Anthony J. Fitzpatrick v Shiv Kumar Sharma and Another
| Jurisdiction | Ireland |
| Judge | Mr. Justice Max Barrett |
| Judgment Date | 13 January 2015 |
| Neutral Citation | [2015] IEHC 3 |
| Court | High Court |
| Date | 13 January 2015 |
[2015] IEHC 3
THE HIGH COURT
AND
AND
Company Law – Company Directors – under s. 150 of the Companies Act 1990, as amended – Declaration of Restriction
Facts: This case concerned an application for a declaration of restriction against the four respondents under s. 150 of the Companies Act 1990, as amended. One of the respondents was a “shadow director,” another was a “nominal director” and the remaining two were “inactive directors.” The relevant company was a “phoenix company.” It was referred to as a “phoenix company” because it emerged from the ashes of another entity that had collapsed but which had been trading in the same line of business.
Held by Barrett J: The court held that the “shadow director” had not acted responsibly in relation to the affairs of the previous company. Despite this he then proceeded to establish a “phoenix company.” The “phoenix company” like its predecessor incurred substantial losses. It had traded without the required liquor licence. Furthermore, the “shadow director” had allowed it to trade for a considerable time after it ought to have ceased trading. As a result, the court issued a declaration of restriction.
In relation to the second director the court held that “real moral blame” could be attached to her actions. This was because she had acted as the necessary second director to allow the “phoenix company” to be set up. It was therefore just and equitable that a declaration of restriction be issued against her under s. 150.
The court held In relation to the two remaining directors that they had not done anything as directors beyond being appointed to the role. The court said their reasons for agreeing to act as a director was probably due to familial affection. However, the court did not find their actions dishonest or irresponsible enough to warrant a declaration under s. 150 to be issued. It also held that there was no just and equitable reason to issue a declaration of restriction against them.
1. This is an application for a declaration of restriction against each of the respondents under s.150 of the Companies Act, 1990, as amended. One of the respondents was a shadow director, one a so-called 'nominal' director, and the remaining two were, it seems, entirely inactive directors.
2. Fortwilliam Catering Limited was incorporated on 19 th July, 2010, to carry on the operation of the Woodstock Hotel, near Ennis, County Clare. It appears that it was a 'phoenix company', by which the court means a company that has emerged from the ashes of another entity that had collapsed and which was trading in the same line of business. Here the entity Fortwilliam supplanted was the former operator of the Woodstock Hotel, Fortmere Hotels Limited, a tax delinquent company that was eventually struck off the register of companies in January 2013 for not filing its annual returns. Notwithstanding Fortmere's strike-off in 2013, it appears that it had in fact ceased trading in August 2010, at which point Fortwilliam took over the operation of the Woodstock Hotel. From the outset, Fortwilliam sustained substantial losses. In the months before it ceased trading, it also appears to have been trading without the benefit of an intoxicating liquor licence; in fact Garda interest in this last aspect of its affairs may have precipitated its decision to cease trading. Be that as it may, the liquidator was appointed on 23 rd January, 2013. As at the date of its liquidation, Fortwilliam owed significant amounts of money to various creditors, including the Revenue Commissioners and Clare County Council. Its tax liabilities alone amounted to almost a quarter of a million euro, by coincidence, the same tax liability that Fortmere left unpaid when it ceased trading.
3. Mr. Shiv Sharma appears to have been a shadow director of Fortmere. From 16 th February, 2012 to 23 rd January, 2013, he was a director of Fortwilliam. Ms Geeta Sharma, the liquidator avers, "was a non-executive director of the Company from 16 th February 2012 to the date of liquidation and appears to have been…appointed solely to fulfil the numeric requirement tohave two directors and had no role in the management or operation of [Woodstock]." Ms Trisha Sharma and Ms Kavita Sharma, the liquidator avers "were non-executive directors of the Company from 19 th July 2010 to 16 th February 2012." Insofar as the director uses the terms "non-executive director" he intends to connote that the relevant individuals, though listed as directors of Fortwilliam at the Companies Registration Office, had no role in its day-to-day management or operation; in truth it is not clear that Ms Trisha Sharma or Ms Kavita Sharma played any role at all in relation to Fortwilliam.
4. On a daily basis, the Woodstock Hotel was run by a general manager and a management team. Although UK-based, Mr. Shiv Sharma appears to have been a part-time managing director of the hotel; certainly he was the person from whom the general manager of the hotel took direction and instruction. In truth, he appears to have been the originator of all the shenanigans that surrounded the operation of Fortwilliam and previously of Fortmere.
5. Although reference has been made to Fortmere Hotels, and to Mr. Shiv Sharma's alleged shadow directorship of same, the court in arriving at its judgment has had regard exclusively to the role of the respondents as directors of Fortwilliam. That said, the court has had regard to the fact that Fortwilliam appears to have been a phoenix company. Moreover, the court considers it of significance that Fortwilliam incurred substantial losses from the outset, ultimately traded for some time without the benefit of an intoxicating liquor licence and, by the liquidator's reckoning, ought to have ceased trading almost half a year before it did.
6. There is, if anything, a possible surfeit of judicial...
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Lennon v Gilson
...the supplications of context.’ Barrett J. reiterated this view in a contemporaneous s. 150 judgment, Fitzpatrick v Shiv Kumar Sharma & Or [2015] IEHC 3. 39 In the context of the present case, if one was to use Barrett J.'s ‘litmus-test of personal liability’ in respect of a director such as......