Director of Corporate Enforcement v Brendan Walsh and Others

• Jurisdiction: Ireland
• Judge: Mr. Justice Barrett
• Judgment Date: 23 July 2014
• Neutral Citation: [2014] IEHC 365
• Court: High Court
• Docket Number: [No. 141 COS/2014]
• Date: 23 July 2014

[2014] IEHC 365

THE HIGH COURT

[No. 141 COS/2014]

Director of Corporate Enforcement v Walsh

IN THE MATTER OF WALFAB ENGINEERING LIMITED AND IN THE MATTER OF R.P.B. PRODUCTS LIMITED AND IN THE MATTER OF SECTION 160 OF THE COMPANIES ACT 1990

BETWEEN/

THE DIRECTOR OF CORPORATE ENFORCEMENT

APPLICANT

AND

BRENDAN WALSH AND CATHERINE WALSH AND PATRICK WALSH

RESPONDENTS

COMPANIES ACT 1990 S160(2)(H)

COMPANIES (AMDT) ACT 1982 S12

COMPANIES (AMDT) ACT 1982 S12(1)

CLAWHAMMER LTD, IN RE; DIRECTOR OF CORPORATE ENFORCEMENT v MCDONNELL & ENDICOTT 2005 1 IR 503 2005/16/3304 2005 IEHC 85

COMPANIES ACT 1990 S160

COMPANIES ACT 1990 S160(2)

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

NEWCASTLE TIMBER LTD & ABWOOD LTD (IN LIQUIDATION), IN RE; MALONEY v SMULLEN 2001 4 IR 586 2001/17/4693

CB READYMIX LTD (IN LIQUIDATION), IN RE; CAHILL v GRIMES 2002 1 IR 372 2002/5/1025

KENTFORD SECURITIES LTD (UNDER INVESTIGATION), IN RE; DIRECTOR OF CORPORATE ENFORCEMENT v MCCANN 2011 1 IR 585 2010/12/2830 2010 IESC 59

COMPANIES ACT 1990 S160(9A)

COMPANIES ACT 1990 S150

COMPANIES ACT 1990 S150(2)

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

HUNTING LODGES LTD (IN LIQUIDATION), IN RE 1985 ILRM 75 1984/7/2295

Company law - s. 160(2) (h) of the Companies Act 1990 - Disqualification order - Economic downturn - Failing to make annual returns - Struck off the register of companies instead of going through a formal liquidation process - Strike off process under s.12 of the Companies (Amendment) Act 1982 - Discretion of the High Court

Facts The Director of Corporate Enforcement sought pursuant to s. 160(2) (h) of the Companies Act 1990, a disqualification order in respect of each of the respondents. A disqualification order is a severe measure that prevents an affected person from having any involvement whatsoever in the promotion, formation or management of any company for the duration of the disqualification period. The respondents were directors of companies that got into financial difficulties during the economic downturn. They allowed their companies to be struck off the register instead of going through a formal liquidation process. The strike out process is available to the registrar of companies under s.12 of the Companies (Amendment) Act 1982. Section 12(1) establishes a process whereby the registrar may strike off a company that is in breach of its annual return requirements. A striking off such as this has a particularly significant impact on the creditors of the insolvent company, as pointed out by Finlay Geoghegan J. in Re Clawhammer Limited; Director of Corporate Enforcement v. McDonnell and others [2005] 1 I.R. 503 at p.510. The respondents were the directors of two companies, Walfab Engineering Limited and RPB Products Limited. Walfab was a metal fabrication and manufacturing company. RPB imported and installed prefabricated stairways. The three respondents were the directors of Walfab, whereas only Messrs, Brendan and Patrick Walsh were the directors of RPB. Walfab started trading in 1992 and was steadily more successful until the effective collapse of the construction industry in 2008. It lost all of its employees and the company ceased trading. RPB suffered a similar fate post-2008. On 22nd May, 2011, Walfab was struck off the register of companies pursuant to s. 12(1) of the Companies (Amendment) Act 1982. RPB was struck off on the same basis on 30th September, 2012. The High Court was afforded discretion to determine whether a disqualification order, under s.160 of the 1990 Act, should be imposed and for how long. The consequences of a disqualification order are very severe for the person against whom it is issued that the courts tend not to issue such orders.

Held The court found that the situation described in s. 160(2) (h) arose in respect of each of the respondents and therefore each was subjected to a potential disqualification order being made against him or her. With regards discretion of the court, the judge considered the relevant factors: the scale of enterprise and qualifications of the directors, the context in which director transgressions occurred and the past behaviour of the respondents.The judge considered the intention of the Oireachtas and said, in terms of context, referring to the impact the recession has had on companies, that when such mitigating factors arise, the Oireachtas, in s.160(2), entrusts the court with a discretion as to whether and for how long a disqualification order should be issued. The judge went onto say apart from the failure as regards the submission of annual returns which led to the eventual strike-offs, there was no other misconduct on the part of any of the respondents as directors during their relatively long tenure as directors.

-The court did not consider it appropriate to issue a disqualification order against any of the respondents. -The court was entitled under s. 160(9A) to make a restriction order under s.150 of the 1990 Act, however did not do so as no issue arose as to the honesty of the respondents and the respondents' various actions were not of such a category as would merit them being described as less than responsible.

Mr. Justice Barrett

1 This is yet another case that arrives before the courts following the economic downturn that beset the nation in 2008 and continued in the years following. In this case the Director of Corporate Enforcement is seeking, pursuant to s. 160(2)(h) of the Companies Act1990, as amended, a disqualification order in respect of each of the respondents. A disqualification order is a severe measure that prevents an affected person from having any involvement whatsoever in the promotion, formation or management of any company for the duration of the disqualification period. So what did the respondents do that the Director of Corporate Enforcement considers them to merit such censure? They were respectively the directors of one or more companies that got into financial difficulties post-2008 and which they allowed to be struck off the register of companies instead of going through a formal liquidation process. The relevant 'strike off process is available to the registrar of companies under s.12 of the Companies (Amendment) Act 1982, as amended, which provides that:-

2 2 "(1) Without prejudice to the generality of section 311 of the Principal Act, where a company does not, for one or more years, make an annual return required by section 125 or 126 of the Principal Act, the registrar of companies may send to the company by post a registered letter stating that, unless all annual returns which are outstanding are delivered to him within 1 month of the date of the letter, a notice will be published in the Companies Registration Office Gazette with a view to striking the name of the company off the register.

3 (2) If the registrar of companies either receives an answer to the effect that the company is not carrying on a business, or does not within 1 month after sending the letter receive all annual returns which are outstanding, he may publish in the Companies Registration Office Gazette a notice stating that, at the expiration of 1 month from the date of that notice, the name of the company mentioned therein will, unless all outstanding returns are delivered to the registrar, be struck off the register, and the company will be dissolved.

4 (3) Subject to subsections (1) and (2) of section 12B of this Act, at the expiration of the time mentioned in the notice, the registrar of companies may, unless cause to the contrary is previously shown by the company, strike its name off the register, and shall publish notice thereof in the Companies Registration Office Gazette and on the publication in the Companies Registration Office Gazette of this notice, the company shall be dissolved."

5 2. In essence, s. 12(1) establishes a process whereby the registrar may strike off a company that is in breach of its annual return requirements. This may seem a venial transgression, certainly by reference to some of the abuses that one sees reported in the company law arena. However, such a strike-off has a particular significance for the creditors of an insolvent company, as was noted by Finlay Geoghegan J. in Re Clawhammer Limited; Director of Corporate Enforcement v. McDonnell and others [2005] 1 I.R. 503 at p.510, when she stated that:-

"There is potential prejudice to creditors of an insolvent company if the directors, by default, permit it to be struck off the register rather than taking steps to wind it up. In such circumstances such assets of the company as remain are not applied, as a matter of course, in the discharge of creditors according to statutory priorities. Even directors who seek to discharge liabilities of the company may do so in accordance with their own preferences and possible perceived future commercial needs or future commercial intentions or to escape liabilities under guarantees. It also may be of benefit to the directors in the sense of escaping the scrutiny of their conduct of the company's affairs which might follow an investigation by a liquidator including the possibility of being fixed with personal liability for liabilities of the company in circumstances where same is mandated by the Companies Acts. Accordingly, I...