The High Court (Court) has found that it was not appropriate to make a winding up order in respect of a company under section 760(2) of the Companies Act 2014 (Act), where no party was nominated or consented to act as liquidator.
In July 2022, in the first recorded application from a creditor under section 747 of the Act, the Court appointed Mr Declan DeLacey (Inspector) as inspector to WFS Forestry Ireland Limited (Company) and ordered that he enquire into and report on the affairs of the Company. See our previous article discussing the appointment here.
Having received the Inspector’s interim report, the matter was before the Court to determine whether an order should be made pursuant to section 760(2) of the Act for the winding up of the Company.
Submissions of the Inspector
The Inspector’s interim report found that the Company’s raison d’etre was to defraud investors. The Inspector found that the Company had received at least €7.1 million from investors and is unable to repay these amounts. He also found that crops of Christmas trees referred to in the Company’s communications with investors either did not exist or existed on lands in which the Company had no interest. The Company’s sole asset, a receivable due from a related company, was said to be unrecoverable.
The Inspector reported that the Company, and its sole shareholder and director, had not cooperated with his investigation. Access to the Company’s books and records was not provided, and the Inspector has been obliged to commence separate proceedings against Google to obtain copies of the Company’s documents located in Google cloud storage.
The Inspector submitted that the Company should be placed into liquidation because:
- it is unable to pay its debts as they fall due, and
- its raison d’etre was to defraud investors and it is in wholesale default of its obligations under the Act; it is therefore just and equitable and in the public interest to wind up the Company.
The Inspector did not consent to act as liquidator. He submitted that it would be irresponsible for him to do so without being satisfied as to the availability of funds to meet the costs that would necessarily be incurred in performing a liquidator’s duties.
Submissions of the Minister for Justice
Under Section 762 of the Act, the Minister for Justice (Minister) is obliged to defray the costs of the investigation. To date, the Department of Justice (Department) had discharged invoices of just over €500,000 presented by the Inspector. While he did not advocate either way as to whether a winding up order should be made, the Minister confirmed that the Department would not be underwriting the costs of a liquidation.
Stance of the CEA
The Corporate Enforcement Authority (CEA) made submissions to the Court, confirming that it did not intend to exercise its power to present a petition to wind up the Company under section 761 of the Act.
Decision on winding-up order
Citing Laffoy J in Re: Davis Joinery Limited  3 IR 792, the Court found that there is a jurisdiction to make a winding up order without appointing a liquidator, either at the same time or at all.
In this case, the Court concluded that it had jurisdiction to order the winding up of the Company under section 760(1). A winding up of the Company would be appropriate were a person willing to act as liquidator. However, no person had been proposed as, or consented to act as, liquidator. In such circumstances the Court found it difficult, if not impossible, to see any purpose in granting a winding up order. This did not preclude a future petition to wind up the Company by any person entitled to do so.
The Court referred to section 567 of the Act, which provides that where a company is insolvent and it appears to the court that the reason or principal reason for its not being wound up is the insufficiency of its assets, then the sections of the Act identified in the table to section 567 will apply. These sections include section 599 (related company required to contribute to debts of company being wound up), section 608 (court can order return of assets improperly transferred), section 609 (personal liability of officers for inadequate accounting records) and section 610 (civil liability for reckless or fraudulent trading). The Court also referred to section 842 of the Act, which provides for disqualification orders and can be invoked without a winding up order. The Court found that the availability of these remedies in the absence of a winding up order means that no creditor or other interested party is deprived of their effect.
The case was adjourned to allow a second interim report from the Inspector to address certain matters and make further directions.
The judgment is notable, in particular the reference to the high costs defrayed by the Minister in the investigation of the Company. At the hearing for the appointment of the Inspector, the CEA and the Minister submitted that a winding up order was more appropriate, given the evidence of the Company’s insolvency. However, the Court found that it had no such jurisdiction in the absence of a petition until such time as the Inspector’s report had been considered by it. Although the Court found that a winding up order at this time was not appropriate, the judgment provides useful guidance on the Court’s general jurisdiction to make a winding up order without appointing a liquidator. It will also be of interest to parties considering an application under Section 747 of the Act to appoint an inspector.
For further information or to discuss the implications of this judgment in more detail please contact Barbara Galvin or Ruairi Rynn.