SPH Ltd (in Voluntary Liquidation) v Companies Act

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan
• Judgment Date: 25 May 2005
• Neutral Citation: [2005] IEHC 152
• Court: High Court
• Docket Number: [No. 136 COS/2004]
• Date: 25 May 2005

[2005] IEHC 152

THE HIGH COURT

[No. 136 COS/2004]

SPH Limited (in Voluntary Liquidation) -v- Companies Act

IN THE MATTER OF SPH LIMITED (IN VOLUNTARY LIQUIDATION)

AND IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT 1990

AND SECTION 56 OF THE COMPANY LAW ENFORCEMENT ACT 2001

BETWEEN

KEN FENNELL AND RICHARD MAGUIRE AS JOINT LIQUIDATORS OF SPH LIMITED (IN VOLUNTARY LIQUIDATION)

APPLICANTS

-AND-

SEAN SHANAHAN, MARIE SHANAHAN, DECLAN FITZPATRICK AND PADRAIC CULLEN

RESPONDENTS

Abstract:

Company law - Declaration of restriction- Whether the respondents acted honestly and responsibly in relation to the conduct of the affairs of the company- Companies Act, 1990.

Facts: The applicants brought an application pursuant to s.150 of the Act of 1990 for declarations of restriction against the first and second named respondents, who were both directors of the insolvent company within twelve months of the date of commencement of the winding up.

Held by Finlay Geoghegan J. in favour of the applicants: That either by late 2001 or early 2002 the first and second named respondents knew or ought to have known of the accrual of significant liabilities to the Revenue Commissioner. However, they did not appear to have taken any steps during 2002 to provide for the payment of such liabilities. Consequently, the first and second named respondents failed to establish that they acted responsibly as directors of the Company.

Reporter: L O’S.

Ms. Justice Finlay Geoghegan

1 This judgment relates to the application under s.150 of the Companies Act,1990 brought by the applicants who are the joint liquidators of SPH Limited (in voluntary liquidation) (the Company) against the first and second named respondents only.

2 It is undisputed that the first and second named respondents were each directors of the Company within twelve months of the date of commencement of the winding up and that the Company is insolvent. Accordingly s.150 of the Act of 1990 applies to the Company and to the first and second named respondents.

3 The Company carried on business as a construction company. It was incorporated in 1991 but is stated to have effectively commenced business as a construction company in 1996/97. It ceased trading on the 16th April, 2003, and on the 1st May, 2003, it was resolved pursuant to s. 251 that it be wound up and that the applicants be appointed joint liquidators.

4 The first and second named respondents are husband and wife. The first named respondent appears to have been the prime mover in the Company and in day to day control. The second named respondent was a non-executive director.

5 The Company appears to have traded successfully for a number of years obtaining many sizable building contracts.

6 The directors, in the statement of affairs estimated the ultimate deficiency (excluding costs of liquidation) to be in the region of €1,727,223.00. The first named applicant expresses the view that the build up of trading losses since April, 2001 was the main reason for the liquidation of the Company. He refers to dramatic increases in the cost of sales and also to the possibility that the Company may have been overambitious in its pricing of contracts. He expresses a view that the Company may have lacked the necessary management controls to trade successfully or profitably resulting in constant cash flow issues.

7 The first named respondent in his replying affidavits acknowledges that the Company operated under significant financial pressure in the last six months of trading. The ultimate catalyst for the winding up is stated to have been the withdrawal by the Revenue Commissioners of the C2 certificate of the Company on the 8th or 9th April and a subsequent demand dated the 11th April received on the 14th or 15th April for payment of a sum of €277,569.64 within seven days.

Applicable law.

8 Section 150 of the Act of 1990 imposes a mandatory obligation on the High Court to make a declaration of restriction in respect of persons to which it applies unless the Court is satisfied "as to any of the matters specified in sub-s. (2)". The relevant matters to this application are "that the person concerned has acted honestly and responsibly in relation to the conduct of the affairs of the company …".

9 An application such as this brought by a liquidator under s.150 (4) pursuant to his obligation under s.56 of the Act of 2001 is not a normalinter partes adversarial application. The onus of establishing that he/she acted honestly and responsibly rests on the director. The practice direction of the President of the High Court in relation to voluntary windings up requires a liquidator to put before the court those matters which he considers the court should take into account in determining whether the director has acted honestly and responsibly. Whilst in practical terms a director may primarily seek to address the matters raised by the liquidator, the director is not relieved of the general onus established by section 150 of the Act of 1990.

10 The matters to which the court should have regard in determining the responsibility of a director for the purposes of s.150 (2)(a) as set out by Shanley J. inLa Moselle Clothing Limited v. Soualhi [1998] 2 I.L.R.M. 345 and as approved by the Supreme Court in Re Squash (Ireland) Limited [2001] 3 I.R. 35 are:

11 a "(a) The extent to which the director has or has not complied with any obligation imposed on him by the Companies Acts1963–1990.

12 (b) The extent to which his conduct could be regarded as so incompetent as to amount to irresponsibility.

13 (c) The extent of the director's responsibility for the insolvency of the company.

14 (d) The extent of the director's responsibility for the net deficiency in the assets of the company disclosed at the date of the winding up or thereafter.

15 (e) The extent to which the director, in his conduct of the affairs of the company, has displayed...