O'Ferral v Coughlan

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan
• Judgment Date: 21 December 2004
• Neutral Citation: [2004] IEHC 410
• Court: High Court
• Docket Number: [2001 No. 294 Cos]
• Date: 21 December 2004

[2004] IEHC 410

THE HIGH COURT

[Record No. 2001 294 COS]

[2004] IEHC 410.

RORY O'FERRAL v. PATRICK COUGHLAN & ORS

IN THE MATTER OF 360 ATLANTIC (IRELAND) LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION)

AND

IN THE MATTER OF THE COMPANIES ACT, 1963 - 1999

AND

IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT, 1990

BETWEEN

RORY O'FERRAL

APPLICANT

AND

PATRICK COUGHLAN, HERBERT HEISE, GEORGE HOAR AND DAVID LEDE

Citations:

COMPANIES ACT 19901990 PART VII CH 1

COMPANIES ACT 1990 S150

COMPANY LAW ENFORCEMENT ACT 2001 S56

FENNELL (LIQUIDATOR) V FROST & ORS; EUROKING MIRACLE (IRL) LTD, IN RE 2003 3 IR 80

EAST DONEGAL CO-OPERATIVE LIVESTOCK MART LTD V AG 1970 IR 317

COMPANIES ACT 1990 S150(2)

COMPANIES ACT 1990 S150(4)

COMPANIES ACT 1990 S150(2)(a)

LA MOSELLE CLOTHING LTD V SOUALHI 1998 2 ILRM 345

SQUASH (IRL) LTD, RE 2001 3 IR 35

KAVANAGH V DELANEY & ORS (TRALEE BEEF & LAMB LTD, IN RE) UNREP FINLAY-GEOGHEGAN 20.7.2004

BARINGS PLC (NO 6), IN RE; SECRETARY OF STATE FOR TRADE & INDUSTRY V BAKER (NO 6) 1999 1 BCLC 433

WESTMID PACKAGING SERVICES LTD 1998 2 BCLC 646

COMPANIES ACT 1990 S202(6)

Synopsis:

COMPANY LAW

Directors

Restriction - Non-resident directors - Wholly owned subsidiary - Duties of directors - Whether different standard where company is wholly owned subsidiary - Whether directors acted responsibly - Companies Act 1990 (No 30), ss 150 and 202(1)(b) and (6) - Company Law Enforcement Act 2001 (No 28), s 56 - Order granted (2001/294Cos - Finlay Geoghegan J - 21/12/2004) [2004] IEHC 410

O'Ferral v Coughlan

Facts: section 150 of the Companies Act 1990 provides, inter alia, that in an insolvent liquidation, the court shall make an order against the directors of the company in liquidation restricting them from involvement in the management of the company for five years unless they can show that they had acted honestly and responsibly in relation to the conduct of the affairs of the company. The applicant was appointed liquidator of two related companies in which the first respondent had been a director along with the other respondents. The applicant was not relieved of his obligation to bring an application pursuant to section 150 seeking the restriction of the respondents. It was contended that the directors of the Irish companies had acted irresponsibly in delegating all significant management of the companies to the financial management team of the parent company in Barbados and failing to give the requisite attention to reviewing and appreciating the affairs of the Irish companies.

Held by Finlay Geoghegan J in making orders that the directors be restricted that the court should look at the entire tenure of the directors and not simply the few months prior to the liquidation. That the fact that the companies were wholly owned subsidiaries within a worldwide group did not alter the legal principles applicable to the duties of directors but created a factual scenario, which had to be taken into account when considering the discharge of such duties. As such, where a group corporate structure existed, a director had to inform himself about the affairs of the Irish subsidiary company as distinct from any other company within the group and take real steps to consider and take decisions upon significant transactions to be entered into or projects undertaken by the Irish subsidiary company. They remained under a duty to inform themselves about the affairs of the Irish company as distinct from any other corporate part of the group and could not abdicate all decision-making in relation to the company's affairs.

Reporter: P.C.

1 Ms. Justice Finlay Geoghegan delivered on the 21st day of December 2004.

2 This is an application under s. 150 of the Companies Act, 1990, brought by the applicant who is the official liquidator of 360 Atlantic (Ireland) Limited ("the Company") having being so appointed by order of the High Court of the 30 ^th July, 2001, on a petition presented by John Sisk & Son Limited on the 18 ^th July, 2001.

3 It is undisputed that the first, second and third named respondents were each directors of the Company within twelve months of the date of commencement of the winding up. Whilst the fourth named respondent, Mr. Lede, in his first affidavit stated that at no time he "knowingly consented or agreed to act as a Director of the Company" and that accordingly he had been advised that the provisions of Chapter 1, Part VII of the Companies Act, 1990, did not apply to him it now appears from his second affidavit that he does not dispute that he was a director but asserts that he resigned as a director of the Company on the 25 ^th August, 2000, almost 11 months prior to the commencement of the winding up. I am satisfied on the facts set out in the affidavits that the applicant has discharged the onus of proof on him of establishing that as a matter of probability Mr. Lede was a director of the Company within twelve months of the date of commencement of the winding up and accordingly s. 150 of the 1990 Act applies to him.

4 It is further undisputed that the Company is and was at the date of commencement of the winding up insolvent and accordingly s. 150 of the Act of 1990 applies to the Company and each of the respondents.

5 The liquidator made his report to the Director of Corporate Enforcement under s. 56 of the Company Law Enforcement Act, 2001, and was not relieved of his obligations to bring this application.

6 The first and fourth named respondents, Mr. Coughlan and Mr. Lede, were represented at the hearing of the application. The second and third named respondents Mr. Heise and Mr. Hoar have not appeared.

7 In a judgment given in Re: Euroking Miracle (Ireland) LimitedUnreported, High Court, 5 ^th June 2003, I concluded that s. 150 of the Act of 1990 applies to persons resident outside of the jurisdiction. Further, construing the section in accordance with the principles of constitutional justice as set out by the Supreme Court in East Donegal Co-operative Livestock Mart Limited v. Attorney General [1970] IR 317, it requires, insofar as practicable, that directors be given notice of an application in respect of them under s. 150 of the Act of 1990 and an opportunity to be heard in relation to same prior to the Court reaching its decision.

8 I am satisfied on the affidavits of service of Louise Kruger and Aaron Boyle sworn herein that as a matter of probability each of Mr. Heise and Mr. Hoar have been given notice of this application and of the hearing date and accordingly that I should determine the application as against them as well as against the respondents appearing.

Background facts.

9 The Company was incorporated under the name Vetluga Limited on the 5 ^th May, 1999. On the 5 ^th June, 1999, the Company changed its name to WTI Telecom (Ireland) Limited. On the 15 ^th June, 2000, the Company changed its name to 360atlantic (Ireland) Limited. The Company is a wholly owned subsidiary of 360atlantic (Danmark) ApS (formerly Worldwide Telecom (Denmark) ApS). The ultimate parent company is 360 networks inc., a Canadian company, formerly Worldwide Fibre Inc.

10 The worldwide group headed by 360networks inc. appears originally to have been primarily in the business of designing and constructing fibre optic cable networks for other telecommunication companies throughout North America and developed to providing a variety of high bandwidth services on its own worldwide cable network. As part of its worldwide network it appears that between 1999 and 2001 the 360networks group laid a broadband cable known as "360atlantic" linking Dublin with Southport, England; Halifax, Nova Scotia; and Boston, Massachusetts. It is stated by the first named respondent that on completion the cable linked Ireland with up to 50 cities in Europe and a further 50 in the USA along with major centres in Asia and South America. Further that the Atlantic cable cost approximately US$1 billion to construct.

11 The incorporation of the Company is explained by advice from Price Waterhouse Coopers that in order to meet local regulatory requirements a separate corporate structure should be created in each country in which the group operated. Further that there should be an operating company which would hold the assets and operate the network and an overall "reseller" company which would purchase capacity from the operating companies, package it to contiguous network products and sell it to the end customer. In Ireland two companies were incorporated, the Company and 360networks (Ireland) Limited.

12 In Ireland, a 25,000 sq. ft. cable landing station and network switching facility was constructed at the Clonshaugh Industrial Estate, Dublin, at, it is stated, a cost of $70 million. The Company owned the site at Clonshaugh, was involved in the construction thereon and was involved in the business of selling capacity on the 360atlantic cable to users.

13 The liquidation of the Company appears to have been caused by the following. Firstly, a global downturn in the telecommunications industry about the same time as the completion of the 360atlantic cable resulting in a significant decrease in value of capacity in such cables. In May 2001 as a result of the collapse of the worldwide market for the leasing of cable capacity an American company within the 360networks Group, 360networks Holdings (USA) Inc., defaulted on an interest payment in its loans. Thereafter an attempt appears to have been made to restructure group borrowings but this failed and on the 28 ^th June, 2001, 360networks Inc., the ultimate Canadian parent, filed for bankruptcy protection under Canadian company Law. Simultaneously the Group's US companies including 360networks Holdings (USA) Inc. filed for Chapter 11 bankruptcy protection in the US.

14 In May/early June 2001 Mr. Coughlan states that the Company's employees in Ireland were given notice of termination of their...