Tom Kavanagh v John Delaney

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan
• Judgment Date: 20 July 2004
• Neutral Citation: [2004] IEHC 139
• Court: High Court
• Date: 20 July 2004

KAVANAGH v. DELANEY & ORS (TRALEE BEEF & LAMB LTD, RE)

IN THE MATTER OF TRALEE BEEF AND LAMB 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 DELANEY, PATRICIA DELANEY, TERRY DUNNE AND SIMON COYLE

RESPONDENTS

[2004] IEHC 139

2003 239COS

HC 283/04

THE HIGH COURT

Synopsis:

- [2005] 1 ILRM 34

Facts: This was an application under s. 150 of the Companies Act 1990. The respondents were each directors of the company. The first respondent was the only executive director, the second respondent was the wife of the first respondent and a non-executive director, the third respondent was also a non-executive director and the fourth respondent was a chartered accountant who was nominated to join the board in accordance with part 16 of the Taxes Consolidated Act 1997 (as amended) and was a non-executive director.

Held by Finlay Geoghegan J. in making declarations against all directors that they had not discharged the onus of satisfying the court that they had acted responsibly in relation to the conduct of the affairs of the company. Under the terms of s. 150 the court had no discretion to take into account the performance or position of a respondent as a director of any other company.

Reporter: R.W.

Citations:

COMPANIES ACT 1990 S150

COMPANY LAW ENFORCEMENT ACT 2001 S56

TAXES CONSOLIDATION ACT 19971997 PART 16

SQUASH (IRL) LTD, RE 2001 3 IR 35

COMPANIES ACT 1990 S150(4)

COMPANIES ACT 1990 S150(2)

LA MOSELLE CLOTHING LTD V SOUALHI 1998 2 ILRM 345

COMPANIES ACT 1990 S150(2)(a)

KEANE COMPANY LAW IN THE REPUBLIC OF IRELAND 3ED 357

VEHICLE IMPORTS LTD, IN RE UNREP MURPHY 23.11.2000 2000/17/6574

BARINGS PLC (NO 6), IN RE; SECRETARY OF STATE FOR TRADE & INDUSTRY V BAKER (NO 6) 1999 1 BCLC 433

DANIELS V ANDERSON 1995 16 ACSR 607

TAXES CONSOLIDATION ACT 1997 S493

COMPANIES ACT 1990 S150(2)(c)

CAVAN CRYSTAL GROUP LTD, IN RE UNREP MURPHY 26.4.1996 1996/13/4115

1 Ms. Justice Finlay Geoghegan delivered on the 20th day of July,2004

2 This is an application under s. 150 of the Companies Act, 1990brought by the applicant who is the official liquidator of Tralee Beef and Lamb Limited ("the Company") having been so appointed by order of the High Court of the 28 ^th January, 2002.

3 The respondents were each directors of the Company within twelve months of the date of commencement of winding up. It is undisputed that the Company is and was at the date of commencement of the winding up insolvent and accordingly, that s. 150 of the Act of 1990 applies both to the Company and the respondents.

4 The liquidator had made his report to the Director of Corporate Enforcement under s.56 of the Company Law Enforcement Act, 2001and has not been relieved of his obligation to bring this application.

Background Facts:

5 The Company was engaged in the slaughter of cattle and lamb, (primarily cattle) which it either deboned and sold in Ireland and the United Kingdom or sent to other deboning halls. Those deboning halls were ones which sold the deboned beef to countries outside the European Union.

6 The first named respondent, John Delaney, was the only executive director of the Company and the managing director of the Company. He had bought into this Company in 1996. He had experience of working in the meat trade since 1974.

7 The second named respondent, Mrs.Delaney, is the wife of the first named respondent was never an executive in the Company and became a director at his request.

8 The third named respondent, Mr. Dunne, was a non-executive director of the Company. He is the managing director of Commodore Holdings Limited which he states is the holding Company for the Garvey Group of companies. Garveys prior to 1996 owned the business subsequently carried on by the Company. In that year or in early 1997 (nothing turns on the differences in this respect stated in the affidavits) it sold the assets of the then business carried on under the name "Tralee Beef and Lamb" to the first named respondent. It appears the first named respondent effected the purchase through a company then controlled by him which subsequently changed its name to Tralee Beef and Lamb Limited and is the Company.

9 It appears that as part of the sale and purchase deal between the Garvey Group and the first named respondent, Mr. Dunne became a non-executive director of the Company. This was an unremunerated position. Mr. Dunne asserts that the basis upon which he was appointed a director of the Company was that he would have no involvement in the day to day running of the business and that his primary role would be to foster and maintain the business relationship of the Company with both the Garvey Group and the Musgrave Group which operates the Super Valu franchise. It appears that he fulfilled such a role for approximately two years but that in 1999 Musgraves decided to centralise the supply of chilled foods to Super Valu supermarkets and reduced the number of its suppliers of chilled meat to one supplier which was not the Company. Accordingly, there was no business relationship between the Company and Garveys or Musgraves to be maintained. It appears common case that Mr. Dunne had no further involvement in the running of the business of the Company. However, he did not resign as a director and maintains that he continued to discharge his duties as a non-executive director of the Company.

10 The fourth named respondent, Mr. Coyle is a chartered accountant and insolvency practitioner. He was nominated to join the board of directors of the Company by CF Investment Managers Limited ("CFIM") which is a company that manages a number of distinct funds vested in Business Expansion Schemes ("BES") in accordance with part 16 of the Taxes Consolidated Act, 1997(as amended). It appears that at the time of the acquisition of the assets of the business known as "Tralee Beef and Lamb" there was a capital investment in the Company by BES investors in the sum of £1m. These shares were held as is common for a BES scheme through a nominee trust company. Mr. Coyle was appointed a non-executive director of the Company pursuant to the BES investment agreements. Mr. Coyle asserts in his affidavit that the terms of his appointment as a non-executive director were that he should receive and review financial information from the executives of the Company and attend certain directors meetings as a non-executive director. He was not to play any "active part in the control of the Company". This was stated to be by reason of the provisions of the Tax Consolidation Act, 1997.

11 The affidavits sworn by the liquidator and each of the respondents contain many disputed allegations and facts. However, it appears common case that the Company traded successfully until early 2000. It is to the period subsequent to this that the disputes and complaints primarily relate.

12 At all stages the management scheme of the Company appears to have been that Mr. Delaney was the managing director and only executive director. Whilst Mr. Coyle refers to attending directors meetings and Mr. Delaney refers to holding directors meetings with Mr. Dunne when he was involved in the Company (presumably prior to the cessation of the relationship with Garveys and Musgraves in 1999), it does not appear that, at least, in the final two years of trading any formal or informal board meetings were held. Mrs. Delaney appears to have signed off on annual accounts and attended statutory annual general meetings.

13 Each of the three non-executive directors, albeit in slightly different ways, state that they relied upon Mr. Delaney to provide them with the financial information in relation to this Company.

14 In 2000 the BSE crisis lead to a number of difficulties for the Company including the closure of many significant export markets; the consequent reduction in price to the farmers followed by a blockade of certain factories and its resolution by an increase in the price paid by factories to the farmers. There was also litigation against the Company in 2000 as a result of which it is stated that the Department of Agriculture insisted on the Company spending a sum of IR£100,000 on improvements to the plant and at the beginning of 2001 new stricter provisions were introduced in respect of BSE testing which made the Company's trade more difficult and costly.

15 Mr. Delaney states on affidavit that he realised by March, 2001, that the Company was in significant financial difficulties. He states that he took various steps subsequent to that to find outside investors to save the Company, but that in early October, 2001, the Company's auditors who were then auditing the accounts for the year ended 30 ^th April, 2001, indicated that the Company's position was worse than had been thought. Thereafter, without consulting either the third or fourth named respondents he took steps to have a receiver appointed by Anglo Irish Bank on 10 ^th October, 2001.

16 Mr. Coyle asserts that throughout 2000 and 2001 he and colleagues in CFIM were seeking financial information in relation to the Company unsuccessfully from Mr. Delaney and the financial controller and others of the Company. He states he spoke with Mr. Delaney on or about the 3 ^rd September, 2001 and was informed in the course of that conversation that the Company had traded at a loss of approximately £200,000 for the year ended 31 ^st March, 2001, whereas the draft accounts for that year, when prepared showed a loss before taxation of just over £lm. Ultimately, subsequent to the appointment of the receiver by Anglo Irish Bank, Mr. Coyle appears to have arranged that CFIM petition for the winding up of the Company.

Applicable Law:

17 Section 150 of the Act of 1990 imposes a mandatory obligation on this Court to make a declaration of restriction unless the court is...