Luby v Logan

• Jurisdiction: Ireland
• Judge: Mr. Justice Allen
• Judgment Date: 30 April 2019
• Neutral Citation: [2019] IEHC 261
• Court: High Court
• Docket Number: [2017 No. 420 COS]
• Date: 30 April 2019

IN THE MATTER OF HAIRSPRAY WHOLESALERS LIMITED

(IN VOLUNTARY LIQUIDATION)

AND IN THE MATTER OF THE COMPANIES ACT 2014

BETWEEN

JIM LUBY

APPLICANT

AND

WARREN LOGAN

AND

DOLORES MACKENZIE

RESPONDENTS

[2019] IEHC 261

[2017 No. 420 COS]

THE HIGH COURT

Company – Liquidation – Companies Act 2014 s. 819(1) – Applicant seeking an order that the respondents should not be appointed or act in any way as a director or secretary of a company – Whether the respondents acted responsibly in relation to the conduct of the affairs of the company

Facts: The applicant, Mr Luby, the liquidator of a company, applied to the High Court for an order pursuant to s. 819(1) of the Companies Act 2014 that the respondents, Mr Logan and Ms MacKenzie, as persons to whom Part 14, Chapter 3, of the 2014 Act applied, should not for a period of five years be appointed or act in any way, whether directly or indirectly, as a director or secretary of a company, or be concerned in or take part in the formation or promotion of any company, unless that company meets the requirements set out in s. 819(3) of the 2014 Act.

Held by Allen J that the respondents did not act responsibly in relation to the conduct of the affairs of the company.

Allen J held that he would make an order in the terms sought against both respondents.

Application granted.

JUDGMENT of Mr. Justice Allen delivered on the 30th day of April, 2019

Introduction

1 This is an application by the liquidator of a company for an order pursuant to s. 819(1) of the Companies Act, 2014 that the respondents, as persons to whom Part 14, Chapter 3, of the Companies Act, 2014 applies, shall not for a period of five years be appointed or act in any way, whether directly or indirectly, as a director or secretary of a company, or be concerned in or take part in the formation or promotion of any company, unless that company meets the requirements set out in section 819(3) of the Companies Act, 2014.

Background

2 Hairspray Wholesalers Limited (‘ the Company’) was incorporated under the Companies Acts on 29th September, 2010 to carry on the business of distributing hairdressing supplies and other beauty treatments. The Company carried on business from premises at 22 Fashion City, Ballymount, Dublin 12. The directors of the Company from the time of its incorporation were the respondents, Mr. Warren Logan and Ms. Dolores MacKenzie, his mother. Mr. Logan is an executive director. Ms. MacKenzie is a non-executive director.

3 On 1st May, 2013 the Company resolved that it be wound up as a members' voluntary winding up and Mr. Gary Lennon was appointed liquidator.

4 On 30th April, 2013 the respondents, as directors, swore the required declaration of solvency, declaring that after full enquiry, they had formed the opinion that the Company would be able to pay its debts in full, within twelve months. The declaration of solvency showed an estimated surplus of €54,283. The principal asset of the company was stock in trade, estimated to realise €425,000. The unsecured creditors were shown as €44,337 and ‘ other liabilities’ at €431,655.

5 The liability to unsecured creditors was to the Revenue, and was made up of €13,062 for VAT and €31,275 for PAYE/PRSI. The ‘ other liabilities’ of €431,655 were made up of €384,122, said to be owing to Mr. Logan; €24,658, said to be owing to Ms. MacKenzie; and €22,875, said to be owing to Ms. Biba Logan.

6 The independent report attached to the declaration of the solvency was signed by Robinson Stewart & Co., a firm of chartered accountants and registered auditors with an address in London.

7 In April, 2014 Mr. Lennon formed the opinion that the Company would not be able to pay its debts in full and convened a creditors' meeting for 6th May, 2014.

8 Mr. Lennon reported to the creditors' meeting that shortly after his appointment, he had been provided with a VAT computation which was €5,870.15 higher than that provided for in the declaration of solvency, and a computation for PAYE/PRSI which was €3,750.53 less than was shown in the declaration of solvency. He reported that the cash at bank was €11,621.88 less than was shown on the statement of affairs. He reported that some of the debtors had been transferred to a company called Ballymount Hairspray Hair and Beauty Products Limited.

9 Mr. Lennon reported that the Company, from the time of its incorporation, had never prepared accounts or made returns; that the Company's VAT liability had been significantly under-declared; and that the value of the stock had been greatly overstated. Mr. Lennon had calculated that the Company had a VAT liability of €251,164 and that he had filed amended returns. Besides the liabilities for VAT and PAYE/PRSI, Mr. Lennon estimated that the Company had a corporation tax liability of €48,639. Mr. Lennon found no evidence to support the claims of the directors, or of Ms. Biba Logan.

10 Mr. Lennon reported considerable difficulty in locating and identifying the stock. Eventually, in February, 2014, the stock, or some stock, was located in four containers at the rear of a house in Dundrum. This stock was sold to a company called Hairspray Hair and Beauty Supplies Limited on 21st February, 2014 for €30,000 plus VAT.

11 Mr. Lennon reported to the creditors' meetings that his effort to resolve the realisation of stock with Mr. Logan had been met with a solicitor's letter demanding his resignation and, later, a threat of an application for an injunction restraining the convening of a creditors' meeting. On 26th March, 2014 Mr. Logan and Ms. MacKenzie applied to the High Court to have Mr. Lennon removed as liquidator.

12 By the time of the creditors' meeting, Mr. Lennon had collected €116,765 and paid out €105,561, of which €76,195 plus VAT was in respect of his own fees.

13 At the creditors' meeting on 6th May, 2014 Mr. Lennon was replaced as liquidator by Mr. James Luby.

14 Mr. Luby made his first report to the Director of Corporate Enforcement on 5th November, 2014 and, following a number of extensions of time, submitted his final report on 22nd August, 2016.

The issues identified by the applicant

15 On this application Mr. Luby expresses a number of concerns.

16 Firstly, he says that no annual returns or financial statements were filed with the Companies Registration Office from the time the Company was incorporated.

17 Secondly, Mr. Luby says that the Company did not keep proper books and records.

18 Thirdly, he notes that the Company's VAT liability which was shown in the statement of affairs at €13,062, had been recalculated by Mr. Lennon at €251,164. The directors did not agree with Mr. Lennon's calculation and commissioned a recalculation from a firm called Guardian Management Accounting (‘ Guardian’). Guardian recalculated the Company's VAT liability at €296,235, which was €45,071 higher than Mr. Lennon's figure.

19 Fourthly, Mr. Luby said that the Company's records were so deficient that he was not able to reconcile the stock. Specifically, he was unable to determine whether the stock existed, or had been sold, or had been transferred to other ‘ group’ companies.

20 After his appointment, Mr. Luby was shown stock in a storage unit in Ballymount which was said to have cost €71,615. He arranged to have this valued and marketed by a firm of auctioneers. The best offer Mr. Luby could get for the stock was from the respondents, who paid €6,542 plus VAT for it.

21 Mr. Luby asked the respondents for a reconciliation of the stock as recorded in the declaration of solvency. The answer was that €230,491.55 had been purchased from Mr. Lennon; €74,367.33 ( sic.) from Mr. Luby; and €120,141.12 transferred in April, 2013 to Henry Street Hairspray Limited (‘ Henry Street’). Henry Street had not paid for this stock but, according to the respondents, Henry Street was owed €102,489 by the Company. Neither of these amounts had been recorded in the declaration of solvency. In response to a request for supporting evidence for the claim of Henry Street, Mr. Luby was provided first with a letter from a firm called Easy Does It Accounting, which stated that according to their records €102,489 was due to Henry Street by the Company, and later a printout of a nominal ledger for Henry Street showing the same: but no invoices or delivery dockets or other evidence to support the alleged liabilities.

22 The Company's books and records were so deficient that Mr. Luby was unable to reconcile the stock but, on the respondents' account to him, stock with a nominal value of €230,491 had been sold for €30,000; stock which had been estimated to realise €71,615 had been sold for €6,542; and stock with a nominal value of €120,141 had been transferred to Henry Street before the declaration of solvency was sworn. The Company's stock which in the declaration of solvency had been estimated to realise €425,000, had realised just €36,542.

23 Mr. Luby's fifth concern was in relation to the directors' loans, said to be due to the respondents.

24 The declaration of solvency recorded a total sum for ‘ other liabilities’ of €431,655. When Mr. Luby challenged this, the respondents submitted revised claims in the total amount of €58,759. In support of that claim, the respondents produced a schedule of movement in the directors' loan accounts for the period 2010 to 2013, but these figures did not reconcile to those in the Company's management accounts and were unvouched and unsupported.

25 For completeness, Mr. Luby brought to the attention of the court that he had challenged Mr. Lennon's claim for remuneration. The respondents had asserted to Mr. Luby that the Company was solvent at the date of the liquidation and attributed the insolvency to Mr. Lennon's failure to realise the stock and the level of Mr. Lennon's fees. But as Mr. Luby pointed out, the estimated VAT liability of between €251,164 and €296,235 greatly exceeds the sum of the estimated...