An investor’s application seeking the appointment of a taxpayer-funded inspector to a Christmas tree company is “without precedent”, the High Court has heard.
Counsel for the Office of the Director of Corporate Enforcement (ODCE) said there does not seem to be a previous instance where the applicant pursuing the appointment of an inspector to a firm was someone other than the ODCE or the Minister for Justice.
In departing from the status quo, this application concerning WFS Forestry Ireland Ltd is “breaking new ground”, said Neil Steen SC, for the ODCE.
The “overwhelming” evidence, said counsel, is that this company is “hopelessly insolvent” on a balance sheet basis and because it is unable to pay its debts as they fall due. A more appropriate approach to the situation, said counsel, might be the appointment of a liquidator.
The ODCE was not opposing the application, but it is interested in the development of the law that may derive from this case.
Mr Steen urged the court to be mindful of whether the issues raised are a public or private concern. The taxpayer foots the bill of an inspection, although there is potential to recoup costs, while the company’s creditors, at least to some extent, assume the financial burden of a liquidation, he said.
The applicant in this case, John Kearney, and the 17 other alleged investors supporting his application are primarily interested in seeing their money returned to them, said Mr Steen. They invested in a limited company in the hope of seeing substantial returns, and there is a risk associated with that, he said.
“The applicant seeks to transfer that risk from the creditors to the taxpayer,” he added.
These alleged investors in WFS Forestry, which has registered offices in the Fitzwilliam Business Centre, 26/27 Pembroke Street, Dublin 2, claim it has failed to deliver the returns they were promised upon maturation of their investments. They claim there were misrepresentations made to them and that they were sold stakes in forestry lands that do not exist. The claims are denied.
Mr Kearney, of Ballyroe, Tralee, Co Kerry, says there is a public interest in directing an inspector to investigate whether the affairs of the company have been conducted with an intent to defraud creditors, for a fraudulent or unlawful purpose, or in a manner that unfairly prejudices creditors.
The court heard Mr Kearney and the 17 application supporters collectively claim to have invested €1.486 million in WFS Forestry through various loan agreements and crop purchase agreements, which tie their investments to the growth and harvest of the trees. One of these investors has received €29,500 back, but he is the only one of these to receive anything back, it is claimed.
Cash flow problems blamed
The company’s director, Craig Hands, denies any wrongdoing and assures his primary objective is to see investors’ money returned. He has blamed cash flow problems and transaction delays on Covid-19 and said he has no intention of winding up his company.
Frank Beatty SC, instructed by Peter Boyle & Co Solicitors, for the applicant, emphasised that his client may get no money from this exercise, but he feels it is important to uncover what is going on through via the enhanced powers of an inspector. He submitted there was a “very real” public interest in this case as there were allegations of fraud.
Elizabeth Corcoran BL, for the Minister for Justice, who is not formally opposing the appointment, said section 747 of the Companies Act 2014 gives the court a wide discretion to appoint an inspector.
This application is a first, and the Minister is concerned about the broader implications its potential success might have, including her department having to pay for inspections into companies that may be insolvent.
She asked the court to consider whether it wished to set a precedent where creditors could routinely apply for an inspector to be appointed to find out what has become of their investments rather than petition for a winding-up order.
She acknowledged serious allegations have been sworn to by the applicant in this case “absolutely should be investigated”. Alleged fraud is a matter for gardaí, she said.
Mr Justice Michael Quinn said he will give his judgment at a later date.