Club Tiviola Ltd v Companies Act
|Mr. Justice John MacMenamin
|21 December 2005
| IEHC 468
|[No. 267 COS/2004]
|21 December 2005
 IEHC 468
THE HIGH COURT
COMPANIES ACT 1990 S150
COMPANY LAW ENFORCEMENT ACT 2001 S56
COMPANIES ACT 1990 CH 1 PART VII
COMPANIES ACT 1990 S150(3)
COMPANIES ACT 1963 S214
COMPANIES ACT 1990 S150(2)(A)
SQUASH (IRL) LTD, RE
LO-LINE MOTORS LTD, IN RE 1988 BCLC 698
LA MOSELLE CLOTHING LTD v SOUALHI
COLM O'NEILL ENGINEERING SERVICES LTD, RE UNREP HIGH COURT FINLAY GEOGHEGAN 13.2.2004 2004/8/1824
KAVANAGH v DELANEY & ORS (TRALEE BEEF & LAMB LTD, IN RE)
COSTELLO DOORS, IN RE UNREP MURPHY 21.7.1995 1995/6/1958
BUSINESS COMMUNICATIONS LTD v BAXTER UNREP MURPHY 21.7.95 1995/6/1869
FIRST CLASS TOY TRADERS LTD, IN RE UNREP FINLAY GEOGHEGAN 9.7.2004 (EX TEMPORE)DIGITAL CHANNEL PARTNERS LTD, RE
COMPANIES ACT 1990 S152(1)
Restriction -Whether directors acted responsibly - In re First Class Toy Traders Ltd; Gray v McLoughlin  IEHC 289 (Unrep, Finlay Geoghegan J, 9/7/2004) distinguished - Companies Act 1990 (No 33), s 150 - Order granted
the applicant sought an order restricting the respondents from being appointed or acting in relation to a company which was wound up due to its insolvency in May, 2003. The respondent’s tenure as a director commenced in July, 2002 at which time it was acknowledged that the company was in a state of indebtedness. The applicant contended that the respondent had breached his duty to act responsibly in relation to the running of the company, inter alia, in failing to wind up the company earlier and the failure of the company to make revenue returns.
Held by Mr Justice MacMenamin in making a declaration that the respondents be restricted for a period of five years that a director complying with his obligations under the provisions of the Companies Acts and acting with a degree of commercial probity during his tenure would not be restricted on the grounds that he acted irresponsibly. Moreover, the maintenance of proper books and records in such a form as to enable directors to make reasonable commercial decisions and the employment of appropriate experts were relevant and important factors in proving that a director had acted responsibly. As the respondent had failed in his duty to make himself aware of the company’s affairs and failed to maintain any reasonable accounts or records, he failed to prove that he had acted responsibly in relation to the affairs of the company.
In these proceedings the applicant seeks a declaration that the respondents, being persons to whom Chapter 1, Part VII of the Companies Act,1990 applies, shall not for a period of five years be appointed or act in any way, whether directly or indirectly, as a director or secretary or be concerned or take part in the promotion or formation of any company unless that company meets the requirements set out in sub-s. (3) of s. 150 of the Companies Act, 1990 (as amended).
On 19th May, 2003, it was resolved pursuant to s. 251 of the Companies Act,1963, that Club Tivoli Limited ("the Company") be wound up. At an adjourned meeting of the creditors of the Company held on 3rd June, 2003, the applicant herein was appointed to act as liquidator.
The first and second named respondents named in the title hereof were directors of the Company at the time of the commencement of the winding-up of the Company. It is unnecessary for the purposes of this application to deal with the position of the second named respondent whose position has already been considered by the courts.
At the time of its winding-up the Company was unable to pay its debts within the meaning of s. 214 of the Companies Act,1963.
The Company was set up in February, 2002 by Mr. Chris Kelly and Mr. Brendan Kelly. While the first named respondent (who will hereinafter be referred to as "the respondent") had an involvement at the outset, he did not become a director until the month of July, 2003. At that stage, Chris Kelly and Brendan Kelly resigned as directors and were replaced by Paul Davis and Peter May, the respondents herein. Both Chris Kelly and Brendan Kelly transferred their shares in the Company to the respondents. In return it was agreed that approximately €285,000 would be paid to Chris Kelly and his group of companies with an immediate payment of €60,000 and the balance in staged payments.
The total deficit due to the creditors of the Company as stated in the directors” estimated statement of affairs presented to the creditors” meeting of 3rd June, 2003 was €698,499.26.
In the course of the conduct of the company's affairs it is stated a number of issues arose, all of which had a bearing upon the accumulation of the debt aforesaid.
There is one particular feature which must act as a backdrop to these considerations. Mr. Tony Byrne, who was the owner of the Tivoli Theatre, applied for a renewal of his liquor licence in February, 2003. Apparently to some surprise, An Garda Síochána objected to the licence renewal on the basis that the licence agreement dated 4th March, 2002, under which the respondents were operating, was in breach of licensing laws. As a result, the club was forced to cease operations on 5th April, 2003. From that date until 31st April, 2003, the night club was open only sporadically and not on a constant basis. In an attempt to deal with the licensing issues, the Company was represented by a leading senior counsel in the licensing area who appeared before the District Court on 16th April, 2003. The Company ceased all operations on 31st April, 2003, thereafter special resolution aforesaid was passed.
In pursuance of his application the liquidator relies on three essential issues. These are:
i i. The alleged failure to wind-up the Company and the growth in its deficit.
ii ii. The alleged failure on the part of the Company to make revenue returns and to pay revenue liabilities.
iii iii. The alleged failure on the part of the respondent to co-operate with the applicant.
The first named respondent's tenure as a director of the Company began in July of 2002. At that time it is acknowledged that the Company was in a state of indebtedness.
For the purposes of this judgment it will be convenient to consider the conduct of the affairs of the Company in a number of different periods. The first of these runs from July of 2002 to the end of September of that year. At that point, the monthly statement of assets and liabilities of the Company demonstrated that the Company had a net deficit of €34,205.72 with trade creditors of €94,670.41.
An essential point of reference is that the business in question was being run as a night club. Accordingly, there are particular points which will assist as a guide to the manner in which the affairs of the Company were conducted and also as indicators as to what the directors knew, or ought to have known, at any particular point.
It is of particular relevance that a statement of account from Guinness UDV Ireland indicates that the sum of €16,881.19 was owed to this particular creditor at the end of September. A further pointer is that the sum of €4,000 was owed to Independent Newspapers for advertising purposes. While there were indeed other creditors, particular emphasis may be laid on the identity of these two because of the nature of the business being run by the respondents. Clearly, publicity was a prerequisite for the running of the night club. A supply of alcohol was an important element in its affairs. Moreover, no VAT returns were made to the Revenue Commissioners during this time.
It has been submitted that the period in question would be a slow time for a night club. It was expected that come the autumn, there would be an increase in revenue. But by 22nd October, 2002, the assets and liabilities prepared by the Company demonstrate that the Company's net asset deficiency had grown by over €110,000 to €142,684.13 at that point. The trade creditors” balance had increased by over €60,000 to €158,942.77. The debt owed to Guinness UDV Ireland had grown by €9,804.56 to €26,685.75. Thus is may be seen that the coming of autumn and the expectation of increased revenues had done little to increase the profitability of the Company.
It is relevant then to look at the period from 22nd October, 2002 to 31st December, 2002. At this point it might be considered that the Company would be at its most profitable. However, any increase in turnover does not appear to have rendered the Company profitable. The debt due to Guinness UDV Ireland Limited further increased by €7,323.59 to reach €34,009.34. Furthermore, despite the respondents having been a director of the Company for five months, no VAT returns had been made to the Revenue Commissioners.
By the time that the Company was put into liquidation on 19th May, 2003, the total deficit of the Company was €698,499.26, with unsecured creditors owed €562,012.06, secured creditors owed €86,265.00 and preferential creditors owed €65,772.00.
On behalf of the respondents, Mr. Garry McCarthy B.L. in his able argument draws attention to the following features.
In the first instance, counsel draws attention to the fact that the principal reason for the Company ceasing to trade was the loss of its venue, that is the Tivoli Theatre....
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