High Court: Official Liquidator granted order to join proceedings against company directors who were “fraudulently” paid over €2.5m

About this case:

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Background

In the High Court, the Official Liquidator of CTO Greenclean Environmental Solutions Limited (in liquidation) sought:

The proceedings to which the Official Liquidator sought to be joined as a co-applicant were brought in December 2014 by Louis J O’Regan Limited (hereafter LJOR Ltd) against Mr Stephen Griffin and Mr David Ronan requiring payment of sums totalling €2,664,333 – which LJOR Ltd claimed were unlawfully or improperly paid by Greenclean to them between February and May 2008 – when they were directors of Greenclean.

Companies Acts

It is claimed that these monies were paid improperly and in breach of s. 139(1)(b) of the Companies Act 1990, and that “the effect of such disposal was to perpetrate a fraud on the company, its creditors or members” and that such monies should be paid to LJOR Ltd.

Mr Justice Robert Haughton explained that such claims under s.139(1) could be brought “… on the application of a liquidator, creditor or contributory of a company which is being wound up …”. As such, LJOR Ltd was entitled as a “creditor” to initiate such proceedings.

Alternative claims were also made pursuant to s.286 of the Companies Act 1963 asserting that these payments were fraudulent preferences, and pursuant to s.298 of the Companies Act 1963 (as amended) that Mr Griffin and Mr Ronan were guilty of misfeasance or breach of duty, and that the monies should be repaid to LJOR Ltd or Greenclean.

The Official Liquidator argued that the effect of the payments was to render the Company insolvent and to deprive its creditors of their entitlements.

Counsel for the Official Liquidator argued that this was an appropriate case in which to make an order joining the applicants, on the basis that:

Order 15, Rule 13

Relying on Cunningham v. Springside Properties Ltd. (unreported, High Court Clarke J. February 2007), Counsel emphasised that under O. 15, r. 13 a party could be joined “… to enable the Court effectually and completely to adjudicate upon and settle all the questions involved in the cause or matter”.

Mr Griffin and Mr Ronan resisted the application to join the Official Liquidator as a co-applicant, arguing that “the wording of O. 15, r. 13 anticipates that an order will be made by the court either on an application of a party to the proceedings or by the court itself, and does not appear to provide for a bringing of an application by someone in the Official Liquidator’s position”.

Furthermore, that under O. 15, r. 13 the test for joinder was whether the presence of the party was “necessary” in order to enable the court effectively and completely to adjudicate upon the questions involved in the cause or matter.

On the O.15 r.13 considerations, Justice stated that “while O. 15 r. 13 does use the word ‘necessary’ it does not do so in any absolute sense. In fact, it uses the phrase ‘may be necessary’ and this is a further recognition that O.15 r.13 is an enabling procedural provision which is availed of before a court is called upon to make any adjudication or final determination.

Statute of Limitations

Mr Griffin and Mr Ronan also argued that the Official Liquidator would be statute barred.

The Official Liquidator submitted that the cause of action established by s. 139 of the Companies Act 1990 cannot arise until the company is wound up, and that therefore the cause of action does not accrue until the winding up order is made –in this case in March 2012.

Secondly, it was submitted that the Official Liquidator would be entitled to rely upon s. 71(1) of the Statute of Limitations 1957 for extension of the period of limitation by reason of fraudulent concealment.

Guided by the test in O’Connell v Building and Allied Trade Union 2 IR 371 Justice Houghton stated that the Court “should be slow to enter into an inquiry as to whether the claims” were statute barred.

Given the “weighty issues” raised, Justice Houghton concluded that the answers were “not so clear-cut that the court should decide them at this procedural stage”.

Decision

Justice Houghton made an order pursuant to O. 15, r. 13 joining the Official Liquidator as a Co-Applicant in the proceedings.

Refusing the application for interlocutory relief, Justice Houghton was not satisfied that there was sufficient evidence of an intention of either Mr. Griffin or Mr. Ronan to dispose of their assets with a view to evading any obligations. Thus, the Official Liquidator had not satisfied the test in Re John Horgan Lifestock Ltd: O’Mahony v Horgan 2 IR 411 to persuade the Court to grant the Mareva type injunctive relief sought.