At a glance
In the recent case of In the Matter of Allenton Properties Ltd and the Companies Act 2014, the High Court considered the test for determining whether to restore a struck-off company to the register under section 738 of the Companies Act 2014 (the 2014 Act). The Court determined that the test under section 738 is more onerous than that prescribed by previous legislation.
The application to restore in this case was refused on the basis that it would not be "just and equitable" to grant a restoration order in circumstances where a third party stood to be significantly impacted.
Background
On the surface, this case involved a simple application to have Allenton Properties Ltd restored to the register of companies so that the applicant could appoint a receiver and enforce security over a piece of property.
However, the matter was complicated by what the Court termed an "extraordinary" oversight with regard to the sale of the property in question. The applicant had purchased a loan book, which included a mortgage over a property. Prior to the applicant's acquisition of the loan book, this property had been sold by way of a sale that was not properly completed. The purchaser, who was a "bona fide purchase for value", had gone on to build a home on the site in the mistaken belief that the sale was valid.
The Court therefore had to determine whether the company should be restored to the register such that a receiver could be appointed over property which was the home of a third party who was not a party to the proceedings (but was joined as notice party).
The test
The test that must be applied when determining whether to restore a company to the register is contained in section 738(1)(c) of the 2014 Act. The court may restore a company to the register where the application is made within 20 years of the date of dissolution of the company and where two other conditions are satisfied:
- the striking off of the company has disadvantaged the applicant
- it is just and equitable to do so
Prior to the commencement of the 2014 Act, applications to restore a company to the register were made in accordance with the Companies (Amendment) Act 1982 (by way of a provision amended by the Companies (Amendment) (No 2) Act 1999). The pre-2014 Act test considered whether the applicant was "aggrieved" by the striking off and if it was "just" to restore the company to the register.
"Just and equitable"
The starting point for the court in such circumstances is the principle that, "where a legislative amendment alters a pre-existing statutory provision, it must be assumed that the Oireachtas intended that the newly worded provision would have a different meaning, even if only slightly different, to that which preceded it".
Butler J acknowledged that there is a "significant overlap" between the dictionary definitions of the words 'just' and 'equitable'; even, in certain contexts, "a complete convergence". However, she emphasised the legal origins of the word 'equity' in the discretionary jurisdiction exercised in circumstances where the rules of common law were too rigid or inflexible to ensure a fair remedy.
Following this approach, Butler J concluded that, when a statutory provision requires a court to be satisfied that something is equitable, "it suggests that the court must do more than merely carry out a box-checking exercise to ascertain whether certain criteria are met". The court, Butler J went on, "must look at the situation before it holistically to ensure that any order to be made by it reflects a fair and proportionate outcome for all of those with an interest in the subject matter of the dispute".
Butler J concluded that the threshold for determining whether to restore a company to the register had been altered by section 738 and was now "more onerous". This alteration "may be subtle and of no practical effect in many cases", but Butler J deemed it significant in the context of this case because of the potential impact of any order on the third party who occupied the property. She was of the opinion that the new test imposes a positive obligation on an applicant to satisfy the court that the order it seeks is "fair and proportionate to all whose rights and interests may be affected by the restoration".
In this case, the purchaser of the property was the person who stood to be affected by the consequences of restoration in "a profoundly prejudicial way", so restoration (and its attendant consequences for the purchaser) could not be equitable. The Judge also criticised the applicant for failing to involve the purchaser in this process.
Butler J accepted that the applicant’s position was not entirely without merit. The applicant purchased a loan and its related security over the property, apparently without any information to suggest that there was any other claim on it. However, it did not follow from the fact that the applicant was unaware of the purchaser, that the contract of sale did not exist or was not enforceable. Even if she had not determined that section 738 changed the threshold for restoration, Butler J thought that the applicant would likely still have had difficulty in proving that restoration was 'just'.
Conclusion
This case is the first to consider the language of section 738 and how it may affect applications to restore a company to the register. While Butler J adopts a new test/threshold based on her interpretation of section 738, her decision turns largely on the unique facts of the case. It would therefore be premature to conclude that the case marks a departure from the status quo. Nevertheless, those contemplating an application under section 738 should consider the wider impact of the restoration of the company, particularly on third parties.
With thanks to Desmond Cooke for his assistance.
