Eye company founders face off in court over debt claims
The fate of a vision care company hangs in the balance after a court petition to have the business wound up got adjourned — provided the company hands over to the courts a substantial payment being sought by a former member of staff.
Jacob Smith, an eye doctor, called for the company, Island Ophthalmology, to be wound up because it could not repay him $130,000 he put into the business.
Island Ophthalmology has disputed the debt — and has cross claims against Dr Smith that the company says exceed the amount of the debt he has claimed.
A Supreme Court judgment on the matter was filed on March 3 by Narinder Hargun, the Chief Justice.
In his ruling, Mr Justice Hargun noted that Dr Smith and Jennifer Faries, a certified orthoptist, had agreed in 2019 to start the business.
Ultimately 40 per cent of the shares were allotted to Dr Smith and Ms Faries each, with the remaining 20 per cent going to Gordon Campbell.
Dr Smith paid the business $140,000 in August 2021, but while he argued that it constituted loan capital, the company called the payment equity capital, meaning he could not demand repayment.
Ms Faries, meanwhile, contributed roughly $280,000 to the start-up of the business.
Mr Justice Hargun noted that company records showed that payments made by Ms Faries and Dr Smith from 2021 to 2023 had been recorded on its books as “non-current liabilities”.
Both were repaid $10,000 each in 2022 — with Ms Faries repaid $140,000 by the company that March, which she called “about half of my initial set-up capital”.
She told Dr Smith that the move “brings us close to even in start-up contributions”.
Mr Justice Hargun wrote that no company documents showed that payments by either of the two had been treated as equity.
He found that the records showed that payments to the two were made by the company “on the clear understanding that it was making loan repayments to them in relation to the company’s liability as reflected in its balance sheet”.
Based on the accounts, he also found there was no dispute that Dr Smith could be a creditor of the company for at least $130,000 — and thus had legal grounds to ask the court to wind up the company based on a failure to comply with a statutory demand.
However, cross claims by the company against Dr Smith, including claims over the ownership of medical equipment, are pending before the Supreme Court.
The business has also claimed that after Dr Smith resigned in May 2022, he tried to “discredit, defame and intimidate the company and Ms Faries”.
The company argued that its counter claims were significant enough that the court should use its discretion against making a winding-up order — and that Dr Smith’s petition to the courts had been “retaliatory”.
But Mr Justice Hargun found that Dr Smith’s motive was “not a relevant consideration”.
He took note of the company’s argument that its cross claims exceeded the debt claimed by Dr Smith.
Although the Chief Justice did not find that the petition should be turned down based on cross claims, he said that the company should get the opportunity to establish its claims in separate proceedings.
“In the meantime, the court orders that the petition be adjourned to a date so that the court could consider whether additional cross claims are to be pursued by the company; and if so, the outcome of those proceedings.”
Rhys Williams, representing Dr Smith, argued that if the petition got delayed, the business should hand over the amount of money demanded to the court.
He said that limited company resources were being “dissipated” in legal action.
Mr Justice Hargun ruled that instead of the court issuing an immediate winding-up order, the petition should get adjourned for the company to pursue its cross claims — on the condition that it hand over $130,000 to the court within 14 days.
• To read the judgment in full, click on the PDF under “Related Media”.
• It is The Royal Gazette’s policy not to allow comments on stories regarding court cases.