Kelly's Carpetdrome Ltd v Gaynor & Tuffy
| Jurisdiction | Ireland |
| Judge | O'Hanlon J., |
| Judgment Date | 13 July 1984 |
| Neutral Citation | 1986 WJSC-HC 957 |
| Docket Number | No. 7508 P/1981 |
| Court | High Court |
| Date | 13 July 1984 |
1986 WJSC-HC 957
THE HIGH COURT
Citations:
ALUMINIUM FABRICATORS LTD, IN RE 1984 ILRM 399
BATER V BATER 1950 2 AER 458
CHALMERS V SHACKELL 6 C&P 475
CHONA DISTRIBUTORS LTD, IN RE 1967 1 CH 889
COMPANIES ACT 1948 S332 (UK)
COMPANIES ACT 1963 S297
HORNAL V NEUBERGER PRODUCTS LTD 1956 3 AER 970, 1957 1 QB 247, 1956 3 WLR 1034
LEITCH BROS LTD (NO 2), IN RE 1933 CH 261
LEITCH BROS LTD, IN RE 1932 2 CH 71
MAIDSTONE BUILDINGS LTD, IN RE 1971 1 WLR 1085
PATRICK & LYON LTD, IN RE 1933 1 CH 786
R V GRANTHAM 1984 WLR 815
R V TERRY 1984 2 WLR
SARFLAX LTD, IN RE 1979 1 CH 592
STATHAM V STATHAM 1929 P 131
THURTELL V BEAUMONT 1 BING 339
WILLMETT V HARMER 8 C&P 695
Synopsis:
EVIDENCE
Onus of proof
Fraud - Company debts - Personal responsibility - Unlimited liability - Liquidator's claim under s.297(1) of Act of 1963 - Claim that respondent had been, knowingly, party to the business of the company being carried on with intention to defraud its creditors - If claim proved, court empowered to declare respondent personally responsible, without limitation, for all or any of the debts of the company - Claim dismissed on the balance of probabilities - Alleged conduct made a criminal offence by s.297(3) - ~Quaere~: whether a higher standard of proof is required where particular conduct attracts both civil and criminal liability - Companies Act, 1963, s.297 - (1981/7508 P - O'Hanlon J. - 13/7/84)
|Kelly's Carpetdrome v. Gaynor|
FRAUD
Evidence
Company debts - Personal responsibility - Unlimited liability - Liquidator's claim under s.297(1) of Act of 1963 - Claim that respondent had been, knowingly, party to the business of the company being carried on with intention to defraud its creditors - If claim proved, court empowered to declare respondent personally responsible, without limitation, for all or any of the debts of the company - Claim dismissed on the balance of probabilities - Alleged conduct made a criminal offence by s.297(3) - ~Quaere~: whether a higher standard of proof is required where particular conduct attracts both civil and criminal liability - Companies Act, 1963, s.297 - (1981/7508 P - O'Hanlon J. - 13/7/84)
|Kelly's Carpetdrome v. Gaynor|
WINDING UP
Fraud
Company debts - Personal responsibility - Unlimited liability - Liquidator's claim pursuant to s.297(1) of Act of 1963 - Liquidator claimed that the business of the company had been carried on with the intention to defraud its creditors, and that the respondent accountants had been, knowingly, parties to such conduct - Section 297(1) states that, if a claim under the sub- section is proved, the court may declare such parties personally responsible, without limitation, for all or any of the debts of the company - Section 297(3) makes that conduct a criminal offence - Held that, on the balance of probabilities, the court was not satisfied that the respondents had knowingly participated in the fraudulent transactions of the company - Application dismissed - ~Quaere~: whether a higher standard of proof is required where particular conduct attracts both civil and criminal liability - Companies Act, 1963, s.297 - (1981/7508 P - O'Hanlon J. - 13/7/84)
|Kelly's Carpetdrome v. Gaynor|
Judgment delivered by O'Hanlon J., the 13th day of July, 1984.
In these proceedings the liquidator of Kelly's Carpetdrome Limited invokes the provisions of Sec. 297 of the Companies Act, 1999, for the purpose of asking the court to make an order which would have the effect of imposing personal liability on the members of a firm of accountants - Messrs. Gaynor, Tuffy and Company - in respect of the debts or other liabilities of the company. This claim in turn is based on the contention that the two partners in the firm - Fergal Gaynor and Patrick Tuffy - were knowingly parties to the carrying on of the business of Kelly's Carpetdrome Limited with intent to defraud creditors of the company or creditors of some other person or for some fraudulent purpose.
There are, accordingly, two essential features involved in the claim. In the first place it must be established to the satisfaction of the court that the business of the company was, in fact, carried on in such a manner and with such intent as to achieve one or more of the fraudulent purposes referred to in Section 297, and secondly it must also be established to the satisfaction of the court that the respondents were knowingly parties to the carrying on of the business in manner aforesaid.
The liquidator has succeeded in bringing home the change of fraud against the company in these proceedings, just as he had already done in earlier proceedings before Mr. Justice Costello, in the course of which an order has already been made under the provisions of Sec. 297 of the Act imposing personal liability on two other persons - Matthew Kelly and Eamonn Kelly. The most salient features of fraudulent practices as established against the company in these proceedings will appear in the course of the present judgment.
A company named Kelly's Carpet Supermarket Limited was incorporated on the 6th December, 1973, and continued to trade until the year 1976. On the 28th October, 1976, Kelly's Carpetdrome Limited was incorporated and effectively took over the carpet retailing business formerly carried on by Kelly's Carpet Supermarket Limited. On the 27th May, 1977, a resolution was passed at a General Meeting of the members of Kelly's Carpet Supermarket Limited that the Company, by reason of its liabilities could not continue in business and that it should be wound up voluntarily, and that Mr. Fergal Gaynor of Gaynor, Tuffy and Company be appointed as Liquidator of the Company.
The evidence given in the course of the present proceedings suggested that the claims of all creditors of Kelly's Carpet Super-market Limited had been met in full, with the exception of large out-standing claims for VAT presented by the Revenue Commissioners, and it was contended that the winding up of one company and the formation of another on that occasion was merely a device to enable the old business to continue under a new name while at the same time defrauding the Revenue Commissioners of the amounts claimed for VAT against the original company. It was further suggested that this was a course of conduct which, with the passage of time, was repeated when Kelly's Carpetdrome Limited was put into liquidation and the phoenix rose from the ashes again, on this occasion in the shape or guise of Kelly's Carpet Drive-In Limited. However, the evidence to support the allegation that the winding-up of Kelly's Carpet Supermarket Limited was part of a fraudulent scheme to which the first-named Respondent lent himself in his capacity as Liquidator of that company, is inconclusive. The Revenue Commissioners are the only creditor of the company who are still unsatisfied. The winding-up of the company has lain dormant for several years, and the VAT claim by the Revenue Commissioners, which was disputed in its entirety by the Liquidator, has never been finally determined, although the Revenue Commissioners had at all times the means in their power to press their claim to a conclusion had they elected to do so.
For these reasons, although there is, indeed, a marked similarity between the procedure adopted for securing the transfer of the business and assets of Kelly's Carpets (Supermarket) Limited to Kelly's Carpetdrome Limited in the 1976/77 period, and that adopted later when Kelly's Carpetdrome Limited was put into liquidation and its mantle was assumed by Kelly's Carpet Drive-In Limited, I think the evidence regarding the earlier transaction remains neutral in character and cannot be relied on to implicate the Respondents in any charges of fraud brought against the various companies. For what it is worth, the evidence does show that the services of Messrs. Gaynor, Tuffy and Co., as accountants, were being availed of by Mr. Matthew Kelly and his associates as far back as the mid-seventies.
Kelly's Carpetdrome Limited continued to trade in premises in Phibsborough on the north side of Dublin, for about five years from the date of its incorporation and built up a huge turn-over as carpet retailers and in allied lines of business. Messrs. Gaynor, Tuffy and Company acted for the company in registering it with the Revenue authorities for VAT and PAYE, and were asked by Matthew Kelly to advise on the accounting procedures of the company. Their intervention in this field, however, met with a hostile reception from the accountant employed by the company and as they were unable to take over the full responsibility of acting as accountants for the company they withdrew from the scene and were thereafter consulted only in relation to specific problems which arose from time to time. I am satisfied that they did not hold themselves out as Auditors of the company, or carry out an audit of its accounts at any time, and from what the court was told of the book-keeping practices observed by the company the completion of an audit at any time would have presented any firm of accountants with enormous difficulties.
The evidence of Mr. Brendan McGoldrick, who acted as accountant of the company during the last year or two of its existence, conveyed that a huge proportion of the cash transactions conducted by Kelly's Carpetdrome Limited with its customers never found their way into the ordinary books of account of the company, but were recorded secretly in a different set of books. By this means the accounting system of the company was so conducted as to conceal from the...
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