High Court: Debtors adjudged bankrupt had ‘ample opportunity’ to consider alternatives



Andrew McKeown BL
Andrew McKeown BL

The High Court has adjudged a husband and wife bankrupt in a dispute arising from a breakdown in relations between shareholders.

Background

The court heard an application to have James Farrell and Gráinne Farrell adjudicated bankrupt, arising from a breakdown in relations between four shareholders in Business Mobile Security Services Limited (BMSSL), a company that began from “a modest base” in 2007 and expanded considerably by 2012, obtaining the security contract for the Corrib Oil pipeline.

The Farrells hold 58 per cent of the shares and the petition was by Martin O’Brien, one of the minority shareholders. The other minority shareholder has since died. In February 2017 Cian Ferriter SC, sitting as an arbitrator, made an award in favour of Mr O’Brien, with an award of costs in March 2017.

In proceedings to enforce the award, Mr Justice Brian McGovern gave judgment for Mr O’Brien in June 2017 for €315,000. Mr O’Brien has a judgment mortgage over the Farrells’ property in Co. Kildare, worthy €385,000 at the time of the petition. Ulster Bank holds the first legal charge in the amount of €235,000 and Mr O’Brien ranks equally with another joint creditor for €286,000.

In November 2017 a first protective certificate was issued in Trim Circuit Court. In February 2018 a first bankruptcy summons issued. However, in O’Brien v Farrell [2018] IEHC 524, Ms Justice Caroline Costello held that the creditor was not entitled to issue the bankruptcy summons because the protective certificate had been renewed at the time at which it had been issued.

A second bankruptcy summons issued in November 2018, served in January 2019. The petitions were filed in March 2019. In July 2019 the Farrells got a second protective certificate, but their proposals were rejected by a creditors’ meeting. In the Circuit Court, Judge Mary O’Malley Costello noted that the Farrells had had ample opportunities to deal with the matter.

In July 2019, one week after the second protective certificate, BMSSL went into liquidation. In a further set of proceedings, Mr Justice Tony O’Connor directed the debtor to repay €61,957 to the liquidator for the company having deemed that payment to be an invalid and unfair preference. In November 2019, the Farrells applied to Trim Circuit Court under the Personal Insolvency Act 2012 s.115A, but that application was withdrawn in May 2020.

In June 2020 an affidavit was sworn grounding an application for relief under s.91(3) of the 2012 Act, to dispense with the usual conditions for seeking a personal insolvency arrangement on the grounds of exceptional circumstances. That motion issued in August 2020. The Circuit Court Judge placed emphasis on that delay. Papers were not served until midway through September, and the judge again considered that delay.

In a written ruling, In re Farrell (2019 No. 001182, Eastern Circuit, Kildare, 22 September 2020), Judge O’Malley Costello refused the s.91(3) application and said that it would be “unjust and unfair” if the bankruptcy petitions were “further delayed”. The Farrells appealed that ruling, which was due to have a first mention date in the Personal Insolvency List on 9 November 2020.

High Court

In an application to have the debtors adjudged bankrupt, Mr Justice Richard Humphreys received “helpful submissions” from Eoin Martin BL for Mr O’Brien, and from Keith Farry BL for the Farrells.

Mr Farry sought an adjournment inter alia because of the existence of an appeal against the Circuit Court refusal of a s.91(3) order. Mr Farry relied on s.14(2) of the Bankruptcy Act 1988 and submitted that the court was required to consider what alternatives to bankruptcy were available.

Mr Justice Humphreys, agreeing with the “very helpful judgment” of Judge O’Malley Costello, said that the Farrells have already had multiple opportunities to explore alternatives to bankruptcy. He said their “delay in making various applications doesn’t help their position. One might perhaps add that the making of a preferential payment that was set aside by Mr Justice O’Connor probably doesn’t help that position either.” It would be “unjust and unfair” if the bankruptcy petitions were further delayed.

On the issue of whether the Farrells should be adjudicated bankrupt, Mr Farry relied on the requirement to consider alternatives to bankruptcy by virtue of s.14(2) of the 1988 Act and suggested that the applications should be refused or adjourned to allow an offer to be made.

He emphasised the serious consequences for Mrs Farrell, who resided in the property in question, if such an adjudication was reached. He submitted that the bankruptcy would be oppressive and that the application was not brought for commercial benefit and, relying on McGinn v Beagan [1962] IR 364, he characterised it as “a vindictive personal application”.

Mr Justice Humphreys did not accept that, stating that it was simply an attempt to enforce the order of Mr Justice McGovern “which remains unsatisfied more than three years later”.

That there may have been heated exchanges between the parties didn’t mean that the application was made for an improper purpose, which the court said had in no way been demonstrated. As regards alternatives to bankruptcy, the court found that the Farrells have had “ample opportunity” to explore any such alternatives, and that there may be serious consequences for debtors is not in itself a reason not to adjudicate them bankrupt.

Conclusion

The adjournment application was refused, and the debtors were adjudged bankrupt.

© Irish Legal News Ltd 2020

Tags: Bankruptcy



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