In Re Citywest Hire Ltd (In Liquidation)
Myles Kirby was appointed as Official Liquidator of Citywest Hire Limited (In Liquidation) (“Citywest”). Citywest had operated Il Segreto Restaurant on Merrion Row, Dublin 2 until late June 2013.
The Official Liquidator established from the books and records of Citywest that cash and credit card sales of €63,048.25 were lodged or diverted to Petrolo Limited (“Petrolo”) over an 11 day trading period between 30 May 2014 and 10 June 2013. Petrolo has operated the Unicorn Restaurant, Merrion Court, Dublin 2 since June 2013 which currently employs a number of previous staff members of Citywest. Mrs Pia Bang Stokes is a director of Petrolo.
The Official Liquidator made an application to the High Court in December 2013 under section 139 of the Companies Act 1990 against both Petrolo and Jeffrey Stokes for repayment of improperly transferred funds totalling €63,048.25.
While it was not disputed that €63,048.25 was paid to Petrolo both the motivation and reasons for the use of Petrolo’s bank account and the subsequent use to which the monies were put were disputed by both Mr Stokes and Petrolo.
On 26 May 2014, Finlay Geoghegan J. made an order that the effect of the lodgement to the Petrolo account was to deprive Citywest of monies to which it was then entitled, which had the effect of perpetrating a fraud on Citywest in breach of section 139 of the Companies Act 1990 (“CA 1990”).
The finding that the payments were a fraud on Citywest gave the Court jurisdiction to invoke section 139(2) CA 1990 to make an order against “any person who appears to have the use, control or possession of such property or the proceeds thereof” to pay a sum in respect of it to the Liquidator if the Court deems it “just and equitable” to do so. In such circumstances the Court is expressly directed by section 139(3) CA 1990 to have regard to the rights of persons who have “bona fide and for value acquired an interest in the property the subject of the application”.
The Court held it relevant to consider the use to which the monies were put once paid into the Petrolo account. Petrolo/Jeffery Stokes contended that the entire sum of €63,048.25 was paid to discharge liabilities of Citywest which position was disputed by the Liquidator. On the affidavit evidence presented Finlay Geoghegan J. determined it was just and equitable to make an order for the respondents to pay a sum of €21,049 to the Official Liquidator in circumstances where a sum of €29,334.92 was deemed to have been paid to employees and a sum of €12,664.31 was deemed to have been paid to suppliers of Citywest.
Despite the fact that some 24 years has elapsed since section 139 CA 1990 was first enacted it has been the subject of very little judicial deliberation having been previously applied in only two reported Irish cases. In Le Chatelaine Thudicum Limited (In Voluntary Liquidation)-v-Conway  IEHC 349 the High Court held that it was not necessary under section 139 that an intention to defraud be present and that a disposal which deprived the company, its creditors or members of some asset of company to which it was lawfully was of itself sufficient to effect a fraud within the meaning of Section 139. This analysis was subsequently approved in the High Court judgment in Re Devey Enterprises Limited (In Voluntary Liquidation) & Cos. Acts, Laffoy J. 24/8/2011, which concerned gratuitous payment of company monies to discharge personal liabilities of its directors.
Judge Finlay Geoghegan’s recent decision therefore constitutes an important additional judicial precedent for liquidators, creditors and/or contributories of companies going forward who are seeking to reverse the effect of a fraud previously committed.