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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> The Revenue Commissioners -v- Fitzpatrick [2015] IEHC 477 (21 July 2015)
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Cite as: [2015] IEHC 477
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Neutral Citation [2015] IEHC 477 THE HIGH COURT [2014 No.391 COS] IN THE MATTER OF THE COMPANIES ACTS 1963 TO 2012 AND BALLYRIDER LIMITED (IN VOLUNTARY LIQUIDATION)
THE REVENUE COMMISSIONERS Applicant AND
ANTHONY J. FITZPATRICK Respondent Judgment of Ms. Justice Murphy delivered the 21st day of July, 2015 1. This is an application by the Revenue Commissioners, in their capacity as preferential creditors of Ballyrider Limited (in voluntary liquidation) for various directions from the Court in respect of the liquidation. They seek directions pursuant to s. 280 of the Companies Act, 1963 that the respondent, who is the voluntary liquidator of Ballyrider Limited, refrain from further proceeding with a legal action in the name of Ballyrider Limited; that certain costs, charges, expenses and remuneration were not properly incurred in the liquidation within the meaning of s. 281 of the 1963 Act and either in the alternative or in addition to those reliefs they seek the removal of the respondent as voluntary liquidator for cause shown pursuant to s. 277 of the 1963 Act. Facts 3. On 11th May, 2011, the respondent held an auction to sell the Hazel Hotel at which a sale was agreed for a price of €630,000. A deposit of €34,000 was provided by the purchaser, a Mr. Phibbs, and the sale was to close by 8th July, 2011. However, Mr. Phibbs had difficulty raising the balance of the funds and it appears that on or about 3rd June, 2011 the respondent through his solicitor sought counsel’s opinion on proceeding against Mr. Phibbs, and that advice was apparently received around 8th June, 2011. 4. On 15th May, 2011, the liquidator submitted a report to the Office of the Director of Corporate Enforcement, as was then required under section 56(1) of the Company Law Enforcement Act 2001. 5. On 14th June, 2011, Ms. Noreen Considine, the applicant’s representative on the Committee of Inspection wrote to the respondent via email, to request that he call a meeting of the Committee of Inspection. The respondent replied, on 4th July, 2011, and stated that a meeting would not be beneficial pending the outcome of the sale of the property. The sale of the hotel, due to close on 8th July, 2011, had by this stage fallen through. The applicant did not press the issue at that stage. 6. Following re-advertisement of the premises, a new buyer was found in August 2011 for a reduced purchase price. The price on the contract is €449,000. Prior to the completion of the sale agreement, the respondent carried out certain works which he later informed the Committee of Inspection were necessary to make the hotel fit for purpose, including the repairing of the roof, heating repairs, certain bedroom repairs and dealing with certain sewerage problems. He did not notify, nor did he seek prior approval of the Committee of Inspection, for these dispersements. 7. A sale agreement was entered into with the second purchaser on 7th November, 2011. According to the information provided by the respondent, the majority of the Company’s equipment, fixtures and fittings were included in this sale. The sale agreement was accompanied by an agreement, conditional on the main sale of the hotel, that Mr. John Kelly and Ms. Margaret Kelly, directors of the Company, would sell certain lands to the purchaser and the respondent liquidator would sell certain lands owned by the Company to Ms. Kelly for €15,000. These lands apparently formed part of Ms. Kelly. Again the Committee of Inspection was not consulted about this arrangement. There are discrepancies as to the purchase price of the hotel. While the sale agreement, of 7th November, 2011, lists the price at €449,000, the respondent later informed the Committee of Inspection, on 27th February, 2013, that the hotel had in fact been sold for €479,000, while a letter sent from the auctioneer Matt Dunne & Associates on behalf of the respondent, dated 8th September, 2011, records the purchase price as €480,000. The respondent’s explanation is that while the original price agreed was €480,000, a discount of €1,000 was given in respect of damage to the boiler caused by vandals which only came to light prior to the closing of the sale. The price of €479,000, ultimately notified to the Committee of Inspection, apparently included €30,000 due to Mr. Kelly a director of the Company in respect of the sale of property owned by him to the new purchaser of the hotel. 8. According to the respondent in his first affidavit, the proceeds of the sale, along with the deposit of the original purchaser, Mr. Phibbs, were retained by the respondent’s solicitor, Mr. Tobin, in his client bank account, less €10,000 retained by the auctioneer, giving a total sum of €503,000 From that sum, €264,556.48 was paid to the secured creditor, Allied Irish Bank. This included interest on the secured sum to the date of payment and a fee of €7,500 plus VAT which Allied Irish Bank then paid to the liquidator as a fee for the realisation of their security. A sum of €166,000 was transferred to the liquidator’s account. This leaves an apparent shortfall of €72,000 at least some of which was used to discharge Mr. Tobin’s legal fees. The Court has found it difficult to unravel, in the absence of the furnishing of proper accounts, what precisely was paid to Mr. Tobin. On the basis of the respondent’s second affidavit, he still had around €72,000 in his account after the payments made to the bank and to the liquidation fund but according to the respondent’s affidavit of 16th January, 2015, on 30th March, 2012, the respondent made a payment from the liquidation bank account to Mr. John Tobin in the amount of €24,001.90. Until such time as full detailed itemised accounts are produced by the liquidator, this matter will not be clarified. The Court notes in this regard that a report of a cost accountant prepared at the instigation of the liquidator, gives different figures in respect of the payment to Mr. Tobin than those provided by the liquidator himself. 9. On or about 24th January, 2012 the respondent initiated proceedings against the original purchaser, Mr. Phibbs, for non-performance of the contract for sale entered into in May 2011. The purpose of these proceedings was to seek damages of €150,000, being the difference between the original purchase price of €630,000 and the €479,000 for which the property was eventually sold. The Committee of Inspection, having yet to meet were not informed of the initiation of such proceedings. 10. On 1st June, 2012, Ms. Considine again emailed the respondent to request that he call a meeting of the Committee of Inspection. On 14th June, 2012, Ms. Considine again emailed the respondent to request that he call a meeting of the Committee of Inspection. According to the averments of Ms Considine, she received no response. Meanwhile, in July, 2012, Mr. John Tobin was suspended from practising as a solicitor, having a short time earlier, according to the respondent’s affidavit, deducted, €21,868.76 from the proceeds of the sale of the hotel. The respondent initially transferred the file in the proceedings he had initiated against Mr. Phibbs to a Mr. Brendan Looney who was instructed not to proceed with the matter until it was established whether Mr. Phibbs was a mark for damages. However, as Mr. Looney’s firm according to the respondent, was too busy, the case was transferred to a Ms. Elizabeth McGrath, in late 2012. It would appear that Mr. Looney has since had his practicing certificate suspended by order of the High Court. On 13th August, 2012 a statement of claim was delivered and a notice for particulars was sent from Mr. Phibbs’ solicitor which was subsequently replied to by Ms. McGrath on behalf of the respondent, on a date in respect of which the Court has had no evidence. 11. On 24th September, 2012, Ms. Considine repeated her request for a meeting of the Committee of Inspection. She avers that none of her requests in this regard, from 1 June, 2012 to 24th September, 2012, were replied to by the respondent. Ms. Considine subsequently called such a meeting herself, pursuant to s. 233(2) of the 1963 Act. That meeting was held on 27th February, 2013 and was the first such meeting of the Committee. At this meeting, the respondent informed the Committee of Inspection that he had commenced High Court proceedings, more than a year earlier, against the purchaser of the hotel at public auction for non-performance of the contract for sale. The respondent also produced a Progress Report, dated 25th February, 2013, which disclosed various costs incurred in the liquidation to date, including legal fees in the amount of €51,379, auctioneers’ and valuers’ fees of €27,940, consultancy fees of €6,500 and remuneration to date for the respondent in the amount of €91,618.70. According to this report, the liquidation bank balance on 27th February, 2013 was €132,238. The applicant avers that the Committee of Inspection refused to approve the respondent’s fees and advised the respondent that it did not wish to continue the High Court action due to the level of costs being incurred and the lack of evidence that any judgment would be satisfied. The Committee also questioned the respondent on the fees paid to Mr. Tobin. These fees included a payment of either €19,723.90 or €16,236.76, depending on the document examined in respect of the first sale of the hotel in May 2011. As a result of the Committee’s challenge to Mr Tobin’s fees, the respondent engaged the services of a costs accountant, Mr. Michael Ryan, in March, 2013, and was furnished with a report from Mr. Ryan on 24th May, 2013. 12. On 13th March, 2013, Ms. Considine wrote to the respondent seeking further details about the progress of the liquidation. She avers that she received a letter in reply, approximately four months later, dated 8th July, 2013. This letter set out details of the transactions involving the transfers of land between the Company, its former directors and the hotel purchaser as well as providing details on the fees paid to Mr. John Tobin, the equipment sold, the interest charged by AIB on the amount of the fixed charge in their favour, liquidators’ fees (including fees for third parties) and the status of the High Court proceedings. The letter also informed the applicant that the respondent had engaged a legal costs accountant to analyse the fees paid to Mr. Tobin and that this accountant had concluded that such fees were not excessive. The respondent also informed Ms. Considine that he had instructed his solicitor to hold on pursuing Mr. Phibbs for the present but that he had in the meantime engaged a legal costs accountant who was of the opinion that €20,000 plus VAT would cover the full action. 13. On 11th July, 2013 the respondent convened a further meeting of the Committee of Inspection, at which the applicant was represented by Mr. Paddy Purtill and Mr. Pat Downey. No other member of the Committee of Inspection attended. At this meeting the respondent re-iterated many of the details provided in his letter of 8th July, 2013 . He went through the report which had been prepared by the legal cost accountant and commented that AIB, as fixed charge holder, were within their rights to claim interest up to the date the loan account was paid off. In addition, the respondent requested approval for an interim payment of €50,000. No such approval was given. According to the respondent, the applicant’s officers stated that approval of fees was not possible as the meeting did not have a quorum. He avers that at no time did the applicant’s officers represent to him that they believed the fees were excessive. According to his affidavit, the respondent also advised at that meeting, that he was still considering pursuing High Court proceedings against the original purchaser Mr. Phibbs and that he had engaged a private investigator to investigate Mr. Phibbs’ circumstances. According to him, the applicant advised the respondent that they would be in touch with him on the matter. 14. On the following day, the 12th July, 2013 the respondent called an AGM of the Company’s creditors. He avers in his original affidavit that his remuneration in the sum of €79,693.70 was approved at that meeting along with an interim payment in the sum of €50,000. The respondent’s minutes of such meeting record that the creditors were anxious that Mr. Phibbs be pursued. The respondent also avers that on the morning of the meeting, the applicant emailed to state that they would not be attending. The applicant contends that the first they heard of the alleged approval of remuneration was in the respondent’s affidavit of 10th November, 2014, sworn in these proceedings. The applicant disputes the legal validity of such approvals as they did not emanate from the Committee of Inspection. There also appears to be a discrepancy in the respondent’s account of such approval because in his later affidavit of 16th January, 2015, he avers contrary to his earlier averment that no approval was given for remuneration in the amount of €79,693.70. 15. On 13th August, 2013, Ms. Considine wrote to the respondent to confirm the view of the Revenue Commissioners that the High Court action should not proceed and that any costs incurred in any such proceedings should be borne by the respondent. On 26th August, 2013, the respondent replied, questioning the legal basis for the position of the Revenue Commissioners. The applicant replied, by email dated 30th August, 2013, enquiring whether the respondent had an opinion from counsel as to the strength of the case against Mr. Phibbs and the outcome if the investigation into Mr. Phibbs’ circumstances. 16. On 7th October, 2013 the respondent wrote to Ms. Considine informing her that he had no written opinion from counsel in relation to the proceedings which had been instituted but that counsel had advised that an amount not exceeding €8,000 would be sufficient to obtain judgment. This contradicts his earlier assertion of the 8th July that he had received advice from a Cost Accountant that the proceedings were likely to cost €20,000 plus VAT. This letter also included an investigator’s report relating to the assets of the defendant in those proceedings. It is not particularly informative. It does not disclose whether the defendant is the owner of any assets or whether such assets are charged in favour of any third party or any other information which would allow for an informed decision as to whether it was worthwhile proceeding against him. 17. By email dated 20th November, 2013 Ms. Considine asked the respondent to confirm that obtaining judgment in the proceedings would be the final action in the winding up. The respondent replied by email dated 27th November, 2013 stating that the execution and enforcement of any judgment obtained would take further time and that he would await progress on the legal proceedings before making a final decision to wind up the liquidation. 18. On 6th February, 2014, the applicant’s solicitor wrote to the respondent stating that it was inconceivable that the respondent would bring proceedings in circumstances where the respondent had failed to receive formal legal advice on the potential likelihood of success, the risk and cost involved and the potential timeline of such proceedings. The letter further noted that the Committee of Inspection had advised and directed that it was not in the interests of the liquidation that the proceedings be pursued and that this remained the position of the Revenue Commissioners and of the Committee of Inspection. It further requested the respondent to obtain “formal written advice from a barrister of over five years standing setting out the facts, the legal issues, the potential likelihood of success, the risks, the costs and the timeline involved in any such proceedings” and informed the liquidator that the Revenue Commissioners would seek the direction of the Court in the matter if the liquidator failed to heed the advice and directions of the Committee of Inspection. The applicant states that it had not received any response to this letter from the respondent by the time it commenced the within proceedings. 19. In April 2014, Ms. McGrath, the respondent’s solicitor in respect of the proceedings against Mr. Phibbs as well as a number of other matters, was struck off. Ms. Katherine Hunter replaced Ms. McGrath and she, the Court has been told, is currently in the process of obtaining a default judgment against Mr. Phibbs. In July 2014, the respondent received papers from the now struck off Ms. McGrath’s office. At the time of this application he was in the process of retrieving, gathering and assessing the files in relation to the various legal matters in respect of which he had instructed Ms. McGrath. These, the Court is told, included files in relation to the possibility of having Mr. Tobin’s fees taxed, the respondent having indicated to Ms. McGrath his dissatisfaction with those fees. This was a complete volte face on the part of the respondent who had paid Mr Tobin’s fees in 2012 without any apparent demur and had later retained a cost accountant to report that the fees charged were not excessive. The respondent then sent to taxation fees that he had already paid to a solicitor who was struck off. The Taxation was pending at the time of the hearing of this application 20. The respondent further states that when examining Ms. McGrath’s files he discovered a draft reply to the letter of the applicant’s solicitor, dated 6th February, 2014, which he had previously approved. On 9th September, 2014, when this application was in being, the respondent contacted the applicant’s solicitor to ask if he had received Ms. McGrath’s reply. On being told that he had not, the respondent furnished a copy to him on 17th September, 2014. The respondent avers that this letter informed the applicant that obtaining judgment against Mr. Phibbs would be the final action in the liquidation. The Court notes however that the letter exhibited merely states that “the liquidation will be complete as soon as possible”. In any event, by the time this letter was received the applicant had already initiated proceedings, the notice of motion and grounding affidavit in this respect having been filed on 19th August, 2014. 21. On 23rd September, 2014 a Committee of Inspection meeting and an AGM of the Company were convened, at which the respondent was served with the current proceedings. As of that date, the balance in the liquidation fund was €73,460. The respondent avers that Ms. Considine admitted to having a report on Mr. Phibbs at this meeting. Ms. Considine states that there was confusion in this regard and that the only report she had in her possession was that provided to the applicant by the respondent on 6th November, 2013. She states that the respondent’s minutes of the meeting are mistaken in recording a statement by her that another report was in her possession and she avers that she did not comment when asked about such a report in line with her earlier statement at that meeting that she would not be commenting on matters to do with these proceedings. 22. Following the institution of the proceedings, and before service the respondent filed a number of accounts of his dealings in relation to the liquidation with the CRO These E3 forms were for the periods from 19th November, 2011 to 18th November, 2012 and from 19th November, 2010 to 18th November, 2011, and were already long overdue. On 4th November, 2014, following service of the proceedings, further forms were filed dealing with accounts for the period from 19th November 2012 until 18th November, 2013. He seeks to explain this by referring to the fact that the CRO filing of 4th November, 2014 relates to the AGM of creditors held on 23rd September, 2014. This does not alter the fact that the filings for the periods from 19th November, 2011 to 18th November, 2012 and from 19th November, 2010 to 18th November, 2011 were already seriously overdue. 23. On 7th November, 2014, the respondent received a report from a James Jenning & Co., Chartered Accountants. The respondent engaged Mr. Jenning to provide a second opinion in respect of his fees and works in the liquidation. This report endorses the respondent’s conduct and states that the respondent “did, in my opinion, discharge his duties in a diligent and professional manner” and that “the rates charged by him are in line with professional norms of insolvency”. Detailed accounts of the work done and time expended thereon and the fees charged therefore are neither included in the report nor appended thereto. Jurisdiction of the Court 25. The respondent submits that s. 280 does not provide a means of supervising the liquidation in question. It submits that the case of Gilt Construction refers to “the guidance of the Court” as opposed to supervision. The respondent claims that the applicant’s notice of motion constitutes a misguided attempt to rewrite the provisions of s. 280 to allow s. 280 to deny the respondent his lawful entitlement to bring proceedings as a liquidator and to rely upon that section to deprive the respondent of his entitlement to avail of the provisions of s. 281 of the Companies Act 1963 to seek payment of his costs, charges and expenses. The respondent further submits that the applicant’s attempt to seek the removal of the liquidator pursuant to s. 277 is inappropriate in the context of the within proceedings. Costs, charges and expenses Remuneration and Costs for the Benefit of the Secured Creditor
2. He may allow the liquidator to sell the mortgaged property and agree to release his interest in it on payment of his debt. […] 3. He may realise his security and if the sale results in a deficit may prove for the deficit in the winding up. […] 4. He may value his security and prove in the winding-up for the deficit. 5. He may surrender his security and prove for the whole debt in the winding up.” 29. It would appear in the instant case that the proportion of such costs to be borne by the secured creditor were agreed between the respondent and the secured creditor as being €7,500 plus VAT. The applicant contends this agreement is very strong evidence of the actual market value of the work done and the costs incurred by the respondent in the liquidation. The respondent states that such a figure amounts to nothing more than evidence of his agreement with the secured creditor. The applicant contends that it appears that the respondent agreed that the amount to be paid to the secured creditor should also include the cost incurred in realising the secured asset. It contends that since the respondent was obliged in law only to pay the principle and interest, that he has acted in breach of his duties to the creditors by unlawfully dissipating the assets available to them in the amount of €7,500 plus VAT. It therefore argues that this €7,500 was not a cost properly incurred in the liquidation. 30. The respondent argues that the bank, as a secured creditor, was entitled in law to debit all costs in connection with the realisation of their security to the Company’s loan account. Therefore, the respondent contends that it makes no difference to the outcome whether such costs were added to the loan account by the bank or subsequently paid to the respondent as liquidator or alternatively that costs be discharged directly from the liquidator’s account. The respondent also seeks to distinguish DR Developments from the current circumstances as it dealt with an official, as opposed to a voluntary liquidator and also with a situation in which the work carried out in realising the assets was exclusively for the benefit of the secured creditor. The respondent is therefore of the view that since the charged asset in this case is to benefit all creditors the respondent is entitled to claim costs and expenses in respect of the total realisation. 31. The respondent states that the options available to a secured creditor are set out in paragraph 24 of the First Schedule to the Bankruptcy Act 1988. The effect of paragraph 24 has been summarised by Lynch and Murphy, Corporate Insolvency and Rescue, 2nd Ed., (Dublin, 2012) at paragraph 8.20 to the effect that a secured creditor may either realise its security and prove for the balance as an ordinary unsecured creditor in the winding up; may surrender its security and prove for its whole debt; or if a secured creditor does neither, may simply prove for its debt in the winding up provided certain conditions are satisfied. The respondent contends that AIB could have realised its security via a receiver but chose not to and states that DR Developments is unique to its own facts and that the applicant has not relied on any case law which deals with secured creditors in a voluntary liquidation. Remainder of the liquidator’s remuneration 33. The applicant points out that no breakdown of fees or expenses has been provided by the respondent to permit the Committee of Inspection or the Court to examine the time spent on tasks, whether such time was reasonable and proportionate to the task at hand and to determine an appropriate fee for that task. The applicant believes however, based on the level of remuneration it pays to liquidators pursuant to its tender process, that the current market rate for remuneration in a liquidation of the current size is €25,000 and that in the relative absence of evidence before the Court from the respondent, that such estimate provides a useful tool to the Court in carrying out its supervisory function. 34. The respondent contends that there is no legal basis for recourse to the Committee of Inspection in a voluntary liquidation as regards the upkeep of the hotel and that the hotel needs to be kept in good repair to secure the assets. He states that is was necessary to employ the services of a maintenance man to repair the roof following storm damage, to repair numerous leaks and to fix the heating system and carry out essential repairs to secure the property as a result of damage caused from break ins to the premises. He further contends that there is no legal basis for prior sanction of the Committee of Inspection for consultancy fees in a voluntary liquidation and that the Companies Acts give a voluntary liquidator all the powers of an official liquidator without the need for the sanction of the Committee of Inspection or the Court. The respondent states that the €2,150 in valuation costs arose from the necessity to take a proper and informed inventory and valuation of the hotel contents to investigate the company’s expenditure on same, to provide such list to prospective purchasers and to append the list to any sale contract. 35. The respondent further argues that the tender process referred to by the applicant concerns liquidators retained or paid for by the Revenue Commissioners and no such relationship exists between the respondent and the applicant. The respondent therefore contends that the applicant is attempting to impose rates on a free market liquidator and notes that the notice of motion does not seek relief to fix fees at a certain amount. The respondent further notes that the applicant is an 11.25% minority creditor who did not bring the application herein on behalf of the general body of creditors, and that the applicant has failed to adduce a report to contradict that of Mr. James Jennings, independent chartered accountant. The respondent therefore concludes that the criticisms of the applicant in this regard are subjective and designed to bring the liquidator’s fee within the scope of the Revenue Commissioners tender document, in circumstances where such document is not applicable. Legal Fees
38. The respondent contends that he was advised by Mr. Tobin that the hotel conveyance was a complicated matter which involved (a) purchase of a small building contained within the hotel grounds from Mr. John Kelly a director of the company and resale of same to the hotel purchaser; (b) the purchase of a small parcel of land within the hotel grounds from Ms. Margaret Kelly, whose private residence encroached onto the hotel grounds, and resale of same to the hotel purchaser and (c) the sale to Ms. Margaret Kelly of a small part of the hotel ground, which was already in use by Ms. Kelly, being part of her back garden. It is notable that there is a difference in how the respondent has described the nature of these sales. In his affidavit he claims there to have been purchase and re-sale of lands, and in his letter of 8th July, 2013 to the applicant, he claims the first two transactions were between the Kellys and the hotel purchaser, rather than through the intermediary of the liquidation. The respondent explains such discrepancies by noting that he is not a conveyancing solicitor and that his explanation of such sales is based on information he received from Mr. Tobin along with his own general understanding of the conveyance. He avers that the nature of the transactions is as set out in his letter of 8th July, 2013. 39. The Court in the absence of detailed accounts has been unable to ascertain with certainty the level of fees paid to Mr. Tobin out of the liquidation funds. Fees paid to him in total seem to be somewhere between €46,000 and €51,000. 40. The applicant argues that the respondent should have insisted on receiving a s. 68 letter before instructing Mr. Tobin. It further states that since the respondent has failed to produce such a letter, it is unclear on what basis the respondent engaged Mr. Tobin to carry out his conveyancing work. It appears however from the information provided by the respondent that he agreed to pay Mr. Tobin on the basis of time spent rather than the normal basis for engaging a solicitor for a conveyance, which would be a set fee or a percentage basis. The applicant argues that such action severely prejudiced the creditors in the liquidation by needlessly putting the liquidation funds at risk. 41. The applicants engaged an expert conveyancing solicitor, Mr. Patrick Dorgan, former Chairperson of the Conveyancing Committee of the Law Society, who prepared a report on the market rates for conveyancing in 2011. This report is dated 26th November, 2014. In this report, Mr. Dorgan suggests that a solicitor chosen from the AIB panel to carry out work of the type involved in this case would have been paid a flat fee of €1,000 including VAT. The report also states that Mr. Dorgan would have agreed to do the work in question on a percentage or set professional fee basis, as would many other experienced conveyancing solicitors in the country. Based on this report, the applicant argues that if the respondent was acting in the interests of the liquidation, he would have engaged a solicitor who agreed to act on the basis of a set fee or a percentage of the sale price. The applicant believes that if the respondent had engaged such a solicitor he would have incurred a maximum cost of €7,500 plus VAT and outlay for the conveyancing costs involved in the sale of the hotel. 42. The applicant further argues that the legal costs incurred by Mr. and Ms. Kelly in the sale of their lands to a third party are not costs incurred in the liquidation and should not be borne by the liquidation fund. It is the applicant’s position that since this involved the use of liquidation funds to benefit a member and officer of the company while it was in liquidation at the very least the approval of the Committee of Inspection should have been sought. The applicant further argues that it is incredible and unprecedented that a reasonable liquidator would sell company property to an officer and member of the company without first disclosing the sale to the creditors or seeking the approval of the creditors or Committee of Inspection. As such, the applicant argues that the legal fees which should be borne by the liquidation should be no greater than €10,000 including VAT and outlay. 43. The respondent maintains that since the fees of Mr. Tobin will soon be before the Taxing Master it is premature to attempt to deal with such fees in circumstances where the Taxing Master has yet to establish quantum. The respondent further argues that since he presented the report of the legal costs accountant to Mssrs. Purtill and Downey on behalf of the applicant, at the Committee of Inspection Meeting of 11th July, 2013, it was at that point that the applicant should have raised any issue they had regarding legal fees. He states that the report of Mr. Dorgan, obtained by the applicant, is not relevant in circumstances where he obtained a legal costs accountant report which was not objected to and where he has remitted the matter to taxation. The respondent further argues, that in the context of a very complicated sale, Mr. and Ms. Kelly’s costs are properly incurred in the liquidation since the arrangement was designed to facilitate the sale process and maximise the return for creditors. The respondent submits that there was an obligation on the company to enter into the relevant transactions with the Kellys to facilitate and orderly and unencumbered sale of the hotel. He further submits that this is a matter for taxation and it is conjecture on the applicant’s part to make arguments on the appropriateness of the handling of those transactions. 44. The respondent further submits that in the circumstances such transactions fall outside the scope of a transaction covered by s. 29 of the Companies Act 1990 and there is therefore no basis to seek approval from the Committee of Inspection for such transactions in the context of a voluntary liquidation. The respondent further submits that the market rate is not defined by the applicant and that the applicant has not set out any legal basis on which the Court could direct what costs were or were not properly incurred in this respect. 45. The applicant argues however that while it is possible that Mr. Tobin did an amount of work in respect of the conveyances which the taxing master would tax at more than €40,000, the point is not how much work was done by Mr. Tobin, the point is how much that work cost the liquidation. Thus, what the applicant takes issue with is the nature of the agreement which the respondent entered into with Mr. Tobin and in this respect the applicant argues that if the respondent exercised a reasonable level of skill and conducted the liquidation in a cost-effective way he would have secured a competent conveyancing solicitor on a set cost or percentage basis who would have carried out this work for less that €7,500. Fixing of remuneration 47. The applicant first states that the Committee of Inspection refused to approve the remuneration of the respondent at its first meeting on 27th February, 2013. It further contends that the notice of the meeting of 12th July, 2013 failed to disclose that the respondent would raise the matter of payment on account at that meeting. The applicant states that had it been aware that the matter of payment on account would be re-opened at the meeting of 12th July, an officer of the applicant would have attended to oppose the payment on the basis of the very serious issues which had arisen relating to the respondent’s remuneration and costs. The applicant also contends that it is surprising that the respondent put the matter to the creditors, when the Committee of Inspection had already made it clear that it disagreed with any such payment, and further that the respondent failed to disclose such an alleged approval payment to the other non-attending creditors and to the Committee of Inspection from 12th July, 2013 to 10th November, 2014. The respondent contends that the applicant’s position in this regard demonstrates its attempt to dominate the liquidation by determining that an inquorate meeting of the Committee of Inspection was enough to close the question of the respondent’s fees on account. 48. The applicant contends that the respondent has acted unlawfully in seeking to have his remuneration fixed by creditors in circumstances where a Committee of Inspection exists. The applicant argues that statutory responsibility for the fixing of a voluntary liquidator’s fees, under s. 269 of the Companies Act 1963, lies with the Committee of Inspection and that it is only if there is no Committee of Inspection that the creditors in a general meeting have a statutory role in fixing the fee. Section 269 provides as follows:
(2) Within 28 days after the remuneration to be paid to the liquidator or liquidators has been fixed by the committee of inspection or by the creditors, any creditor or contributory who alleges that such remuneration is excessive may apply to the court to fix the remuneration to be paid to the liquidator or liquidators. (3) On the appointment of a liquidator, all the powers of the directors shall cease, except so far as the committee of inspection or, if there is no such committee, the creditors, sanction the continuance thereof.” 49. The respondent however contends that it is not appropriate for the applicant to refer to s. 269 in circumstances where it has failed to adhere to its provisions and is asking the Court to set out liquidation fees in vaccuo. The respondent contends that there is no relief claimed pursuant to s. 269 in the applicant’s notice of motion and that for the applicant to simply seek such relief from the Court is prejudicial to the respondent who did not respond to the current proceedings on the basis of s. 269. In addition, the respondent states that no vote was taken in relation to his remuneration at the Committee meeting of 27th February, 2013 and the meeting of 11th July, 2013 was inquorate and argues that since the liquidator received no cooperation from the Committee of Inspection as regards his fee approval it was appropriate for him to take the next step of seeking approval from the creditors themselves, of which the applicant was one. The respondent further contends that it is worthy of note that the within application is not being brought by the Committee of Inspection but rather by the applicant in its capacity as a 11.25% creditor, unsupported by the Committee of Inspection or by other creditors in the liquidation. He states that it is wrongful of the applicants to suggest that the creditor’s AGM of 12th July, 2013 was held in a clandestine manner since it is the applicant who did not engage in the AGM process having been made fully aware of its taking place. Legal proceedings 51. The respondent, while he admits that it is difficult to know if Mr. Phibbs will have the means to satisfy any judgment obtained against him, maintains that he is entitled to initiate legal proceedings by virtue of the Companies Acts as a liquidator in a voluntary liquidation, without recourse to the applicant or the Committee of Inspection. The respondent further points to a letter from his solicitors, Hunter and Company, dated 24th October, 2014, which states: “Having reviewed the documentation made available to us we are of the view the proceedings against Mr. Phibbs are well founded, legally correct and necessary in the liquidation”. The respondent therefore submits that he has chosen to act in the interests of the liquidation pursuant to s. 276(1) of the Companies Act, which deals with the powers and duties of voluntary liquidators, and not only does he believe these proceedings are necessary and in the interests of the creditors but two separate solicitors have approved of them. 52. The applicant contends that the position of the respondent in his conduct of the litigation and throughout the proceedings has been that a liquidator is free to conduct a liquidation as he or she sees fit, except where the Companies Acts expressly provide for committee or creditor sanction. The applicant submits that this is a fundamental misunderstanding by the liquidator of the nature of his duty and of his relationship with the creditors on whose behalf he is working to wind up the company. It cites Forde, The Law of Company Insolvency, 2nd Ed., (Dublin, 2008), which states that where the initiation of proceedings is concerned “[i]n a voluntary liquidation, approval from the Committee of Inspection should be sought and it would be wise for the liquidator to seek an indemnity in respect of his costs before going any further”. The applicant states that the guaranteed effect of the proceedings is the prolonging of the liquidation, the increase of the liquidator’s costs and remuneration and the potential increase of legal costs. The applicant notes that the subject matter of the proceedings is a purported post-liquidation contractual debt as opposed to a pre-liquidation liability and as such the bringing of proceedings against a third party which post-dates the appointment of the liquidator is a very serious decision with very serious potential consequences for both the assets available to the creditors and the length of time and expense involved in the winding up. The applicant submits that a liquidator using reasonable professional skill and diligence would not embark on such a course without first obtaining written legal advices about the likelihood of success in the litigation and even if he had obtained such advices would convene a meeting of the Committee of Inspection to consult with the creditors and to ascertain their wishes given that it is their distributable funds which would fund such proceedings and might be increased by such proceedings. It is the applicant’s position that the Committee of Inspection at their first meeting of February, 2013 advised that the proceedings were not in the interests of the liquidation and should not be proceeded with, it is clear that these proceedings have already significantly delayed the winding up and the liquidator has never produced any evidence to the Committee of Inspection to show that these proceedings have any prospect of success in law. Furthermore, although the liquidator commissioned a private investigator using liquidation funds, the report of that investigator was inconclusive and the respondent has never produced any evidence to the Committee of Inspection that even if these proceedings are successful, there is any reasonable prospect of the defendant satisfying an award of damages or costs. 53. The respondent contends that the applicant has failed to define or provide a legal basis for creditor supervision and notes that the quotation from Forde referred to by the applicants is not a legal prerequisite. Furthermore, the respondent refers to the following quotation from Forde at para 10-28:
55. The applicant contends however that in defending his decision to bring the proceedings the respondent has confused or conflated what he can do with what he should do. It claims that what is at issue here is whether in this particular liquidation the liquidator should have brought proceedings with no written legal advices, no consultation with the committee or creditors, and no indication of the likelihood of ultimately recovery. It again cites Forde at p. 219 wherein he suggests that a liquidator who proceeds with a case without having first obtained the consent of the Committee of Inspection and who then loses, risks being made personally liable for costs awarded against the company. On this basis the applicant contends that the Court should direct the respondent not to continue the proceedings and that it would be appropriate that the Court now order that the costs of the proceedings and legal costs of the proceedings are not costs properly incurred in the liquidation and therefore should not enjoy the priority conferred by s. 281 of the Companies Act 1963. Removal for cause shown 57. The equivalent section in England, section 108 of the Insolvency Act 1986 also provides that “the court may, on cause shown, remove a liquidator and appoint another.” In the case of Re Keypak Homecare Ltd [1987] BCLC 409, which concerned an application under s. 108 while Millett J. observed that “there is a burden on the applicant to show cause why the liquidator should be removed” he also stated that “the words of the statute are very wide and it would be dangerous and wrong for a court to seek to limit or define the kind of cause which is required. Circumstances vary widely, and it may be appropriate to remove a liquidator even though nothing can be said against him, either personally or in his conduct of the particular liquidation.” 58. The breadth of cause that may be shown is also outlined in Courtney, The Law of Private Companies, 3rd ed., (Dublin, 2008), at paragraph 24.015 where he cites the following passage from the Federal Court of Australia in City & Suburban Pty Ltd v. Smith Federal Court of Australia, 9 July 1998:
(b) The power to remove a liquidator is not confined to cases of misconduct or personal unfitness. (c) Due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and the purpose for which the liquidator is appointed. This may involve the Court carrying out a difficult balancing exercise. (d) A creditor’s loss of confidence must be reasonable, and in the case of a compulsory liquidation the court will not lightly remove its own officer. (e) The court will, among other considerations, pay due regard to the impact of removal on the liquidator’s professional standing and reputation. Where a liquidator has been generally effective and honest, the court will think carefully before deciding to remove him. (f) The court has to bear in mind that in almost any case where it orders a liquidator to be removed there will be undesirable consequences in terms of costs and delays.” 61. The respondent argues that the applicant’s contention that the respondent has failed to hold annual creditors’ meetings is incorrect, since he held such a meeting on 12th July, 2013. The applicant however contends that he respondent breached his statutory duty in failing to call a general meeting of the company or its creditors up to that date. 62. In addition the applicant states that the respondent’s repeated breach of his obligation to send a copy of the account of his acts and dealings and of the conduct of the winding up to the Registrar of Companies pursuant to s. 272 of the 1963 Act is a ground for his removal as is his attempt to circumvent s. 269(1) of the same Act and to disobey the clear direction of the Committee of Inspection by attempting to have his remuneration unlawfully fixed by the creditors. It contends that a further ground arises from the respondent’s repeated attempts to claim remuneration for work done for the benefit of the secured creditor in breach of the decision in DR Developments (Youghal) Limited. The applicant maintains that yet another ground for his removal arises from his seeking to remunerate himself at a level of pay far in excess of what would be expected or reasonable in a winding up of this size, complexity and importance, thereby acting in breach of his duty to the Company and its creditors. The respondent’s engagement of a solicitor in a manner which opened the Company up to significant excessive costs and his sale of Company property to a Company officer without consultation with creditors are also proffered by the applicant as grounds for his removal. 63. The applicant therefore submits that the conduct of the respondent in this liquidation has been unreasonable, inappropriate and unsatisfactory and has resulted in a liquidation which should have been finalised in 2012 extending into 2015. As such, the applicants say that they have no confidence in the respondent and have a well-founded fear that he continues to act as liquidator their interests, the interests of other creditors and the interests of the liquidation generally will be significantly impaired. 64. The respondent cites paragraph 38.46 of Keane, Company Law, 4th ed., (Dublin, 2007) which states:
66. The respondent submits that Re Keypak Homecare involved an entirely different set of circumstances in which the liquidator had made no examination of the company sales and purchase ledgers and there was an apparent phoenix company operating from the same premises as the company in liquidation, employing the same staff and relying on assets of the company in liquidation. These matters were raised at a creditors’ meeting and the liquidator nevertheless failed to investigate them or proceed against the former directors. The respondent therefore submits that the facts of the Keypak case have nothing in common with this case in which the respondent took a proactive approach. The respondent also distinguishes Re Buildhead a case in which allegations of wrongful preferences were at issue. It submits that the more relevant case in this regard is AMP Enterprises Limited v. Hoffman [2002] EWHC 1989 (Ch) in which Neuberger J. remarked, at para 23 and 27:
On the other hand, if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. So to hold would encourage applications under s. 108(2) by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled. Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier. It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better. It would be plainly undesirable to encourage an application to remove a liquidator on such grounds. It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder and there would be a risk of the court being flooded with applications of this sort. Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay.” 68. The respondent further argues that a s. 277 application ought to be of a plenary nature whereas the within proceedings are on affidavit. In respect of the issue of proceedings against Mr. Phibbs the respondent argues that the applicant’s submission is baseless and contradictory since it has admitted that leave of the Committee is not necessary in a voluntary liquidation. The respondent further submits that returns have been made to the Registrar of Companies, and that he provided a receipts and payments account in respect of the liquidation at the meetings held on 23rd September, 2014 and in addition has procured a report from an independent chartered accountant in relation to his conduct. The respondent further contends that it is baseless to assert that he was involved in the upkeep of a secured creditor and that DR Developments is not a statement of the law but a case in which the court deemed it appropriate to make decisions based on the facts of the particular case. In relation to submissions concerning his fees, he submits that the applicant is applying criteria applicable to a Revenue liquidation whereas the respondent is a liquidator within a free market whose fees are within the scale of fees chargeable and not a liquidator to whom the Revenue terms and conditions apply. He submits that the sale of property to a Company officer was within his power and necessary to facilitate the ordinary sale of the hotel and that although there were delays in the liquidation these were caused mainly by the delayed second sale of the hotel and the fact that two of his solicitors ceased practice. As such, the respondent contends that it is in the best interests of the liquidation for the Court to allow the respondent to finalise the liquidation. Decision of the Court 70. The applicant has raised multiple issues of genuine concern, some of which are capable of resolution by direction of the Court pursuant to s. 280, but others of which are not so amenable. In these circumstances the Court has concluded that most appropriate course for it to take is to remove the liquidator for cause shown pursuant to s. 277 of the Companies Act 1963. The Court is quite satisfied that it has jurisdiction to entertain this application on the basis of the powers conferred by s. 280 which at s. 280(1) allow a creditor to apply to the Court “to determine any question arising in the winding up of a company” and provides at s. 280(2) that “the court, if satisfied that the determination of the question…will be just and beneficial may accede wholly or partially to the application on such terms and conditions as it sees fit and may make such other order on the application as it thinks just”. Furthermore the Court is satisfied that it has jurisdiction pursuant to s. 277(2) to “on cause shown, remove the liquidator and appoint another liquidator”. 71. It appears to the Court that the primary cause of the prolongation of this liquidation was the respondent’s decision to initiate proceedings against the original purchaser at auction Mr. Phibbs, for non-performance of the contract for sale entered into by him in May 2011. The purpose of the proceedings was to seek to recover the €150,000 difference between the original purchase price of €630,000 and the €479,000 for which the properly was eventually sold. These proceedings were instituted in January 2012. At the time of the hearing of this application, more than three and a half years later, they had only reached the stage where a motion for judgment in default of defence had been issued. 72. Prior to issuing the proceedings the respondent had not obtained written legal advice as to the viability of such a claim, nor had he conducted any assessment of the ability of the defendant to meet such a claim in the event that it was successful. The conduct of such an assessment was necessary in circumstances where the original sale to Mr Phibbs fell through precisely because he was unable to raise the necessary funds to purchase the hotel. Even now, three and a half years later, no proper assessment of the defendant’s capacity to meet any judgment which might be obtained against him, has been conducted. 73. Prior to issuing these proceedings the respondent liquidator did not consult with the Committee of Inspection. While as a matter of law, he is not obliged to do so, the Court considers that any prudent liquidator would at a minimum consult the Committee of Inspection particularly in circumstances where the alleged debt is a post liquidation contractual debt, as the Court is satisfied this is, and when it is the distributable funds of the liquidation that are being utilised to fund the litigation and further when the cause of the failed sale, being lack of funds, suggested that there is a serious doubt as to whether any judgment obtained would be satisfied.. 74. It was unwise of the liquidator to launch these proceedings without consulting the Committee of Inspection, and the Court infers from his failure to do so, an awareness on his behalf that approval for such a course was unlikely to be forthcoming. Whatever about the wisdom of launching the proceedings the liquidator has given no adequate explanation for the fact that three and a half years after their initiation the proceedings are still only at a level of statement of claim. Part of the problem, undoubtedly results from the respondent liquidator’s poor choices of legal advisors. Not one, not two but three solicitors retained by him in the course of this liquidation have been struck off. The last of the three was struck off in April 2014, more than a year before this application. That is, to say the least, most unfortunate. However, it does not explain why proceedings launched in January 2012 are still only at the statement of claim stage, three and a half years later. 75. That being said, the fact is that the proceedings are in being and are apparently at the stage of judgment in default. In those circumstances, the Court considers that rather than directing the termination of the proceedings it is appropriate that an independent fresh assessment of their merits be undertaken and a decision made in the interests of the liquidation. This can be done best by a new liquidator. 76. The Court is also persuaded that the applicant has good grounds for concern in relation to other aspects of the conduct of this liquidation. Retention of lawyers 78. When challenged in respect of the amount paid by him in respect of legal fees, the liquidator retained a cost accountant to review the fees charged. This appears to the Court to be an attempt by the liquidator to justify his own actions and misses the central criticism that a cost conscious liquidator would never have engaged a solicitor on a time basis without even a s. 68 letter to indicate the level of costs which might be anticipated. Having obtained a report from a cost accountant which states that the costs were not excessive when measured on a time basis, the respondent subsequently decided that he was not in fact, satisfied that the fees charged were appropriate and so decided to send them to taxation. To send to taxation costs which have already been discharged by the liquidator without demur, to a solicitor who is now struck off is frankly, a waste of money. These costs which, in the Court’s view, were incurred in seeking to justify the liquidator’s actions are not costs properly incurred in the liquidation and the Court so directs. Taxation costs are not referred to in the motion before the Court because the issue had not arisen at the time of the application, however the Court considers that it would be remiss of it not to address the matter within this application so as to obviate the necessity for further application on the issue. Liquidator’s own remuneration 80. Added to these concerns is the fact that the liquidator has already been paid a fee for the realisation of AIB’s secured asset and the applicant not unreasonably maintains that having been paid a fee of €7,500 by AIB for the realisation of their asset, which accounted for more than half of the value of the fund, he cannot then charge the liquidation fund in respect of that portion of the asset. The applicant relies on the decision of Finlay Geoghegan J in DR Developments (Youghal) Limited [2011] IEHC 307 as supporting its position. The respondent contends that that decision is limited to its own facts and only applies to official liquidators. In that case Finlay Geoghegan J. stated as follows:
81. The applicant suggests that the fee of €7,500 paid by AIB to the liquidator in respect of his fee for the realisation of their asset is a good indicator of what the balance of the fee should be which is chargeable to the liquidation fund That may be so, but the Court considers that the final determination of this matter should await the production of proper accounts to the new liquidator and the Committee of Inspection, so that they can ascertain precisely what work was expressed to be done for the benefit of AIB. Similarly, the applicant asks that the Court determine the appropriate remuneration payable to the respondent having regard to the sum already paid by the secured creditor AIB, to the liquidator. The applicant offers as a basis for the Court’s determination a template of their rates of remuneration for liquidators appointed by them. On that basis they contend that the fee appropriate to a liquidation of this size is €25,000 plus VAT. To simply adopt the Revenue’s scheme of payment does not appear to the Court to be appropriate, particularly in circumstances where there is no application pursuant to s. 269 before the Court. A voluntary liquidator is entitled to be paid the appropriate market rate for work properly done in the course of a liquidation. It is not for the Court to set the rate payable whether by reference to the Revenue scheme or any other means and the Court declines to do so. Determination of appropriate remuneration should be based on proper accounts which must of course include disclosure by the liquidator of all work done by him for and on behalf of AIB. 82. While the foregoing matters are what might be described as the headline issues arising in this application there is a number of other matters which have damaged the applicant’s confidence in the respondent’s conduct of the liquidation. The applicant cites the respondent’s attempt to circumvent s. 269(1) of the 1963 Act and to disobey the clear direction of the Committee of Inspection by attempting to have his remuneration unlawfully fixed by the creditors; the respondent’s repeated failure to send a copy of the account of his acts and dealings and of the conduct of the winding up to the Registrar of Companies pursuant to s. 272 of the 1963 Act and the respondent’s failure to call meetings of the Committee of Inspection when requested to do so and meetings of the creditors as required by law. Removal of the liquidator 84. Had the respondent come before this Court with a detailed set of accounts showing his stewardship of this liquidation and a fixed plan for its winding up, the Court would probably have been slow to intervene. However, he has done neither and has chosen instead to invoke his legal right to act as he has done. The evidence suggests that he has a flawed understanding of the role and duties of a liquidator. The Court is satisfied for the reasons set out in this decision, that the applicant’s loss of confidence in the respondent’s conduct of this liquidation is both genuine and warranted. Furthermore, the Court is satisfied that the many issues arising in this liquidation set out above, cannot be properly resolved while the respondent remains as liquidator. The Court is influenced in its decision by the fact that the applicant is in a position to propose an alternative liquidator who can act promptly and cost effectively to conclude the liquidation. In reaching its decision the Court has also been mindful of the impact of removal on the liquidator’s professional standing and reputation as set out at (e) in the principles applying to removal identified in Re Buildlead Limited (No .2) [(2006] 1 BCLC 9 . In that regard the Court considers that any such damage stems directly from his own ineffectiveness in the conduct of this liquidation. 85. Finally, the Court observes that had the applicant exercised its rights as a member of the Committee of Inspection more vigorously from the outset some if not all of the difficulties encountered in this liquidation might have been avoided. |