The High Court dismissed a petition by Colman Garvey to wind up Metafile Limited, finding that the company’s original commercial purpose had not failed even though it no longer traded and its former factory had been sold.
Miss Justice Laffoy delivered the judgment on 20 December 2006. Garvey sought winding up under section 213(f) and (g) of the Companies Act 1963, arguing that the company’s substratum had failed after its associated company, Carrig Engineering Services Limited, was wound up and Metafile sold its factory premises.
Metafile had been incorporated in 1995. Its 2000 shareholders’ agreement described a planned business manufacturing and selling steel products, including fire escapes, stairways and conveyors. Metafile never carried on that manufacturing business. Carrig conducted mechanical engineering contracting from premises and fixed assets owned by Metafile. The judgment records that the shareholders and their respective shareholdings were identical in the two companies.
A 2005 settlement provided, among other terms, for Garvey to transfer his shares in both companies for €126,000. The settlement depended on completion of Metafile’s premises sale by 15 June 2005. When that did not happen by the deadline, the share-transfer terms fell away, although Carrig remained liable to pay Garvey €30,000 in compensation for the end of his employment. Carrig did not meet a demand for payment, and it was later wound up by court order on Garvey’s petition.
Metafile subsequently completed the premises sale. It had no employees, did not trade, and held the sale proceeds as its only asset. It was solvent and had no creditors. At a February 2006 meeting, 61.5% of votes supported voluntary winding up, below the 75% required for a special resolution.
Metafile opposed the petition. Its managing director, Maurice Coveney, said the company wanted to continue trading and intended to consider suing Garvey for alleged breaches of fiduciary duties. The judge made no finding on those allegations, which were before the court only in affidavit evidence. She observed that, if the alleged conduct were true, the cause of action appeared to belong to Carrig rather than Metafile.
The court held that Metafile’s memorandum, considered alone or with the shareholders’ agreement, gave it broad scope to carry on a general manufacturing business. The fact that it had not pursued that business did not mean its substratum had gone. The judge distinguished an English case involving a company whose majority had decided that it would never again undertake commercial activity, finding that the circumstances here were different.
The petition was dismissed. The judgment also recorded the judge’s view that there was no common sense or commercial reality behind Metafile’s position, but that did not alter the legal conclusion.