James Clancy v Con O'Callaghan and Another

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan
• Judgment Date: 06 May 2014
• Neutral Citation: [2014] IEHC 227
• Court: High Court
• Date: 06 May 2014

[2014] IEHC 227

THE HIGH COURT

[No. 509 COS/2013]

Clancy v O'Callaghan

IN THE MATTER OF ABINGTON GARAGE DOORS LIMITED (IN VOLUNTARY LIQUIDATION)

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

AND SECTION 56 OF THE COMPANY LAW ENFORCEMENT ACT 2001

BETWEEN

JAMES CLANCY

APPLICANT

AND

CON O'CALLAGHAN AND BRIDIE O'CALLAGHAN

RESPONDENTS

COMPANY LAW ENFORCEMENT ACT 2001 S56

COMPANIES ACT 1990 S150

DERBAR DEVELOPMENTS LTD (IN LIQUIDATION), IN RE; MCGUINNESS v DOBBIN & LAVELLE UNREP FINLAY-GEOGHEGAN 201.4.2012 2012/32/9360 2012 IEHC 144

MITEK HOLDINGS LTD, IN RE; GRACE (LIQUIDATOR) v KACHKAR & MCCELLAN CARRIGAN 2010 3 IR 374 2010/36/9110 2010 IESC 31

SQUASH (IRL) LTD, IN RE 2001 3 IR 35 2001/23/6280 2001 IESC 200

SWANPOOL LTD (IN VOLUNTARY LIQUIDATION), IN RE; MCLAUGHLIN v LANNEN 2006 2 ILRM 217 2005/43/8968 2005 IEHC 341

FREDERICK INNS LTD, IN RE 1994 1 ILRM 387 1994 ITR 779 1993/11/3568 1993 IESC 1

Companies – Liquidator – Directors – Winding up – Restriction – Creditors – Misapplication of money – Inaccurate directors statement – s.150 Companies Act 1990.

Facts: The applicant who was the liquidator of Abington Garage Doors Ltd. brought an application pursuant to s.150 Companies Act 1990 which if granted would result in a declaration of restriction against the respondents (Mr. and Mrs. O”Callaghan) who were the directors of Abington. The respondents were directors of the company within twelve months of the date of commencement of it”s winding up and the onus was on them to show that they had acted honestly and responsibly in conducting the affairs of the company. Consequently, they had to show that they had acted honestly and responsibly in respect of the following: (a) allowing the company to continue to trade even when experiencing financial and trading difficulties (b) incorporating another company, namely Garage Doors Direct Ltd., to carry on the same business as Abington (c) misapplying company money by not setting aside on trust money given by a customer as a deposit for an installation that was never carried out (d) preparing an inaccurate directors” statement of affairs by including as debt owed to them a claim for rent which consequently made them the largest creditor and allowed them to oppose the appointment of a liquidator.

Held by Finlay Geoghegan J., that in order to decide whether to grant the restriction under s.150 Companies Act 1990 it was necessary to consider the entire tenure of the directors at Abington. As regards allowing the company to continue trading while experiencing problems Finlay Geoghegan J. held that the directors notified their main creditor of these problems and kept them up to date with the status of the company at all times and that notwithstanding this, the creditor encouraged them to continue trading. Regarding the incorporation of Garage Doors Direct Ltd. it was accepted that this new company did not start trading until after Abington had stopped trading. In addition, the former did not use any of the latter”s assets nor did it do business with any of Abington”s customers or suppliers.

As regards the misapplication of company money Finlay Geoghegan J. came to the conclusion that the money paid by a customer as a deposit was used in the ordinary course of business and therefore it could not be said that the respondents had in fact misapplied the company”s money. Finally, regarding the contention that the directors had prepared an inaccurate directors statement and their consequent failure to appoint a liquidator, the judge accepted that this was an error of judgment but found that there was no dishonest intent and that taking into account the overall tenure of the respondents as directors it could not be said that they had acted irresponsibly.

Application dismissed

1 JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 6th day of May 2014

2 1. The applicant is the liquidator ("the Liquidator") of Abington Garage Doors Ltd. (In Voluntary Liquidation) ("Abington"). He was so appointed on 27 ^th June, 2012.

3 2. Abington was incorporated on 11 ^th November, 1999. The respondents, Mr. and Mrs. O'Callaghan were directors of Abington within twelve months of the date of the winding up. Mr. O'Callaghan remained a director at the time of the passing of the resolutions in favour of winding up. Mrs. O'Callaghan resigned as a director on 7 ^th December, 2011.

4 3. The Liquidator brings this application as he has not been relieved of his obligations to do so by the Director of Corporate Enforcement following a report made pursuant to s. 56 of the Company Law Enforcement Act 2001.

5 4. It is not in dispute that Abington was insolvent at the date of commencement of the winding up and that each of the respondents was a director within twelve months of the date of commencement of the winding up. The respondents accept that there is an onus on them in such circumstances to satisfy the Court that they acted both honestly and responsibly in relation to the conduct of the affairs of Abington whilst a director thereof if they are to avoid a declaration of restriction pursuant to s. 150 of the Companies Act 1990.

6 5. The Liquidator commenced the application on an originating notice of motion grounded on an affidavit, and in accordance with the practice direction on s. 150 applications of 24 ^th March, 2003, set out the matters of concern which appeared to him to require consideration by the Court. He deposed that they fell under three headings:

7 (a) Engagement in 'Phoenix'-Type Practices;

8 (b) Misapplication of Company Property; and

9 (c) Filing of Inaccurate Directors' Statement of Affairs.

10 Each of the respondents filed replying affidavits dealing with the factual matters raised by the Liquidator and explaining certain other matters. There were also further affidavits from the Liquidator and respondents. Ultimately, the matter came on for oral hearing and the respondents represented themselves and handed in to the Court a written submission which they supplemented by oral submission.

11 6. The primary facts are not in dispute. There are disputes as to the inferences which the Court is asked to draw from those facts. The business of Abington was a focused niche business of installing electronic garage doors. It appears to have taken over a prior unincorporated business of Mr. O'Callaghan in 1999. Its supplier of the electronic garage doors was PC Henderson Ltd. That company was also the principal creditor of Abington at the time of its winding up and nominated the Liquidator. The statement of affairs discloses a sum of €69,728.74 as the debt due to PC Henderson. The total debts due by Abington to all creditors at the date of commencement of the winding up, including a directors' loan of approximately €40,000, was in the order of €120,000.

12 7. The trading of Abington appears to have become difficult following the economic downturn starting in 2008. By 2010, the respondents depose that they notified PC Henderson Ltd. of its financial constraint and trading difficulties and exhibit a copy letter to that company. They also depose that they kept PC Henderson Ltd. as their main creditor "frankly and honestly appraised of the company's status and difficulties at all times". Further, they depose that PC Henderson Ltd. chose to continue to extend credit to the company and they exhibit a note which one of the respondents prepared for the accountant of Abington of a meeting held with a representative of PC Henderson Ltd. in Portlaoise in November 2011. That note records the respondents informing Mr. Mooney of PC Henderson Ltd. of their intention to close Abington because of difficulties with cash flow, in relation to a cheque written to Henderson's and a downturn in turnover. It also records Mr. Mooney expressing a view that it would serve "both our interests better" if Abington were to continue trading. He also indicated a willingness by Henderson's to accommodate a failure to meet payment deadlines. Finally, it records a decision taken by the respondents to continue with Abington.

13 8. Notwithstanding that decision, the facts deposed to also disclose that on 6 ^th December, 2011, Mrs. O'Callaghan and one of their children incorporated Garage Doors Direct Ltd. with objects similar to those of Abington. Mrs. O'Callaghan became a director of Garage Doors Direct on 6 ^th December, 2011, on its incorporation. It is accepted that the intention was that Garage Doors Direct would carry on business installing electronic garage doors. This is the factual basis of the 'Phoenix' syndrome concern raised by the Liquidator.

14 9. On the facts deposed, and the exhibits. I accept that Mrs. O'Callaghan has established that Garage Doors Direct did not commence trading until April 2012. The respondents have also deposed, which I accept, that Abington ceased trading at that time. Further, it is deposed, and I accept, that no assets of Abington were transferred to or used by Garage Doors Direct. Finally, it is also averred that Garage Doors Direct did not do business with any customer or supplier of Abington. I also accept this as a matter of fact.

15 10. Finally, on this issue, the respondents depose that in 2012, Abington had no...