The evidence

17. The Joint Liquidators filed a total of five affidavits in support of the Petition and verifying the Amended Petition. In the first affidavit, filed in response to the Petition, the Joint Liquidators explained the relationship between Blackbee and the Company and Blackbee's role in the investment structure. It explained that its "main role" was as arranger, that it facilitated the execution of investment transactions and brought the parties to those transactions together. This structure was regulated by a document entitled 'Master Placing Terms (May 2017 Edition)'. Under those terms, Blackbee was entitled to charge a fee at the outset of an investment for its role as arranger. In addition, it was entitled to charge ongoing annual management charges ("AMCs").

18. The Joint Liquidators were able to establish that Blackbee had been paid more than €1 million in AMCs between 2017 and 2018. They were not, however, able to establish if all fees had been paid in the period 2019 to 2022. They did not, therefore, raise any invoices in relation to that period. They were able to confirm that no fees had been paid in 2023 and 2024. Those are the periods in respect of which it invoiced the Company and ultimately relied on in its Amended Petition. A total of 52 invoices were issued, all dated 12 June 2024. Some of the invoices include charges into the future, that is, for services yet to be provided where the terms of that investment product provided for payment in advance. Two of the invoices related to AMCs provided in relation to an investment identified as the iNUA Collection.

19. The Company's evidence is contained in three affidavits sworn by its sole active director, Mr David O'Shea. The first of the affidavits is a response to the original petitioner, Mr Finneran's, claim. As with his response to Blackbee, Mr O'Shea contended that Mr Finneran was not a creditor of the Company and therefore lacks locus standi to present a petition. Notably, however, he did not contend that the Company was solvent. Understandably, Mr O'Shea's first affidavit doesn't address Blackbee's claim.

20. His second affidavit was in response to Blackbee's application to be substituted as petitioner, but also addresses his contention that Blackbee is not a creditor of the Company. In this affidavit, Mr O'Shea addresses a claim not advanced by Blackbee, that it is a creditor in relation to fees owed by the Company for costs incurred in its role as "arranger" of investments with the Company. Mr O'Shea notes that the Master Placing Terms refer to the fee for arrangement "as shall be agreed" and he says that there was no such agreement. However, all of the invoices relied on by Blackbee relate to AMCs. This response is, therefore, irrelevant.

21. In relation to the claim for fees due in relation to AMCs, Mr O'Shea makes a number of points. He refers to the fact that all the invoices were raised on 12 June 2024 and are sequential. He says that no basis is given for the percentage figures used to calculate the charges, and he points to the fact that two of the invoices have been raised in respect of an investment with a different entity, the iNua Collection, and that responsibility for those AMCs rests with those entities. As noted below, in the Amended Petition presented by Blackbee, no reliance was placed on these invoices.

22. Paragraph 19 of Mr O'Shea's second affidavit is in the following terms:

"It is also the case – and indeed it is not suggested otherwise by Mr Farquharson – that neither the joint Official Liquidators nor Blackbee have provided any management services to the Company since the Joint Official Liquidators' appointment on 8 May 2023. Indeed, following a group restructure, Blackbee Investments Limited had employees providing solely MIFID services and not management services since 1 October 2020 and so it could not provide any management services to the Company or any other entity from that date."

23. The affidavit did not contain any documentation supporting the contention that there had been a group restructure, nor did it indicate who had been providing the management services to the Company, or to anyone else, in place of Blackbee, after 1 October 2020.

24. In reply to this affidavit, the Joint Liquidators exhibited bank statements of the Company which, it was explained, had been received anonymously, together with bank statements of Blackbee. The Company's bank statements show payments to Blackbee from the Company throughout 2021 and 2022 in respect of AMCs totalling approximately €1.5 million and Blackbee's bank statements shows corresponding receipts. The Joint Liquidators also exhibit minutes of a meeting of Blackbee on 28 November 2020 in which the Chief Financial Officer of Blackbee indicated that Blackbee's only future income would be agreed management charges.

25. In response to the suggestion that no management services have been provided, the Joint Liquidators make clear they have invoiced only for services provided by them since their appointment and describe in detail the services provided. The Joint Liquidators explain that the percentages used to calculate AMCs were all derived from the relevant product brochures, prepared and disseminated by the Company, which set out, in express terms, the percentage fees which would be charged by Blackbee in respect of AMCs.

26. In his third and final affidavit, Mr O'Shea says that the Company operates a "global issuance programme" governed by a full program of documents ("the Program Documentation"). He introduces a new argument, that the Program Documentation prohibits the appointment of a liquidator on the application of Blackbee.

27. He accepts that Blackbee was entitled to charge fees "in relation to services that it provided" on notes issued by the Company "until such time as it was substituted in that role by Blackbee Group Holdings Limited. Following its substitution, Blackbee was no longer entitled to raise additional fees where services had not been provided."

28. Mr O'Shea exhibits two documents in relation to the alleged group restructuring by which, he contends, Blackbee's role in providing management services and its entitlement to AMCs from the Company for those services was transferred to a new entity, Blackbee Group Holdings Limited ("BGHL). One is a letter from the CBI which he describes as the CBI's approval of "the proposed integration of Blackbee within the new Group structure." The second is said to be a copy of the novation agreement pursuant to which all of Blackbee's investment and operations team was transferred to BGHL. He says that "payroll records further confirm that the transfer of the relevant employees took place" and that only employees in Markets in Financial Instruments Directive ("MIFID") service roles remained after 1 October 2020. No payroll records are exhibited. He contends that the "group re-structure is indisputable."

out various complaints about the manner in which the Joint Liquidators have been conducting the liquidation.

34. He concludes his third affidavit without ever having addressed the core ground on which the Joint Liquidators rely for an order winding up the Company, that the Company is unable to pay its debts.

35. Luke Charleton delivered an affidavit in reply to Mr O'Shea's third affidavit, sworn on 25 October 2024. At the outset of the affidavit, he says that it will address two key points. The second key point is a response to the allegations of Mr O'Shea concerning the Joint Liquidators' conduct and is not of central importance to this application. I should record, however, that he contends that the Joint Liquidators have acted at all times professionally and in the best interests of the creditors of Blackbee.

36. The first key point, however, is Mr Charleton's contention that Mr O'Shea's evidence does not "stand up to scrutiny" and does not "meet the test that the Amended Petition debt is bona fide disputed on substantial grounds."

37. Insofar as Mr O'Shea's arguments had not already been addressed by the Joint Liquidators, Mr Charleton makes the following observations. He accepts that the product brochures did permit Blackbee to be substituted as provider of management services, but he points out that there is simply no evidence that BGHL has been substituted as alleged. More importantly, perhaps, he points out that as BGHL is an unregulated entity, it could not be substituted to provide the services being provided by Blackbee, a regulated entity.

Discussion

38. The Company's opposition to this application rests entirely on the proposition that it is not a creditor. It was very properly accepted by counsel for the Company that its evidence in this regard was not compelling. He described it as a "patchwork of evidence, it is higgledy-piggledy". However, he contended that this patchwork is sufficiently coherent that Mr O'Shea's evidence cannot be rejected without being tested by way of cross-examination. In this regard, significant reliance was placed on the decision of the Supreme Court in RAS Medical Ltd v The Royal College of Surgeons in Ireland [2019] IESC 4, [2019] 1 IR 63. That judgment concerns judicial review proceedings challenging a decision of the respondent in which there was a conflict of fact on affidavit between the parties as to whether particular guidelines had been applied by the respondent when making its decision. The Supreme Court determined that that conflict could not be resolved against the respondent without cross-examination of the respondent's deponent:

"[88] Where a party wishes to assert that evidence tendered by an opponent lacks either credibility or reliability, then it is incumbent on that party to cross-examine the witness concerned and put to that witness the basis on which it is said that the witness's evidence should not be accepted at face value. It is an unfair procedure to suggest in argument that a witness's evidence should not be regarded as credible on a particular basis without giving that witness the opportunity to deal with the criticism of the evidence concerned. A party which presents evidence which goes unchallenged is entitled to assume that the evidence concerned is not contested. However, there may, of course, be legitimate debate about whether the evidence, even if accepted so far as it goes, is sufficient or appropriate to establish the facts necessary to resolve the case in favour of the party tendering the evidence in question.

...

[92] But it is frankly not appropriate for parties to enter into controversy as to the facts contained either in affidavit evidence or in documents which are admitted before the court without successful challenge, without exploring the necessity for at least some oral evidence. If it is suggested that there are facts which are material to the final determination of the proceeding and in respect of which there is potentially conflicting evidence to be found in such affidavits or documentation, then it is incumbent on the party who bears the onus of proof in establishing the contested facts in its favour to use appropriate procedural measures to ensure that the potentially conflicting evidence is challenged. Where, for example, two individuals have given conflicting affidavit evidence and where it is considered that a resolution of the dispute between those witnesses is necessary to the proper disposition of the case, then there has to be cross- examination and the onus in that regard rests on the party on whom the onus of proof lay to establish the contested fact.

[93] A similar principle applies where it is suggested that there is documentary evidence, properly before the court, which might cast doubt on the reliability of sworn testimony. It is not permissible to invite a court to reject sworn testimony either on the basis that there is sworn testimony to the contrary or that the testimony might be said to be either lacking in credibility or unreliable (on the basis of, for example, a documentary record) without giving the witness concerned an opportunity, under cross-examination, to explain, if that be possible, any matters which might go to credibility or reliability."

39. The Company refers to the application of these principles in the context of a winding up petition by the High Court (Butler J) in her judgment in Re Bayview Hotel Limited [2022] IEHC 516. In that case, the petition to wind up was grounded on a debt of €479,249, said to be a loan payable on demand. The fact that the loan was repayable on demand was reflected in the terms of a mortgage debenture executed contemporaneously with the loan and the company's accounts, which provided that the loan was an "amount falling due within one year". However, it was claimed by another creditor that there existed an agreement between him and the petitioner that the loan amount would only fall due if and when the hotel, the main asset of the company, was sold. The court concluded that the dispute over whether the petitioner was a creditor of the company, i.e. whether the loan was repayable on demand or repayable only after the sale of the hotel, was not one which could be resolved without cross-examination, despite her clear doubts regarding the basis upon which the debt was disputed, concluding (at para. 60) "with some reluctance... that I must hold that the petitioner has not discharged the evidential burden on it as regards proof of the debt the subject of the s. 570 notice."

40. In Bayview, the court explained the evidential burden:

"55. In the context of the deeming provisions of s. 570, the onus of proof is undoubtedly on the petitioner to establish the existence of the debt, the service of the notice and the nonpayment of the debt in response to that notice. The case law recognises that a petition should be dismissed if the company disputes liability for the debt in and on substantial grounds (see In Re Pageboy Couriers (above), Stonegate Securities v. Gregory (above) and Truck and Machinery Sales Ltd v. Marubeni Komatsu Ltd [1996] 1 IR 12). However, it does not follow that the petitioner bears the onus of proving the negative proposition that the company does not have substantial grounds for disputing a debt and cannot do so in good faith. In normal course, it is a matter for the company to put forward any grounds on which a debt is disputed. It is not necessary that the company establish that it will succeed in avoiding liability for the debt on those grounds, merely that there is a bona fide dispute which warrants the court refusing to wind up the company for non-payment of that debt."

41. Put otherwise, the petitioner must prove the existence of a debt in order to establish that it is a creditor. Once it has established prima facie that this is so, it falls to the company to show that the debt is disputed on substantial grounds and in good faith. The threshold to establish the existence of a bona fide defence is low, but it is not met by mere assertion. An analogy can be drawn with the extensive jurisprudence regarding applications for summary judgment. In IBRC v McCaughey [2014] IESC 44, [2014] 1 IR 749 (at p. 759):

"[23] Insofar as facts are put forward, then, subject to a very narrow limitation, the court will be required, for the purposes of the summary judgment application, to accept that facts of which the defendant gives evidence, or facts in respect of which the defendant puts forward a credible basis for believing that evidence may be forthcoming, are as the defendant asserts them to be. The sort of factual assertions, which may not provide an arguable defence, are facts which amount to a mere assertion unsupported either by evidence or by any realistic suggestion that evidence might be available, or, facts which are in themselves contradictory and inconsistent with uncontested documentation or other similar circumstances such as those analysed by Hardiman J. in Aer Rianta c.p.t. v. Ryanair Ltd [2001] 4 IR 607. It needs to be emphasised again that it is no function of the court on a summary judgment motion to form any general view as to the credibility of the evidence put forward by the defendant."

42. The question, therefore, is whether the Company has put forward a potential defence to the Petitioner's claim for the petition debt which goes beyond mere assertion unsupported by evidence or facts which are contradictory and inconsistent with uncontested documentation. If it has, then the court must, for the purpose of this application, accept the

entitled to raise additional fees where services had not been provided." Of course, the uncontested evidence from Blackbee is that the services were provided.

54. As evidence of this supposed "substitution", Mr O'Shea exhibits two documents: the approval letter from the CBI and a template employment novation agreement. Neither document supports in any way the contention that Blackbee's role as provider of management services had been transferred to BGHL. Mr O'Shea's presentation of them in support of that proposition, therefore, serves only to undermine his assertions. It can be recalled that it is the Joint Liquidators' position, not contested by the Company, that BGHL could not have supplied the services provided by Blackbee because BGHL was not authorised to do so, being an unregulated entity. When that fundamental difficulty with the Company's position was put to counsel for the Company, he could only suggest that Mr O'Shea "may open himself to criticism in relation to the manner in which compliance with obligations to provide ongoing services was arranged". That is a wholly inadequate basis for the Company to ask the court to accept that the debt is disputed on substantial grounds and in good faith.

55. O'Shea separately avers that he has "at least provided an explanation which is not inconsistent with the documentation that's available to him". His explanations, however, are not consistent with the documentation, or even his own averments. Mr O'Shea avers, similar to his second affidavit, that a number of employees were novated to BGHL. The "novation agreement" he exhibits to support this averment is simply a template, establishing nothing at all.

56. More importantly, he avers that the only employees remaining in Blackbee were providing MIFID services only, i.e., not management charges. But he then almost immediately contradicts himself by averring that Blackbee did continue to source income from AMCs, e.g. from the iNUA Connection.

57. In addition to contradicting himself, Mr O'Shea's averments are contradicted by the bank statements of both Blackbee and the Company. It will be recalled that in his second affidavit, Mr O'Shea suggested that Blackbee could not provide management services from 1 October 2020. He was then faced with evidence of continuing payments thereafter up to August 2022. He describes this as the application of "management discretion... to continue to allocate fees to Blackbee to facilitate ongoing compliance with capital and liquidity regulatory requirements rather than as remuneration for the performance of services formally associated with those fees." This gives the appearance of an explanation but actually explains nothing and, moreover, is inconsistent with Blackbee's bank statements which clearly establish that the payments relate to AMCs in respect of individual investments. Nor does it explain why payments stopped in August 2022.

58. Mr O'Shea is correct when he contends that some of the additional documents relied on, for instance, Blackbee's management accounts, appear consistent with there being no AMCs income due from the Company, but equally, they are consistent with the position as stated by the Joint Liquidators. They are not, therefore, probative either way. The forecasts Mr O'Shea relies on merely suggest that Blackbee did not expect to receive AMC income from the Company, consistent with the Joint Liquidator's position that the Company is unable to pay its debts. Of course, the forecast for no AMC income is inconsistent with Mr O'Shea's own evidence that it continued to be entitled to fees for management services from parties other than the Company.

59. Thus, the patchwork of evidence relied on by the Company, when closely examined, is shown to be too threadbare to offer any protection against Blackbee's claim to be a creditor. It is no more than bare assertion, riven with inconsistencies, which is not only unsupported by the documentation tendered to evidence it, but is contradicted thereby. It is also inconsistent with undisputed facts, that the services in question were provided by Blackbee, and that not only is there no evidence at all that the party said to have been substituted for Blackbee, BGHL, provided any services whatsoever, but it appears undisputed, it was not permitted to provide those services. To borrow the language of IBRC v McCaughey, it is a defence based on "mere assertion unsupported either by evidence or by any realistic suggestion that evidence might be available, or, facts which are in themselves contradictory and inconsistent with uncontested documentation or other similar circumstances" and, therefore, does not provide an arguable defence.

60. Nor is there any relevant dispute of fact, such as was in issue in Bayview, as to whether two people reached an oral agreement, the determination of the truth of which can only be resolved by cross-examination. There is a similar dispute in the affidavits, regarding what was said by the Joint Liquidators at a meeting held in the offices of EY in Cork on 19 June 2024. But that is not a factual dispute which it is necessary to resolve in order to determine whether Blackbee is a creditor of the Company and therefore does not require cross-examination for the purpose of determining this application.

61. I have considered whether there is a realistic suggestion evidence might be available in light of complaints by Mr O'Shea regarding access to records. In this regard, Mr O'Shea makes vague complaints in his affidavit that the Joint Liquidators have restricted his access to relevant group information. He has not pointed to any specific documents which he contends should be available, and I am, of course, mindful that the Joint Liquidators have presented their case on the basis of the information which is, in fact, available. More pertinently, any issue with access to group information does not explain Mr O'Shea's failure to put forward evidence which should be freely available if there was any substance to the defence, for instance, any evidence of any service provided by BGHL to the Company. The Company's bank statements do not show any payments to BGHL. Ultimately, the absence of a scintilla of evidence to support his central proposition – that from 1 October 2020, BGHL, not Blackbee, provided management services to the Company - is fatal to the Company's contention that it disputes Blackbee's debt on substantial grounds and in good faith.

62. In circumstances where Blackbee was substituted as petitioner, it does not rely on section 570(a) of the Act to deem the Company unable to pay its debts by reason of its failure to pay the debt on which it relies in presenting the Amended Petition. However, the evidence before the court clearly suggests that the Company is unable to pay its debts. Indeed, this is the clear inference which must be drawn from the Company's marked failure to say otherwise.

63. The Company has not filed accounts since 2018. At that point, the Company's debts dramatically exceeded its assets, and it was, therefore, balance sheet insolvent. It had net liabilities of €1,927,111 and had made net losses for the year ended 31 December 2018 of

€955,467. The audited accounts stated as follows:

"The directors acknowledge that the company may be unable to realise its assets and discharge its liabilities in the ordinary course of business. The company will continue as a going concern on the basis that the directors anticipate that the company will continue to have the support of its related company to provide sufficient working capital for its needs for a period of not less than twelve months from the date of approval of the financial statement."

64. Curiously, the related company is not identified. For present purposes, though, the more relevant issue is that Mr O'Shea does not suggest that there exists any such commitment in 2024. Nor is there anything else to suggest that the Company's position has improved since those accounts were filed. In addition to its liability to Blackbee, other parties, including Harvest Trustees Limited, have indicated that the Company has significant liabilities to them. Several parties, including Mr Finneran, have expressed concern about their investments and support the Amended Petition.

65. In the circumstances, I am satisfied that Blackbee is a creditor of the Company and that the Company is unable to pay its debts as they fall due.

66. The final issue which remains to consider in relation to Blackbee's application to wind up the Company pursuant to s. 569(1)(d) of the Act is the Company's contention that there is a prohibition on it doing so by reason of the terms of the Program Documentation.

67. Having considered the terms of those documents, it seems to me that the Joint Liquidators are correct in contending that any restriction in the Program Documentation is limited to the presentation of a petition for reasons relating to Blackbee's role as arranger and not in relation to the provision of management services. In those circumstances, I do not need to consider the question of whether any such prohibition, if applicable, would have been unenforceable on public policy grounds.

68. For the above reasons, therefore, I will make an order winding up the Company on foot of the Amended Petition pursuant to s.569(1)(d) of the Act, that is, on the grounds that it is unable to pay its debts.

69. It is not, therefore, strictly necessary for me to consider whether an order winding up the Company on just and equitable grounds is appropriate. Had it been required, I would have had no hesitation in so doing.

70. The Company is at the heart of a complex scheme of investments in relation to which investors have raised significant concerns, for the reasons set out in the various affidavits. Moreover, it has failed to file accounts since 2018, contrary to its statutory obligations, heightening the concerns of investors and, frankly, the court regarding the manner in which it is being operated.

71. Notwithstanding the Company's apparent insolvency and failure to abide by its statutory obligations, the directors have not only failed to wind up the Company, they have resisted this application on the sole basis of disputing Blackbee's debt on grounds which I have not been persuaded were substantial and in good faith.

72. The Joint Liquidators have made clear from the outset that their primary motivation in seeking to have the Company wound up is to gain access to the books and records of the Company in order to gain a better understanding of where the money provided by investors has actually been invested. They identify a number of cases where the money transferred to the Company cannot be reconciled with the money transferred from the Company to the SPVs associated with each investment. It is manifestly in the investors' interests that these investigations take place as soon as possible.

73. In those circumstances, even if I had been unable to conclude that the Company was unable to pay its debts, I would be satisfied to make an order winding up the Company pursuant to section 569(1)(e) of the Act, that is, on the grounds that it is just and equitable to do so.

74. In light of the above conclusions, and, in particular the conclusion that Blackbee is a creditor of the Company, it is not necessary to address the difficult question of whether the court would have retained jurisdiction to wind up the company, either as unable to pays its debts or on just and equitable grounds, if I had concluded that Blackbee's debt was disputed on substantial grounds. The Company says it does not and that, as section 572 of the Act provides that a petition can be presented by a creditor, where a petition is presented on that ground, it is a prerequisite that the petitioner prove that it is, in fact, a creditor in order for it to have locus standi to proceed with the Petition.

75. The Joint Liquidators point to the fact that in Bayview, the court made an order winding up the company notwithstanding its (reluctant) conclusion that the petition debt was disputed on substantial grounds. However, the question of the court's jurisdiction does not appear to have been raised in that case, and the Company argued, that it could not, therefore, be relied on as authority for a jurisdiction to make an order under section 569, notwithstanding that a debt was disputed on substantial grounds and in good faith.

76. Of course, the fact that a petitioner's debt is disputed on substantial grounds does not mean that the petitioner is not a creditor. Where no reliance is being placed on the deeming provisions in section 570, it may be, therefore, that a petitioner is not deprived of standing to present a petition merely because the debt is disputed, rather it may be that it is only deprived of the entitlement to have the company deemed insolvent by reason of an inability to pay the disputed debt. The resolution of this issue will have to await a case in which it may be determinative.

77. In the above circumstances, I will make the order sought winding up the Company. I will list this matter as soon as is convenient for the parties for the purpose of making final orders.

A close-up of a signature Description automatically generated

High Court of Ireland Decisions

Record No: 2024/117 COS IN THE MATTER OF CITY QUARTER CAPITAL II PLC

JUDGMENT of Mr Justice Rory Mulcahy delivered on 2 December 2024

Factual background

Power to wind up

The evidence

	[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	High Court of Ireland Decisions
You are here: BAILII >> Databases >> High Court of Ireland Decisions >> City Quarter Capital II PLC v Companies Act 2014 [No. 2] (Approved) [2024] IEHC 686 (02 December 2024) URL: http://www.bailii.org/ie/cases/IEHC/2024/2024IEHC686.html Cite as: [2024] IEHC 686


	harp graphic.