Tailored Homes Ltd

• Jurisdiction: Ireland
• Judge: RE,Mr Justice Max Barrett
• Judgment Date: 15 February 2017
• Neutral Citation: [2017] IEHC 76
• Court: High Court
• Docket Number: [2012 No. 586 COS]
• Date: 15 February 2017

[2017] IEHC 76

THE HIGH COURT

Barrett J.

[2012 No. 586 COS]

IN THE MATTER OF

TAILORED HOMES (NAVAN) LIMITED (IN LIQUIDATION)

AND

IN THE MATTER OF SECTIONS 683 AND 819 OF THE COMPANIES ACT 2014

BETWEEN:

BRENDAN O'DONOGHUE

APPLICANT

– AND –

MICHAEL TAGGART

AND

JOHN TAGGART

RESPONDENTS

Company – S. 819 of the Companies Act 2014 – Restriction on directorship – Honest and responsible conduct

Facts: The applicant/liquidator had filed an application under s. 819 of the Companies Act 2014 for the restriction of directorship of the respondents. The liquidator objected the way in which the company's affairs were managed by the respondents, such as sale of properties at a significant loss that caused the accumulation of Revenue liabilities; prejudice to trade creditors; trading through losses; delayed liquidation; and the failure to file annual returns on time.

Mr. Justice Max Barrett granted the declaration as sought by the liquidator under s. 819 (1) of the Companies Act 2014, which had the effect of restraining the directorship of the respondent for a period of five years. The Court held that the onus had rested on the respondents to prove that they were responsible in managing the affairs of the company. The Court found that though the respondents had made good of the losses caused to the creditors, yet their conduct in not filing the annual returns on the pretext of inability to meet the expenses to prepare the annual returns showed lack of probity on their part. The Court found that despite repeated requests from the Revenue Commissioners, the respondents had made no effort to resolve the dispute and let the liabilities accumulate for more than three years.

JUDGMENT of Mr Justice Max Barrett delivered on 15th February, 2017.

I. Application Made

1 This judgment concerns an application under s.819 of the Companies Act 2014 for a declaration that each of Mr Michael Taggart and Mr John Taggart, being persons to whom Chapter 3, Part 14 of the Act of 2014 applies shall not, for a period of five years, be appointed or act in any way, directly or indirectly, as a director or secretary of a company, or be concerned or take part in the formation or promotion of a company, unless the company meets the requirements set out in s.819(3) of the Act of 2014.

II. Section 819

(i) Text of S.819.

2 Section 819 of the Act of 2014 provides as follows:

‘819. (1) On the application of a person referred to in section 820 (1) and subject to subsection (2), the court shall declare that a person who was a director of an insolvent company shall not, for a period of 5 years, be appointed or act in any way, directly or indirectly, as a director or secretary of a company, or be concerned in or take part in the formation or promotion of a company, unless the company meets the requirements set out in subsection (3).

(2) The court shall make a declaration under subsection (1) unless it is satisfied that-

(a) the person concerned has acted honestly and responsibly in relation to the conduct of the affairs of the company in question, whether before or after it became an insolvent company,

(b) he or she has, when requested to do so by the liquidator of the insolvent company, cooperated as far as could reasonably be expected in relation to the conduct of the winding up of the insolvent company, and

(c) there is no other reason why it would be just and equitable that he or she should be subject to the restrictions imposed by an order under subsection (1).

(3) The requirements referred to in subsection (1) are-

(a) the company shall have an allotted share capital of nominal value not less than-

(i) €500,000 in the case of a public limited company (other than an investment company) or a public unlimited company, or

(ii) €100,000 in the case of any other company,

(b) each allotted share shall be paid up to an aggregate amount not less than the amount referred to in paragraph (a), including the whole of any premium on that share, and

(c) each allotted share and the whole of any premium on each allotted share shall be paid for in cash.

(4) In the application of subsection (3) to a company limited by guarantee, paragraphs (a) to (c) of it shall be disregarded and, instead, that subsection shall be read as if it set out both of the following requirements:

(a) that the company's memorandum of association specifies that the amount of the contribution on the part of the member of it, or at least one member of it, being the contribution undertaken to be made by the member as mentioned in section 1176 (2)(d), is not less than €100,000;

(b) that the member whose foregoing contribution is to be not less than that amount is an individual, as distinct from a body corporate.

(5) In the application of subsection (3) to an investment company, paragraphs (a) to (c) of it shall be disregarded and, instead, that subsection shall be read as if it set out both of the following requirements-

(a) that the value of the issued share capital of the company is not less than €100,000,

(b) that an amount of not less than €100,000 in cash has been paid in consideration for the allotment of shares in the company.

(6) Where subsection (1) refers to being appointed or acting as a director or secretary of a company, or taking part in the formation or promotion of a company, ‘company’ means any of the following:

(a) a private company limited by shares;

(b) a designated activity company;

(c) a public limited company;

(d) a company limited by guarantee;

(e) an unlimited company;

(f) an unregistered company.

(7) A prescribed officer of the court shall ensure that the prescribed particulars of a declaration under this section are provided to the Registrar in the prescribed form and manner (if any).’

3 A number of preliminary points might usefully be noted:

(1) the persons referred to in s.820(1) are the Director of Corporate Enforcement, the liquidator of the relevant insolvent company and a receiver of the property of the relevant company;

(2) the combined effect of s.819(1) and (2) is that a declaration of the type contemplated under s.819(1) must issue unless the court is satisfied as to each and all of the matters referred to in s.819(2);

( 3) s.819 applies to all company types;

( 4) s.819 is concerned with a person who was a director of an insolvent company. The term ‘insolvent company’ is defined in s.818(1) of the Act of 2014 as ‘a company that is unable to pay its debts’; s.818(2) then provides that ‘For the purposes of the definition of “insolvent company” in subsection (1), a company is unable to pay its debts if – (a) at the date of the commencement of its winding up it is proved to the court that it is unable to pay its debts (within the meaning of section 570), or (b) at any time during the course of its winding up the liquidator certifies, or it is proved to the court, that it is unable to pay its debts (within the meaning of section 570).’[1] In the within application the liquidator has furnished a certificate of the type referred to in s.818(2)(b), being a certificate of 26th February, 2016, that ‘Tailored Homes (Navan) Limited has at all times from the date of the commencement of the winding up of the said company, been and continues to be, unable to pay its debts within the meaning of…section 570 of the Companies Act 2014’; it was common case between the parties that this continued to be the position as of the date of hearing.

[1] Under s.570 of the Act of 2014 a company is deemed to be unable to pay its debts for the purposes of the Act of 2014 ‘(a) if – (i) a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding €10,000 then due, has served on the company (by leaving it at the registered office of the company) a demand in writing requiring the company to pay the sum so due, and (ii) the company has, for 21 days after the date of the service of that demand, neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor, or (b) if – (i) 2 or more creditors, by assignment or otherwise, to whom, in aggregate, the company is indebted in a sum exceeding €20,000 then due, have served on the company (by leaving it at the registered office of the company) a demand in writing requiring the company to pay the sum so due, and (ii) the company has, for 21 days after the date of the service of that demand, neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of each of the creditors, or (c) if execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part, or (d) if it is proved to the satisfaction of the court that the company is unable to pay its debts, and in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company’.

4 If a director does not defend a s.819 application then an order will almost certainly issue under s.819(1), save in the extremely unlikely circumstance that the party bringing the application makes averments in her grounding affidavit that would lead the court to reach the conclusion that it was satisfied as to the matters referred to in s.819(2). So the burden of proof in these applications, specifically the burden of establishing such matters as would enable the court, on the balance of probabilities, to be satisfied in the manner contemplated by s.819(2), rests with a respondent former director.

5 The fundamental fairness and constitutionality of the effective imposition of the burden of proof on a director in this regard was doubted, without any definitive finding being reached, by Hardiman J. (with whom Finnegan and Macken JJ concurred) in Re Tralee Beef and Lamb Ltd [2008] 3 IR 347, 355. Yet the Oireachtas clearly...