Toomey Leasing Group Ltd v Sedgwick

• Jurisdiction: Ireland
• Judge: Mr. Justice Gerard Hogan
• Judgment Date: 13 October 2016
• Neutral Citation: [2016] IECA 280
• Docket Number: 2015, 102
• Court: Court of Appeal (Ireland)
• Date: 13 October 2016

[2016] IECA 280

THE COURT OF APPEAL

Hogan J.

Peart J.

Hogan J.

Baker J.

2015, 102

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 / RESPONDENT

- AND -

GRAHAM SEDGWICK, COLIN FARRELL, PAUL GREENE, CHRISTOPHER PRATT

RESPONDENTS / APPELLANTS

Companies – Personal liability – Debt – Appellant seeking to appeal against a decision of the High Court holding him personally liable to the respondent pursuant to s. 297A of the Companies Act 1963 – Whether appellant should be made liable for the debt to the respondent pursuant to s. 297A(2)(a) of the 1963 Act

Facts: The applicant/respondent, Toomey Leasing Ltd, is a creditor of Appleyard Motors Ltd. The first and second respondents/appellants, Mr Sedgwick and Mr Farrell were directors of Appleyard up to the point when it ceased trading and went into liquidation in June 2012. On 21st January 2015, the High Court (Binchy J) held that the first and second respondents/appellants were personally liable to the applicant/respondent pursuant to s. 297A of the Companies Act 1963 in the sum of €48,250 ([2015] IEHC 28). The respondents/appellants appealed to the Court of Appeal from that decision. The essential question which arose on this appeal was whether the directors should be deemed to have been knowingly a party to the carrying on of any business of Appleyard in a reckless manner for the purposes of s. 297A(2)(a) of the 1963 Act. The third and fourth respondents/appellants, Mr Greene and Mr Pratt, were released from the proceedings at an earlier stage. Mr Farrell entered into a personal insolvency arrangement and was therefore not a party to this appeal. The appeal was, accordingly, reduced to the issue of whether Mr Sedgwick should be made liable for the debt of the company to Toomey Leasing pursuant to s. 297A(2)(a) of the 1963 Act.

Held by Hogan J that s. 297A(2)(a) of the 1963 Act simply creates a mechanism whereby particular corporate conduct (which might not otherwise amount to reckless trading) is deemed to amount to reckless trading for the purpose of ascribing personal liability to an officer of the company. Hogan J held that it follows that the general case-law on reckless trading arising under s. 297A(1) of the 1963 Act has little relevance in the context of cases which are said to come within the specific category of s. 297A(2). Hogan J held that in cases coming within s. 297A(2), the court must be satisfied that the officer of the company in question ought to have known that this conduct would cause the creditor loss. Hogan J held that it is not enough to show that this might have occurred; the loss to the creditor must have been foreseeable to a high degree of certainty. Hogan J held that so far as the present case was concerned, while it was clear that the financial situation of Appleyard was perilous, what was critical was that it had no prior warning that its financial support was about to be cut off; this only became clear on 14th June 2012, the day after an advance payment had been received from Toomey Leasing. In those circumstances, Hogan J held that Mr Sedgwick, as director of Appleyard, could not have known that the receipt of this advance payment would cause loss to Toomey Leasing. Hogan J held that on the facts of this case the exacting requirements of s. 297A(2)(a) of the 1963 Act had not been satisfied in order to establish a personal liability on the part of Mr Sedgwick as director of Appleyard.

Hogan J held that he would allow the appeal of Mr Sedgwick and would refuse to make the declarations sought under s. 297A(2)(a) of the 1963 Act.

Appeal allowed.

JUDGMENT of Mr. Justice Gerard Hogan delivered on the 13th day of October 2016

1 This is an appeal from a decision of the High Court (Binchy J.) delivered on 21st January 2015 whereby he held that the first and second respondents were personally liable to the applicant pursuant to s. 297A of the Companies Act (‘the 1963 Act’) in the sum of €48,250: see Toomey Leasing Ltd. v. Sedgwick [2015] IEHC 28. It is accepted that the applicant, Toomey Leasing Ltd., is a creditor of Appleyard Motors Ltd. (‘the company’ or ‘Appleyard’) and that the first and second respondents were directors of that company up to the point when it ceased trading and went into liquidation in June 2012. The essential question which arises on this appeal is whether the directors should be deemed to have been knowingly a party to the carrying on of any business of the company in a reckless manner for the purposes of s. 297A(2)(a) of the 1963 Act.

2 As it happens, the third and fourth respondents were released from the proceedings at an earlier stage. The second respondent, Mr. Farrell, has entered into a personal insolvency arrangement and he is not therefore a party to this appeal. The appeal is, accordingly, reduced to the issue of whether the first respondent, Mr. Sedgwick, should be made liable for the debt of the company to Toomey Leasing pursuant to s. 297A(2)(a) of the 1963 Act. While neither the originating notice of motion of 31st October 2012 nor, for that matter, the actual order made by the High Court on 3rd February 2015, identify in terms s. 297A(2)(a) as the basis upon which personal liability is sought to be imposed, it is nevertheless clear that this was in fact the basis of the High Court order. The manner in which this provision should be interpreted was, in any event, the focus of the appeal to this Court.

3 For the sake of completeness, I should observe that as the events in question pre-date the coming into force of the Companies Act 2014 on 1st June 2015, it is agreed that the provisions of s. 297A of the 1963 Act continue to apply. In any event, s. 610 of the 2014 Act reproduces more or less verbatim the provisions of s. 297A of the 1963 Act.

The background to this appeal

4 Prior to its liquidation, the company operated a Ford car dealership from its premises in Blackrock, Co. Dublin, together with a spare parts and servicing operation. While it had traded successfully for almost 30 years prior to its liquidation in 2012, the post-2008 economic crash had hit the company hard. Indeed, it would be fair to say that ever since the onset of the economic crash that Appleyard had in fact been struggling for survival. By 2012 it was in arrears with its obligations to the Revenue Commissioners and it was experiencing severe financial difficulties. It was, in effect, depending for survival on the support of its principal banker, Ulster Bank.

5 The events giving rise to the present application may be said to have commenced on 17th May 2012 when, a Mr. Chris Proudman, the Account Manager with the applicant company (‘Toomey Leasing’), sent an email to Mr. Allen Rodgers of Appleyard expressing an interest in purchasing three white Ford Fiesta five door cars from the company. Toomey Leasing is a UK car leasing company based in Derby.

6 As Toomey Leasing had never dealt with Appleyard previously it carried out a credit search in advance of its dealings. This search did not indicate anything of concern regarding the affairs or financial standing of Appleyard. Mr. Rodgers responded by email of 22nd May 2012 confirming that Appleyard was in a position to supply the vehicles at a price of €15,995.00 each. Subsequently, by email of 6th June 2012, Appleyard notified Toomey Leasing 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.

7 Following a further exchange of emails and confirmation of bank details, on 13th June 2012 Toomey Leasing transferred the sum of €48,250 in respect of the three vehicles. As it happens, Appleyard had sourced the vehicles through another Ford dealership, namely, Ashley Motors. In compliance with an arrangement that Appleyard had with its principal bankers, Ulster Bank, since 2010, it sought permission from the Bank to make payment of the amount due to Ashley Motors' purchasing subsidiary, Kitale Ltd., in respect of the vehicles.

8 This permission was not, however, immediately forthcoming and it transpired on the following day that the Bank had withdrawn its support. The net effect of this was that Appleyard could not take delivery of the vehicles and it ceased trading on the following day. On 26th June, 2012, the Appleyard entered into creditors' voluntary liquidation.

9 Appleyard learnt of its fate on 14th June 2012 when Ulster Bank refused 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 which it owed. In the High Court, the second named respondent, Mr Farrell, gave evidence that the directors 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. Appleyard's financial controller, Mr. Friel, recognised the consequences which this would have for Toomey Leasing ( i.e., it would not now receive the vehicles for which it paid) and requested the bank to allow these payments to be reversed. The Bank, however, declined to do so.

10 At the heart of this appeal lies Toomey Leasing's assertion that at least by 12th June 2012 (when the last request for payment was sent by Appleyard) and, failing that, by 13th June 2012 (when the monies were transferred), the respondents knew or ought reasonably to have known of the risk to it. It was accordingly contended that the first and second 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 High Court found that the first...