La Moselle Clothing Ltd v Soualhi

JurisdictionIreland
CourtHigh Court
JudgeMr Justice Peter Shanley
Judgment Date11 May 1998
Neutral Citation[1998] IEHC 66
Date11 May 1998
LA MOSELLE CLOTHING LTD v. DJAMEL SOUALHI
IN THE MATTER OF THE COMPANIES ACTS 1963– 1990
AND IN THE MATTER OF LA MOSELLE CLOTHING LIMITED (IN LIQUIDATION)
AND IN THE MATTER OF ROSEGEM LIMITED (IN LIQUIDATION)

BETWEEN

LA MOSELLE CLOTHING LIMITED (IN LIQUIDATION) AND ROSEGEM LIMITED (IN LIQUIDATION)
APPLICANTS

AND

DJAMEL SOUALHI
RESPONDENT

[1998] IEHC 66

Record Nos. 304 COS/1994 & 68 COS/1996

THE HIGH COURT

Synopsis

Company Law

Disqualification of directors; voluntary liquidation; declaration sought to have respondent restricted from acting as a director of any company for five years; whether such restriction applicable to a voluntary winding up; whether director acted honestly and responsibly with regard to the affairs of the company; whether it is just and equitable in all the circumstances to restrict the director; interpretation of "responsibility" of a director; s.150 Companies Act, 1990 Held: Declaration granted restricting director

La Moselle Clothing Ltd. v. Soualhi - High Court: Shanley J. - 11/05/1998 - [1998] 2 ILRM 345

Citations:

COMPANIES ACT 1990 S150

COMPANIES ACT 1990 S150(3)

COMPANIES ACT 1990 S149

COMPANIES ACT 1990 S154

BUSINESS COMMUNICATIONS LTD V BAXTER UNREP 21.7.1995 1995/6/1869

COMPANIES ACT 1990 S150(2)

COMPANIES ACT 1990 S150(2)(a)

COMPANIES ACT 1990 S150(1)

COMPANIES ACT 1985 S300 (UK)

LO-LINE MOTORS LTD, IN RE 1988 BCLC 698

COMPANIES ACTS 1963 – 1990

CONTINENTAL ASSURANCE CO OF LONDON PLC V BURROWS 1997 1 BCLC 48

1

Mr Justice Peter Shanley delivered the 11 th day of May 1998.

2

This is an application by the Liquidator of La Moselle Limited (hereinafter referred to as "La Moselle") and Rosegem Limited (hereinafter referred to as "Rosegem") pursuant to Section 150 of the Companies Act 1990for a declaration from this Court restricting the Respondent for a period of 5 years from acting as a director of any company (other than one that meets the requirements of Section 150(3) of the Companies Act, 1990.

3

Section 150 of the Companies Act, 1990provides:-

4

(1) The Court shall unless it is satisfied as to any of the matters specified in sub-section (2) declare that a person to whom this chapter 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 or be concerned or take part in the promotion or formation of any company unless it meets the requirements set out in sub-section (3); and in subsequent provisions of this Part, the expression "a person to whom Section 150 applies" shall be construed as a reference to a person in respect of whom such a declaration has been made.

5

(2) The matters referred to in sub-section (1) are -

6

(a) that the person concerned has acted 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 the restrictions imposed by this section, or

7

(b) subject to paragraph (a), that the person concerned was a director of the company solely by reason of his nomination as such by a financial institution in connection with the giving of credit facilities to the company by such institution, provided that the institution in question has not obtained from any director of the company a personal or individual guarantee of repayment to it of the loans or other forms of credit advanced to the company, or

8

(c) subject to paragraph (a), that the person concerned was a director of the company solely by reason of his nomination as such by a venture capital company in connection with the purchase of or subscription for, shares by it in the first mentioned company.

9

(3) The requirement specified in sub-section (1) are that -

10

(a) the nominal value of the allotted share capital of the company shall

11

(i) in the case of a public limited company, be at least £100,000.

12

(ii) in the case of any other company, be at least £20,000.

13

(b) Each allotted share to an aggregate amount not less than the amount referred to in sub-paragraph (i) or (ii) or paragraph (a) as the case may be, shall be fully paid up, including the whole of any premium thereon, and

14

(c) Each such allotted share and the whole of any premium thereon shall be paid for in cash.

15

(4) Where a Court makes a declaration under sub-section (1) a prescribed officer of the Court shall cause the Registrar of Companies to be furnished with prescribed particulars of the declaration in such form and manner as may be prescribed.

16

(5) In this section -

17

2 "Financial Institution" means -

18

(a) a licensed bank, within the meaning of Section 25, or

19

(b) a company, the ordinary business of which includes the making of loans or the giving of guarantees in connection with loans and "Venture Capital Company" means a company prescribed by the Minister the principal ordinary business of which is the making of share investments.

20

The insolvent companies to which the restriction provisions of Section 150 apply are those companies referred to in Sections 149 and 154 of the 1990 Act (being the sections comprised in Chapter 1 of Part VII of that Act).

21

Section 149 provides as follows:-

22

(1) This chapter applies to any company if-

23

(a) at the date of the commencement of its winding up it is proved to the Court, or

24

(b) at any time during the course of its winding up the liquidator of the company certifies, or it is otherwise proved, to the Court, that it is unable to pay its debts (within the meaning of Section 214 of the Principal Act).

25

(2) This chapter applies to any person who was a director of a company to which this section applies at the date of or within twelve months prior to the commencement of its winding up.

26

(3) This chapter shall not apply to a company which commences to be wound up before the commencement of this section.

27

(4) In this chapter "company" includes a company to which Section 351 of the Principal Act applies.

28

(5) This chapter applies to shadow directors as it applies to directors.

29

Section 149 of the Companies Act, 1990was commenced on the 1st August, 1991.

30

Section 154 of the 1990 Act provides:-

"Where a receiver of the property of a company is appointed, the provisions of this chapter shall, with the necessary modification, apply as if the references therein to the liquidator and to winding-up were construed as references to the receiver and to receivership."

31

It is clear from Sections 149 and 154 of the Companies Act, 1990, that the insolvent companies to which Section 150 applies are not just companies wound up by the Court but also insolvent companies wound up voluntarily and those over whose assets a Receiver has been appointed. In Business Communications Limited v. Keith Baxter and Colm Parsons ( unreported, 21st July, 1995), Murphy J. observed (at page 5 of his judgment) that, while the provisions of Section 150(1) are mandatory in their language, the Act does not in fact impose on any particular party the obligation of bringing before the Court an application for the restriction of a director of a company to which Sections 149 and 154 apply. He noted that:-

"In windings-up by the Court this lacuna has been over-come by the Court on the further consideration of the Order for liquidation directing the official liquidator to bring the appropriate application on notice to persons appearing to be the directors thereof.

In the case of voluntary liquidations the Court does not have either the responsibility or the machinery for giving comparable directions. It may be that voluntary liquidators and receivers are not sufficiently conscious of the provisions of Chapter I of Part VII of the 1990 Act or else they do not see it as their function to bring relevant cases before the Court. Perhaps it will be necessary for the legislature to consider the provision of a particular sanction to ensure that the many cases which have obviously arisen since August, 1991, are duly pursued. If not, there would be a apparent injustice to the directors of insolvent companies wound up by the Court as against those wound-up voluntarily."

32

The Court's directions in windings-up by the Court has resulted in Section 150 applications being pursued in almost all such cases; however, it must be said that only a handful of cases of insolvent companies in receivership or voluntarily wound-up, have come before the Courts on an application under Section 150 of the Companies Act, 1990. Having regard to the large volume of insolvent companies which are wound up voluntarily, the injustice envisaged by Murphy J. still remains unredressed, whereby directors of such companies are permitted to avoid the sanction of Section 150 of the Companies Act, 1990, by the fortuitous circumstance of a voluntary winding-up, or indeed a receivership.

33

Quite apart from the injustice that results from the failure to restrict directors whose conduct merits restriction, there is also the factor that the primary purpose of the Section 150 restriction is the protection of the public from persons who, by their conduct, have shown themselves unfit to hold the office of, and discharge the duties of, a director of a company and, in consequence, represent a danger to potential investors and traders dealing with such companies. Where far more insolvent companies are wound up voluntarily than are wound up by the Court, it is clear that the purpose of Section 150 cannot be fully achieved in the absence of a statutory obligation cast on the liquidators (of insolvent companies wound up voluntarily) and on receivers of insolvent companies to bring before the Courts applications under S 150 of the 1990 Act where the conditions stipulated by Section 149 of that Act are met.

34

As appears clear from Section 150, the Court is obliged to restrict a director unless he...

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