Careca Investments Ltd v Companies Act

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke
• Judgment Date: 04 March 2005
• Neutral Citation: [2005] IEHC 62
• Docket Number: [No. 109 COS/2000]
• Court: High Court
• Date: 04 March 2005

[2005] IEHC 62

THE HIGH COURT

[No. 109 COS/2000]

Careca Investments Ltd -v- Companies Act

IN THE MATTER OF CARECA INVESTMENTS LIMITED (IN LIQUIDATION)

AND IN THE MATTER OF THE COMPANIES ACTS 1963 TO 2001

AND IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT 1990

BETWEEN

MARTIN V. FERRIS (OFFICIAL LIQUIDATOR OF CARECA INVESTMENTS LIMITED)

APPLICANT

AND

PETER FARRELL AND LEO COADY

RESPONDENTS

Mr. Justice Clarke

1 In these proceedings the applicant as liquidator of Careca Investments Limited seeks a declaration that both respondents should be subjected to the orders specified in s. 150 of the Companies Act1990 (as amended) restricting their activities in relation to companies for a period of 5 years. The first named respondent has not contested the application. In his case the only matter outstanding is the question of costs which has been left over to the conclusion of the issues as against the second named respondent ("Mr. Coady"). This judgment, therefore, relates solely to the case as against Mr. Coady.

2 It is not in dispute that the company the subject matter of these proceedings (Careca Investments Limited "Careca") was in substance a single purpose company. The company purchased land in Donabate in or around May 1992. It was sold in June 1995 at what, on any view, was a substantial profit. This was the only significant transaction of the company while it traded. The petition to wind up the company was presented by the Collector General on foot of a capital gains tax liability which, when interest was included, amounted to IR£277,681.25. The company had not traded for approximately four years prior to the date of liquidation.

3 It is not contested but that Mr. Coady was a director up to and including the date of liquidation or that the company is unable pay its debts. In those circumstances s. 150prima facie applies. The only issue which I have to consider is as to whether, in Mr. Coady's case, he is entitled to rely on s. 150(2) by establishing that he has acted honestly and responsibly in relation to the conduct of the affairs of the company.

4 For reasons which will become apparent in the course of this judgment there can be little doubt but that the affairs of the company were not conducted in a responsible manner. However the real issue between the parties is as to Mr. Coady's responsibility for such a state of affairs.

5 On the basis of the evidence put forward on behalf of the liquidator it seems clear that there were, to all intents and purposes, little or no books or records kept by the company so as to comply with its obligations under the Companies Acts. In the course of the liquidation a number of persons, including, Mr. Coady, Mr. Farrell, and the company's solicitor Mr. O'Sullivan, were examined under s. 245 of the Companies Act1963. The transcripts of the evidence as so given were before me on this application. In respect of the complete lack of records of the company the explanation given by Mr. Coady at that time was that by virtue of the fact that the company was a single purpose company no records were necessary. In the course of affidavits filed by him during this application he suggested that he had no real responsibility for the lack of records because, by virtue of what he described as his exclusion from the affairs of the company, he had no ability to ensure that proper records were kept. Indeed this latter point characterises the substance of Mr. Coady's defence to these proceedings.

He does not dispute, therefore, the following matters:-

(a) the company had wholly inadequate books and records;

6 (b) there is no adequate information available to establish that the proceeds of sale of the property by the company were dispersed in a proper fashion.

7 In relation to the latter matter it should be noted that there remains considerable confusion as to the precise manner in which the company dealt with its financial affairs. It would appear that upon purchasing the property for a sum of IR£170,000, a sum of IR£277,000 was borrowed from the First National Building Society ("FNBS") secured against the lands. Mr. Coady's explanation is that the additional funding was required to put in place sufficient funds to progress the potential development of the lands in question. He does accept, however, that it would appear that the relevant staff members of the building society concerned were led to believe that the borrowings were entirely in respect of the consideration moneys. He also suggested that the surplus was used although not by him, in an improper manner. Precisely because there are wholly inadequate books and records of the company it is very difficult for the liquidator to ascertain with any precision what happened the additional moneys above and beyond those required to complete the purchase and, of equal if not greater relevance, the purpose for which such moneys were transferred in the way in which they were.

8 It should, therefore, be noted that this confusion would not be there if the company had prepared even tentative accounts during the period between 1992 and 1995 while it held the lands. Such accounts would have disclosed the purchase price of the lands, the basis for any disbursements out of the additional borrowing and would have enabled any person looking at those accounts to know the financial position of the company when it came to sell the property and thus to predict with some considerable degree of accuracy the amount of net funds which would be left over after the sale. Such accounts would also have disclosed the extent to which the company had incurred any additional liabilities in the intervening period whether by virtue of loans from directors or undischarged liabilities to creditors. No such accounts were prepared.

9 It would appear that the borrowings from the FNBS were not serviced so that as of the time of the sale of the property a sum of IR£401,518.43 was required to be discharged to clear that debt. Together with other minor adjustments the balance of the funds which were received on behalf of the company by its solicitors appears to have been just in excess of IR£335,000. The disbursement of those funds has also been a matter of some considerable controversy. It is common case that Mr. Coady received two payments totalling IR£67,118.25....