The Trust in a Liquidation
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The High Court has recently ruled that the agreement between the liquidator of a company and the parent of that company, which contemplated the transfer of all of the assets of the company to the parent gave rise to a trust arrangement on the facts of the case. As a consequence of that trust arrangement, lands which were inadvertently not transferred by the liquidator in the course of the liquidation were deemed not to have vested in the State when the company was dissolved, as would otherwise have been the case under the State Property Act, 1954.
It was not possible for the Court, in the case concerned, to void the dissolution of the company under the Companies Act 2014, because a period of more than two years had elapsed since the dissolution of company. However, the existence of the trust arrangement facilitated the Court making an Order vesting the lands not transferred in the liquidation in the party accepted by the parent of the liquidated company as the rightful owner of the lands. In doing so, the Court gave effect to the intention of the parties.
A written judgment from the High Court is awaited but below is a summary of the circumstances of the case and the High Court's ruling.
Group reorganisation involving a liquidation and transfer of lands
As part of a group reorganisation, it was agreed that the assets of a subsidiary company, following the discharge of all liabilities, would be transferred to its parent prior to dissolution of the company by way of a member's voluntary liquidation process.
The board of the subsidiary resolved in May 2013 to place the company into a voluntary winding up. It was further resolved that the liquidator who was appointed was authorised to transfer to its parent the whole or any part of the assets of the subsidiary. An Extraordinary General Meeting of the subsidiary was also held in May 2013, at which the sole parent made resolutions in the same terms as those passed by the board. In August 2013, the liquidator appointed to the subsidiary made a final distribution of the surplus assets in the liquidation to the parent. The final meeting of the parent took place in September 2013 and the company was dissolved with effect from January 2014.
Through inadvertence, certain lands registered in the name of the subsidiary were not transferred by the liquidator to the parent. This oversight only came to light when a further reorganisation of the group was contemplated in early 2020. A relatively novel application was then made to the High Court by the parent and the group company which was in occupation of the relevant lands, seeking Orders under the Trustee Act 1893 (as amended) to remedy the situation. The case was transferred to the Commercial division of the High Court which heard the application and delivered its ruling in April 2020.
Applicable legal principles
Section 708 of the Companies Act 2014 confers a statutory power on the Court to declare a dissolution of a company void but such application must be made within two years after the date of dissolution.
Section 28 of the State Property Act 1954 provides that, where a company is dissolved, lands which were vested in or held in trust for such company immediately before its dissolution (other than lands held by such body corporate upon trust for another person) shall, immediately upon such dissolution, become the property of the State.
Section 31 of the 1954 Act provides that the Minister for Finance may waive the right of the State to such property. In practice, the Minister for Finance will not waive the right of the State to property which was held on trust by a dissolved company, because the Minister for Finance takes the view that such property never in fact passed to the State.
The Trustee Act 1893 (as amended) confers a power on the High Court to appoint a new trustee in accordance with Section 25. Section 26 of the 1893 Act confers a further power on the High Court to make a vesting order where a trustee entitled to possession of any lands ‘cannot be found’. In those circumstances, the High Court may make an order vesting the lands in any such person in any such manner and for any such estate as the Court may direct.
When this case came before the Commercial Court, the Minister for Finance had confirmed to the applicants that the State would not object to an application for a vesting order under section 26 of the 1893 Act.
In its ruling, the Commercial Court followed a relatively old decision of the Irish Courts in Re. Kavanagh and Cantwell1 in which it was held that, where a company is dissolved without property being transferred, it can properly be said that the case is one in which the trustee cannot be found within the meaning of section 26 of the 1893 Act. The Court in Re. Kavanagh saw fit to make an order that the property should vest in the company to which the assignment ought to have been made prior to the dissolution of the liquidated company.
The Commercial Court also accepted that the decision in Re. Kavanagh was followed in Heidelstone Company Limited and Courtview Management Company2 and was again followed in the case of Re. Church3, where, in both cases, the High Court made vesting orders pursuant to section 26 of the Trustee Act.
In order for a trust over lands to be created, section 4 of the Statute of Frauds (Ireland) 1695 requires that the trust be evidenced in writing and signed by a person able to declare a trust. The applicants relied upon a decision of the English courts in Re. Strathblaine Estates Ltd4, in which the Court was satisfied that the minutes of the company were sufficient evidence of the creation of a trust.
Decision
The Court accepted that, by reason of the agreement between the liquidator of the subsidiary and its parent to transfer all of the assets of the subsidiary to the parent, the lands which were not ultimately transferred by the liquidator were held on trust for the parent. The Court also accepted that the agreement was evidenced in writing, for the purpose of section 4 of the Statute of Frauds (Ireland) Act 1695, by the minutes of the meeting of the board of the subsidiary and the resolutions passed at that meeting and by the parent at the EGM of the subsidiary.
The Court was satisfied on the facts that the lands were not transferred by the liquidator due to inadvertence caused by the belief of the subsidiary and its parent that the lands question were owned by another group company, which had been using the lands.
The Court ruled that the lands did not vest in the State in accordance with section 28 of the 1954 Act. The Court held that it was not possible to void the dissolution of the subsidiary in accordance with section 708 of the Companies Act 2014, as a period of more than 2 years has elapsed since the company was dissolved. The Court accepted that the trustee of the lands could not "be found” within the meaning of section 26 of the 1893 by virtue of the dissolution.
The result was that the Court had the power to make an order appointing a new trustee in accordance with section 25 of the 1893 Act, or an order vesting the lands in accordance with section 26 of that Act. On the evidence before the Court, the Court ruled that it would make more sense and cut out unnecessary conveyancing steps for the lands to be vested directly in the group company which was in occupation of the lands, which company the parent and the subsidiary had assumed to be the owner of the lands and which the parent intended should take a transfer of the lands.
Implications
The ruling by the High Court will be of comfort to companies who have undertaken reorganisations involving the dissolution of group companies and to liquidators who find themselves acting without certainty of the full extent of assets of the company to which they are appointed.
For further information please contact Enda Hurley, Litigation & Dispute Resolution Partner or Catherine Hayden, Litigation & Dispute Resolution Associate or any member of the A&L Goodbody Litigation & Dispute Resolution team.
Date published: 13 May 2020
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