Trehy v Murtagh and Others
| Jurisdiction | Ireland |
| Judge | MR. JUSTICE SMYTH,Ms. Justice Laffoy |
| Judgment Date | 27 November 2007 |
| Neutral Citation | [2007] IEHC 455,[2006] IEHC 424 |
| Docket Number | No. 214 COS/2007 |
| Court | High Court |
| Date | 27 November 2007 |
BETWEEN
AND
[2006] IEHC 424
THE HIGH COURT
Company law - Directions - Shareholding issue - Directors’ fees issue -Companies Act 1963, sections 280 and 122
Facts: This was an application by the liquidator of a company for directions under s. 280 of he Companies Act 1963. The issues were whether the records of the company should be amended to reflect what was contended to be the true position in relation to the shareholding of Mrs. Murtagh in the company and whether the liquidator was entitled to disregard an accrual of €100,000 in relation to directors’ fees shown in the company’s financial statements.
Held by Laffoy J. in refusing to register Mrs. Murtagh as the owner of 1,500 ordinary shares that there were glaring discrepancies in the evidence. However, the Court would make an order directing the liquidator to disregard the €100,000 for directors’ fees.
Per curiam Where a liquidator was applying for a direction under s. 280 (or indeed where a Receiver was applying for directions under s. 316) it would be helpful if the Court had some overview of the winding up from the liquidator or of the receivership from the receiver.
Reporter: R.W.
COMPANIES ACT 1963 S280
COMPANIES ACT 1990 S29(3)(c)
COMPANIES ACT 1963 S148(8)
COMPANIES ACT 1963 S122
COURTNEY THE LAW OF PRIVATE COMPANIES 2ED 2002 PARA 15.023
COMPANIES ACT 1963 S316
Ms. Justice Laffoy on 21st December. 2006
This is an application by the Liquidator of Olde Court Holiday Hostel Limited (the Company) for directions under s. 280 of the Companies Act, 1963 (the Act of 1963). Two main issues are raised on the application:
(1) Whether the records of the company should be amended to reflect what it is contended is a true position in relation to the shareholding of Dagmar Murtagh (Mrs. Murtagh) in the Company; and
(2) Whether the Liquidator is entitled to disregard an accrual of €100,000.00 in relation to directors' fees shown in the Company's financial statements.
In dealing with the shareholding issue it is necessary to outline the salient facts in relation to the Company.
The Company was incorporated on 27 th September, 1997 as Mantonlane Limited. It subsequently changed its name, having, obviously, been bought as a shelf company by the promoters, Anthony Murtagh (Mr. Murtagh) and Mrs. Murtagh.
The nominal share capital of the Company on incorporation was IR £2,000,000.00 divided into:
Initially the only shares issued were the two subscriber shares, two ordinary shares of £1.00 each. According to the Register of Members, Mr. Murtagh and Mrs. Murtagh acquired the subscriber's shares on 27 th September, 1997.
In March, 1998 the promoters sought share subscription under the Business Expansion Scheme (BES). As a result, at a directors meeting held on 5 th April, 1998 at the offices of Grant Thornton, Accountants, in Limerick, 248,000 "A" ordinary shares of IR£1.00 each were allotted to the applicant investors, who numbered 27 in all, under the BES. Present at that meeting were Mr. Murtagh and Mrs. Murtagh together with Mr. P.D. O'Reilly, Accountant, of Grant Thornton. On 5 th April, 1998 the allotted shares were registered in the Register of Members in the name of Olde Court Holiday Hostel (Nominees) Limited (Nominees).
The directors of Nominees in 2000, as per the annual return for that year, a copy of which has been exhibited, were Mr. Murtagh, Mrs. Murtagh and Michael Sharpe. Nominees was struck off the Register of Companies for failure to make annual returns on 19 th December, 2003. It was restored to the Register recently - by order of this court made on 10 th July, 2006 at the instigation of the Liquidator of the Company. The history of Nominees, prima facie, raises very serious questions about the protection of the BES investors' money. However that matter is not for this court or this application.
Further BES investment was procured in September, 1998 through BCP Stockbrokers Limited, as a result of which BCP Stockbrokers Limited was allotted 717, 818 "A" Ordinary Shares for a cash consideration of IR£752,000, which represented a premium of 4.761 p on each share.
The steps taken at that time to structure that investment, which I set out in a logical, if not a chronological, sequence, all of which were taken on 29 th September, 1998, were as follows:
(1) A Share Subscription Agreement (SSA) was executed by the following parties:
· BCP Asset Management Limited, which was referred to as "the Manager";
· BCP Stockbrokers Limited, which was referred to as "the Trustee";
· Mr. Murtagh, Mrs. Murtagh and Nominees, being all of the existing shareholders;
· The Company.
I would comment en passant that the SSA ran to 78 pages, including 50 pages of warranties. One would be entitled to expect that such an onslaught on the world's rainforests could be justified on the grounds of eliminating the risk for, and protecting, the investors. It remains to be seen to what extent that expectation has been realised.
The provisions of the SSA in relation to share capital which are relevant for present purposes are the following:
· Clause 2, which set out the preconditions for subscription for shares, including the adoption by the Company of new articles of association.
· Clause 3.1 which provided that, subject to clause 2, on completion -
"The Trustee shall subscribe in cash for the Subscription Shares at par and the investors shall issue to the Trustee (as a nominee for the Fund Investors pro rata to their interest in the Fund) the Subscription Shares."
· Clause 3.2, which is the most significant provision for present purposes and provided:
"3.2 immediately following completion, Dagmar Murtagh shall subscribe by way of bankers' draftfor 1, 500 Ordinary Shares at £99.00 per share." (Emphasis added)
· Clause 5.1, which contained various undertakings, the first of which is relevant for present purposes and was in the following terms:
2 "5.1 The Company and the Promoters jointly and severely undertake to the Manager that at all times while the Trustee (or any person who is for the time being a Trustee of the Fund) is a holder of any Subscription Shares they will procure that (save with the prior consent of the Manager or the Fund Directors):
3 5.1.1 the Company shall not issue, allot, redeem or grant any option over any shares in the Company (or agree to do any of the foregoing) and shall at all times comply with the restrictions imposed on it by the New Articles;" (Emphasis added).
(2) An Extraordinary General Meeting was held at which the Company ratified a sale to the Company by Mrs. Murtagh, a director of the Company, of 7.664 acres of land registered on Folio 7105F County Tipperary at a consideration of IR£300,000 pursuant to s. 29(3)(c) of the Companies Act, 1990. This step is a peripheral issue in the present context.
(3) Written resolutions of all of the members of the Company were passed pursuant to the articles of the association and s. 148(8) of the Act of 1963 as follows:
(a) A special resolution adopting the new articles of association. The evidence shows that the new articles had been approved at a director's meeting held on 21 st September, 1998.
(b) A special resolution by virtue of which the SSA was approved.
(4) At a directors' meeting, the directors present being Mr. Murtagh and Mrs. Murtagh, the following resolutions were passed in relation to allotment of shares:
(a) A resolution in the following terms:
"In accordance with the terms of the Subscription Agreement IT WAS NOTED that an application had been made by BCP Stockbrokers as Trustee for the Eighth BCP Business Expansion Fund for the allotment of 717,818 "A" Ordinary Shares of £1.00 each in the capital of the company and that a remittance in the amount of IR£752,000.00 had been received in connection therewith representing a premium on the issue of shares amounting to £34, 182 or 4.76193 per share. Accordingly, IT WAS RESOLVED that 717,818 "A" Ordinary Shares of £1.00 each in the Capital of the Company be issued to BCP Stockbrokers and that a share certificate in respect thereof be issued to BCP Stockbrokers under the seal of the Company and that the name of BCP Stockbrokers be entered in the Register of Members of the Company as holders thereof"
The foregoing discloses a slight inconsistency with the SSA which envisaged subscription at par. However this is of no relevance to the issue now before the court.
(b) A resolution in the following terms:
"It was resolved to allot 1500 Ordinary Shares at £1.00 each to Mrs. Dagmar Murtagh at a share premium of £148,500.00 or £99.00 per share. Mrs. Murtagh gave the Company a chequefor £150,000.00. The secretary was instructed to issue a share certificate in effect thereof and enter the name of Dagmar Murtagh in the Register of Members as holder thereof." (Emphasis added).
A number of matters require to be emphasised in relation to that resolution.
Firstly, it clarifies an issue to which clause 3.2 of the SSA gives rise, in that it makes clear that the shares were to be allotted at a premium of £99.00 per share or £148,500.00 in aggregate....
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