Second examinership petition dismissed as abuse of process due to strategic withholding of evidence.

THE SUPREME COURT

[Record No: 378 of 2009]

Murray C.J.

Denham J.

Fennelly J.

In the Matter of Vantive Holdings

In the Matter of Villeer Developments

In the Matter of Peytor Developments

In the Matter of Carragh Enterprises Limited

In the Matter of Parlez International Limited

In the Matter of Morston Investments Limited

In the Matter of Royceton

And in the Matter of the Companies Acts 1963 - 2009

Judgment delivered the 14th day of October, 2009 by Denham J.

1. The decision of the Court on this appeal was given on the 6th October, 2009. In this judgment I deliver my reasons for

that decision.

2. This is an appeal by ACC Bank Plc. "ACC", against the judgment of the High Court (Cooke J.) perfected on the 28th

August, 2009, which gave leave to the petitioner to proceed with a second petition for examinership.

First Petition

3. On the 17th July, 2009 Vantive Holdings presented a petition to the High Court seeking orders appointing an examiner,

pursuant to the Companies (Amendment) Act 1990, as amended, hereinafter referred to as "the Act of 1990", to Vantive

Holdings, and to related companies: Villeer Developments, Peytor Developments, Carragh Enterprises Limited, Parlez

International Limited and Morston Investment Limited.

4. On the 31st July, 2009 the High Court (Kelly J.) dismissed the petition. A stay was placed upon the order.

5. A notice of appeal was served and the appeal was heard by this Court on the 11th August, 2009. The appeal was

dismissed and the decision of the High Court to refuse to appoint an examiner was affirmed. In a judgment of the Court

delivered by Murray C.J. it was stated:-

"It is not possible for the court to reach any conclusion about the prospects of survival of the companies as a

going concern in the absence of any evidence about the likely future development of the property market. Mr

Carroll says that the companies trading and dealing with its assets are “effectively frozen by the paralysis of the

property sector.” He says that the market is undergoing an unprecedented adjustment. In short, it is clear that

the companies are unable to survive in current market circumstances without protection of the court.

Against this background, in order to persuade the court that the companies have a reasonable prospect of

survival, it is perfectly obvious that some evidence of likely improvement in the property market is absolutely

essential. Neither the affidavit of Mr Carroll nor the accountant's report makes any attempt to supply this

deficiency. The court has been informed that valuations exist. They have not been placed in evidence. In their

absence, it is not possible for the court to reach any conclusion on the question of "reasonable prospect of

survival.”

The opinion of the independent accountant is explicitly based on a number of assumptions, which are not verified by

evidence. The accountant himself refrains from expressing any opinion about them. Those, such as valuers, who have

made the assumptions, have not given evidence; nor have their reports been put in evidence. The report of the

independent accountant is not based on evidence. Thus it cannot be of any value in assisting the court to determine

whether the companies have a reasonable prospect of survival.

In his written submissions counsel for the petitioner contended that the actions of all the bank creditors who exercising

forbearance on repayments and support for the petitioner’s application, “speaks louder than words”. However, it cannot

be without some significance that none of those banks have spoken in support of the proposition that there is a

reasonable expectation of the survival of the petitioner as a going concern if an examiner is appointed. There may be

other advantages to the bank creditors if an examiner was appointed short of the survival of the petitioner as a going

concern such as the more orderly or controlled disposal of assets but that is of course not the test. The relevant fact is

that the basis on which the banks support the petitioner’s application has not been articulated to the Court and no

opinion has been expressed on their behalf that the appointment of an examiner could reasonably be expected to result in

the survival of the company as a going concern.

Accordingly, the Court concludes that the petitioner has not established that its strategy for a future orderly disposal of

the key assets of the company is credible or reasonably viable. It is not necessary to revisit the question of future

financing since the Court is satisfied on the above finding alone that the petitioner has not demonstrated that there is a

reasonable expectation that it or the related companies could survive as a going concern. Accordingly the appeal is

dismissed and the order of the learned High Court Judge refusing the application for the appointment of an examiner is

upheld."

Second Petition

6. A second petition was presented to the High Court on the 14th August, 2009, when de Valera J. ordered that the

question as to whether the petitioner should be permitted to proceed should be determined on the 20th August, 2009.

7. On the 20th and 21st August, 2009 the High Court heard that application and Cooke J. indicated that he would grant

the petitioner leave to proceed with the second petition. On the 24th August, 2009, Cooke J. delivered his reasons for

that decision.

8. ACC decided to preserve its right to appeal against that decision, but indicated that it would participate in the hearing

of the second petition.

9. The second petition was at hearing before the High Court on the 1st, 2nd, 7th and 10th September, 2009. On the 11th

September, 2009 the High Court (Clarke J.) refused the petition and declined to appoint an examiner. That order is now

under appeal to this Court by the petitioner.

10. In the circumstances, where the petitioner has brought an appeal against the decision of the High Court delivered on

the 11th September, 2009, ACC has proceeded with this appeal.

High Court judgment

11. The order and judgment at issue on this appeal is that of the High Court delivered on the 24th August, 2009. Cooke J.

held:-

"36. Having considered the arguments advanced by counsel both orally and in their written submissions, the court

is satisfied that it would not be justified to refuse to give the petition a hearing notwithstanding the circumstances

and reasons for rejection of the first petition.

37. In the first place, the court considers that this is not a situation in which the rule in Henderson v. Henderson is

properly applicable. Provided that on the hearing of the petition the court is satisfied that the material now

proffered in demonstration of the reasonable prospect of survival of the undertaking answers the deficiencies

identified by the Supreme Court and meets the statutory test of s. 2(2) of the Act of 1990, as amended, the court

would be entitled to appoint an examiner. The procedure is not a matter of inter-partes litigation in the sense of

the rule but a plea for the intervention of the court to protect the undertaking in the interests of the companies,

their creditors, employees and other interested parties. There will be evidence and information before the court

which was not provided to the Supreme Court so that the High Court will not be ruling upon the same subject

matter as has already been disposed of by the Supreme Court. The matter is not, therefore, res judicata in the

strict sense of that concept. The reasons why that new evidence and information was not before the Supreme

Court is a matter which goes to the issue of abuse or bad faith and to the exercise of the court’s discretion to

decline to hear the petition for that reason.

38. The court is not convinced that the presentation of this second position is so obviously tainted by abuse of

process or bad faith in the sense of s. 4A of the Act of 1990, as amended, such as would warrant its being refused

a hearing. It is true that the explanation now given for the non-availability of confirmation of bank support on the

first petition as noted by the Supreme Court has been less than satisfactory. The court might have expected

some explanation as to which banks had been asked, what they had been asked for and what the reactions, if any,

had been. On the other hand, it may not be entirely surprising, given the current economic and banking climate,

the sheer magnitude of the group’s potential deficit and the uncertainty surrounding the prospects of a petition,

that no bank was then prepared to risk giving anything in the nature of an explicit written commitment which

would be used in court.

39. It is also true and now conceded that insofar as the business plan, the valuations and the evidence of likely

evolution of economic conditions and of the property markets is concerned, the whole case might have been made

on the first petition and that the strategic decision not to do so was mistaken, deliberate and contrary to legal

advice.

40. Nevertheless, for the purpose of the present issue it can at least be said that, however mistaken or misguided

that decision was, it does not appear to have been a malevolent attempt to conceal matters from the court with

a view to misleading it. The existence of the business plan and the valuations was known and the plan had been

given to and discussed with the bank’s creditors. Mr. Carroll’s decision, so far as the court can tell, appears to

have been motivated by a fear that the public disclosure of the individual values attributed to specific properties

would jeopardise the prospect of realising their best prices in the future.

41. In the final result, however, the court’s view is that the overriding consideration in this situation must be the

legislative objective of securing, if feasible, the interests of the creditors, the employees, of those doing business

with the companies and of the economy as a whole, by investigating any reasonable prospect of survival of the

enterprise in whole or in part.

42. As has been indicated in the case law cited by both Kelly J. and the Supreme Court, in particular the passages

cited from Traffic Group Ltd. v. Companies Acts [2007] I.E.H.C. 445 and In the matter of Gallium Limited trading

as First Equity Group [2009] I.E.S.C. 8, the focus and purpose of the examination process is not to help

shareholders but to investigate whether some part or all of an enterprise can be arranged to continue for the

benefit of employees and of the wider community. The companies are insolvent and if, upon investigation by an

examiner, they are incapable of being restructured in order to survive, they will be wound up. The investment of

the shareholders is gone. For that reason, the possible interest of the members in a future recovery of their

investment is not a factor which is weighed in applying the statutory criteria for the appointment of an examiner.

43. It must also be borne in mind that the objective of the appointment is to provide a standstill period or

breathing space in which the examiner will investigate the affairs of the company with a view to formulating and

proposing a possible scheme of arrangement to procure the survival of the undertaking. Implicit in the arguments

against hearing this petition is the suggestion that in doing so the court might, in a sense, allow the companies to

“get away with something”. As it was put by Kelly J. in the High Court, “…the whole exercise seems designed to

help shareholders whose investment has proved to be unsuccessful”. It may well be that upon closer examination

of this second petition the court will come to the same conclusion. Nevertheless, at this point the court would

simply observe that the future interest of the creditors and the members, will be determined, not by the hearing

of the petition or the appointment of an examiner, but by the terms of any scheme of arrangement that may

ultimately be adopted. Such a scheme may radically alter both the structure and ownership of the subject

companies by the introduction of new investors resulting in new management.

44. Accordingly, just as the court should not permit protection to be extended to a company where the purpose is

to help shareholders whose investment has been lost, it should not be deterred from so doing because it

disapproves of past mistakes, misjudgements or even misconduct on the part of owners or directors if it is

otherwise satisfied that it is demonstrated that there is a reasonable prospect of the survival of the company and

the whole or any part of its undertaking as a going concern. To ascertain whether that is so in the present case

on the basis of the evidence and information now proposed to be presented, it is necessary to hear the petition.

45. For these reasons the court finds that there are good grounds to give this second petition a hearing."

The appeal

12. ACC has brought this appeal in light of the appeal by the petitioners of the judgment and order of the High Court

(Clarke J.) dismissing the petition. The grounds filed by ACC are as follows:-

1. That the learned High Court judge erred in law in failing to determine that the High Court ought not to hear the

petition by virtue of a breach on the part of the petitioners of s.4A of the Act of 1990;

2. That the learned High Court judge erred in law in failing to determine that the High Court ought not to hear the

petition by virtue of the presentation of the petition on the 14 August 2009, constituting an abuse of the process

of the Superior Courts;

3. That the learned High Court judge erred in law in failing to determine that the High Court ought not to hear the

petition by virtue of the presentation of the petition on the 14 August, 2009, being barred by the rule in Henderson

v. Henderson;

4. That the learned High Court judge erred in law in failing to determine that the High Court ought not to hear the

petition by virtue of the relief sought in that petition being res judicata

Statute

13. The Act of 1990 gives power to a court to appoint an examiner. Section 2 states:-

"2. (1) Subject to subsection (2), where it appears to the court that:-

(a) a company is or is likely to be unable to pay its debts, and

(b) no resolution subsists for the winding-up of the company,

(c) no order has been made for the winding-up of the company,

it may, on application by petition presented, appoint an examiner to the company for the purpose of

examining the state of the company's affairs and performing such duties in relation to the company as

may be imposed by or under this Act

(2) The court shall not make an order under this section unless it is satisfied that there is a

reasonable prospect of the survival of the company and the whole or any part of its undertaking

as a going concern.

…"

And section 4A provides:-

"4A. The court may decline to hear a petition presented under section 2 or, as the case may be, may decline to

continue hearing such a petition if it appears to the court that, in the preparation or presentation of the petition

or in the preparation of the report of the independent accountant, the petitioner or independent accountant -

(a) has failed to disclose any information available to him which is material to the exercise by the

court of its powers under this Act, or

(b) has in any other way failed to exercise utmost good faith."

Decision

14. The High Court held:-

"The court accordingly considers that the Act of 1990 does not preclude the presentation of a second petition by

the company although, as Mr. McCann contended, it would clearly require the intervention of some special

circumstance or explanation."

I would affirm the decision that in principle the Act of 1990 does not prohibit the presentation of a second petition. As to

whether a second petition should be permitted to proceed will depend on all the circumstances of the case.

15. In this case the presentation of the second petition requires an explanation from the petitioner.

16. The second petition was commenced within days of the determination of the appeal before this Court on the first

petition.

17. The second petition is supported by documents which the petitioner could have presented at the time of the first

petition, but did not produce. These documents which were produced in support of the second petition included the

business plan and updated property valuations. There is some additional documentation, being support expressed by the

banks. This had been sought unsuccessfully for the first petition but was available for the second petition.

18. The essence of this case is that Mr Carroll took a deliberate and strategic decision to withhold evidence (contrary to

legal and financial advice) from the first petition. Then, having lost the first petition, he sought to bring a second petition,

this time with the evidence. The question to be determined is whether this is an abuse of process.

It was described by Cooke J. as:-

"It is also true and now conceded that insofar as the business plan, the valuations and the evidence of likely

evolution of economic conditions and of the property markets is concerned, the whole case might have been made

on the first petition and that the strategic decision not to do so was mistaken, deliberate and contrary to legal

advice."

I would affirm this aspect of the learned High Court judge's analysis. Equally I would affirm the High Court's statement of

the issue:-

"The reasons why that new evidence and information was not before the Supreme Court is a matter which goes to

the issue of abuse or bad faith and to the exercise of the court’s discretion to decline to hear the petition for that

reason."

I agree with the learned High Court judge that the explanation from the petitioner is at the core of the issue of abuse of

process in this case.

Factors

19. In analysing the circumstances of a second petition, so that the fundamental principles of law may be applied, there

are a number of relevant factors. These factors may include the following. First, the actions and explanation of a

petitioner. Secondly, the effect on persons of multiple petitions. There is a negative effect on persons in the application

for a petition, and even if the persons on a subsequent petition are not identical this aspect of the case is relevant.

Thirdly, the moving of a second petition, and with it all the court and court office time required, is a use of scarce court

resources. There is no need to consider further the second and third factors above, other than to note them. So I shall

consider the first factor, being the actions and explanation of the petitioner.

Issue

20. The issue is whether in all the circumstances of the case the presentation of the second petition is an abuse of

process of the courts by the petitioner.

21. The circumstances of the case require to be considered to analyse the reason for the failure to provide the

information to the court with the first petition.

22. The High Court held that there was no malevolent attempt to conceal matters from the Court with a view to

misleading it. I would affirm this finding.

Strategic decision

23. The reasons why the information was not provided to the courts on the first petition was because of a strategic

decision by Mr Carroll.

24. Mr Carroll was the primary mover in the matter of the first petition. He made a strategic decision not to provide the

previously described information to the courts.

Commercial sensitivity

25. There was some discussion before this Court on the appeal of the first petition as to the issue of commercial

sensitivity. Certainly the matter of commercial sensitivity could be a factor. However, there is a process by which

information may be protected from the public eye and this process was not utilised by the petitioner. Consequently the

matter of any commercial sensitivity does not arise on this appeal.

Health

26. The issue of Mr Carroll's health was raised. In the second affidavit of John Roland Pope he makes reference to medical

reasons. He deposed:-

"(6) I say that the decision not to furnish the Business Plan was a decision made at the insistence of

Mr Liam Carroll. The decision was made against financial and legal advice proffered at the time and

despite the reservations that Mr Torpey and I had.

(7) Mr Carroll, along with his wife Mrs Roisin Carroll, are the ultimate 100% shareholders of the Group.

For the sake of completeness, I should point out that neither I nor Mr Torpey, own any shares in any

of the companies, the subject of this application, or indeed, in any of the companies of the Group.

(8) Mr Carroll, as Managing Director and de facto controller of the Group, is its driving force and the

ultimate decision maker. Mr Carroll is responsible for the day to day running of the Group and is the

person to whom I report.

(9) I understand that the Court in the present application would be keen to understand why certain

information was not put before it in the Original Application. In the weeks prior to the Original

Application, Mr Carroll's health was a concern to Mr Torpey and myself. I believe that Mr Carroll's ill

health resulted in his decision making capacity being affected, particularly around the time of the

presentation of the Original Application and since. I believe this led Mr Carroll making certain incorrect

decisions in relation to the form, content and timing of the Original Application. In particular, I believe

that this led to Mr Carroll's insistence that the Business Plan should not form part of the Original

Application. Despite advice, I say that Mr Carroll would simply not countenance the presentation of the

Business Plan at the time.

(10) In view of Mr Carroll's recent hospitalisation, I now believe that I underestimated the medical

position and level of personal stress that he was under. This in my view led Mr Carroll, at a time when

he may have been overborne by stress, to insist that certain documentation should not form part of

the Original Application and resulted in omissions in the previous Petition."

27. In addition, a letter from a General Practitioner and a three line letter from a consultant were before the court.

28. While there may be circumstances where medical evidence comes before a court, and carries weight, and is relevant

to an issue before the court, this is not such a case. There is no evidence, nor any evidence of medical reasons, which

could weigh as a significant factor before this Court. Consequently, this is not a factor which is sufficiently proved so as

to be an explanation.

"Overriding consideration"

29. The High Court rested its permissions to proceed on an "overriding consideration". The High Court stated:-

"41. In the final result, however, the court’s view is that the overriding consideration in this situation must be the

legislative objective of securing, if feasible, the interests of the creditors, the employees, of those doing business

with the companies and of the economy as a whole, by investigating any reasonable prospect of survival of the

enterprise in whole or in part."

I respectfully disagree with the learned High Court judge. This could not be an overriding consideration. If it were it would

mean that, irrespective of the petitioner's actions, multiple petitions could be brought, sequentially.

30. The Act of 1990 gives to insolvent companies the right to apply to court for a special protection for the duration of

an examinership. It is an exceptional jurisdiction to assist an insolvent company which negatively affects the rights of

creditors.

31. There is a duty on a petitioning company to present all relevant information to the court. The petitioner failed to

present relevant information in the first petition.

32. If the "overriding consideration" was determinative of the issue it would mean that petitions could be presented

routinely as a dry run. Then, having got a negative decision from a court, essentially an advice on proofs, a second

petition, and indeed further subsequent petitions, could be brought and legitimised by the "overriding consideration".

33. What was described by the High Court as an "overriding consideration" is a factor. However, it has to be weighed in

the balance with all the other relevant factors and principles, which include the principle of the finality of litigation.

Abuse of process

34. The Act of 1990 places a responsibility on a petitioner who seeks an order appointing an examiner. The petitioner

should comply with the requirements of the statute. In seeking the protection of the courts a petitioner should not abuse

the process of the court. Contingent interests cannot exonerate or override the conduct of a petitioner. While the

interests of creditors and employees should be taken into consideration they are not a determinative "overriding

consideration".

35. Does the strategic and deliberate decision to withhold documents from the court, contrary to legal and financial

advice, which results in a decision to dismiss the petition, prohibit the bringing of a second petition which is fundamentally

the same but with the documents furnished, as an abuse of the process of the court? Fundamental principles apply to the

answer of this question.

36. While the rule in Henderson v. Henderson (1843) 3 Hare 100 does not apply, the underlying principle is similar to the

concept of the abuse of process. As Bingham M.R. stated in Barrow v. Bankside Members Agency Limited [1996] 1 W.L.R.

257 at p.260:-

"The rule in Henderson v. Henderson (1843) 3 Hare 100 is very well known. It requires the parties, when a matter

becomes the subject of litigation between them in a court of competent jurisdiction, to bring their whole case

before the court so that all aspects of it may be finally decided (subject, of course, to any appeal) once and for

all. In the absence of special circumstances, the parties cannot return to the court to advance arguments, claims

or defences which they could have put forward for decision on the first occasion but failed to raise. The rule is not

based on the doctrine of res judicata in a narrow sense, nor even on any strict doctrine of issue or cause of action

estoppel. It is a rule of public policy based on the desirability, in the general interest as well as that of the parties

themselves, that litigation should not drag on for ever and that a defendant should not be oppressed by

successive suits when one would do. That is the abuse at which the rule is directed."

37. The abuse of process in issue in this case is that of repeat petitions, successive applications. A petition has an effect

on creditors. Further, the legislation aims, if the petition is successful, for court protection of 70 to 100 days. It is not

envisaged that applications for petitions drag on and that consequently, in effect, further court protection is given by

prolonging the process.

38. The court has an inherent power to prevent the misuse of its procedures, which would be unfair to a party to

litigation or which would bring the administration of justice into disrepute.

Principle of finality of litigation

39. Fundamental principles apply to the issue raised in this case. There is a constitutional right of access to the courts.

This encompasses a right to apply to court, a right to legal representation, a right to a hearing, and a right to a decision

with reasons. Thereafter there is a right to an appeal.

There are exceptional circumstances, in the interests of justice, when a matter may be revisited. But the fundamental

principle is that it is in the public interest and for the common good that there should be finality in litigation. An aspect of

this principle is that parties should not be exposed to multiple litigation and should have closure on an issue. Also, there is

the public interest that the limited resources of the courts should be used justly and with economy.

40. In this case the petitioner exercised his right of access to the courts, and to have legal representation. He applied for

an examiner to be appointed. The case was heard in detail before the High Court and a written judgment given expressing

the reasons for the refusal of the application. Thereafter the petitioner exercised his right of appeal. There was no

application to bring further documents before this Court. The appeal proceeded on the same basis as the hearing before

the High Court. There was a full hearing on the appeal and a written judgment given of the reasons for dismissing the

appeal.

41. Within days of that decision the petitioner brought the second petition to the High Court, which gave rise to the issue

before Cooke J..

42. The interests of justice require that there be finality of litigation. If a petitioner were entitled to make a second or

further petition on the general "overriding consideration" of legislative policy, as referred to previously, it would commence

an era where multiple petitions would become the norm. A petitioner could then regard a primary petition as a stalking

ground for advice on proofs from the court. Clearly, this was not envisaged by the legislation, nor is it consistent with

fundamental principles of law.

43. The issue before the Court is whether in all the circumstances of the case the petitioner has abused the process of

the court in seeking a second petition, whether the conduct of the petitioner is an abuse. Or, whether, in all the

circumstances of the case, it is an exception and the general principles do not apply. The decision as to whether it is an

exception rests upon the explanation given on behalf of the petitioner.

44. The Court has an inherent power to prohibit an abuse of the process of the Court. In this case the petitioner had an

opportunity to present its case for the appointment of an examiner on the hearing of the first petition. The explanation for

not presenting all the documents to the Court, given by the petitioner, was that it was a deliberate strategic decision.

The issue of commercial sensitivity was not before the Court. Nor was there evidence of any health issue such as could

carry any weight.

To take a deliberate strategic decision to withhold evidence from the Court (contrary to legal and financial advice) when

moving the first petition for the protection of the companies by the appointment of an examiner, and, having lost, to seek

then to go again with fundamentally the same petition but this time with the previously withheld evidence, is an abuse of

the court's process. In the circumstances the explanation by the petitioner is not such as to ground an exception to

fundamental principles of the administration of justice.

Consequently, for the reasons given, I would allow the appeal.