Fennell v Rochford

JurisdictionIreland
JudgeMr. Justice MacMenamin
Judgment Date18 August 2009
Neutral Citation[2009] IEHC 397
Docket Number[No. 521 COS/2008]
CourtHigh Court
Date18 August 2009

[2009] IEHC 397

THE HIGH COURT

[No. 521 COS/2008]
Fennell v Rochford
[2009] IEHC 397
IN THE MATTER OF MDN ROCHFORD CONSTRUCTION LTD (IN LIQUIDATION)
AND IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT 1990 AND SECTION 56 OF THE COMPANY LAW ENFORCEMENT ACT 2001
BETWEEN/
KENNETH FENNELL
APPLICANT

AND

MICHAEL ROCHFORD AND DAVID ROCHFORD
RESPONDENTS

COMPANIES ACT 1990 S150

COMPANY LAW ENFORCEMENT ACT 2001 S56

TAXES CONSOLIDATION ACT 1997 S531

COMPANIES ACT 1963 S125

LO-LINE ELECTRIC MOTORS LTD, IN RE 1988 BCLC 698 1988 CH 477 1988 3 WLR 26 1988 2 AER 692

DIRECTOR OF CORPORATE ENFORCEMENT v BYRNE UNREP SUPREME 23.7.2009 2009 IESC 57

LA MOSELLE CLOTHING LTD & ROSEGEM LTD v SOUALHI 1998 2 ILRM 345 1998/23/8886

SQUASH (IRL) LTD, IN RE 2001 3 IR 35 2001/23/6280

COLM O'NEILL ENGINEERING SERVICES (IN VOLUNTARY LIQUIDATION), IN RE UNREP FINLAY-GEOGHEGAN 13.2.2004 2004/8/1824 2004 IEHC 83

VEHICLE IMPORTS LTD, IN RE UNREP MURPHY 23.11.2000 2000/17/6574

BARINGS PLC & ORS, IN RE; SECRETARY OF STATE FOR TRADE v BAKER & ORS (NO 5) 1999 1 BCLC 433

COOKES EVENTS CO LTD (IN LIQUIDATION), IN RE 2006 1 ILRM 191 2005 IEHC 225

DIGITAL CHANNEL PARTNERS LTD (IN VOLUNTARY LIQUIDATION), IN RE 2004 2 ILRM 35

USIT WORLD PLC, IN RE UNREP PEART 10.8.2005 2005/57/11922 2005 IEHC 285

COMPANIES ACT 1990 S152(1)

COMPANIES ACT 1990 S152

COMPANY

Directors

Restriction - Insolvent company - Criteria for determining liability - Circumstances of case - Acted honestly and responsibly - Conduct of affairs of company - Whether directors realised full extent of company's true financial situation - Legal principles applicable to application - Whether evidence sufficient to justify disqualification - Relevant factors to which court would have regard - Directors delegation - Directors duties - Onus of proof on directors to demonstrate they acted responsibly - Monthly management accounts - Directors not engaging in continuing assessment of company's profitability - Whether failure to discharge duties with proper level of skill, care and diligence - Whether directors acted prudently and responsibly -Whether extent of sanction should be proportionate to extent of wrongdoing - Re Lo-Line Electric Motors Ltd [1988] Ch 477, Director of Corporate Enforcement v Byrne [2009] IESC 57, (Unrep, SC, 23/7/2009), LaMoselle Clothing Ltd v Soualhi [1998] 2 ILRM 345, In re Squash (Ireland) Ltd [2001] 3 IR 35, In re O'Neill Engineering Services [2004] IEHC 83, (Unrep, Finlay Geoghegan J, 13/2/2004), In re Vehicle Imports (Unrep, Murphy J, 23/11/2000), Barings plc v Baker (No 5) [1999] 1 BCLC 433 and In re Cooke's Events Company Ltd [2005] IEHC 225, [2006] 1 ILRM 191 considered; In re Digital Channel Partners (in voluntary liquidation) [2004] 2 ILRM 35 applied - In re Usit World plc [2005] IEHC 285, (Unrep, Peart J, 10/8/2005) distinguished - Companies Act 1963 (No 33), s 125 - Companies Act 1990 (No 33), s 150 and 152 (1) - Company Law Enforcement Act 2001 (No 28), s 56 - Taxes Consolidation Act 1997 (No 39), s 531 - Restriction order granted (2008/521COS - MacMenamin J - 18/8/2009) [2009] IEHC 397

Fennell v Rochford

Mr. Justice MacMenamin
1

Section 150 of the Companies Act1990 provides:-

2

"150.-(1) The court shall, unless it is satisfied as to any of the matters specified insubsection (2), declare that a person to whom this Chapter applies shall not, for a period of five years, be appointed or act in any way, whether directly or indirectly, as a director or secretary or be concerned or take part in the promotion or formation of any company unless it meets the requirements set out in subsection (3); and, in subsequent provisions of this Part, the expression "a person to whom section 150 applies" shall be construed as a reference to a person in respect of whom such a declaration has been made.

(2) The matters referred to in subsection (1) are-
3

(a) that the person concerned has acted honestly and responsibly in relation to the conduct of the affairs of the company and that there is no other reason why it would be just and equitable that he should be subject to the restrictions imposed by this section, …"

4

2. By resolution of the members of the subject company ("Construction"), passed at a general meeting held on 4th January, 2008, it was resolved that by reason of its liabilities it could not continue its business, and was insolvent within the meaning of the Companies Acts 1963-2006; that it be liquidated and that the applicant herein be appointed liquidator.

5

3. "Construction" was incorporated on 24th March, 2005. It began trading immediately thereafter from an industrial unit in Blanchardstown. It was involved in building projects primarily for Dublin City Council. It secured a number of contracts to develop extensions to council housing.

6

4. The respondents were registered in the Companies Registration Office as the directors of the company at the date of the commencement of the winding up. Their father, Noel Rochford resigned as a director on 26th September, 2007. The respondents were joint managing directors since its incorporation. It is not contested they were directly responsible for Constructions day to day running.

7

5. The liquidator has provided two reports to the Director of Corporate Enforcement (the Director) pursuant to s. 56 of the Company Law Enforcement Act 2001. Having completed his investigations he sought relief from the Director of the obligation to bring this application in respect of the applicants' father, Mr. Noel Rochford only. He was not relieved of such responsibility in relation to the respondents.

8

6. An estimated statement of affairs was prepared by the respondents and presented to the members and creditors of the company on 4th January, 2008. As was apparent therefrom, the respondents estimated that there would be an overall deficiency of €351,343, representing an excess of liabilities over assets. That deficiency included an estimated amount outstanding to the Revenue Commissioners of €98,398, incurred over slightly less than three years.

9

7. The statement of affairs as of 4th January, 2008 set out the following estimated figures:-

ASSETS

BOOK VALUE €

ESTIMATED TO REALISE €

Leased fixed assets

34,864.00

-

Plant and Equipment

-

1,000.00

Debtors and work in progress

72,694.00

72,694.00

Redundancy reclaim

3,300.00

3,300.00

TOTAL ASSETS

110,858.00

76,994.00

Liabilities

Estimated value of preferential creditors

61,235.00

Estimated value of unsecured creditors

367,102.00

TOTAL LIABILITIES

428,337.00

TOTAL SHORTFALL

(351,343.00)

10

8. The liquidator says that the reasons for the company's insolvency were trading losses and poor cash flow. He says that it was and should have been evident that the company was making trading losses of approximately €26,281 per month in the twelve months preceding his appointment. A number of reasons are given for this, including small margins on jobs undertaken.

11

9. The directors arranged for a new auditor to be put in place in mid 2007. In late November of that year the new auditor presented the respondents with management accounts for the period ended 30st September, 2007. The respondents say they only then realised the full extent of the company's financial situation.

12

10. It appears that the relationship between the company and Dublin City Council deteriorated throughout 2007. This is said to have had an adverse effect on cash flow as the company found it difficult to secure prompt payment.

13

11. For reasons that will appear hereafter, the true financial position of the company was not properly represented in the annual accounts. The profit position paid no regard to VAT, PAYE and PRSI liabilities which had not been discharged for these years. The company traded for approximately eight months in 2005. During that year it made an apparent profit of €2,359.00 from a turnover of €197,892.00. The apparent net asset position of the company as of 31st December 2005 was stated to be €2,459.00. Total costs for the year amounted to €195,533.00. Of this total the liquidator states that 48.6% related to the costs of sale.

14

12. For the following year ended 31st December, 2006, it was stated that the company made an apparent profit of €5,523.00 from a turnover of €836,748.00. The net asset position of the company as of 31st December, 2006 was €7,292.00. During that period the main costs incurred by the company were:

COSTS

Cost of sales

370,664.00

Wages and PRSI

223,082.00

Management Charge

122,719.00

TOTAL

716,719.00

15

13. The liquidator states that the total costs for that year amounted to €831,225.00. Of this a total of 44.5% related to costs of sales. He comments that although the company's turnover for that year increased by approximately 422%, its profit only increased by 224%. He states that this appeared to be due to a management charge which the company incurred in that year for €122,719.00. As he did not have complete records for 2006 he was compelled to assume that this was made up of payments made to the directors throughout the year which were not processed as salaries. This was not denied. The low profit even in the context of the vastly increased turnover, speaks for itself.

16

14. It is necessary then to look at a number of specific features which contributed to the decision to wind up the company.

17

15. The stated net asset position of the company as of 31st December, 2006 was €7,292. By 4th January, 2008 the net deficiency of the company was €351,343. This represents a falt in the net asset position of the company of €358,635.00 in the twelve month period prior to the liquidation of the company. By any standards this would appear to be a spectacular reverse by contrast...

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