The Court of Appeal has allowed three investors’ appeal against the refusal of access to records of two Irish forestry funds in liquidation, ruling that their request to investigate the early sale of the forests was not an impermissible fishing exercise.
The court said an inspection order under section 684 of the Companies Act 2014 does not require an applicant to establish a prima facie case of wrongdoing or to have finally decided to bring proceedings. Applicants must provide cogent evidence and argument showing a proper purpose and that an order would be just. For contemplated litigation, reasonable grounds to believe a claim may exist and that relevant company records may contain useful information can be sufficient.
The investors had bought non-voting preference shares in the Third and Sixth Irish Forestry Funds. Their prospectuses described a plan to grow forests for about 30 years before sale. The forests were sold in 2019, substantially earlier than planned. The investors questioned the timing and price, and raised concerns about the directors’ continuing role in managing the forests for the buyer. Those concerns were allegations and questions for investigation, not findings of wrongdoing.
The liquidator said he had investigated the sale and was satisfied the directors had acted appropriately and obtained professional advice. The Court of Appeal did not decide whether the sale was justified or whether any director had breached a duty. It found that the investors had identified circumstances warranting investigation, including the early sale and the undisclosed terms of the directors’ continuing management role. It also noted that the investors had offered to pay the reasonable costs of inspection.
The High Court had accepted that section 684 could apply but refused the requested inspection, finding the investors had not shown a sufficient prima facie case and were seeking to fish for evidence. The Court of Appeal held that this applied the wrong test. It also dismissed the liquidator’s cross-appeal, which challenged whether the inspection power could be used where the contemplated proceedings might benefit individual investors rather than the winding-up as a whole.
The appeal court allowed the appeal and dismissed the cross-appeal. It did not make a final, detailed inspection order. The parties were given time to address the order’s form and conditions, including which documents could be inspected, costs, confidentiality and how information obtained could be used. The court directed that the matter be listed for submissions on costs and the form of order.