Tweedswood Ltd v Revenue Commissioners

 
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[2017] IESC 81

THE SUPREME COURT

MacMenamin J.

O'Donnell Donal J.

McKechnie J.

MacMenamin J.

[Appeal No.037/2009]

[Appeal No.110/2009]

[Appeal No.111/2009]

[Appeal No.113/2009]

IN THE MATTER OF THE COMPANIES ACT, 1963/2006

BETWEEN:
TWEEDSWOOD LIMITED, GLOBAL TEST AND SURVEY TECHNOLOGIES LIMITED, M. J. POWER CONSTRUCTION (WEXFORD) LIMITED, GROUPCO MANAGEMENT SERVICES LIMITED
APPLICANTS/APPELLANTS
V.
REVENUE COMMISSIONERS
RESPONDENT

Insolvency - Winding-up - Compulsory winding-up orders - Discretion of Court to order winding-up - Submission that Revenue seeking orders for improper purpose

Judgment of Mr. Justice John MacMenamin dated the 7th day of December, 2017
1

On the 7th July 2008, the Revenue Commissioners, who are the respondents to these appeals, presented petitions to the High Court for the winding-up of the four appellant companies, which will be referred to hereafter as 'Tweedswood'; 'Global'; 'Construction'; and 'Groupco'. Later, on 13th October, 2008, the High Court, (Roderick Murphy J.), made orders for the compulsory winding-up of three of the companies, with the exception of Tweedswood. After a number of adjournments, the same judge ordered on the 8th December, 2008 that Tweedswood also be compulsorily wound-up, and rejected an application to set aside the earlier winding-up orders. The companies seek to appeal all these orders now after an elapse of nine years. The appellant companies contend the High Court judge erred in law. Relying on the legal principle that even on an insolvency, the courts maintain a residual discretion as to whether or not to order a winding-up, the appellants say that this discretion should have been exercised in their favour, and that the judge should have refused to make or affirm the winding-up orders. As the authorities referred to below make clear, a court may exercise such a discretion if it is shown there was, in fact, such an ulterior motive and improper purpose in petitioning for such an order.

2

At the relevant times, all of the companies were substantially indebted to the Revenue Commissioners. But the companies submit that the Revenue Commissioners in seeking the orders acted on foot of an ulterior motive and improper purpose. Additionally, by motion, the companies now seek to adduce new evidence in this appeal.

Residual Discretion
3

On one view, these cases might be characterised as almost byzantine in their detail. In the context of the motion to adduce new evidence, this Court has been presented with significant quantities of material regarding a complex series of company law and property transactions said to be relevant. It is, therefore, essential first to establish a clear framework of reference. Identifying the legal principles is an essential consideration. Relevance can only be determined by reference to the legal issues which a court must consider.

4

That the courts do hold such a residual discretion is well established. (See Re Bula Mines Limited [1990] 1 I.R. 440; Genport Limited [1996] IEHC 34, The High Court, McCracken J.). In general, the burden of proof devolves on a respondent company to establish impropriety. Once indebtedness and the statutory proofs are satisfied, a petitioner is, prima facie, entitled to a winding-up order ex debito justitiae. In Bula, however, this Court (Finlay C.J., Henchy J., McCarthy J.), held that, on the facts, the evidential burden had shifted. But that determination was made on the facts of that case as a consequence of admissions of ulterior motive made by the petitioners. In general, the situation is otherwise. Speaking for the Court in Bula, McCarthy J. pointed out these cases are pre-eminently ones of special facts, but this does not mean that legal principles must not be the framework for any decision.

The Test
5

As the two main authorities make clear, the first step is that a petitioner must be shown to be, in fact, actuated by a motive different from the ostensible purpose of the petition. The mere absence of goodwill, or even the presence of ill-will between the parties, is not sufficient. Then, a company must go further, and establish on cogent evidence, that not only is the petition actuated by reasons other than the ostensible motive, but that the actual underlying motive is improper in the sense of being tantamount to an abuse of process. ( Bula). Thus, the company must establish there is conduct, generally proximate to the initiation of the petition, which amounts to abuse of process. Frequently, a respondent will show that the effect of the petitioner's case may be to bring about detriment to the interests of the class of creditors to whom the petitioning creditor belongs. A court must have regard to the entire context in which the allegations are made. It will examine the evidence adduced to see if there is either proximity in time, causal connection, or both, between the bringing of the petitions, and the matters said to show impropriety. In both Bula and Genport, the evidence showed such a proximate, clear, direct, connection. In Bula, the petition was brought to prevent one creditor obtaining priority as a secured creditor over securities held by other creditors who were the petitioners. This was held to be improper. In Genport, the High Court (McCracken J.) held that the true motive behind the petition was not to satisfy the petitioner's own debt, but rather, to prevent further litigation against another company, Crofter Properties Limited. Crofter held the head lease of the hotel Genport operated, which would have been forfeited to Crofter in the event that Genport was placed in liquidation. He held this would have been to the detriment of other creditors who considered their interests were best protected by the hotel continuing to function as a business. (See, generally, Keane Company Law, 5th Edition, Bloomsbury, 2016, para. 36.40 et seq., Courtney, The Law of Companies, 4th Edition, Bloomsbury, 2016, para. 24.094, Lynch Fannon & Murphy, Corporate Insolvency & Rescue, para. 2.92 et. seq.)

6

A court will necessarily have to distinguish between events which are genuinely connected to the bringing of the petition, and those which are merely contemporaneous with it. The test is an objective one. Mere assertion, or subjective belief on the part of the director of a company, will not, therefore, be sufficient. The impugned conduct and motive must be the petitioner's own, or someone acting on that petitioner's behalf, or at their behest. A mere allegation that some person entirely outside the ambit of the proceedings has engaged in some form of misconduct will obviously be irrelevant. A subject company must show, either by clear evidence, or by necessary implication, that the ulterior motive and improper purpose were present to the mind of the petitioner at or about the time of presentation of the petition to court. A court will be justified in carefully assessing events within what it identifies as a relevant timeframe, and especially in scrutinising events in the immediate lead-up to the presentation of the petition. If some form of ongoing or long-term motive is alleged, a court may look to less proximate events, always asking whether such events are consistent or inconsistent with the narrative of the claim of impropriety. A court must also, therefore, assess whether there is evidence contrary to, or inconsistent with, the company's case of abuse of process. A company must, therefore, establish its case of impropriety or abuse of process on evidence which is cogent and clear, as was the case in both Bula and Genport.

Factors to be Weighed
7

As is all too clear, the events described in this appeal took place well before the enactment of the Companies (Amendment) Act, 2014. Again, speaking for this Court in Bula, McCarthy J. explained that the discretion contained in the then s.216 of the Companies Act, 1963, (see now s.569(1) Companies Act, 2014), was to be exercised 'in a principled way which is fair and just'. (See also Re Forrest Lennon Business Support Services Ltd. [2011] IEHC, Laffoy J., Re WMG (Toughening) Ltd. [2001] 3 I.R. 113, Re Goode Concrete Ltd. [2012] IEHC, Laffoy J.). In Bula, this Court additionally criticised the fact that on the appeal the petitioners sought to rely on reasons for bringing the petition which had not been raised in the High Court at all. This point has a resonance in this appeal, where there is now an application, 9 years after the petition, to adduce new evidence. In general, a party is not entitled to make a case which had not been made in the court below. Moreover, to seek to adduce such new evidence may even be self-defeating for a company. If an appellant company finds it necessary to 'expand' the case, then it may beg questions as to why a cogent case was not made in the first place. If, ex post facto, a company seeks to establish a new range of facts, or some deeper ulterior motive and improper purpose, it may, in some circumstances, raise the question as to whether the original alleged impropriety was, itself, merely a contrivance.

Fair Procedures
8

A further observation is particularly relevant to these appeals. It goes without saying that the duty of a court, both at first instance, and on appeal, is to ensure that fair procedures are observed. The rules of evidence are but one means of bringing this about. Thus, although a number of persons and parties are identified in this judgment, it is important to point out that what is set out here as 'the appellants' case' contains only averments by way of affidavit. These cannot be taken as findings of fact established by a court of law. Save for...

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