Leahy v O'Keefe
| Jurisdiction | Ireland |
| Judge | Mr. Justice David Keane |
| Judgment Date | 21 October 2016 |
| Neutral Citation | [2016] IEHC 589 |
| Docket Number | [2015 No. 297 Cos] |
| Court | High Court |
| Date | 21 October 2016 |
[2016] IEHC 589
THE HIGH COURT
Keane J.
[2015 No. 297 Cos]
IN THE MATTER OF FÁILTE LOGISTICS AND DISTRIBUTION 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 – Nature and extent of the company's liabilities – Professional advice – Deduction of wages of employees – 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 two 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 acted dishonestly or irresponsibly in accepting the appointment as a director of company without properly making themselves aware that the company was insolvent and concerning the nature and extent of the company's liabilities to the Revenue Commissioners at that time. The respondents contended that they had made efforts to trade out the company from insolvency.
Mr. Justice David Keane made the appropriate declaration of restriction against the respondents under s. 819(1) of the 2014 Act. The Court held that the respondents had failed to establish that the respondents acted honestly and responsibly in relation to the affairs of the company. The Court found that in order to assess whether a director had acted responsibly, the extent of a director's conduct responsible for the insolvency of a company and the extent to which a director had displayed lack of commercial probity needed to be determined. The Court found that though the respondents agreed to become directors of a company with consistent history of trading losses, they did not bother to seek any professional advice of any kind that could trade out the company from insolvency.
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 of the Companies Act 1990 (“the 1990 Act”).
Fáilte Logistics & Distribution Limited (“the company”) was incorporated on the 30th May 2011. The company carried on business as a courier service.
On the 11th August 2014, the second named respondent certified to the Companies Registration Office that, at an extraordinary general meeting on the preceding 6th August, the members of the company had 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 two directors of the company, and the first respondent was its secretary. The respondents were then joint managing directors of the company and each held a 10% shareholding in it.
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 6th February 2015, the applicant submitted a report to the Director of Corporate Enforcement who received it on the 9th February. On the 11th May, 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 (“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 21st July, originally made returnable for the 12th October. The application was heard on the 30th November last and judgment was reserved.
The respondents do not dispute that the company was unable to pay its debts at the commencement of its winding up. Nor does either respondent deny that he 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 to bring the present application.
It follows that the Court is 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 either or both comes within the circumstances set out in sub-s. (2) of that section.
The specific issue that arises under s. 819(2) of the 2014 Act is whether each of the respondents acted honestly and, more particularly, responsibly in relation to the conduct of the company's affairs.
The company commenced trading on the 15th June 2011 and ceased trading in or about July 2013, a period of just over two years.
A separate company named Fáilte Couriers Limited (“Couriers”) had gone into liquidation on the 13th July 2011, having traded in the same business sector since 1991, for a period of approximately 20 years. At the commencement of its winding up, Couriers owed a substantial debt to the Revenue Commissioners. The business of Couriers was operated by the respondents' father, and each of the respondents was a director of that company at the commencement of its winding up.
When the company commenced trading in June 2011, each of the respondents was employed by it. Staff members from Couriers were taken on by it. It sought to acquire or take over Couriers' customer base.
Each of the respondents became a director of the company in November 2012, replacing the company's previous directors. During the less than eighteen-month period of trading up to that point, the company has incurred a total liability to the Revenue Commissioners of €340,000, of which €182,000 had been discharged, leaving an outstanding liability to the Revenue Commissioners at that time of €158,000.
During the approximately eight-month phase of trading that followed, until the company ceased trading in July 2013, a further liability to the Revenue Commissioners of €187,000 was incurred, while payments to the Revenue Commissioners totalling some €190,000 were made.
The applicant avers that, from the information available to him, the company incurred a loss after tax of €271,409 for the year ending on the 30th June 2012 and a further such loss of €95,983 for the six-month period ending on the 31st December 2012.
At the commencement of its winding up, the company had a debt to the Revenue Commissioners of €171,735 for outstanding VAT and PAYE/PRSI payments. The Company had net realisable assets of just €250 against debts owed to preferential creditors of €288,198 and to non-preferential creditors of €235,019, giving rise to an estimated total deficiency of €533,067 before the costs of the liquidation are taken into account.
The applicant avers to his belief that the fundamental cause of the company's failure was that it did not have the capital resources to absorb its consistent trading losses. The applicant identifies the precipitating cause of that failure as the loss of key customers and, ultimately, the withdrawal of the company's invoice discounting facility during the second phase of trading already described.
The applicant acknowledges that the company did comply with its obligation to file annual returns in the Companies Registration Office with the exception of its returns for the year 2014 (incorporating its accounts for the year ending on the 31st December 2013).
The applicant further acknowledges that each of the respondents has co-operated with him throughout the liquidation.
However, the applicant avers to his belief that the facts disclosed demonstrate an instance of the “phoenix syndrome”, whereby a company which is wound up is reincarnated by virtue of the involvement in a later company of persons who were directors of the first company.
As indirect support for that proposition, the applicant avers that the respondents each became director of a company named Greenogue Warehousing Limited (“Greenogue”) on the 3rd March 2011 and that Greenogue carries on a similar business to that of both Couriers and the company. In response, in an affidavit that he swore on the 23rd November 2015, the second named respondent avers that the respondents were not directors of Greenogue as of that date, before going on to accept that the respondents' respective spouses were then its directors and that it was then operating a small business through which the respondents were trading with two vehicles and no employees. It is perhaps fortunate for the respondents that, for the purposes of the present application, the Court is not required to consider the extent to which they may each be a shadow director or de facto director of Greenogue....
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Winning Ways Ltd v Companies Acts
...sufficient to demonstrate irresponsibility. 27 In Re Fáilte Logistics and Distribution Ltd (in voluntary liquidation); Leahy v O'Keefe [2016] IEHC 589, Keane J. followed the dicta of Finlay Geoghegan J. in Re James Murphy & Sons Sales (Dundalk) Ltd; Stafford v Murphy and Murphy [2010] IEHC ......