Tom Kavanagh v John Cooke and Debbie Byrne

• Jurisdiction: Ireland
• Judge: Mr. Justice John MacMenamin
• Judgment Date: 29 June 2005
• Neutral Citation: [2005] IEHC 219
• Docket Number: COS 374/2004
• Court: High Court
• Date: 29 June 2005

[2005] IEHC 219

THE HIGH COURT

COS 374/2004

KAVANAGH v COOKE

IN THE MATTER OF CHERBY 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/

TOM KAVANAGH

APPLICANT

AND

JOHN COOKE AND PAUL COOKE

RESPONDENTS

COMPANIES ACT 1990 S150

COMPANY LAW ENFORCEMENT ACT 2001 S56

LA MOSELLE CLOTHING v SOUHALI 1998 2 ILRM 345

KAVANAGH v DELANEY (IN RE TRALEE BEEF & LAMB LTD) 2005 1 ILRM 34

COMPANY LAW

Directors

Restriction - Liquidation - Whether respondent acted responsibly in relation to affairs of company - Revenue liabilities -Use of insolvent company to launch other company - Misstatement of assets of company - Failure to comply with obligations under Companies Acts -Whether directors should be restricted from acting as company directors - Companies Act 1990 (No 33), s 150 - La Moselle Clothing Ltd v Souhali [1998] 2 ILRM 345and Kavanagh v Delaney [2004] IEHC 283; [2005] 1 ILRM 34 followed - Declaration granted (2004/374 COS - MacMenamin J -29/6/2005) [2005] IEHC 219

Kavanagh v Cooke

Facts: The applicant sought declarations of restriction against the first respondent pursuant to s. 150 of the Companies Act 1990. The liquidator identified a number of areas of concern, namely: the non-filing of statutory accounts; the discrepancy between the statement of affairs and the actual realisable assets; the revenue liability; and the debts.

Held by MacMenamin J. in making the declaration of restriction that there was no doubt that the respondent in his conduct was responsible for the insolvency of the company and also for the deficiency of the assets disclosed at the date of the winding up. The respondent displayed a want of proper standards.

Reporter: R.W.

Mr. Justice John MacMenamin

1 These proceedings pursuant to s. 150 of the Companies Act,1990 were heard directly after proceedings of a similar nature against the first named respondent, John Cooke, relating to a company called Cookes Events Company Limited. While the factual background of this company is somewhat distinct I will, where necessary, refer to the applicable legal principles which were summarised in the case heard first in time, that is the proceedings relating to Cookes Events Company Limited (in Liquidation).

2 On 1st May, 2003 the company in the instant proceedings resolved at a general meeting that it be wound up. Mr. Tom Kavanagh, the applicant herein, was appointed liquidator. At that time, John Cooke and Paul Cooke were the directors of the company.

3 The only matter to be dealt with by this court relates to an application concerning the first named respondent herein, John Cooke.

4 The first named respondent was a director of the company from his appointment on 11th May, 1992 until the date of its winding-up. The company itself was incorporated on 28th November, 1991. It operated Cookes Café, a restaurant at 14th South William Street, Dublin 2. The company traded successfully for a number of years. In 1997 a second restaurant known as "The Rhino Room" was operated on the first floor of the premises. From the year 2000 until April, 2002 (when a separate company Cookes Events Company Limited was incorporated) the company also operated concession restaurants at the National Museum of Ireland premises at Collins Barracks and Kildare Street and subsequently at the Irish Museum of Modern Art premises at the Royal Hospital, Kilmainham.

5 From 1998 onwards the company began to experience financial difficulties. The respondent attributes this to a number of factors. He contends the company's cost base increased significantly. He states the turnover did not increase in line to cover these costs. He also states that additional costs included increased insurance, increased staff costs due to the introduction of the National Minimum Wage, an increase in wage costs for experienced front of house and restaurant staff and a greater necessity to use recruitment agencies which led to increased fees.

6 Furthermore, the first named respondent contends that due to an underestimation of the amounts payable to the Revenue Commissioners there occurred a substantial shortfall built up in the 1997/8 tax year. This liability was paid in the first instance by direct debit and the sum paid was insufficient to meet the company's ongoing liabilities. As a result, a substantial shortfall of approximately IR£130,000 occurred in that year. This liability was "rolled into" following years.

7 The first named respondent states that the company took some steps to address the matter and entered into instalment arrangements with the Revenue Commissioners to pay off outstanding amounts which remained in place up to mid-2001. Mr. Cooke adds that throughout 2000 and 2001 regular meetings took place with the Revenue Commissioners and other major creditors of the company. He states that increases in staff costs, PAYE and PRSI made it difficult for the company to keep up with the arrears payments and also to pay taxes as they fell due.

8 In the course of affidavits sworn in these proceedings Mr. Cooke describes a number of steps taken to reduce revenue liabilities, including reduction in days of trading and staff levels, and an alteration in the market niche of the business to a less expensive "brasserie-style" establishment.

9 Attempts which were made to interest investors in this project in the year 2001 did not succeed. While the company decided to continue trading over the Christmas 2001 period, it ultimately ceased operations in March, 2002.

10 The applicant states that he put up the leasehold interest (held in his own name) on 14 South William Street for sale. He states that he intended to use the proceeds to discharge the company's liabilities and gave undertakings to pay certain creditors of the company, including the Revenue Commissioners, G.E. Capital Woodchester Finance, Grants of Ireland and the Bank of Ireland out of the proceeds of the sale of the leasehold interest. On the date in question the Revenue Commissioners were owed €259,155.86; G.E. Capital Woodchester Finance were owed €26,805.89; Grants of Ireland Ltd. were owed €21,726.62 and Bank of Ireland €12,000.00.

11 It was originally estimated that the leasehold interest in the premises might yield between €700,000 and €900,000. On a number of occasions Mr. Cooke contends, offers for sale came close to fruition but none was completed.

12 He states that in early 2003 in the light of lack of interest in purchasing the leasehold, he decided not to sell it and instead to re-visit the idea of re-opening Cooke's Café as a brasserie. He states that the Revenue Commissioners agreed to release him from his undertaking in circumstances where he did not proceed with any sale of the lease.

13 In February, 2003 however, on reviewing the financial position of the company and on the recommendation of Jane Cathcart & Associates, Financial Advisers, he took further advice from Melin & Associates, Chartered Accountants. It became clear that re-opening the restaurant was not a viable option for the company and consequently, on the advice of Melin & Associates, he took steps to have the company wound up.

14 In the course of his affidavit the liquidator identifies a number of areas of concern regarding the first named respondent's conduct as managing director of the company.

15 By way of preliminary the liquidator points out that on 2nd November, 2002, a fire occurred in the Liffey Trust Centre, Sheriff Street, Dublin, 1, where the majority of the books and records of the company were held. These books and records were stated to be destroyed in this fire. He was presented with a number of records that included some creditor invoices and statements, some bank statements, and miscellaneous items of correspondence. However, he states the records are not sufficient for him to build a picture of the company and its overall state over the last three years since the last set of audited accounts. The absence of such material also affected his ability to substantiate a debt that was outstanding from Cookes Bakery Limited, as referred to in the statement of affairs prepared by the directors.

16 The largest asset disclosed in the statement of affairs was a debt due by Cookes Bakery Limited, the company of which the first named respondent is also a director. According to the statement of affairs there was an amount due from Cookes Bakery Limited of €13,865.00 and lease payments due for Cookes Bakery of €9,012.00, giving rise to a total of €147,662.00. According to the statement of affairs these sums are due and owing by Cookes Bakery Limited.

17 The first named respondent disputes the indebtedness and has also submitted a counterclaim on foot of Cookes Bakery Limited which, in the view of the liquidator has not been substantiated to any extent. The first named respondent has informed the liquidator that Cookes Bakery Limited was in severe financial difficulties and not in a position to pay the sums due and owing to the company.

18 The last set of accounts lodged in the Companies Registration Office was for the year ended 31st May, 2000. Turnover for that year was recorded in the accounts at IR£1,049,550.00 (€1,332,654.00) with a retained profit for the year of IR£54,272.00 (€68,911.00). There were no audited accounts submitted to the Companies Registration Office subsequent to this date. No accounts after the year ended 31st May, 2000 were prepared. The first named respondent has stated to the liquidator that the reason for this was that a significant amount of money was due to auditors which the company was not in a position to discharge. Consequently the auditors were not prepared to prepare any further accounts until such time as the amounts due were discharged. Investigations...