Re Kentford Securities Ltd: Director of Corporate Enforcement v McCann

JurisdictionIreland
JudgeMr Justice Michael Peart
Judgment Date23 January 2007
Neutral Citation[2006] IEHC 57
CourtHigh Court
Docket NumberRECORD NUMBER No. 101 Cos./2005,IEHC 1/[2007]
Date23 January 2007

[2006] IEHC 57

THE HIGH COURT

RECORD NUMBER No. 101 Cos./2005
DIRECTOR OF CORPORATE ENFORCEMENT v McCANN
IN THE MATTER OF KENTFORD SECURITIES LIMITED (UNDER INVESTIGATION),
AND IN THE MATTER OF THE COMPANIES ACTS 1963–2001, AND IN THE MATTER
OF AN APPLICATION BY THE DIRECTOR OF CORPORATE ENFORCEMENT
PURSUANT TO SECTION 160(2) OF THE COMPANIES ACT, 1990.

BETWEEN:

THE DIRECTOR OF CORPORATE ENFORCEMENT
APPLICANT/RESPONDENT

AND

PATRICK McCANN
RESPONDENT/APPLICANT

COMPANIES ACT 1990 S160(2)(b)

COMPANIES ACT 1990 S160(2)(d)

INDUSTRIAL SOCIETIES ACT 1893

INDUSTRIAL SOCIETIES ACT 1978

O DOMHNAILL v MERRICK 1984 IR 151 1985 ILRM 40

TOAL v DUIGNAN 1991 ILRM 140

COMPANIES ACT 1990 S19

COMPANY LAW: practice and procedure

Facts: The applicant sought an order dismissing an application by the Director to disqualify the applicant pursuant to section 160(2)(b) and/or s. 160(2)(d) of the Companies Act, 1990 on the basis of excessive delay, and/or want of prosecution. Specifically, the applicant submitted that the application for his disqualification was sought over fifteen years after the alleged first complaint relating to his actions and further that he has been prejudiced by that delay due to the death of a potential witness.

Held by Peart J. in refusing the application: That the Director did not contribute to the delay in commencing the application for disqualification and there was no inordinate or excessive delay in the first place. Furthermore, the applicant failed to demonstrate a real prejudice to the extent that it would be unjust to require him to defend himself against the application as a result of any delay.

Reporter: L.O’S.

Judgment of
Mr Justice Michael Peart
1

For the purpose of this judgment I shall refer to the Director of Corporate Enforcement ("the Director") as the respondent, since the Court is dealing with a motion to dismiss the application by him to disqualify Mr McCann, and I shall refer to the latter as the applicant.

2

In the substantive application which is the subject of the within proceedings the respondent seeks an order pursuant to s. 160(2)(b) and/or s. 160(2)(d) of the Companies Act,1990 declaring the applicant to be disqualified from being appointed or acting as an auditor, director or other officer, liquidator, receiver, examiner or to be in any way, whether directly or indirectly, concerned or take part in the promotion, formation or management of any company or any society registered under the Industrial Societies Act 1893 – 1978 for such period as the Court may think fit.

3

Such an order is sought arising out of certain alleged acts and conduct by the applicant while he acted as auditor of Kentford Securities Limited ("the Company") during the years 1990, 1991, 1992 and 1993. In addition there is an allegation of forgery of a certain letter to which I shall refer in more detail at a later stage. I will come to all the allegations in more detail in due course.

4

The present matter requiring adjudication by the Court is an application by the applicant that the application for the order of disqualification against him be dismissed now on the grounds of excessive delay, and/or for want of prosecution on the basis that the delay has been inordinate and inexcusable. That is what appears in the Notice of Motion dated the 6th May 2005 in which the reliefs are set forth.

5

But Patrick Hunt BL on the applicant's behalf has conceded that he is not in fact in a position to put forward an argument that there has been inordinate and inexcusable delay by the respondent in the prosecution of these proceedings post-commencement, and confines his arguments to pre-commencement delay, and the prejudice which he submits has resulted to the applicant as a consequence thereof. It is therefore a case which comes, not within the well-known Primor principles as to delay post-commencement, but rather within principles inO'Domhnaill v. Merrick [1984] IR 151, and as followed in Toal v. Duignan [1991] ILRM 135.

Factual background:
6

An authorised officer, Gerard Ryan, was appointed to exercise the powers conferred by s. 19 of the Companies Act,1990, and having done so produced a Report into the affairs of the Company, which in due course came to the attention of the Director. It is stated in the first affidavit sworn to ground the substantive application for a disqualification order, that "it is clear from the Report that the Company was used by Des Traynor during the period 1989 û 1994 to facilitate cash withdrawals by certain persons from Ansbacher (Cayman) Limited deposits … held in Ireland".

7

It was reported also that although the financial statements and balance sheets of the Company for the period referred to disclosed only that the Cash in Hand was £2 and that the Called Up Share Capital was also £2, the reality is that approximately £2.75 million passed through the bank accounts of the company which were effectively controlled by the said Des Traynor, and that these accounts were used in order to facilitate the evasion of taxes by those persons for whom the Company was used as a vehicle to withdraw Ansbacher Deposits.

8

The applicant was appointed a director of the company on the 9th March 1988. There is some dispute as to the date on which the applicant resigned as a director of the company, but there is a return filed in the Companies Registration Office which shows him as having resigned as of March 1989. However, the respondent points to the fact that this return is dated 13th April 1992 and filed on the 14th May 1992 û this date being also the date on which annual returns were filed in respect of the years 1989–1991 and the date on which the abridged financial statements for the years ending 31st March 1990 and 1991 were filed. The clear implication to be drawn is that the respondent believes that the return has been completed so as to show a date of resignation which is earlier than the date on which the applicant actually resigned.

9

The significance of that dispute as to the date on which the applicant resigned is that the applicant has asserted at all times that he was first appointed as auditor of the Company for the year ended 31st March 1990. In order to be the auditor to the Company, the applicant would have had to have ceased to be a director. In support of his submission in the substantive application that the applicant herein has not been truthful about the date of his resignation as a director, the respondent has exhibited a number of documents which postdate the applicant's appointment as auditor, and in some of which he is described as "director", and others as either "authorised signatory", "Chairman" or "Chairperson". These documents comprise bank mandates and facility letters. It is alleged that all but one of these documents was signed on a date which precedes the date of filing of the return in the Companies Office on the 14th May 1992.

10

The respondent alleges also that the auditor's reports attached to the financial statements do not give a true and fair view of the state of the company, despite a statement by the auditor therein that they do. The respondent points also to the fact that even though the applicant has stated when interviewed that he saw no books of the company, the auditor's report states that proper books of accounts had been kept by the Company and that financial statements were in agreement with the books.

11

It is also alleged that the applicant has been guilty of forgery in that he produced to the authorised officer appointed under s. 19 of the Companies Act1990 a letter from the said Des Traynor, purporting to be signed by him and to be dated 23rd January 1990, but which contained at the top of the letterhead thereof a telephone number which has been shown to be a number which came into existence only after the date appearing on that letter. The letter purports to assure the directors of the company that the company was a trust company and that, as such, did not trade and did not hold any assets or liabilities in its own right. This letter is said by the applicant to be the basis for the financial statements and balance sheets filed showing it to be a £2 company, rather than a trading company with £2.75 million passing through its bank accounts, and that he at all times relied upon the assurances of Mr Traynor that the company was a trust company. The allegation that the applicant has fabricated this letter is hotly denied by the applicant. It is the respondent's belief that this letter could not have come into existence until after the financial statements were filed in the Companies Registration Office for the year ended 31st March 1991.

12

It is also alleged by the respondent that apart altogether from the question of reliance upon assurances from Mr Traynor as to the status of the Company, the audit of the company's as carried out by the applicant for the years in question was clearly deficient in a number of ways, including arising from the fact that the applicant has stated to him that there was a possibility that the auditor's report on the financial statements for the year ended 31st March 1990 was not signed until 24th October 1991 which is the date on which the financial statements for the year ended 31st March 1991 were signed. This is in spite of the fact that the financial statements themselves show that they were signed on the 26th October 1990. There is also a question mark about the date of signing of other such financial statements. The financial statements for the years 1990 û 1993 are said therefore to be inaccurate, and it is contended, in addition, that in a number of respects which I need not detail, the applicant failed to comply with proper auditing standards by not obtaining evidence for his conclusions.

13

The above summarises adequately for the purpose of this present...

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