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//Liquidations, Petitioners Costs Recovery, Creditors Meetings – A Minefield of Mandatory Rules

Liquidations, Petitioners Costs Recovery, Creditors Meetings – A Minefield of Mandatory Rules

Winding Up Petitions

The general rule is that a creditor who successfully petitions the court to wind up a company is entitled to its costs ranking pari passu. However the position on costs is less clear where a winding up order is not made, for example, where the debt is paid between the date of the petition and the court hearing.

Often a creditor in such circumstances is so relieved to receive the monies that it does not bother pursuing the issue of the cost of the petition. Recent High Court decisions suggest that such creditors should consider more seriously pursuing payment of their costs.

In the case of MCR Personnel Limited –v- Companies Acts

[2011] IEHC 319 Miss Justice Laffoy examined this issue.

A creditor, having served a 21 day notice pursuant to section 214 (a) of the Companies Act 1963 (the “1963 Act”) on the company and having received no response, presented a petition to the court and served it on the company. The debt was discharged in reaction to the petition and therefore the creditor did not advertise the petition. The company contended that the creditor had no entitlement to costs as the petition had not been advertised.

The court pointed out that it would be contrary to common sense that there should be a practice whereby a creditor whose debt is discharged after presentation of the petition but before it is advertised would be entitled to costs of presenting the petition only if it incurs further costs for advertising for no other reason than to comply with the rules. If there is no risk for the debtor company of having to discharge the costs of the petition where it discharges the debt after the presentation of the petition but before it is advertised, there is little incentive for a debtor company to comply with the section 214 demand prior to the presentation of the petition.

Miss Justice Laffoy went on to grant the creditor its costs, on the basis of the normal rule, that costs follow the event, the event being the successful recovery of the debt, rather than the winding up of the company which had ceased to be necessary.

In the case of Jer Ryan Electrical Contractors Limited trading as JRE Engineering Group –v- Companies Act [2011] IEHC 424, despite acknowledging its debt and having been served a 21 day notice the company failed to discharge its debt. A petition to wind up the company was presented to the court and was advertised prior to the matter coming before the court.

The court was informed that the directors had reluctantly accepted that there was no other option open to the company but for it to go into liquidation, but it was suggested that a creditors’ voluntary liquidation would be less expensive. A creditors’ meeting was convened and a liquidator was appointed. The matter came before the court and counsel for the petitioner, agreeing with the company’s proposals, made an application for the petition to be struck out. However, the petitioner made an application for its costs and also that its costs should rank pari passu with the costs of the liquidator in the winding up. The liquidator did not object to the petitioner’s application.

Miss Justice Laffoy agreed that the petitioner had been severely prejudiced in relation to the costs and expenses of the presentation of the petition including the costs of advertising and held that it was reasonable to infer that the company directors’ acknowledgment that liquidation was the only way forward was precipitated by the fact that the petitioner’s petition had been presented. She granted the petitioner its costs.

The court did not accede to the second part of the creditor’s application, but only on the basis that it would not have been appropriate to do so as the application for this relief was not made correctly and in accordance with the rules. It should have been made by way of Notice of Motion.

Creditor’s Voluntary Liquidation

The requirements and procedures for holding a creditors meeting are set out in the Companies Act and in the Rules of the Superior Courts.

The case of CED Construction Limited (In Liquidation) –v- Companies Acts [2011] IEHC 420 illustrates that compliance with these procedural requirements is mandatory.

At a meeting of creditors it was indicated that the company would be wound up voluntarily and that the company had nominated somebody to be appointed as liquidator.

At a subsequent creditors meeting Mr. Barry English representing Winthrop Engineering and Contracting Limited, the only creditor of the company nominated a different person to be liquidator. Section 267 of the 1963 Act provides that if the creditors and the company nominate different persons to be liquidator, the person nominated by the creditors shall be liquidator.

The chairman was not prepared to accept the creditor’s nomination pointing out that various legal requirements had not been adhered:

• The creditor was not properly represented at the meeting by a person who had been properly appointed as its proxy;
• The written consent of the proposed liquidator was not made available in accordance with Section 267A of the 1963 Act; and
• The proposed liquidator was not present at the meeting.

The chairman would not adjourn the meeting at the creditors request and the creditor then applied for court orders including an order adjourning the creditors meeting and removing the company’s nominee as liquidator.

Amongst other things, Miss Justice Laffoy held that a creditor is entitled to be represented, to be heard and to vote at the meeting subject to compliance with the statutory and regulatory requirements in relation to representation and voting. She pointed out that the primary obligation of ensuring that it is able to do so rests with the creditor. However, there is a secondary obligation on the chairman of the meeting to inquire whether a corporate creditor is properly represented. The duty of ensuring that a meeting is quorate rests with the chairman.

The court found that the creditor had not complied with the various legal rules and requirements and was not entitled to vote.

However despite this the court found that the creditors’ meeting at which the liquidator was appointed was inquorate and should have been adjourned. An order was made that the meeting be resumed within 14 days thus giving the creditor the opportunity to mend its hand.

For further information please contact our Insolvency and Corporate Recovery Unit.

Summary

In certain circumstances the court has held that the petitioner is entitled to their costs even in circumstances where the winding up petition did not proceed.

Court confirms the legal procedural requirements at creditors’ meetings must be complied with for valid company decisions.

 

2018-11-13T10:48:49+00:00August 7th, 2012|Publications|
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