Star Elm Frames Ltd & Companies Act 2014

• Jurisdiction: Ireland
• Judge: Mr. Justice Richard Humphreys
• Judgment Date: 03 October 2016
• Neutral Citation: [2016] IEHC 666
• Court: High Court
• Docket Number: [2016 No.242 COS]
• Date: 03 October 2016

IN THE MATTER OF STAR ELM FRAMES LIMITED

AND

IN THE MATTER OF THE COMPANIES ACT 2014

AND

IN THE MATTER OF A PETITION BY MICHAEL GLADNEY

PETITIONER

[2016] IEHC 666

Humphreys J.

[2016 No.242 COS]

THE HIGH COURT

Company – S. 570(a) of the Companies Act 2014 – Non-payment of tax liabilities – Examinership – Petition for compulsory winding up – Creditors voluntary windings up

Facts: The petitioner sought compulsory winding up of the company under the supervision of the Court while the liquidator and the persons representing the company argued that the creditors' voluntary winding up would be appropriate. The petitioner argued that the failure to pay debt by the company was an indication that it should be wound up.

Mr. Justice Richard Humphreys granted an order for winding up of the company. The Court held that before making such an order, the Court must take into account certain factors such as misconduct of parties, time frame for initiating creditors' voluntary winding up, conduct of company, views of stakeholders, objection from creditors and complexity of the matter. The Court held that since the liquidator wasted the time and resources of the Court, he should be personally liable for the costs incurred by the petitioner. The Court granted an order for the removal of the existing liquidator and appointed a new liquidator with the direction that he should pay the fees of the earlier liquidator to the petitioner. The Court opined that although voluntary winding up was desirable, yet the conduct of the company in initiating the same hours before the present petition was about to be made in the Court went on to favour the winding up under the Court's direction.

JUDGMENT of Mr. Justice Richard Humphreys delivered on the 3rd day of October, 2016

1 In 2013, the company in this case was the subject of an application to Kelly J. (as he then was) to approve a scheme of arrangement in the context of an examinership. That scheme provided for the making of a significant investment in the company in the amount of €150,000. At para. 5.1.1 of the scheme, a loan of €60,000 was to be made to the company as well as an investment of €60,000, which was stated to have been lodged in a escrow account. It has been averred to that this transpired to not have been the case, an averment not denied in the present application.

2 Furthermore, in the scheme arrangement, Mr. Anthony O'Gara was to be an executive director of the company. Again, it appears that this was not done and that he has acted as a non-executive director. Mr. David Sage was to resign as a director, and a dispute has arisen whether he has acted as a shadow director since then.

3 Mr. Myles Kirby on behalf of the Revenue Commissioners indicated at the time of the examinership his view that the scheme would not work and that it was underfunded. However, the scheme was nonetheless approved by the High Court. However it did not resolve the company's difficulties.

4 On 9th March, 2016, the Revenue Commissioners sent a letter of demand to the company pursuant to s. 570(a) of the Companies Act 2014 in the amount of €585,523.35. It was later stated that this was an overstatement of the tax liability and the correct figure accounting for sums written off in the examinership was in the amount of €350,147.30. However at the hearing the Revenue informed me that their position was that €295,136 remained unpaid from the examinership, together with a further €271,794 returned since then. In addition, sums of approximately €38,000 were considered due in relation to P30s for April and May 2016, and based on the previous VAT return, a figure of €81,962 for VAT for May/June 2016 could be postulated. On that basis, the total figure now due to Revenue would in any event exceed the amount stated in the letter of demand.

5 The Revenue's petition for the compulsory winding-up of the company with which I am now dealing, was filed on 24th June, 2016. A verifying affidavit was filed on 30th June, 2016 but not served until 5th July, 2016.

6 On 1st July, 2016, notices were published on behalf of the Revenue in the Irish Times, Irish Independent and Iris Oifigiúil stating that the petition was due to be heard on 18th July, 2016, and that interested parties should furnish notice of their intention to appear by 15th July, 2016.

7 On 6th July, 2016, the company ceased trading and on the following day appears to have entered into a rental agreement with David Sage which the Revenue characterises as a transfer of business and a ‘ phoenix operation’.

8 A creditors' meeting was held on 18th July, 2016, at which the company appointed, and a majority of the creditors approved, the nomination of Mr. Anthony J. Fitzpatrick as liquidator in a creditors' voluntary winding up.

9 When the petition came before the High Court on 18th July, 2016, no interested parties had in fact formally given notice of their intention to appear in accordance with form No. 8 to the rules of court as required by Order 74, rule 15. Pursuant to that rule, parties who failed to give such notice shall not be heard by the court without special leave. In the present case, I granted such leave, on their application, to Mr. Fitzpatrick, Mr. O'Gara and Mr. Sage and gave liberty for the formal entry of appearances and the filing of affidavits.

10 I have now heard from Mr. Dermot Cahill, B.L., on behalf of the Revenue Commissioners as petitioners, Mr. Ronnie Hudson, B.L., on behalf of the company and Mr. Fitzpatrick, and Ms. Jacqueline McManus, Solicitor, on behalf of Mr. O'Gara and Mr. Sage.

11 Mr. Cahill's application is for a winding up of the company by the court, as opposed to permitting the creditors' winding up to continue. After a three-day hearing during the Long Vacation, I granted the relief sought on 10th August, 2016, and I now give reasons for having done so.

The status of the parties

12 The rules of court do not appear to envisage the concept of a ‘respondent’ to a petition, perhaps because of the large number of persons who could potentially be in that position, but rather the rules speak in terms of a person entitled to be heard on the petition. A person who has such an entitlement has therefore the rights of a party to a more traditional court application. In substance, Mr. Fitzpatrick, Mr. O'Gara and Mr. Sage have all the entitlements of a respondent in a normal court application. At one point Mr. Hudson complained that he had not been made a respondent so to put the matter beyond doubt I gave liberty to all parties to enter a formal appearance. This liberty was taken up and appearances were filed by Mr. Fitzpatrick, the Company, and Messrs. O'Gara and Sage. Of course, enjoying the rights of a party also involves an assumption of the liabilities of a party, including a liability as to costs where so ordered.

The role of the liquidator in an application for a court winding-up

13 In Hewitt Brannan (Tools) Co Ltd [1991] BCLC 80, Harman J. said that a voluntary liquidator had ‘ no business to take an attitude as to the continuation or not of his voluntary liquidation’. I consider this approach to be correct. The liquidator should stand back from an application of this type and allow the primary parties, being the disagreeing creditors, and to a lesser extent, the directors, to fight the issue out.

14 Mr. Fitzpatrick's failure to do so has led to this application being much more protracted and expensive than it otherwise would have been. Furthermore it led to the unedifying position whereby he, rather than the chairman of the creditors' meeting, took on the primary onus of defending the chairman's rulings and conduct of that meeting.

15 It is true that liquidators (and the companies themselves that are in voluntary liquidation, which are in effect simply liquidators under another name) have from time to time been made respondents in company law applications. But that is primarily because the new rules of court require a wide number of applications to be made on notice to the liquidator (see O. 74 r. 40(2) and ( 3), r. 83(1) and (2) and other sub-rules which involve a bewildering array of applications by notice of motion or originating notice of motion, on notice either to identified parties including the liquidator or to unidentified parties). It is perhaps debatable whether the notice of motion procedure is really the most appropriate one for many of these applications, or if so whether requiring notice to the liquidator (as opposed, say, to the directors) properly reflects the limited role of the liquidator as set out in Hewitt Brannan. Finlay-Geoghegan J. in Revenue Commissioners v Ladaney Ltd [2015] IECA 62 at para. 15 commented that it was not inappropriate for the liquidator to participate where named as a respondent but otherwise ‘ the position might have been different’. It seems open to debate as to whether the correct role of the voluntary liquidator should really hinge on the probably unintended side-effect of the Rules Committee having provided for a motion procedure in the new O. 74. Perhaps there is a case for the rules to be reviewed from this perspective. But in the present case, the petition procedure does not involve any specified respondents and the liquidator has become involved of his own choice rather than because he must do so. That choice and the further decision to take on virtually the entire burden of defending the petition seems to me to reflect a misunderstanding of the role of the voluntary liquidator.

Is the jurisdictional basis for a winding up by the court established?

16 The basis relied on for a winding up by the court is the inability of the company to pay its debts. Pursuant to s. 570 of the Companies Act 2014, inability to pay debts may be proved in a number of ways. Notably, under para. (a), a failure to meet a letter of demand may establish an inability to pay...