Important case-was the employee a creditor of the company?

IMPORTANT CASE WHICH ESTABLISHES WHETHER AN EMPLOYEE WAS A CREDITOR OF A COMPANY

 

In a recent decision made by the Court of Appeal a Winding up Order previously made by the High Court was annulled.

 

In the High Court Ms. Justice Pilkington concluded that an employee who claimed that he was owed back pay from a Company of which he was a Director namely PPF Capital Source Limited (PPF) was not entitled to be considered a creditor.  She grounded her decision on the fact that his contract of employment was dated the 5th June 2013 whereas the Company was not incorporated until 14 days later namely the 19th June 2013.  She held that as the contract predated the date of incorporation of the Company she was not satisfied that the Applicant properly advanced the position that he was a creditor.

 

However the Court of Appeal disagreed and referred to section 45 of the Companies Act 2014 which provides that a contract purporting to be entered into by a Company prior to its formation may be ratified by the Company.  He said that this ratification does not have to be express resolution by the Company but a Company may ratify a contract by treating it as binding after incorporation.  He noted that the Applicant stated that he was paid salary for a time and thereafter ceased to receive it.  Accordingly these factors, combined with a pre-incorporation contract, was sufficient to establish Mr. Stamp as a creditor of the Company for the purposes of Section 669 of the 2014 Companies Act.  Section 669 provides that following a winding up Order a liquidator or creditor or contributory of the Company may seek an Order annulling the winding up on proof to the satisfaction of the Court that the Order for winding up ought to be annulled.

 

The application by the Applicant was not opposed by the Petitioner for the Winding Up namely Global Management Solutions Limited nor the liquidator.

 

This is an important case in establishing the circumstances in which a Company may, without express resolution, ratify a contract that may have been entered into prior to the Company being incorporated.  It also sets out the circumstances in which a Winding Up Order may be annulled.

 

For further information on any employment or commercial matter please do not hesitate to contact Brendan Dillon, Niall MacCarthy or Lorna McArdle on 01 2960666