As this is written, the public perception of AIB and Bank of Ireland is that they are solvent. They may not be. If they are not, the Government, or part of it, knows it. The Government, although it is silent on the point, is in that case, in effect. perpetuating the illusion of the banks’ solvency. This split between what is officially the case and what is really the case is common. We have seen recently that, although they were not directly protected by the State, we slowly, and by chance, learned that Liam Carroll’s property interests were financially unsustainable with Paddy Kelly’s likewise, followed by Bernard McNamara’s. These truths, easily comprehended when brought to view, are part of the more obscure greater truth, that the crash of these property interests was facilitated by massive Government failures and that the possible insolvency of the banks was caused by the Government.

The recent apology from the British Government to the victims of the Thalidomide scandal reminds us of what is required when important issues are denied or ignored; quality journalists.

In the UK they had the Sunday Times “Insight” team under Harold Evans. As editor of the Sunday Times, Evans refused to knuckle under in the face of Distillers’ court injunction preventing the newspaper from publishing the truth (to the extent then known) about the cause and history of the dreadful birth defects that had appeared as a result of the use of the Thalidomide drug by women. (Distillers was the distributor of Thalidomide).

(Ironically, given the title to this post, a newspaper of the name “Sunday Times” continued to exist after Harold Evans left it, but it was not what it had been; Rupert Murdoch owned it then).

At the crucial time and on the central issue, openness, the UK courts came down emphatically on the side of Distillers and attempted to impose secrecy.

Here in Ireland, if there were to be a reprise of that struggle we can not be sure that the courts’ response might not be equally inadequate.

The reasons for this are twofold; access to public records is still regularly denied as a consistent Government policy, and, within the court system, access to paper and electronic records is a matter of chance and whim. The Government has not only set the policy of “closed” administration, it has written the legislation to make it legal to refuse access to public records.

If a trade supplier receives a Notice of a Creditors’ Meeting it means bad news. The money owing to the creditor is in jeopardy.

On receipt of the notice, check to see if it is valid. Under the Companies Acts, the notice must be sent at least 10 days prior to the date of the meeting. The notice must be accompanied by proxy forms. (The proxy forms are important; the Directors will seek to control the meeting with proxies in their favour).

The notice must also be advertised in two daily newspapers circulating in the vicinity of the registered office or principal place of business of the company. Purchase a copy of all such newspapers, promptly. A failure to comply with this obligation will undermine the validity of acts done at the Creditors’ meeting. (The advertisement is intended to alert creditors who have not received notice in the post; if they had attended they could have altered the outcome of the meeting). It is a criminal offence to fail to give proper or adequate notice of the meeting.

The company will have appointed a liquidator at the members’ EGM. That liquidator will attend the Creditors’ meeting. The creditors may propose a different person as liquidator. If a majority of creditors carry that proposal, the “company’s liquidator” will be supplanted by the new nominee. There should not, of course, be a “company’s liquidator”; a liquidator is required by law to be independent of the company or its directors.

Creditors should prepare for the Creditors’ meeting. At McGarr Solicitors we will advise on the questions to be asked by creditors at the meeting and will attend to represent the interests of creditors if asked to do so.

It is common in building agreements for the “employer” to hold back some monies due to the builder/contractor under the contract. This money is known as “retention money”.

The money belongs to the contractor. However, the “employer” is anxious to determine that no defects exist in the works which would allow the employer to deduct the cost of rectifying the defects from money due to the contractor. Until that determination is made the employer “retains” some of the money due to the contractor.

Given the collapse in the Irish construction industry it is now a serious problem to safeguard such retained money. If the money is kept by the employer with its own money it will be very difficult, if not impossible, to prevent the money from being lost in any insolvency of the employer. The remedy for this is to insist that the money be placed in a separate bank account (to the credit of the employer). Trust money (as this is) which is not mixed with the trustee’s money is not lost in an insolvency.

Even if the retention money was not required, under the terms of the contract, to be lodged in such a separate account, there is no reason why it cannot be done belatedly, before any insolvency is triggered.

It is a source of additional worry (above the prospect of unemployment) to employees who have been injured at work, to find that their employer is insolvent.

The reason for that lies in the fact that, in Ireland, only a party (the employer) to employers’ liability insurance may sue an insurance company for an indemnity in respect of a claim made against the employer.

In addition, in the general law of insurance, any money paid to the insolvent employer by the insurance company would become the property of the insolvent company and would be swallowed up in the insolvency.

To avoid this, the Oireachtas legislated in Section 62 of the Civil Liability Act 1961;

62.—Where a person (hereinafter referred to as the insured) who has effected a policy of insurance in respect of liability or a wrong, if an individual, becomes a bankrupt or dies or, of a corporate body, is wound up or, if a partnership or other incorporated association, is dissolved, moneys payable to the insured under the policy shall be applicable only to discharging on full all valid claims against the insured in respect of which those moneys are payable, and no part of those moneys shall be assets of the insured or applicable to the payment of the debts (other than those claims) of the insured in the bankruptcy or in the administration of the estate of the insured or in the winding-up or dissolution, and no such claim shall be provable in the bankruptcy, administration, winding-up or dissolution.”

As a consequence of the Section a liquidator holds the money in trust for the insured employee and should pay it directly to the employee in the appropriate circumstances.

An important application should be made as soon as the litigation is launched; it will be for an injunction pursuant to Section 55 of the Company Law Enforcement Act 2001.

If successful, it will preserve the assets, for the benefit of the plaintiffs, of any director or officer of the company who is a defendant in the proceedings.

Under the Market Abuse (2003/6/EC) Regulations 2005 it is an offence to breach the regulations by engaging in the acts set out in Regulation 5. It provides:

5. (1) Subject to paragraphs (4) and (5) and Regulations 8(2) and (4) and 9(1), a person to whom this paragraph applies who possesses inside information shall not use that information by acquiring or disposing of, or by trying to acquire or dispose of, for the person’s own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates.”

To understand this it is necessary to look at the definition of Insider information and market manipulation:

“inside information” means -

(a) information of a precise nature relating directly or indirectly to one or more issuers of financial instruments or to one or more financial instruments which has not been made public and which, if it were made public, would be likely to have a significant effect on the price of those financial instruments or on the price of related derivative financial instruments,”

“market manipulation” means -

(a) transactions or orders to trade –

(i) which give, or are likely to give, false or misleading signals as to the supply of, demand for or price of financial instruments, or

(ii) which secure, by a person, or persons acting in collaboration, the price of one or several financial instruments at an abnormal or artificial level,

unless the person who entered into the transactions or issued the orders to trade establishes that the person’s reasons for so doing are legitimate and the transactions or orders to trade, as the case may be, conform to accepted market practices on the regulated market concerned,”

Unless the transaction whereby Sean Quinn’s CFD position was “unwound” (whatever that means) is justifiable by reference to legitimate reasons or accepted market practices, then the transaction appears to have been in breach of Regulation 5 (1) of the Market Abuse (2003/6/EC) Regulations 2005.

There is a potential remedy (under Section 33 (1) of the investment Funds, Companies and Miscellaneous Provisions Act 2005), accruing to any aggrieved shareholder to recover, in a derivative action, any profit made by a party or parties to the transaction.

Of course, given that the major benefit of Sean Quinn’s CFD interests was to avoid reporting his stake-building to the regulator, and given that Anglo Irish Bank knew or learned of his interests (as did the Central Bank, the Regulator, the Taoiseach and the Minister for Finance), the very interesting question is this; who were the “vendors” of the 10% of the shares of Anglo Irish Bank?

Or the 15%, for that matter?

What was the size of that profit?

To whom did it accrue?

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.

No official reports are to hand and yet we now know a great deal of pertinent information about the Anglo Irish Bank scandal.

It is now possible to see the shape of appropriate litigation.

There is a possible obstacle however, in the form of the Minister for Finance. Under the terms of Section 9 of the Anglo Irish Bank Corporation Act 2009, where a right to issue proceedings springs from, effectively, the passing of the Act, that right cannot be exercised without the prior consent of the Minister for Finance.

The Anglo Irish Bank “shareholders” are all “former shareholders”; the shares of the Bank have been transferred to the Minister. Logically, no rights to issue proceedings by former shareholders against proposed Defendants can arise from the expropriation of the shares by the Minister for Finance, but it would be foolhardy to sue without first writing to the Minister and obtaining his consent to issue proceedings, seeking civil remedies.

He has publicly stated he has no wish to shelter anybody from the criminal and civil consequences of their actions or failures. He presumably will readily give his consent to the bringing of civil proceedings, therefore.

Any contemplated proceedings must be considered as being, inter alia, a derivative action. In other words, that Anglo Irish Bank is made a defendant. This is necessary where the breach of duty was to the company.

There is another reason to write to the Minister for Finance; it lies in the terms of Section 251 of the Companies Act 1990.

He should be asked to confirm that “…the reason, or the principal reason, for its not being wound up is the insufficiency of its assets”.

This would make it easier to demonstrate that proposition to a court, and the Minister is better positioned to state this fact than any former shareholder.

That’s why the letter should be written to him.

The credit crunch is causing an increase in company liquidations. The Office of Director of Corporate Enforcement has noted, in its latest Press release, the occurrence of 40 company insolvencies in April 2008 compared with 30 per month in late 2007.

Insolvency is the condition of being unable to pay debts as they fall due (“the cash flow test�?). This condition can hold even though the company assets exceed its liabilities. (The assets may be “lumpy�?, like land or buildings, leaving the company cash-poor).

Liquidations may be voluntary or compulsory (under court management following petition to the court). Voluntary liquidations may be a members’ liquidation or a creditors’ liquidation. The former implies solvency, the latter implies insolvency.

It is often in the interests of the directors that an insolvent company be liquidated. Not to do so can result in acts of reckless trading or fraudulent trading leading to successful applications for restriction or disqualification of the directors under Sections 150 and 160 of the Companies Act 1990. The directors of an insolvent company have a duty to act in the interests of the company’s creditors. This will, at a minimum imply that no further credit be taken and that the assets of the company not be reduced pending the decision to call a creditor’s meeting to seek a resolution to wind up the company.

There can be struggles between the directors and creditors or a creditor. In Hayes Homes Limited [2004] IEHC the Revenue Commissioners were the principal debtor. They applied to court for an order to compulsorily wind up the company. The directors had convened a meeting of creditors and declined to recognize the proxy of the Revenue representative at the meeting. The successful application to court was, effectively, for the purpose of displacing the liquidator appointed at the creditors’ meeting with one appointed by the court.

The High Court took an opposite point of view in Permanent Formwork Systems Limited [2007] IEHC Here, the creditors meeting appointed a liquidator on the very morning of the hearing of the petition in the High Court. The petition had been presented before the directors took steps to call the creditors’ meeting. The court dismissed the petition, taking the view that the “creditors�? liquidator was independent and that process would be cheaper than the court directed liquidation.

The stress and pressure of events leading to a liquidation can be extreme. In Compuserve Limited [2005] IEHC a prominent firm of solicitors was consulted by the directors immediately before the liquidation. The solicitors were pleading they fell within the provisions of Section 281 of the Companies Act 1963:-

All costs, charges and expenses properly incurred in the winding up, including the remuneration of the liquidator, shall be payable out of the assets of the company in priority to all other claims.�?

The solicitors failed to get payment before the liquidation and lodged a claim asserting a right to be paid out of the costs of the liquidation. The court declined to order this. Their fees had been incurred before the liquidation not “..incurred in the winding up..�?

An issue similar to this featured in USIT World plc [2003] IEHC. The court recorded;

A sum of €250,000 was transferred to the companies’ solicitors, Reddy, Charlton & McKnight, from subsidiaries of Usit World which were debtors of Usit Limited, and that this was done in the certain knowledge that a winding up petition was imminent, and where the effect was to deprive the company of this sum. This sum was transferred one day before the appointment of the provisional liquidator. That firm of solicitors had acted for the Usit Group. The liquidator states that when asked about this, Mr Colleary has stated that these solicitors had asked for an advance of fees in relation to all the work done in relation to the work being done regarding the Solgun deal (this was the transaction by which the company was bought by STA). Mr Colleary had stated to him that the money was sought from all the subsidiaries but that payment was actually made by the subsidiaries in Portugal, Spain and Belgium, directly into the account of Reddy Charlton McKnight. The reason given for this method of payment is given by Mr Colleary in a memo to the liquidator, that the Group had no access to money in Ireland because of the issue that had arisen with National Irish Bank and it was unable to write a cheque in Ireland. The liquidator is of the view that this payment had the effect of depriving Usit Limited of €250,000 of receivables in a context where the directors must have known that a winding up petition was imminent. The liquidator has also made reference to a further payment to that form of solicitors of €70,000 in January 2002 and has not discovered where that money came from.”

The liquidator suggested to the court that this payment was a preferential payment. The court stated;

His [Mr. Colleary] concerns, and rightly so, are for the creditors. However, large and all as this payment to the solicitors is, it is small relative to the scale of the company’s enterprise and to the overall losses to creditors. That is relevant to the extent that one can consider an imaginary situation where the payment was not made, and form a judgment as to whether in such a scenario any meaningful difference for the better would have accrued to any one creditor if the payment was not made. This answer is in my view obvious. I do not consider this payment to have been irresponsible in the light of what has been averred to, and the extent of the problems looming ahead for all concerned.”