Director of Corporate Enforcement v Patrick McGowan and Patricia McGowan

• Jurisdiction: Ireland
• Judge: Mr. Justice Roderick Murphy
• Judgment Date: 26 May 2008
• Neutral Citation: [2008] IEHC 149
• Court: High Court
• Date: 26 May 2008

[2008] IEHC 149

THE HIGH COURT

No. 273 COS/2005

Director of Corporate Enforcement v Byrne

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

PATRICK BYRNE

RESPONDENT

COMPANIES ACT 1990 S160(2)

COMPANIES ACT 1990 S160

FINANCE ACT 1986 CHAP IV PART I

FINANCE ACT 1986 S32(2)

FINANCE ACT 1986 S32(1)

FINANCE ACT 1986 S160(2)(e)

VEHICLE IMPORTS LTD (IN LIQUIDATION) UNREP MURPHY 23.11.2000 2000/17/6574

NATIONAL IRISH BANK LTD: DIRECTOR OF CORPORATE ENFORCEMENT v SEYMOUR UNREP MURPHY 20.3.2007 2007 IEHC 102

NATIONAL IRISH BANK LTD: DIRECTOR OF CORPORATE ENFORCEMENT v CURRAN UNREP MURPHY 23.5.2007 2007 IEHC 181

NATIONAL IRISH BANK LTD: DIRECTOR OF CORPORATE ENFORCEMENT v BRENNAN UNREP MURPHY 22.4.2008 2008 IEHC 132

TRALEE BEEF & LAMB LTD (IN LIQUIDATION): KAVANAGH v DELANEY & ORS UNREP SUPREME 2008 IESC 1

BARINGS PLC (NO 6), IN RE; SECRETARY OF STATE FOR TRADE & INDUSTRY v BAKER (NO 5) 1999 1 BCLC 433

COMPANIES ACT 1990 S160(2)(d)

ANSBACHER, RE: DIRECTOR OF CORPORATE ENFORCEMENT v COLLERY 2007 1 IR 580

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

COMPANIES ACT 1990 S160(2)(f)

COMPANY LAW ENFORCEMENT ACT 2001 S42(b)(i)

Abstract:

Company law - Disqualification - ODCE - NIB report - Head of Finance - lack of commercial probity - length of disqualification - Companies Act 1990

Company law - Disqualification - Responsibilities of respondent - Findings of inspectors - Whether responsibility for improper practices rested with senior management - Companies Act 1990, s. 160(2)

The Court appointed inspectors to investigate the affairs of National Irish Bank (“the Bank”) and concluded that the Bank was involved in a number of improper practices in relation to inter alia the maintenance of bogus non-residence accounts and fictitious named accounts enabling customers to evade tax. The respondent held a senior management position in the Bank and the Director of Corporate Enforcement sought an order pursuant to s. 160(2) of the Companies Act 1990 disqualifying the respondent from inter alia being any way either directly or indirectly concerned or taking part in the promotion, formation or management of any company.

Held by Murphy J. in making a disqualification order that the inspectors found that the respondent was either primarily responsible, or had some responsibility, for the Bank’s failure to deal adequately with four of the five practices indicated by the inspectors. Responsibility required effective control and resolution of non-compliance. Once he accepted a senior position, the respondent had a responsibility to acquaint himself with the functions of branch offices. The failure by a senior manager was particularly serious in a licensed bank which occupied a unique position of trust with its customers and creditors and which was required to adhere to the highest possible standards of conduct.

Facts The Court appointed inspectors to investigate the affairs of National Irish Bank (“the Bank”) and concluded that the Bank was involved in a number of improper practices in relation to inter aliathe maintenance of bogus non-residence accounts and fictitious named accounts enabling customers to evade tax. The respondent held a senior management position in the Bank and the Director of Corporate Enforcement sought an order pursuant to s. 160(2) of the Companies Act 1990 disqualifying the respondent from inter alia being any way either directly or indirectly concerned or taking part in the promotion, formation or management of any company.

Held by Murphy J. in making a disqualification order that the inspectors found that the respondent was either primarily responsible, or had some responsibility, for the Bank’s failure to deal adequately with four of the five practices indicated by the inspectors. Responsibility required effective control and resolution of non-compliance. Once he accepted a senior position, the respondent had a responsibility to acquaint himself with the functions of branch offices. The failure by a senior manager was particularly serious in a licensed bank which occupied a unique position of trust with its customers and creditors and which was required to adhere to the highest possible standards of conduct.

1 Judgment of Mr. Justice Roderick Murphy dated 26th May, 2008

1. The Director's application

2 The application by the Director of Corporate Enforcement (the Director) for an order of disqualification of Mr. Byrne pursuant to s. 160 of the Companies Act 1990 is based on findings in a report (published on 23 ^rd July, 2004) of Inspectors appointed by the court on 30 ^th March, 1998 and 15 ^th June, 1998, to investigate National Irish Bank Limited and National Irish Bank Financial Services Limited (the Bank).

3 Mr. Byrne was Head of Finance and Strategy of National Irish Bank, having been appointed on 11 ^th April, 1994 and served in that position until May, 1998. His title subsequently became Head of Finance and Planning. Mr. Gerry Hunt had held the position of Head of Finance and Strategy until 31 ^st December, 1993, some three months before the appointment of Mr. Byrne.

4 An audit of Deposit Interest Retention Tax (DIRT) compliance by National Irish Bank entitled "DIRT Theme Audit - December 1994", was circulated in draft form to Mr. Byrne and to Mr. Keane, General Manager - Banking. It was circulated to Mr. Seymour, the then Executive Director and to Mr. Halpin, Head of Treasury and International and issued on 24 ^th January, 1995.

5 A critical meeting of senior managers was held in relation to the DIRT Theme Audit on 9 ^th February, 1995.

6 The DIRT Theme Audit Report disclosed that there was a lack of clear and concise guidelines on DIRT compliance issues in relation to non-resident and special savings accounts.

7 It is necessary to establish the findings of the Inspectors regarding the responsibility and knowledge of the Bank's Internal Audit, the external auditors, the Audit Committee of the Board and the Board of Directors of the Bank, as well as that of Mr. Byrne, given his functions as Head of Finance and Planning.

2. The Inspectors' report

8 2 2.1 The order of the High Court appointing the Inspectors to investigate the affairs of the Bank between 1988 and 1998 required them to report on the identity of those responsible for or aware of the practices being investigated. The Inspectors' findings in relation to this are dealt with in chapter 8 under the heading of "Improper Practices: Knowledge and Responsibility".

9 3 2.2 The Inspectors had not considered it relevant to comment on the knowledge of employees of the Bank who were in positions subordinate to that of manager, as, while junior officials may have been aware of the existence of practices which were improper, they were not in a position to effect change and so could not be held to have any responsibility for their existence.

10 4 2.3 The Inspectors accepted that it was not the function of Internal Audit to correct improper practices or deficiencies in procedures discovered by them.

11 5 2.4 The Inspectors considered the position of the external auditors from 1990. The external auditors, KPMG, were aware of and placed reliance on the work of Internal Audit which they concluded was competent. The auditors were satisfied that, insofar as Internal Audit identified the matters being investigated by the Inspectors, the issues were being reported to management and to the Audit Committee.

12 The external auditors received a copy of the DIRT Theme Audit Report and it was considered by them when conducting their audit of the Bank's financial statements for the year ending 30 ^th September, 1995. The Inspectors found that when conducting their audit the external auditors were, accordingly, aware of the conclusion in the DIRT Theme Audit Report that "this is a risk area and the penalties for non-compliance at the level shown in this report will be very significant". Such conclusion put them on notice of a potentially material liability. This, the Inspectors found, should have led the auditors to ask management to quantify the potential retrospective liability to the Revenue Commissioners for DIRT resulting from the findings of the DIRT Theme Audit. They did not seek to have this done. The Inspectors were of the opinion that had the auditors requested that the liability be quantified, this would have emphasised its importance to senior management. It is unlikely that they could have then ignored it, as they did.

13 Other than that, the Inspectors were of the opinion that the judgment of the external auditors was appropriate.

14 2 2.5 The Inspectors considered the operation of the Audit Committee of the Board of Directors and concluded that it dealt satisfactorily with matters the subject of the Inspectors' investigation which were raised by Internal Audit, save in relation to DIRT. The audit, ending February, 1995, was rated "unsatisfactory". Three major audit findings in relation to DIRT were given a high significance rating. It was clear from the findings that both in regard to non-resident accounts and special saving accounts there had been significant failure on the part of the Bank to observe the relevant statutory requirements. The corrective action proposed by Internal Audit and accepted by management did not include any proposal to deal with the issue of the Bank's liability for such arrears of DIRT as might be due in the circumstances. Because of this, the Inspectors found that the Audit Committee ought not to have accepted...