Dublin Sports Cafe Ltd (in Voluntary Liquidation) v Companies Act
 IESC 66
THE SUPREME COURT
27/2006 - Denham Kearns Finnegan [nem diss] - Supreme - 16/12/2008 - 2008 IESC 66
COMPANIES ACT 1990 S150
COMPANY LAW ENFORCEMENT ACT 2001 S56
COMPANIES ACT 1963 S214
COMPANIES ACT 1990 S150(3)
LA MOSELLE CLOTHING LTD (IN LIQUIDATION) & ROSEGEM LTD (IN LIQUIDATION) v SOUALHI 1998/23/8886
BUSINESS COMMUNICATIONS LTD v BAXTER & PARSONS UNREP MURPHY 21.7.1995 1995/6/1869
SQUASH (IRELAND) LTD, IN RE 2001/23/6280
IN THE MATTER OF TRALEE BEEF & LAMB LTD (IN LIQUIDATION), KAVANAGH v DELANEY & ORS UNREP SUPREME 1.2.2008 2008 IESC 1
Company law - Liquidation - Restriction of Directors - Acting honestly and responsibly - Lap dancing club - Non availability of records - Application of cash receipts
Dublin Sports Café Limited (hereinafter called "the Company") was incorporated on the 11th November 1997. From incorporation and at all relevant times the appellants were the Directors of the Company. By ordinary resolution passed on the 17th October 2003 it was resolved that the Company be wound up voluntarily it being by reason of its liabilities unable to continue in business. On the same date at a meeting of the creditors of the Company the respondent (hereinafter called "the Liquidator") was appointed Liquidator of the Company. On the 18th March 2005 the Liquidator certified that the Company was then and at the date of the commencement of the winding-up unable to pay its debts within the meaning of section 214 of the Companies Act 1963. In compliance with the Company Law Enforcement Act 2001 section 56 the Liquidator provided to the Director of Corporate Enforcement (hereinafter "the Director") a report and on the 16th April 2004 the Director relieved him from the obligation of bringing proceedings pursuant to the Companies Act 1990 section 150 seeking to restrict the Directors. He submitted a further report on the 18th October 2004 and by letter dated 4th February 2005 the Director refused to relieve him of the obligation to bring such proceedings. The Liquidator was accordingly obliged, under pain of committing an offence, to apply to the High Court for the restriction under section 150 of the Companies Act 1990 of each of the appellants. By order made on the 21st December 2005 the High Court (Peart J.) restricted each of the appellants for a period of five years from the date of the order from being appointed or acting as director or secretary or being concerned or taking part in the promotion or formation of any Company unless it meets the requirements set out in section 150 (3) of the Act of 1990. The appellants appeal that order.
The Company operated a licensed premises comprising a bar, a disco bar and off-licence from premises in the Parnell Centre, Parnell Street, Dublin. The premises were leased at a rent of €317,434 per annum. The Company did not trade well and was unable to achieve the turnover necessary to meet its costs and overheads and accordingly incurred substantial trading losses during its some six years of trading. The Liquidator attributes this to an inability to bring in business from outside the immediate vicinity of the premises. While losses were incurred throughout the trading life of the Company the bulk of the same arose in its first two years of trading. There is a deficiency as regards unsecured creditors amounting to €2,400,866.00. However of this sum the second named appellant is an unsecured creditor in the amount of €1,776,160.00. Each of the appellants has personally guaranteed a loan from Bank of Scotland in the sum of €425,410.00 in effect therefore in respect of the amount owed to unsecured creditors approximately €2,200,000.00 or ninety one per cent of the same is owed to the second named appellant or the appellants are jointly and severally personally liable in respect thereof.
In his affidavit grounding the application the Liquidator brought the following matters to the court's attention:-
(1) The first named appellant was the managing director of the Company and responsible for its day-to-day running. The second named appellant was a non-executive director who provided financing for the Company and who is the Company's principal creditor. The first named appellant greatly aided the Liquidator in his investigation into certain matters relating to the lease of the Company's premises. Neither appellant is involved with any similar style business. Neither respondent has been involved in any phoenix style resurrections of the Company.
(2) The second named appellant showed great financial commitment to the Company and in the opinion of the Liquidator the collapse was due to genuine business failure resulting from the location of the premises.
(3) The last set of audited accounts for the Company were filed for the year ended 31st August 1999. An Annual Return for the Company was outstanding from 30th May 2002 until the date of the winding-up resolution.
(4) The Company was largely up-to-date with its tax returns.
(5) The Liquidator's principal concern arises from the absence of books and records. A part time bookkeeper was employed who kept detailed and up-to-date financial records for the bar, disco bar and off-licence. The first named appellant referred to management accounts but the Liquidator was unable to locate the same.
(6) From March 2003 until it ceased trading the Company operated a lap dancing club. In June 2003 as part of an investigation into the employment of non-nationals the Gardai raided the lap dancing club and seized its records. The Liquidator received a list of such records from the Gardai and that list did not refer to any cash receipts and payments book regarding the lap dancing club. When queried about this the first named appellant remained adamant that the Gardai removed such records. The Liquidator was unable to confirm the existence or otherwise of the same.
(7) Arising out of the Garda investigation criminal proceedings were instituted against the Company and the first named appellant. Following the appointment of the Liquidator the proceedings against the Company were discontinued. The first named appellant successfully defended the charges brought against him.
(8) The Liquidator was advised by the first named appellant that receipts from the lap dancing premises were made up approximately 50% by way of credit card payments and 50% by way of cash. Of the receipts 50% was paid to the Company and 50% paid to the dancers: usually the entire receipts by way of cash were paid to the dancers. The credit card payments were lodged to a bank account in the name of the Company. The Liquidator has been unable to locate supporting evidence to confirm that the cash receipts from the lap dancing business were so dealt with.
(9) For the final three months of trading there is inadequate back-up documentation for lodgments compared to sales receipts. The shortfall is approximately €26,000.
(10) The Liquidator sought to be relieved by the Director from the obligation to apply to the court for restriction under section 150 of the Companies Act1990 but the Director refused that request.
The letter from the Director does not state any grounds for refusing to relieve the Liquidator and as a result the matter came before the High Court in circumstances where the appellants, the Liquidator and the court were unaware of the Director's view as to the manner in which the appellants acted other than honestly and responsibly. As the Liquidator sought to be relieved of the obligation to apply to the High Court it would appear that he does not share the Director's view of the conduct of the appellants.
Each of the appellants filed an affidavit in reply. The first named appellant dealt in detail with matters drawn to the court's attention by the Liquidator as follows:-
(1) The annual return together with annual accounts for the year ended 31st August 1999 were filed with the Companies Registration Office. Audited accounts were prepared for the year ended 31st August 2000 but were not signed-off by the auditor because of a dispute concerning fees claimed in respect of the audit for the year ended 31st August 2002. At all times he had access to weekly figures so that the appellants were fully aware of the financial position of the Company and continued to support it financially. Without audited accounts the annual returns for 2001 and 2002 could not be submitted.
(2) Proper books of account were maintained. A bookkeeper was employed from 2001 and she maintained a meticulous manual accounting system and recorded all sales, purchases, creditors, wages and banking records for the bar. The management accounts referred to by him consisted of an extrapolation of information from the records prepared by the bookkeeper. Since the year 2000 overheads had been stabilised at approximately €16,000 per week and in order to break even it was necessary to achieve a weekly turnover of €25,000. His reference to management accounts was a...
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