Director of Corporate Enforcement v D'Arcy

• Jurisdiction: Ireland
• Judge: Mr. Justice Kelly
• Judgment Date: 26 October 2005
• Neutral Citation: [2005] IEHC 333
• Court: High Court
• Docket Number: [2005
• Date: 26 October 2005

[2005] IEHC 333

THE HIGH COURT

[No. 270 COS/2005]

DIRECTOR OF CORPORATE ENFORCEMENT v D'ARCY

Neutral Citation No: [2005] IEHC 333

IN THE MATTER OF NATIONAL IRISH BANK LIMITED AND IN THE MATTER OF

NATIONAL IRISH BANK FINANCIAL SERVICES LIMITED AND 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

NIGEL D'ARCY

RESPONDENT

COMPANIES ACT 1990 S160(2)

COMPANIES ACT 1990 S160

COMPANY LAW ENFORCEMENT ACT 2001

COMPANIES ACT 1990 S160(2)(b)

COMPANIES ACT 1990 S160(2)(d)

COMPANIES ACT 1990 S160(2)(e)

COMPANIES ACT 1990 S159

COMPANIES ACT 1990 S160(8)

COMPANIES ACT 1990 S160(9)(a)C

COMPANIES ACT 1990 S150

NEWCASTLE TIMBER LTD & ABWOOD LRD, IN RE 2001 4 IR 586

CAHILL (OFFICIAL LIQUIDATOR) v GRIMES 2002 1 IR 372

IN RE, A COMPANY 1980 CH 138

COMPANIES ACT 1948 S441 (UK)

IN RE, JOHNSON & CO BUILDERS LTD 1955 CH 634

R v BOAL 1992 QB 591

COMPANIES ACT 1990 S22

LO-LINE MOTORS LTD, IN RE 1988 CH 477 1988 3 WLR 26

GRAYAN BUILDING SERVICES LTD, IN RE 1995 CH 241 1995 3 WLR 1

DIRECTOR OF CORPORATE ENFORECMENT v MCGOWAN UNREP LAFFOY 24/2/2005

IN RE, CLAWHAMMER LTD UNREP FINLAY-GEOGHEGAN 15/3/2005

IN RE, SEVEN OAKS STATIONERS (RETAIL) LTD 1991 CH 164

WESTMID PACKAGING SERVICES LTD 1998 2 AER 124 1998 2 BCLC 646

COMPANY LAW

Directors

Disqualification - Necessary proofs - Criteria by which court should exercise discretion - Whether conduct of person such as to make him unfit to be concerned in management of company - Appropriate length of disqualification order - Cahill v Grimes [2002] 1 IR 372 applied; Re Grayan Building Services Ltd [1995] Ch 241; Re Westmid Packing Ltd [1998] 2 All ER 124 considered - Companies Act 1990 (No 33), s 160(2) - Disqualification order made

1 JUDGMENT of Mr. Justice Kelly delivered on the 26th day of October, 2005

The Reliefs Sought

2 The Director of Corporate Enforcement (the Director) seeks a disqualification order under s. 160(2) of the Companies Act, 1990, as amended, against the respondent, Nigel D'Arcy, (Mr. D'Arcy).

3 The effect of such an order is far reaching. It disqualifies the person against whom it is directed from being in any way, directly or indirectly, concerned in the management of any company. Such a person is also disqualified from taking part in the promotion or formation of such a company or from acting as an auditor, director, officer, receiver, liquidator or examiner of such a company. Similar restrictions apply in respect of any society registered under the Industrial and Provident Society's legislation.

Background to the Application

4 In 1998 this court appointed inspectors (the Inspectors) to investigate the affairs of National Irish Bank (the bank) and National Irish Bank Financial Services Limited (NIBFS).

5 On 9 ^th July, 2004, the Inspectors completed their report. By order of the court of 23 ^rd July, 2004, their report was published.

The Inspectors" Conclusions

6 The Inspectors summarised the conclusions which they had reached in their report as follows:

7 1. Bogus non-resident accounts were opened and maintained in the bank's branches enabling customers to evade tax through concealment of funds from the Revenue Commissioners.

8 2. Fictitiously named accounts were opened and maintained in the branches, enabling customers to evade tax through concealment of funds from the Revenue Commissioners.

9 3. Clerical Medical Insurance (CMI) policies were promoted as a secure investment for funds undisclosed to the Revenue Commissioners.

10 4. Special saving accounts had Deposit Interest Retention Tax (DIRT) deducted at the reduced rate, notwithstanding that the applicable statutory conditions were not observed.

11 5. There was improper charging of interest to customers.

12 6. There was improper charging of fees to customers. (See page (i) of Report)

13 The Inspectors also concluded that responsibility for the improper practices which existed rested with senior management of the bank during the period covered by the investigations. It was their view that senior management had the duty to ensure that the business of the bank was so conducted that such practices did not occur and, if they did, that they were stopped immediately.

14 The Inspectors also concluded that the head of the bank's Financial Advice and Services Division, and a number of the Financial Services Managers in that division, were responsible for the promotion of the CMI policies as a secure investment for funds undisclosed to the Revenue Commissioners.

The Financial Advice and Services Division

15 The Financial Advice and Services Division (FASD) of the bank was set up in 1989. It was separate from the branch network of the bank. FASD was responsible for the marketing of financial products which prior to its creation had been sold to bank customers through manager's insurance agencies. The bank acquired the interest in the manager's insurance agencies with effect from 1 ^st January, 1990.

16 As the Inspectors made clear the role of the FASD was to generate income for the bank from a) the sale of high value insurance products used for tax planning, business planning and personal financial planning and b) the development through the bank's branch network of sales of high volume insurance products such as endowment policies, regular premium savings and protection plans. (See page 83 of Report)

Mr. D'Arcy's role

17 On 1 ^st May, 1989, Mr. D'Arcy commenced employment with the bank. He was recruited by the then Chief Executive Mr. Jim Lacey to establish FASD. He held the position of head of FASD from 1 ^st May, 1989, onwards.

18 During his time Mr. D'Arcy reported to Mr. Lacey as Chief Executive and thereafter to Mr. Seymour as Executive Director until 1 ^st January, 1995. From then until 23 ^rd May, 1997, he reported to the General Manager — Banking, and thereafter, up to the date of appointment of the Inspectors, to the Chief Operating Officer.

19 All the financial services managers within the FASD reported directly to Mr. D'Arcy.

CMI and other policies

20 At pages 115 and 116 of the Report the Inspectors made the following findings in respect of CMI policies. They found:

21 1. Monies which were undisclosed to the Revenue Commissioners, including funds held in bogus non-resident accounts and fictitious and incorrectly named accounts, were targeted by bank personnel for investment in CMI policies.

22 2. Bank personnel promoted CMI policies as a secure investment for funds which had not been declared to the Revenue Commissioners, thereby engaging in a practice which served to facilitate the evasion of revenue obligations by third parties.

23 3. Prospective investors were given an assurance by bank personnel that their investment would be confidential from the Revenue Commissioners and, if made the subject of a trust, would pass to their beneficiaries without probate having to be obtained, thus making it possible for the funds invested to be kept hidden from the Revenue Commissioners even after the investor's death.

24 4. The role of the branch personnel of the bank was to identify likely investors, and the role of the FASD personnel was to introduce customers to CMI and induce them to take out policies with CMI.

25 5. The purposes for the bank behind the execution of such policies were:

26 (i) The earning of commission

27 (ii) The retention of deposits

28 (iii) The gaining of new deposits

Mr. D'Arcy's responsibility

29 Part 8 of the Inspectors" Report is devoted to dealing with those who had knowledge and responsibility for the improper practices identified by them. In dealing with Mr. D'Arcy the Inspectors said as follows:

"Mr. D'Arcy was head of the FASD during the entire of the period from 1 ^st May, 1989, to the date of the appointment of the Inspectors on 15 ^th June, 1998 to investigate the affairs of National Irish Bank Financial Services Limited. All the financial services managers reported directly to him."

30 Mr. D'Arcy's evidence to the Inspectors, at his interview on 7 ^th September, 2000, can be summarised as follows:

31 • o As head of the FASD, Mr. D'Arcy became aware in 1992 that funds undisclosed to the Revenue Commissioners were being targeted by bank personnel for investment in CMI.

32 • o Prospective investors were being assured by the FASD managers that their investment would be confidential from the Revenue Commissioners.

33 • o They were also being assured that if their investment was made the subject of a trust, the beneficiaries could obtain the funds invested, after the death of the investor, on production of a death certificate, thus avoiding the necessity of probate having to be taken out.

34 • o He also became aware that CMI was being used by the bank to regularise bogus non-resident accounts and fictitious and incorrectly named accounts.

35 • o The manner in which the CMI policies were being promoted served to facilitate the evasion of tax by the persons investing in the policies.

36 The Inspector's findings concerning Mr. D'Arcy's knowledge and responsibility are:

37 • o Mr. D'Arcy was aware that monies which were undisclosed to the Revenue Commissioners, including funds held in bogus non-resident accounts and fictitious and incorrectly named accounts, were being targeted by bank personnel for investment in CMI policies, and he failed to stop the practice.

38 • o Mr. D'Arcy was aware that the FASD financial services managers were promoting CMI policies as a secure investment for funds which had not been declared to the Revenue and failed to stop the said practice, which served to facilitate the evasion of revenue obligations by third parties.

39 •...