Director of Corporate Enforcement v Byrne

• Jurisdiction: Ireland
• Judge: Denham J.,Mr. Justice Fennelly
• Judgment Date: 23 July 2009
• Neutral Citation: [2009] IESC 57
• Court: Supreme Court
• Date: 23 July 2009

[2009] IESC 57

THE SUPREME COURT

Denham J.

Fennelly J.

Macken J.

[Appeal No: 392 of 2008]

Director of Corporate Enforcement v Byrne

[2009] IESC 57

Between/

The Director of Corporate Enforcement

Applicant/Respondent

and

Patrick Byrne

Respondent/Appellant

IN THE MATTER OF THE COMPANIES ACTS 1963 TO 2003 AND

IN THE MATTER OF NATIONAL IRISH BANK LIMITED AND

IN THE MATTER OF NATIONAL IRISH BANK FINANCIAL SERVICES LIMITED AND

IN THE MATTER OF AN APPLICATION BY THE DIRECTOR OF CORPORATE ENFORCEMENT

COMPANIES ACT 1990 S160(2)

COMPANIES ACT 1990 S160(8)

COMPANIES ACT 1990 S160(2)(B)

COMPANIES ACT 1990 S160(2)(D)

COMPANIES ACT 1990 S8

COMPANIES ACT 1990 S160(2)(E)

COMPANIES ACT 1990 S160

COMPANIES ACT 1990 S150

BUSINESS COMMUNICATIONS LTD v BAXTER & PARSONS UNREP MURPHY 21.7.95 1995/6/1869

NEWCASTLE TIMBER LTD & ABWOOD LTD, IN RE 2001 4 IR 586 2001/17/4693

CAHILL v GRIMES 2002 1 IR 372 2002/5/1025

LO-LINE ELECTRIC MOTORS LTD, IN RE 1988 BCLC 698 1988 CH 477 1988 3 WLR 26 1988 2 AER 692

FINANCE ACT 1986 S37

FINANCE ACT 1986 S32

OXFORD ENGLISH DICTIONARY 2ED VOL 12

COMPANIES ACT 1990 S160(1)

COMPANY LAW ENFORCEMENT ACT 2001 S42

DIRECTOR OF CORPORATE ENFORCEMENT v MCGOWAN UNREP SUPREME 6.5.2008 2008/13/2839 2008 IESC 28

SEVENOAKS STATIONERS (RETAIL) LTD, IN RE 1991 CH 164 1990 3 WLR 1165 1991 3 AER 578

SECRETARY OF STATE FOR TRADE & INDUSTRY v BAKER (NO 5) 1999 1 BCLC 433

COMPANIES ACT 1990 S160(7)

COMPANY LAW

Directors

Disqualification - Necessary proofs for successful application - Criteria by which court should exercise discretion conferred on it - Whether conduct of person such as to make him unfit to be concerned in management of company - Cahill v Grimes [2002] 1 IR 372 and Re NIB Ltd: Director of Corporate Enforcement v D'Arcy [2006] 2 IR 163 applied; Business Communications Ltd v Baxter (Unrep, Murphy J, 21/7/1995) and Re Newcastle Timber Ltd (in liq) [2001] 4 IR 586 approved - Companies Act 1990 (No 33), s 160(2)(e) - Respondent's appeal allowed (392 & 397/2008 - SC - 23/7/2009) [2009] IESC 57

Re NIB Ltd: Director of Corporate Enforcement v Byrne

Facts section 160(2) of the Companies Act 1990 provides, inter alia, that "where the court is satisfiedthat(e) in consequence of a report of inspectors appointed by the court or the Minister under the Companies Acts, the conduct of any person makes him unfit to be concerned in the management of a company; the court may make a disqualification order against such a person for such period as it sees fit." Inspectors appointed to investigate and report upon the affairs of National Irish Bank in relation to the evasion of tax on interest on accounts held therein applied to the High Court for an order under section 160 of the Act of 1990 disqualifying the respondent. The High Court found that there had been no evidence of gross negligence or total incompetence, nor of him being a danger to the public. It then found that the conduct of the respondent displayed a lack of commercial probity on the basis that he failed to raise the issue of a potential retrospective liability for DIRT due in respect of interest on accounts wrongly classified as exempt and made an order pursuant to section 160 disqualifying him from being concerned in the promotion, formation or management of any company. The respondent appealed that decision to the Supreme Court.

Held by the Supreme Court (Denham J) in allowing the appeal that, in deciding whether to make a disqualification order, the factors which had to be considered were:-

1. That the conduct necessary to justify the making of a disqualification order had to be much more grave and blameworthy than the conduct which justified a restriction order;

2. That incompetence, even when occurring with irresponsibility, was not sufficient to ground a disqualification order;

3. That the conduct necessary to justify a disqualification order had to be manifestly more blameworthy than merely failing to exercise an appropriate degree of responsibility. Commercial misjudgment was not sufficient. The conduct complained of had to display a lack of commercial probity, although in an extreme case of gross negligence or total incompetence, disqualification could be appropriate. Probity was used in the sense of dishonesty or lack of integrity;

4. That the primary purpose of a disqualification order was not to punish the individual but to protect the public against the future running of companies by persons whose past records have shown them to be a danger to creditors and others;

5. That the court should take into account the entire history of the person in question and not just the alleged acts of wrongdoing in isolation;

6. That the matter was not to be judged with the benefit of hindsight;

7. That the court retained a discretion in deciding whether to make the order, which discretion had to be exercised proportionately and could be informed by the fact that the effect of an order could be greater on a professional person;

8. That the substantial burden of establishing that an order was warranted rested on the Director of Corporate Enforcement.

Cahill v. Grimes [2002] 1 I.R. 372 adopted and applied.

Reporter: P.C.

1 23rd day of July, 2009 by Denham J.

Denham J.

2 Judgments delivered by Denham J. Fennelly J.

3 1. This is an appeal by Patrick Byrne, the respondent/appellant, referred to in this judgment as "the appellant", from a judgment of the High Court (Murphy J.) delivered on the 26 ^th day of May, 2008, and from an order made on the 31 ^st July, 2008. It was ordered, pursuant to s.160(2) of the Companies Act, 1990, that the appellant be disqualified for a period of four years from being appointed or acting as an auditor, director, or other officer, receiver, liquidator or examiner or being in any way, whether directly or indirectly, concerned or taking part in the promotion, formation or management of any company or any society registered under the Industrial and Provident Societies Act 1893 to 1978. However, it was also ordered, under s.160(8) of the Companies Act, 1990, that the appellant be permitted to continue to act as a director of and be involved in the management of Business Consultancy & Advisory Services Limited Company, a company which he had set up and through which he provided consultancy services, with effect from the 31 ^st July, 2008.

4 2. The Director of Corporate Enforcement, the applicant/respondent, referred to in this judgment as "the Director", has cross appealed from the failure to make orders under s.160(2)(b) and (d).

5 3. This application by the Director was brought to the High Court after the publication of the "Report of the Inspectors Appointed (Under Section 8 of the Companies Act 1990) to Investigate the Affairs of National Irish Bank Limited and National Irish Bank Financial Services Limited", referred to in this judgment as "the Inspectors' Report". The Inspectors' Report was published by order of the court on the 23 ^rd day of July, 2004. National Irish Bank Limited and the National Irish Bank Financial Services Limited are referred to as "the bank".

6 4. Counsel for the appellant informed the Court that this is the first of a series of cases heard by the High Court (Murphy J.) arising after the Inspectors' Report. This appeal refers to a narrow and net part of the Inspectors' Report. The Inspectors' Report held that there had been improper practices by the bank. However, this case relates only to two specific criticisms of the appellant by the Inspectors. The decision is limited to those two matters insofar as they refer to the appellant. Counsel for the Director acknowledged that the conduct of the appellant was at the lower end of the scale.

7 5. The proceedings were issued approximately one year after the publication of the Inspectors' Report when the Director sought an order pursuant to s.160(2)(b), and/or (d) and/or (e) of the Companies Act, 1990 disqualifying the appellant from being appointed or acting as an auditor, director or other officer, liquidator, receiver or examiner or being in any way, whether directly or indirectly concerned or taking part in the promotion, formation or management of any company or any society registered under the Industrial and Provident Societies Act, 1893-1978. The application was grounded on the Inspectors' Report.

8 6. The Director's application was heard over five days in the High Court, commencing on the 5 ^th February, 2008, during which the appellant was cross-examined. Judgment was delivered on the 26 ^th May, 2008, in which it was indicated that the High Court was mindful of making an order pursuant to s.160(2)(e).

9 7. On the 15 ^th July, 2008 submissions were heard as to what, if any, period of disqualification should be imposed on the appellant. A judgment was delivered ex tempore by Murphy J. on the 31 ^st July 2008, in which he imposed a disqualification order with effect for a period of four years, with the exception of the company referred to, through which the appellant provided consultancy services.

The High Court

10 8. The High Court reviewed the Inspectors' Report. The learned High Court judge also referred to the DIRT Theme Audit Report which was circulated in January, 1995, hereinafter referred to as "the Theme Report". The learned trial judge stated that the major findings of the Theme Report were that there was a lack of care and concise guidelines on DIRT (Deposit Income Retention Tax) compliance issues in relation to non-resident and special savings accounts; that SSA notice requirements were not being properly imposed and that an unacceptably high proportion of declarations were missing or incomplete. The High Court held:-

"The court finds that, notwithstanding the role of Mr. Bowden as Head of Tax...