by Joe O'Malley , Michael Kelly May-13-2020 in Litigation & Dispute Resolution, Insolvency & Restructuring

Hayes recently successfully defended a Liquidator in an action by a shareholder of a company to remove him in a long running complex liquidation of a company with foreign subsidiaries and assets.

 

Factual Background

Michael Curneen and Print & Display Limited (the “Applicant”) each own 50% of the shares of Dominar Group Limited (the “Company”). Following a shareholders’ dispute, a settlement agreement was reached whereby the Company would be wound-up by way of a members’ voluntary winding-up. Liam Dowdall (the “Liquidator”) was appointed as Liquidator in April 2008.

The Applicant raised various issues about the conduct of the liquidation from 2013 and ultimately it issued a motion to remove the Liquidator in July 2018. The central allegations were:

  1. The Liquidator failed to achieve an optimal price for the sale of a Polish subsidiary company.
  2. The Liquidator delayed in realising the assets of the Company by failing to sell a site in Poland (the “Polish Property”) in a timely manner.
  3. The Liquidator failed to protect and secure Company assets in allowing the tenant of the Polish Property to amass a mountain of rubble on the site.
  4. The Liquidator should have appealed a decision of a Polish Court in proceedings against the Vendor of the Polish Property (for not disclosing the fact that the property was subject to restitution claims) (the “Polish Proceedings”) and he showed a lack of transparency by failing to inform the Applicant of his decision not to appeal the ruling of the Polish Court until months after the decision was made.
  5. The Liquidator was openly hostile towards the Applicant and he excessively relied on Mr Curneen to the Applicants detriment.


In response the Liquidator maintained:

  1. That he had exercised his professional discretion correctly in choosing to sell the subsidiary company to Mr Curneen on the best available terms having openly marketed the Polish subsidiary and invited the Applicant to bid for same.
  2. At the date of appointment, the Polish Property was subject to restitution claims (claims by former owners of the land and their successors arising out of the confiscation of such lands by the communist state following World War Two). The Liquidator, having taken professional advice, elected to wait until the claims were resolved to sell the property and this strategy was communicated to and not challenged by the Applicant. The restitution claims were resolved in June 2018 and in December 2019 a purchaser was found for the Polish Property.
  3. The rubble amassed on the site by the tenant was an unlawful action for which the Liquidator was not responsible, and proceedings had been brought in Poland to attempt to get the former tenant to remove the material. Unfortunately, those claims were unsuccessful before the polish courts.
  4. The decision of whether to appeal the decision of the Polish Court was a decision for the Liquidator. He established that the Vendor of the Polish Property was not a mark and this amongst other factors persuaded the Liquidator that the appeal was not worthwhile. The Liquidator accepted there had been a delay in communicating with the Applicant on this aspect of the liquidation.
  5. All important decisions in the liquidation were made by the Liquidator after taking professional advice where appropriate and in consultation with the shareholders.


The hearing of the application took place in the High Court before Mr Justice Sanfey in January and February 2020.

 

The Law

The application was based on Section 638 of the Companies Act in 2014. The leading authority in this jurisdiction is the Court of Appeal decision in Re: Ballyrider Limited (In voluntary liquidation) [2016] IECA 228. In that case, the Court of Appeal (Ms Justice Irvine) having reviewed the relevant English authorities set out eight principles to determine an application to remove a liquidator. They are:

  1. The burden of proof is on the applicant to show good cause.
  2. Good cause will be by reference to the real and substantial interests of the liquidation.
  3. The Court has wide discretion and what will amount to a good cause will depend on the particular circumstances of each individual case.
  4. Failure on the part of the liquidator to conduct the liquidation in a vigorous efficient and cost-efficient manner may provide a good cause as may conflict of interest but the concerns must be reasonable.
  5. The liquidator’s conduct falling short of ideal was not sufficient grounds for the removal of a liquidator.
  6. The Court can pay due regard to the impact on the liquidator’s professional standing and reputation. If he has been generally effective and honest, the Court should think carefully before deciding to remove him.
  7. The Court must take into account the fact that a removal of a liquidator may have undesirable consequences in terms of costs and delay.
  8. On the facts before it, the Court is confident that the liquidator would not repeat the matters complained and could be relied upon to complete the liquidation in accordance with his obligations.


The Decision

Mr Justice Sanfey refused the application for the following reasons:

  1. A good cause had not been shown for the removal of the liquidator and the Court was confident that the liquidator will conclude the liquidation in a prompt and orderly fashion.
  2. The Court refused to remove the Liquidator for the sole purpose of permitting a replacement liquidator to investigate the respondent’s conduct. The Court confirmed that it would need to be persuaded that there was a strong possibility that such an investigation would reveal conduct or disclose unknown documentation or information which will reveal matters warranting action to be taken on behalf of the Company.
  3. The Court had regard to the Liquidator’s professional standing and reputation particularly where there was no allegation of dishonesty.
  4. The Court held that the Liquidator had been generally effective and honest.

This judgment is noteworthy as it confirms that the Ballyrider principles apply to a member’s voluntary liquidation and it restates those principles in the context of a long running and complex liquidation. The judgment highlights that the Court’s wide discretion under the ‘good cause’ criterion will not be met where the Court is satisfied that the liquidator will conclude the liquidation in a prompt and orderly. In this way, the Court not only has regard to the conduct of the liquidator up to the time of the application but it also looks at the steps required to conclude the liquidation and the progress made by the liquidator in this regard.

 

Hayes advises liquidators and other insolvency practitioners as well as shareholders and creditors in all aspects of liquidations, receiverships and examinerships. If you have any queries in relation to this judgment or any other insolvency matter, please contact Joe O’Malley jomalley@hayes-solicitors.ie or Michael Kelly mjkelly@hayes-solicitors.ie.

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About the Authors

Joe O'Malley
Joe O'Malley

Joe is Managing Partner and Head of the Commercial Litigation & Dispute Resolution team at Hayes solicitors. He handles a wide variety of commercial disputes involving high value claims, complex issues and voluminous data for financial institutions and corporate clients.

Michael Kelly
Michael Kelly

Michael is an senior associate solicitor in the Commercial Litigation & Dispute Resolution team at Hayes. He has experience advising commercial clients with respect to a wide variety of issues, in particular restructuring and insolvency cases. He regularly acts for receivers, liquidators and examiners in High Court and Commercial Court proceedings.