Kirk v Kershaw

• Jurisdiction: Ireland
• Judge: Mr. Justice Binchy
• Judgment Date: 16 February 2016
• Neutral Citation: [2016] IEHC 122
• Docket Number: Record No. 2013/381COS
• Court: High Court
• Date: 16 February 2016

[2016] IEHC 122

THE HIGH COURT

Binchy J.

Record No. 2013/381COS

IN THE MATTER OF MANVIK IRELAND 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

CIARAN KIRK

Applicant

AND

MARK KERSHAW, PHILIP KERSHAW, CIARA KERSHAW, JOHN MEADE

AND

RYAN CUNNINGHAM

Respondent

Company – The Companies Act, 1990 – S. 819 of the Companies Act 2014 – The Company Law Enforcement Act 2001 – Voluntary liquidation – Declaration of restriction – Shadow director – Irresponsible acts

Facts: The applicant/official liquidator sought a declaration of restriction against the respondents under s. 150 of the Companies Act, 1990, as amended. The applicant contended that the first and second named respondents had acted irresponsibly by not filing the statutory returns and audited accounts, by not maintaining proper books, and incurring liabilities to the Revenue Commissioners. The applicant also alleged that the first to third named respondents failed to assist him in carrying out his investigations. The first named respondent denied any responsibility in relation to the conduct of the company.

Mr. Justice Binchy granted the declaration of restriction in relation to the first, second and third named respondents while denying such declaration in relation to the fourth and fifth named respondents. The Court held that even after resigning from the directorship of the company, the first named respondent continued to be a shadow director as evident from his conduct of re-appointing himself as the managing director and signing two bank accounts of the company. The Court observed that in order to fix the liability of a director, the Court should consider the extent to which a director had failed to comply with mandatory statutory provisions, and his acts or omissions that contributed significantly to the insolvency of the company by displaying lack of commercial probity. The Court found that during the time the first named respondent was the de jure director, the company incurred huge debt and thus, the first named respondent could not escape liability. The Court held that the second and third named respondent, though not actively involved in conducting the affairs of the company, were nonetheless liable as they abdicated their responsibility while being fully aware of the crisis that the company had been undergoing. The Court found that since the fourth and fifth named respondent were appointed directors of the company at the time of extreme crisis, during which they made efforts to negotiate the matter with the Revenue Commissioners and co-operated fully with the liquidator despite having little role to play as the resolution for the winding of the company had been passed, it was evident that they had acted quite responsibly in regulating the affairs of the company as far as practicable.

JUDGMENT of Mr. Justice Binchy delivered on the 16th day of February, 2015

1 This is an application for a declaration of restriction against each of the respondents under section 150 of the Companies Act, 1990, as amended. That section has been replaced by s.819 of the Companies Act 2014 (hereafter the ‘Act of 2014’), which came into effect on 1st June, 2015 under Article 3 of the Companies Act 2014 (Commencement) Order 2015 ( S.I. 169 of 2015). Section 5(7) of the Act of 2014 provides, that:-‘Schedule 6 contains further savings and transitional provisions and shall have effect accordingly.’ Paragraph 8(1) of schedule 6 to the Act of 2014 states:-

‘Anything commenced under a provision of the prior Companies Acts, before the repeal, by this Act, of that provision, and not completed before that repeal, may be continued and completed under the corresponding provision of this Act.’

Accordingly this application now falls to be dealt with under s 819 of the Act of 2014 rather than under s 150 of the Act of 1990.

Background facts:

2 Manvik Ireland Limited (hereinafter ‘the Company’), was incorporated on 26th September 1996. The Company changed its name from “Ashley Park International Limited” to “Manvik Ireland Limited” on 17th December, 2007. The primary activity of the Company was the leasing and sale of waste handling vehicles (primarily to county councils and companies working in conjunction with county councils) from premises on Turnpike Road, Ballymount, Dublin 22.

3 The first directors of the Company were the first named respondent and his father, Alan Kershaw who were directors from 4th December, 1998 until 7th December, 2007. The second and third named respondents were directors from 3rd December, 2007 until 19th October, 2010 when the third named respondent resigned as director and 20th December, 2010 when the second named respondent resigned as director. During this time, Mr. Declan Murray was appointed a director on 11th October, 2007 and Mr. Evan Dolan was appointed as a director on 3rd December, 2007. Both Mr. Murray and Mr. Dolan resigned with effect from 7th September, 2009.

4 According to the first named respondent, during the Company's life there were three distinct management teams; between 1998-2007, the Company was managed by Alan Kershaw, the father of the first, second and third named respondents and during which period he and the first named respondent were directors of the Company; between 2007 and September 2009 the Company was managed by Mr. Wayne Byrne, Mr. Declan Murray and Mr. Evan Dolan who were also shareholders in the Company; and finally in September 2009 upon the fourth named respondent becoming a 50% shareholder, the Company was placed under the management of Mr. Paul Stephens and Mr. Ray Mc Sorley. It is not disputed that neither the second nor third named respondents had any significant role to play in the affairs of the Company. The second named respondent was employed by the Company as a sales representative, but was not involved in the management of the business and says that he did not, as a director, attend monthly meetings although he did sign documents when requested to do so. The second named respondent was born on 18th July, 1982 and was 25 years of age when he was appointed a director of the Company. The third named respondent was born on 4th July, 1987 and trained as a beauty therapist. She was appointed as a director of the Company when she was 20 years of age. Neither the second nor third named respondent had any relevant business experience and clearly became directors to be of assistance to other members of their family, in particular their father Alan Kershaw and the first named respondent. It appears that Mr. Alan Kershaw owned the Company until he sold 50% of the same to the fourth named respondent in 2009. Although only appointed a director of the Company in October, 2010, it appears to be common case as between the fourth named respondent and the first named respondent that the involvement of the fourth named respondent in the affairs of the Company goes back to 2009. According to the fourth named respondent he invested in the Company and gave guarantees on behalf of the Company as a favour to his friend, Mr. Alan Kershaw. The fourth named respondent says that at the time he bought into the Company, he instructed consultants to carry out a ‘high level due diligence, but that the audited accounts provided by Mr. Alan Kershaw did not make any provision for outstanding tax liabilities.’ At the time the Company had accumulated a substantial liability to the Revenue Commissioners, to which I refer in more detail below.

5 On 23rd May, 2011 the Company ceased trading. As of that date the Company had 39 employees. On 24th May, 2011 a general meeting of the Company was held. At that meeting, a resolution was passed which resolved that the Company, by reason of its liabilities, could not continue its business and that the Company was insolvent within the meaning of the Companies Acts 1963-2006. On the same date, a resolution was passed by the creditors of the Company, by which the applicant was appointed as official liquidator of the Company. The applicant now brings this application, not having been relieved from doing so by the Director of Corporate Enforcement. The applicant states that as of the date of commencement of winding up, the 24th of May, 2011, the Company was unable to pay its debts within the meaning of section 214 of the Companies Acts 1963. A statement of affairs was prepared by the respondents and presented to the members and creditors of the Company on 24th May, 2011. From the statement of affairs it appears that there is an estimated overall deficiency of approximately €6million in excess of liabilities over assets. Of that amount, €3.8million is owed to the Revenue Commissioners.

The Liquidator's Affidavit

Position of the first, second and third respondents

The Liquidator's Affidavit

6 The first named respondent, Mark Kershaw, was the managing director of the Company between 4th December 1998 and 7th December, 2007, when he resigned as managing director. However, it is the applicant's position that the first respondent was either a de facto or shadow director of the Company for the period between 25th May, 2010 to November 2010 for the following reasons (as set out in his affidavit sworn 25th October, 2013);

‘(a) The first named respondent held himself out as ‘Group Managing Director of Manvik Group’ in emails;

(b) The first named respondent was responsible for the Company's overall performance and its day to day operations during this period;

(c) The first named Respondent arranged the discharge of employee expenses;

(d) I understand that Mr. Ray McSorley (Chief Operations Officer) and Paul Stephens (Group Chief Executive Officer) were suspended by the first named respondent;

(e) The first named respondent signed two company account bank mandate forms as a director of the Company on 24th September...