Re Kentford Securities Ltd: Director of Corporate Enforcement v McCann

• Jurisdiction: Ireland
• Judge: O'Donnell, J.
• Judgment Date: 30 November 2010
• Neutral Citation: [2010] IESC 59
• Court: Supreme Court
• Docket Number: [S.C. No. 74 of 2007]
• Date: 30 November 2010

Director of Corporate Enforcement v McCann

IN THE MATTER OF KENTFORD SECURITIES LIMITED (UNDER INVESTIGATION) AND

IN THE MATTER OF THE COMPANIES ACT, 1963 -2001 AND

IN THE MATTER OF AN APPLICATION BY THE DIRECTOR OF CORPORATE ENFORCEMENT PURSUANT TO S.160(2) OF THE COMPANIES ACT, 1990

Between:

THE DIRECTOR OF CORPORATE ENFORCEMENT

Applicant

-and-

PATRICK MCCANN

Respondent

[2010] IESC 59

74/07

THE SUPREME COURT

COMPANY LAW

Auditor

Director - Disqualification - Purpose of disqualification order - Protection of public against future conduct - Punishment for past conduct - Deterrence - Discretion - Whether unfit to be concerned in management of company - Whether protection of public is primary purpose or only function of section - Whether period of disqualification should be fixed by reference to gravity of conduct - Whether effect of disqualification penal - In re Lo-Line Electric Motors Ltd [1988] Ch 477, Cahill v Grimes [2002] 1 IR 372, Re Wood Products (Longford) Ltd: DCE v McGowan [2008] IESC 28, [2008] 4 IR 598, DCE v Byrne [2009] IESC 57, [2010] 1 IR 222, Re Grayan Building Services Ltd [1995] Ch 241, Trade Secretary v Langridge [1991] Ch 402, Re Ansbacher (Cayman) Ltd: DCE v Collery [2006] IEHC 67, [2007] 1 IR 580 and Re Polly Peck International plc (No 2) [1994] 1 BCLC 574 considered - Companies Act 1990 (No 33), ss 160(2), 187(2)(a) and 190(6) - Company Law Enforcement Act 2001 (No 28), ss 14 and 42 - Companies Act 1963 (No 33) - Applicant's appeal allowed (74/2007 - SC - 30/11/2010) [2010] IESC 59

Re Kentford Securities Ltd: Director of Corporate Enforcement v McCann

Facts This case involved an appeal by the applicant against the decision of the High Court refusing to make an order in respect of the respondent pursuant to s. 160 or s.150 of the Companies Act 1990. The High Court Judge declined to make the aforementioned order despite reaching the conclusion that the respondent had failed in his duties as an auditor. More specifically the court found that the respondent had acted as an auditor of a specific company whilst also being a director of that company, thereby breaching s. 187(2)(a) of the Act of 1990 and further that the respondent had sought to rely on a letter that had been backdated and also had backdated the notification of his resignation as a director in order to "correct the paper record". However, the learned trial judge refused to make the order sought by the applicant for a number of reasons, namely because the events in question occurred some time ago and the respondent's business was now successful, and most importantly because he perceived there was "no risk" of the respondent returning to the "irregular and improper conduct he was mixed up in all those years ago". The learned Judge also went on to state that the purpose of section 160 was not to punish the individual but to protect the public from harm.

Held by the Supreme Court; O'Donnell J. (Fennelly, Finnegan JJ) in allowing the appeal: That there were three interrelated errors of principle contained within the judgment of the High Court Judge, which were central to the decision of that court and accordingly, required the reversal of that decision. Section 160 was not solely concerned with protecting the public from harm. That section also contained a deterrent element, and sought to improve corporate governance. Consequently, it was a significant error to characterise the section as having only a single purpose, namely that of protecting the public from the respondent in the future. Rather, the Act of 1990 required a two-stage inquiry: firstly the court should have determined as a matter of objective forensic inquiry, whether one or more of the criteria under the subparagraphs of s. 160(2) had been established to the degree and level required and the second stage involved the exercise of the court's discretion. Furthermore, the Act of 1990 directed attention to past conduct and that was the key to disqualification. It followed from the learned trial judge's findings that the respondent was in breach of his duty both as a director and auditor and on that basis he was unfit to be involved in the management of a company. The most appropriate way to deal with this application was to re-enter the matter with a view to considering whether a short period of disqualification and the conditions that might be attached to it by way of limitation to specific clients or limitation on sole practice as an auditor or otherwise, might meet the merits of this case, and still achieve the objects of the Act.

Reporter: L.O'S.

COMPANIES ACT 1990 S187(2)(A)

KENTFORD SECURITIES LTD, IN RE; DIRECTOR OF CORPORATE ENFORCEMENT v MCCANN UNREP PEART 23.1.2007 2006/15/3134 2007 IEHC 1

COMPANIES ACT 1990 S160

COMPANIES ACT 1990 S150

COMPANIES ACT 1990 S160(2)(B)

COMPANIES ACT 1990 S160(2)(D)

LO-LINE ELECTRIC MOTORS LTD, IN RE 1988 BCLC 698 1988 CH 477 1988 3 WLR 26 1988 2 AER 692

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

WOOD PRODUCTS (LONGFORD) LTD, IN RE; DIRECTOR OF CORPORATE ENFORCEMENT v MCGOWAN 2008 4 IR 598 2008/13/2839 2008 IESC 28

DIRECTOR OF CORPORATE ENFORCEMENT v BYRNE 2010 1 IR 222 2009 2 ILRM 328 2009/13/2999 2009 IESC 57

GRAYAN BUILDING SERVICES LTD (IN LIQUIDATION), IN RE 1995 CH 241 1995 3 WLR 1 1995 BCC 554 1995 1 BCLC 276

SECRETARY OF STATE FOR TRADE & INDUSTRY v LANGRIDGE 1991 CH 402 1991 2 WLR 1343 1991 3 AER 591 1991 BCC 148

DIRECTOR OF CORPORATE ENFORCEMENT v D'ARCY 2006 2 IR 163 2005/16/3273 2005 IEHC 333

WESTMID PACKING SERVICES LTD, IN RE; SECRETARY OF STATE FOR TRADE & INDUSTRY v GRIFFITHS & ORS 1998 2 AER 124 1998 BCC 836 1998 2 BCLC 646

COMPANY LAW ENFORCEMENT ACT 2001 S14

COMPANY LAW ENFORCEMENT ACT 2001 S42

COMPANIES ACT 1990 S160(1)

COMPANIES ACT 1990 S160(1A)

COMPANIES (AMDT) ACT 1982 S3A(1)

COMPANIES ACT 1963 S195(8)

COMPANIES ACT 1990 S160(2)

COMPANIES ACT 1990 S160(3)

COMPANIES ACT 1990 S160(2)(F)

COMPANIES ACT 1990 S160(3)(A)

COMPANIES ACT 1990 S160(3)(B)

COMPANIES ACT 1990 S160(2)(H)

COMPANIES ACT 1990 S160(2)(I)

COMPANIES ACT 1990 S160(8)

COMPANIES ACT 1990 S160(9A)

COMPANIES ACT 1990 S160(2)(A)

COMPANIES ACT 1990 S160(2)(C)

COMPANIES ACT 1990 S160(2)(E)

COMPANIES ACT 1990 S160(2)(G)

SEVENOAKS STATIONERS (RETAIL) LTD, IN RE 1991 CH 164 1990 3 WLR 1165 1991 3 AER 578 1990 BCC 765 1991 BCLC 325

ANSBACHER (CAYMAN) LTD, IN RE; DIRECTOR OF CORPORATE ENFORCEMENT v COLLERY 2007 1 IR 580 2006/15/3109 2006 IEHC 67

PAMSTOCK LTD, IN RE 1994 BCC 264 1994 1 BCLC 716

POLLY PECK INTERNATIONAL PLC (IN ADMINISTRATION), IN RE; SECRETARY OF STATE FOR TRADE & INDUSTRY v ELLIS & ORS (NO 2) 1993 BCC 890 1994 1 BCLC 574

BATH GLASS LTD, IN RE 1988 4 BCC 130 1988 BCLC 329

COMPANIES ACT 1990 S190(6)

SECRETARY OF STATE FOR TRADE & INDUSTRY v REYNARD 2002 2 BCLC 625 2002 BCC 813

SOCIETE D'AVANCES COMMERCIALES (SOCIETE ANONYME EGYPTIENNE) v MERCHANTS MARINE INSURANCE CO 1924 20 LLOYDS REP 140

1 Judgment delivered by O'Donnell, J. on the 30th day of November 2010.

2 Judgment delivered by O'Donnell, J. [nem diss]

3 In 1988 the respondent, Patrick McCann, was a relatively recently qualified accountant working in a junior position in a firm called Chartered Secretarial Company ("CSC"), the principal of which was a Mr. Sam Field-Corbett. As the name perhaps suggests, the company provided company formation and secretarial facilities. The respondent was in his late 20s but by that stage had already established his own accountancy firm. It is recorded in the High Court judgment that it was part of his business plan that persons who dealt with CSC would be approached by him to provide auditing and accountancy services.

4 One of the companies for which CSC provided services was Kentford Securities Limited ("Kentford"), a company controlled by the late Mr. Desmond Traynor, albeit that Mr. Traynor was neither a shareholder nor a director. Mr. Traynor was a very successful and well connected businessman, and a major figure in relation to the affairs of CSC until he died in 1994. The respondent was, in 1988, a director of Kentford. On the 14 ^th of May, 1992, however, a Notice of Change of Director dated the 13 ^th April, 1992 was filed in the Companies Office, recording the resignation of the respondent as of the 14 ^th March, 1989. Whether the respondent truly resigned on that date, and the notification was simply filed later, or whether, on the contrary, the resignation was made on the 13 ^th April, 1992 and backdated to the 14 ^th March, 1989 was an issue in the High Court proceedings. What is not in dispute is that the respondent was the auditor of Kentford and audited the accounts from 1989 to 1993.

5 During the proceedings of the McCracken and Moriarty Tribunals dealing in part with the affairs of the late Mr. Charles Haughey, it emerged that Mr. Traynor had operated the so-called offshore "Ansbacher deposits" for a number of persons, including Mr. Haughey, as part of the tax evasion scheme, and that Kentford was a vehicle used by Mr. Traynor for that purpose. During the period when the respondent was the auditor to Kentford, a sum amounting to IR£2.27 million passed through the Kentford accounts as part of the Ansbacher secret deposits being managed by Mr. Traynor.

6 In June 1998, an authorised officer was appointed to investigate the affairs of Kentford. The respondent was contacted and was interviewed on a number of occasions between 1999 and 2002 in the course of the investigation. He informed the authorised officer that he did not have any books and records relating to Kentford, that he had given all his audit working papers to Mr. Traynor in 1994, and furthermore, that he had resigned as a director in 1989. He sought to explain the fact that after that date he had signed documents, including bank mandates and...