It is essential to make the correct strategic decisions for the forthcoming litigation.
By far, the most attractive basis of claim for a former shareholder is one of Fraudulent Trading.
The cause of action springs from the terms of Section 297A of the Companies Act 1963. (Inserted by Section 138 of the Companies Act 1990).
The section provides:
297A.—(1) If in the course of winding up of a company or in the course of proceedings under the Companies (Amendment) Act, 1990 , it appears that—
( a ) any person was, while an officer of the company, knowingly a party to the carrying on of any business of the company in a reckless manner; or
( b ) any person was knowingly a party to the carrying on of any business of the company with intent to defraud creditors of the company, or creditors of any other-person or for any fraudulent purpose;
the court, on the application of the receiver, examiner, liquidator or any creditor or contributory of the company, may, if it thinks it proper to do so, declare that such person shall be personally responsible, without any limitation of liability, for all or any part of the debts or other liabilities of the company as the court may direct.”
It has been established in case law that it is not necessary to prove a course of dealing to establish the liability; one transaction is sufficient.
Better still, the claim can be maintained against anybody, not just directors or employees of the target company. (“…was knowingly a party to the carrying on of any business of the company …for any fraudulent purpose”.
What proceedings are available under the Companies (Amendment) Act 1990? It provides, in Section 2, for the appointment of an Examiner to a company.
Section 2 provides:
2.—(1) Where it appears to the court that—
( a ) a company is or is likely to be unable to pay its debts, and
( b ) no notice of a resolution for the winding-up of the company has been given under section 252 of the Principal Act more than 7 days before the application hereinafter referred to, and
( c ) no order has been made for the winding-up of the company,
it may, on application by petition presented, appoint an examiner to the company for the purpose of examining the state of the company’s affairs and performing such duties in relation to the company as may be imposed by or under this Act.”
Here again the Minister for Finance can be of assistance. He can confirm that Anglo Irish bank is unable to pay its debts. Furthermore, in the case of Anglo Irish Bank an application can be made to the High Court only by the Central Bank. Section 3 of the Companies (Amendment) Act 1990 provides;
3.—(1) Subject to subsection (2), a petition under section 2 may be presented by—
( a ) the company, or
( b ) the directors of the company, or
( c ) a creditor, or contingent or prospective creditor (including an employee), of the company, or
( d ) members of the company holding at the date of the presentation of a petition under that section not less than one tenth of such of the paid-up capital of the company as carries at that date the right of voting at general meetings of the company,
or by all or any of those parties, together or separately.
( 2 ) ( a ) Where the company referred to in section 2 is an insurer, a petition under that section may be presented only by the Minister, and subsection (1) of this section shall not apply to the company.
( b ) Where the company referred to in section 2 is the holder of a licence under section 9 of the Central Bank Act, 1971 , or any other company supervised by the Central Bank under any enactment, a petition under section 2 may be presented only by the Central Bank, and subsection (1) of this section shall not apply to the company.”
No doubt the Central Bank, having a bad record to date in relation to its duties, will be only too anxious to make the necessary application to the High Court. Otherwise entitlements of the former shareholders in Anglo Irish Bank will be seriously impaired and rendered, possibly, nugatory and, conversely, wrongdoers will escape with impunity.