The Companies Act 2014 and Section 438 of the Companies Act 2014

• Jurisdiction: Ireland
• Judge: Mr. Justice Twomey
• Judgment Date: 13 May 2022
• Neutral Citation: [2022] IEHC 276
• Court: High Court
• Docket Number: [2019/294/COS]

In the Matter of the Companies Act 2014 and in the Matter of Section 438 of the Companies Act 2014

And in the Matter of Dan Morrissey (IRL) Limited

[2022] IEHC 276

[2019/294/COS]

THE HIGH COURT

COMMERCIAL

Lease – Secured property – Companies Act 2014 s. 438 – Shareholder in a corporate borrower seeking to compel a receiver to lease secured property to that borrower – Whether the High Court had jurisdiction to grant the order sought by the shareholder

Facts: Mr Morrisey of Milford, County Carlow, a shareholder in Dan Morrissey (Irl) Ltd (DMI Ltd), sought to rely on s. 438 of the Companies Act 2014 to obtain an order from the High Court requiring Mr McCann and Mr Tennant (the Receivers) who were appointed to the assets and undertaking of DMI Ltd to grant Mr Morrissey an agricultural lease over the secured land in Powerstown, County Carlow. Mr Morrisey complained that the lands were being mismanaged by the Receivers, with activities such as crop rotation not being properly followed. In those circumstances, he made what he believed to be a reasonable offer to rent the land from the Receivers for a sum of €200 per acre. He relied on the terms of s. 438 to seek an order from the Court for the Receivers to lease the lands to him on that basis for a period of 10 years. The question for the Court was a net legal question of whether the Court had jurisdiction to grant the order sought by Mr Morrissey.

Held by Twomey J that even if the Court found that the lands had been mismanaged by permitting potatoes to be grown more than one year in four, as alleged by Mr Morrissey, the Court did not have the power to choose Mr Morrissey as the person who should farm the lands and then make an order for the lands to be leased by the Receivers to Mr Morrissey. Twomey J held that if the Court were to do so, the Court would in effect be implying that there was a right, on the part of a borrower who has defaulted on his loan (which led to the lender appointing a receiver over the borrower’s secured assets), to seek to dictate how that receiver manages the assets to pay-off the secured debts. Twomey J found that the notion that a borrower would be able to dictate, via a court order, how a receiver manages the secured assets would be a novel proposition in Irish law. Accordingly, the Court rejected Mr Morrissey’s claim that s. 438 grants the Court the jurisdiction to make an order obliging the Receivers to grant him an agricultural lease over the lands in question.

Twomey J held that the Court did not have the jurisdiction to make the order sought by Mr Morrissey and accordingly the motion was dismissed.

Motion dismissed.

JUDGMENT OF Mr. Justice Twomey delivered on the 13th day of May, 2022

INTRODUCTION

1 This case raises the novel proposition that a borrower (or in this case a shareholder in a corporate borrower) might be able to compel a receiver to lease secured property to that borrower, where the receiver was appointed to the property which was provided as security for the borrowings.

2 In this case, Philip Morrissey (“Mr. Morrisey”) of Milford, County Carlow, who is a shareholder in Dan Morrissey (Irl) Ltd (“DMI Ltd”), seeks to rely on s. 438 of the Companies Act, 2014 to obtain such an order from this Court.

3 The order he seeks would require Mr. Paul McCann and Mr. Stephen Tennant (the “Receivers”) who were appointed to the assets and undertaking of DMI Ltd to grant Mr. Morrissey, who is a shareholder in DMI Ltd, an agricultural lease over the secured land in Powerstown, County Carlow.

4 Mr. Morrisey complains that the lands are being mismanaged by the Receivers, with activities such as crop rotation not being properly followed. In these circumstances, he has made what he believes to be a reasonable offer to rent the land from the Receivers for a sum of €200 per acre.

5 He relies on the terms of s. 438 to seek an order from this Court for the Receivers to lease the lands to him on this basis for a period of 10 years. Mr. Morrissey represented himself in these proceedings, which relate to a valuable quarry and agricultural lands which had been owned by his father and then by DMI Ltd, a company in which he has invested very considerable sums. He therefore has very strong personal reasons for seeking to ensure that the lands are not being mis-managed. Mr. Morrissey presented his argument in a cogent and respectful fashion and it is difficult not to have sympathy with him regarding the fact that lands that he and his family have worked for many years are now in the hands of Receivers due to the failure to repay bank borrowings. However, this case, like all cases, must be determined by the law and not by sympathy. In this regard, as noted hereunder, the question for this Court is a net legal question of whether this Court has jurisdiction to grant the order sought by Mr. Morrissey. This case is therefore primarily determined on the basis of an interpretation of s. 438.

6 Mr. Morrisey's motion dated 29th March, 2022 seeks an order directing Allied Irish Bank plc and the Receivers ‘to grant an agriculture lease of part of the Agricultural Lands at Powerstown, County Carlow…. comprising circa 110 acres’ to him.

7 Upon receipt of this motion, the solicitors for the Receivers claimed that the High Court does not have jurisdiction to grant the order sought. Accordingly, McDonald J. directed that this jurisdictional point be dealt with by this Court as a preliminary issue.

ANALYSIS

8 The key legal argument relied upon by Mr. Morrisey is that s. 438 grants this Court jurisdiction to order the Receivers to grant him the lease he seeks. This section states:

“(1) Where a receiver of the property of a company is appointed under the powers contained in any instrument, any of the following persons may apply to the court for directions in relation to any matter in connection with the performance or otherwise, by the receiver, of his or her functions, that is to say:

(a) (i) the receiver;

(ii) an officer of the company;

(iii) a member of the company;

(iv) employees of the company comprising at least half in number of the persons employed in a permanent capacity by the company;

(v) a creditor of the company;

and

(b) (i) a liquidator;

(ii) a contributory;

and, on any such application, the court may give such directions, or make such order declaring the rights of persons before the court or otherwise, as the court thinks just.

(2) An application to the court under subsection (1), except an application under that subsection by the receiver, shall be supported by such evidence that the...