Star Elm Frames Ltd v Fitzpatrick

• Jurisdiction: Ireland
• Judge: MR. JUSTICE MICHAEL PEART
• Judgment Date: 19 April 2018
• Neutral Citation: [2018] IECA 103
• Date: 19 April 2018
• Court: Court of Appeal (Ireland)
• Docket Number: Neutral Citation Number: [2018] IECA 103 Record No. 2016/412

IN THE MATTER OF STAR ELM FRAMES LIMITED AND IN THE MATTER OF THE COMPANIES ACT 2014

BETWEEN:

STAR ELM FRAMES LIMITED

FIRST APPELLANT

ANTHONY J. FITZPATRICK

SECOND APPELLANT

- AND -

MICHAEL GLADNEY

PETITIONER/RESPONDENT

[2018] IECA 103

Neutral Citation Number: [2018] IECA 103

Record No. 2016/412

THE COURT OF APPEAL

Letter of demand – Extension of time – Costs – Appellants seeking to appeal against High Court order – Whether trial judge acted unreasonably in granting an extension of time to the petitioner/respondent

Facts: The High Court (Humphreys J), on the 10th August 2016, ordered that the first appellant, Star Elm Frames Ltd (the company), be wound up pursuant to the provisions of the Companies Act 2014, it being unable to pay its debts, having failed to comply with a demand in writing served on the company pursuant to s. 570(a)(i) of the Act. The appellants appealed to the Court of Appeal, arguing that the letter of demand served on the company by the Revenue Commissioners on the 9th March 2016 was defective in stating an incorrect amount as being due by the company, and submitting that the trial judge erred in law in this regard. The appellants urged that the trial judge acted unreasonably in granting an extension of time to the petitioner/respondent, Mr Gladney, in circumstances where that extension of time was requested on the third day of the hearing of the petition, and only after the issue as to the lateness of the affidavit had been raised by counsel for the appellants on the previous day. The appellants submitted that the trial judge erred in law and in fact insofar as he had insufficient regard for the authorities opened by counsel and the company in respect of the criteria to displace a voluntary liquidator. The appellants made an argument that the second appellant, Mr Fitzpatrick, ought not to have been replaced as liquidator except for some cause shown. Mr Fitzpatrick appealed against the order for costs of the proceedings made against him in favour of Revenue.

Held by Peart J that there was no dispute that the company was significantly indebted to Revenue; there had simply been an error made in the letter of demand by including in the figure demanded to be paid a sum that was not payable by virtue of the earlier scheme of arrangement. Peart J held that this was insufficient of itself to invalidate the letter of demand. In circumstances where no prejudice of any kind arose to the appellants by the failure of the petitioner to file the verifying affidavit within the period of four days for doing so specified in Ord. 74 of the Rules of the Superior Courts, Peart J held that the trial judge did not act unreasonably in exercising his discretion under Ord. 122, r. 7 of the Rules of the Superior Courts to extend the time for that affidavit to be filed. Peart J held that the trial judge was perfectly entitled on the evidence to consider it preferable that the company be wound up under the court's supervision, and to make an order in that regard. Peart J was not persuaded that there was any error in the approach adopted by the trial judge, and in his decision to appoint Mr Kirby to act as official liquidator. As for the making of an order against Mr Fitzpatrick in respect of costs, Peart J considered that the trial judge was entitled to make an order personally against Mr Fitzpatrick where there was a reasoned basis for doing so.

Peart J held that he would dismiss the appeals by both appellants.

Appeal dismissed.

JUDGMENT OF MR. JUSTICE MICHAEL PEART DELIVERED ON THE 19th DAY OF APRIL 2018

1 By Order of the High Court (Humphreys J.) made on the 10th August 2016 it was ordered that Star Elm Frames limited ('the Company') be wound up pursuant to the provisions of the Companies Act 2014 ('the Act'), it being unable to pay its debts, having failed to comply with a demand in writing served on the company pursuant to s. 570(a)(i) of the Act. Mr Myles Kirby of Ferris Associates, Chartered Accountants was appointed as official liquidator of the company.

2 The winding up of the company had been sought by way of petition presented by the Revenue Commissioners to the High Court on the 24th June 2016. That application was opposed by two directors of the company, namely Niall Freeman and Anthony O'Gara, as well as by David Sage, an employee of the company. In addition, the winding up application by Revenue was opposed by Anthony Fitzpatrick, Chartered Accountant, who had previously been appointed as liquidator at a meeting of creditors of the company at which an ordinary resolution for the voluntary winding up of the company had been passed on the 18th July 2016, and where a majority of the creditors' votes cast at the meeting was in favour of the appointment of Mr Fitzpatrick as liquidator, Revenue having proposed Mr Kirby.

3 The meeting of creditors at which the ordinary resolution for a voluntary winding up was passed was called by the company following the presentation by Revenue of its petition to the High Court. Revenue had wished Mr Kirby to be appointed as liquidator at that meeting, and when that did not occur, Revenue proceeded with its petition before the High Court so that it could again seek to have Mr Kirby appointed as liquidator. The reason for preferring Mr Kirby to be appointed is stated in the affidavit grounding the petition sworn on the 20th July 2016 as follows:-

'35. I say that for the reasons outlined herein, the petitioner seeks the appointment of Myles Kirby as official liquidator. I say that the petitioner, the Collector General, has had a previous course of dealings with Anthony Fitzpatrick in his capacity as liquidator and prefers his nominee to act as liquidator over the assets of the company.

36. I say that the Revenue Commissioners have previously made an application to have Anthony Fitzpatrick removed as the liquidator from Ballyrider Limited (in Voluntary Liquidation) and I beg to refer to a true copy of judgment of Mr Justice Murphy delivered on 21st of July 2015 together with order of the 24th of July 2015 upon which marked with the letters and numbers 'DL8' I have signed my name prior to the swearing hereof. I say that the said order is under appeal.

37. I further say that Anthony Fitzpatrick is the nominee of the members of the company. I say that given the matter is outlined herein, it is the position of the petitioner and Collector General, that an official liquidator unconnected with the members of the company ought to be appointed.

38. I say that serious issues arise regarding the conduct of the company, the implementation of the Scheme of Arrangement and the non-payment of taxes.'

4 On the hearing of the petition, the said Anthony O'Gara, David Sage and Anthony Fitzpatrick sought the leave of the High Court to be heard as respondents to the application for the winding up order. That leave was granted and solicitors came on record for them by entry of appearance.

5 Before addressing the issues that were raised in the High Court, and that application generally, it is necessary to give some brief background facts.

6 The company was incorporated in July 2011, and carried on the business of the manufacture, sale and supply of windows and window frames. The company appears to have taken over the business operated by a different company, Star Elm Limited, which went into liquidation in September 2011 owing Revenue c. €780,000 according to the affidavit which grounded the present petition to the High Court.

7 The company got into financial difficulties and went into examinership in October 2013. It was Revenue's opinion at that time that the company did not have a reasonable prospect of survival, and it engaged Mr Kirby to analyse the proposed Scheme of Arrangement, the independent accountant's report and the affairs of the company. Mr Kirby raised a number of concerns with regard to the viability of the company going forward, but, notwithstanding those concerns, the High Court (Kelly J.) approved the Scheme of Arrangement on the 16th January 2014. The grounding affidavit to the petition herein sets forth details of the gradual further deterioration of the company to the point where as of the date of swearing of that affidavit (20th July 2016) the total amount due and owing to Revenue was stated to be €566,930. In such circumstances, it was averred that the concerns which Revenue had in relation to the viability of the company in the light of the Scheme of Arrangement had proven to be correct, and that the company was insolvent. It was in such circumstances that Revenue proceeded to present its petition to the High Court, and sought to have Mr Kirby appointed as official liquidator. As I have stated already, it was immediately following the presentation of that petition by Revenue, that the company called a meeting at which an ordinary resolution was passed on the 18th July 2016 for the voluntary winding up of the company and whereby Mr Fitzpatrick was appointed liquidator by a majority by value of the creditors present. Mr Kirby had been proposed as liquidator by Revenue, but that proposal was defeated.

The High Court judgment

8 A feature of the present case that is unusual is the fact that Mr Fitzpatrick, a chartered accountant, who was appointed as liquidator for the purposes of the winding up of the company, should have sought leave of the High Court to appear on the hearing of the Revenue's petition, which leave was granted, and that he should so actively involve himself in opposing the petition at the hearing in the High Court. He is neither a shareholder nor a director of the company, and his only interest presumably is that he wishes to retain his appointment as liquidator in the voluntary liquidation, so that he can gain some financial reward by way of fees he would be entitled to charge for the professional services he renders. That is an unusual situation to say the least, and one which the...