The Companies Acts 1963 to 2001 and Mitek Holdings Ltd & others

JurisdictionIreland
CourtSupreme Court
JudgeMr. Justice Fennelly
Judgment Date13 May 2010
Neutral Citation[2010] IESC 31
Date13 May 2010
Docket Number[S.C. No. 334 of

[2010] IESC 31

THE SUPREME COURT

Hardiman J.

Fennelly J.

Finnegan J.

RECORD NO. 334/2005
Grace (Liquidator) v Kachkar & McClellan Carrigan
IN THE MATTER OF:- MITEK HOLDINGS LIMITED (FORMERLY KNOWN AS ANTIGEN HOLDINGS LIMITED), MITEK PHARMACEUTICALS LIMITED (FORMERLY KNOWN AS ANTIGEN PHARMACEUTICALS LIMITED), CASTLEHOLDING INVESTMENT COMPANY LIMITED, MITEK LIMITED (FORMERLY KNOWN AS ANTIGEN LIMITED)(ALL IN LIQUIDATION)
AND IN THE MATTER OF: - MIZA IRELAND LIMITED (IN LIQUIDATION), A RELATED COMPANY
AND IN THE MATTER OF THE COMPANIES ACTS 1963 TO 2001
AND IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT, 1990, AND SECTION 56 OF THE COMPANY LAW ENFORCEMENT ACT 2001

BETWEEN:

TOM GRACE, OFFICIAL LIQUIDATOR
Applicant/Respondent

- and -

JACK KACHKAR, ROBERT McCLELLAN CARRIGAN
Respondent/Appellants

COMPANIES ACT 1990 S150(1)

COMPANIES ACT 1963 S214

COMPANY LAW ENFORCEMENT ACT 2001 S56

COMPANIES ACT 1990 S150

LA MOSELLE CLOTHING LTD & ROSEGEM LTD v SOUALHI 1998 2 ILRM 345 1998/23/8886

SQUASH (IRL) LTD, IN RE 2001 3 IR 35 2001/23/6280

BARINGS PLC & ORS, IN RE; SECRETARY OF STATE FOR TRADE v BAKER & ORS (NO 5) 1999 1 BCLC 433

360ATLANTIC (IRL) LTD, IN RE; O'FERRAL v COUGHLAN & ORS 2004 4 IR 266 2004/39/8998 2004 IEHC 410

KAVANAGH v DELANEY & ORS (TRALEE BEEF & LAMB LTD (IN LIQUIDATION), IN RE) 2005 1 ILRM 34 2004/24/5615 2004 IEHC 139

KAVANAGH v DELANEY & ORS (TRALEE BEEF & LAMB LTD (IN LIQUIDATION), IN RE) 2008 3 IR 347 2008 2 ILRM 420 2008/32/6904 2008 IESC 1

COMPANIES ACT 19901990 PART VII CHAP 1

COMPANIES ACT 1990 S149

COMPANIES ACT 1990 S150(2)(B)

COMPANIES ACT 1990 S150(2)(C)

COMPANIES ACT 1990 S150(5)

COMPANIES ACT 1990 S150(3)

COMPANY LAW ENFORCEMENT ACT 2001 S41

BUSINESS COMMUNICATIONS LTD v BAXTER & PARSONS UNREP MURPHY 21.7.1995 1995/6/1869

COMPANIES ACT 1990 S160

COMPANIES ACT 1985 S300 (UK)

LO-LINE ELECTRIC MOTORS LTD, IN RE 1988 BCLC 698 1988 CH 477 1988 3 WLR 26 1988 2 AER 692

KEANE COMPANY LAW 3ED 2000

VEHICLE IMPORTS LTD (IN LIQUIDATION), IN RE UNREP MURPHY 23.11.2000 2000/17/6574

KEANE COMPANY LAW 4ED 2006 374

CITY EQUITABLE FIRE INSURANCE CO LTD, IN RE 1925 CH 407 1924 AER REP 485

MCLAUGHLIN (LIQUIDATOR OF TRAVELODGE LTD) v LANNEN 2006 2 ILRM 217 2005/43/8968 2005 IEHC 341

GOWER PRINCIPLES OF MODERN COMPANY LAW 3ED 1969 549

COMPANY LAW

Directors

Restriction - Criteria for restriction of director - Group of companies - Separate interests of Irish company - Whether directors acted responsibly in affairs of company - Whether directors acted responsibly in permitting transfer of assets - Whether directors acted responsibly in issuing debenture - Business Communications Ltd v Baxter (Unrep, Murphy J, 21/7/1995); La Moselle Clothing Ltd v Soualhi [1998] 2 ILRM 345; McLaughlin v Lannen [2005] IEHC 341, [2006] 2 ILRM 217 and Re Squash (Ireland) Ltd [2001] 3 IR 35 considered - Companies Act 1990 (No 33), s 150 - Company Law Enforcement Act 2001 (No 28), s 56 - Respondents' appeal dismissed (334/2005 - SC - 13/5/2010) [2010] IESC 31

Re Mitek Holding Ltd: Grace v Kachkar

Facts: In 2005, the High Court made a restriction order pursuant to s. 150(1) Companies Act 1990 that the appellant directors be restricted for a period of five years. The appellants appealed to the Supreme Court against the making of an order of restriction. The core of the liquidators complaints against the appellants was that they permitted their Canadian parent to diminish the asset base of the companies by extracting fixed assets and working capital to the value of €2.8 million and that the did not behave responsibly in granting security to CCL industries. The appellants mounted a broad challenge to the findings of the High Court that they had failed to act responsibly, citing their responsibilities to the entire group and the examinership of the Irish group.

Held by the Supreme Court per Fennelly J. (Hardiman, Fennelly, Finnegan JJ. concurring), that the appellants were the controlling directors of the companies from the moment of the implementation of the scheme of arrangement. They did not perform the role of merely being non-executive directors. They were fully conscious of the terms of the scheme of arrangement. The appellants provided no evidence of independent consideration of the rights and property interests of the Irish company. The trial judge was correct to hold that the appellants had not acted responsibly as to the making of specific payments without explanation and the judge was correct to hold that they had not acted responsibly in the granting of security. It was not responsible to allow security to be created over the assets of the companies at a time when it was becoming apparent that they were insolvent. The appeal would be dismissed and the order of the High Court affirmed.

Reporter: E.F.

1

1. On 10 th May 2005 the High Court on foot of the judgment of Finlay Geoghegan J of 21 st February 2005 made an order ("the restriction order") pursuant to section 150(1) of the Companies Act 1990 that the above named appellants be restricted for a period of five years from acting as directors of any company. The application for the restriction order had been made by the respondent as liquidator of the five companies, in Liquidation, named in the title to this appeal. I will describe him as the liquidator. The appellants have appealed to this Court against the making of the restriction order.

2

2. The companies were formerly part of the Irish Antigen group of companies. Following examinership, a scheme of arrangement was approved by the High Court. The Antigen companies and the Antigen business were sold out of the examinership near the end of 2001. Part of the group represented by four of the above companies became part of the Canadian Miza Group. The appellants were made directors of the companies. The companies did not trade successfully.

3

3. The applicant was appointed as official liquidator on 11 th December 2002. In his application to the High Court for the making of the restriction order, he contended that the appellants had failed to act responsibly as directors of the companies under four headings. The learned trial judge found that the appellants had failed to satisfy her, the burden being upon them, that they had acted responsibly in respect of two of these headings. They appeal to this Court against these findings.

4

4. A proper appreciation of the discharge by the appellants of their responsibilities as directors necessitates an account of the background to the former Antigen group, the scheme of arrangement which emerged from the examinership and the particular acts which most concerned the liquidator.

5

5. The Antigen group was a niche manufacturer of branded and non-branded generic pharmaceutical products. In the year 2000, the group was required to upgrade its manufacturing processes in order to comply with the requirements of the Irish Medicines Board. For that purpose, it had to cease production in July 2000. These and related events caused financial difficulties for the group. In May 2001, the companies were placed in examinership.

6

6. The examiner formulated a scheme of arrangement, which he proposed to the creditors in August 2001. It provided that all creditors would be paid in full the principal sums due to them over a specified period.

7

7. The High Court approved the scheme of arrangement on 8 th November 2001. The shareholdings and assets of the group were acquired in a joint venture between Goldshield, a United Kingdom group, and the Canadian corporation, Miza Inc. Each of the participants was to contribute equally to the total investment of IR£24 million. The principal shareholder in Antigen was to be paid IR£6.7 and IR£17.3 million was to be provided to discharge the creditors of the group companies.

8

8. The plan under the scheme of arrangement and related agreements was that the manufacturing part of the Antigen group consisting of the four companies named in the title, namely Mitek Holdings Limited, Mitek Pharmaceuticals Limited, Castleholding Investment Company Limited and Mitek Limited were purchased by Miza Ireland Limited. The last-named company was a shelf company incorporated for the purpose of giving effect to the scheme of arrangement and is a wholly owned subsidiary of Miza Inc. Three other companies of the former Antigen group, which had been responsible for the worldwide sale and distribution of the Antigen pharmaceutical products, were purchased by a subsidiary of Goldshield called Startville Limited. Thus, manufacturing assets went to the Miza group and sales and marketing went to Goldshield through its subsidiary, Startville.

9

9. On 3 rd November 2001, a Sale and Purchase Agreement was entered into providing for the sale, in effect, of the manufacturing part of the Antigen group to Miza and of the sale and marketing part to a subsidiary of Goldshield. That agreement also provided that the two purchasers would invest sufficient funds to enable the companies to comply with the obligations under the scheme of arrangement and to facilitate the companies continuing to trade as going concerns.

10

10. Under a manufacturing and supply agreement dated 28 th November 2001, Mitek Pharmaceuticals Limited, the manufacturing company, was obliged to sell virtually all its products to Goldshield Group plc, a United Kingdom public company, which had acquired the relevant product licences and authorizations. Dr. Kachkar claims that the price was intended to cover all manufacturing costs plus a premium or fixed profit of IR£0.4p per ampoule, which would enable the Miza group to meet all of its costs as well as payments to creditors under the scheme of arrangement.

11

11. A crucially important aspect of these arrangements was that all Antigen group...

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