Kinsella v. Somers [1999] IEHC 44 (23rd November, 1999)

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1. The Applicant is a businessman and is a Director and shareholder of the Dublin Gas Company ("the Company) which has been in receivership since a debenture holder, Bord Gáis Eireann, appointed the Respondent as Receiver under the terms of a mortgage debenture, dated the 17th of September, 1984, made between the Dublin Gas Company of the one part and Bord Gáis Eireann of the other part. The matter comes before the High Court by way of a motion for directions under Section 316 of the Companies Act, 1963, as amended by the Companies Act, 1990, Section 171, which substituted subsection 1 and inserted subsections (1A) and (1B). Conflict has arisen between the parties as to the appropriateness of the applicability of Section 316 to the situation and also as to the construction of the wording of Section 316.

2. Section 316 concerns the power of the Receiver and other persons to apply to the Court for directions and reads as follows:-

"316 (1) Where a receiver of the property of a Company is appointed under the powers contained in any instrument, any of the following persons may apply to the court for directions in relation to any matter in connection with the performance or otherwise by the receiver of his functions, that is to say-

and on any such application, the court may give such directions, or make such order declaring the rights of persons before the court or otherwise, as the court thinks just.

(1A) An application to the court under subsection (1), except an application under paragraph (a) (i) of that subsection, shall be supported by such evidence that the applicant is being unfairly prejudiced by any actual or proposed action or omission of the receiver as the court may require."

3. In the Notice of Motion the Applicant is seeking directions under the amended

4. Section 316 and in essence is seeking information about the nature of the assets of the Company since the inception of the Receivership, the changing nature of such assets, their estimated value and the basis for such evaluation, the manner of sale of such assets as were sold and the presale method of advertisement, the proceeds of sale realised and an account of offers received for the sale of each asset. He is also seeking accounts in respect of the Respondent's fees, accounts in respect of the receivership on a yearly basis and an opportunity to inspect the documents relating to the receivership. The Receiver responds that he has already furnished appropriate information to the Company back in October, 1993, and also that he had then expressed willingness to give further information to the Company on clarification of what further information was being sought. In respect of the present application the Receiver maintains that the Applicant neither as a director nor as a shareholder of the Company has an entitlement to the type of information being sought and in any event the lapse of time and the insolvent nature of the Company are such that it would no longer be just or equitable for him to have to furnish this, particularly in the light of the failure of the Applicant and other directors to take up the invitation given to the Company to indicate the nature of information being requested back in 1993 and 1994.

5. In or about 1981 or 1982 the Applicant acquired over 400,000 shares in the Dublin Gas Company for about [sterling]300,000. He became a director of the Company in 1982. The Company was the creature of the Alliance and Dublin Gas Act, 1866 and more recently was affected by the Gas Act, 1976, the Gas Regulation Act, 1982 and the Gas (Amendment) Acts, 1982, 1987 and 1993. Under Sections 4, 5 and 6 of the Gas Regulation Act, 1982 the Company was given power to borrow and to charge the property of the Company to secure such borrowing. Under Section 8 of the Gas Regulation Act, 1982 a security on the undertaker's property could be enforced as if it were a charge created under the Companies Acts. Section 7 of the Gas Regulation Act, 1982 affected the position of receivers. By Section 7(3) of the Gas Regulation Act, 1982, the Minister for Industry and Commerce was given power by Order to apply all or any of the provisions of Part VII and Section 98 of the Companies Act with modifications to or in respect of receivers of the property of an undertaker or as respects assets coming into the hands of such a receiver.

6. By S.I. No 110 of 1986, being the Gas Regulation Act, 1982 (Section 7) Order 1986, the Minister for Energy, in exercise of the powers conferred on him by Sections 7(3) of the Gas Regulation Act 1982 made an order applying Sections 316 and 323 of the Companies Acts 1963 (No. 33 of 1963) to or in respect of the receiver of the property of the Company or as respects assets coming into the hands of that receiver. It is noteworthy that the Minister only made Sections 316 and 323 applicable to the situation.

7. The State had become a major stakeholder in the Company. The Company borrowed from Bord Gáis Eireann, a semi-state body, on foot of the debenture. The price of oil dropped from $40.00 to $19.00 per barrel. It had been envisaged and hoped by the directors of the Company, particularly by the Applicant, that the Minister for Energy would regulate prices having due regard to the prevailing conditions and so the Company invoked the hardship clause in the contract in this respect. However time passed and the Minister for Energy did not cause the price of gas for the Company to be reduced. The Company had invested considerable sums in improvements to the pipe network and then, in 1986, found Bord Gáis Eireann, as debenture holder, invoking its rights under the debenture and putting in the Respondent as receiver. He duly took control of the assets and is still acting as receiver although the assets have in the meantime been sold. In fact, the Asset Sale Agreement dated the 3rd of November, 1987 between the Dublin Gas Company (In Receivership), BernardSomers and Bord Gáis Eireann dealt with the sale of most of the assets of the Company to the State sponsored body which was in charge of the supply of natural gas and which had lent money to the Company and was the holder of security in the form of the mortgage debenture dated the 17th of September, 1984. The Receiver was appointed on 14th April, 1986 under this debenture to be Receiver and Manager of and over the undertaking and all the property and assets of the Dublin Gas Company.

8. The Applicant complains about the lack of information which has been furnished in respect of accounts, the background to the sale of the assets including particulars of the valuations and advices obtained, and the length of time which it has taken to bring the receivership to a conclusion. The Receiver's response is that he has furnished considerable information already to the Company in response to plenary proceedings brought by the Company and in ensuing correspondence between the parties' Solicitors and that he has furnished much information long ago in respect of the sale of the assets. He maintains that since the sale of the assets the Company has not been carrying on a trade in the retail of gas as such, but there are a number of aspects of the business which are still in the process of being tidied up and completed, particularly outstanding revenue claims and also the dealing with still outstanding claims arising out of a gas explosion at apartments on Raglan Road which occurred on 1st August, 1987.

THE APPLICANT'S CLAIM FOR DIRECTIONS FOR THE FURNISHING OF INFORMATION UNDER SECTION 316

9. Counsel for the Applicant stresses the peculiarity of the situation in the case of the Company. The Company was lent money by a State sponsored body and in consideration of this a debenture was given. When the price of oil subsequently fell the Minister for Energy, as the regulating body in respect of price, despite the invocation of a hardship clause, did not reduce the price of gas to the Company and accordingly the situation arose that the supplier of gas put in the receiver on the 14th April, 1986 to recover the sums due to BordGáis in respect of the supply of gas. By the Asset Sale Agreement dated the 3rd of November, 1987 most of the assets of the Company were sold to the debenture holder. I should add at this point that the Receiver stresses that he advertised appropriately and extensively, and took such professional advices as prudent, and sold to the only bidding purchaser.

10. Counsel contends that the situation is particularly unusual as only Sections 316 and 323 of the Companies Act, 1963 have been applied to this receivership. In the ordinary receivership, by way of contrast, the receiver would have had to comply with Section 319 of the Companies Act. Under Section 319 a receiver would normally have to send within seven months of his appointment and every six months subsequently to the Registrar of Companies an abstract showing the assets of the company of which he has taken possession since his appointment, the estimated value of the assets, the proceeds of sale of any such assets since his appointment, his receipts and payments during that period of six months or, where he ceases to act, the aggregated amounts of his receipts and payments during all the preceding period since his appointment.

11. The three Affidavits filed on behalf of the Applicant sworn respectively on the 1st July, 1998, 11th November, 1998 and 29th January, 1999 convey a clear impression that the Receiver has not furnished information as to how he has been managing the Company. For example, at paragraph 34 of the first Affidavit he says:-

by the Receiver for the twelve year period from 1986 to 1998 and in particular inspection of and delivery to the Applicant of all books, records and papers

relating to the receiverships activities of the Respondent or, alternatively, an

and asserts that the Applicant was given a copy of the Asset Sale Agreement by virtue of which the assets of the Company were sold and should be aware that the assets were sold for value. Furthermore, the Receiver says that the assets of the Company, being the gas utility, were advertised internationally prior to being sold.

14. In his third Affidavit the Applicant continues to convey the impression that the Receiver has not been forthcoming with information. For example at paragraph 5 he says:-

"I say unfortunately that notwithstanding the extensive efforts which I have made during this period to have this information made available to me, it has not been made available and I say that it is out of total frustration that I

the information by other means. I say that I reiterate that the information which I seek is basic information and I say and believe that the information

15. In an unsuccessful effort to bring the matter to a speedy conclusion I asked what information and documents the Applicant was seeking in the light of his present state of knowledge. I was told that he wanted yearly accounts, the background to the sale of the assets and information on the position with regard to the claims arising out of the explosion at Raglan Road. A study of the correspondence in the previous proceedings brought by way of Plenary Summons between the Dublin Gas Company and the Receiver indicated that the Receiver had already furnished considerable information and also that his Solicitor had invited clarification of what further information was required. It was common case that the Receiver was under a duty to furnish certain information to the Directors of the Company. Indeed it was clear that he had furnished the Asset Sale Agreement and much supporting documentation and accounts and that his Solicitor had specifically sought clarification of what other information and documents were required. It was clear to me that the Applicant had a very real interest, having lost a considerable sum of money in the Gas Company, in ascertaining how the sale to BordGáis Eireann had been carried out and how the assets had been valued. As a Director of the Company and through the Company he would have been entitled to a considerable amount of information which could have been obtained in the Plenary proceedings. Since the dealing with the claims in relation to the explosion at Raglan Road was still ongoing work from the point of view of the Receiver, no doubt many of the communications with the Claimants and the Insurance Companies would beconfidential. I would expect that the Receiver would not be in a position to reveal all about these ongoing transactions. Being well aware of the contentions of the parties and the Receiver's stance that he should not be compelled to give the information sought by the Applicant to him in his capacity as a Director or Shareholder of the Company, I suggested that a pragmatic way of dealing with the Applicant's desire for information would be to resurrect the Receiver's Solicitor's request for clarification as to what further information was wanted made back in June 1994. This was put forward as a way of side-stepping the legal confrontation.

16. This try for a practical solution did not resolve the matter and the arguments continued.

17. Counsel for the Applicant contends that Section 316, as amended in 1990, enables the Applicant to seek directions from the Court in a quicker manner than by the previous"tortuous extraction of information" by the Plenary proceedings brought by the Company against the Receiver. He stressed the narrow focus of the information sought by suggesting an Order be made allowing inspection of the documents held by the Receiver in respect of the sale of the assets to BordGáis and in respect of how the assets were valued as this would probably satisfy his client. He urged that the application of Section 316 to the Gas Company's situation by the Minister gave the Court jurisdiction to take a broad view of the situation. He submitted that this jurisdiction was all the more vital since the usual provisions in respect of a receiver for the protection of shareholders had not been applied. If the usual provisions under the Companies Act had been applied, then the receiver would have had to file abstracts and accounts in the Companies office within seven months and then every subsequent six months. The Applicant's shares in the Company involved a property right (see Private Motorists' Provident Society Limited and Moore -v- the Attorney General [1983] IR 339.)

18. Counsel approached the matter on a two-pronged basis. First he contended that the wording of Section 316 gave the Court jurisdiction to make the directions sought for the provision of the information and documents required by his client. Secondly he contended that the Court had an equitable jurisdiction to ensure that his client, who was both a Director and aShareholder in the Company, should be given such information as was necessary to safeguard his interests. He particularly stressed that if this was an ordinary receivership then the Receiver would have had to comply with the provisions of Section 319 in respect of the provision of information and filing of accounts. Under the appointment of the Receiver on the 14th April, 1986 the Receiver was the Agent of the Company and as such, Counsel contended, he should provide information to the Directors of the Company. He relied on Healy -v- Healy Homes Ltd [1973] IR 309 as authority for the proposition that the Plaintiff was entitled, as Director, to inspect accounts of the company with his accountant. I doubt if there is any contest that a Director in the ordinary way is entitled to see the accounts of the Company in respect of which he is in a position of having to make informed and responsible decisions; I would doubt however, if this is necessarily the situation when a receiver is in charge of the running of a Company and is involved in ongoing transactions in respect of which he can make a strong case for confidentiality and for not having to keep the Directors informed on a continuous or even continued basis.

19. Counsel for the Applicant submits that under Section 316 the Court was given jurisdiction to look at the situation and that in the present case this jurisdiction was all the more vital since the usual safeguarding provisions in respect of a receiver were not applied for the protection of the shareholders. Even Section 318 in respect of the power of the Court to fix the remuneration of the Receiver was not brought into effect. He argues that the present case involves a highly unusual set-up and thus the Court's decision will only govern this situation, which might be as rare as a unicorn, and so no precedent will be set which is likely to impinge on future situations. The Receiver here is acting without the usual legislative controls and an inference should be drawn that the Minister intended the application of Section 316 to enable either the Receiver or an officer of the Company or a member of the Company to bring the matter before the High Court for directions if difficulties or conflicts arose. The Receiver had chosen not to seek directions despite the fact that he was selling the assets to the very debenture holder who had appointed him. He submitted that, in view of the lack of information with regardto the Receiver's remuneration, the circumstances of the sales of the assets and valuations in respect thereof, and the lack of information in respect of the position with regard to the Raglan Road claims, the Applicant had a strong case for the requisite directions to be given for the extraction of the information sought.

20. Counsel for the Applicant submits that Section 316 sets out a clear procedure by which the Receiver or other interested parties, including a director or shareholder such as the Applicant, can apply to the Court for directions in relation to any matter in connection with the performance by the Receiver of his functions and requesting the Court to give such directions, or make such order declaring the rights of persons before the Court or otherwise, as the Court thinks just. While it is clear that the Court will look to statute and to common law as to how the Court should exercise its discretion in giving such directions as the Court thinks just, Counsel submits that the phraseology and punctuation is such that the provision means something more than merely that the Court should make such Order declaring the rights of persons before the Court or otherwise. He stresses that the phrase should be read as meaning that on any such application the Court may give such directions as the Court thinks just and since the words"or make such Order" are used that this entails that the Court is not confined to declaring the rights of persons before the Court or otherwise, but may also give such directions as the Court thinks just.

21. Counsel for the Respondent Receiver emphasises that an understanding of the background to this application is essential in respect of the merits of the situation and as to what the Court should think just on this motion. He points out that the Company's Solicitor on 1st April, 1993, wrote that on the 23rd August, 1991 the Board of Directors of the Company, with the Applicant as their Chairman, passed a resolution authorising the issue of a Plenary Summons by the Company against the Receiver. Thus the Applicant was very much in touch with theactivities of the Board of the Dublin Gas Company (in Receivership). It is common case that the Board of the Company were entitled to certain information from the Receiver particularly in respect of the proposed sale of assets. In February, 1993 the Company delivered a Statement of Claim and on the 9th June, 1993 moved on a motion forjudgment. However no further litigious step was taken by the Plaintiff Company until on the 7th October, 1997 a Notice of Discontinuance was served without explanation at the time, although subsequently it emerged that the Applicant was probably advised that a Motion for Directions under Section 316 might prove more expeditious. However in the intervening four years there had been a considerable exchange of correspondence between the Solicitor acting for the Receiver and the Solicitor acting for the Company. While the Affidavits of the Applicant convey the impression that there was a dearth of information forthcoming from the Receiver, the content of this correspondence belies this. From August 1992 and throughout 1993 a veritable stream of information was forthcoming from the Receiver's Solicitors. In particular by letter dated 30th July, 1993 the Receiver's Solicitors enclosed cumulative receipts and payments accounts for the period of the 14th of April, 1986 (the date of the Receiver's appointment) down to the 31st of December, 1992. He also attached the notes appended to the accounts and invited confirmation that the details contained in the accounts were sufficient for the Applicant's purpose. He annexed a receipts and payments account from the 14th April, 1986 to 31st August, 1993 with a sheet in respect of notes about the disposal of assets and the receivership debtors/creditors. The Applicant's Solicitor replied by letter dated the 2nd September, 1993 seeking further information and also stating at paragraph 4:-

is effectively completed and in those circumstances and without prejudice to the claims made in the Statement of Claim, this matter could well be resolved by the Receiver discharging himself from the Receivership on the basis that same is completed and returning the books and papers relating to the Receivership to our client Company."

22. By letter dated the 7th October, 1993 the Receiver's Solicitor responded. He enclosed a further receipts and payments account covering the period up to the 31st August, 1993. He also enclosed a Schedule of the disposal of assets. He explained that the sale proceeds attributable to the land and buildings was on the basis of a professional valuation together with receipts from third parties in respect of properties not sold to BordGáis Eireann i.e. properties at Harold's Cross and Dun Laoghaire. The offer in respect of stocks and work in progress was accepted on the basis that it represented in excess of 90% of the book value. The debtors reflect the book value of certain sundry debtors and pre-payments. The balance of the sale proceeds from Bord Gáis Eireann was in respect of all other assets of the Company. The offer from Bord Gáis Eireann was the only offer received despite considerable advertising in national and international newspapers. He added that the professional services of the Receiver were calculated at hourly rates for the appropriate level of staff involved. As for the further request in respect of the records of the receivership or of the Company, he suggested that part of the agreement with BordGáis Eireann was that they would retain all books and records of Dublin Gas Company and make them available to the Receiver if necessary. He assumed that the Plaintiffs would be allowed inspect certain documents if they would care to identify them. As for the completion of the Receivership, he pointed out that there were certain major legal matters still outstanding which may necessitate the Receiver reacting to requests for information from his own records. In addition there were a number of routine matters to be finalised by the Revenue Commissioners pertaining to outstanding taxes. Both of these factors rendered it inappropriate to conclude the Receivership at that time according to this letter. The Company's Solicitor wrote a number of further letters seeking information and the tenor of this correspondence is that the Receiver's Solicitor was inviting his colleague to indicate what further information was required. For instance, by letter dated the 18th January, 1994 the Receiver's Solicitor sent a copy of the Asset Sale Agreement dated the 3rd November, 1987. By letter dated the 11th March, 1994 the Receiver's Solicitor pointed out that there were no further balance sheets after November 1987 because the assets of the Gas Company had already been sold. By letter dated the 16th June, 1994 the Receiver's Solicitor made it clear that he was authorised to provide documentation insofar as he was able. He enclosed a copy Offset Agreement dated the 17th September, 1986 between Bord Gáis Eireann, Bernard Somers and Dublin Gas Company (In Receivership) and sought clarification of what other document was required. The tone of the letters from the Receiver's Solicitor, Eugene F. Collins and Co, was reasonable and facilitatory. There was no response for over two years to this overture seeking clarification of what was required still by the Company. Instead on the 24th July, 1996 the Receiver's Solicitor received a notice of intention to proceed which was sent without explanation. Surprisingly the Receiver then received a letter from the Applicant's Solicitor dated the 26th May, 1997 threatening to institute proceedings and demanding a long list of documents and accounts. The Receiver's Solicitor by letter dated the 3rd October, 1997 refuted the suggestion that the Company had made numerous attempts to get information from the Receiver which had not been complied with by him. He enclosed the copy correspondence between the two firms of Solicitors in the period from the 30th July, 1993 to the 16th June, 1994. It is submitted that this should have satisfied all the needs and entitlements of the Company. He pointed out that the Receivership was not one governed by the normal statutory provisions of the Companies Act, 1963, but that the Receiver had always accepted that the Company was entitled to certain information pertaining to the conduct of the receivership and that that information had already been supplied. The information sought in the Applicant's Solicitor's letter dated the 26th May, 1997 could either be gleaned from the documentation previously furnished or would involve very considerable investigation by the Receiver and his staff with consequent increased costs. At this stage the Plenary proceedings were still extant and the Company could have re-entered the Plenary proceedings and have sought discovery of documents if the Directors of the Company thought that this was worth their while. However on the 13th October, 1997 the Applicant's Solicitor wrote a letter containing a copy of a Notice of Discontinuance of the Plenary proceedings. The Receiver's Solicitor responded by letter dated the 16th October, 1997 pointing out that he had consistently asked the Applicant's Solicitor to identify where he contended that the details already given were inadequate. He reiterated that the Receiver was prepared to accommodate the bona fide requirements of their clients but that it would be necessary for them to be more specific so that a great deal of time wasting was not involved. In the penultimate paragraph of that letter he pointed out that with service of the Notice of Discontinuance he presumed that the Company would now be responsible for the Defendant's costs incurred in the Plenary proceedings.

23. At this point I propose to divert to make the comment that this correspondence reveals a different scenario from the picture which was painted by the Applicant of an investor who, having lost a considerable investment, is unreasonably refused information which he had requested. It would have been preferable if the Applicant's initial Affidavit had set out the course of the Plenary proceedings brought by the Company and had exhibited the correspondence because the tenor of the letters from the Receiver's Solicitor is one of reasonableness and a desire for clarification as to what further information and documents are still being sought from Receiver.

24. At the outset of the hearing, Counsel for the Receiver suggested that the Applicant had to surmount a hurdle at the threshold of the Court. He relied on Order 26 Rule 4 of the Rules of the Superior Courts, which is to the effect that if any subsequent action shall be brought before payment of the costs of a discontinued action, for the same, or substantially the same, cause of action, the Court may Order a stay of such subsequent action until such costs have been paid. However, since the Gas Company was the Plaintiff in the Plenary proceedings andDonal Kinsella is the Applicant in the present proceedings, it seems to me that, strictly speaking, the same parties are not involved. Furthermore the Solicitor acting for the Gas Company has not received a Bill of Costs since the discontinuance of the Plenary proceedings in 1997. Moreover, since the Applicant had lost a considerable investment in the Gas Company and was obviously anxious and determined to seek further information about the conduct of the receivership and in particular the sale of the Company's assets, it would seem inequitable that the failure of the Company to pay the costs should provide an insurmountable obstacle to the Applicant at the threshold of the Court. Accordingly the Court did not exercise its discretion to stay the subsequent action.

25. My understanding of the legal situation with regard to the information which the Receiver was bound to furnish and to whom in the 1980s is based on what Costello J. said in Irish Oil and Cake Mills Ltd and Irish Oil and Cake Mills (Manufacturing) Ltd -v- Donnelly, unreported, High Court, on the 27th March, 1983. The gist of this judgment was that there is no general duty on a Receiver/Manager to account to the Company whose affairs he is managing. A mandatory interlocutory injunction had been sought to compel the Receiver to furnish the Company with certain information. The Plaintiff's claim to the information was based on the general legal principles which they claimed were applicable and not on any allegation of wrongdoing on the Receiver's part. It was argued that there was a general duty on a Receiver/Manager to take reasonable steps to secure the best possible price for the Company's assets and this included a duty to keep the Company appraised as to how the business of the Company was going. Costello J. said that he regarded this as a very far reaching proposition which was unsupported by authority and he rejected this. He added that there may well be special circumstances in which, to ensure that the best possible price is obtained for the assets, trading information since the appointment of a Receiver should be given to the Company's Directors. But in the absence of special circumstances which might favourably affect the price, a Receiver/Manager is not under any duty of care which involves him in reporting as suggested to the Directors on his management of the business. He made it clear however that a duty to account may arise in a particular case and he said that Smiths Ltd -v- Middleton [1979] 3 All E.R. 842 illustrated this point. In that case an account was ordered after a receivership had come to an end as the Court held that the Receiver as agent was under an equitable obligation to account. Costello J. said that he was gladly refraining from laying down general principles but nevertheless his decision is an helpful authority. I should emphasise that Costello J. was dealing with the extent and nature of the duty and the extent and nature of the accounts which a Receiver must furnish to the directors of the Company. In short, he was dealing with the duty of the Receiver to provide information to the Company and not the duty to give information to individual directors or shareholders.

26. Counsel for the Receiver criticises the picture painted by the Applicant in his grounding Affidavit of an investor who has lost his money and tried to obtain information but has been refused his reasonable request. This Affidavit failed to disclose the Company's proceedings and the correspondence between the Solicitors. There is no mention of the delays on the part of the Applicant nor of what was described as the bizarre circumstances in which Notice of Discontinuance was served and the fresh proceedings under Section 316 were instituted against the Receiver. He submitted that the Court should take this conduct into account on the merits of the application should the Court come to the conclusion that the Court has discretion to make an Order if it thinks just on an application for directions by a director or shareholder. Counsel stressed the word"just" in Section 316 and submitted that there was a flawlessly reasonable correspondence from the Receiver's Solicitor leading to the letter of 16th June, 1994 seeking to find out what further information and clarification was required. For over two years there was no response from the company or the Applicant and then the silence was broken not by a response to this letter but by a Notice of Intention to Proceed. Subsequently, the Notice of Discontinuance was served without explanation. He argued that, in short, the affidavits of the Applicant conveyed a misleading impression and that this went to the root of the merits of the application. Furthermore, he submitted that the request at this late stage for further information was a wild goose chase because the Company's "golden goose" had long since ceased to lay any golden eggs and the Company was hopelessly insolvent. He pointed out that at paragraph 6 of the Receiver's Affidavit dated 14th December, 1998 he had adverted to the Applicant's failure to recognise or acknowledge that extensive documentation and accounts had already been furnished to him. The Receiver went on to point out that the company is and had been for quite some time wholly insolvent and that when the Receivership is concluded the company will be returned to the control of the directors upon whom it will fall to appoint a liquidator. It would never be the case that the affairs of the company would be handed back in a viable state to the shareholders.

27. Counsel went on to address the legal position arising under an application under Section 316. The contention of Counsel for the Receiver is that an individual director or shareholder does not have a right to relief under Section 316 as amended. He argues that Section 316 is a procedural provision which gives certain persons access to the High Court for directions and that it is a novel suggestion to say that Section 316 creates rights which are not to be found in existing common law or in statute. In short, it is a fallacy to conceive that there is a new right given to either a director or a shareholder under Section 316 which, on the contrary, is merely a vehicle to assert existing rights. He goes on to submit that even if the novel suggestion is correct, the Applicant in this instance does not satisfy the provisions of Section 316(1A) which reads:-

"... shall be supported by such evidence that the applicant is being unfairly prejudiced by any actual or proposed action or omission of the receiver as the court may require".

28. Doubts have often arisen as to the powers enjoyed by receivers and the manner in which they should be exercised. In England prior to the Companies Act, 1948 a Receiver appointed out of Court had no means of obtaining the Court's directions and the practice was to try to persuade the other party to apply. In the Report of the Committee on Company Law Amendment (1945), the Cohen Committee made recommendations as a result of which Section 135 of the Insolvency Act, 1986 enabled the Receiver to make such an application. A Receiver so appointed may apply to the Court for directions in respect of any matter arising in connection with the performance of his functions and on any such application the Court may give suchdirections or make any order declaring the rights of persons before the Court or otherwise, as the Court thinks just.

29. Counsel for the Receiver adopted the statement of the law made by Costello J. at pp. 12-14 of the Irish Oil and Cake Mills Ltd -v- Donnelly:-

"The Plaintiffs advanced a second argument to support the contention that the Receiver is in breach of the duty of care he owes to the Company. It is said that apart from the special facts of this case the general duty on Receiver and Manager to take reasonable steps to secure the best possible price for the Companies' assets includes a duty 'to keep the Company appraised of how the business of the Company is going'. This is a very far reaching proposition, unsupported by any authority and I must reject it. There may well be special circumstances in which, to ensure that the best price possible is obtained for the assets, trading information since the appointment of a Receiver should be given to the Company's Directors. But in the absence of special circumstances which may favourably affect the price, a Receiver/Manager is not under any duty of care which involves him in reporting as suggested to the Directors on his management of the business.

It cannot be said that a Receiver/Manager is under no duty to account to the Company whose affairs he is managing nor did the Defendant so urge in this case. The extent and nature of the duty and the extent and nature of the accounts he must furnish will depend on the facts of each individual case. Smiths Limited -v- Middleton [1979] 3 All ER 842 illustrates this point. That was a case in which an account was ordered after a receivership had come to an end, the Court holding that as agent an equitable obligation to account existed which had not been obviated by statute. But the Plaintiffs (havingperhaps been misled by the head-note to the report) are not correct in finding in that case a general legal proposition to support their contentions in this case. I am not required now to lay down any general principles, and I gladly refrain from doing so. I am merely adjudicating on the claim to the detailed information sought in the letter of 29th February. As I have said a claim to such information is wholly exceptional, and I can find nothing in the evidence to justify me acceding to it on this motion."

While Holohan -v- Friends Provident and Century Life Office [1966] IR1 established that a mortgagee has a duty of care towards a mortgagor and the court may restrain the disposal of the property at an undervalue, some recent cases in England and Wales indicate the narrow scope of this duty. In Huish -v- Ellis [1995] BCC QB 462, 466 - 467 Judge Raymond Jack said at p. 466:

" In my view the cases which I have cited establish that, provided a holder of security exercises his powers in good faith for the purpose of obtaining repayment, he is free to exercise those powers as he chooses: to quote from the judgment of Jenkins LJ in Re B Johnson & Co (Builders) Ltd [1955] Ch 634 at p. 661, approved by Lord Templeman in Downsview,[Downsview Nominees Ltd -v- First City Corporation Ltd [1993] Bcc 46] [1993] 2WLR 86] the bank had 'full discretion as to the exercise and mode of exercising those powers'. What may be called the Cuckmere duty of care has a strictly limited ambit of application, namely to the sale itself once the creditor has decided what and when to sell. That is consistent with the facts before the Court of Appeal in Cuckmere and it is established by Tse Kwong Lam and by Downsview. The limited ambit is in particular made plain by Lord Templeman in Downsview at pp. 55-56 in a passage which I have already quoted in full."

"The general duty of care said to be owed by a mortgagee to subsequent encumbrancers and the mortgagor in negligence is inconsistent with the right of the mortgagee and the duties which the courts applying equitable principles have imposed on the mortgagee ... If a mortgagee exercises his power of sale in good faith for the purpose of protecting his security, he is not liable to the mortgagor even though he might have obtained a higher price and even though the terms might be regarded as disadvantageous to the mortgagor. Cuckmere Brick Co Ltd -v-Mutual Finance Ltd [1971] Ch 949 is Court of Appeal authority for the proposition that, if the mortgagee decides to sell, he must take reasonable care to obtain a proper price but is no authority for any wider proposition ... The duties imposed by equity on a mortgagee and on a receiver and manager would be quite unnecessary if there existed a general duty in negligence to take reasonable care in the exercise of powers and to take reasonable care in dealing with the assets of the mortgagor company."

31. In another instructive passage from the Privy Council judgment in Downsview Nominees Ltd & Another -v- First City Corporation Ltd and Another [1993] 2 WLR 86. Lord Templeman at p. 99 of the judgment said:

"There is a great difference between managing a company for the benefit of a debenture holder and managing a company for the benefit of shareholders. If the debenture holder is dissatisfied with the policy or performance of his appointed receiver and manager, the appointment can be revoked. A dissatisfied second debenture holder may require the prior debenture to be

32. Finally a quotation from Jenkins L.J. In re B. Johnson & Co. (Builders) Ltd. [1955] 1 Ch. 634, 662 - 663 may help to clarify the position of a receiver

"In determining whether a receiver and manager for the debenture holders of a company has broken any duty owed by him to the company, regard must be had to the fact that he is a receiver and manager - that is to say, a receiver, with ancillary powers of management - for the debenture holders, and not simply a person appointed to manage the company's affairs for the benefit of the company ....

The duties of a receiver and manager for debenture holders are widely different from those of a manager of the company. He is under no obligation to carry on the company's business at the expense of the debenture holders. Therefore he commits no breach of duty to the company by refusing to do so, even thought his discontinuance of the business may be detrimental

from the company's point of view. Again, his power of sale is, in effect, that of a mortgagee, and he therefore commits no breach of duty to the company by

a bona fide sale, even though he might have obtained a higher price and even though, from the point of view of the company, as distinct from the debenture holders, the terms might be regarded as disadvantageous.

In a word, in the absence of fraud or mala fides ... the company cannot complain of any act or omission of the receiver and manager, provided that he does nothing that he is not empowered to do, and omits nothing that he is enjoined to do by the terms of his appointment. If the company conceives that it has any claim against the receiver and manager for breach of some duty owed by him to the company, the issue is not whether the receiver and manager has done or omitted to do anything which it would be wrongful in a manager of a company to do or omit, but whether he has exceeded or abused or wrongfully omitted to use the special powers and discretions vested in him pursuant to the contract of loan constituted by the debenture for the special purpose of enabling the assets comprised in the debenture holders' security to be preserved and realised"

33. As for a claim by a company to documents in the hands of a receiver appointed under a debenture as receiver and manager of the company, Gomba Holdings UK Ltd. and others -v- Minories Finance Ltd. [1989] BCLC 115 is helpful. According to the Court of Appeal the claim of the Plaintiff companies to documents in the hands of the receiver was one based on ownership. The ownership of documents in the context of a receivership depended on whether the documents were brought into existence in discharge of the receivers' duties to the mortgagor, or the debenture holder, or to enable the receiver to carry out his professional duties. It was only documents in the first category to which the Plaintiffs could lay a proprietary claim. Since the Plaintiffs could not show that they had a proprietary claim to any of the documents which they sought from the Defendants, the appeal was dismissed.

34. Counsel said that he could find no text book which supports the proposition that an individual director or shareholder is entitled to such detailed accounts or particulars with regard to the sale of assets. However, he concedes that the duty to give some appropriate information to the company is recognised and he asserts that the Receiver has more than complied with this obligation. If information had been sought on reasonable grounds and had not been given in the period before 1990 then the company would have been entitled to seek such information as was relevant and appropriate from the Receiver if necessary by way of plenary or special summons procedure. Indeed, since the amendments to Section 316 it would appear that if there was concern about the manner of a sale of the assets of the Company, then directors or shareholders could apply by way of motion under Section 316. However, the timing was important and it was inappropriate to use the motion procedure for summary access to the Court some ten years after the Receiver had sold the assets of the company. He asserted that the Applicant as a shareholder had no interest now capable of being affected since the Company was insolvent and its assets had been sold in 1987. Secondly, the Applicant as a director of the Company which was insolvent would only be affected and given back responsibility for the Company by being handed back the Company by the Receiver in the situation that there would be a duty on the directors in reality to put the Companypromptlyinto liquidation.

35. Finally, Counsel for the Receiver emphasised that the Applicant must prove that he is being unfairly prejudiced by the actual action or omission of the Receiver in order to comply with the provisions of Section 316(1A) which requires that the application shall be supported by such evidence that the Applicant is being unfairly prejudiced by any actual or proposed action or omission of the Receiver as the Court may require. He asserted that there had been no attempt to satisfy this subsection and pointed out that there was a lack of sworn evidenceshowing that the Applicant was being unfairly prejudiced by any actual or proposed action or omission of the Receiver. It might well be that the Government decisions made in the 1980s contributed to the loss of the Applicant's investment in the Gas Company but since it was now apparent that the Gas Company was insolvent, there was a lack of evidence as to how it could be alleged that the Applicant was now being prejudiced by the activities or omissions of the Receiver.

At pages 115-116 of "The Law Relating to Receivers, Managers and Administrators" (2nd Edition) Butterworths, London, 1990, Hubert Picarda wrote:-

"It is also further established that a receiver owes duties to the company over whose assets he is appointed receiver. Accordingly a mortgagor company in receivership may sue the receiver appointed by the mortgagee if the receiver acts improperly or to the detriment of the company. This means that as the company can maintain any relevant action for breach of duty there is no justification for allowing a derivative action by directors and majority shareholders, because those persons could have procured the company to bring the action on its own behalf."

36. After dealing with the duty owed by the Receiver to the debenture holder, to the company, other secured creditors and to a guarantor of the company's debt, he deals with the duty of care to ordinary creditors:

"The question is whether the duty of care is owed to anyone else, and in particular to ordinary unsecured creditors of a company. On this point the position had been stated thus by Sir Neil Lawson in Lathia -v- Dronsfield Bros Limited [[1987] BCLC 321 at 324:- ]

On authority, we must look at the context to determine to whom the duties are owed. Primarily [receivers] owe a duty to their debenture holders, and also, as agents, to the company. In my judgment, they do not owe a duty to the general creditors, to contributors, to officers of the company and members. They also owe a duty to guarantors. But that is a secondary liability. It is clear on the authorities, and no authority has been cited to the contrary, that the receivers do not owe a duty to the creditors of the company or to contributors'."

duty towards the Company, there appears to be no reference in Thomas Courtney's book

Insolvency and Rescue" by Lynch, Marshall and O'Ferrall, which is supportive of the

38. Applicant's proposition that he is entitled as a director or shareholder of the Company to be

furnished with accounts and documents by the Receiver in the course of the receivership.

39. While Section 316 would appear to indicate that the Court has discretion to make any Order

it thinks just in response to an application under the Section, nevertheless sub-section 1(A)

seems to limit the circumstances in which such an application for directions can be made.

40. Unless the receiver is the Applicant, the application must be supported by such evidence that

the Applicant is being unfairly prejudiced by any actual or proposed action or omission of the

receiver as the Court may require. Accordingly the right to apply for directions is rather

limited and would seem not to cover an application for clarification of the Receiver's powers

or other general application for directions. If the application is being made by a director or

shareholder then it would appear that a prerequisite is that proof is adduced that the Applicant

is being unfairly prejudiced by some action or omission on the part of the receiver.

41. Lurking in the background of this case is the sense of grievance of the Applicant at the loss of his investment. This is very understandable. It may well be that there has been a misunderstanding on his part about the considerable extent of the information which has already been furnished by the Receiver. Accordingly, I suggested that, without prejudice to the legal obligations in this case, the Receiver should give consideration to instructing his Solicitor to write a follow-up letter to the letter dated 16th June, 1994 in which further information was offered to the Company in a reasonable andfacilitatory tone. This might go some way to meet the Applicant's desire to obtain information and to reassure himself about the propriety of the Receiver's conduct of the process of the sale of assets back in 1987. If the Company had sought further information back at that time then such information would probably have been forthcoming, provided that it was appropriate for the Receiver to disclose the information sought. However, it is frankly too late, with the passage of time, and inappropriate for the Applicant now to be seeking such detailed information as a matter of legal entitlement.

42. I conclude that the Applicant has not proved that the matter comes within the peculiar circumstances in which the Court would consider it just to make an order. There has been a failure to show that the information is required for a specific purpose and there has been a failure to show that the Receiver has not been acting reasonably in refusing to give further information to the Applicant in his capacity as director and shareholder. Indeed, it is doubtful whether even the Company, to whom the Receiver clearly owes a duty to render appropriate accounts in respect of his dealings with the Company's assets, would be able to make out a case that the Receiver was acting unreasonably at this stage in refusing to delve back into the documents with regard to the sale of the assets conducted more than ten years ago. Different considerations might well apply if the Applicant were able to prove that the refusal to give further information was actuated by bad faith on the part of the Receiver. Counsel for the Applicant has been careful to make it clear that no such allegation of mala fides is being madeagainst the Receiver. Accordingly, the application for directions in respect of the furnishing of the extensive information sought and the order for inspection must be refused. However, I should add that this does not preclude an application being made on behalf of the Company for material information which may be relevant to the directors of the Company in exercising their responsibilities when the management of the Company is being returned to them as their responsibility.

43. Private Motors Provident Society and Moore v. the Attorney General [1983] IR 339

45. Irish Oil and Cake Mills Ltd and Irish Oil and Cake Mills (Manufacturing) Ltd v. Donnelly, Unreported, High Court, Costello J., 27th March. 1983

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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Kinsella v. Somers [1999] IEHC 44 (23rd November, 1999) URL: http://www.bailii.org/ie/cases/IEHC/1999/44.html Cite as: [1999] IEHC 44

High Court of Ireland Decisions

Kinsella v. Somers [1999] IEHC 44 (23rd November, 1999)