Cooke's Events Company Ltd ((in Liquidation)) v Companies Act

• Jurisdiction: Ireland
• Judge: Mr. Justice John MacMenamin
• Judgment Date: 29 June 2005
• Neutral Citation: [2005] IEHC 225
• Court: High Court
• Docket Number: [No. 365 COS/2004]
• Date: 29 June 2005

[2005] IEHC 225

THE HIGH COURT

[No. 365 COS/2004]

KAVANAGH v COOKE & BYRNE

IN THE MATTER OF COOKE'S EVENTS COMPANY LIMITED (IN LIQUIDATION) AND IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT 1990 AND SECTION 56 OF THE COMPANY LAW ENFORCEMENT ACT 2001

BETWEEN

TOM KAVANAGH

APPLICANT

AND

JOHN COOKE AND DEBBIE BYRNE

RESPONDENTS

COMPANIES ACT 1990 S150(3)

COMPANY LAW ENFORCEMENT ACT 2001 S56

COMPANIES ACT 1990 CHAPTER 1 PART VII

KAVANAGH v DELANEY & ORS (TRALEE BEEF & LAMB LTD, IN RE) 2005 1 ILRM 34

LA MOSELLE CLOTHING LTD & ROSEGEM LTD v SOUALHI 1998 2 ILRM 345

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

COMPANIES ACT 1990 150(2)(a)

LO-LINE MOTORS LTD, IN RE 1988 CH 477 1988 3 WLR 26

COLM O'NEILL ENGINEERING SERVICES (IN VOLUNTARY LIQUIDATION) UNREP HIGH COURT FINLAY GEOGHEGAN 13.2.2004

COSTELLO DOORS LTD, RE UNREP HIGH COURT MURPHY 21.7.1995 1995/6/1958

BUSINESS COMMUNICATIONS LTD v BAXTER UNREP HIGH COURT MURPHY 21.7.1995 1995/6/1869

COMPANY LAW

Directors

Restriction - Liquidation - Whether respondent acted responsibly in relation to affairs of company - Revenue liabilities - Use of insolvent company to launch other company - Misstatement of assets of company - Failure to comply with obligations under Companies Acts - Whether directors should be restricted from acting as company directors - Companies Act 1990 (No 33), s 150 - La Moselle Clothing Ltd. v Souhali [1998] 2 I.L.R.M. 345 and Kavanagh v Delaney [2004] IEHC 283; [2005] 1 ILRM 34 followed - Declaration granted (2004/365COS - Macmenamin - 29/3/2005) [2005] IEHC 225

Kavanagh v Cooke & Byrne

Facts: The applicant sought declarations of restriction against the respondents pursuant to s. 150 of the Companies Act 1990. The respondents were husband and wife and the second respondent was appointed as non-executive director only. The applicant put the following matters before the court: the company’s trading history; the revenue liability; the accuracy of record keeping; the control of debtors; and the administration of company’s affairs.

Held by MacMenamin J. in dismissing the application against the second respondent and making a declaration against the first respondent that no prima facie case could be made out against the second respondent. The first respondent’s conduct was such as could only be regarded as being so incompetent as to amount to irresponsibility. While issues of delegation could have a significant bearing in the defence of activities of directors in larger enterprises, they could hardly be seen in the same light in a small company where the managing director either knew or ought to have known any relevant matter regarding the conduct of the company’s affairs.

Reporter: R.W.

Mr. Justice John MacMenamin

1 In these proceedings the applicant seeks a declaration that the respondents, being persons to whom Chapter 1 of part VII of the Companies Act1990 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 of 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).

2 The applicant is the liquidator of the above entitled company, having been so appointed on 1st May, 2003. On the same date the company resolved at a general meeting of the members of the company that the company be wound up.

The Business & history of the Company

3 The company in question carried on the business of a restaurant. It traded as "Grass Roots Café" from the Museum of Modern Art, Dublin Castle, Dublin 2; the National Museum of Ireland, Kildare Street, Dublin 2 and Collins Barracks, Dublin 7. The company was incorporated in April, 2002 to facilitate an outdoor catering business and to tender for the concession contract to run the cafes aforesaid.

4 In order to place this application in context it is necessary however to examine the background of this company in the context of another company, Cherby Limited (in liquidation) also the subject matter of a similar application relating to the two respondents which was heard on the same day by this court.

5 Cherby Limited was incorporated on 28th November, 1991 and operated the well known restaurant known as "Cooke's café" at 14 South William Street, Dublin 2. It is agreed that this business traded successfully for a number of years. From 1997 a second restaurant known as "The Rhino Room" was operated by the company on the first floor of the premises. From the year 2000 until April, 2002 (when a separate company, Cooke's Events Company Limited was incorporated), Cherby Limited also operated concession restaurants at the National Museum of Ireland premises at Collins Barracks in Kildare Street and subsequently at the Irish Museum of Modern Art premises at the Royal Hospital Kilmainham as predecessor to Cookes Events Company Ltd.

6 While the business problems of Cherby Limited do not form part of this application it is sufficient to say that from 1998 onwards it is common case that Cherby Limited was encountering financial difficulties. In 2002 the decision was taken to incorporate this new and separate company to deal with what for brevity will be called the "museum businesses" as described earlier. The catering for the concession at the three sites, at Collins Barracks, Kildare Street and Royal Hospital Kilmainham was carried out at a kitchen located at the Liffey Trust Centre, Sheriff Street, Dublin 1.

7 At the time that Cherby Limited had entered into the concession contract for the Collins Barracks and Kildare Street premises the National Museum of Ireland had, as Mr. Cooke avers, committed itself to undertaking various improvements and renovations to both premises. He states that in the case of the Kildare Street premises these works were not carried out until 2002. In the case of Collins Barracks, the footfall and customer numbers envisaged by the museum did not materialise. In recognition of this Mr. Cooke states that three months free rent was given at that site.

8 The first named respondent states that during the period after incorporation a number of other external factors adversely affected the company's performance. These included an increase in insurance costs, an increase in the national minimum wage and additional costs incurred due to the fact that it was not possible to carry out catering on-site at the Collins Barracks and Kildare Street premises. Consequently Mr. Cooke states it was necessary to locate and fit out a new kitchen facility at the Liffey Trust Enterprise Centre at a cost of approximately €40,000.

9 The first named respondent John Cooke also states that the company experienced ongoing difficulty and delay in obtaining sums outstanding from the National Museum of Ireland. This had serious cash-flow implications for the company.

10 In the light of these difficulties the first named respondent states that a review was undertaken as to whether the company should continue to operate the cafés in Collins Barracks and Kildare Street. The view was taken that, because the company had fixed overheads in relation to the kitchen facility at the Liffey Trust Centre, and also in relation to employing a general manager and head chef, it would not have been viable to operate only one café at the Museum of Modern Art. Consequently the company prepared proposals to tender for running in-house canteens or other business premises including An Bord Bia, if the company decided to close the two cafes at the of the National Museum of Ireland premises.

11 On the 1st November, 2002 a serious fire occurred at La Boulangerie Des Gourmets Bakery at the Liffey Trust site. This fire destroyed the entire site including the company's catering kitchens, much of its books and records, catering equipment, foodstuffs, uniform, linen, furniture, crockery and glassware used for off-site events as well as promotional material and literature. It is stated that the fire adversely affected the company's business performance. While the three cafés remained open, they were only able to serve a very limited offering over the following ten day period of drinks, pastries and bought-in sandwiches and cakes. This, it is stated, by the first named respondent resulted in an estimated loss of sales of €10,000 over the ten day period, along with a loss of goodwill amongst regular customers. The first named respondent states that even after the company recovered from the fire its sales were approximately €10,000 a week compared to the €16,000 per week achieved prior to the fire.

12 The company moved its kitchen facility to premises formerly occupied by Cherby Limited at 14 South William , i.e. the Cooke's café site, which premises had by mid-November 2003 been closed for seven months. It took almost two weeks and cost approximately €17,000 to set these premises back in a position to meet health and hygiene, requirements, reconnect utilities and put insurance in place.

13 The first named respondent states that while the company in suit carried insurance, the settlement from the fire did not materialise until April 2003 and did not cover the company's total loss of business immediately following the fire or its ongoing loss of business. Furthermore while such insurance covered the company's equipment it only extended to the book value thereof which was less than its replacement value.

14 In the circumstances, and following the advice of Jane Cathcart and Associates (a company brought in to assist in the preparation of day to day accounts) and Melin and Associates (also financial advisors to the company) the company's management team came to the conclusion in April 2003 that the business was, in essence, insolvent.

15 The first named respondent states that "this was due...