Director of Corporate Enforcement v Byrne

• Jurisdiction: Ireland
• Judgment Date: 23 July 2009
• Date: 23 July 2009
• Docket Number: [S.C. Nos. 392 and 397 of 2008]
• Court: High Court

[2009] IESC 57,

Supreme Court

[S.C. Nos. 392 and 397 of 2008]

Director of Corporate Enforcement v. Byrne

In the matter of National Irish Bank Limited and National Irish Bank Financial Services Limited and in the matter of an application pursuant to s. 160 of the Companies Act 1990. The Director of Corporate Enforcement

Applicant

and

Patrick Byrne

Respondent

Cases mentioned in this report:-

Re Barings plc; Secretary of State for Trade and Industry v. Baker (No. 5) [1999] 1 B.C.L.C. 433.

Business Communications Ltd. v. Baxter (Unreported, High Court, Murphy J., 21st July, 1995).

Cahill v. Grimes [2002] 1 I.R. 372.

Re Lo-Line Motors Ltd. [1988] Ch. 477; [1988] 3 W.L.R. 26; [1988] 2 All E.R. 692.

Re Newcastle Timber Ltd. (in liquidation) [2001] 4 I.R. 586.

Re NIB Ltd.: Director of Corporate Enforcement v. D'Arcy[2005] IEHC 333, [2006] 2 I.R. 163.

In re Sevenoaks Stationers (Retail) Ltd. [1991] Ch. 164; [1990] 3 W.L.R. 1165; [1991] 3 All E.R. 578.

Re Wood Products Ltd.: Dir. of Corp. Enforcement v. McGowan[2008] IESC 28, [2008] 4 I.R. 598.

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 - Companies Act 1990 (No. 33), s. 160(2)(e).

Appeal from the High Court

The facts have been summarised in the headnote and are more fully set out in the judgments of the Denham and Fennelly JJ.,infra.

Proceedings were initiated by the applicant by way of originating motion on notice dated the 20th July, 2005, seeking the disqualification of the respondent. In a judgment delivered on the 26th May, 2008, the High Court (Murphy J.) made an order disqualifying the applicant pursuant to s. 160(2)(e) of the Act of 1990 (see [2008] IEHC 149) and on the 1st July, 2008, the period of disqualification was set at four years.

By notice of appeal dated the 2nd December, 2008, the respondent appealed against the judgment and order of the High Court. By notice of appeal dated the 5th December, 2008, the applicant cross-appealed against the refusal of the High Court to grant orders pursuant to s. 160(2)(b) and (d) of the Act of 1990.

The appeal was heard by the Supreme Court (Denham, Fennelly and Macken JJ.) on the 6th and 7th July, 2009.

Section 160(2) of the Companies Act 1990 provides, inter alia:-

• "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 promoter, officer, auditor, receiver, liquidator or examiner of a company, of any breach of his duty as such promoter, officer, auditor, receiver, liquidator or examiner; or …

(d) the conduct of any person as promoter, officer, auditor, receiver, liquidator or examiner 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 Director 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 person for such period as it sees fit."

A disqualification order is defined in s. 159 of the Act of 1990 as meaning that:-

"the person against whom the order is made shall not be appointed to act as an auditor, director or other officer, receiver, liquidator or examiner or be in any way, whether directly or indirectly, concerned or take part in the promotion, formation or management of any company."

In their report into the affairs of a bank the court appointed inspectors concluded that the respondent failed in his responsibility to raise the issue of potential retrospective liability for deposit interest retention tax (DIRT) due in respect of interest on accounts wrongly classified as DIRT exempt, and failed in his responsibility for drafting revised instructions to staff in relation to the operation of DIRT.

The applicant sought a disqualification order against the respondent pursuant to s. 160(2) of the Act of 1990 on the basis of those conclusions. The High Court (Murphy J.) granted the relief sought by the applicant (see [2008] IEHC 149) and made an order pursuant to s. 160(2)(e) of the Act of 1990 disqualifying the respondent for a period of four years.

The respondent appealed to the Supreme Court on the grounds,inter alia, that the High Court Judge misinterpreted s. 160(2) of the Act of 1990 and erred in applying the test for a disqualification order. The applicant cross-appealed on the grounds,inter alia, that the High Court erred in failing to make orders under pursuant to s. 160(2)(b) and (d).

Held by the Supreme Court (Denham, Fennelly and Macken JJ.), in allowing the appeal and dismissing the cross-appeal, 1, that there was a distinction between a restriction order under s. 150 of the Act of 1990 and a disqualification order under s. 160.

2. Per Fennelly J. (Macken J. concurring), that the court had no power to make a disqualification order unless it was satisfied that at least one of the paragraphs. of s. 160 of the Act of 1990 applied.

3. That the conduct necessary to justify the making a disqualification order must be much more blameworthy than the conduct necessary to justify a restriction order.

Business Communications Ltd. v. Baxter (Unreported, High Court, Murphy J., 21st July, 1995) approved.

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

Re Newcastle Timber Ltd. (in liquidation) [2001] 4 I.R. 586 approved.

Per Fennelly J. (Macken J. concurring): that it would be a serious error to find a person to be unfit on the basis of a departure from ordinary standards of conduct.

5. That the conduct necessary to justify a disqualification order must be manifestly more blameworthy than merely failing to exercise an appropriate degree of responsibility. Commercial misjudgement was not sufficient and the conduct complained of must display a lack of "commercial probity", although in an extreme case, gross negligence or total incompetence could be sufficient.

Cahill v. Grimes [2002] 1 I.R. 372 and Re N.I.B. Ltd.: Director of Corporate Enforcement v. D'Arcy[2005] IEHC 333, [2006] 2 I.R. 163 followed.

6. That a key ingredient of "probity" was honesty.

Per Fennelly J. (Macken J. concurring): that it was incorrect to make a finding of lack of commercial probity in circumstances where the applicant did not allege any dishonesty on the part of the respondent.

7. 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.

8. That the entire history of the person in question should be taken into account and not just the alleged act or acts of wrongdoing in isolation.

Per Fennelly J. (Macken J. concurring): that the question of unfitness must be assessed generally and rigid categories should be avoided.

9. That there was an element of deterrence in the exercise of the court's discretion.

Per Fennelly J. (Macken J. concurring): that the primary purpose of disqualification is not punitive, but protective, though there is usually a deterrent element.

10. That the matter was not to be judged with the inevitable benefit of hindsight.

11. That in the exercise of its discretion, the court was entitled to take into account the fact that the effect of a disqualification order may be greater on a professional person and that any discretion should be exercised proportionately.

12. That the burden of establishing that a disqualification order was warranted rested on the applicant and it was a substantial burden.

Business Communications Ltd. v. Baxter (Unreported, High Court, Murphy J., 21st July, 1995) approved.

Cur. adv. vult.

Denham J. 23rd July, 2009

[1] This is an appeal by Patrick Byrne, the respondent, from a judgment of the High Court (Murphy J.) delivered on the 26th May, 2008 (see [2008] IEHC 149), and from an order made on the 31st July, 2008. It was ordered, pursuant to s. 160(2)(e) of the Companies Act 1990, that the respondent 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 respondent 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 31st July, 2008.

[2] The Director of Corporate Enforcement, the applicant, has cross-appealed from the failure to make orders under s. 160(2)(b) and (d).

[3] This application was brought to the High Court after the publication of the "Report of the inspectors appointed (under s. 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 23rd July, 2004. National Irish Bank Limited and the National Irish Bank Financial Services Limited are referred to as "the bank".

[4] Counsel for the respondent informed the court that this is the first of a series of cases heard by the High Court (Murphy J.) arising out of the inspectors' report. This appeal refers to a narrow and net part of the inspectors' report. The inspectors' report held that there had...