Kelly Technical Services (Ireland) Limited (In Voluntary Liquidation) v Companies Act, [2005] IEHC 421 (2005)

Docket Number:2004 74Cos
Judge:Mac Menamin J.
 
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THE HIGH COURT

[2004 No. 74 COS]

IN THE MATTER OF KELLY TECHNICAL SERVICES (IRELAND) 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/

TOM KAVANAGH

APPLICANT

AND

RAYMOND KELLY, DECLAN KELLY, TIM KELLY,

BRIAN HARNETT, AND PATRICK O'FLAHERTY

RESPONDENTS

Judgment of Mr. Justice MacMenamin dated the 28th day of July, 2005.

In these proceedings the applicant seeks a declaration that the respondents being persons to whom Chapter I, Part 7 of the Companies Act, 1990 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 that company meets the requirements set out in

subs. 3 of s. 150 of the Companies Act, 1990 (as amended). The applicant is the liquidator of the above entitled company, having been so appointed on 24th July, 2000. On the same day a resolution to wind up the company was passed while administrative receivers were appointed to the U.K. company on 12th July, 2000.

The first, second and fourth named respondents were directors of the company at the time of the commencement of the winding up of the company. The third named respondent, Tim Kelly, was a director for the period from October 1998 to 13th June, 2000, a period within twelve months of the liquidation date.

The fifth named respondent, Patrick Flaherty was not formally appointed a director of the company. However for reasons set out hereinafter in this judgment the applicant makes the case that he was a de facto director pursuant to s. 27 of the Companies Act, 1990.

At the date of commencement of the winding up the company was unable to pay its debts within the meaning of ss. 2 and 4 of the Companies Act, 1963. The company was incorporated on 12th October, 1998, had an authorised share capital of 12,697,738 shares, of which four were issued and the company had its registered office at Lyndican, Claregalway, County Galway.

Background

The company was involved in the supply of contract labour in relation to cabling and laying of telecommunication services. The company had a common shareholding with Kelly Technical Services Limited ("the U.K. company") in that each of the first, second and third named respondents were common, equal shareholders in each entity. Both businesses were engaged in the same business. It is contended from affidavits filed on behalf of the respondents that the U.K. company was funding the company in suit. By way of further background, the company appears to have been formed in order to transact installation work with Eircom.

This was the company's principal contract. The purpose of the contract was to provide specialist copper jointing services in the cable laying industry and this was awarded to the company in or about April, 1999.

The company was established in or about October, 1998, with the same shareholding as Kelly Technical Services Limited ("KTS U.K."), a company which was established in February, 1993, in which Raymond Kelly, Declan Kelly and Tim Kelly were each 33% shareholders. Both companies were involved in the same line of business and both collapsed in or about the same time.

Following the commencement of work on the contract with Eircom in May, 1999 it became apparent to the directors that there was a local shortage of appropriately qualified staff. As a result, apparently on the suggestion of Eircom the company began to recruit employees in South Africa in 1999 specifically to recruit engineers skilled in copper jointing. On 27th September, 1999, the company entered into employment contracts with approximately 80 engineers at a basic wage of IR£700 per week. The company arranged transport and work permits, paid accommodation and purchased tools and transport necessary for the workers to carry out their work in accordance with the standard set by Eircom.

Work continued on the Eircom contract until approximately 21st December, 1999. On that date Eircom informed the company by telephone that it was experiencing budgetary problems and that it would be "suspending" the contract until further notice. On 7th January, 2000, written confirmation was received that the contract had been "suspended/postponed". This action along with the company's consequential legal difficulties with its South African employees were both factors which led to the collapse of the company.

On 5th January, 2000, the company made its South African workers redundant. These workers commenced legal proceedings for breach of contract against the company, KTS U.K., and Raymond Kelly and Declan Kelly personally. KTS U.K. was joined in the action on the basis that the two companies allegedly operated as one and hence were jointly and severally liable. An interim order was obtained which required the company to re-employ the workers and to supply them with vehicles and accommodation.

Subsequent to a hearing in the High Court this court found in favour of the workers in respect of liability. Prior to the issue of quantum being considered by the court, on 31st May, 2000, the company and KTS U.K. reached what was stated to be an out of court settlement with the South African workers whereby, inter alia, the company agreed to reinstate the workers, pay them general damages which totalled IR£480,000 plus costs estimated at IR£ 250,000. It was also agreed that the workers' wages would be increased to IR£800 per week for those working in the United Kingdom.

The respondents' case is that following the entry into this settlement, which also bound KTS U.K., a firm called Griffin Factors, which was providing factoring facilities to KTS U.K. became nervous as to KTS U.K.'s financial position. On 20th June, 2000, KTS U.K.'s directors which included Raymond Kelly appointed advisers to consider its financial position. On 7th July, 2000, the directors were advised to appoint an administrative receiver to KTS U.K., which receiver was then appointed on 12th July, 2000. Simultaneously, steps were taken to wind up the company in suit which led to the liquidator's appointment on 24th July, 2000.

It is contended on behalf of the applicant that the company in suit and KTS U.K. were effectively run as one entity. During the early part of its trading the company had no bank account and transactions were done through the bank account of KTS U.K. A substantial inter-company balance arose between the two companies. The liquidator has sought to establish the true level of this balance. For the purpose of the statement of affairs the balance is the sum of 2,011,256, the balance per the books and records of the company is 683,346 and the balance for the receivers of KTS U.K. is 1,607,831. The liquidator states that he has been unable to obtain a satisfactory explanation for major movements on this account and for these balances.

The liquidator states that on cessation of trading by the company, many of the South African employees had left secure and pensionable employment in South Africa to take up contracts with the company. He states that they were treated in an appalling manner. Many employees were left in a situation where their accommodation had been previously paid for by the company, as per the terms of their contract. When the company ceased trading these employees and their families were apparently left with no accommodation, wages or entitlements and no flights home. The liquidator adds that when he visited the factory premises he was appalled to see several families with young children, having already been thrown out of their accommodation with nowhere left to go, sleeping, cooking and washing in the factory, in what can only be termed minimal facilities.

The creditors meeting took place on 24th July, 2000. Messrs. Actons Solicitors were present acting for the 70 employees. The only substantial vote in favour of the members' nominee was in respect of the inter-company debt owing to KTS U.K. The main opposition to the members' nominee were several trade creditors and employees.

Actons wrote to the members' nominee as liquidator on 20th July, 2000, that is four days before the creditors meeting. In that letter the firm outlined the monies owing on foot of the settlement agreement, which included the settlement amount, legal fees, arrears of wages, statutory notice and holiday pay balances owing on foot of the employment contracts.

The liquidator contends that the figures showing in the statement of affairs for the purposes of the creditors meeting grossly understate the legal settlement figures and costs.

The liquidator states his belief that the directors may have overstated the inter-company balance appearing in the statement of affairs and understated the legal settlement costs in an effort to frustrate the appointment of the creditors' nominee as liquidator. On the first count of proxies the value clearly favoured the members' nominee when using the creditors' balances on the statement of affairs. Following an indication by the employees' solicitors, Messrs. Actons, that the matter be referred to the High Court, the directors consented to the creditors' nominee being appointed as liquidator. That creditors' nominee is the applicant herein. Messrs. Actons Solicitors are instructed by him also.

In the statement of affairs as appearing in the papers a figure of 26,664 was stated as realisable in respect of plant and equipment, tools, furniture and fittings, despite having a net book value of 411,000. A substantial amount of tools and equipment apparently went missing prior to the liquidator's appointment. There remains a large deficiency in assets.

The statement of affairs shows Eircom as a debtor in the sum of 124,434.00. Eircom have refused to pay this debt. When the directors were queried on this issue they stated that there was no money owing from Eircom as they had agreed, prior to...

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