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High Court of Ireland Decisions
You are here: BAILII >> Databases >> High Court of Ireland Decisions >> C. (N.) (A Bankrupt), Re [1999] IEHC 203 (26th November, 1999)
URL: http://www.bailii.org/ie/cases/IEHC/1999/203.html
Cite as: [1999] IEHC 203

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C. (N.) (A Bankrupt), Re [1999] IEHC 203 (26th November, 1999)

THE HIGH COURT
BANKRUPTCY
No. 2313 A.D.

IN THE MATTER OF A PETITION FOR ARRANGEMENT BY N.C.

Judgment of Ms. Justice Laffoy delivered on the 26th day of November, 1999.

By Order of this Court made on 1st February, 1999 it was ordered, in pursuance of Section 87 of the Bankruptcy Act, 1988 (the Act of 1988), that the person and property of the debtor named on the title hereof (the Arranging Debtor) be protected from any action or other process until further order. Pursuant to the direction of the Court, the preliminary meeting of creditors pursuant to Section 90(a) of the Act of 1988 was held on 6th October, 1999. Subsequently, at the private sitting, which was adjourned from time to time until last Monday, 22nd November 1999, the creditors voting either in person or by proxy unanimously accepted the proposal of the Arranging Debtor. Those creditors included Ulster Bank Commercial Services Limited (UBCS) whose claim was allowed by the Official Assignee and is deemed to be admitted in the sum of £1,158,000.
Section 92(1) of the Act of 1988 provides that if, at the private sitting, three-fifths in number and value of the creditors voting accept the proposal of an arranging debtor, it shall be deemed to be accepted by the creditors, subject to the approval of the Court and, if approved by the Court, the proposal shall be binding on the arranging debtor and on all persons who were creditors at the date of the petition and who had notice of the sitting. Section 105 of the Act of 1988 provides that the Court may, if it thinks fit, adjudicate the debtor bankrupt if, inter alia, his proposal is not reasonable and proper to be executed under the direction of the Court. The issue addressed in this judgment is whether the Court should approve of the proposal of the Arranging Debtor.

1. The reason this issue is controversial, notwithstanding the clear statutory majority in favour of the proposal, is that in the interim period between the granting of protection to the Arranging Debtor and the private sitting, in July 1999, the Official Assignee, as he is empowered to do under Section 61(6) of the Act of 1988 "in case of doubt or difficulty... in connection with the affairs of any bankrupt or arranging debtor", sought the directions of the Court as to whether the Arranging Debtor should receive the continuing protection of the Court in the light of the evidence put by the Official Assignee before the Court. The evidence consisted of affidavits put by UBCS before the Official Assignee in support of its proof of debt, in which it was alleged that the debt claimed by UBCS to be due by the Arranging Debtor to it had arisen or had been contributed to by fraudulent conduct on the part of the Arranging Debtor.

2. The reference of the Official Assignee was heard on 28th July, 1999. Having heard the Official Assignee, Counsel for the Arranging Debtor and Counsel for UBCS, the Court ordered that the protection should be continued until further order. Counsel on behalf of UBCS had submitted that the protection should continue until all the creditors would have their "say" at the private meeting.

3. The Arranging Debtor is a director of The Label Centre Limited (the Company). The claim of UBCS is the subject of plenary proceedings in this Court against the Arranging Debtor, the Company and three other defendants. In the plenary proceedings it is alleged that UBCS was induced to pay out and did pay out on foot of an Invoice Discounting Agreement dated 17th November, 1992 made between the Company of the one part and UBCS of the other part sums amounting to £1,700,000 by the acts of the defendants and by means of fraudulent and false documentation, that is to say, fictitious or bogus invoices. The attitude adopted by the Arranging Debtor to the claim of UBCS in these proceedings is to admit for the purposes of the Scheme of Arrangement liability to UBCS for the claim as allowed by the Official Assignee, but on the basis that he personally derived no benefit from the sum involved. Against a background of an ongoing criminal investigation, the Arranging Debtor relies on his privilege against self-incrimination.

4. While there is a wealth of authority on the provision which section 105 of the Act of 1988 replaced, section 353 of the Bankruptcy (Ireland) Act 1857, I have not been referred to any authority on section 92 or on section 105. Under section 353 the Court was empowered to override the majority of the creditors in an arrangement and to adjudge the petitioner bankrupt in certain cases including-


"... if it shall be shown that... [the petitioner] is not desirous of making a bona fide arrangement with all his creditors, or that his proposal to that effect is not reasonable and proper to be executed under the direction of the Court."

5. The most recent authority on section 353 is In Re J.H., an Arranging Debtor, [1962] I.R. 232. In his judgment in that case Maguire C.J. (at page 240) quoted the following passage from the judgment of Kennedy C.J. in In Re C., an Arranging Debtor, [1926] I.R. 14 as being of a great deal of help in determining in general the nature of the grounds upon which an offer might be rejected as being unreasonable under section 353:-


"I accept it as clear and settled that there must be some specific ground for depriving a debtor, under the clause in section 353 relied on here, of the benefit of the statutory provisions which allow him to carry an arrangement with his creditors. I think that such specific ground must be either that the arrangement would work a gross injustice upon the opposing creditors, as in In Re Beck, so that it would be unreasonable or improper to force them to accept it, or that it offends against the public policy to which the court should look in exercising discretion in its bankruptcy jurisdiction, that is to say, that the Court should not lend its countenance to a transaction shown to be actually characterised by commercial immorality or dishonesty. Misfortune or imprudence must make the bulk of the ordinary cases for which the system of arrangement has been given statutory sanction. There must be special facts - not merely possibilities or even suspicions - constituting some specific ground upon which the opposing creditors are entitled to rely, or upon which the Court, in the interest of the public, and especially the commercial community, should intervene to justify the refusal to a debtor and the statutory majority of his creditors of the benefit of an arrangement to be carried in accordance with the statute".

6. Later in his judgment, Maguire C.J. summarised his views in the following passage (at page 242):-


"If the creditors by the requisite majority accept the figures and the estimates it seems to me that their judgment ought normally to be accepted - that is, of course, provided that the debtor's conduct has been unimpeachable and that it is not proved that he is guilty of immoral, reckless or dishonest conduct".

7. At the hearing of the reference by the Official Assignee, it was submitted by Counsel for the Arranging Debtor, Mr. McCann, that in the instant case the appropriate regime for the protection of the public and the commercial community is Part VII of the Company's Act 1990 (the Act of 1990), which governs the disqualification and restriction of directors and other officers of a company. Moreover, at the private sitting, Mr. McCann, in effect, pre-empted the necessity of determining whether the Arranging Debtor has been guilty of immoral, reckless or dishonest conduct by intimating that the Arranging Debtor would submit to a restriction order under section 150 or a disqualification order under section 160 of the Act of 1990.

8. The Court was told that the Company is in receivership, but not in liquidation. The provisions of Chapter 1 of Part VII of the Act of 1990 are applied to a company in receivership by virtue of section 154. The Arranging Debtor's Petition of 1st February, 1999 was presented on the basis that the Company was then "hopelessly insolvent, being unable to pay its debts as they fall due and having a substantial deficiency of assets as against liabilities". In the circumstances, the Court would appear to have jurisdiction to make a restriction order under section 150. Nonetheless, I am of the view that it would be more appropriate to make a disqualification order under section 160 in this case. If the Arranging Debtor were adjudicated a bankrupt he would be debarred from being an officer of a company while an undischarged bankrupt.

9. Sub-section (2) of section 160 provides that, where the Court is satisfied in any proceedings or as a result of an application under Section 160 as to any of the matters set out in paragraphs (a) to (f) inclusive of that sub-section, the Court may, of its own motion, or as a result of the application, make a disqualification order against any such person for such period as it sees fit. While most of the matters stipulated in sub-section (2) are of a specific nature, paragraph (d) is framed in general terms and stipulates that -


"the conduct of any person as promoter, officer... of a company makes him unfit to be concerned in the management of a company."

10. The word "officer" in section 160 includes any director, shadow director or secretary of the company (section 159). By submitting to an order under section 160, the Arranging Debtor, although not necessarily admitting to any specific form of misconduct, is clearly implicitly admitting to past conduct which makes him unfit to be concerned in the management of a company.

11. On the facts of this case, in which the indebtedness of the Arranging Debtor is inextricably linked to the management and business of the Company, I think that the protection of the public and of the commercial community, which must be a factor which the Court should have regard to in determining whether to approve a proposal under section 92 will be adequately met by the making of a disqualification order under section 160. However, this case turns very much on its own facts and the approach adopted by the Court in this case would not necessarily be appropriate in the case of an individual debtor who traded or practised his profession in his own name.

12. Accordingly, I make a disqualification order under section 160 of the Act of 1990 for the period of five years from today's date and I approve the proposal of the Arranging Debtor.

© 1999 Irish High Court

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URL: http://www.bailii.org/ie/cases/IEHC/1999/203.html