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.

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.

Arguably, it is too soon to make a comment on the Ango Irish Bank debacle. But this post is a comment and is timely, so the argument tips to comment, rather than no comment. A newspaper suggestion that the Irish Financial Services RegulatorY Authority (“IFSRA”) had actual knowledge of Sean Fitzpatrick’s loans, and their size, for years, shows that the situation may develop at considerable speed, justifying a torrent of comment now and not later.

Undoubtedly, the timely moment for full assessment must surely lie with the occasion that the Office of Director of Corporate Enforcement (“ODCE”) issues a report of some kind. The public and the shareholders need that; currently, too much is unknown.

The Irish Times reports

A DUBLIN solicitor has said it is a “racing certainty” that shareholders will be taking a case for damages arising from what has happened with Anglo Irish Bank.

My solicitor colleagues who are consulting counsel are to be commended for their spirit, but counsel are not a source of evidence, just opinion, and what we lack is not opinion but evidence. There is, of course, the small matter of the need to avoid making defamatory statements; so any comment cannot be full.

What we know is that a sense of grievance in shareholders is not, itself, a spur to action. After all, if the sense of grievance springs from the loss in value of the Anglo Irish Bank shares, it has a weak foundation. Did they not know of the Anglo Irish Bank “business model”? Is it not the failure of that model that has caused the major part of the shareholder loss?

There is a good argument to excuse the shareholders; it is, surely, a legal and business fiction that shareholders know what they are doing? It is equally a fiction that it is open to them to effectively protect themselves (other than by selling their shares)?

That reflection suggests the principal ground for any useful legal action (from a shareholder viewpoint; there are other viewpoints). The only useful “entitlement” of an Anglo Irish Bank shareholder was the right to full disclosure of the way in which Anglo Irish Bank was being managed. Anything less placed the shareholders in the category of “outsiders” as opposed to “insiders”. There is no evidence, or insufficient evidence, on that topic currently. That is the kind of information that an investigation will look at (but will it?) and we should turn our eyes to the ODCE rather than to the Law Library for that information.

What counsel can currently tell us (well, some of them anyway), is that on the available information, Anglo Irish Bank Corporation is the obvious plaintiff for any contemplated proceedings against the Bank’s directors. Under the rule in Foss v Harbottle (1843), a shareholder is not entitled to litigate, save by derivative action, a wrong done to a company. A derivative action is possible only where the shareholder can prove a fraud.

(Before I am assailed with suggestions on this topic, consider the question of reliefs; what is the point, say, of seeking a winding up order against Anglo Irish Bank Corporation?)

So, is there any hurry? Not really; the Statute of Limitations is indulgent (relative to plaintiffs suffering personal injury) to aggrieved shareholders.

What might be useful currently is the formation of a network of support by shareholders.

By the same token the directors will, presumably, form an equivalent network of support among themselves. (On current information a cool headed gambler would put his money on the directors to fend off any challenges from shareholders. That simply shows that information is the key and the shareholders lack information).

Last comment: questions about insider trading belong, in the regulatory sense, to IFSRA and not ODCE. IFSRA was never intended to function to protect people like the the Anglo Irish Bank shareholders. If the Government had intended any such purpose it would have made provision for shareholders to bring a class action themselves and, just as importantly, would have given them a specific right to cite breaches of statutory duty as a ground for a civil claim by them. The whole thrust of modern government in Ireland is to prevent any such personal action of vindication.