Van Dessel v Fitzsimons
| Jurisdiction | Ireland |
| Judge | Mr. Justice Jordan |
| Judgment Date | 08 May 2019 |
| Neutral Citation | [2019] IEHC 299 |
| Court | High Court |
| Docket Number | [2016/403/COS] |
| Date | 08 May 2019 |
[2019] IEHC 299
THE HIGH COURT
Jordan J.
[2016/403/COS]
IN THE MATTER OF IQ CONTENT LIMITED (INVOLUNTARY LIQUIDATION) AND IN THE MATTER OF SECTION 819 OF THE COMPANIES ACT 2014 AND SECTION 683 OF THE COMPANIES ACT 2014
AND
Company – Insolvency – Order of restriction – Applicant seeking an order restricting the respondent from acting as a director of a company – Whether the respondent acted responsibly in relation to the conduct of the affairs of the company
Facts: The applicant, Mr Van Dessel (the liquidator), issued a motion on 4th November 2016 seeking orders pursuant to s. 819 of the Companies Act 2014 restricting the respondents from acting as directors of a company for 5 years, unless the requirements provided for in sub. 819(3) were met. The first respondent, Mr Fitzsimons, did not oppose the liquidator's application for an order of restriction against him and an order was made in that regard by the High Court (Barrett J) on the first return date of the motion on 28th November 2016. The second respondent, Mr McKeagney, contested the liquidator's application for an order of restriction against him, and in that regard, he had sworn four lengthy replying affidavits and he had obtained discovery from the liquidator on foot of an order of the High Court (Haughton J) of 15th March 2018. The sole issue arising for consideration on the application was whether the second respondent acted responsibly in relation to the conduct of the affairs of the company, whether before or after it became an insolvent company.
Held by the High Court (Jordan J) that the second respondent satisfied it that he acted responsibly and indeed with integrity in relation to the conduct of the affairs of the company both before and after it became an insolvent company.
Jordan J held that he would not make the declaration or restriction sought against the second respondent.
Order refused.
The applicant (the ‘liquidator’) issued the present motion on 4th November 2016 seeking Orders pursuant to s. 819 of the Companies Act 2014 (the ‘2014 Act’) restricting the respondents from acting as directors of a company for 5 years, unless the requirements provided for in sub. 819(3) were met.
The first named respondent did not oppose the liquidator's application for an order of restriction against him and an order was made in this regard by this Court (Barrett J.) on the first return date of the present motion on 28th November 2016.
The second named respondent has contested the liquidator's application for an order of restriction against him, and in this regard, he has sworn four lengthy replying affidavits and he has obtained discovery from the liquidator on foot of an order of this Court (Haughton J.) of 15th March 2018.
Section 683(2) of the 2014 Act obliges a liquidator to apply to the Court for a declaration of restriction under s. 819(1) of the 2014 Act, unless the liquidator is relieved of his obligation in this regard by the Office of the Director of Corporate Enforcement (ODCE) pursuant to s. 683(3)(a).
In the present case, the liquidator was not relieved of his obligation and he was notified by the ODCE by letter dated 7th September 2016 that he was obliged to make an application pursuant to s. 819 in respect of all of the directors of the Company within 2 months of receipt of the said letter.
Section 819, subsections (1) and (2) of the 2014 Act provide as follows:
‘(1) On the application of a person referred to in section 820(1) and subject to subsection (2), the court shall declare that a person who was a director of an insolvent company shall not, for a period of 5 years, be appointed or act in any way, directly or indirectly, as a director or secretary of a company, or be concerned in or take part in the formation or promotion of a company, unless the company meets the requirements set out in subsection (3).
(2) The court shall make a declaration under subsection (1) unless it is satisfied that—
(a) the person concerned has acted honestly and responsibly in relation to the conduct of the affairs of the company in question, whether before or after it became an insolvent company,
(b) he or she has, when requested to do so by the liquidator of the insolvent company, cooperated as far as could reasonably be expected in relation to the conduct of the winding up of the insolvent company, and
(c) there is no other reason why it would be just and equitable that he or she should be subject to the restrictions imposed by an order under subsection (1).’
The persons referred to in s. 820(1) of the 2014 Act include, at subsection (b), ‘the liquidator of the insolvent company’. This application is brought by the liquidator of IQ Content Limited (the ‘Company’), who has certified that the Company is unable to pay its debts within the meaning of s. 570 of the 2014 Act. It is common case that the second named Respondent was a director of the Company at the date of the commencement of its winding up on 2nd July 2014.
The liquidator has averred in his affidavit of 4th November 2016 that his investigations did not lead him to conclude that the respondents were dishonest in relation to the affairs of the Company. The liquidator has also indicated that he does not believe that any of the circumstances set out in sections 819(2)(b) or (c) arise in the present case.
The sole issue arising for consideration on the present application is whether the second named respondent acted responsibly in relation to the conduct of the affairs of the company, whether before or after it became an insolvent company.
The company carried on a professional services business, providing web design and IT strategy consultancy to blue chip clients. The applicant says that the cause of the liquidation can be attributed to an ambitious growth strategy, which failed to deliver anticipated turnover and a failure to manage rising operational costs.
The company was founded on 10th July 2000 and the second named respondent was managing director until September 2012. At its peak, revenues were at nearly €5 million per annum and it had fifty employees by the end of 2012. A world class team had been assembled and the company had attracted a roster of blue chip clients. The company had been established and existed without any State support, with an initial seed investment of €25,000 in 2000.
The company had experienced extreme cash flow problems on occasion. They occurred in the autumn of 2009 and again in November 2012 and finally in the winter/spring of 2013/2014.
The second named respondent says, and I accept, that the company had contributed more than €8 million to the exchequer during its existence. Between 2010 and 2012, he has satisfied me that the company paid €4,169,366 in combined PAYE/PRSI/USC and VAT contributions to the Revenue Commissioners.
In March 2012, the second named respondent's marriage broke down and he became embroiled in a protracted and difficult legal separation which eventually concluded in January 2014. In September 2012 he had stepped down as managing director with a view to focussing on developing the company's laboratories and venture businesses and to devote the necessary time to resolving his personal legal issues arising from the breakdown of his marriage.
Despite the company pursuing an ambitious growth strategy, in 2012/2013, the estimated capital spending by key clients was generally lower than anticipated and the cost of providing services was increasing. New heads of sales and marketing were recruited and the company made an attempt to broaden its service focus. This sales strategy was not successful and the expected high sales volumes did not materialise. Additionally, the margin on the business acquired was lower than anticipated. The company had grown rapidly without any significant external investment and all working capital came from its then current operations. Consequently, the losses incurred by the business at the end of 2013 and into 2014 directly affected the company's cash position.
In 2014 delays were experienced in closing new deals and the postponement of a number of large projects by important clients resulted in a severe billings shortfall which in turn led to significant losses being posted in that period. Members of staff, including the financial controller, indicated their concerns with the company's situation which was undermining its ability to trade. A view was formed that the company was likely to trade at a loss and a decision was taken to appoint a liquidator. The winding up commenced on 2nd July 2014.
In April 2014, the directors implemented some cost cutting measures such as redundancies, seeking additional support from their banks and an approach was made to the Revenue Commissioners with a view to agreeing a payment plan in respect of the outstanding tax debt which had accumulated. The situation worsened in June 2014 when the Revenue Commissioners put an attachment order on the company's bank account thus preventing it from accessing the €300,000 overdraft facility on this bank account.
I am required to have regard (throughout) in dealing with this application to the history of the company and to the conduct of the second named respondent during that history – throughout the life of the company both before and after it became an ‘insolvent’ company.
It is the position that the second named respondent founded this company and that it enjoyed great success for most of its existence up until the time of the appointment of the liquidator. It is the position that it generated employment and contributed some €8m (approximately) to the Exchequer. It is a fact that the second named respondent suffered a personal crisis in or...
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