Tiago Mascarenhas v Rezaul Karim and Mahbuba Sultana

• Jurisdiction: Ireland
• Judge: Ms. Justice Costello
• Judgment Date: 02 March 2022
• Neutral Citation: [2022] IECA 48
• Docket Number: Court of Appeal Record Numbers 2020/32
• Court: Court of Appeal (Ireland)

In the Matter of Section 212 of the Companies Act 2014

And in the Matter of Seda (Skills & Enterprise Development Academy) Limited

Between

Tiago Mascarenhas

Applicant / Respondent

and

Rezaul Karim and Mahbuba Sultana

Respondents / Appellants

[2022] IECA 48

Costello J.

Haughton J.

Collins J.

Court of Appeal Record Numbers 2020/32

2020/33

THE COURT OF APPEAL

Winding up – Shares – Companies Act 2014 s. 212 – Respondent seeking relief under s. 212 of the Companies Act 2014 – Whether the trial judge erred in the application of the jurisdiction of s. 212 of the Companies Act 2014

Facts: The respondents/appellants, Mr Karim and Ms Sultana, appealed to the Court of Appeal against the judgment of the High Court (Jordan J) dated 23 May 2019 ([2019] IEHC 333), and order of 4 July 2019, wherein he held that the applicant/respondent, Mr Mascarenhas, was entitled to relief under s. 212 of the Companies Act 2014, that it was not appropriate or desirable that the company, SEDA (Skills & Enterprise Development Academy) Ltd, be wound up pursuant to s. 569 of the Act and gave liberty to the applicant to acquire the shares of the appellants in the company. The appellants lodged separate notices of appeal. The principal issues addressed by Mr Karim’s counsel were whether: (1) s. 212 could apply to him in circumstances where he was neither a director nor a shareholder, nor did he conduct the affairs of the company; (2) the shareholding of Ms Sultana was beneficially owned by him; (3) the trial judge erred in his assessment of the evidence and whether he failed to address critical factors in his judgment; (4) the company ought to have been wound up rather than the majority shareholding sold to the minority shareholder; (5) the applicant was guilty of oppressing the appellants and of withholding from them information concerning the affairs of the company and denying them representation on the board of Directors of the company; (6) the trial judge erred in valuing the company and in applying a minority discount to the 57% shareholding of Ms Sultana; (7) the trial judge failed to have any or any adequate regard to the immigration status of the applicant; (8) the trial judge erred in accepting the evidence of Mr Fleming and Mr Islam; (9) the trial judge erred in not setting aside or rescinding the settlement agreement of 11 April 2017; (10) the trial judge erred in not ensuring compliance with High Court Practice Direction 75; (11) the trial judge erred in his application of the principles in Henderson v Henderson; and (12) the trial judge erred in awarding the costs to the applicant on a joint and several basis and in making no order as to costs in relation to the motions. Counsel for Ms Sultana additionally contended that: (13) the trial judge erred in the application of the jurisdiction of s. 212 in circumstances where, inter alia, the applicant had failed to particularise any alleged wrongdoing against her specifically, where she was not a director, nor was conducting the affairs of the company, and where she was denied access to requested information, books and records as the majority shareholder; (14) the trial judge erred in striking out her sixth motion and not addressing the issues raised under the European Union (Anti-Money Laundering Beneficial Ownership of Corporate Entities) Regulations 2016; and (15) the trial judge erred in failing to take account of numerous breaches of the Shareholders’ Agreement.

Held by Costello J that the appellants each conducted or purported to conduct the affairs of the company in a manner oppressive of the applicant, notwithstanding the fact that Mr Karim was neither a director nor a shareholder. Costello J held that the breakdown in relations between the parties was largely as a result of the conduct of the appellants and the applicant was entitled to relief under s. 212. Costello J held that it was necessary that either the applicant acquire the shares of Ms Sultana in the company or Ms Sultana acquire the shares of the applicant; as the applicant had succeeded in his case, it was appropriate to order that the applicant could purchase Ms Sultana’s shares, if he wished, rather than vice versa. Costello J held that the trial judge had evidence to support his valuation of the company and of Ms Sultana’s shares in the company; likewise, the trial judge exercised his discretion in relation to the costs of the motions before him in accordance with established principles and in light of his findings.

Costello J held that the trial judge was not justified in concluding that Mr Karim was the beneficial owner of the shares held by Ms Sultana in the company. Costello J allowed the appeal of Ms Sultana on that point and directed that the applicant pay Ms Sultana in respect of his purchase of her shares in the company. Otherwise, Costello J refused both appeals and affirmed the order of the High Court.

Appeals dismissed.

JUDGMENT of Ms. Justice Costello delivered on the 2nd day of March 2022

1 These are two separate appeals against the judgment of the High Court (Jordan J.) dated 23 May 2019 ( [2019] IEHC 333), and order of 4 July 2019, wherein he held that the applicant was entitled to relief under s. 212 of the Companies Act 2014, that it was not appropriate or desirable that the company, SEDA (Skills & Enterprise Development Academy) Limited, be wound up pursuant to s. 569 of the Act and gave liberty to the applicant to acquire the shares of the respondents in the company. The respondents (hereinafter referred to as “the appellants” or Mr. Karim and Ms. Sultana as appropriate), lodged separate notices of appeal, however there is significant overlap between the issues raised in both notices and submissions and both appeals were heard together.

Background

2 Despite the extensive exchange of affidavits, much of the detail of the history of the company remains unclear. The following emerges from the affidavits filed and the emails and letters exhibited by the deponents. Mr. Karim and Ms. Sultana are Bangladeshi and UK nationals. They appear to live both in London and in Bangladesh. Mr. Karim has a history of involvement in English language colleges in England and Ireland. The company was founded in 2008 and currently runs an English language college from a premises in Capel Street, Dublin 1, and at any one time it would have approximately 600 students attending various courses. Though Mr. Karim is described as the founder of the company, it appears that he was never either a registered shareholder or a director of the company. Ms. Sultana was a founding shareholder. She was never a director prior to the events the subject of these proceedings.

3 On 11 November 2009, Mr. Mahfuzul Haque resigned as director and secretary to the company. Mr. Amjad Mohammed Hussain and Ms. Nora Medjber were appointed directors of the company and Mr. Hussain was appointed as the secretary of the company. They both reside in London; he is British and she is French.

4 In 2014, the applicant (the respondent to the appeal and to whom I shall continue to refer to as “the applicant”) joined the company. He was appointed a director and he was given 15 shares in the company. He is Brazilian and has lived in Dublin since 2006, and was found by the trial judge to be the key man in running the affairs of the company. The records in the CRO show that at the commencement of the proceedings the applicant was the registered owner of 15 shares and Ms. Sultana was the registered owner of 85 shares.

5 On 22 May 2015, Mr. Ian Fleming was appointed a director of the company, apparently to represent the interests of the appellants. He is a specialist in higher education and had worked previously with Mr. Karim in relation to a college in the United Kingdom. He lives in Hampshire, England. He is an independent consultant who has worked for a number of government agencies in the UK and, in particular, he has worked as a lead inspector for the British Accreditation Council. Mr. Karim met Mr. Fleming in October 2014 and agreed that he would be appointed as a director of the company at around that time in order that there would be an academic director on the board of directors of the company.

6 The trial judge found that in the weeks prior to the commencement of a language course the company can have significant amounts of money in its bank account, as the students pay for their courses in advance. This money is required by the company to pay staff, the company's landlord and the people who host the students, as well as other running expenses of the company, so it can never be presumed that money standing to the credit of the company will in fact be available for distribution. This has proved to be a key point of contention between the applicant and the appellants.

7 From January 2015, Mr. Karim sought to withdraw monies from the company. Initially it was agreed that he could have a loan of €10,000 on 26 January 2015. He immediately followed up seeking a further “emergency loan” of €10,000 by email dated 11 February 2015. This request was refused. On 13 February 2015, a board meeting of the company determined that the company's debit card should be blocked due to unauthorised withdrawals from the company's account. It is not clear who attended at this board meeting. Suffice to say that the decision to cancel the bank card “infuriated” Mr. Karim. On 12 February 2015, a withdrawal slip stated to be a “personal loan” in the sum of €3,600 was presented, apparently by Mr. Karim, to the company's bank and the money was taken out the day before the resolution of the board of directors.

8 Mr. Karim did not accept that he was not entitled to withdraw money from the company as he had sought to do. In March 2015, he sent a number of emails stating that the business was his and he was free to “borrow money from his company”. On 4 April 2015, he sent an email to Mr. Saiful Islam, an...