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High Court: Farmer’s company was set up with the intention of defrauding creditors

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An agricultural merchant company owed over €300k by one farmer since 2009, has been granted a declaration in the High Court that the farmer set up a company with his wife in order to defraud his creditors.

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About this case:

Background

Quinns of Baltinglass Limited, a grain and agricultural merchant in County Wicklow, sought a declaration that the conveyance by Mr Jim Smith, to Nujmij Limited of a quantity of grain, or of the entitlement to the monies due in respect of the sale of that grain to the notice party, was void as a fraudulent disposition, contrary to s. 74(3) of the Land and Conveyancing Law Reform Act 2009

Mr Jim Smith and his wife, Mrs June Smith, are tillage farmers in County Laois; and the sole shareholders of Nujmij Limited.

Chronology of Events

The Court heard that Mr Smith did business with Quinn’s from 2004 onwards. Each year the account was reconciled and, when there was a surplus, Mr Smith was provided with a cheque for the balance.

In 2009, there was a shortfall. Mr Smith told Quinns that he would provide it with a quantity of wheat or barley to that value but never did so. Eventually, Quinns took summary proceedings.

In October 2010, Quinns obtained liberty to enter judgment against Mr Smith in the sum of €292,632, together with interest. Mr Smith’s appeal against this judgment was dismissed, and an Order of Execution of €315,209 was issued in May 2011.

In September 2011, Mr Smith delivered grain to Quinns to the value of €54,677. No further payment was ever forthcoming.

Quinns’ judgment against Mr Smith has been registered as a mortgage on certain lands owned by him but most, if not all, of those lands were already the subject of prior charges in favour of various financial institutions.

Quinns sought execution of their judgment by the Laois County Sherriff but, by letter dated 26 April 2012, the Order was returned marked ‘nulla bona’.

The Court heard that Mr Smith continued to farm at least 1,600 acres of land, growing cereals as a tillage farmer. Mr Quinn sought to enter into an agreement with Mr Smith to purchase further grain from him subject, of course, to a deduction for the outstanding judgment debt, but Mr Smith failed to engage with Quinns in that regard.

Nujmij was incorporated in July 2012. Its directors were, at the material time, Mr Smith and his wife; who are also the only shareholders in the company.

In July 2012, Glanbia entered into an agreement with Nujmij for the purchase and sale, respectively, of 400 tonnes of grain, in respect of which Glanbia owed Nujmij €65,369 under the terms of that agreement.

In August 2012, Mr Quinn received an anonymous letter alleging that Mr Smith had incorporated Nujmij and was delivering grain to Glanbia, with a view to frustrating the claims of his existing creditors.

Thereafter, Quinns sought and obtained a Mareva injunction against the defendants in respect of the dissipation of the proceeds of the sale by them of any agricultural produce other than to discharge Mr Smith’s indebtedness to Quinns.

In August 2012, Glanbia plc applied successfully to be joined as a notice party to the proceedings; and was directed to retain the sum of €65,000 due to Nujmij, pending the determination of these proceedings.

High Court

Counsel for the defendants put three principal matters to Mr Quinn:

  1. that Mr Smith’s grain or other produce was his to do with as he might wish. Mr Quinn accepted that this was so, save that he did not believe Mr Smith was entitled to benefit his own family by seeking to avoid his lawful debts.

  2. that Quinns should have sought relief against Mr Smith under the Debtors Ireland Act or the Enforcement of Court Orders Act, rather than through execution by the County Sherriff or by way of the present proceedings. Mr Quinn indicated that he was not aware of any such obligation.

  3. that weather conditions had adversely affected cereal crop yields in 2012. Mr Quinn accepted that. However, an expert agricultural consultant expressed the view that, on a conservative estimate, Mr Smith would have harvested between 4,482 and 4,490 tonnes of grain from the 1,660 acres of land that he had under tillage that year.

    4. In evidence, Mrs Smith stated that it was not her intention to defraud anyone, and denied that Nujmij had been established to prevent Mr Smith’s creditors from having recourse to the value of the grain concerned in full or partial satisfaction of debts.

    Finding in favour of Quinns, Mr Justice David Keane was satisfied that the transfer by Mr Smith of the ownership of the grain at issue to Nujmij, was made with the intention to defraud Quinns as a creditor.

    Mr Smith knew that his own creditors were at risk in the context of the relevant transfer of his assets to another entity

    In all the circumstances, Justice Kean granted a declaration that the transfer by Mr Smith to Nujmij of a quantity of grain in August 2012 was void as a conveyance of that property made with the intention of defrauding Quinns, as creditor, and as one whereby Quinns had been prejudiced.

    In separate proceedings on the same day, Mr Justice Keane granted Quinn’s an order for payment from Mr and Mrs Smith within 28 days, failing which, the Smith’s farmland would have to be sold to satisfy their debts.

    • by Seosamh Gráinséir for Irish Legal News

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