Director of Corporate Enforcement v Brennan

• Jurisdiction: Ireland
• Judge: Mr. Justice Roderick Murphy
• Judgment Date: 22 April 2008
• Neutral Citation: [2008] IEHC 132
• Court: High Court
• Date: 22 April 2008

[2008] IEHC 132

THE HIGH COURT

[No. 266 COS/2005]

Director of Corporate Enforcement v Brennan

IN THE MATTER OF NATIONAL IRISH BANK LIMITED

IN THE MATTER OF NATIONAL IRISH BANK

FINANCIAL SERVICES LIMITED

IN THE MATTER OF THE COMPANIES ACTS 1963 TO 2003

AND IN THE MATTER OF AN APPLICATION BY

THE DIRECTOR OF CORPORATE ENFORCEMENT

PURSUANT TO SECTION 160(2) OF THE COMPANIES ACT 1990

BETWEEN/

THE DIRECTOR OF CORPORATE ENFORCEMENT

APPLICANT

AND

FRANK BRENNAN

RESPONDENT

NATIONAL IRISH BANK LTD & NATIONAL IRISH BANK FINANCIAL SERVICES LTD, RE; DIRECTOR OF CORPORATE ENFORCEMENT v D'ARCY 2006 2 IR 163

NATIONAL IRISH BANK LTD & NATIONAL IRISH BANK FINANCIAL SERVICES LTD, RE; DIRECTOR OF CORPORATE ENFORCEMENT v SEYMOUR UNREP MURPHY 20.3.2007 2007 IEHC 102

NATIONAL IRISH BANK LTD & NATIONAL IRISH BANK FINANCIAL SERVICES LTD, RE; DIRECTOR OF CORPORATE ENFORCEMENT v CURRAN UNREP MURPHY 23.5.2007 2007 IEHC 181

OFFICE OF THE DIRECTOR OF CORPORATE ENFORCEMENT REPORT ON INVESTIGATIONS INTO THE AFFAIRS OF NATIONAL IRISH BANK LTD & NATIONAL IRISH BANK FINANCIAL SERVICES LTD BY HIGH COURT INSPECTORS 2004

FINANCE ACT 1986 PART IV

COMPANIES ACT 1990 S160(2)(b)

COMPANIES ACT 1990 S160(2)(d)

COMPANIES ACT 1990 S160(2)(e)

INDUSTRIAL & PROVIDENT SOCIETIES ACT 1893

INDUSTRIAL & PROVIDENT SOCIETIES (AMDT) ACT 1978

COMPANIES ACT 1990 S160(7)

SAVINGS CERTIFICATES ( FIFTH ISSUE EXTENSION) RULES 1986 SI 86/1986

CRIMINAL JUSTICE ACT 1994

COMPANIES ACT 1990 S160

COUNTYGLEN PLC v CARWAY 1998 2 IR 540

LO-LINE ELECTRIC MOTORS LTD & ORS, RE 1988 CH 477

COMPANIES ACT 1985 S300 (UK)

DIRECTOR OF CORPORATE ENFORCEMENT v MCGOWAN UNREP LAFFOY 24.2.2005 2005/16/3245 2005 IEHC 41

LA MOSELLE CLOTHING LTD v SOUALHI 1998 2 ILRM 345

SQUASH (IRL) LTD, RE 2001 3 IR 35

NEWCASTLE TIMBER LTD & ABWOOD LRD, IN RE 2001 4 IR 586

CAHILL (OFFICIAL LIQUIDATOR) v GRIMES 2002 1 IR 372

CAHILL (OFFICIAL LIQUIDATOR) v GRIMES UNREP SMYTH 20.7.2001 2001/3/652

DAWSON PRINT GROUP LTD, RE 1987 3 BCC 322 1987 BCLC 601

GRAYAN BUILDING SERVICES LTD, IN RE 1995 CH 241 1995 3 WLR 1

COMPANIES ACT 1948 S455 (UK)

ANSBACHER (CAYMAN) LTD; DIRECTOR OF CORPORATE ENFORCEMENT v COLLERY 2007 1 IR 580

VEHICLE IMPORTS LTD, IN RE UNREP HIGH COURT MURPHY 23.11.2000 2000/17/6574

BARINGS PLC (NO 6), IN RE; SECRETARY OF STATE FOR TRADE & INDUSTRY v BAKER (NO 6) 1999 1 BCLC 433

DANIELS v ANDERSON 1995 16 ACSR 607

WESTMID PACKAGING SERVICES LTD, SECRETARY OF STATE FOR TRADE & INDUSTRY v GRIFFITHS & ORS 1998 2 BCLC 646

GODWIN WARREN CONTROL SYSTEMS PLC 1993 BCLC 80

ROGERS & BARNROE LTD v MALONEY & ORS UNREP O'LEARY 21.12.2005 2005/53/11063 2005 IEHC 433

KENTFORD SECURITIES, RE; DIRECTOR OF CORPORATE ENFORCEMENT v MC CANN UNREP PEART 23.1.2007 2007 IEHC 1

Abstract:

Company law - disqualification - NIB - ODCE - Bogus non resident account holders - Role of General Manager - Organisational structure - Findings of inspectors -Responsibility - Improper charging of fees - Breach of duties - S. 160 Companies Act 1990

Facts: The applicant sought orders pursuant to s. 160 of the Companies Act 1990 against the respondent for his failures in the management of NIB and the findings of inspectors appointed under the Companies Acts as regards bogus non-resident account holders and the overcharging of customers. The applicant was a senior management figure in the organisation.

Held by Murphy J. that the respondent was one of the most senior managers in the Bank over the period of the NIB investigation. He was involved in the central administration of the bank. There was insufficient evidence to show that he was in breach of duty. However, as a result of his failure to supervise and control, it was appropriate to make a disqualification order in respect of him.

Reporter: E.F.

1 Mr. Justice Roderick Murphy dated the 22nd day of April, 2008.

1. Background

2 This application to the courts by the Director of Corporate Enforcement ("the Director") follows the decision of Kelly J. in Re NIB Ltd: Director of Corporate Enforcement v. D'Arcy [2006] 2 I.R. 163 and this Court in Re NIB Ltd: Director of Corporate Enforcement v. Seymour [2007] I.E.H.C. 102 and in Re NIB Ltd: Director of Corporate Enforcement v. Curran [2007] I.E.H.C. 181. The applications followed the Report of Inspectors appointed by the High Court on 30 ^th March, 1998, to investigate the affairs of National Irish Bank Limited (NIB) and National Irish Bank Financial Services Ltd. (NIBFS), (collectively referred to as "the Bank"). That report was published on 23 ^rd July, 2004.

3 The Inspectors, Mr. Justice Blayney and Mr. Tom Grace FCA, had made findings in relation to the knowledge and responsibility of certain senior executives of the Bank.

4 Mr. Brennan was one of the general managers, having been appointed General Manager - Retail Banking in the organisational structure of the Bank, which was put in place in May, 1988, shortly after the appointment of Mr. Lacey as Chief Executive. Prior to that appointment, Mr. Brennan was General Manager (Operations). In both roles, he had charge of the branch network, reporting to the Chief Executive. The respondent held the title of General Manager - Retail Banking until 30 ^th June, 1991. On 1 ^st October, 1990 another person was appointed Head of Retail, reporting directly to the Chief Executive in respect of the branch network. Consequently, from 1 ^st October, 1990, he was no longer directly responsible for the branches, and ceased to be on the circulation list for internal audit reports on branches. These reports identified some irregularities which were the subject of findings by the Inspectors.

5 Mr. Brennan subsequently held a number of other positions within the Bank being as follows:

6 From 1 ^st July, 1991, he became General Manager - Corporate Services, retaining responsibility for management services. Internal audit reported to him in relation to the administrative and operational matters in this role.

7 On 3 ^rd May, 1993, his title changed to General Manager - Administration, where he assumed responsibility for the treasury and international department, in addition to his existing duties.

8 In March, 1996 the respondent's title changed to General Manager - Risk Management and Administration and in May, 1997 his role was changed to Head of Risk and Administration.

9 The respondent was a director of NIBFS during the period which is the subject of the Inspectors' inquiry.

2. Findings of the Inspectors regarding bogus non-resident accounts

2.1 Findings in respect of the Bank

10 2 2.1.1 Bogus non-resident deposit accounts were opened and maintained by the Bank and were widespread in the branch network during the period the subject of the investigation.

11 3 2.1.2 The opening and maintenance of such accounts by the Bank constituted an unlawful and improper practice which served to encourage the evasion of revenue obligations by third parties, both on the funds deposited and on the interest earned.

12 4 2.1.3 Up to May, 1995 senior bank management failed to inform the branch staff in clear terms of the relevant provisions of the Finance Act 1986. Part IV of the 1986 Act, entitled Interest Payments by Certain Deposit Takers, provides for the deduction by the deposit taker - the Bank - of tax from interest due to deposit holders resident in the State. Non-resident deposits had to be treated as deposits in respect of which DIRT had to be deducted from the interest unless the banks were satisfied that the person beneficially entitled to the deposit was non-resident. The Inspectors found that senior Bank management failed to have a review conducted at that time to ensure that all existing non-resident accounts were genuine.

13 5 2.1.4 At branch level, the Bank failed to deduct DIRT from bogus non-resident accounts and from non-resident accounts where the Bank did not hold a properly completed the declaration in a form prescribed or authorised by the Revenue Commissioners.

14 6 2.1.5 Although senior management were aware of the existence of bogus non-resident accounts, the Bank failed to account to the Revenue Commissioners for the DIRT properly payable on the interest paid or credited on such accounts.

2.2 Responsibility of the Respondent

15 As General Manager - Retail Banking between May, 1988 and June, 1991, one of Mr. Brennan's responsibilities was to ensure that the branches had full and accurate instructions with regard to deducting retention tax from interest on deposits, and to ensure that appropriate procedures were in place to implement the instructions. This tax was introduced in the Finance Act 1986. Genuine non-resident accounts were exempt from Deposit Interest Retention Tax (DIRT).

16 Between July, 1991 and March, 1998, Mr. Brennan continued to be responsible for procedures in the branches and for ensuring that there was an appropriate system in place for compliance with the DIRT regime.

17 The Inspectors found that he failed to inform the branches prior to May, 1995 of the requirement of the Finance Act 1986 in relation to the deduction of DIRT and that he failed to discharge his responsibility of ensuring that proper procedures were in place in the branches to secure compliance with the statutory provisions for the operation of DIRT-exempt non-resident accounts.

18 The Inspectors found that Mr. Brennan had been made aware, through internal audit reports, of the deficiencies or irregularities which existed in the operation of DIRT-exempt non-resident accounts at branches. The majority of such reports referred to the failure of branches to hold properly completed declarations for all accounts classified as DIRT-exempt non-resident accounts.

19 Some of the branch audit reports received by the Inspectors when Mr. Brennan was on the circulation list referred to non-resident accounts linked to...