Leahy v Bailey
| Jurisdiction | Ireland |
| Judge | Mr. Justice David Keane |
| Judgment Date | 28 October 2016 |
| Neutral Citation | [2016] IEHC 592 |
| Court | High Court |
| Docket Number | [2016 No. 37 Cos] |
| Date | 28 October 2016 |
[2016] IEHC 592
THE HIGH COURT
Keane J.
[2016 No. 37 Cos]
IN THE MATTER OF SPUR (LIFFEY VALLEY) RESTAURANTS LIMITED
(IN VOLUNTARY LIQUIDATION)
AND IN THE MATTER OF SECTION 819 OF THE COMPANIES ACT 2014
AND
Company – S. 819(1) of the Companies Act 2014, formerly s. 150 of the Companies Act 1990 – Restriction against the directors – Franchise and lease agreements – Failure to co-operate with liquidator – Irresponsible conduct in the affairs of the company
Facts: The applicant/liquidator filed the present application to seek a declaration of restriction against each of the three respondents/directors under s. 819(1) of the Companies Act 2014, formerly s. 150 of the Companies Act 1990. The applicant contended that the respondents had failed to provide any significant details and information as regards the franchise and lease agreements between the company and another company. The applicant contended that the respondents failed to make themselves aware about the affairs of the company and did not take action to take the company out of difficulty.
Mr. Justice David Keane made the appropriate declaration of restriction against each of the respondents under s. 819(1) of the 2014 Act. The Court held that the respondents failed to establish that the respondents had acted honestly and responsibly in relation to the affairs of the company. The Court held that the respondents displayed lack of information about the company's affairs and made no attempts to keep the company afloat. The Court found that there was failure of the respondents to co-operate with the applicant as liquidator as they had failed to provide the documentation and information necessary to allow a proper examination of the purported franchise and lease agreements between the concerned company and another company. The Court further found that the respondents had breached the fiduciary duty by benefitting the other company in the transactions between the concerned company and the other company of which they were directors and shareholders.
This is an application for a declaration of restriction against each of the respondents under s. 819(1) of the Companies Act 2014 (“the 2014 Act”), formerly s. 150(1) of the Companies Act 1990 (“the 1990 Act”).
Spur (Liffey Valley) Restaurants Limited (“the company”) was incorporated on the 27th November 2001. As its name suggests, the company operated a restaurant in the “Liffey Valley Shopping Centre” at Fonthill Road, Clondalkin, Dublin 22.
By ordinary resolution on the 25th January 2013, the members of the company resolved to wind it up and to appoint the applicant as liquidator for that purpose.
At the commencement of the winding up, the respondents were the directors of the company, and the first named respondent was its secretary.
The applicant has certified that, at the commencement of the winding up, the company was insolvent in that it was unable to pay its debts within the meaning of s. 570 of the Companies Act 2014.
On the 30th October 2013, the Office of the Director of Corporate Enforcement wrote to inform the applicant that he was not relieved of his obligation under s. 56(2) of the Company Law Enforcement Act 2001 (“the 2001 Act”) to apply to this court for a declaration of restriction in respect of each of the respondent directors under s. 150 of the 1990 Act (now s. 819 of the 2014 Act).
The present application is brought by motion issued on the 1st February 2016, originally made returnable for the 7th March 2016. While there was some correspondence between the applicant and a representative of the first and second named respondents prior to the application, there was no appearance on behalf of any of the respondents in opposition to it.
From the evidence before me, I am satisfied that each of the respondents was a director of the company at the material time; that the company is, and was at the date of the commencement of its winding up, insolvent; and that the Director of Corporate Enforcement has not relieved the applicant of the obligation to bring the present application.
It follows that I am obliged to make a declaration of restriction under s. 819 of the 2014 Act in respect of each of the respondents unless satisfied that the conduct of each or any of them comes within the circumstances set out in sub-s. (2) of that section.
I am therefore required to consider whether I can be satisfied that each of the respondents acted honestly and responsibly in relation to the conduct of the company's affairs and that it is not otherwise just and equitable to subject any of them to restriction.
The company traded for a period of approximately eleven and a half years between July 2001 and December 2012.
Each of the respondents was a director of the company throughout that period and until the commencement of the company's winding up. The first named respondent was operations director, the second named respondent was managing director, and the third named respondent was a non-executive director.
The applicant acknowledges that, with one notable exception to which reference will be made shortly, the company maintained proper books and records and that it filed the appropriate returns with the Companies Registration Office. According to the statement of affairs prepared by its directors, the company had unpaid Revenue liabilities amounting to €169,482 at the commencement of its winding up, comprising €155,450 in unpaid VAT and €14,649 in unpaid PAYE/PRSI. The company made the required VAT returns and payments for each two month period up to and including that of July and August 2012 and the necessary PRSI and PAYE payments for all periods up to and including September 2012.
The applicant avers that, while the company initially traded profitably, in later years it experienced a significant decline in its turnover from approximately €3.3 million in 2007/8 to €2.3 million in 2010/11. The directors sought to address this difficulty by implementing reductions in the company's overheads and staff costs but were unable to secure a reduction in the rent of its restaurant premises sufficient to permit it to continue to trade.
The specific factual issue raised by the applicant concerns the manner in which the company dealt with a debt that was owed to it by another company named Trinity Leisure Limited (“Trinity”). Trinity is an English registered company that holds 95% of the company's issued shares. According to both the directors' report in Trinity's most recent available returns (for the year ended the 30th June 2009) and its most recent available annual return made on the 19th January 2011, the directors of Trinity are the first and second named respondents.
The company's financial statements for the year ended the 30th June 2010 record that its assets include amounts owed to it by “group undertakings” in the amount of €1,963,989, and that its liabilities include shareholders' loans in the sum of €1,117,645. No intangible assets are included amongst the company's fixed assets in its balance sheet as...
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