Director of Corporate Enforcement -v- Bailey & Anor, [2007] IEHC 365 (2007)

Docket Number:2006 282 COS
Party Name:Director of Corporate Enforcement, Bailey & Anor
Judge:Irvine J.
 
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THE HIGH COURT [2006 No. 282 COS]

IN THE MATTER OF BOVALE DEVELOPMENTS LIMITED AND

IN THE MATTER OF THE COMPANIES ACTS 1963 - 2005 AND

IN THE MATTER OF AN APPLICATION PURSUANT TO SECTION 160(2) OF THE COMPANIES ACT, 1990

BETWEEN/THE DIRECTOR OF CORPORATE ENFORCEMENT APPLICANT AND

MICHAEL BAILEY AND THOMAS BAILEY RESPONDENTSJudgement of Ms. Justice Irvine delivered on the 1st day of November 2007

By formal notice delivered herein on the 29th June, 2006, the respondents, who are directors of Bovale Developments Limited ("Bovale"), were notified that the Director of Corporate Enforcement ("Director"), intended to institute proceedings seeking, inter alia, to disqualify them as directors pursuant to s. 160(2) of the Companies Act, 1990 (as amended by ss. 14 and 42 of the Company Law Enforcement Act, 2001).

The originating notice of motion was delivered on 8th August, 2006 and is grounded upon two affidavits, namely the affidavit of Mr Peter Lacy, a partner in PriceWaterhouse Coopers ("PWC"), sworn on the 30th June, 2006, and the affidavit of Mr. Dermot Madden, an officer with the Director of Corporate Enforcement sworn on the 8th August, 2006. The affidavit of Mr. Lacy relates principally to investigations carried out by his firm, ("PWC"), in relation to the affairs of Bovale at the instigation of the applicant.

Shortly after the issue of these proceedings, the respondents issued a notice of motion dated the 22nd November, 2006, seeking to curtail the evidence put forward by the applicant in the grounding affidavits. In simple terms the relief sought by the respondents in their notice of motion can be stated to cover three particular objections, namely:-

(1) the admissibility of certain aspects of the evidence upon which the applicant seeks to rely.

(2) an allegedly impermissible and unlawful delegation by the applicant of his functions to PWC pursuant to the Company Law Enforcement Act, 2001 and

(3) the validity of a District Court production order dated the 22nd November, 2002.

The applicant fully contests the legal basis upon which the respondents' seek the relief set out in the notice of motion and further submit that irrespective of the legal merits of the respondents' objections, their application is premature.

I propose to deal with the issues raised for the Court's attention in the following order namely:

  1. A brief summary of the objections made by the respondents to the applicant's claim.

  2. Preliminary observations.

    3 Whether or not the respondents' application is premature.

  3. The admissibility of the evidence objected to by the respondents.

    5 The lawfulness of the delegation of the applicant's functions to PWC under the Corporate Enforcement Act, 2001.

    6 The validity of the District Court warrant dated the 22nd November, 2002.

  4. Brief summary of the respondents' objections to the applicant's proceedings.

    (

    1. Evidence.

    The respondents seek to challenge the admissibility of certain aspects of the evidence put before the court in the affidavits of Mr. Lacy and Mr. Madden. The evidence which is objected to by the respondents as inadmissible is identified at paras. 1 - 5 of the notice of motion. In support of their application the respondents rely, not only upon the Court's inherent jurisdiction but also on the provisions of O. 40, rr. 4 and 12 and O. 19, r. 27 of the Rules of the Superior Courts.

    The evidence to which the respondents object can be synopsised as follows:-

    (

    1. Extracts from the second interim report of the Tribunal of Inquiry established to Inquire into Certain Planning Matters and Payments ("the Tribunal Report"). Extracts from the Tribunal Report are set out in the affidavit of Mr. Madden and the entirety of the report of the Tribunal is referred to at para. 10 of Mr. Madden's affidavit "when produced". Mr. Madden refers to paras. 14-43 to 14-63 of the Tribunal Report. These paragraphs contain findings of the Chairperson of the Tribunal of significant wrongdoing on the part of the respondents and one Caroline Bailey.

    It is not necessary to set out in detail the contents of the aforementioned material for the purposes of this judgment. However, I will briefly refer to one paragraph from the Tribunal Report which is exhibited at exhibit "DM11" to the affidavit of Mr Madden, to demonstrate the seriousness of the wrongdoing now contended for by the applicant and which he seeks to introduce into evidence against the respondents:-."14-63. The Tribunal is satisfied that Mrs. Caroline Bailey and the directors of Bovale, Mr. Michael Bailey and Mr. Tom Bailey had for years systematically prepared false documents including cheques, cheque payment journals and books of account when it suited their purpose to do so.

    The evidence established that the underlying methodology used was to falsely attribute an established expenditure to a heading under which the sum was not expended, for example, by entering the name of a legitimate trade creditor in the cheque journal as the payee of a cheque that was in fact lodged to the personal account of the directors." Counsel on behalf of the applicant in the course of the hearing and further at para. 56 of his written submission has advised the Court that the findings of the Tribunal are not sought to be relied upon on their own but rather they are to supplement the evidence which is provided as a result of the Director's own investigations.

    (b) Documentation emanating from the Revenue Commissioners and directed for the attention of the Director of Corporate Enforcement which documentation is exhibited at exhibit "DM6" to the affidavit of Mr. Madden.

    The aforementioned documentation imparted to the applicant the views of a Mr. Aidan Nolan, Principal Officer in the Revenue Commissioners that the directors of Bovale, for the reason stated in a confidential report, may have committed offences under the Companies Acts.

    (c) A H4 notice signed by McGrath & Co., Chartered Accountants, who were the auditors to Bovale and which notice is dated the 28th July, 2000. This is a notice filed pursuant to s. 194 of the Companies Act, 1990 and records the opinion of the company's auditors that Bovale failed to keep proper books of account. This was notified to the company's offices on the 28th July, 2000. The notice which is exhibited at "DM4" relates to the accounts of Bovale for the years ended 30th June, 1997, and 30th June, 1998.

    (d) Two hand written memoranda prepared by a Mr. O'Toole of McGrath & Co., Chartered Accountants, copies of which were on the audit files of Bovale and allegedly record a meeting he had with the respondents on the 26th July, 2000, for the purpose of finalising accounts for the year ended 30th June, 1997. The memoranda set out certain information which it is stated by Mr. Lacy, at para. 17 of his affidavit, caused Mr O'Toole to conclude that proper books of account had not been adequately maintained by the respondents. These memoranda are exhibited at "PL5" to Mr. Lacy's affidavit.

    (B) Delegation.

    The affidavit grounding these proceedings on behalf of the Director of Corporate Enforcement avers that PWC acted as an officer on his behalf to assist him in performing his functions under s. 12(6) of the Company Law Enforcement Act, 2001. The respondents submit that PWC was not lawfully entitled to act as an officer of the Director and accordingly that PWC has acted without authority in obtaining documentation which it is alleged was used by PWC for the purpose of preparing the reports exhibited at "PL1" and "PL2" to Mr. Lacy's affidavit.

    (C) Production Order.

    The respondents contend that a production order (referred to in the written submissions to the court as a warrant) issued by the District Court pursuant to s. 63 of the Criminal Justice Act, 1994 is invalid. The Court, by agreement between the parties, has not been asked to determine what if any consequences flow from a finding that the production order was invalidly obtained.

  5. Preliminary Observations.

    Prior to embarking upon a consideration of the respondents' application it is relevant to briefly refer to exhibit "DM11", the affidavit of Mr. Madden sworn on the 8th August, 2006. This is the statutory notice that must be served in accordance with s. 160(7) of the Companies Act, 1990 prior to the institution of proceedings under s. 160(2). The extent of the applicant's potential reliance upon the wrongdoing particularised in this notice for the purposes of these proceedings is to be gleaned from para. 29 of Mr. Madden's affidavit where he deposes as follows:-"This notice includes inter alia the details of the grounds of the intended application to the court under s. 160 of the Act. The respondents were invited to make any representations which they wished regarding the said notice which was stated to particularise the misconduct and material breaches of law to be relied upon by the Director in the s. 160 proceedings." The affidavits of Mr. Lacy and Mr. Madden make it clear that the applicant invites the Court to consider the documentation exhibited in the grounding affidavits as evidence of wrongdoing for the purposes of deciding whether or not the respondents ought to be disqualified as directors pursuant to s. 160(2) of the Companies Act, 1990 and also to influence the court as to the sanction to be imposed in the event of such disqualification.

    As a further preliminary observation, the Court notes that the two reports of PWC which are exhibited in Mr. Lacey's affidavit demonstrate that PWC confined its investigations to a thorough analysis of the financial affairs of Bovale for the two years ending the 30th June, 1997, and 30th June, 1998. Notwithstanding this fact the applicant, for the purposes of his application under s. 160(2) of the Companies Act, 1990 seeks to invoke the Court's jurisdiction in respect of wrongdoing covering the entirety of the period from 1988 to 2000 based upon much of the documentation which the respondents allege constitutes inadmissible hearsay...

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