Simon Coyle v Fearghal O'Nolan and Others
| Jurisdiction | Ireland |
| Judge | Mr. Justice Cregan |
| Judgment Date | 30 January 2015 |
| Neutral Citation | [2015] IEHC 74 |
| Court | High Court |
| Date | 30 January 2015 |
[2015] IEHC 74
THE HIGH COURT
BETWEEN
AND
COMPANY LAW ENFORCEMENT ACT 2001 S56
COMPANIES ACT 1990 S150(3)
COMPANIES ACT 1963 S60
COMPANIES ACT 1990 S150
LA MOSELLE CLOTHING LTD & ROSEGEM LTD v SOUALHI 1998 2 ILRM 345 1998/23/8886
SQUASH (IRL) LTD, RE 2001 3 IR 35 2001 IESC 200 2001/23/6280
KAVANAGH v DELANEY & ORS (TRALEE BEEF & LAMB LTD (IN LIQUIDATION), IN RE) 2005 1 ILRM 34 2004/24/5615 2004 IEHC 139
BARINGS PLC & ORS, IN RE; SECRETARY OF STATE FOR TRADE v BAKER & ORS (NO 5) 1999 1 BCLC 433
KAVANAGH v DELANEY & ORS (TRALEE BEEF & LAMB LTD (IN LIQUIDATION), IN RE) 2008 3 IR 347 2008 2 ILRM 420 2008/32/6904 2008 IESC 1
MITEK HOLDINGS LTD, IN RE; GRACE (LIQUIDATOR) v KACHKAR & MCCELLAN CARRIGAN 2010 3 IR 374 2010/36/9110 2010 IESC 31
USIT WORLD PLC, IN RE; JACKSON v COLLEAQRY UNREP PEART 10.8.2005 2005/57/11922 2005 IEHC 285
FENNELL v ROCHFORD UNREP MACMENAMIN 18.8.2009 2009/21/5127 2009 IEHC 397
Company – S. 150 of the Companies Act 1990 – S. 56 of the Company Law Enforcement Act 2001 – Actions taken by directors whether reasonable
Facts: The applicant sought an order for a declaration that the respondents should be restricted from acting as directors of a company pursuant to s. 150 (3) of the Companies Act, 1990 for five years. The applicant challenged that the acts of the respondents in the capacity of the directors of the company were not fair and reasonable.
Mr. Justice Cregan refused to grant an order declaring that the respondent should be restricted from acting as directors of the company. The Court held that in determining whether the directors of a company had acted responsibly, regards must be had to the extent to which the director had not complied with any obligation imposed on him by the Companies Act. The Court observed that the directors of a company ought to exercise skill and diligence in discharging their duties and must possess sufficient knowledge and understanding of the company's affairs. The Court held that in the present case, the directors took all the decisions whether it was over-evaluation of assets, investment or putting the company into liquidation after consultation with qualified experts, solicitors, auditors and even went to the extent of contributing their personal funds into capital. The Court held that all those decisions were neither unreasonable nor reckless and taken to safeguard the interest of the company.
1. This is an application by the Liquidator of Pierse Contracting (in liquidation and in receivership) (hereinafter referred to as "the company") for a declaration that the respondents should be restricted from acting as directors of a company pursuant to s.1 50 (3) of the Companies Act, 1990 (as amended) for a period of five years.
2. All the respondents were directors of the company either at the date of, or during the twelve months prior to, the commencement of its winding up. (Mr. Coyle in his grounding affidavit sets out the full details of each respondent's directorship.)
3. At the time when the company went into liquidation the company was part of the Pierse group of companies. The shareholders of the company were a company called Birmayne (which owned approximately 99% of the company) and Pierse Unlimited (a Jersey registered company which owned approximately 1% of the company.)
4. Birmayne itself was a 100% subsidiary of Pierse Limited (another Jersey registered company) which was itself a 100% subsidiary of an unlimited company called Bolongo. A company called Remayne Holdings Limited owned 33.3% of the shares in Bolongo.
5. The company had some 19 subsidiaries in Ireland and the UK and had also 15 associated or joint venture companies.
6. The company was incorporated on 1 st May, 1978 and at that time was called McInerney (Civil Engineering) Limited. It formed part of the McInerney group. In 1988 the company changed its name to McInerney Contracting Limited. In 1991 there was a management buyout of the company from the McInerney Group conducted through a company called Birmayne Limited and in May 1991 the company changed its name to Pierse Contracting Limited.
7. The total consideration for this buyout was £5 million and 50% of the purchase consideration was provided by the company itself, funded by bank debt. A s.60 "white wash" - as it is called - was carried out at the time of the transaction. This funding was then passed on to Birmayne Limited (by way of an inter-company loan of £2.5m. from Pierse Contracting Limited). The shareholders provided the remaining £2.5m. to finance the acquisition.
8. As of the date of the commencement of the liquidation Birmayne was indebted to the company in the sum of £2.5m. (€3.09m.) which was the remaining balance of the original loan. This transaction is relevant because it is similar in nature to a transaction carried out in 2004 about which the Liquidator complains.
9. The grounding affidavit of Simon Coyle, the Liquidator, sets out the history of recent developments in the company in considerable detail. It also sets out in full the details of the change in management and the buyout event which occurred in or about November 2004 which has relevance to the issues in this application.
10. Paragraphs 17-21 of Mr Coyle's affidavit states as follows:
2 "17. On 18 November 2004, the directors of Birmayne noted that some of the founder members of that company had retired or wished to retire, and that it was proposed to make changes in the management of the company including, in particular, the appointment of Norbert O'Reilly, the second named Respondent herein, as Chief Executive with effect from May 2005.
18. In order to achieve these objectives, Remayne Holdings Limited had been incorporated on 3 November 2004. Remayne Holdings Limited purchased one-third of the shares in Birmayne for a total consideration of €39.8 million, and the purchase monies were provided to Remayne Holdings Limited by way of an inter-company loan from the Company. A section 60 whitewash was carried out at the time of the transaction.
19. I say and believe that the members of Birmayne who sold shares to Remayne Holdings Limited and the details of those sales are as follows:-
| (a) Gerard T. Pierse | 194,580 shares | €21,800,000 |
| (b) C. Norbert O'Reilly | 60,695 shares | €6,800,000 |
| (c) Michael Flick | 35,703 shares | €4,000,000 |
| (d) Fearghal O'Nolan | 30,348 shares | €3,400,000 |
| (e) Martin Murphy | 17,851 shares | €2,000,000 |
| (f) James Kavanagh | 17,851 shares | €2,000,000 |
20. As of the date of the commencement of the liquidation, Remayne Holdings Limited was indebted to the Company in the sum of €39.812 million. Remayne Holdings Limited's only asset was its holding in Birmayne.
21. Accordingly, the two loans receivable from Birmayne and Remayne Holdings totalled €42.9 million as of the commencement of the liquidation, and their repayment to the Company was entirely dependent on the performance of the trading companies in the Pierse Group, and in particular the Company itself."
11. It appears from the company accounts that the company went from making a profit of €17 million (approximately) in 2007 to making a loss of €16 million (approximately) in 2008 and a loss of €30.9 million in 2009. The Liquidator stated that, in his view, the company was trading profitably in Ireland up to 2007 but that some of the other group companies in the UK were experiencing trading difficulties from 2003/2004 onwards. Moreover the Liquidator noted that the company's domestic trading deteriorated in 2007 when it (and its related companies) could not sell on major property developments in Carrickmines, Santry, Clongriffin, (all in Dublin) and Blackrock in Cork. The inability to sell these developments had a significant cash flow impact on the company (and indeed on the Pierse Group generally) as they were unable to pay some of their bank debt or to meet their creditor liabilities. Moreover the lack of sales of development properties meant that some of the profits from the company's contracting projects had to be used to service property development loans.
12. This reduction in cash flow meant that the company was dependent upon the goodwill and patience of its creditors and some subcontractors from at least January 2009 onwards.
13. The major precipitating event which lead to the collapse of the company was that the company had undertaken the construction of a major development at The Grange, Baldoyle in Dublin for Gannon Developments. It appears that although the contract price was approximately €86 million (plus VAT) no formal written agreement had been entered into. The company was advised by its lawyers that it had a valid claim against Gannon Developments for a sum of approximately €25 million and it commenced Commercial Court proceedings to recover these monies. Following extensive negotiations the company agreed to accept the reduced sum of €13million in order to expedite payment and improve its cash flow.
14. However despite this settlement agreement the company was unable to secure payment by Gannon Development of the €13million and in September 2010 NAMA -...
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