The High Court has refused a liquidator’s application for a declaration that a charge over property granted to Bank of Ireland by O’Connor’s Nenagh Shopping Centre Limited was a fraudulent preference and therefore invalid.
Mr Justice Gilligan delivered judgment on 14 December 2011. The company stopped trading on 25 May 2011, and its members resolved to wind it up on 13 June 2011, appointing Anthony Fitzpatrick as liquidator. The application concerned a charge executed in March 2011 and registered on 28 March.
The parties accepted that the company was insolvent when the charge was entered into and that it gave the bank a preference over apparently many unsecured creditors if the company went into liquidation. The issue before the court was whether the company’s dominant intention at the time was to prefer the bank. The liquidator had the burden of proving that intention.
The court considered affidavit evidence and submissions. No deponent was made available for cross-examination, and no application was made to call oral evidence. The liquidator argued that the charge was unnecessary and relied on a letter from the directors’ solicitors, which said they wanted to maintain their relationship with the bank while the business was failing and pursue a restructuring plan. The liquidator said the directors’ aim was to recover their own investment.
Director Donal O’Connor said the directors were not under pressure from the bank. He stated that they believed the charge was the only way to let the company continue trading, restructure its debt and potentially recover money they had loaned to it. He said the company’s cash-flow difficulties ultimately led to liquidation despite their efforts.
The judge said the legal test required proof that the dominant intention to prefer existed when the charge was made; its preferential effect alone was insufficient. He accepted the evidence that the directors entered into the charge to keep the business going and try to secure a restructuring. He found no evidence that their dominant intention was to give the bank a preference and considered there was no taint of dishonesty on their part.
The court declined to grant the declaration sought. The judgment did not declare the charge invalid.