by Joe O'Malley , Michael Kelly September-02-2021 in Litigation & Dispute Resolution, Commercial & Business, Corporate, Insolvency & Restructuring
The High Court recently ruled on an application against the liquidator of an investment fund (Second Irish Forestry Fund PLC (in liquidation) & Ors -v- Companies Act [2021] IEHC 488 – judgment delivered 16 July 2021).
Facts:
The Applicants were investors in that fund and holders of preference shares. Prior to the Company going into liquidation, the Company paid out on the preference shares, the Applicants were not satisfied with the return, and the Applicants brought an application seeking information for the purposes of determining whether they had a cause of action against the former directors of the Company.
Law:
Section 631 provides that certain parties related to a company may apply to court for directions to determine any question arising in the winding up of a company. Section 684 provides that in a winding up the court may make an order for the inspection of the account and records, books and papers of a company by creditors or contributories as the Court thinks just. The application was grounded on these two provisions.
Decision:
The High Court (Mr Justice Keane) determined that while Section 631 confers on the Court wide powers to determine, where just and beneficial, the rights and obligations that arise in a winding-up, it does not provide a free-standing jurisdiction to order disclosure of information and documentation.
With regard to the application under Section 684, the Court agreed with the Liquidator of the fund, that Section 684 could not be used to determine a private interest, such as the Applicants’ potential cause of action against the directors. However, the Court found that based on the reliefs that the Applicants indicated they would be seeking against the directors, such as damages due to the Company for misfeasance under Section 612, the Court deemed that the Applicants were not solely advancing private interest as the Company could potentially benefit from such an action.
The Court then had to determine whether what was being sought by the Applicants fell correctly within the jurisdiction of Section 684 or whether it amounted to a fishing expedition. In summary, the Court in refusing the application, found that the Section 684 disclosure entitlement that the Applicants contended for, if accepted, would be easier to qualify for, wider in scope and less constrained in effect than the discovery entitlements of a person who has actually brought proceedings of the kind that the Applicants were only contemplating and that it would be unfair and unjust to exercise Court’s discretion in that way.
A separate decision issued in respect of costs. The Court found the application had the nature of a test case, it had brought greater clarity to the nature and scope of the powers confirmed by Section 631 and 684 and it was efficiently conducted. On that basis, the Court exercised its discretion, under the Section 169(1) of the Legal Services Regulation Act 2015, to depart from the general rule of costs following the event by making no order for costs against the Applicants.
Conclusion
This case illustrates that the Courts will be reluctant to make any order that might allow a party to go on a fact-finding expedition before they commit their position to a court pleading. It is for this reason that the discovery process does not take place until after the pleadings have closed when the issues in a case should be clear.
Hayes solicitors LLP regularly acts for insolvency practitioners and company stakeholders in all aspects concerning the Companies Act. If you have any questions about this case or the Companies Act in general, 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 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 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.