Colm O'Neill Engineering Services (in Voluntary Liquidation)

• Jurisdiction: Ireland
• Court: High Court
• Judge: MS.JUSTICE FINLAY GEOGHEGAN
• Judgment Date: 13 February 2004
• Neutral Citation: [2004] IEHC 83
• Docket Number: 247cos/2003
• Date: 13 February 2004

[2004] IEHC 83

THE HIGH COURT

247cos/2003

HC 178/04

COLM O'NEILL ENGINEERING SERVICES (IN VOLUNTARY LIQUIDATION)

DUBLIN

IN THE MATTER OF COLM O'NEILL ENGINEERING SERVICES (IN VOLUNTARY LIQUIDATION)

AND IN THE MATTER OF THE COMPANIES ACT, 1963 TO 2001

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

Citations:

COMPANIES ACT 1990 S150

BUSINESS COMMUNICATIONS LTD V BAXTER UNREP MURPHY 21.7.1995 1995/6/1869

GRAYAN BUILDING SERVICES LTD, IN RE 1995 3 WLR 1

LA MOSELLE CLOTHING LTD V SOUALHI 1998 2 ILRM 345

SQUASH (IRL) LRD, IN RE 2001 3 IR 35

Abstract:

Company law - Liquidation - Restriction of directors - Whether respondents acted honestly and responsibly in relation to affairs of company - Whether respondents should be restricted from acting as company directors - Companies Act 1990, section 150.

Facts The applicant liquidator applied for an order restricting the four respondents from being company directors pursuant to section 150 of the Companies Act 1990. He alleged that they failed to obtain sufficient financial information for consideration by the board from the company executives and failed to recognise in due time the deteriorating financial situation of the company and failed to take appropnate steps.

Held by Finlay Geoghegan J in dismissing the application against all four respondents, that when considering whether to restrict a director, the court had to be careful not to view the actions of the director concerned with the benefit of hindsight and that mere bad commercial judgment did not amount to a lack of responsibility by a company director.

Reporter: P.C.

Notice: The page breaks of this judgment may not correspond to the hard copy. These will be inserted later.

1 EX-TEMPORE JUDGMENT DELIVERED BY MS.JUSTICE FINLAY GEOGHEGAN ON FRIDAY, 13TH FEBRUARY 2004

2 MS. JUSTICE FINLAY GEOGHEGAN:

3 This is an application brought under Section 150 of the Companies Act, 1990by the liquidator of Colm O'Neill Engineering Services Ltd ("the Company") for a declaration of restriction of the four named Respondents, each of whom were directors of the Company. It is not disputed that the Company is insolvent; nor is it disputed that each of the respondents was a director of the Company within twelve months of the commencement of the winding up. Accordingly, Section 150 applies to the Company and the respondents.

4 Having regard to the terms of Section 150, it imposes a mandatory obligation on this Court to make the declaration of restriction unless the Court is satisfied that the director concerned has acted honestly and responsibly in relation to the conduct of the affairs of the company and that there is no other reason why it would be just and equitable that he should be subject to the restrictions imposed by Section 150. It is well established on the authorities that the section places the onus on the directors of establishing to the satisfaction of the Court that he or she has acted honestly and responsibly if they are to escape the declaration of restriction.

5 In accordance with the practice direction of the President of the High Court, the liquidator is requirsd to set out before the Court the matters which the liquidator considers, having regard to the investigations which he has carried out in the Company, should be considered by the Court under the section. That has been done very clearly by the liquidator in this instance. Whilst the liquidator sets ouc the matters, the onus remains on the directors in relation to those matters to satisfy the Court that they have acted honestly and responsibly.

6 In considering the matters raised by the liquidator in relation to the four respondent directors, I think it is necessary just briefly to consider the legal framework which has been established by S.150 and the authorities on the section. Firstly, it is well established that the purpose of the Section is to protect the public against the future supervision and management of companies by persons whose past record as directors of insolvent companies have shown them to be a danger to creditors and others. It is also established that it is not the purpose of the Section to punish the individuals concerned.

7 It is also, it appears to me, established on the authorities that, as it was put, by Murphy J. in Business Communications Limited, that ordinary responsibility of directors will entail compliance with the principal features of the Companies Acts and maintenance of the records required by those Acts. That conclusion of Murphy J. was following a citation by him in that judgment of an extract from a judgment of Henry LJ in Gray an Building Services Limited [1995] 3 WLR 1 where in relation to the English provisions on disqualification, he stated:

"The concept of limited liability and the sophistication of our corporate law offers great privileges and great opportunities for those who wish to trade under that regime, but the corporate environment carries with it the discipline that those who avail themselves of those privileges must accept the standards laid down and abide by the regulatory rules and disciplines in place to protect creditors and shareholders."

8 I think it fair to observe that the present corporate environment as set out in the current companies legislation is an environment of strict obligations on persons who are to be directors of companies with limited liabilities. It is also, I think, correct to observe that the responsibility which must be established by directors goes beyond the simple compliance with Companies Act obligations or regulatory obligations, and this is clear from the well known matters set out originally by Shanley J. in the decision in La Moselle Clothing Ltd. -V- Soualhi [1998] 2 ILRM 345 and cited with approval by the Supreme Court in Re Squash Ireland Ltd. [2001] 3 IR35.

9 It is clear from those matters to which the Court must have regard that there may be circumstances in which directors have acted so incompetently as to amount to irresponsibility. Also, that directors who have displayed a lack of commercial probity or want of proper standards may not be considered to have acted responsibly, and that is in addition to compliance with the Companies Acts.

10 What is also clear from the decisions to date is, firstly, that simply bad commercial judgment does not and will not be considered by the Court to amount to a lack of responsibility by directors. Further, that the Courts must be careful in considering applications under this section not to, as was described in one judgment, permit the conducting of witch hunts against directors and, perhaps more importantly from the Courts” perspective, not to view the matter with the inevitable benefit of hindsight which arises in the course of the liquidation. This latter obligation is sometimes difficult to observe and practice as the actions or inactions of the directors which...