Court of Appeal: Winding-up order of Irish company involved in English court proceedings annulled

About this case:

• Citation:
  [2020] IECA 63
• Judgment:
  External link
• Court:
  Court of Appeal
• Judge:
  Mr Justice Brian Murray

Background

On 30 July 2018, PPF Capital Source Limited (PPF) was wound up on foot of a petition presented by Global Management Solutions Limited, which alleged it was a creditor of the company.

Iain Stamp, a director of PPF Capital, claimed the winding up of the company was based on a “contrived and disputed” $500,000 debt utilised to frustrate proceedings before the High Court of England and Wales. PPF Capital was pursuing Bhupinder Singh for alleged advance fee fraud. Mr Stamp contended that he was unaware of the petition until the petition documents were received by him in the post at his home in England on 3 August 2018, the order itself having been made by the Irish High Court in July 2018. He sought to annul the winding up pursuant to s.669 of the Companies Act 2014. Ms Justice Teresa Pilkington refused the relief.

Section 669(1) of the Companies Act 2014 provides that following the winding up order, a liquidator or any creditor or contributory may make an order annulling the winding up “on proof to the satisfaction of the court that the order for winding-up ought to be annulled”.

Ms Justice Pilkington concluded that he had not established that he was a creditor or contributory of the company, as required by this provision. In this regard, Mr Stamp relied upon and exhibited a contract of employment with the company, on foot of which Mr Stamp claimed he was owed back salary, he not having been paid since 2014. He said that while he was initially paid for three months, he stopped drawing salary when the case against Mr Singh began. Mr Stamp said that he had been working for the benefit of the company since then, that he was incurring expenses in connection with the litigation, and that he was a creditor to the extent of his unpaid earnings and those unpaid expenses.

This contract of employment was dated 5 June 2013, before the company was incorporated on 19 June 2013. Ms Justice Pilkington held that as it predated the date of incorporation of the company, she was not satisfied that he properly advanced the position that he was a creditor.

Appeal

Mr Justice Brian Murray in the Court of Appeal noted that s.45 of the Companies Act 2014 provides that a contract purporting to be entered into by a company prior to its formation may be ratified by the company, upon which ratification the contract is binding on it. HKN Invest Oy v Incotrade PVT [1993] 3 IR 152 clarifies that ratification does not have to be by express resolution, and a company may ratify a contract by treating it as binding after incorporation. He noted that as Mr Stamp averred that he was paid salary for a time, and thereafter ceased to receive it (though other directors continued to draw their salaries), these combined with the pre-incorporation contract exhibited were sufficient to establish Mr Stamp as a creditor of the company for the purposes of s.669.

The judge noted: “Applications under s.669 or its predecessor – s.234 of the Companies Act 1963 – are rare, and authority is sparse.” An annulment of a winding-up order means that the order is ineffective ab initio. The court cited the judgment of Lady Justice Gloster in Yang v Official Receiver [2017] EWCA Civ. 1465, “rescission terminates the bankruptcy whereas annulment treats the [Bankruptcy Order] as having never been made”.

Mr Justice Murray noted that the reason the applicant for the relief did not attend in court will be important to the exercise of the jurisdiction. “An applicant for such relief will have to demonstrate not merely that he was not aware of the application, but that the reasons he was so unaware are both explained, and excusable.”

The court, citing Hoare v Inland Revenue Commissioners [2002] EWHC 775, stated that an order of annulment will not be granted unless an applicant establishes that had the grounds on which he relies been advanced at the hearing. Mr Justice Murray, citing Re Telescriptor Syndicate Ltd. [1903] 2 Ch. 174, said that the presumption is that the winding up order is “lawful, effective and properly obtained, so that if there are matters on which the Court has doubts it should not annul.” A court should refuse to annul if there are “shady practices or unattractive incidents which would disable the applicants from having the company restored to their hands”.

Conclusion

The court was satisfied that had Mr Stamp been there at the hearing, the firm would not have been wound up. The allegations that the winding up was for ulterior purposes, if proved, would amount to an abuse of process.

Neither Global Management Solutions or the liquidator opposed the annulment, and the court found that it was appropriate in the circumstances to annul the winding up order.