David Van Dessel v James Edward Esmonde and Another

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan
• Judgment Date: 26 May 2014
• Neutral Citation: [2014] IEHC 278
• Judgment citation (vLex): [2014] 5 JIC 2602
• Court: High Court
• Date: 26 May 2014

[2014] IEHC 278

THE HIGH COURT

[No. 207 COS/2011]

Van Dessel v Esmonde & O'Toole

IN THE MATTER OF NOXTAD LIMITED (IN LIQUIDATION) AND IN THE MATTER OF SECTION 150 OF THE COMPANIES ACTS 1990

AND SECTION 56 OF THE COMPANY LAW ENFORCEMENT ACT 2001

BETWEEN

DAVID VAN DESSEL

APPLICANT

AND

JAMES EDWARD ESMONDE AND PATRICK O'TOOLE

RESPONDENTS

COMPANY LAW ENFORCEMENT ACT 2011 S56

COMPANIES ACT 1990 S150

MITEK HOLDINGS LTD & ORS, IN RE; GRACE (LIQUIDATOR) v KACHKAR & MCCLELLAN CARRIGAN 2010 3 IR 374 2010/36/9110 2010 IESC 31

DERBAR DEVELOPMENTS LTD (IN LIQUIDATION), IN RE; MCGUINNESS v DOBBIN & LAVELLE UNREP FINLAY GEOGHEGAN 201.4.2012 2012/32/9360 2012 IEHC 144

CLANCY v O'CALLAGHAN (ABINGTON DOORS, IN RE) FINLAY GEOGHEGAN 6.5.2014 2014 IEHC 227

DIGITAL CHANNEL PARTNERS LTD (IN VOLUNTARY LIQUIDATION), IN RE; KAVANAGH v CUMMINS & ORS 2004 2 ILRM 35 2004/24/5602

COMPANIES ACT 1990 S125

Company Law – Insolvency – Directors – Restrictions – Trading - s. 150 of the Companies Act 1990

Facts: The applicant in this case was the Official Liquidator of Noxtad Ltd (‘the Company’). The Liquidator brought an application following a report made to the Director of Enforcement pursuant to s. 56 of the Company Law Enforcement Act 2011. As a result of this report, the liquidator sought declarations under s. 150 of the Companies Act 1990 (as amended) in respect of each of the respondents. A declaration of restriction would prevent the respondents from being appointed or acting as a director or secretary in another Company for a period of five years. The respondents were directors of Noxtad Ltd at the time of its winding up. It was accepted that the respondents had acted honestly in conducting the affairs of the Company.

The issue of concern was whether the respondents had acted responsibly as directors of the Company. The liquidator brought four matters of concern to the attention of the Court: i) the Company”s failure to file statutory returns and audited accounts in breach of s. 125 of the Companies Act 1963; the failure to file Revenue returns and the build up of substantial liabilities to the Revenue; the delay in placing the Company into liquidation and iv) the failure to assist the Liquidator. In order for the Court to make a declaration of restriction it had to be satisfied that the respondents had acted irresponsibly or that it was just and equitable to do so. The Court considered the extent to which the directors displayed a lack of commercial probity or want of proper standards especially in the period leading up to the winding up order and when it became obvious that the Company was insolvent.

Held by Geoghegan J:

The Company had failed to file statutory returns and audited accounts breaching s. 125 of the Companies Act 1963. The Court agreed this was relevant but not determinative. The fact the Company failed to file audited accounts or an annual return was also not in dispute. Geoghegan J said that whilst this was a relevant failure it would not prevent the Court from finding that the Respondents acted responsibly. The main issue for the Courts consideration was the Respondents approach to Revenue liabilities and the continued trading of the Company that in turn increased its trade liabilities. The respondents had used VAT and PAYE collected and deducted for the purpose of financing the continued trading of the Company when this money should have been paid to the Revenue Commissioners. The service of a s. 214 notice by the Revenue Commissioners on the Company in respect of its debts meant that the Respondents were aware that the Company was insolvent. For this reason the Court was not satisfied that the respondents had acted responsibly when conducting the affairs of the Company. The Court complied with the mandatory terms of s. 150 of the 1990 Act and made the declaration of restriction.

1 JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 26th day of May 2014.

2 1. The applicant is the Official Liquidator of Noxtad Ltd. ("the Company"), having been so appointed by order of the High Court made on 30 ^th May, 2011, on a petition presented by the Revenue Commissioners on l ^st April, 2011.

3 2. The Liquidator brings this application following a report made to the Director of Corporate Enforcement pursuant to s. 56 of the Company Law Enforcement Act 2011, and not having been relieved of his obligation to bring the application.

4 3. The Liquidator seeks declarations pursuant to s. 150 of the Companies Act 1990 (as amended) in respect of each of the respondents.

5 4. The Company was incorporated on 23 ^rd December, 1996. The respondents have each been directors of the Company since January 1997, and were directors at the date of commencement of the winding up. It is not in dispute that the Company is insolvent. The Liquidator has made clear that he accepts that the respondents acted honestly in relation to the conduct of the affairs of the Company. The factual issues which he puts before the Court raise serious questions as to whether the respondents can satisfy the Court that they acted responsibly as directors of the Company. The Liquidator is of the view that they did not do so and had expressed that view, along with the relevant facts in four affidavits. The second named respondent, Mr. O'Toole, has sworn five affidavits in response on his own behalf and setting out facts on behalf of the first named respondent, Mr. Esmonde.

6 5. The matters of concern raised by the Liquidator for consideration by the Court fall under the following headings:

7 (i) The failure of the Company to file statutory returns and audited accounts in breach of s. 125 of the Companies Act 1963;

8 (ii) the failure to file Revenue returns and the build up of substantial liabilities to the Revenue;

9 (iii) the delay in placing the Company into liquidation and

10 (iv) the failure to assist the Liquidator.

11 6. Prior to considering these matters and the respondents' explanations. I propose setting out the applicable law about which there was no real dispute.

12 7. Section 150 of the Companies Act 1990, insofar as relevant, provides:

13 2 "150.-(1) The court shall, unless it is satisfied as to any of the matters specified in subsection (2), declare that a person to whom this Chapter 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 it meets the requirements set out in subsection (3); and, in subsequent provisions of this Part, the expression 'a person to whom section 150 applies' shall be construed as a reference to a person in respect of whom such a declaration has been made.

14 (2) The matters referred to in subsection (1) are-

15 (a) that the person 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 this section, or

16 …"

17 8. The issue for the Court is whether it can be satisfied that the respondents each acted honestly and responsibly in relation to the conduct of the affairs of the Company, as directors, and that there is no other reason why it would be just and equitable that either should be subject to the restrictions imposed by s. 150 of the Act of 1990.

18 9. The facts, as staled, to not raise any issue as to the honesty of either of the respondents. Further, whilst the Liquidator has raised the issue of an alleged failure by the respondents to assist him in the winding up which could, in certain circumstances, constitute an "other reason" why it would be just and equitable to make a declaration of restriction, I am not satisfied on the facts that the alleged non-cooperation is of an order which would so justify.

19 10. The issue on the facts set out in the affidavits is only whether the Court can be satisfied that the respondents each acted responsibly in relation to the conduct of the affairs of the Company. The proper approach of the Court to determining this question where no issue is raised as to the honesty of the directors, following the review of the relevant law by Fennelly J. in Mitek Holdings Ltd. and the Companies Acts [2010] IESC 31, [2010] 3 I.R. 374, and earlier decisions, has been set out by me at paras. 13 to 15 inclusive of the judgment I delivered in the matter of Derbar Developments Ltd. (In Liquidation) [2012] IEHC 144, and subsequently repeated in Abington Doors [2014] IEHC. I do not propose setting it out in full again in this judgment. Suffice to say for the facts of this application that the Court must look at the entire tenure of the respondents as directors; the Court must be careful not to judge the actions of the respondents with the benefit of hindsight; and the Court should consider the extent to which the directors have displayed a lack of commercial probity or want of proper standards, particularly in the period leading up to the making of the winding up order or after it became or should have become apparent that the Company was insolvent. The Court must also have regard to the extent to which the respondents have not complied with obligations imposed on them as directors by the Companies Acts 1963 to 2012.

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