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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Elite Logistics Ltd -v- McNamara [2012] IEHC 246 (20 June 2012)
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Cite as: [2012] IEHC 246
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Judgment Title: Elite Logistics Ltd -v- McNamara Neutral Citation: 2012 IEHC 246 High Court Record Number: 2008 6883P Date of Delivery: 20/06/2012 Court: High Court Composition of Court: Judgment by: Laffoy J. Status of Judgment: Approved |
NEUTRAL CITATION NUMBER [2012] IEHC 246 THE HIGH COURT [2008 No. 6883P] BETWEEN ELITE LOGISTICS LIMITED (FORMERLY ELITE KAMINO INTERNATIONAL TRANSPORT LIMTIED) (IN LIQUIDATION) PLAINTIFF AND
PATRICK MCNAMARA DEFENDANT Judgment of Ms. Justice Laffoy delivered on 20th day of June, 2012. The parties 2. The defendant was at all material times a director of the plaintiff and its company secretary until the winding up order was made on 5th September, 2007. As I understand it, when the winding up order was made, he was the only director of the company. 3. By order of the Court (Finlay Geoghegan J.) made on 31st July, 2008 in the proceedings in the Examiners Court (record No. 2007/330 COS) it was ordered, pursuant to s. 231 of the Companies Act 1963 (the Act of 1963), that the Liquidator was at liberty to institute and maintain these proceedings. 4. From the initiation of the proceedings until after notice of trial was served and the proceedings were set down for hearing the defendant was represented by two firms of solicitors in succession and by counsel. However, before the matter came on for hearing, the solicitors then representing him came off record and the defendant appeared in person at the hearing. The plaintiff’s case and the defendant's response as pleaded in general 106, Boyd Street, Glasgow, Scotland (the Scottish property) 7. The essence of the defence, having excised some pleading niceties, is that it is acknowledged that this property was purchased by the plaintiff and "is held in the legal ownership of the defendant", that it remains entirely in the beneficial ownership of the plaintiff and that the defendant "holds the title .. . in trust" for the plaintiff. As will appear later, as regards the legal title, this is not strictly speaking correct. Such excuse as there is in the defence for the fact that this property has not been transferred to the plaintiff is that the defendant had not being able to finance the repurchase of the property at full market value, which had been intended. 8. As in the case of the other two properties in issue, the plaintiff makes the usual joinder of issue in its reply. Apartment No. 16, Block A, Pueblo el Jardin, Arroyo de la Miel, Benalmadena, Spain (the Spanish property) 10. In the defence, it is admitted that this property was beneficially owned by the plaintiff, and that the proceeds of sale amounting to €142,500 were paid to the defendant as legal owner by way of bank draft on 27th October, 2005. However, it is denied that the defendant has failed to account for the proceeds of sale. It is asserted that, while the bank draft was lodged to the defendant's own bank account, thereafter the proceeds of sale were reimbursed by the defendant to the plaintiff. 33, Golf Links, Malahide, County Dublin (the Irish property) 12. The plaintiff’s case is that this property was purchased in or around late 2002 with the support of €751,928 of the plaintiff’s funds, in return for which a declaration of trust executed by the defendant acknowledged that the plaintiff has a forty per cent beneficial interest in the property. The defendant was registered as owner of the property on 7th February, 2003. On the same date a charge in favour of the Governor and Company of the Bank of Ireland, which has not been satisfied, was registered. As will appear later, that latter plea is no longer accurate. No rent or any other form of benefit was derived by the plaintiff in return for its forty per cent interest in the property. 13. There is then pleaded the Liquidator's analysis of a transaction which was recorded in the books of the plaintiff in the run up to the presentation of the petition to wind up the plaintiff by the defendant as petitioner. It is pleaded that on 24th May, 2007 an entry was made in the directors' loan account debiting the plaintiff in the sum of €1,200,000 under the description "Sale Proceeds House". On 21st July, 2007, just ten days prior to the presentation of the petition, that transaction was reversed and the plaintiff was debited in the sum of €840,000, but no explanation has been provided for the reversal. It is acknowledged by the plaintiff that, separately, at various times in the year prior to the liquidation of the plaintiff, the defendant advanced monies to the plaintiff by way of loan. It is pleaded that the effect of the transaction on 21st July, 2007 was to transfer the plaintiff’s principal asset, its forty per cent interest in this property, at a value of €840,000, thus reducing the balance owed to the defendant by the plaintiff as recorded in the directors' loan account from €923,926.70 to €83,926.70. The plaintiff asserts that the sums advanced to the plaintiff by the defendant prior to the liquidation were not advanced to purchase the plaintiff’s forty per cent interest in this property, but rather were loans made by the defendant to the plaintiff. It is expressly pleaded that the transaction on 27th July falls within s. 286(1) of the Act of 1963 as a fraudulent preference done within six months of the date of the liquidation of the plaintiff. 14. In the defence, the defendant admits that the plaintiff was the beneficial owner of forty per cent of this property from the time of its acquisition in 2002 and admits that no rent was derived by the plaintiff, but denies that no form of benefit in return for its forty per cent beneficial interest was derived by the plaintiff. It is contended that the plaintiff enjoyed a profit upon disposal of its interest, which reflected an appreciation of its interest in the asset, which I understand to mean the difference between the sum of €751,928 of the plaintiff’s money used to acquire the property and the "consideration" of €840,000, being the reduction in the amount owed by the plaintiff to the defendant on the directors' loan account. As regards the transaction whereby the defendant contends he acquired the plaintiff’s beneficial interest in this property, the "plot thickens" in the defence, in that it is pleaded that on 15th December, 2006, by a resolution of the board of directors, the plaintiff resolved to transfer its interest in this property to the defendant in consideration of the sum of €840,000, but the defendant was unable to pay the agreed consideration and his directors' loan account was reduced by the appropriate amount. It is specifically pleaded that, in the absence of funds advanced by the defendant, the plaintiff would not have been in a position to continue to trade, that the defendant consistently made up the shortfall in the plaintiff’s working capital required to meet its liabilities, and that "such payments were always to be set off against the beneficial interest" of the plaintiff in this property. It is denied that the "redemption of' the plaintiff’s beneficial interest in this property is a transaction which comes within s. 286(1) of the Act of 1963. Emphasis is laid on the fact that the transaction occurred on 15th December, 2006 and not within a period of six months of the date of liquidation of the plaintiff, albeit that it is not recorded as having occurred at that date. It is further denied that the transaction was made with a view to giving the defendant a preference over other creditors. It is further denied that at the date of the transaction the plaintiff was unable to pay its debts as they fell due. Reliefs sought by plaintiff 16. In relation to the Spanish property, the plaintiff seeks all necessary accounts and inquiries. 17. In relation to the Irish property, the plaintiff seeks an order declaring that the transaction entered into on 21st July, 2007 constituted a fraudulent preference within the meaning of s. 286 of the Act of 1963 as amended, and is invalid accordingly and an order pursuant to subs. (1) of s. 286 voiding the transaction entered into on 21st July, 2007. The plaintiff also seeks a declaration that the plaintiff is entitled in equity to a forty per cent interest in the Irish property and, if necessary, an order directing the partition and sale of the property in accordance with the legal and equitable interests so declared. Finally, the plaintiff seeks all necessary accounts and inquiries in relation to the Irish property. 18. The defendant denies that the plaintiff is entitled to any of the foregoing reliefs and, additionally, seeks to set off against any liability of the defendant such sums as may be awarded on foot of his counterclaim. The defendant's counterclaim 20. In the plaintiff’s reply and defence to counterclaim, while it is admitted that €41,726 is due to the defendant on foot of the directors' loan account, it is stated that the failure of the company to discharge that sum arises directly from its insolvency and liquidation. It is also denied that the defendant is entitled to any indemnity from the plaintiff in respect of the Wyeth proceedings. Evidence Conclusion in relation to the Scottish property 23. There is a problem, however, in that the evidence before the Court includes a copy of the result of a search in the Land Register in Scotland conducted on 7th May, 2007 which records the "proprietor", which I assume is the equivalent of the registered owner in this jurisdiction, as "Margaret MacNamara ... and Patrick MacNamara ... and the survivor of them". The defendant's evidence is that hi s elderly mother, who is eighty years of age, has been allowed to use the Scottish property. The defendant testified that when the plaintiff company was being set up, his mother gave him £45,000 as working capital on the basis that, when he would have money, he could pay it back to her, which he has not done. Although the Scottish property is in joint names, the defendant acknowledged that he held it in trust for the plaintiff, because, as I understand his evidence, to get an advance from the plaintiff’s bank, it had to be seen to be the property of the plaintiff. 24. Because of the title position, the orders I propose making in relation to the Scottish property are:
(b) an order directing the defendant to transfer his legal interest and to procure the transfer of the legal interest of Margaret MacNamara in the Scottish property to the plaintiff. Conclusion in relation to the Spanish property Conclusions in relation to the Irish property 27. On 2nd December, 2002 the defendant executed a declaration of trust, in the same format as the declaration of trust referred to at para. 22 above, in which he acknowledged and declared that he held a forty per cent interest in the Irish property upon trust for the plaintiff and in which he undertook, when called upon to do so, to transfer that percentage interest in the property to the plaintiff. 28. There is a serious issue of fact as to whether there was an agreement around mid-December 2006 between the plaintiff and the defendant that the defendant would purchase the plaintiff’s forty per cent interest in the Irish property in consideration of the reduction of the defendant's loan account. The Liquidator has put in evidence a letter dated 29th June, 2007 from the plaintiff’s then accountants, BKR Ormsby & Rhodes, enclosing a number of documents to be signed by the defendant and Adam O'Sullivan, whom I understand was a director of the plaintiff at that time. The documents, each of which is dated 15th December, 2006 but none of which has been signed by either intended signatory were intended to be: (a) the minutes of a meeting of the directors of the plaintiff held on 15th December, 2006 at which it was proposed that the plaintiff dispose of a forty per cent interest in the Irish property to the defendant, a director of the company, for €840,000 and it was resolved that the proposal be put to the members of the company in an Extraordinary General Meeting immediately after the directors' meeting to seek approval under s. 29 of the Companies Act 1990 (the Act of 1990) by way of ordinary resolution; (b) a consent to short notice of an Extraordinary General Meeting to be convened on 15th December, 2006; and (c) the minutes of an Extraordinary General Meeting attended by the defendant and Mr. O'Sullivan at which it was resolved that the plaintiff dispose of its forty per cent interest in the Irish property to the defendant for €840,000 and that the disposal was approved of under s. 29 of the Act of 1990. The Liquidator's evidence was that there was no signed version of the three resolutions and that there was no contemporaneous evidence that the directors' meeting or the Extraordinary General Meeting took place on 15th December, 2006. The defendant's evidence was that the paper in relation to the directors' meeting has gone missing. He thought he had done everything legitimately. 29. For a number of reasons, I think it is highly unlikely that the meetings necessary to comply with s. 29 of the Act of 1990 took place on the 15th December, 2006. First, it seems to be something of a coincidence that the price of €840,000 as representing forty per cent of the value of the property reflects the valuation carried out by Mr. Redmond in late May 2007. Secondly, the balance on the defendant's directors' loan account in December 2006 was approximately €62,000 short of €840,000. Thirdly, there has been no explanation as to why the sum of €1,200,000 was debited from the defendant's directors' loan account on 24th May, 2007 and that debit was reversed on 21st July, 2007. Accordingly, I consider it appropriate to find, on the balance of probabilities, that the general meeting to approve the acquisition by the defendant of the plaintiff’s forty per cent interest in the Irish property did not take place on 15th December, 2006. In fact, there is no evidence that such a meeting took place and such approval was given to fulfil the requirements of s. 29 of the Act of 1990 at any time. Therefore, by virtue of s. 29 the transaction is voidable at the instance of the plaintiff. 30. Apart from that, by virtue of s. 220(2) of the Act of 1963, the winding up of the plaintiff is deemed to have commenced on the date of the presentation of the petition, that is to say, on 31st July, 2007. I think it is reasonable to infer on the evidence that, insofar as there was a "transaction", it was effected on 21st July, 2007, within ten days of the commencement of the winding up, when the entry was made in the defendant's directors' loan account reducing the balance thereon by €840,000. No other evidence whatsoever of the "transaction" whereby the defendant acquired the plaintiff's forty per cent beneficial interest in the Irish property has been adduced, which raises the question as to whether there was a "transaction" at all. 31. Section 286(1) of the Act of 1963, which is the provision which is expressly relied on in the statement of claim, provides as follows
(a) to have been made with a view to giving such person a preference over the other creditors, and (b) to be a fraudulent preference, and (c) be invalid accordingly." 32. Insofar as there was a "transaction" on 21st July, 2007, or, contrary to the finding made above, on 15th December, 2006, whereby the defendant acquired the plaintiff's forty per cent beneficial interest in the Irish property in consideration of the sum of €840,000, which consideration was discharged by a reduction of the balance due by the plaintiff to the defendant on the defendant's directors' loan account, the transaction was invalid under s. 286 of the Act of 1963. I have reached that conclusion because I am satisfied -
(b) that at the commencement of the winding up on 31st July, 2007 the company was unable to pay its debts as they fell due, (c) as the defendant was a connected person within the meaning of s. 286, there is a presumption that the "transaction" was made with a view to giving the defendant a preference over other creditors of the plaintiff and to be a fraudulent preference, and (d) the defendant has not adduced any evidence sufficient to rebut that presumption. The counterclaim Section 150 application 36. The factual basis on which the Liquidator sought a restriction order against the defendant, as set out in his grounding affidavit sworn on 2nd February, 2009 is as follows:
(b) the matters which form the basis of the claims in the plenary proceedings, which I have outlined earlier, which the Liquidator averred were the matters of foremost concern to him in relation to the defendant's conduct of the affairs of the plaintiff, in short, the use of the plaintiff’s funds for the purchase of non-business related assets, including the Scottish property, the Spanish property and the Irish property; and (c) the fact that the defendant had recently been added as a defendant in the Wyeth proceedings, in which it was pleaded that the plaintiff had defrauded the plaintiff in those proceedings by overcharging for arranging the air freight of its products. 37. Accordingly, the issue for the Court is whether the defendant has discharged the onus imposed on him by s. 150(2) of the Act of 1990 of proving that he acted responsibly in relation to the conduct of the affairs of the company. In relation to that issue1counsel for the Liquidator referred the Court to the judgment of the Supreme Court in Re Squash (Ireland) Ltd. [2001] 3 IR 35 and, in particular, the approval by McGuinness J. in her judgment (at p. 40) of the following statement of the law by Shanley J. in La Moselle Clothing Ltd. v. Soualhi [1998] 2 ILRM 345 (at p. 352):
Thus it seems to me that in determining the 'responsibility' of a director for the purposes of s. 150 (2)(a) the court should have regard to: (a) The extent to which the director has or has not complied with any obligation imposed on him by the Companies Acts 1963-1990. (b) The extent to which his conduct could be regarded as so incompetent as to amount to irresponsibility. (c) The extent of the director's responsibility for the insolvency of the company. (d) The extent of the director's responsibility for the net deficiency in the assets of the company disclosed at the date of the winding up or thereafter. (e) The extent to which the director, in his conduct of the affairs of the company, has displayed a lack of commercial probity or want of proper standards." 38. Accordingly, the order sought by the Liquidator under s. 150 of the Act of 1990 will be made.
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