Fitzpatrick v Connaughton

JurisdictionIreland
JudgeMr. Justice David Keane
Judgment Date09 September 2016
Neutral Citation[2016] IEHC 533
CourtHigh Court
Docket Number[2014 No. 284COS]
Date09 September 2016

IN THE MATTER OF LARAGH CIVILS LIMITED (IN VOLUNTARY LIQUIDATION)

AND IN THE MATTER OF THE COMPANIES ACT 1963 – 2013

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

AND IN THE MATTER OF SECTION 56 OF THE COMPANY LAW ENFORCMENT ACT 2001

BETWEEN
MICHAEL FITZPATRICK
APPLICANT
AND
GERARD CONNAUGHTON

and

ANN-MARIE CONNAUGHTON
RESPONDENTS

[2016] IEHC 533

Keane J.

[2014 No. 284COS]

THE HIGH COURT

Company – S. 150 of the Companies Act 1990 as amended – Declaration to restrict a director – Lack of knowledge of the affairs of the company – Personal relationship.

Facts: The applicant/liquidator sought a declaration of restriction against the second named respondent under s. 150 of the Companies Act 1990. The applicant contended that the second named respondent failed to co-operate with the applicant and that the second named respondent had no knowledge of the affairs of the company. The second named respondent contended that the second named respondent had been a passive director of the company engaged by the first named respondent/spouse and the lack of knowledge would be attributable to the breakdown of the personal relationship with the first named respondent.

Mr. Justice David Keane made a declaration of restriction under s. 150(1) of the 1990 Act against the second named respondent. The Court found that the second named respondent failed to establish a defence under s. 150(2) of the 1990 Act. The Court held that a director of the company must be informed about the business and affairs of the company, own duties as a director and must exercise appropriate supervision. The Court held that a person who played no part in the conduct of the affairs of an insolvent company could not claim to have acted responsibly.

JUDGMENT of Mr. Justice David Keane delivered on the 9th September 2016
Introduction
1

This is an application for a declaration of restriction against the second named respondent under s. 150 of the Companies Act 1990, as amended.

Background
2

Laragh Civils Limited (‘the company’) was incorporated on the 27th April 2010. During its brief existence, the company carried on the business of civil engineering contractors. On the 14th August 2012, the first respondent certified to the Companies Registration Office that, at an extraordinary general meeting on the same date, the members of the company had resolved to wind it up. By resolution made at a meeting of the company's creditors, also on the 14th August 2012, the applicant was appointed liquidator.

3

Then and at all other material times, the two directors of, and shareholders in, the company were the respondents, a married couple, each of whom was appointed director with effect from the 27th April 2010, the date of the company's incorporation.

4

On the 27th May 2014, the applicant certified that, on the 14th August 2012, the date of his appointment, the company was insolvent in that it was unable to pay its liabilities as they fell due for payment.

5

On the 25th January 2013, the applicant furnished a report on the conduct of the respondent directors to the Director of Corporate Enforcement who received that report on the 28th January 2013. On the 30th April 2013, the Office of the Director wrote to inform the applicant that he was not relieved of his obligation under s. 56(2) of the Company Law Enforcement Act 2001 to apply to this court for the restriction under s. 150 of the Companies Act 1990 of each of the respondent directors.

6

By motion filed on the 20th May 2013, the applicant sought various reliefs against the first named respondent only. The first named respondent did not enter an appearance in response to that motion. On the 1st July 2013, this Court ( per Cooke J.) made orders in the following terms:

(i) That four separate payments made by the company to the first respondent on the 21st December 2011, the 22nd December 2011, the 17th March 2012 and 30th April 2012, amounting in total to €76,200 were a fraudulent preference of the first respondent over the company's creditors and were invalid;

(ii) That the said payments in the said amount were a disposal of the company's property the effect of which was to perpetrate a fraud on its creditors;

(iii) That the first respondent was liable to repay the said sum to the applicant as liquidator of the company;

(iv) That the first respondent was further liable to pay to the applicant as liquidator of the company the further sum of €98,055, pursuant to provisions of s. 298 (2) of the Companies Act 1963, as amended, whereby the Court is empowered to examine the conduct of a director and compel him contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or other breach of duty as the court thinks just.

(v) That, pursuant to the provisions of s. 297A (1) of the Companies Act 1963, as amended, the first respondent, as a person knowingly a party to the carrying on of the business of the company with intent to defraud creditors of the company, was declared personally responsible for certain debts of the company amounting to the sum of €265,282; and

(vi) That the first respondent was liable to repay the said sum to the applicant as liquidator of the company.

7

The present application is brought by motion issued on the 14th June 2014, originally made returnable for the 28th July 2014. The application was heard on the 27th April 2015.

8

On that date, I made a declaration of disqualification as a company director against the first named respondent under s. 160 of the Companies Act 1990, as amended (‘the 1990 Act’), for a period of five years, being satisfied that the jurisdictional requirements of s. 160 (2) (b), (c) and (d) had been established and that, on the evidence before me, that respondent's past conduct makes him presently unfit to act in that, or any related, capacity as envisaged under that section. Although the first named respondent had not entered an appearance in response to the application against him, I was satisfied, on the evidence adduced at the commencement of the application, that he had been properly served with the originating notice of motion, and accompanying motion papers, in accordance with the Rules and the previous orders of this Court.

9

Having heard argument in relation to the application pursuant to s. 150 of the 1990 Act, to restrict the second named respondent as a company director, I reserved my decision on that aspect of the motion.

10

Before doing so, I ruled ex tempore against the second named respondent's submission that the application against her should not be permitted to proceed on grounds of delay.

11

In that regard, it is undoubtedly the position that, having submitted his report to the Director of Corporate Enforcement in January 2013, the applicant failed to comply with the requirement under s. 56(2) of the Company Law Enforcement Act 2001 (‘the 2001 Act’) that he bring restriction proceedings within five months of that event i.e. no later than June 2013. The present motion was not brought until June 2014, some twelve months later.

12

The applicant has averred that, during that period, he was obliged to devote significant time and resources to the pressing claims of fraudulent preference and breach of duty that squarely arose as between the company and the first named respondent. In addition, the applicant has averred that he received no co-operation from the respondents in the conduct of the liquidation. While the second named respondent disputes the applicant's claim that she has failed to co-operate with him, averring that she received no communication from him prior to the issue of the present motion, little turns on the point since, as we shall see, her position is that, despite her status as a director of the company, she had no knowledge of the company's affairs to offer, rendering her professed willingness to co-operate of no practical assistance to the applicant in advancing the liquidation.

13

Indeed, the defence relied upon by the second named respondent is she should be considered to have acted responsibly as a purely passive or token director of her husband's company, entirely uninvolved in, and ignorant of, its management and with no role in its corporate governance. It follows that her defence is not hampered by lapse of time in the way that it might be if she were seeking to make the case that she had acted honestly and responsibly while engaged in the conduct of the company's affairs but was now prejudiced in her efforts to assemble the appropriate witnesses and evidence required to discharge the onus on her to establish that fact due to the applicant's delay in bringing the present application. While any lapse of time prior to trial is prejudicial to a respondent, indeed to any litigant, in as far as it entails a commensurate period of worry or anxiety prior to the determination of that person's rights or obligations, I did not consider that the lapse of time in this case, given the circumstances in which it occurred, was such, in and of itself, as to warrant, much less require, the dismissal of the restriction application against the second named respondent.

14

For those reasons, I ruled that the application should proceed. I also made an order, pursuant to the terms of s. 56(2) of the 2001 Act, extending the time for bringing it.

The issue on the application to restrict the second named respondent
15

The second named respondent does not dispute that the company was unable to pay its debts at the commencement of its winding up. Nor does she deny that she was a director of the company at the material time or that the Director of Corporate Enforcement has not relieved the applicant of the obligation otherwise incumbent on him under s. 56 (2) of the 2001 Act to bring the present application against her in respect of the...

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3 cases
  • Alvonway Investments Ltd ((in Receivership) and (in Liquidation)) v The Companies Act 2014
    • Ireland
    • High Court
    • 29 July 2020
    ...directors pursuant to s. 160(2)(b) to one where there is a ‘real moral blame’ on their part shown.” 90 In Re Laragh Civils Limited [2016] IEHC 533, Keane J. at para. 37 of his judgment stated: - “37. As the Court of Appeal recently confirmed in the case of Director of Corporate Enforcement ......
  • Powers v Greymountain Management Ltd [(in Liquidation)]
    • Ireland
    • High Court
    • 28 October 2022
    ...433). In Fennell v. Appelbe [2022] IECA 160, the Court of Appeal relied upon the judgement of by Keane J. in in Re Laragh Civils Limited [2016] IEHC 533. In that case, in which the director was subjected to a restriction order, Keane J. stated at para. 26 et seq that: “26. Whatever the vari......
  • Ken Fennell v Appelbe
    • Ireland
    • Court of Appeal (Ireland)
    • 12 July 2022
    ...added) (at para.12) 64 . The distinction between an executive and a non-executive director was also explored in Re Laragh Civils Limited [2016] IEHC 533. As said by Keane J.: “26. Whatever the variation in the level of permissible delegation may be between different sorts of director in var......
1 firm's commentaries
  • Restriction Of Non-Executive Directors Update
    • Ireland
    • Mondaq Ireland
    • 21 November 2022
    ...& others [2010] 3 IR 374; Kavanagh v Riedler [2004] 3 IR 498; Wallace v Edgeworth & ors [2017] IEHC 475 and; Fitzpatrick v Connaughton [2016] IEHC 533. The case concerned, amongst other matters, a director who self-avowedly "had little knowledge of what happened in the company". The liquida......

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