Doonbeg Investment Holding Company Ltd v Companies Act 2014 (Approved)

Factual and Procedural Background

This opinion concerns an application by the Applicant, acting as liquidator of Company A (in liquidation), seeking directions under section 631 of the Companies Act 2014 ("2014 Act") regarding the admission of a claim by the Notice Party, trustee in bankruptcy of a related company. The Applicant requested the court to determine whether the Notice Party’s claim should be admitted to proof in the liquidation. The court had previously delivered two judgments on this matter ([2021] IEHC 382 and [2022] IEHC 88), ultimately deciding that the claim should be admitted. The current judgment addresses the issue of the Applicant’s legal costs arising from this application and whether those costs should be treated as costs in the liquidation payable out of the company’s assets.

Legal Issues Presented

1. Whether the Applicant’s legal costs incurred in the application under section 631 of the Companies Act 2014 should be treated as costs in the liquidation and paid out of the company’s assets.
2. Whether the Applicant’s conduct in bringing the application and incurring costs was reasonable and properly within the scope of the liquidator’s functions.
3. Whether the court should exercise its discretion under Order 99 of the Rules of the Superior Courts to direct that the Applicant’s costs not be treated as costs in the liquidation.

Arguments of the Parties

Applicant's Arguments

• The Applicant contends that the legal costs were properly incurred in the liquidation and thus should be paid out of the company’s assets in priority to other creditor claims pursuant to section 617(1) and (2) of the 2014 Act.
• The Applicant relies on the principles set out in the Supreme Court decision in Re Ballyrider Limited (In Voluntary Liquidation), arguing that no misconduct occurred and that any errors were honest mistakes or matters of procedural judgment.
• The Applicant asserts that as liquidator, he is ordinarily entitled to recoup legal costs incurred in proceedings brought in his capacity, and that the invocation of section 631 was to avoid personal liability risks.
• The Applicant characterizes his decisions and conduct as neutral and procedural rather than improper or dishonest.

Notice Party's Arguments

• The Notice Party opposes treating the Applicant’s costs as costs in the liquidation, relying on Order 99, particularly rule 9, which permits the court to disallow costs improperly or without reasonable cause incurred.
• The Notice Party emphasizes that the Applicant’s approach unnecessarily incurred significant legal costs by bringing an uncontroversial issue before the court that the liquidator should have resolved.
• The Notice Party highlights that not all creditors were served notice of the application, raising concerns about the legitimacy of the process and the fairness to other creditors.
• The Notice Party argues the court should exercise discretion to deny the Applicant’s costs as liquidation costs due to the unreasonable manner in which the application was pursued.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by acknowledging the broad scope of section 631 of the Companies Act 2014, which permits the liquidator to apply to the court to determine any question arising in the liquidation. However, it expressed serious reservations about the Applicant’s use of this provision to seek directions on admitting the Notice Party’s claim, a decision ordinarily within the liquidator’s routine functions.

The court noted that no dispute existed between the parties regarding the claim’s admissibility and no other creditors opposed the claim, partly because only half of the creditors had been served notice of the application. The court found this selective service problematic, as it deprived some creditors of the opportunity to contest the claim and undermined the legitimacy of the process.

Further, the court criticized the Applicant’s neutral stance during the proceedings, which allowed the Notice Party to succeed unopposed, resulting in significant legal costs that could have been avoided had the liquidator made a substantive decision in the first instance. The court characterized the Applicant’s choice not to decide the claim as a tactical move to avoid personal liability but one that was unreasonable and detrimental to the company’s creditors.

Applying the principles from Re Ballyrider Limited, the court distinguished between misconduct and honest mistakes, finding no misconduct but concluding that the costs were not properly incurred in the liquidation. The court emphasized that the Applicant’s approach was not a mere honest mistake but a deliberate choice that unnecessarily increased costs to the detriment of creditors.

The court also considered the Legal Services Regulation Act 2015 provisions on costs and the Rules of the Superior Courts, recognizing the court’s discretion to deny costs that were improperly or unreasonably incurred. It found that the Applicant’s conduct in raising and then not pursuing the substantive issue before the court was unreasonable.

Holding and Implications

The court DENIED the Applicant’s request that his legal costs be treated as costs in the liquidation payable out of the company’s assets.

This decision means that the Applicant is not entitled to recoup his legal costs from the company’s funds in respect of this litigation. The costs will not be paid in priority to other creditor claims, thereby preserving the company’s assets for distribution among creditors. The court did not find misconduct or bad faith but emphasized the importance of liquidators exercising their functions reasonably and avoiding unnecessary litigation costs. No new legal precedent was established beyond the application of existing principles.