THE COURT OF APPEAL
[2016 No. 412]
[2016 No. 416]
The President
IN THE MATTER OF STAR ELM FRAMES LIMITED AND IN THE MATTER OF THE COMPANIES ACT 2014
STAR ELM FRAMES LIMITED
FIRST APPELLANT
AND
ANTHONY J. FITZPATRICK
SECOND APPELLANT
PETITIONER/RESPONDENT
JUDGMENT of the President delivered on 24th August 2016
1. This is an application by the appellants for a stay on the operation of orders made by the High Court in proceedings for the liquidation of the above-named company. On 10th August 2016, following a 3-day hearing of the petition brought by the Revenue Commissioners, the court ordered that the company be wound up by the court under the provisions of the Companies Act 2014 and appointed Mr. Myles Kirby of Ferris Associates, Chartered Accountants, as the liquidator. These dispositions put an end to the voluntary liquidation of the company that had begun with Mr. Anthony Fitzpatrick as the liquidator elected at the creditors’ meeting.
2. The petitioner is the Collector General whose petition for the winding up of the company by order of the court is dated 24th June 2016. The petition recited a demand under section 570 of the Companies Act, 2014 made on 10th March 2016 for payment of amounts due for outstanding tax liabilities, charges and interest in the total sum of €582,523.35. The petition stated that since the service of that demand the amount due and owing by the company had been revised down to the sum of €350,147.30 because 30% of the Revenue Preferential Debt was written off in a scheme of arrangement in examinership proceedings as approved by the High Court on 16th January 2014. The appellants place particular emphasis on the fact that the statutory demand claimed a substantially larger figure than the sum that was actually due and owing at the time.
3. Following the service of the petition, the company resolved to proceed to voluntary liquidation and at the creditors’ meeting on 18th July 2016 Mr. Anthony Fitzpatrick was chosen as liquidator by majority. The Revenue Commissioners were represented at the meeting and proposed Mr. Kirby. The hearing of the petition by the High Court was due to be heard on the same day but was adjourned and ultimately came to be heard in the vacation.
4. The appellants are the company, Mr. Fitzpatrick, Mr. Anthony O’Gara and Mr. David Sage. In her affidavit grounding the application for a stay, the solicitor for Mr. O’Gara and Mr. Sage says that Mr. O’Gara is a member and contributory of the company and Mr. Sage is the former general manager. Those parties were granted special leave to appear at the hearing of the petition pursuant to O. 74, r. 15 of the Rules of the Superior Courts. Mr. Fitzpatrick entered an Appearance and was represented by solicitor and counsel. Those parties opposed the petition and sought to have Mr. Fitzpatrick remain as liquidator. The petitioner’s case as made to the High Court is summarised in an affidavit of Davena Lyons as “that by reason of mala fides on the part of the company, directors and members, that the voluntary winding up of the company ought to be converted into a compulsory winding up”.
5. On 10th August 2016, at the conclusion of the hearing of the petition, Mr. Justice Humphreys announced his decision and made his orders, which were subsequently perfected, and said that he would deliver his written judgment at a later date. The court ordered that the company be wound up under the provisions contained in the Companies Act 2014 in main proceedings, in accordance with Article 3(1) of Council Regulation (EC) number 1346/2000. The court nominated Mr. Kirby to be the liquidator. The court ordered that Mr. Anthony Fitzpatrick present all books, records, accounts and property of the company to Mr. Kirby as soon as possible and no later than 15th August 2016, which order was made under s. 572(1)(b) of the 2014 Act. The court ordered that directors of the company and Mr. Sage make a statement of affairs of the company. The court ordered that the petitioner should recover his costs of the proceedings against Mr. Fitzpatrick personally and the company jointly and severally and that costs payable to Mr. Fitzpatrick in his capacity as liquidator should be set off against his liability for the costs ordered against him. Finally, the court refused applications on behalf of Mr. Fitzpatrick and the company for a stay on the winding up order and the costs order.
6. Mr. Kirby’s appointment as liquidator of the company was advertised on 12th August 2016 in the ‘Irish Independent’, ‘Irish Times’ and in ‘Iris Oifigiuil’.
7. The appellants have filed notices of appeal which they submit may have to be amended when the written judgment of the High Court becomes available. The company, Mr. O’Gara and Mr. Sage all rely on the contention that the petition was invalidated by the statement of an excessive amount in the letter of demand issued pursuant to section 575 of the Companies Act 2014. Other common ground is that the trial judge was wrong to extend time for the petitioner to file a verifying affidavit; that the judge did not give reasons at the time of his decision; and a vague allegation of error of law. Messrs. O’Gara and Sage raise objection to the appointment of Mr. Kirby having regard to a previous role that he played at the examinership stage and his conduct at the creditors’ meeting. These parties also protest at the rejection by the court of the choice of the majority of creditors, namely, Mr. Fitzpatrick.
8. Mr. Fitzpatrick’s grounds are, first, that the High Court did not have jurisdiction to make an order directing him to hand over books and records of the company to Mr. Kirby under s. 572 (1)(b) of the Act. Secondly, the judge was in error in making the costs order against Mr. Fitzpatrick who was not a party to the petition. Thirdly, there is a vague complaint as to an error of law. Finally, he makes the same point as the others in respect of failure by the High Court to state its reasons at the time of making the orders.
9. On the question of a stay, Ms. McManus the solicitor for Messrs O’Gara and Sage says that the High Court judge “may not have had the jurisdiction to make the orders in the context of the Petition and these orders may be prejudicial to them as creditors of the Company”. She says that there are substantial legal issues arising and that Mr. Fitzpatrick has carried out his work as liquidator effectively. She contends that no prejudice will ensue for the petitioner in the event of a stay. Mr. Fitzpatrick’s solicitor, Mr. Kilcline, expresses the same doubt as Ms. McManus in the quoted passage above, proposes that the orders are prejudicial to Mr. Fitzpatrick as mandatory orders against him and reiterates the points about legal issues and Mr. Fitzpatrick’s work.
10. Ms. Lyons responds on behalf of the petitioner by contending that there are no bona fide grounds of appeal and that the primary facts are all uncontested. She cites specific matters that she claims justify the unease of the Revenue Commissioners and which were ventilated at the hearing in the High Court. She rejects the suggestion of prejudice and argues to the contrary that the interests of the petitioner and all bona fide creditors of the company will be prejudiced by the imposition of a stay on the orders of the High Court. Ms. Lyons criticizes the behavior of Mr. Fitzpatrick as liquidator in respect of disclosure of information.
11. The hearing of an application for a stay is not the hearing of the appeal. It is not necessary in this case to evaluate the basis of the appeal, notwithstanding the objection on behalf of the petitioner that there is no real ground on which the appeal might succeed. Counsel for Mr. Fitzpatrick proposed that the balance of convenience was the appropriate test and his colleagues did not dissent, subject to the additional and more fundamental point made by counsel for the petitioner. I propose to deal with the matter on the basis that there is an intention to appeal as demonstrated by the notices without examination of the prospects of success on any of the points raised.
12. On an application for a stay, the court seeks to balance the rights and interests of the successful respondent and the unsuccessful appellant. Obviously, the fundamental principle is to do justice between the parties. Sometimes this can be achieved by imposing terms, such as in the case of a personal injuries assessment by requiring payment by the defendant to the plaintiff to meet the needs of the period between the original trial and appeal. The balance has to recognize the entitlement of the unsuccessful party in the court below to appeal and at the same time it must acknowledge the right of the winning respondent to the benefit of his judgment. If the court can find a workable compromise, it will usually favour that approach. The question is how to preserve the right of appeal in the sense of maintaining the status quo as far as possible so that if the appellant succeeds his victory will be practically meaningful. And vice versa. The court looks at the situation that will arise in the event that the appeal is successful and contrasts that with what will obtain if the appeal fails. A stay is not a matter of routine because that would deprive the successful party of the justice to which he has been found to be entitled by the trial court.
13. If a stay is granted, Mr. Fitzpatrick will remain in position as liquidator and will resume the winding up of the company. It is possible that that process will have been completed by the time the appeal is heard. One would need to know the likely timescale of the liquidation process and have a date for the appeal in order to make that assessment. It is however clear that some significant time will inevitably elapse before the appeal can be heard and determined by this court. During that time, Mr. Fitzpatrick will be making progress in winding up the company. The further he progresses along the road the more the situation will have changed. There will be a new element to the appeal, namely, the practicality not to say the wisdom of changing liquidators when the process is substantially advanced. If a stay is not granted, Mr. Kirby will take over as liquidator and the extent to which he is able to make progress towards liquidation will also affect the consideration of the appeal. That is because the same issue will arise irrespective of any other arguments on the appeal as to whether it is practicable or wise to consider replacement of the person in situ. In these circumstances, it is important that the appeal be heard with all possible expedition.
14. It seems to me that certain facts are clear and not in dispute. This company is insolvent and requires to be wound up. The only real question in the appeal is who should undertake the process. The unsecured creditors as matters stand at present will not recover anything in the liquidation. The preferential creditors can hope to salvage only a small proportion of what they are owed.
15. The Revenue Commissioners’ allegations of misconduct on the part of the company and its operators require to be investigated. Whoever is the liquidator will have to pursue all relevant enquiries in that regard. It is possible, depending on the evidence that is established, that claims may be made on behalf of the company which will result in the recovery of assets so as to increase the dividend available to creditors.
16. It is not my function to evaluate the allegations and responses. It is clear, however, that the petitioner succeeded in convincing the High Court that it was just and proper that there should be liquidation of the company by the court with Mr. Kirby as liquidator instead of the voluntary liquidation under Mr. Fitzpatrick. If Mr. Fitzpatrick remains in position by reason of the imposition of a stay, that will represent, in effect, the overturning of the order made by the High Court and the Commissioners will be deprived of the benefit of the judgment on the petition. That must be a major consideration on the issue of a stay.
17. Looking at the balance of convenience, it makes no difference to the company under whose direction it is liquidated. As for creditors generally, again it might be claimed that there is no difference but it does seem clear and that there is no loss or prejudice if Mr. Kirby carries out the work. The situation is not of course a neutral one because the petitioner has succeeded in the High Court and that has to be recognized. As for Mr. Fitzpatrick’s position, the question is whether he can demonstrate prejudice or loss arising from the refusal of a stay. Again it is important to remember that anything of prejudice arising to Mr. Fitzpatrick from the judgment itself is not what is in question. And since the choice has to be made between alternatives that will leave Mr. Kirby as liquidator or Mr. Fitzpatrick, it can also be said that any disadvantage the latter can demonstrate may be quite simply unavoidable.
18. Counsel for Mr. Fitzpatrick suggested that the order made by the High Court that he hand over the books and records was not justified under the terms of the section that was invoked. He also pointed to the order for costs made personally against Mr. Fitzpatrick. In my view, Mr. Fitzpatrick is not entitled to retain the materials of the company if he is not the liquidator so there is something theoretical about this issue. Mr. Kirby is entitled to get all the relevant materials if he remains liquidator. The fact that Mr. Fitzpatrick is obliged to hand over the records is not a relevant prejudice that weighs in the balance in the stay application. It is simply a consequence of the decision of the court. In respect of the costs, it seems to me that no difficulty arises in that regard because that can abide the outcome of the appeal and I have no difficulty in granting a stay on the order that Mr. Fitzpatrick must pay the costs of the petition hearing. The High Court ordered that such fees as were due to Mr. Fitzpatrick for his work as liquidator should be set off against the amount of the costs. It seems to me that it would be almost a necessary consequence and certainly a matter of practical justice that the payment of any fees due but not the calculation or assessment thereof should be suspended until the determination of the appeal.
19. My conclusion, accordingly, is that there are not grounds in this case for granting a stay on the operation of the orders made by the High Court except in respect of the costs awarded to the petitioner against Mr. Fitzpatrick personally and on the terms set out above.
20. Justice will best be achieved if the appeal in this matter is heard and determined as soon as practicable and I will make arrangements to that end.
