The High Court has refused Grant Thornton’s application requiring Paul Sheeran Jewellers (Johnsons Court) Ltd to provide security for the accounting firm’s costs in ongoing proceedings. Mr Justice McDermott ruled on 4 June 2015 that the evidence did not establish, on the balance of probabilities, that the company would be unable to meet a future costs award.
The company is suing Grant Thornton over advisory and other services. It alleges that the firm caused it to employ an unsuitable chief financial officer, failed to supervise him as agreed, and recommended and oversaw the installation of a defective IT system. It claims damages for breach of contract, negligence, breach of duty, negligent misstatement and misrepresentation. Grant Thornton denies the allegations. The judgment did not determine those claims.
The application was brought under section 390 of the Companies Act 1963. Grant Thornton had to establish both that it had a prima facie defence and that there was reason to believe the company could not pay its costs if it successfully defended the case. The parties accepted, for this application, that Grant Thornton had a prima facie defence. The dispute concerned the company’s ability to pay.
Grant Thornton relied on financial information showing an excess of liabilities over assets and estimated its defence costs at €637,076. Its accountant’s evidence included figures from the company’s 2013 accounts, which showed current liabilities exceeding current assets by about €5.1 million and an excess of total liabilities over assets of about €3.63 million.
The company said a debt restructuring completed in 2014 had improved its position. It relied on a pro forma balance sheet prepared for the security application, which included the transfer of its Johnson’s Court premises, a new €2 million bank loan and a €600,000 directors’ loan. It also asserted that cash at bank had reached €300,000 in January 2015 and that trading had improved. Grant Thornton questioned the financial information and said it had not received all the details it requested.
The judge found that the evidence, if accepted, indicated improved trading and restructured financing. Although questions remained about the restructuring and the company faced challenges, he was not satisfied that it was probably unable to meet a future costs award. He therefore refused to order security. Because that issue was decisive, he did not consider the company’s alternative argument that any inability to pay resulted from Grant Thornton’s alleged wrongdoing and amounted to a special circumstance. The underlying claims remained unresolved.