Stafford v Murphy

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan
• Judgment Date: 19 April 2010
• Neutral Citation: [2010] IEHC 115
• Court: High Court
• Date: 19 April 2010

[2010] IEHC 115

THE HIGH COURT

[NO. 249 COS/2008]

Stafford v Murphy

IN THE MATTER OF JAMES MURPHY & SONS SALES (DUNDALK) LIMITED (IN LIQUIDATION)

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

AND SECTION 56 OF THE COMPANY LAW ENFORCEMENT ACT 2001

BETWEEN

JIM STAFFORD

APPLICANT

AND

FRANCIS MURPHY AND ANNE MURPHY

RESPONDENTS

COMPANIES ACT 1990 S150

COMPANIES ACT 1990 S150(1)

COMPANIES ACT 1990 S150(2)

COMPANIES ACT 1990 S150(2)(A)

COMPANIES ACT 1990 S150(4A)

COMPANY LAW ENFORCEMENT ACT 2001 S56

SQUASH (IRL) LTD, IN RE 2001 3 IR 35 2001/23/6280

LA MOSELLE CLOTHING LTD & ROSEGEM LTD v SOUALHI 1998 2 ILRM 345 1998/23/8886

DIGITAL CHANNEL PARTNERS LTD (IN VOLUNTARY LIQUIDATION), IN RE 2004 2 ILRM 35 2004/24/5602

FENNELL & MAGUIRE (JOINT LIQUIDATORS OF SPH LTD) v SHANAHAN & ORS UNREP FINLAY-GEOGHEGAN 25.5.2005 2005/25/5154 2005 IESC 152

BARINGS PLC & ORS (NO 5); SECRETARY OF STATE FOR TRADE & INDUSTRY v BAKER (NO 5) 1999 1 BCLC 433

BARINGS PLC & ORS (NO 5); SECRETARY OF STATE FOR TRADE & INDUSTRY v BAKER (NO 5) 2000 1 BCLC 523 2001 BCC 273

COMPANY LAW

Directors

Restriction - Onus of proof - Just and equitable grounds - Consideration of entire tenure of directorship - Failure to make tax returns - Aware or ought to have been aware company insolvent - Continuation of trading and failure to take steps to liquidate company - No prospect of discharging debts - Lack of commercial probity - Re Squash (Ireland) Ltd [2001] 3 IR 35; La Moselle Clothing Ltd v Soualhi [1998] 2 ILRM 345; Re Lo-Line Motors Ltd [1988] BCLC 698; Re Digital Channel Partners Ltd [2004] 2 ILRM 35; Re SPH Ltd [2005] IEHC 152, (Unrep, Finlay Geoghegan J, 25/5/2005) considered - Re Barings plc: Trade Secretary v Baker [1999] 1 BCLC 433; Re Barings plc: Trade Secretary v Baker [2000] 1 BCC 523 approved - Companies Act 1990 (No 33), s 150 - Company Law Enforcement Act 2001 (No 28), s 56 - Restriction orders granted (2008/249 Cos - Finlay Geoghegan J - 19/4/2010) [2010] IEHC 115

Stafford v Murphy

Facts: A court appointed liquidator sought orders pursuant to s. 150 Companies Act 1990, as amended, for restriction against a husband and wife, who had acted as directors of the Company at issue. The liquidator raised the issue of a judgment being obtained against the respondents in 2007 by a landlord for a failure to pay rent, together with an order for possession and costs as well as a failure to make VAT returns. The liquidator indicated that the second respondent had refused to meet with him. The issue arose as to the honesty and responsibility of the directors.

Held by Finlay Geoghegan J. That it did not appear that the first named respondent acted responsibly in the conduct of the affairs of the company taking into account his entire tenure. By 2008 he was aware that the company was hopelessly insolvent. It was relevant that there was still an outstanding judgment and that VAT was still payable. The continuation to trade after 2008 indicated a lack of commercial probity. The Court found that by not participating in a company, it was not possible for the second respondent to exclude a finding that she had not acted responsibly. It was mandatory for the Court to make restriction orders in respect of both respondents.

Reporter: E.F.

1 JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 19th day of April, 2010

2 1. The applicant is the official liquidator of James Murphy & Sons Sales (Dundalk) Limited (In Liquidation) ("the Company"), having been so appointed by order of this Court of 28 ^th July, 2008. This application is brought by him, pursuant to s. 150 of the Companies Act 1990, for a declaration of restriction of each of the respondents.

3 2. The respondents are husband and wife and were each directors of the Company within twelve months of the date of commencement of the winding up. It is not in dispute that the Company is insolvent and, accordingly, that s. 150 of the Act of 1990 applies to the Company and to the respondents.

4 3. The applicant and the respondents have each sworn several affidavits in this application. There are a number of factual matters in dispute. There was no cross-examination of the deponents.

Background to the winding up

5 4. The Company was incorporated in 1979. It appears to have been dormant until February 2005. It formed part of a group of companies whose shareholders included the first named respondent, his late father, and Mr. Maurice Murphy and Mr. Donal Murphy, all part of the extended Murphy family. In February, 2005, it appears to have been agreed, effectively, that each of the first named respondent, Mr. Maurice Murphy and Mr. Donal Murphy would go their separate ways, and each acquire at least one of the companies within the group and the business or part of the business carried on by that company. The applicant has exhibited copies of two of the agreements entered into on 14 ^th February, 2005. It appears that the first named respondent acquired all the issued shares in James Murphy & Sons MFG (Dundalk) Limited ("MFG") and the Company. Prior to February 2005, MFG carried on a business of the supply of truck bodies and other equipment for the carriage of goods, including refrigerated goods, dry freight and specialist cargo. Pursuant to the agreements entered into in February 2005, the business of MFG was transferred to the Company. Further, it appears that covenants were entered into by the first named respondent and MFG, that the then liabilities of MFG would be discharged. There were various transfers of monies between the parties to the agreements, in part aimed at permitting liabilities to be discharged.

6 5. The premises out of which MFG carried on business was owned by an unlimited company within the group, James Murphy & Sons (Dundalk). Pursuant to the 2004 settlement agreement, that company was acquired by Mr. Maurice Murphy. Further, a "business letting" agreement appears to have been entered into between James Murphy & Sons (Dundalk) ("the Landlord") and the Company, under which the Company was to pay a rent of €2,777 per month for the first nine months, and thereafter, a sum of €8,333 per month. The settlement agreement provided for the retention of monies on deposit to meet the first twelve months rent. Whilst there was a further retention of €50,000 in respect of rent thereafter it appears, both from the affidavits sworn and the settlement agreement, that it was envisaged that the Company would move out of the premises of the Landlord within twelve months. There was even provision for a refund in the event that it vacated the premises in advance of the twelve-month period.

7 6. The Company failed to obtain alternative premises prior to February 2006. It also appears to have failed to pay rent to the Landlord, and in June 2007, the Landlord obtained judgment against the Company in the sum of €141,666, together with an order for possession of the premises and an order for costs.

8 7. The Company moved to alternative premises in November 2007. It failed to discharge any part of the judgment and on 24 ^th April, 2008, the Landlord served a twenty-one day letter of demand on the Company. On 25 ^th June, 2008, the Landlord petitioned the High Court for an order for the winding up of the Company. The order for winding up was made on 28 ^th July, 2008.

Applicable law

9 8. Section 150(1) of the Act of 1990 provides:

"The court shall, unless it is satisfied as to any of the matters specified in subsection (2), declare that a person to whom this Chapter applies shall not, for a period of five years, be appointed or act in any way, whether directly or indirectly, as a director or secretary or be concerned or take part in the promotion or formation of any company unless it meets the requirements set out in subsection (3); and, in subsequent provisions of this Part, the expression 'a person to whom section 150 applies' shall be construed as a reference to a person in respect of whom such a declaration has been made."

10 9. Insofar as relevant, s. 150(2) provides:

"The matters referred to in subsection (1) are-"

11 (a) that the person concerned has acted honestly and responsibly in relation to the conduct of the affairs of the company and that there is no other reason why it would be just and equitable that he should be subject to the restrictions imposed by this section".

12 As appears, s. 150(1) imposes a mandatory obligation on the 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-section (2). The only relevant matters on the facts of this application are those referred to in sub-section (2)(a), and primarily, that the persons concerned have acted honestly and responsibly in relation to the conduct of the affairs of the Company.

13 10. The terms of s. 150 are such that whilst the application is brought by the liquidator, pursuant to s. 150(4A) and his obligations following a decision of the Director of Corporate Enforcement under s. 56 of the Company Law Enforcement Act 2001, it is not a normal inter partes adversarial application, nor is the onus of proof of all matters on the liquidator, as applicant. The onus is on the liquidator to establish that s. 150 applies both to the Company and the respondents. He has discharged that onus on the facts of this application. Thereafter, the onus shifts to the respondents in relation to the issues of honesty and responsibility in relation to the conduct of the affairs of the Company. Insofar as the second part of s. 150, sub-section(2) is concerned, the onus is regarded as resting on the liquidator to establish that there is some other reason for which it would be just and equitable that the respondent be subject to the restrictions...