Euegene McLaughlin v Raymond Lannen and Deirdre Lannen
| Jurisdiction | Ireland |
| Judge | Mr. Justice Clarke |
| Judgment Date | 04 November 2005 |
| Neutral Citation | [2005] IEHC 341 |
| Court | High Court |
| Docket Number | 5 COS/2005 |
| Date | 04 November 2005 |
[2005] IEHC 341
THE HIGH COURT
BETWEEN
AND
BETWEEN
AND
COMPANIES ACT 1990 S150
COMPANY LAW ENFORCEMENT ACT 2001 S56
FREDERICK INNS LTD, IN RE 1991 ILRM 582 1994 1 ILRM 387
GASCO LTD, IN RE UNREP HIGH COURT MCCRACKEN 5.2.2001 2001/10/2716
COMPANIES ACT 1990 S149(2)
LA MOSELLE CLOTHING LTD & ROSEGEM LTD v SOUALHI 1998 2 ILRM 345
SQUASH (IRL) LTD, IN RE 2001 3 IR 35
LO-LINE MOTORS LTD, IN RE 1988 CH 477 1988 3 WLR 26
COSTELLO DOORS LTD, RE UNREP HIGH COURT MURPHY 21.7.1995 1995/6/1958
BUSINESS COMMUNICATIONS LTD v BAXTER & PARSONS UNREP HIGH COURT MURPHY 21.7.1995 1995/6/1869
COMPANY LAW
Directors
Restriction - Test - Duties of director where company being wound up - Whether court should be concerned only with 12 month period prior to liquidation or entire tenure of director - Whether commercial misjudgement sufficient to warrant restricting director - Application granted (2005/5COS - Clarke - 4/11/2005) [2005] IEHC 341
MCLAUGHLIN (LIQUIDATOR OF TRAVELODGE LTD) v LANNEN
1.1 In both of these cases the liquidator seeks a declaration that both respondents should be subjected to the order as specified in s. 150 of the Companies Act1990(as amended) restricting their activities in relation to companies for a period of five years. The two companies concerned were involved in the tannery and hide business with Swanpool Limited ("Swanpool") trading as a tannery from the latter part of 1990 and Travelodge ("Travelodge") trading in the purchase and sale of hides and skins mainly for the export market from February 1987.
1.2 Both of the respondents were directors of both companies. The second named respondent is the daughter of the first named respondent.
2.1 There are certain unusual features to this case. Firstly it should be made clear no suggestion is made of any lack of honesty on the part of either of the directors. Secondly the liquidator has not brought to the attention of the court any suggestion that the books and records of the company were not properly kept or that the company was not generally conducted in accordance with the requirements of the Companies Acts. Nor is it suggested that the circumstances that led to the companies becoming insolvent reflect adversely on either respondent. In substance it would appear that as a result of the high cost base in Ireland, manufacturing facilities in the industry were being relocated to low cost economies in the developing world most especially China. This gave rise to doubts about the long term profitability of the business being run by Swanpool. Similarly in respect of Travelodge increased competition gave rise to doubt about the long term profitability of its business.
2.2 It is accepted that at the time the companies ceased trading there was good reason to believe that each of the companies would have been in a position to meet all of its liabilities. The last remaining asset of Swanpool was a premises at Clondra Mills Co. Longford. It had been intended to develop that site as a residential development. The initial indications were that the property would realise approximately €2 million which would not only have been sufficient to pay off any remaining creditors of either company but would have allowed for the return of a surplus to the shareholders of both companies. A notice of intention to grant planning permission for such a development had been given by the local authority. Unfortunately for the company an appeal was taken to An Bord Pleanála which was successful and a second application for planning was also refused on the grounds that the lands were contaminated by industrial waste. The company then sought separate independent valuations and sold the site for €475,000.
2.3 It therefore appears to be clear that up and until the time that the planning process suffered a significant reversal from the company's perspective there was every reason for the directors to believe that the companies would be wound up on a solvent basis.
2.4 In those circumstances the liquidator brings to the court's attention only three matters which he believes should be considered in determining whether it is appropriate to make orders under s. 150. In fairness it should be indicated that the first two matters were not pressed by counsel on behalf of the liquidator with any great force.
2.5 The first of those lesser matters is that the eventual proceeds of sale of the property at Clondra Mills was lodged into the bank account of Travelodge even though the property itself was owned by Swanpool. However it is clear that, while trading, both companies operated separate bank accounts and furthermore it does appear that it was, at all times, possible to identify the sale proceeds in the relevant account. While it is undoubtedly the case that the moneys should not have been lodged in the way in which they were it does not appear to me that, in all the circumstances of this case, any significant weight should be attached to this issue.
2.6 The second lesser matter relied upon (which concerns Swanpool only) relates to the fact that insufficient funds were retained to discharge the VAT payable on the sale of the property at Clondra Mills. The first named respondent has put forward an explanation as to the circumstances in which it was envisaged that funds would be available to meet the VAT liability. It was intended that the revenue liabilities would be repaid from the sale of the machinery that had been in use in Clondra Mills. Unfortunately due to the decline of the industry generally at that time, a demand for the machinery did not materialise and the company was, therefore, not in a position to discharge the Revenue debt. It is accepted on behalf of the directors that the decision taken may have involved an element of commercial misjudgement but it is submitted that it falls some way short of the type of irresponsible or grossly negligent conduct required to trigger s. 150. I agree with that submission.
2.7 However it is now necessary to turn to the third and most serious of the matters relied upon by the liquidator. Certain investors had placed money into Swanpool on foot of a business expansion scheme ("BES"). During the period when it was envisaged that the company would be in a position to meet all of its liabilities the first named respondent entered into an agreement with the managers of the BES scheme which provided for the repayment of the investors funds. The investors would, of course, in the ordinary way have been entitled to receive payment at an appropriate stage on foot of option agreements which were the exit mechanism by which the BES investors were to receive back their funds. It is not suggested that it was inappropriate to enter into that arrangement at the time when it was agreed. However by the time the funds were actually paid over to the BES investors the planning reversals to which I have referred had occurred and it was, or at least ought to have been, clear to the directors at that stage that the payment in full of the BES investors entitlement would necessarily leave the companies in a position where they would be unable to repay all of their debts and in particular the obligations to the Revenue Commissioners.
2.8 It is accepted on behalf of the directors that the payment to the BES investors should not have been made. In mitigation reliance is placed on the evidence of the first named respondent to the effect that he was under considerable pressure to repay the moneys having entered into an agreement to repay in July 2002. The payment was actually made in April 2003. Secondly it is correctly noted that no personal benefit accrued to the directors or any person or body connected with them. Indeed it is clear that one of the consequences of the payment...
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