The High Court made no order for costs after dismissing a liquidator’s application to restrict two former directors of Limerick restaurant company Kranks Korner Limited. The ruling addressed who should bear the costs of the restriction proceedings; it did not decide the company’s solvency or the respondents’ motion to strike out the application.
In a judgment delivered on 19 December 2008, Ms Justice Finlay Geoghegan said the court had determined on 3 March 2008 that, on the evidence then before it, the directors had acted honestly and responsibly. The restriction application was therefore to be dismissed. The judge had left undecided a separate motion by the directors to strike out the application, finding it unnecessary to resolve that motion.
The costs dispute arose because liquidator Shane McCarthy had been required to bring the application after the Director of Corporate Enforcement did not relieve him of that obligation. The judge said such applications required the court to exercise its costs discretion in light of the facts and statutory scheme, rather than apply a normal rule that successful directors should receive their costs from the liquidator.
The company’s statement of affairs showed assets exceeding liabilities by €10,594.12 at the start of the winding-up. The judge noted that it was a creditors’ voluntary winding-up, but said that fact alone did not require a report to the Director under section 56 of the Company Law Enforcement Act 2001; that reporting obligation applied to an insolvent company. The court did not decide whether the reporting provision applied if a company became insolvent after winding-up began.
The judge criticised the liquidator for reporting the company as insolvent without first making appropriate enquiries or giving the directors an opportunity to comment. The report’s account of potential personal-injury claims not being insured helped set in train the obligation to bring the restriction application.
The directors also contributed to the proceedings, the judge said. They did not establish until November 2007 that the company’s insurance had been extended to 17 January 2003, and had earlier accepted that one claim was uninsured. The judge said the information could have been obtained before their responses and affidavits, potentially avoiding or shortening the proceedings.
Considering those circumstances, the judge exercised her discretion under Order 99, rule 1, and made no order for costs.