Security for Costs under s.52 Companies Act 2014: “Reason to Believe” Requires More than a Terse Liquidity Critique

1) Introduction

In Ryconlou Ltd v Conlon [2026] IEHC 152, the High Court (O’Donnell J.) heard an appeal from an order of the Circuit Court (Midlands Circuit) requiring the plaintiff company, Ryconlou Limited, to furnish security for costs to the defendant landlord, Thomas Conlon.

The underlying dispute arose from landlord and tenant proceedings relating to a licensed premises in Athlone, Co. Westmeath. The parties had entered a lease dated 17 June 2019 at an annual rent of €85,580 plus VAT. Following expiry of the lease on 31 March 2025, the tenant remained in occupation and issued a Landlord and Tenant Civil Bill on 15 May 2025 seeking relief under Part II of the Landlord and Tenant (Amendment) Act, 1980 (a new tenancy), and alternatively compensation for improvements under Part IV and for disturbance.

The key issue on appeal was whether the landlord had met the statutory threshold under s.52 of the Companies Act 2014 to justify security: whether there was reason to believe (on credible testimony) that the plaintiff company would be unable to pay the defendant’s costs if the defendant succeeded.

2) Summary of the Judgment

The High Court allowed the appeal and refused the defendant’s application for security for costs. Although the plaintiff accepted the defendant had a prima facie defence, the Court held that—on the evidence presented—the defendant had not established that there was reason to believe the plaintiff company will be unable to meet a costs order.

On costs of the security application (both in the Circuit Court and on appeal), the Court indicated a preliminary view that the plaintiff should recover those costs, but with a stay pending determination of the substantive Circuit Court proceedings, and invited submissions within 14 days if either party sought a different final order.

3) Analysis

3.1 Precedents Cited

Usk District Residents Association v. Environmental Protection Agency [2006] IESC 1

O’Donnell J. treated Usk District Residents Association v. Environmental Protection Agency [2006] IESC 1 (Clarke J.) as stating the canonical two-stage framework:

  1. Applicant must establish (a) a prima facie defence and (b) inability of the plaintiff to pay costs if defendant succeeds.
  2. If both are shown, security should generally be ordered unless the resisting party demonstrates special circumstances justifying refusal.

Here, stage (a) fell away because the plaintiff accepted a prima facie defence, leaving stage (b) as the decisive question.

Coolbrook Developments Ltd v. Lington Development Ltd and Davy Target Investments plc [2018] IEHC 634

The Court adopted the approach in Coolbrook Developments Ltd v. Lington Development Ltd and Davy Target Investments plc [2018] IEHC 634, where Barniville J. reviewed the authorities on what “reason to believe” entails and how financial evidence should be assessed. O’Donnell J. relied on Coolbrook both for the synthesis of principles and for practical guidance where accounts raise questions requiring explanation.

IBB Internet Services Ltd v. Motorola Ltd [2013] IESC 53 (“IBB”)

IBB Internet Services Ltd v. Motorola Ltd [2013] IESC 53 was central to calibrating the evidential threshold. The Supreme Court explained that:

  • “credible testimony” adds little beyond the obvious (the court must accept the evidence as credible);
  • “reason to believe” is not a balance-of-probabilities test;
  • but it must be significantly more than a mere risk—the court must assess likely eventualities and decide if there is true reason to believe the company will be unable to pay.

This prevented the application from succeeding on generalized concern or a lightly-supported pessimistic forecast.

Jirehouse Capital & anor. v. Beller & anor. [2009] 1 WLR 751 (“Jirehouse”)

Through IBB, the Court drew on Jirehouse Capital & anor. v. Beller & anor. [2009] 1 WLR 751, especially Arden L.J.’s warning against “elevating” “reason to believe” into a different legal test (such as probability). This reinforced that the decision is predictive, but must be grounded in substantive material capable of supporting the forward-looking conclusion that non-payment will occur.

Greenclean Waste Management Limited v. Leahy [2013] IEHC 74

The plaintiff relied on Greenclean Waste Management Limited v. Leahy [2013] IEHC 74 (Hogan J.), which spoke of “significant, appreciable and weighty” risks and “objectively reasonable grounds”. O’Donnell J. treated Greenclean as broadly consistent in emphasising that “might not pay” is insufficient, but clarified that—where any perceived tension exists—IBB governs the standard. The Court nonetheless accepted “appreciable” as a helpful descriptor for the “more than mere risk” threshold.

Flannery and Lexington Services Ltd v. Walters & Ors [2015] IECA 147

Flannery and Lexington Services Ltd v. Walters & Ors [2015] IECA 147 was cited to caution that a positive net asset position in financial statements is not necessarily determinative. Financial statements may require explanation; absent explanation, uncertainties can justify a conclusion that the company may not meet costs. O’Donnell J. used this to underline the importance of proper financial analysis and explanation—though, on the facts, he ultimately found the defendant’s evidence did not reach the necessary threshold.

Parolen Ltd v. Doherty & Anor [2010] IEHC 71 and James Elliott Construction Ltd v. Irish Asphalt Ltd [2010] IEHC 234

The Court endorsed the “gap-filling” principle identified in Coolbrook, derived from Clarke J.’s decisions in Parolen Ltd v. Doherty & Anor [2010] IEHC 71 and James Elliott Construction Ltd v. Irish Asphalt Ltd [2010] IEHC 234: where a company’s financial position calls for explanation and the company fails to provide it, the court should not resolve uncertainty in the company’s favour.

This principle featured prominently in the Court’s criticism of the plaintiff’s evidential choices (notably, opacity around figures supplied to a valuer), but it did not rescue the defendant’s case because the defendant still bore the initial onus to establish “reason to believe”.

3.2 Legal Reasoning

The Court’s reasoning proceeds in three main steps.

(i) Correct legal test and standard

Applying s.52 of the Companies Act 2014 (and the continuing relevance of s.390 authorities), O’Donnell J. reiterated that:

  • the applicant must show “reason to believe” the plaintiff will be unable to pay costs;
  • this is not a balance-of-probabilities test, but requires evidence “significantly greater than a mere risk”;
  • the court must evaluate all material credible evidence from both sides.

(ii) Evidence quality and the limits of what was presented

The Court expressed “frustration” at the evidential presentation. Both sides relied on short accountant letters that did not meaningfully engage with each other, and there was “no proper expert analysis” of the abridged financial statements.

The defendant’s core evidence was an accountant’s letter identifying negative working capital, reported losses, and intercompany/related party debt, concluding these “point towards a looming financial crisis”. The Court accepted the letter was credible and provided a “bare” basis for concern, but noted its limitations (informality, lack of appended documents, limited analysis).

The plaintiff’s response included:

  • abridged financial statements showing positive equity and significant cash at bank;
  • a supporting accountant letter asserting recent profitability, positive cashflow over four years, and no arrears;
  • a property valuation report containing turnover/EBITDA-related material derived from information supplied by the plaintiff, but not itself verified through underlying accounts or management information exhibited to the court.

While criticising the plaintiff for not exhibiting the “raw materials” behind the valuer’s figures (and emphasising that, under the gap-filling principle, the plaintiff ought to provide clarity where it can), O’Donnell J. still treated the plaintiff’s disclosed positive equity/cash position as material counterweight.

(iii) Application of the threshold: “looming crisis” label was not enough on this record

Ultimately, the defendant did not discharge the initial onus. The Court held that the defendant’s evidence—principally the terse liquidity-focused letter—did not, when viewed alongside the plaintiff’s evidence, establish an “appreciable” likelihood (significantly more than mere risk) that the company will be unable to pay.

A key practical point was procedural as much as substantive: it was open to the defendant to submit a further accountant response engaging with the plaintiff’s materials and explaining why the “looming financial crisis” conclusion still held. That did not occur. On this evidential balance, the statutory threshold was not met and security was refused.

3.3 Impact

  • Evidential discipline in s.52 motions: The decision underscores that security applications may fail where the moving party relies on an under-developed financial critique (even one using strong language) without rigorous engagement with the opposing financial material.
  • Labels do not substitute for analysis: Characterising a position as a “looming financial crisis” does not itself demonstrate “reason to believe” inability to pay; the court will look for grounded analysis capable of supporting a forward-looking conclusion.
  • Third-party reports require transparency: Where a plaintiff relies on commercial reports (e.g., valuation reports containing turnover/EBITDA assertions), the court may give them limited weight if underlying figures are not exhibited or verified by direct affidavit evidence.
  • Burden remains decisive: Even where a plaintiff leaves gaps, the defendant must still cross the initial statutory threshold; the “gap-filling” principle does not automatically convert plaintiff opacity into defendant success.
  • Costs management signal: The court’s inclination to stay the costs of the security application pending the main proceedings signals a pragmatic approach to preventing satellite costs disputes from compounding landlord-tenant litigation.

4) Complex Concepts Simplified

  • Security for costs: A court order requiring a plaintiff (often a company) to lodge money or provide a bond to cover the defendant’s legal costs if the defendant wins.
  • “Reason to believe”: A standard below “more likely than not”, but above “there is a risk”. The evidence must justify a real, grounded belief that non-payment will occur if costs are awarded.
  • Prima facie defence: An arguable defence on its face; not a final determination of merits.
  • Credible testimony: Evidence the court can accept as reliable; in practice, the court still asks what that credible material proves.
  • Working capital / liquidity: Whether the company has enough short-term assets to meet short-term liabilities. Negative working capital can indicate cashflow stress, but does not automatically prove inability to pay a future costs order.
  • Abridged financial statements: A shortened form of accounts filed publicly, which may omit detail needed to evaluate solvency/cashflow, sometimes necessitating explanation.
  • EBITDA: A profitability metric (earnings before interest, tax, depreciation, amortisation). Useful for business performance, but forecasts and adjustments may be contested and require underlying support.
  • Stay on costs: The court can postpone enforcement of a costs order until another event occurs (here, until the substantive case concludes).

5) Conclusion

Ryconlou Ltd v Conlon [2026] IEHC 152 reinforces the demanding, evidence-based nature of the “reason to believe” threshold under s.52 of the Companies Act 2014. Consistent with Usk District Residents Association v. Environmental Protection Agency [2006] IESC 1, and shaped by Coolbrook Developments Ltd v. Lington Development Ltd and Davy Target Investments plc [2018] IEHC 634 and IBB Internet Services Ltd v. Motorola Ltd [2013] IESC 53 (informed by Jirehouse Capital & anor. v. Beller & anor. [2009] 1 WLR 751), the Court insisted on a case-specific, materially supported prediction of inability to pay—something “a lot stronger than a mere risk”.

The judgment’s broader significance lies in its practical warning: security for costs disputes are often won or lost on the quality and completeness of financial evidence and responsive analysis. Strong assertions without engagement, and opaque reliance on third-party reports without underlying figures, are unlikely to assist either side in meeting (or rebutting) the statutory threshold.