Director of Corporate Enforcement v Curran

• Jurisdiction: Ireland
• Judge: Mr. Justice Roderick Murphy
• Judgment Date: 23 May 2007
• Neutral Citation: [2007] IEHC 181
• Docket Number: RECORD NO. 272 COS/2005
• Court: High Court
• Date: 23 May 2007

[2007] IEHC 181

THE HIGH COURT

RECORD NO. 272 COS/2005

DIRECTOR OF CORPORATE ENFORCEMENT v CURRAN

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

KEVIN CURRAN

RESPONDENT

COMPANIES ACTS 1990 S160(2)

COMPANIES ACTS 1990 S160(2)(b)

COMPANIES ACTS 1990 S160(2)(d)

COMPANIES ACTS 1990 S160(2)(e)

INDUSTRIAL & PROVIDENT SOCIETIES ACTS 1893 - 1978

DIRECTOR OF CORPORATE ENFORCEMENT v SEYMOUR UNREP MURPHY 20.3.2007 2007 IEHC 102

DIRECTOR OF CORPORATE ENFORCEMENT v D'ARCY UNREP KELLY 26.10.2005 2005 IEHC 333

READYMIX LTD (IN LIQUIDATION) v GRIMES 2002 1 IR 372

LO-LINE MOTORS LTD, IN RE 1988 BCLC 698 1998 CH 477

Mr. Justice Roderick Murphy

1 The respondent, Kevin Curran, became Regional Manager of National Irish Bank Limited in 1988 and subsequently Head of Retail Banking from 1996 to his retirement in 1997.

2 Mr. Curran had spent his entire career with the Bank. He was appointed Regional Manager (together with Dermot Bonner) with effect from 1st June, 1988. He had responsibility for 22 branches and initially reported to Mr. Brennan, General Manager - Retail Banking. After Mr. Bonner's appointment as Head of Retail on 1st October, 1990, Mr. Curran reported to Mr. Bonner and, with effect from 3rd May, 1993 to a newly appointed General Manager - Banking, Mr. Michael Keane. In February, 1996, following the retirement of Mr. Bonner, Mr. Curran was appointed Head of Retail Banking and continued to report to Mr. Keane. He retired on 4th July, 1997.

3 The Financial Advice and Service Division of the Bank (FASD) was separate from the branch network which also reported to the General Manager - Banking.

4 Following an exposé of certain practices within that bank, inspectors were appointed by the court on 30th March, 1998 to investigate the affairs of National Irish Bank Limited. The scope of the investigation was broadened on 15th June to investigate the affairs of National Irish Bank Financial Services Limited. The inspectors reported to the court on 9th July, 2004.

5 By notice of motion dated 20th July, 2005 the applicant, the Director, sought an order pursuant to s. 160(2)(b) and/or s. 160(2)(d) and/or s. 160(2)(e) of the Companies Act,1990 declaring the respondent to be disqualified from being 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 Acts, 1893 - 1978, for such period as the Honourable Court may see fit.

6 Sub-section (2) in relation to the present application provides that:

"(2) Where the court is satisfied in any proceedings or as a result of an application under this section that -"

(b) a person has been guilty, while a … officer … of a company, of any breach of his duty as such … officer …; or

(c) …

(d) the conduct of any person as … officer … of a company, makes him unfit to be concerned in the management of a company; or

(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."

7 The ground upon which such relief is based is on the conclusion of the inspectors' report (the Report).

8 That Report concluded that National Irish Bank Limited and National Irish Bank Financial Services Limited (collectively referred to as "the Bank") were involved in a number of improper practices which were summarised therein. These were the opening and maintaining of bogus non-resident accounts and fictitiously named accounts enabling customers to evade tax through concealment of funds from the Revenue Commissioners; Clerical Medical Insurance (CMI) policies promoted as a secure investment for funds and disclosed to the Revenue Commissioners; Special Savings Accounts (SSA) where Deposit Interest Retention Tax (DIRT) was deducted at a reduced rate notwithstanding that the applicable statutory conditions were not observed and the improper charging of interest and of fees to customers.

9 Part 8 of the Report is entitled Improper Practice: Knowledge and Responsibility. The Report distinguishes between entities other than individuals, being Internal Audit, External Auditors, the Audit Committee of the Board and the Board of Directors and named individuals.

10 The inspectors did not consider as relevant to comment on the knowledge of employees of the Bank holding 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.

11 Managers of the branches of the Bank where bogus non-resident accounts existed were aware, or ought to have been aware, of the existence of such accounts. They failed in their duty to deduct the relevant Deposit Interest Retention Tax.

12 Branch managers also had a duty to ensure that if properly completed declarations were not held for all accounts classified as DIRT-exempt non-resident accounts DIRT should be deducted. They were aware of this obligation and failed to observe it.

13 However, the inspectors did not consider it appropriate to find individual managers responsible for the practice of non-compliance with the legislative provisions relating to DIRT, as they believed that that responsibility for this practice lay at a higher level in the Bank.

14 The inspectors concluded that the Bank's Internal Audit personnel performed their functions in a satisfactory manner. It was not their function to correct improper practices or deficiencies in procedures discovered by them.

15 The External Auditors were aware of, and placed reliance on Internal Audit whom they concluded were competent and were satisfied that the issues were being reported to management and to the Audit Committee. The judgment of the External Auditors, with the exception of their not seeking to have management quantify the potential retrospective liability for DIRT, were appropriate in the view of the inspectors.

16 Similarly, and with the same reservation, the inspectors were satisfied that the Audit Committee dealt satisfactorily with the relevant matters.

17 The inspectors received no evidence that any improper practices being investigated were brought to the attention of the Board. In the circumstances they were of the opinion that the Board of the Bank could not be held responsible for the existence of these practices.

18 In addition to the Regional Managers, including Mr. Curran, the inspectors were of opinion, for the reasons which are summarised in the affidavit of Mr. O'Rafferty on behalf of the applicant Director, that each failed to discharge the responsibilities in respect of making reasonable enquiries of the branches within their regions.

19 The specific allegations against Mr. Curran, as respondent in these proceedings are as follows:

20 · Throughout the period when the Respondent held the position of Regional Manager (or a superior position) from June 1988 to 4th July 1997, the Respondent was made aware through internal audit reports circulated to him 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;

21 · Certain audit reports copied to the Respondent referred to instances where lending to resident customers was secured by letters of lien over deposit accounts with non-resident status;

22 · Reports copied to the Respondent also referred to instances where the residential status stated on non-resident declarations was at variance with other branch records;

23 · In the opinion of the inspectors, the audit reports pointed to the likelihood that the non-resident accounts referred to therein were in fact bogus;

24 · In addition, reported documentary non-compliance was on such a scale as to constitute, in the opinion of the inspectors, a further indication that a substantial proportion of the non-resident accounts could be bogus;

25 · The Respondent was circulated with minutes of the meeting of senior management held on 9 February 1995 to discuss the results of the DIRT Theme Audit and the DIRT compliance issues arising therefrom;

26 · In evidence given to the inspectors, the Respondent acknowledged that he had suspicions that bogus non-resident accounts existed in the branch network;

27 · The inspectors believe that the inevitable inference from the above is that the Respondent was not only aware of the failure of branches to hold properly completed non-resident account declarations but ought also to have been aware of the widespread existence of bogus non-resident accounts in the branch network;

28 · The Respondent had a responsibility in respect of branches in his region to ensure that all accounts classified as DIRT-exempt non-resident accounts were correctly classified as such. In this regard, particularly in the light of the deficiencies disclosed in the audit reports circulated to him, the Respondent had a responsibility to make reasonable inquiries of the branches for which he was responsible to satisfy himself that all such account holders were genuinely non-resident and that properly-completed declarations were in place for all accounts so...