Derbar Developments Ltd (in Liquidation) -v- Companies Act

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan
• Judgment Date: 20 April 2012
• Neutral Citation: [2012] IEHC 144
• Court: High Court
• Date: 20 April 2012

[2012] IEHC 144

THE HIGH COURT

[No. 499 COS/2009]

McGuinness v Dobbin & Lavelle

IN THE MATTER OF DERBAR DEVELOPMENTS LIMITED (IN LIQUIDATION)

AND IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT 1990 (AS AMENDED) AND SECTION 56 OF THE COMPANY LAW ENFORCEMENT ACT 2001

BETWEEN

THOMAS MCGUINNESS

APPLICANT

AND

BARRY DOBBIN AND DEREK LAVELLE

RESPONDENTS

COMPANIES ACT 1963 S214

COMPANY LAW ENFORCEMENT ACT 2001 S56(1)

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

BUSINESS COMMUNICATIONS LTD v BAXTER & PARSONS UNREP MURPHY 21.7.1995 1995/6/1869

LA MOSELLE CLOTHING LTD & ROSEGEM LTD v SOUALHI 1998 2 ILRM 345 1998/23/8886

SQUASH (IRL) LTD, IN RE 2001 3 IR 35 2001/23/6280

SWANPOOL LTD (IN VOLUNTARY LIQUIDATION), IN RE; MCLAUGHLIN v LANNEN 2006 2 ILRM 217 2005/43/8968 2005 IEHC 341

COMPANY LAW

Directors

Restriction - Insolvency - Failure to discharge capital gains liability - Test to be applied - Whether directors acted honestly - Whether directors acted responsibly - Whether other reason why just and equitable to restrict directors - Whether objective standard - Whether directors ensured substantial compliance with Companies Acts obligations - Whether proper books of account maintained - Whether proper financial systems in place - Whether selective discharge of liabilities - Whether directors placed personal interests ahead of company - Whether directors intended to discharge tax liability - Whether insolvency of company a result of unforeseen collapse of property market - Whether court should consider actions of directors in context and time at which occurred - In Mitek Holdings Ltd: Grace v Kachkar [2010] IESC 31, [2010] 3 IR 374 applied; La Moselle Clothing Ltd v Soualhi [1998] 2 ILRM 345, Business Communications Ltd v Baxter (Unrep, Murphy J, 21/7/1995), In re Squash (Ireland) Ltd [2001] 3 IR 35 and McLaughlin v Lannen [2005] IEHC 341, [2006] 2 ILRM 217 followed - Company Law Enforcement Act 2001 (No 28), s 56(1) - Companies Act 1963 (No 33), s 150 - Application refused (2009/499COS - Finlay Geoghegan J - 20/4/2012) [2012] IEHC 144

In re Derbar Developments (in liquidation); McGuinness v Dobbin

1 1. The applicant ("the liquidator") is the official liquidator of Derbar Developments Ltd. (in liquidation) ("the Company"), having been appointed by order of the High Court on 1st December, 2009.

2 2. The respondents were each directors of the Company within the 12 months prior to the commencement of the winding up. The Company is certified by the official liquidator as unable to pay its debts within the meaning of s. 214 of the Companies Act 1963.

3 3. The liquidator furnished a report to the Director of Corporate Enforcement pursuant to s. 56(1) of the Company Law Enforcement Act 2001, on 31st May, 2010. By letter dated 7th October, 2010, he was notified that he was not relieved of his obligation to make an application pursuant to s. 150 of the Companies Act 1990, seeking a declaration of restriction of each of the respondents. This motion issued on 28th October, 2010.

4 4. The Company was incorporated on 22nd January, 2001 (initially under the name of Cadomack Ltd.) and commenced trading in June 2002 when it purchased lands at Westport, County Mayo. It was a property development company. It acquired further lands in Westport and at Nenagh, County Tipperary. In 2006, the lands of the Company in Nenagh were sold for €6,600,000 with a resultant gain of €4,182,651 for the Company. Subsequent to this, the Company became a holding company for three subsidiary companies which it acquired with the proceeds of sale, namely: Westport Coursing Club Ltd., Lionbridge Developments Ltd., and Timber Frame Homes Ltd. The Company also acquired with the proceeds of sale 100% of the issued share capital of Derbar Developments (Westport) Ltd. from the respondents.

5 5. At the time of these acquisitions, Westport Coursing Club Ltd. and Lionbridge Developments Ltd. owned properties and Derbar Developments (Westport) Ltd. also owned sites with houses in the course of construction and nearing completion.

6 6. The liquidator identifies the cause of insolvency of the Company as the crash in the property market and consequent collapse in the value of the lands owned by the subsidiaries. Related to this was a resultant unwillingness by the banks to extend further facilities to the Company or its subsidiaries and their inability to carry out further development work, and in any event, as the liquidator points out, an absence of any purchasers for the property. The proximate cause of the winding up of the Company was the failure of the Company to pay the outstanding balance of the Capital Gains Tax liability on the sale of the Nenagh lands which was at the centre of this application.

7 7. The liquidator, in his report to the Director of Corporate Enforcement, assesses and reports on the performance of the respondents as directors of the Company under twelve headings and makes no real complaint about their performance or discharge of their responsibilities, save in relation to one transaction in relation to the Company's dealing with the Revenue Commissioners. The liquidator takes the view that the failure by the directors to set aside sufficient monies in the summer of 2006 to meet the Capital Gains Tax liability arising on the sale of the Nenagh lands their failure to ensure payment on the due date was irresponsible and such that the Court should now make a declaration of restriction pursuant to s. 150 of the Companies Act 1990.

8 8. The facts relating to the Capital Gains Tax liability and its discharge are not in dispute and in summary were as follows. The sale of the Nenagh lands gave rise to a Capital Gains Tax liability of €836,530. This was due for payment on 31st October, 2006. The Company used all the proceeds of sale for the purchase of subsidiaries and did not make the tax payment on the due date. On 13th March, 2008, it paid €390,831. On 10th June, 2008, it made a further payment of €60,000. The funds to meet these payments were borrowed by the Company from Allied Irish Banks. The borrowings were guaranteed by the respondents personally.

The Law

9 9. Section 150, insofar as relevant, provides:

2 "(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.

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

(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…"

10 10. As appears from the above, the essential question 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 and that there is no other reason why it would be just and equitable that either should be subject to the restrictions imposed by the section.

11 11. On the facts herein, no issue had been raised as to the honesty of either of the respondents by the liquidator. An issue has been raised as to whether they acted responsibly. Further, the liquidator has not raised any other fact which would make it just or equitable that the respondents be subject to the restrictions imposed by section 150. He has, in his report to the ODCE, expressly stated that they cooperated with him in relation to the...