19th November, 2010. The respondent, the Revenue Commissioners, were preferential creditors in the liquidation in the amount of ?109,027.00. The hotel, which was subject to a charge in favour of Allied Irish Banks in the sum of ?237,364.00, was initially sold by the liquidator at auction on 11th May, 2011, for a sum of ?630,000 and a deposit of some ?34,000 was paid by the purchaser, Mr Phibbs. The sale to Mr Phibbs fell through following which the hotel was sold in November 2011 to an alternative purchaser for the lesser sum of ?479,000. In January 2012 Mr Fitzpatrick commenced proceedings against Mr Phibbs to recover, for the benefit of the creditors, the loss considered to arise by reason of his default, that being a sum of approximately ?150,000. On 19th August, 2014, the Revenue brought an application to the High Court seeking the following reliefs against the appellant: (i) an order pursuant to s. 280 of the Companies Act 1963 directing the appellant to refrain from bringing any action or other legal proceeding in the name and on behalf of the company; (ii) an order pursuant to s. 280 of the 1963 Act declaring that the costs, charges and expenses incurred by the appellant, or a proportion thereof, were not properly incurred and therefore could not be paid out of the assets of the company in priority to other claims; (iii) in the alternative to (i) and (ii), an order pursuant to s. 277 of the 1963 Act removing the appellant as voluntary liquidator of the company; (iv) such further or other directions as to the Court seem fit; and (v) the costs of the application. The High Court made an order removing the liquidator pursuant to the provisions of s. 277 of the 1963 Act. Consequential orders made directing the liquidator to pay over three particular sums of money, namely ?51,000, ?2,752 and ?50,000, to the new liquidator, were made pursuant to the provisions of s. 638(2) of the Companies Act 2014. On 30th July, 2015, the High Court acceded to the Revenue?s application to appoint Mr Maloney as liquidator. The appellant appealed to the Court of Appeal against the following orders: (i) the order of 24th July, 2015, removing Mr Fitzpatrick from his role as liquidator of the company; (ii) the consequential orders made on 24th July, 2015 that Mr Fitzpatrick hand over to the new liquidator the three specific sums of money; and (iii) the order made on 30th July, 2015, appointing Mr Maloney as liquidator. The appellant submitted that: 1) the High Court judge was not entitled to reach the conclusions she did given that the application was heard in a summary manner and there was a clear conflict of evidence on the affidavits; 2) the basis upon which the proceedings were commenced was completely misconceived; 3) the High Court judge failed to have regard to the fact that the debt due from the company to the Revenue amounted to only 11.25% of its total outstanding liabilities; 4) the conduct of Mr Fitzpatrick was not sufficiently egregious to warrant his removal as liquidator; and 5) the High Court judge had acted in excess of jurisdiction in making the consequential orders under s. 638(2) of the 2014 Act.

Held by Irvine J that the High Court judge identified the correct legal principles to be applied on the Revenue?s application to remove Mr Fitzpatrick as liquidator; her decision was principally based upon her conclusion that he had not conducted the liquidation in an efficient and cost-effective manner. Irvine J was satisfied that the High Court judge erred in law insofar as she made the consequential orders; she had no jurisdiction to do so in circumstances where she had not removed the liquidator, for cause shown, under s. 638(1) of the 2014 Act and appointed a new liquidator in his stead.

Irvine J held that she would refuse Mr Fitzpatrick?s appeal against the order of the High Court judge made under s. 277 of the 1963 Act but would allow his appeal against the consequential orders invalidly made under s. 638(2) of the 2014 Act. Irvine J held that Mr Fitzpatrick?s appeal against Mr. Maloney?s appointment as liquidator must fail.

Appeal dismissed in part.

JUDGMENT of Ms. Justice Irvine delivered on the 26th day of July 2016
Introduction
1

The principal issues that arise for consideration on this appeal are:

(i) the circumstances in which a court might properly order the removal of a liquidator pursuant to s. 277 of the Companies Act 1963 (?the 1963 Act?) or s. 638 of the Companies Act 2014 (?the 2014 Act?) and whether on the evidence before Murphy J. in the High Court she was entitled to make such an order concerning the appellant (?Mr. Fitzpatrick?) on 24th July, 2015, and

(ii) whether the consequential orders made by her on the same date in pursuance of the Court's power under s. 638(2) of the 2014 Act were lawful and warranted in light of Mr. Fitzpatrick's removal from his role as liquidator pursuant to s. 277 of the 1963 act.

Background facts
2

Ballyrider Limited (?the company?) was incorporated on 17th August, 1987, and traded from premises known as the Hazel Hotel, (?the hotel?), Monasterevin, Co. Kildare. Mr. Fitzpatrick was appointed liquidator of the company at a creditors meeting held on 19th November, 2010. The Revenue Commissioners (?the Revenue?) are preferential creditors in the liquidation in the amount of ?109,027.00. A Committee of Inspection was duly appointed pursuant to s. 168(1) of the 1963 Act and this comprised Ms. Noreen Considine, representing the Revenue, and four other individuals representing the interests of other creditors

3

The hotel, which was subject to a charge in favour of Allied Irish Banks in the sum of ?237,364.00, was initially sold by the liquidator at auction on 11th May, 2011, for a sum of ?630,000 and a deposit of some ?34,000 was paid by the purchaser, a Mr. Michael Phibbs. Unfortunately, the sale to Mr. Phibbs fell through following which the hotel was re-advertised and later sold in November 2011 to an alternative purchaser for the lesser sum of ?479,000. Essentially, the hotel was the company's only significant asset. It is not disputed that the conveyance of the property was relatively complicated as the sale necessitated the purchase of certain adjacent lands, including a property owned by one of the directors.

4

As a result of these events, in January 2012 Mr. Fitzpatrick commenced proceedings against Mr. Phibbs to recover, for the benefit of the creditors, the loss considered to arise by reason of his default, that being a sum of approximately ?150,000. In relation to this claim and indeed all other aspects of the liquidation Mr. Fitzpatrick retained the services of Mr. John Tobin, Solicitor, Limerick.

5

In his progress report dated 25th February, 2013, Mr. Fitzpatrick advised as to the likely outcome of the liquidation in the following terms:-

?Due to the lower than expected realisation on the sale of the company premises there will be no dividend available for the unsecured creditors of the Company. However, my Solicitor is seeking recovery of the shortfall between the price obtained at auction (?630,000 less ?34,000 deposit) and ?479,000 which was subsequently received by the Auctioneer in a delayed sale to Mr. Keane. The buyer at Auction, by failing to complete effectively ruined our Auction and resulted in a much reduced price being achieved in the subsequent sale.

The eventual outcome of the liquidation will be determined by the tangible result of this litigation, the legal costs arising and whether or not these costs will be recovered from the defendant. My next report is expected to be conclusive on this matter.?

6

For reasons that will later be referred to, by originating notice of motion dated 19th August, 2014, the Revenue brought an application to the High Court seeking the following relief against the respondent, namely:-

(i) an order pursuant to s. 280 of the Companies Act, 1963 directing the Respondent herein to refrain from bringing any action or other legal proceeding in the name and on behalf of the company; and

(ii) an order pursuant to s. 280 of the Companies Act, 1963 declaring that the costs, charges and expenses incurred by the respondent, or a proportion thereof, are not properly incurred and therefore cannot be paid out of the assets of the company in priority to other claims;

(iii) Or in the alternative to (i) and (ii), a order pursuant to s. 277 of the Companies Act 1963 removing the Respondent as voluntary liquidator of the company;

(iv) such further or other directions as to the Court seem fit; and

(v) the costs of this application.?

7

The Revenue's application was based on an affidavit sworn by Ms. Noreen Considine dated 12th August, 2014, which spawned a number of further affidavits wherein the parties set out their respective positions. When this process was complete an oral hearing was conducted in the High Court in May, 2015 following which the High Court judge delivered a lengthy written judgment on the 21st July, 2015.

8

Following a further hearing on 24th July, 2015, in the course of which both parties made submissions as to the jurisdiction...

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