Liquidator personally liable for bank’s costs in failed appeal

The Supreme Court has ruled the liquidator of a company is personally liable for Bank of Ireland’s costs of a failed appeal by the company against a finding the bank had a claim in the liquidation.

The five judge court on Friday upheld a Court of Appeal (COA) decision that Anthony Fitzpatrick is personally liable for legal costs incurred by the bank in opposing the COA appeal by Eteams International.

The proceedings were initiated in the name of the company but should have been brought in the name of the liquidator and the appeal was brought on the instruction of Mr Fitzpatrick, Mr Justice John MacMenamin, giving the judgment, said.

Proceedings

The proceedings under section 280 of the Companies Act 1963 “should never have been brought in the name of the company” and were “fundamentally flawed” from the outset.

A statutory application under Section 280 can “only” be brought by a liquidator, creditor or contributory of the company and “no satisfactory explanation” had been given for the liquidator adopting what, prima facie, was “an unlawful course of action” under section 280.1, he said.

The proceedings were not only irregularly initiated but continued in the company’s name where, on the basis of some past experience, Mr Fitzpatrick should have had awareness of the issue himself, he said. “There comes a point when perseverance in litigation becomes pertinacity in error.”

There was no evidence for the court to draw inferences of bad faith or outright misconduct, he said.

There was also a “dearth of evidence” in areas which potentially might have had a significant bearing on the merits of one side or the other and the court had no information regarding what assets had been gathered in on an overall basis in relation to the company, which appeared to have been a small enterprise.

The Supreme Court, he concluded, would uphold the appeals court finding Mr Fitzpatrick is personally liable for the bank’s costs in the appeals court on the basis the company had no legal standing to bring the case and, from an early date, the liquidator had “ample warning” the bank intended to render him personally liable.

The liquidator cannot have recourse to the assets of Eteams for the purpose of satisfying the costs order, he added. Mr Fitzpatrick was appointed liquidator to Eteams in 2013 when it went into voluntary liquidation.

Before liquidation, Eteams entered into a debt purchase agreement (DBA) with BOI under which the bank agreed to purchase debts owed to the company by former customers.

Debts

When Eteams later went into liquidation, a decision was made to challenge the bank’s claim to monies it had collected. That High Court challenge was brought in the name of the company.

It was argued the DBA was actually a loan secured on the company’s debts and therefore not a true sale of those debts to the bank and the latter’s interests in the debts was to be treated as security, not ownership.

It was claimed, because the agreement had not been registered as a charge as would have been required under the Companies Act, the bank’s claim against the liquidator was void.

In a significant judgment in 2017, the High Court decided the agreement was not invalid arising from not having been registered and dismissed the case. The High Court finding was upheld by the Court of Appeal, which also, on foot of findings the company lacked legal standing to bring the appeal and the liquidator ought properly to have been the applicant, directed the costs of the appeal should be borne by the liquidator personally.

The Supreme Court agreed to hear a further appeal only on the issue of whether the appeals court’s costs decision was correct.