Conditional garnishee defeated by winding up petition
O’Flynn Exhams recently acted for a number of Serie A (Italian premier league) soccer clubs in supporting a successful petition to wind up Media Partners & Silva Limited, an Irish-registered company in an international sports media group (the “Company”). The winding up petition was opposed by another creditor, who had obtained a Mareva Injunction and a conditional order of garnishee in respect of a bank account held by the Company.
Both actions concerning the Company – the petition and the garnishee proceedings – were admitted for entry to the Commercial list of the High Court and heard together . The Court gave leave to other creditors to deliver affidavits and participate in the petition proceedings.
The petitioning creditor was M & P Silva Limited (In Liquidation), a UK entity in the same group as the Company. The opposing creditor in the petition, and applicant in the garnishee proceedings, was Infront Partners SpA. The supporting creditors were Juventus FC, ACF Fiorentina, AC Chievo Verona, Torino FC, ASR Media and Sponsorship and US Sassuolo Calcio. Genoa CFC maintained a neutral position. The garnishee was Allied Irish Banks, plc (“AIB”) (the Company held an AIB bank account with a credit balance of over €4 million). AIB did not contest the garnishee application.
The legal mechanisms
A Mareva injunction is a form of freezing order, preventing the dissipation of assets – usually pending the determination of proceedings or recovery of a judgment debt.
The debt claims of the garnishee applicant, and a number of the supporting creditors, were grounded on European Orders for Payment (“EOP”). An EOP provide a directly effective mechanism for cross-border recognition and enforcement of uncontested monetary claims in EU Member States.
A garnishee application is a two-stage debt collection mechanism provided under Order 45 of the Rules of the Superior Courts, whereby a judgment creditor can apply for an order to have money due from a judgment debtor paid directly to it by a third party. The initial application for a conditional order is made ex parte (without notice to other parties) and, if granted, is then made returnable before the Court on notice to the garnishee. If the conditional order nisi is then made absolute, an applicant judgment creditor can move to execute.
A winding up petition is an application made before the High Court to appoint a liquidator to oversee the winding up of a company in accordance with the Companies Act 2014. In a winding up, all unsecured creditors recover rateably from the pool of assets available to the liquidator, after liquidation expenses are deducted (subject to the statutory priority rules).
Issues in the proceedings
The central issue in the proceedings was whether the garnishee application should be made absolute to allow the garnishee applicant to ‘scoop the pot’ (being all the money in the AIB account) or whether the Company should be wound up and the ‘pot’ then divided pari passu between the unsecured creditors of the Company.
The Court had to decide (a) whether the conditional order of garnishee should be made absolute in view of the winding up petition having issued, (b) whether the Company should be wound up, and (c) if the Company is wound up, what is the effect on the garnishee application.
The garnishee applicant contended that it should succeed in having the conditional garnishee order made absolute, as the conditional order was the first in time. The garnishee applicant also disputed the validity of the inter-company debt claim grounding the petition.
The petitioner argued that the Company is hopelessly insolvent and, in reconciling the equitable jurisdiction for garnishee orders with the statutory scheme of the petition, the Court should favour an orderly winding up for the benefit of all creditors of the Company. The petitioner also defended the validity of its debt claim.
The supporting creditors filed affidavits to establish the validity of their debt claims, and argued that the appropriate test is to consider whether there is a prima facie debt to ground the petition. The supporting creditors submitted that the Court should have regard to what is the interests of creditors generally, in view of the collectivity of the statutory winding up process, and that this should favour winding up over execution by a single creditor.
In delivering judgment, the Court (Haughton J.) held that “the Petitioning Creditors have shown sufficient reason for the Court not to make the conditional order of garnishee absolute” and discharged the conditional order. The Court was also satisfied that the Company was insolvent and made an order for it to be wound up by the appointment of a liquidator (and in doing so required that an alternative liquidator be nominated by the petitioner). The Court also discharged the Mareva injunction so the liquidator could access the bank account.
The Court found that making a conditional garnishee order absolute is not merely a procedural matter and is one in which the Court retains a high level of discretion – it is an equitable remedy and it is not equitable to prefer one creditor over another. The position of all creditors should be taken into account when a company is insolvent.
Section 606 of the Companies Act 2014 is an expression of the legislature’s preference for there to be an orderly winding up and for the statutory priorities to apply when a company goes into liquidation, or if liquidation is imminent due to its insolvency. This is copper-fastened by case law leaning against execution by garnishee and in favour of winding up, where a company is insolvent and a petition is pending.
This decision provides helpful guidance to creditors in formulating strategies for the recovery of debts, particularly where the debtor is or may be insolvent. While a garnishee application remains an effective enforcement option, it is liable to come unstuck when faced with a competing winding up petition issued before the conditional order is made absolute.
 Infront Partners S.p.A. and Media Partners and Silva Limited; In the Matter of Media Partners and Silva Limited and in the Matter of the Companies Act 2014  IEHC 318.
For more information on this topic, please contact:
Tom O’Byrne, Partner, Litigation and Dispute Resolution