Toomey Leasing Group Ltd v Graham Sedgwick and Others

• Jurisdiction: Ireland
• Judge: Mr. Justice Binchy
• Judgment Date: 21 January 2015
• Neutral Citation: [2015] IEHC 28
• Court: High Court
• Date: 21 January 2015

[2015] IEHC 28

THE HIGH COURT

[No. 599 COS/2012]

Toomey Leasing Group Ltd v Sedgwick & Ors

21.01.15

IN THE MATTER OF APPLEYARD MOTORS LIMITED (IN VOLUNTARY LIQUIDATION), AND

IN THE MATTER OF SECTION 297A OF THE COMPANIES ACT 1963, AS AMENDED

BETWEEN

TOOMEY LEASING GROUP LIMITED

APPLICANT

AND

GRAHAM SEDGWICK, COLIN FARRELL, PAUL GREENE AND CHRISTOPHER PRATT

RESPONDENTS

Company – Liquidation – Creditor – Losses - Companies Act 1963 – Special Protective Measures – Liability – Failure to obtain Professional Advice – Duty of Care – Expertise

Facts: In this case, the applicant, a creditor of Appleyard Motors Limited sought a declaration pursuant to s 297A of the Companies Act 1963, that the first and second named respondents should be held personally liable to the applicant in the sum of €48,250.00, being the loss sustained by the applicant arising out of its dealings with the Company in the weeks leading up to the liquidation of the Company. The applicant submitted that the respondents were either carrying on business in a manner which they knew well involved an obvious and serious risk of loss or damage to others, and yet ignored the risk or alternatively that, having regard to the general knowledge, skill and experience that may reasonably be expected of persons in the positions of the respondents, they ought to have known their actions or those of the Company would cause loss to the creditors of the Company.

Held by Justice Bincht in light of the available evidence and submissions presented that any objective analysis of the affairs of the Company as of 31st May 2012, and quite probably earlier, would have demonstrated that the Company had no future and steps should have been taken no later than that date to wind up the Company or alternatively steps should have been taken to protect creditors such as the applicant. While he did not believe that the evidence demonstrated that the respondents were knowingly parties to the carrying on of any business of the Company in a reckless manner, Justice Bincht was of the view that the respondents could be deemed so pursuant to the provisions of s 297A (2) of the Companies Act, 1963 in that having regard to all of the information available to them, and, having regard to the general knowledge, skill and experience that may reasonably be expected of persons in the position of the respondents, they ought to have known that their actions or those of the Company would cause loss to the creditors of the Company or any of them, after 31st May 2012. Consequently, finding that the failure of the Directors to take further professional advice and/or to take measures to protect creditors or to wind up the Company in the period between 26th April 2012 and 31st May 2012 was not responsible conduct, the respondents were not entitled to be relieved of liability on the grounds set out in s 297A(6) of the Companies Act 1963 and accordingly the Court found that the applicants were entitled to a declaration under the terms of para. 1 (a) of the notice of motion and also to the declaration sought under para. 2 of the notice of motion to the effect that the respondents were personally liable to the applicant in the sum of €48,250.

1 1. In this application, the applicant, a creditor of Appleyard Motors Limited (the "Company") seeks a declaration pursuant to s. 297A of the Companies Act 1963, that the first and second named respondents only (the third and fourth named respondents having been released from the proceedings) should be held personally liable to the applicant in the sum of €48,250.00, being the loss sustained by the applicant arising out of its dealings with the Company in the weeks leading up to the liquidation of the Company.

Facts

2 2. The factual background giving rise to the applicant's claim is not in dispute. Prior to its liquidation, the Company operated a Ford dealership from its premises which it leased from its parent company BFR Limited ("BFR") at 15 Maple Avenue, Stillorgan Industrial Park, Blackrock, Co. Dublin. On 17 ^th May, 2012, a Mr. Chris Proudman, Account Manager with the applicant, sent an email to Mr. Allen Rodgers of the Company expressing an interest in purchasing three white Ford Fiesta five door cars from the Company. The applicant, never having dealt with the Company previously, carried out a credit search in advance of its dealing with the Company, which search did not indicate anything of concern regarding the affairs or financial standing of the company. Mr. Rodgers responded by email of 22 ^nd May confirming that the Company was in a position to supply the vehicles at a price of €15,995.00 each. Subsequently, by email of 6 ^th June 2012, the Company notified the applicant that it would have to charge an additional €260 in relation to one vehicle owing to the fact that it had to be supplied with bluetooth technology, thereby bringing the total payable to €48,250.

3 3. On 1 ^st June, Mr. Proudman responded to the email of 23 ^rd May confirming that the applicant wished to proceed with the purchase of the vehicles on the terms stipulated. By email of 6 ^th June, Mr. Rodgers responded, giving details of the bank account of the Company and stating that "we will advise registration numbers approximately one hour after receipt of funds". Later, on 6 ^th June, Mr. Proudman inquired if he could be given registration numbers in advance because "lack of registration numbers until receipt of funds is going to give me a problem…".

4 4. Mr. Rodgers replied, again on 6 ^th June, to the effect that as soon as the vehicles are registered it "initiates full payment for the vehicles from our account. So we would need to be in receipt of funds prior to registering the vehicles. I can, however, guarantee that you will have the registration numbers within one hour of receipt of funds".

5 5. The following day, Mr. Rodgers sent an email to Mr. Proudman inquiring as to "how things are progressing with the payment? As you know we have the three Fiestas booked and are mindful that they have to be delivered shortly". On 12 ^th June, Ms. Anne Beardmore of the applicant, requested bank details of the Company in order to arrange a transfer of funds. These details were furnished on the same day and on 13 ^th June the applicant transferred funds to the Company in the sum of €48,250.00 for the vehicles. The Company had sourced the vehicles through another Ford Dealership, Ashley Motors. In compliance with an arrangement that the Company had with its principal bankers, Ulster Bank since 2010, the Company sought permission from the bank to make payment of the amount due to Ashley Motors' purchasing subsidiary, Kitale Ltd. in respect of the vehicles. This request was made by Mr Christopher Friel, Financial Controller of the Company to Mr Ciaran O'Grady of Ulster Bank. Mr O'Grady instructed the bank not to make the payment immediately and said he would first need to check with Mr Michael Fenlon of the bank, and that he would get back to the Company the following day. He did not do so however, and for the reason given below the Company became aware later that day (14 ^th June) that it had lost the support of its bankers and consequently the Company could not pay for the vehicles, as the Company did not have the funds to do so. As a result, the Company did not take delivery of the vehicles from Ashley Motors and they were never delivered to the applicant by the Company which ceased trading on 15 ^th June, 2012, and on 26 ^th June, 2012, the Company was placed into creditors' voluntary liquidation. The event that made it clear to the Company that it had lost the support of Ulster Bank was the refusal on 14 ^th June of Ulster Bank to make a payment on behalf of the Company by way of standing order in the sum of €1,000 to Gowan Motors as part of a repayment arrangement of a debt owing by the Company to Gowan Motors. The second named respondent, Mr Farrell (who was cross examined on the affidavits sworn by him in defence of this application), gave evidence that the respondents knew that the stopping of that payment indicated the withdrawal of support by the bank for the Company and for that reason the respondents immediately took steps to cease trading and to put the Company into liquidation. Before that however, recognising that the Company would not now be in a position to supply the vehicles to the applicant, Mr Friel, had sent an email to the bank requesting reversal of the payment of the sums received from the applicant, but the bank declined this request.

6 6. It is the applicant's case that at least by 12 ^th June, 2012 (when the last request for payment was sent by the Company) and, failing that, by 13 ^th June, 2012, when the monies were transferred, the respondents knew or ought reasonably to have known of the risk to the applicant's funds, given what the applicant describes as the Company's precarious financial position at the time and (the applicant asserts) that the respondents were, while officers of the Company, knowingly a party to the carrying on of the business of the Company in a reckless manner. The respondents vigorously contest this assertion.

Financial History of Applicant

7 7. The Company was incorporated in 1985 and until 2009 carried on the business of motor repairs. The Company was a subsidiary of BFR as was its sister company, Appleyard Car Sales Limited. The latter operated a Peugeot franchise.

8 8. Following the collapse of the motor industry nationwide from 2008 onwards, the Company secured a Ford franchise. According to the respondents it was decided that the Company should take this franchise and, in addition to its business of motor repairs, commence the business of selling vehicles rather than continuing to have separate entities, one involved in motor repairs and the other involved in car sales. At around this time Appleyard...