Director of Corporate Enforcement v Walsh

• Jurisdiction: Ireland
• Judge: Mr. Justice Kelly
• Judgment Date: 20 January 2016
• Neutral Citation: [2016] IECA 2
• Date: 20 January 2016
• Court: Court of Appeal (Ireland)
• Docket Number: [2014/13] [Article 64 Transfer Case]

Kelly P.

Irvine J.

Hogan J.

IN THE MATTER OF WALFAB ENGINEERING LIMITED AND

IN THE MATTER OF RPB PRODUCTS LIMITED AND

IN THE MATTER OF SECTION 160 OF THE COMPANIES ACT 1990

BETWEEN

THE DIRECTOR OF CORPORATE ENFORCEMENT

APPLICANT/APPELLANT

AND

BRENDAN WALSH AND CATHERINE WALSH AND

PATRICK WALSH

RESPONDENTS

[2016] IECA 2

Kelly P.

[2014/13]

[Article 64 Transfer Case]

THE COURT OF APPEAL

Corporate regulation ? Disqualification order ? Restriction order ? Appellant seeking a restriction order ? Whether trial judge misdirected himself concerning the nature of the discretion given to him

Facts: The first and third respondents, Mr B Walsh and Mr P Walsh, were directors of both RPB Products Ltd and Walfab Engineering Ltd whilst the second respondent, Mrs Walsh, was a director of just Walfab Engineering Ltd. The companies were insolvent with substantial judgments outstanding. Barrett J was requested to make a disqualification order against the respondents pursuant to s. 160(2)(h) of the Companies Act 1990. He declined to do so. He furthermore declined to make a restriction order pursuant to s. 160(9A) of the 1990 Act. The appellant, the Director of Corporate Enforcement, appealed to the Court of Appeal against the judgment and order of Barrett J of 23rd July 2014 ([2014] IEHC 365). The Director contended that the judge was in error in making the orders which he did and asked the Court to so find and reverse the order of the High Court. He also took issue with a number of statements contained in the judgment under appeal which he believed give rise to confusion which is undesirable in the context of corporate regulation. The Director contended that the judge fell into error in the construction which he placed on s. 160, generally, and in particular, s. 160(2)(h). The Director also contended that the judge misdirected himself concerning the nature of the discretion given to him and the matters to which he should have regard in the exercise of that discretion. The Director contended that the trial judge fell into error in holding that the court is trammelled by all of the requirements of s. 150 when applying the provisions of s. 160(9A).

Held by Kelly P that it was clear from the judgment under appeal that the trial judge departed from the decision of Finlay Geoghegan J in Re Clawhammer Ltd [2005] 1 IR 503. Kelly P held that whilst courts do not decide cases in a vacuum and are aware of general facts such as the serious downturn of the economy, there was no justification for that to alter or displace the well-established interpretation or implementation of a statutory provision such as s. 160; a financial maelstrom does not change the purpose of s. 160 which is the promotion of proper corporate governance. Kelly P did not agree that the factors identified by the trial judge could be regarded as relevant to the exercise of his discretion as the whole thrust of the legislative provision was to ensure that all directors of all companies comply with their obligations; it matters not that they be directors of family companies or be at the helm of large or quoted enterprises, nor do the qualifications of the directors or the economic challenges that the companies may be facing affect the obligations of directors to act responsibly in respect of an insolvent company. Kelly P held that s. 160(9A) does nothing more than provide an option to impose a more lenient sanction than that prescribed under section 160; thus, if there is an entitlement to make an order under s. 160(2)(h) there is, depending upon the facts, an entitlement to make an order under section 160(9A). It was, in Kelly P?s view, incorrect to suggest that s. 160(9A) allows the court to make a s. 150 declaration only where such could be made on foot of a s. 150 application. He found nothing in the subsection or authorities to support that view of the trial judge. Kelly P was satisfied both by the application of the ordinary rules of statutory construction and a consideration of the authorities, that s. 160(9A) unambiguously does no more than permit the court to impose the lesser sanction of a s. 150 declaration on a s. 160 application in an appropriate case.

Kelly P held that the appeal ought to be allowed and that the order of the High Court should be set aside. Kelly P held that in lieu thereof there should be substituted, pursuant to s. 160(9A), a declaration of restriction under s. 150 in respect of all three respondents for the mandatory period of five years.

Appeal allowed.

JUDGMENT of Mr. Justice Kelly delivered on the 20th day of January 2016

Introduction

1 This is an appeal by the Director of Corporate Enforcement (the Director) against a judgment and order of Barrett J. of 23rd July 2014 [2014] IEHC 365.

2 The trial judge was requested to make a disqualification order against the respondents pursuant to s. 160(2)(h) of the Companies Act 1990 (?the 1990 Act?). He declined to do so. He furthermore declined to make a restriction order pursuant to s. 160(9A) of the 1990 Act.

3 The Director contends that the judge was in error in making the orders which he did and asks this Court to so find and reverse the order of the High Court. He also takes issue with a number of statements contained in the judgment under appeal which he believes give rise to confusion which is undesirable in the context of corporate regulation.

Relevant legislation

4 Section 160(2)(h) of the 1990 Act, provides as follows:-

?Where the court is satisfied in any proceedings or as a result of an application under this section that ?

?

(h) A person was a director of a company at the time of the sending after the commencement of s. 42 of the Company Law Enforcement Act 2001, of a letter under subs. (1) of s. 12 of the Companies (Amendment) Act 1982, to the company and the name of which, following the taking of the other steps under that section consequent on the sending of that letter, was struck off the register under subs. (3) of that section; ? the court may, of its own motion, or as a result of the application, make a disqualification order against such a person for such period as it sees fit.?

5 This particular subsection was introduced to s. 160 of the 1990 Act, as a basis for disqualification by s. 42(b)(ii) of the Company Law Enforcement Act 2001 (the 2001 Act).

6 In considering an application under s. 160(2)(h), the provisions of subsection (3)(A) (which was also inserted by the 2001 Act) have to be borne in mind. It provides as follows:

?The court shall not make a disqualification order under paragraph (h) of subsection (2) against a person who shows to the court that the company referred to in that paragraph had no liabilities (whether actual, contingent or prospective) at the time its name was struck off the Register or that any such liabilities that existed at that time were discharged before the date of the making of the application for the disqualification order.?

7 The terms of s. 160 (3)(A) make it clear that s. 160(2)(h) is concerned with insolvent companies. A respondent to a s. 160(2)(h) disqualification application who can demonstrate that the relevant company had no liabilities at the time its name was struck off the Register or that any such liabilities were discharged before the date of making the application for the disqualification order is provided with a defence by virtue of s. 160(3)(A).

8 The 2001 Act created the position of the Director. He is independent in the performance of his functions which include the enforcement of the Companies Acts.

9 An important provision of the 2001 Act is s. 56. Section 56(1) provides:

?56.?(1) A liquidator of an insolvent company shall, within 6 months after his or her appointment or the commencement of this section, whichever is the later, and at intervals as required by the Director thereafter, provide to the Director a report in the prescribed form.?

Subsection (2) provides:

?(2) A liquidator of an insolvent company shall, not earlier than 3 months nor later than 5 months (or such later time as the court may allow and advises the Director) after the date on which he or she has provided to the Director a report under subsection (1), apply to the court for the restriction under section 150 of the Act of 1990 of each of the directors of the company, unless the Director has relieved the liquidator of the obligation to make such an application.?

10 Section 56 created an obligation on all liquidators of insolvent companies to report to the Director and to bring the prescribed application unless relieved of the obligation to do so by the Director.

11 In the event of a liquidator bringing an application under s. 150, the court is obliged to make the order unless the directors can show that they acted honestly and responsibly and that there was no other reason why it would be just and equitable that they should be subject to restriction.

12 Directors of insolvent companies could of course avoid the provisions of s. 56 by not placing the insolvent company into liquidation at all. By simply allowing the company to be struck off the Register for failure to file an annual return, they would not fall to be investigated by a liquidator under s. 56 of the 2001 Act. It appears clear that the introduction of s. 160(2)(h) was with a view to ensuring that directors of insolvent companies who permitted them to be struck off for failure to make returns rather than putting them into liquidation would not, by so doing, avoid the rigours of the regulatory regime bolstered by the introduction of the 2001 Act.

13 Section 160 (2)(h) has as its focus directors who, through culpable inaction, have allowed an insolvent company to be stuck off the register. They ought to have the company wound up. By failing to do so, they avoid scrutiny of a liquidator under s. 56 of the 2001 Act. The enactment of s....