Liquidation trumps conditional garnishee order
A creditor who has a monetary judgment against a debtor (“the judgment debtor”) can obtain an order from the Court directing that an identified third-party (“the garnishee”) who owes money to the judgment debtor instead pay the money it owes to the judgment creditor, in full/ partial discharge of the judgment debt.
The process in Ireland for obtaining such an order involves two steps. The judgment creditor first applies to the Court ex parte for an order of garnishee. If it is satisfied to make it, the court will make the order a conditional one and direct that it be served on the proposed garnishee and that the application return to court at a later date on notice to the proposed garnishee. On that later date the court will make the order of garnishee absolute unless the proposed garnishee can show cause as to why he should not pay the judgment creditor the amount owed to the judgment debtor.
In the case of Infront Partners SPA v Media Partners & Silva Limited [2018 No. 18FJ] (“the Garnishee Proceedings”) the Plaintiff had obtained two European payment orders totalling approximately €18m in Italy which it then used to obtain a conditional garnishee order against Allied Irish Banks plc, with which bank the judgment debtor held an account with a credit balance of over €4m. AIB did not oppose the making of the garnishee order
When the application to have the conditional order made absolute came back before the court an application was made on behalf of M&P Silva Limited (In Liquidation), a related UK creditor company, for an adjournment of the garnishee application so that a winding up petition could be presented against Media Partners & Silva Limited, the judgment debtor. The adjournment was granted, despite opposition from the judgment creditor. The petition was then presented by M&P Silva Limited (In Liquidation) to have Media Partners & Silva Limited wound up and a liquidator appointed [2018 No. 403 Cos] (“the Liquidation Proceedings”).
Both the Garnishee Proceedings and the Liquidation Proceedings were admitted into the commercial list of the High Court and heard together. The court accepted that any other creditor of the judgment debtor can attend and make submissions at the second stage of the garnishee application.
The main issue to be determined by the court was the level of the court’s discretion to decline to make the conditional order of garnishee absolute in favour of a liquidation in circumstances where the garnishee proceedings were first in being and the conditional order was obtained prior to the presentation of the Liquidation Proceedings.
The judgment creditor relied, inter alia, on the case of Response Engineering Ltd v Caherconlish Treatment Plant Ltd [2011 IEHC 416, wherein the Judge stated, “while it is true that the making of [a garnishee order] remains in the discretion of the Court, it would generally require special circumstances before the court would decline on discretionary grounds to make an order in favour of a judgment creditor who had otherwise satisfied the necessary proofs”.
The court distinguished this case and cited Kanwell Developments Limited v Salthill Properties Limited (In Receivership) [2008] IEHC3, as more pertinent and in which Clarke J (as he then was), stated obiter, “…the making of a garnishee order is discretionary. It is, therefore, possible that the existence of a petition to wind up a proposed garnishee could be a material factor in the exercise of the Court’s discretion… a court should, generally, lean against permitting the invocation of a garnishee procedure in respect of a company’s assets at a time when the company is subject to an, as yet undetermined, petition for its winding up”.
The petitioner also relied on s606 of the Companies Act, 2014 which provides that where a company is being wound up a creditor who attached any debt due to the company can only retain the benefit of the attachment against the liquidator to the extent that the attachment has been completed before the commencement of the winding up. The court held that the conditional order did not satisfy this requirement and commented that s606 is an expression of the legislature’s preference for an orderly winding up and that it leans against the “first in time” argument made by the judgment creditor.
Therefore, the court made an order winding up the debtor company and discharged the conditional order of garnishee.
AMOSS Solicitors acted for M&P Silva Limited (In Liquidation) in successfully petitioning to have Media Partners & Silva Limited wound up and successfully opposing the making of the conditional garnishee order absolute. Gavin Simons lead the AMOSS team.
