Thomas Mccormack and Another v Oliver Rouse

JurisdictionIreland
CourtHigh Court
JudgeMr. Justice Gilligan,Mr. Justice Barrett
Judgment Date25 July 2014
Neutral Citation[2014] IEHC 396,[2014] IEHC 79,[2014] IEHC 369
Date25 July 2014
McCoy (liquidator) v Courtney
IN THE MATTER OF ZUCCINI CAFÉ AND RESTAURANT 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

PATRICK MC COY AS LIQUIDATOR OF THE COMPANY IN THE WITHIN PROCEEDINGS
APPLICANT

AND

GERARD COURTNEY AND PATRICIA COURTNEY
RESPONDENTS

[2014] IEHC 369

[No. 231 COS/2014]

THE HIGH COURT

Company Law – Directors – s. 150 of the Companies Act 1990 – Declarations – Restrictions

Facts: This case concerned an application made under s. 150 of the Companies Act 1990 for a declaration in respect of each of the respondents to restrict them from acting as company directors. The respondents were a married couple and directors of a company in voluntary liquidation. The liquidator set out several grounds to justify a declaration under s.150 being made, however, he also identified a number of mitigating factors. The husband did not object to a declaration being made against him but the wife did. The basis of her objection was that she was being a “helpful spouse,” and was only a passive director. The grounds for a s. 150 declaration were firstly, a failure to discharge tax liabilities. Second, the company books and records were deficient. Third, a documentation pertaining to an assignment of a lease was deficient. Fourth, the directors owed monies in repayment of a loan. Fifth, the use of a company credit card to make non-business related purchases. Lastly, a lack of co-operation with the liquidator.

Held by Barrett J: Case law dictates that several criteria be considered by the court when determining a s. 150 application. The court considered the entire tenure of the individuals as company directors, whether they have complied with the Companies Acts, whether they have complied with common law obligations imposed on directors and whether they acted honestly and responsibly. The court found there were no just and equitable grounds to issue a s.150 order after consideration of these issues. The court then turned to the grounds raised by the liquidator and found that the under-payment of tax was not deliberate and there was nothing to suggest that either of the respondents had been dishonest. Secondly, the respondent”s actions in relation to keeping accurate books and records were reproachable but not dishonest or less than responsible. Thirdly, there will often be a gap between the documentation trail that a professional practitioner would expect to see and the documentation that an entrepreneur would keep. In this instance the gap did not mean that the directors lacked responsibility or were dishonest. Fourthly, there was nothing to suggest that the loan payments and repayments were dishonest or that either of the respondents were irresponsible. Fifthly, the wife”s non-business related purchases on the company credit card did illustrate a want of responsibility and the court issued a s. 150 declaration in respect of her. In relation to the “helpful spouse” argument, the court said that the wife chose to directly involve herself in company operations by holding and using a company credit card to make private purchases. Lastly, the court did not consider that the respondent”s lack of co-operation warranted a declaration to be made. The court regarded their failings on this front as reproachable but not irresponsible. In conclusion, the court issued a declaration in respect of the wife under s. 150 of the Companies Act 1990 but not the husband.

COMPANIES ACT 1990 S150

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

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

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

MITEK HOLDINGS LTD & ORS, IN RE; GRACE (LIQUIDATOR) v KACHKAR & MCCLELLAN CARRIGAN 2010 3 IR 374 2010/36/9110 2010 IESC 31

Background to application
1

1. This is an application made under s. 150 of the Companies Act 1990, seeking a declaration that each of Mr. Gerard Courtney and Ms. Patricia Courtney be restricted in acting as company directors. It is perhaps a somewhat unusual application. On the one hand, there is a single affidavit from the liquidator in which he sets out several grounds on which a declaration under s. 150 might be merited but then immediately proceeds to identify a lengthy set of mitigating factors. On the other hand, the court has before it a letter from Mr. Gerard Courtney indicating that he has no objection to a declaration being made against him under s. 150. The court does not have before it a similar letter it from Ms. Courtney; her principal plea appears to be that she was merely a 'helpful spouse' who agreed to be a so-called passive director so as to satisfy the requirement that Zuccini Café and Restaurant Limited have at least two directors and who consequently ought not to be the subject of an order under s. 150. This is the first case in which this Court has been presented on the one part with a liquidator who, admirably, states that in his professional opinion there are significant mitigating factors, and, on the other part, with respondent directors, one of whom is satisfied that the s. 150 declaration petitioned for in these proceedings should issue against him and the other of whom considers that she ought not to be the subject of any such order.

Applicable law
2

2. There is, if anything, a possible surfeit of judicial guidance on the criteria that are relevant to determining a s.150 application. An early but significant contribution was made by Shanley J. in La Moselle Clothing Limited (in liquidation) v. Soualhi [1998] 2 I.L.R.M. 345, his observations having since been described by Hardiman J. in In the Matter of Tralee Beef & Lamb Limited [2008] 3 I.R. 347 at p.358, as being, at least at that time, of "near canonical status". Shanley J.'s observations had previously been affirmed and expanded upon by the Supreme Court in Re Squash (Ireland) Ltd. [2001] 3 I.R. 35, the court holding, inter alia, that it is important, in a s.150 application, to have regard to the entire tenure of an individual as director of a company. In his judgment in La Moselle, Shanley J. had, at p. 352 mentioned that the extent to which a director has or has not complied with the Companies Acts is a relevant factor when determining a section 150 application. In the High Court decision in Kavanagh v. Delaney [2005] 1 I.L.R.M. 34 at p.41, Finlay Geoghegan J. suggested that compliance by a director with the common law obligations of a director is also a relevant factor. In his judgment on appeal in what is now sometimes referred to as the Tralee Beef case, Hardiman J., at p.358 of his judgment, referred to above, indicated that he did not disagree with this 'amplification' by Finlay Geoghegan J., though he was concerned that no injustice should be wrought in that case as a result of the amplification being sounded therein for the first time. In truth it is somewhat difficult to see how a director could be held to have acted responsibly where he or she had complied with the Companies Acts but was in breach of his or her common law duties, though equally it is difficult offhand to see how a director could breach his or her common law duties where he or she was not guilty of any breach of, or exposed to any penalty under, the detailed and comprehensive code established by the Companies Acts. Be that as it may, the jurisprudence appears in any event to have further evolved, Fennelly J. signalling in Re Mitek Holdings Ltd. [2010] 3 I.R.374 at p.396 that it is important not to adopt a formulaic, standardised, 'tick the box' approach to determining section 150 applications. Thus Fennelly J. emphasises "the need to identify the issues that are important in the particular case", and then continues:

"would not be disposed to limit the matters to which regard should be had or to substitute standardised judicial criteria for the general words of the statute."

3

3. Section 150 enjoins the court to have regard to whether an affected person has acted "honestly" and "responsibly" and also to consider whether there is any other reason why it would be "just and equitable" that a s.150 order should issue. All of the quoted terms bear their ordinary meaning. There appear to be no 'just and equitable' grounds alleged in this case, nor do they in any event appear to the court to arise. In deciding whether Mr. and Ms. Courtney have acted honestly and responsibly the court may of course have regard to their obligations as directors, to general commercial practice and to prior case-law but perhaps more to anchor than to determine any decision of the court as to the responsibility or otherwise of their respective actions.

Facts
4

4. Mr. and Ms. Courtney were each directors of Zuccini Café and Restaurant Limited (in voluntary liquidation). Zuccini was incorporated on 13 th September, 1999, ceased trading in July, 2008, and was placed in liquidation on 5 th May, 2009. During its lifetime, Zuccini's primary activity was the operation of a restaurant at Blackrock Shipping Centre in County Dublin. There appear to have been two principal factors that led to its eventual demise. The first was its inability to discharge amounts found to be owing to the Revenue Commissioners following an audit which uncovered an under-declaration of tax. The second was a significant ongoing reduction in turnover due to the opening and subsequent success of a rival shopping centre in Dundrum, County Dublin.

Grounds for instant application
5

5. The liquidator identifies the following grounds on which a s.150 declaration might be...

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