Re Vehicle Imports Ltd ((in Liquidation))

• Jurisdiction: Ireland
• Judge: Mr. Justice Roderick H. Murphy
• Judgment Date: 23 November 2000
• Neutral Citation: 2000 WJSC-HC 6574
• Docket Number: No. 163COS/1998
• Court: High Court
• Date: 23 November 2000

VEHICLE IMPORTS (IN LIQUIDATION), IN RE

IN THE MATTER OF A VEHICLE IMPORTS LTD (IN LIQUIDATION)

AND

IN THE MATTER OF AN APPLICATION UNDER SECTION 150 OF THE COMPANIES ACT, 1990

2000 WJSC-HC 6574

No. 163COS/1998

THE HIGH COURT

Synopsis:

Company Law

Company law; duties of directors; application for restriction orders against three directors of the company; whether activities of third named respondent elevated him to the status of shadow director; whether first named respondent had fulfilled duty to supervise the discharge of delegated functions; whether restriction order should be made against second named respondent, a named director, spouse of the first named respondent, with no involvement in the day-to-day running of the company; whether directors had acted honestly and responsibly in relation to the conduct of the affairs of the company; s.150, Companies Act, 1990; s. 27, Companies Act, 1990.

Held: Restriction order granted against first and third named respondents. Order refused against second named respondent.

Vehicle Imports Ltd., In re - High Court: Murphy J. - 23/11/2000

In this application the liquidator of the company brought proceedings seeking an order under section 150 of the Companies Act 1963 against directors of the company and a person who the liquidator claimed was a shadow director. A statement of affairs of the company filed some months after the date of the winding up showing a deficit of £171,202. A number of issues arose during the hearing including whether a person involved with the company was a shadow director. Murphy J made a restriction order against the shadow director and granted a stay of twenty one days to enable an application under section 152 of the Companies Act, 1963 to be made. A restriction order would also be made against one of the directors with no stay granted.

Citations:

COMPANIES ACT 1990 S149(5)

COMPANIES ACT 1990 S27

COMPANIES ACT 1990 S150

COMPANIES ACT 1990 S152

BARINGS PLC (NO 6), IN RE; SECRETARY OF STATE FOR TRADE & INDUSTRY V BAKER (NO 6) 1999 1 BCLC 433

HUNTING LODGES LTD, IN RE 1985 ILRM 75

Mr. Justice Roderick H. Murphy

ISSUES

1 The issues which arise in this case are the following:

2 1. Whether a director has acted honestly and responsibly in relation to the conduct of the affairs of a company which at the commencement of its winding up is unable to pay its debts where the liquidator received no books of account or other records of the company that would be of assistance to him in establishing how the company traded.

3 2. Whether where a second director, the wife of the director above referred to, has acted honestly and responsibly in relation to the conduct of the affairs of the same company in circumstances were she says that she took no part in the management of the said company and/or in relation to the maintenance of records of the said company and/or direction of the said company. She was just, she says, a named director.

4 3. Whether a third Respondent, to whom the first director advised the liquidator that all books of account and company records were kept by him and who, according to the first director, controlled 75% of the business, was a shadow director.

5 4. If a shadow director, whether the third named Respondent had acted honestly and responsibly in relation to the conduct of the affairs of the company.

BACKGROUND

6 The company was incorporated on the 6th of November 1995 and, as the name suggests, was involved in the importation of motor cars through Mototec Limited.

7 On the 31st of July 1998, two years and nine months later, Mr. David M. Hughes was appointed as liquidator under a winding up Order on the petition of Guinness & Mahon Ltd.

8 The Court required a statement of affairs to be filed by the first named Respondent within twenty one days from the date of the winding up. On the 12th of March 1999, over six months later, a statement of affairs was filed showing a deficit of £171,202. I understand that a copy of the statement of affairs was, in fact, sent to the liquidators” solicitors in February of 1999.

9 In the absence of records, the liquidator estimates, from records from the Revenue Commissioners Vehicle Registration Tax Unit that a total of 230 vehicles were imported at a cost of £1,196,000.

10 The reconstructed bank accounts further show lodgements of £836,000 leaving a shortfall of £360,000.

11 It would appear that trade continued after the appointment of the liquidator until the 18th of September 1998.

12 During a fourteen month period from June 1996 to August 1997 Mr. Delaney, the third named Respondent, received £105,000 from the Company. Mr. Brady, the first named Respondent, can offer no explanation as to losses. He says he received a gross payment of between £400 and £500 per week from the company in respect of which no PAYE or PRSI was paid.

Mr Brady's Evidence

13 A meeting between the first named Respondent, Mr. Brady, and the liquidator was held on the 19th of October 1998. Mr. Brady, who was the only signatory in respect of the cheques, stated that he"would not have seen bank statements". He could not believe that Guinness & Mahon were owed £160,000. He said the trading ceased in May 1997.

14 Mr. Brady swore two Affidavits one on the 28th of January 1999 with the statement of affairs (filed, as referred to above on the 12th of March 1999) and another Affidavit on the 9th of March 2000.

15 In the first Affidavit Mr. Brady says that the company accountant was Mr. Tom Delaney, the third named Respondent herein in whom he had placed particular trust and reliance to carry out the necessary functions of the company in the relation to the handling of monies, the making of lodgements and the keeping of records. He says that he was unable to obtain full access to all of his records which had been formally held by Mr. Delaney when Mr. Delaney ceased practising. Some documentation was, however, retrieved from a member of Mr. Delany's staff and given to the liquidator on the date of the swearing of that Affidavit.

16 With regard to the statement of affairs Mr. Brady refers to three vehicles which were traded in valued at £3,400. One of these, at £2,000, was retained by a customer who claimed compensation in respect of the repair of her own vehicle. While the Gardaí indicated where the vehicle was parked Mr. Brady could not locate it and now knows nothing about it.

17 Mr. Brady says that he does not know at this stage whether or not any of the furniture referred to in the statement of affairs is available since a Notice to Quit was served on the company.

18 The liabilities in respect of that, PRSI and PAYE are at present unascertainable and are matters, Mr. Brady says, which were handled by his accountant Mr. Delaney, the third named Respondent.

19 Mr. Brady's background is detailed in his second Affidavit sworn on the 9th of March 2000. He had been employed as a shipping purchasing manager with a large motor company for fourteen years and subsequently became chairman of International Vehicle Imports were he was director and shareholder between 1989 and 1991. That company had large qualified personnel dealing with all regulatory matters and company accounts. He was not involved in the day to day work in relation to that aspect of the business.

20 From 1991 to late 1995 he was a director of Ridlie Trading Limited which was engaged in car repair and sales. The books of that company were maintained by his sister.

21 Some trading of the company, the subject matter of this Application began in the premises occupied by Ridlie Trading Limited and subsequently in premises which were owned by Mr. Delaney the third named Respondent who, from 1996 to 1997, also carried out business in the same premises.

22 Mr. Brady says he ceased trading from that premises in or about the month of April 1998 and commenced trading under his own name in association with another company Silview Trading Limited but as a sole trader under his own name.

23 Mr. Brady says that he had been introduced to Mr. Delaney early in 1996. He says that Mr. Delaney offered to make himself available as his accountant if he took the premises in which Mr. Delaney practised at a rent of £300 per week. Mr. Brady says that Mr. Delany's practice, Delaney and Associates commenced taking over the accounting affairs of the company in or about April 1996 and were given by him old documents books and records then available. He believes that the business of the company initially operated through a bank account at the Ulster Bank in Camden Street. He has made enquiries with that bank in relation to any records they may hold in respect of company affairs but had not, at the time of the swearing of the Affidavit, received any reply.

24 Mr. Brady avers that it was a term of the agreement between the company and Delaney and Associates and, in particular, with Mr. Delaney, that they and he would look after the financial affairs of the company and carry out the preparation of all accounts and make all necessary VAT returns and keep the books of the company. All correspondence, including bank statements, were directed to the premises of Delaney & Associates.

25 Fees were paid to Delaney & Associates by way of loans form Smurfit Finance in the sum of £3,221 on the 24th of October 1996 and £4,618 on the 20th of January 1997. Repayments were made to Smurfit Finance from the company by way of regular direct debits. In addition, Mr. Brady says that Mr. Delaney opened a bank account for the company at the National Irish Bank branch at Swords under Mr. Brady's personal guarantee. He says that Mr. Delaney advised him as to what cheques to write and payments to make. Furthermore he signed blank cheques which allowed Mr. Delaney to determine himself, as part of his auditing role according to Mr. Brady, which suppliers of cars were to be paid. He says that it was part of the function of...