PSK Construction Ltd (Kavanagh) v Killeen & Higgins

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan
• Judgment Date: 07 December 2009
• Neutral Citation: [2009] IEHC 538
• Court: High Court
• Docket Number: [No. 459 COS/2007]
• Date: 07 December 2009

[2009] IEHC 538

THE HIGH COURT

[No. 459 COS/2007]

[No. 54 COM/2008]

PSK Construction Ltd (Kavanagh) v Killeen & Higgins

[2009] IEHC 538

IN THE MATTER OF PSK CONSTRUCTION LIMITED (IN VOLUNTARY LIQUIDATION) AND IN THE MATTER OF THE COMPANIES ACTS 1963 -2006 AND IN THE MATTER OF AN APPLICATION BY TOM KAVANAGH UNDER SECTIONS 297A AND 298 OF THE COMPANIES ACT 1963 AND SECTIONS 150, 160, 202 AND 204 OF THE COMPANIES ACT 1990

TOM KAVANAGH (AS LIQUIDATOR OF PSK CONSTRUCTION LIMITED (IN VOLUNTARY LIQUIDATION))

APPLICANT

AND

PETER KILLEEN AND LORRAINE HIGGINS

RESPONDENTS

COMPANIES ACT 1963 S297A

COMPANIES ACT 1963 S298(2)

COMPANIES ACT 1963 S204

COMPANIES ACT 1990 S160

COMPANIES ACT 1990 S150

COMPANIES ACT 1963 S297A(1)(B)

COMPANIES ACT 1963 S297A(1)(A)

COMPANIES ACT 1963 S297A(1)

HEFFERON KEARNS LTD, IN RE (NO 2) 1993 3 IR 191 1993/2/313

COMPANIES (AMDT) ACT 1990 S33

DONOVAN v LANDYS LTD 1963 IR 441

SHAWINIGAN LTD v VOKINS & CO LTD 1961 1 WLR 1206 1961 3 AER 396

COMPANIES ACT 1963 S297A(2)(A)

COMPANIES ACT 1963 S297A(2)

COMPANIES ACT 1990 S33(2)

HUNTING LODGES LTD (IN LIQUIDATION), IN RE 1985 ILRM 75 1984/7/2295

COMPANIES ACT 1963 S297A(3)(B)

O'KEEFFE v FERRIS & ORS 1997 3 IR 4631997 2 ILRM 161 1997/5/1954

COMPANIES ACT 1963 S297A(7)

COMPANIES ACT 1963 S298

COMPANIES ACT 1990 S202

COMPANIES ACT 1990 S204

COMPANIES ACT 1990 S202(1)

COMPANIES ACT 1990 S202(3)

COMPANIES ACT 1990 S202(3)(A)

COMPANIES ACT 1990 S202(3)(D)

COMPANIES ACT 1990 S204(1)

MEHIGAN v DUIGNAN 1997 1 IR 3401997 1 ILRM 171 1997/5/1673

COMPANIES ACT 1990 S204(4)

COMPANIES ACT 1990 S160(2)

COMPANIES ACT 1990 S160(2)(C)

COMPANIES ACT 1990 S160(2)(D)

CAHILL v GRIMES 2002 1 IR 372 2002/5/1025

LO-LINE ELECTRIC MOTORS LTD, IN RE 1988 CH 4771988 3 WLR 26 1988 2 AER 692

DIRECTOR OF CORPORATE ENFORCEMENT v MCDONNELL & ORS 2005 1 IR 503 2005/16/3304 2005 IEHC 85

Abstract:

Company law - Directors - Reckless trading - Fraudulent trading - Disqualification orders - Liquidation - Companies Acts, 1963 to 2006 - Whether the respondents were guilty of reckless trading and failing to maintain proper books of account - Whether it was appropriate to make disqualification orders - Whether the respondents ought to made personally liable for the debts of the Company.

Facts The applicant was the liquidator of the company herein, which was in voluntary liquidation and the respondents were directors of the company within 12 months of the date of commencement of the winding up. Most of the facts herein were not in dispute. The first named respondent was a hands-on managing director of the company. The company experienced financial difficulties arising out of two construction contracts. In 2005 the first respondent decided to under-declare and under-pay the company's monthly liability to the Revenue Commissioners in relation to PAYE/PRSI liability and in relation to Relevant Contracts Tax. The respondent subsequently over stated the amounts due to the Revenue Commissioners. The total liability to the Revenue Commissioners at the date of commencement of the winding up was €2,361,314. The company had no financial controller or accountant and the respondents accepted that they were aware the company was in financial difficulty. In fact the first respondent had been advised to cease trading but decided not to follow that advice. The applicant herein claimed that the first respondent was guilty of reckless and fraudulent trading and that the second named respondent was guilty of reckless trading. The applicant also claimed pursuant to s. 204(1) of the Companies Act 1990 a declaration that the respondents were personally liable for all or part of the debts and liabilities of the company or in the alternative for the sum of €21,447, estimated by the applicant as the additional costs incurred in the liquidation in reconstituting the books of account. Finally, the applicant sought disqualification orders against both respondents.

Held by Finlay Geoghegan J.: That the applicant established as a matter of probability that the first respondent must have known that if he continued to keep the Company trading in 2005 by under-declaring and under-paying to the Revenue Commissioners that such decision involved an obvious and serious risk of loss or damage to creditors of the company. However, the same was not established in relation to the second named respondent. The application under s. 297A in relation to the second named respondent was refused. The applicant did make out a case pursuant to s. 297A (1)(a) and (b) against the first respondent and the applicant was entitled to a declaration that the first respondent was personally liable for the debts of the Company in a sum not exceeding €1,604,526, that being an estimate of the increased deficit of the Company by reason of the reckless and fraudulent trading on the part of the respondent. The applicant also established that the Company did not keep proper books of account. However, the applicant failed to establish a causal link between his inability to recover certain of the debts of the Company and the failure of the Company to maintain proper books of account. The applicant was entitled pursuant to s. 204(1) of the 1990 Act to a declaration that the respondents were jointly and severally liable in the sum of €21,447 in respect of additional expenses incurred in the liquidation. Finally, disqualification orders were appropriate in respect of both respondents and a period of seven years in respect of the first respondent and five years in respect of the second respondent was appropriate.

Reporter: L.O'S.

JUDGMENT of

Ms. Justice Finlay Geoghegan

delivered on the 7th day of December, 2009

1 The applicant is the liquidator of PSK Construction Limited (in voluntary liquidation) ("the Company"), having been so appointed by resolution of 16^th March, 2006.

2 The first named respondent ("Mr. Killeen") was the Managing Director of the Company. The second named respondent ("Ms. Higgins") was an employee of the Company and a director. Both respondents were directors within twelve months of the date of commencement of the winding up. The respondents are also partners for several years, and have one young daughter who has special needs.

3 The applicant seeks orders against the respondents pursuant to ss. 297A, 298(2) and 204 of Companies Act1963, and s. 160, or in the alternative, s. 150 of the Companies Act, 1990. He also seeks an order in respect of certain personal expenses paid for by Mr. Killeen with the Company's credit card.

4 Most of the facts upon which the application is based are not in dispute. There is a factual dispute in relation to the purchase of tarmacadam, to which I will refer below. Similarly, there is significant agreement about the applicable law. The parties differ as to how the Court should apply the law to the facts.

The facts

5 Mr. Killeen is from County Mayo. He left school at age sixteen, and went to work on construction sites in the United Kingdom. He married young. His wife and children remained living in County Mayo. He travelled on a weekly basis to England to work. In the 1990s, in England, he had his own small construction business and states that he had no difficulty in obtaining payment, when due, from English employers. His marriage came to an end in the late 1990s.

6 He appears to have returned to Ireland in the late 1990s, and worked as a foreman for a Northern Ireland company on the construction of a hospital in County Kildare. Thereafter, in 2001, he commenced his own business and incorporated the Company for that purpose. He also had a second company, PLK Plant and Equipment Limited. Mr. Killeen states that he was a hands-on Managing Director. He states he had no experience of employing professionals such as quantity surveyors or other professionals.

7 The Company's first job was as a subcontractor to John Sisk Construction on the Dundrum Town Centre project. The Company continued to obtain contracts on that project for approximately two and a half years. Whilst engaged on that project, it also was engaged by Pierse Construction as subcontractors on a project in Swords and one on Sir John Rogerson's Quay. This latter contract was one of the contracts which caused the insolvency of the Company. On that contract, the Company ultimately incurred a loss of approximately €500,000.

8 In 2003/2004, the Company worked as a subcontractor for John Paul Construction on the building of the hospital at Beacon Court and Mr. Killeen states that they encountered no particular difficulties with that contract. However, in 2004, it was also engaged as a subcontractor on the south side of the Beacon Court project which was a joint venture between John Paul Construction and Hegarty. This latter contract is the second contract which caused the insolvency of the Company. It appears from the outset that the Company encountered difficulties on this project, both in relation to delays in payment, and in relation to the quantum of the payments. Mr. Killeen states that the Company was being paid less than the cost to the Company of carrying out the contract.

9 The audited accounts for the year ended 31^st August, 2004, demonstrate that the Company traded successfully in its early years. By that year, it had a turnover of approximately €9 million, profits before taxation of approximately €300,000, and a balance sheet surplus of €420,010.

10 Draft financial statements for the period ended 31^st October, 2005, were prepared by the auditors and signed by the respondents. The applicant draws attention to the very significant deterioration in the Company's finances between 31^st August, 2004, and 31^st October, 2005. Turnover increased to €16.4 million, but there was a loss for the period of approximately €2.1 million and a...