McMahon v Larkin

• Jurisdiction: Ireland
• Judge: Mr. Justice David Keane
• Judgment Date: 24 June 2016
• Neutral Citation: [2016] IEHC 483
• Docket Number: [2015 No. 98COS]
• Court: High Court
• Date: 24 June 2016

[2016] IEHC 483

THE HIGH COURT

Keane J.

[2015 No. 98COS]

IN THE MATTER OF PAURAIC LARKIN AND ASSOCIATES LIMITED

(IN VOLUNTARY LIQUIDATION)

AND IN THE MATTER OF THE COMPANIES ACT 1963 – 2013

AND IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT 1990

AND IN THE MATTER OF SECTION 56 OF THE COMPANY LAW ENFORCMENT ACT 2001

BETWEEN

EUGENE McMAHON

APPLICANT

AND

PAURAIC LARKIN

AND

MARIE GORMAN

RESPONDENTS

Company – S. 150 of the Companies Act 1990 as amended – Restriction on directorship – Dishonesty and irresponsibility – Termination as a director – Date of winding up of company – Companies Registration office – Interpretation Act 2005.

Facts: The applicant sought declaration of restriction against the respondents/directors of the company under s. 150 of the Companies Act 1990, as amended on the ground that the respondents acted dishonestly and irresponsibly in the affairs of the company. The applicant averred that the first named respondent acted dishonestly and irresponsibly as the director of the company. The applicant contended that the second named applicant would be considered the director of the company within 12 months of the winding up. The applicant argued that the period of 12 months prior to the commencement of the company's winding up extended backwards in time.

Mr. Justice David Keane made the appropriate declaration of restriction of the first named respondent and refused to make declaration against the second named defendant. The Court held that there had been enough proof that showed that the first named respondent acted dishonestly in the affairs of the company. The Court observed that the applicant failed to establish the balance of probabilities of the date of the directorship of the second named respondent in the company prior to 12 months of the winding up and the date of the winding up of the company. The Court observed that the question of when the second named respondent ceased to be a director would be one of fact, the answer to which would in no way be contingent upon when the occurrence of that event had been notified to the Companies Registration Office.

JUDGMENT of Mr. Justice David Keane delivered on the 24th June 2016

Introduction

1 This is an application for a declaration of restriction against each of the respondent company directors under s. 150 of the Companies Act 1990, as amended (‘the 1990 Act’).

Background

2 Pauraic Larkin and Associates Limited (‘the company’) was incorporated on the 30th August 1999 and commenced trading in the month of January 2004. The company was engaged in the provision of professional advisory services, and in the sale of hedging plants or trees, to the agricultural sector.

3 The applicant is a chartered accountant and was appointed liquidator of the company on the nomination of the Revenue Commissioners by resolution passed at the meeting of the creditors of the company held on the 19th December 2012, pursuant to the requirements of s. 266 of the Companies Act 1963, as amended (‘the 1963 Act’).

4 The first named respondent is a qualified agricultural advisor. He operated and managed the company's business. He became a director of the company at its inception on the 30th August 1999 and continued to act in that capacity until the company went into liquidation.

5 The second named respondent is the spouse of the first named respondent and is a bank official by occupation. She became a director of the company on the 16th July 2007. She was a non-executive director and had no other role in the business beyond making bank lodgements on its behalf for a brief period and at one point arranging for the transfer of the company's bank account from one financial institution to another. While it is not in dispute that the second named respondent resigned her position as director prior to the commencement of the winding up of the company, precisely when she did so is a matter of controversy between her and the applicant.

The necessary proofs

6 The applicant avers that the company was unable to pay its debts on the date of the commencement of its winding up and that proposition has not been disputed by either of the respondents. Nor is it in issue that the first named respondent was a director of the company at the date of the commencement of its winding up. As it is accepted that the second named respondent had resigned as a director of the company before then, under s. 149 (2) of the 1990 Act the applicant bears the burden of establishing that she was a director “within 12 months prior to” that event. Whether he has discharged that burden is a question to which I will return. Finally, the applicant avers that the Director of Corporate Enforcement has not relieved him of the obligation otherwise incumbent on him under s. 56 (2) of the Company Law Enforcement Act 2001 (‘the 2001 Act’) to apply for a declaration of restriction against each of the respondents, and he exhibits certain relevant correspondence in support of that assertion.

The defence under s. 150(2)(a) of the 1990 Act

7 In anticipation of the assertion by either of the respondents that he or she is entitled to avail of the defence under s. 150(2)(a) of the 1990 Act that he or she acted “honestly and responsibly in relation to the conduct of the affairs of the company”, the applicant avers to a number of matters that, he contends, preclude that defence from being made out. For the purposes of the present judgment, it is only necessary to refer to three of those.

8 The first is that, while the statement of affairs presented to the meeting of the company's creditors on the 19th December 2012 disclosed a liability to the Revenue Commissioners of €10,650, a subsequent investigation by the Revenue Commissioners resulted in an assessed liability of €345,050.09, comprising €178,039 in unpaid VAT between February 2008 and October 2012; €105,000 in corporation tax incurred between March 2010 and February 2011; and €62,011.09 in unpaid PAYE for the years 2010 and 2011.

9 The second matter raised by the applicant is that, at the creditors' meeting on the 19th December 2012, the first named respondent informed him that the company had two employees at the commencement of its winding up. The applicant has since received confirmation from those employees that they did not receive any minimum notice or redundancy payments. The applicant's subsequent investigations have disclosed that neither employee was issued with a P45 and that no payroll record exists for the period of their employment, nor is there any record of any taxation or social insurance deductions taken from their salaries.

10 Third, the applicant avers that the company continued to trade after the commencement of the voluntary winding up of the company (which, under s. 253 of the 1963 Act, is deemed to have occurred at the time of the member's resolution to that effect, necessarily prior to...