McBride v O'Reilly
| Jurisdiction | Ireland |
| Judge | Ms. Justice Finlay Geoghegan |
| Judgment Date | 17 October 2014 |
| Neutral Citation | [2014] IEHC 463 |
| Court | High Court |
| Date | 17 October 2014 |
[2014] IEHC 463
THE HIGH COURT
BETWEEN
AND
COMPANIES ACT 1963 S251
COMPANIES ACT 1990 S150
COMPANIES ACT 1963 S214
SQUASH (IRL) LTD, IN RE 2001 3 IR 35 2001/23/6280
LA MOSELLE CLOTHING LTD & ROSEGEM LTD v SOUALHI 1998 2 ILRM 345 1998/23/8886
LO-LINE ELECTRIC MOTORS LTD, IN RE 1988 BCLC 698 1988 2 AER 692 1988 3 WLR 26 1988 CH 477
MITEK HOLDINGS LTD & ORS, IN RE; GRACE (LIQUIDATOR) v KACHKAR & MCCLELLAN CARRIGAN 2010 3 IR 374 2010/36/9110 2010 IESC 31
CLANCY v O'CALLAGHAN UNREP GEOGHEGAN 6.5.2014 2014 IEHC 227
SWANPOOL LTD, IN RE (MCLAUGHLIN v LANNEN) 2006 2 ILRM 217 2005/43/8968 2005 IEHC 341
COMPANIES ACT 1990 S31
Company Law – Liquidation – Director Liability – Insolvency – Declaration of Restriction – Director"s Duties –Commercial probity – Mismanagement of Company – Non Disclosure
The facts of this case involved the Liquidation of a company and the conduct of the director/s that may have contributed to the company becoming insolvent. In line with the Companies Act 1963, it was decided that the Company in this case be wound up by reason of its liabilities, and the applicant, Mr. Tony McBride, was appointed liquidator. The company in question had a number of directors over the years however this case related to the application pursuant to s. 150 of the Act of 1990 against one Mr. O"Reilly alone. Son of the original founder of the company and made director himself in 1975 Mr. O"Reilly had to satisfy the Court that he acted both honestly and responsibly in relation to the conduct of the affairs of the Company, and that there is no other reason why it would be just and equitable that he should be subject to a declaration of restriction. The issue came before Finlay Geoghegan J in the High Court.
Finlay Geoghegan J considered the submissions from the liquidator applicant and Mr. O"Reilly the respondent. Counsel on behalf of the respondent claimed that the respondent acted duly in the course of his time as director. Furthermore a director broadly complying with his obligations under the provisions of the Companies Acts and acting with a degree of commercial probity during his tenure as a director of the company, will not be restricted on the grounds that he acted irresponsibly. Counsel for the respondents relied upon Re Squash Ireland Ltd and Re Lo- Line Motors Ltd to reinforce Mr. O"Reilly"s claim. Finlay Geoghegan J. applied the approach stipulated in In Re Mitek Holdings Ltd, a more detailed assessment of the director"s conduct. Measuring the extent to which the director has or has not complied with any obligation imposed, the director"s responsibility for the insolvency of the company, his conduct of the affairs of the company, has the director displayed a lack of commercial probity or want of proper standards etc. Analyzing the particular assertions against the respondent Finlay Geoghegan J was displeased at the respondent"s non-disclosure of significant related party transactions in the abridged financial accounts, reclassification of a management charge in the audited financial accounts and significant credit card expenditure of a personal nature listed as motor travel expenses in the financial accounts. Finlay Geoghegan J wasn"t satisfied that Mr. O"Reilly had demonstrated to the Court that he acted responsibly as a director of the Company, particularly in the final years of trading of the Company. Finlay Geoghegan J ruled that pursuant to s. 150 of the Act of 1990, the Court is bound to make the declaration of restriction.
JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 17th day of October 2014
1. T. O'Reilly (Electrical Supplies) Ltd. ("the Company") was incorporated in 1968 and carried on business in the supply of electrical products in Ireland. The Company was set up by the father of the first named respondent, Declan O'Reilly ("Mr. O'Reilly"). Mr. O'Reilly became a director of the Company on the 21 st November, 1975. and subsequently its managing director and was the principal shareholder.
2. On the 12 th July, 2011, it was resolved pursuant to s. 251 of the Companies Act 1963, that the Company be wound up by reason of its liabilities, and the applicant, Mr. Tony McBride, was appointed liquidator ("the Liquidator").
3. The second, third and fourth named respondents, each of whom were long-standing employees of the Company, were appointed as directors on the 12 th November, 2004, and resigned on the 22 nd June, 2011. On the 13 th January, 2014, the third and fourth named respondents appeared before the Court in answer to this application and indicated also that they represented the second named respondent on that occasion. They indicated that none proposed putting any evidence before the Court. On the facts set out in the grounding affidavit of the Liquidator, the Court could not be satisfied that each of the second, third and fourth named respondents had acted responsibly in relation to the conduct of the affairs of the Company, whilst directors, and declarations of restriction of each were made pursuant to s. 150 of the Companies Act 1990.
4. This judgment relates to the application pursuant to s. 150 of the Act of 1990 against Mr. O'Reilly alone. The Liquidator and Mr. O'Reilly have sworn two affidavits each. The Court has also had the benefit of oral submissions by counsel for each.
5. It is not in dispute that Mr. O'Reilly was a director within 12 months of the date of commencement of the winding up, and that the Company, at the date of its winding up, was unable to pay its debts as they fell due within the meaning of s. 214 of the Companies Act 1963. Accordingly, Mr. O'Reilly is a person to whom s. 150 of the Act of 1990 applies. That being so, the Court is bound to make the declaration of restriction unless Mr. O'Reilly satisfies the Court that he acted both honestly and responsibly in relation to the conduct of the affairs of the Company, and that there is no other reason why it would be just and equitable that he should be subject to a declaration of restriction. On the facts in the affidavits, no such other reason arises. The only issue is whether, on the facts set out in the affidavits, the Court can be satisfied that Mr. O'Reilly acted both honestly and responsibly in relation to the conduct of the affairs of the Company as a director thereof.
6. Counsel for Mr. O'Reilly referred me to the decision of the Supreme Court per McGuinness J. In Re Squash Ireland Ltd. [2001] 3 I.R. 35, in which she cited with approval the judgment of Shanley J. in La Moselle Clothing Ltd. v. Soualhi [1998] 2 I.L.R.M. 345, at p. 352, where he, in turn, referred to what had been said by Browne-Wilkinson V.C. in Re Lo- Line Motors Ltd. [1988] BCLC 698 at p. 703, and then said: "...a director broadly complying with his obligations under the provisions of the Companies Acts and acting with a degree of commercial probity during his tenure as a director of the company, will not be restricted on the grounds that he acted irresponsibly". Counsel also referred to the approach of McGuinness J. in the same judgment that "the court should look al the entire tenure of the director and not simply at the few months in the run up to the liquidation".
7. Since the judgment in Squash Ireland, the proper approach of the Court to determining whether a director acted responsibly in the conduct of the affairs of a company in an application pursuant to s. 150 of the Act of 1990, has been considered in some detail by the Supreme Court per Fennelly J. In Re Mitek Holdings Ltd.; Grace v. Kachlar [2010] IESC 31, [2010] 3 I.R. 374. That decision is binding on me, and in a judgment in the matter of Derbar Developments Ltd. (In Liquidation) [2012] IEHC 144, at paras. 13-15, and repeated in Re Abington Garage Doors Ltd. (In Liquidation); Clancy v. O'Callaghan & Anor. [2014] IEHC 227,I summarised the current law following Mitek in the following terms:
2 "13. The caselaw relating to s. 150 was reviewed in some detail by Fennelly J. in delivering the judgment in Mitek Holdings Ltd. and the Companies Act [2010] IESC 31, with which Hardiman J. and Finnegan J. concurred. In doing so, he cites with approval passages from the well-known judgments of Murphy J., in the High Court in Business Communications v. Baxter and Parsons (Unreported, High Court, 21st July, 1995) and Shanley J. in La Moselle Clothing Ltd. v. Soualhi [1998] 2 ILRM, 345. In the latter, Shanley J. interpreted s. 150 in the following way:
'Thus it seems to me that in determining the 'responsibility' of a director for the purposes of s. 150 (2)(a) the court should have regard to:
(a) The extent to which the director has or has not complied with any obligation imposed on him by the Companies Acts 1963- 1990.
(b) The extent to which his conduct could be regarded as so incompetent as to amount to irresponsibility.
(c) The extent of the director's responsibility for the insolvency of the company.
(d) The extent of the director's responsibility for the net deficiency in the assets of the company disclosed at the date of the winding up or thereafter.
(e) The extent to which the director, in his conduct of the affairs of the company, has displayed a lack of commercial probity or want of proper standards'.
Fennelly J., at para. 74, summarises the proper approach of the Court to an application under s. 150 in the following terms:
'It is always appropriate to keep in the forefront of one's...
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...constitutes irresponsibility.’ 62 The applicant also drew attention to the decision of Finlay Geoghegan J. in McBride v. O'Reilly & Ors. [2014] IEHC 463 in which she outlined further considerations to which the Court should have regard in applications of this nature. Finlay Geoghegan J., at......