Wallace (Liquidator) v Edgeworth

• Jurisdiction: Ireland
• Judge: Mr. Justice Robert Haughton
• Judgment Date: 19 July 2017
• Neutral Citation: [2017] IEHC 475
• Docket Number: [2016 No. 307 COS]
• Court: High Court
• Date: 19 July 2017

[2017] IEHC 475

THE HIGH COURT

COMMERCIAL

Haughton Robert J.

[2016 No. 307 COS]

IN THE MATTER OF SHEMBURN LIMITED (IN LIQUIDATION)

AND

IN THE MATTER OF SECTION 682 AND SECTION 819 OF THE COMPANIES ACT 2014 AND SECTION 150 OF THE COMPANIES ACT 1990

BETWEEN

KIERAN WALLACE, LIQUIDATOR

APPLICANT

AND

MICHAEL EDGEWORTH, GEORGE EDGEWORTH

AND

ANTHONY KEMBER

RESPONDENTS

Company – Companies Act 2014 – Restriction of directorship – Conduct of directors – Management of affairs of company

Facts: The applicant/liquidator of the company sought an order pursuant to the Companies Act 2014, or the Companies Act 1990 for restricting the respondents from being directors. The Court had already made orders for restriction against the first and third respondents. The present judgment related to the second respondent's restriction. The applicant asserted a number of grounds upon which restriction was sought namely, the failure to wind up the company in time and the failure to assist the applicant in furnishing the relevant information. The second respondent contended that he was a non-executive director as he was merely kept informed about the business of the company by the first respondent who was his father.

Mr. Justice Haughton Robert held that the second respondent had acted irresponsibly by not supervising the affairs of the company as he, too, was answerable for not winding up the company in a timely fashion. The Court, however, held that the second respondent did not deny to assisting the applicant as the relevant information that needed to be given by him in the form of a questionnaire had not been posted at his address. The Court noted that the responsibility of a director under s. 150(2) (a) of the Act of 1990 included the extent to which there was compliance of relevant law by the director; the extent to which the director was responsible for the insolvency or deficiency of assets of the company. The Court adjourned the matter in order to determine whether a proper order should have lied under s. 150 of the 1990 Act or under s. 819 of the 2014 Act.

Judgment of Mr. Justice Robert Haughton delivered on this 19 ^th day of July, 2017.

1 In these proceedings, the applicant as the liquidator of Shemburn Limited (‘the Company’) seeks orders pursuant to the Companies Act 2014, or in the alternative the Companies Act 1990, restricting the respondents from being directors.

2 The first named respondent filed two affidavits in this matter and in his second affidavit dated 4 April, 2017, he averred that he was not opposing the application for restriction. The court having considered the papers was satisfied that he had not acted responsibly as a director and accordingly made an order that he be restricted with effect from the date of hearing on 3 July, 2017.

3 The third named respondent failed to file any replying affidavits opposing the restriction and was not represented or present in court. The court considered the papers and not being satisfied that he had acted responsibly made an order restricting him from the date of hearing on 3 July, 2017.

4 The second named respondent, who is a commercial airline pilot and is the son of the first named respondent, was represented by solicitor and counsel and fully opposed the application for restriction. This judgment relates solely to this respondent.

5 In determining this application, I have considered the affidavits of the applicant, two replying affidavits sworn by the first named respondent and one affidavit on behalf of the second named respondent. I have also had the benefit of written and oral submissions on behalf of the applicant and the second named respondent.

Background

6 The Company was incorporated on 5 March, 2000, and its primary activity was the leasing of aircraft to associated companies, Skytrace Limited (‘Skytrace’) and The Pilot Training Centre of Ireland Limited (‘PTCI’), for the training of commercial pilots. The Company and PTCI were linked companies which formed the Shemburn group. The Company purchased aircraft and these were leased to PTCI. In essence, the Company was established to act as an asset holding vehicle for PTCI due to the aviation training industry being VAT exempt. Its sole purpose was to allow the group to reclaim VAT on capital expenditure. The first respondent states that such practice was standard in the airline industry.

7 PTCI encountered financial difficulties and was placed into liquidation on the 28 ^th September, 2012. At this time, the Company owed PTCI approximately €1,512,530. It appears that the first named respondent took an active approach in this liquidation and engaged with the liquidator of PTCI, Mr Michael McAteer, in attempts to realise the assets of the Company for the benefit of PTCI. The first named respondent in his affidavit avers that he agreed to the sale of the aircraft of the Company but was unwilling to do so at the time that PTCI was placed into liquidation as the market was in difficulty due to the financial crisis. At paragraph 9 he states, ‘I knew that if the sale of the aircraft was carried out in a proper managed way over a period of 12 months we could obtain market value for them and therefore, create far more benefit to the creditors.’

8 In January 2013, both Mr McAteer and the first named respondent decided to sell the assets of PTCI, over which AIB had a lien. In order to sell the assets in a manner which would benefit the interests of both PTCI and AIB, the first named respondent and Mr McAteer decided that it would be appropriate for all stakeholders, that is AIB, Mr McAteer, the Company and the first named respondent, to enter into a forbearance agreement. Mr McAteer's legal team drafted a forbearance agreement which was signed by the first named respondent in August 2013. Mr McAteer then sought and obtained Court approval for said agreement on 3 September, 2013, however he refused to sign the agreement until he had the approval of major creditors of the Company, which included AIB.

9 By letter dated 9 ^th September, 2013, the first named respondent authorised the creditors of the Company to engage with Mr McAteer. Negotiations between Mr McAteer, AIB and the first named respondent in relation to the signing of the forbearance agreement appeared to continue into January 2014, however AIB was unwilling to sign the agreement resulting in such negotiations coming to an end. In January 2014, Mr McAteer decided that the best course of action was to put the Company into liquidation. The Company was put into liquidation and the applicant was appointed as liquidator on 26 May, 2014, nearly two years after the winding up of PTCI.

The provisions relevant to the restriction application

10 In the Originating Notice of Motion dated 11 August, 2016, the applicant seeks orders of restriction pursuant to section 819(3) of the Companies Act, 2014, or, in the alternative, pursuant to section 150(3) of the Companies Act, 1990.

11 An issue may arise as to which provision is applicable in the circumstances in the light of the fact that the Company was wound up prior to the enactment and commencement of the Companies Act, 2014. In both written and oral submissions to the court, the applicant submitted that the approach of the court in this regard appeared to be to apply s.819 of the 2014 Act. The court was directed to the decision of Keane J. in Re BOD Investment (Ireland) Limited [2016] IEHC 197. In this case, Keane J. analysed the interpretative provisions in schedule 6 of the Companies Act, 2014 alongside sections 26 and 27 of the Interpretation Act, 2005 and concluded that the court has a discretion to apply the provision dictated by the requirements of justice in the circumstances of each individual case. In that case, despite the proceedings being initiated pursuant to the 1990 Act, Keane J. deemed it appropriate in all the circumstances to determine the application under the 2014 Act. Such an approach was also taken by Binchy J. in both Re MJBCH Limited (in liquidation) [2016] IEHC 145 and Re Manvik Ireland Limited (in voluntary liquidation) [2016] IEHC 122. I currently tend to the view that at least where the application is brought after the commencement of the 2014 Act, that Act should apply. However it is not necessary for the court to determine this issue at this point in time because, as the parties agreed, the principles that apply in relation to the court's determination of whether or not the second named respondent should be restricted in all the circumstances are not materially different whether the application is considered under s.819 or s.150. I will address the relevant principles later.

The grounds upon which restriction is sought

12 The applicant presents a number of grounds upon which it is asserted that the second named respondent ought to be subject to a restriction application.

13 First, he asserts that he failed to wind the Company up in a timely fashion. As the Company's main source of revenue was PTCI, he avers that when PTCI was wound up, the Company ‘ceased to have any prospect of survival.’ He states that the Company should have been placed into liquidation as soon after the winding up of PTCI as possible. Instead the directors failed to put the Company into liquidation at all and as a result, assets were devalued and sums owing to the airport storing their aircraft substantially increased. He avers in paragraph 23 of his affidavit that the value of the aircraft owned by the Company depreciated in value from €395,000 on 12 February, 2013 to €225,000 by June 2014. Such depreciation was allegedly caused by the storage of the aircraft outdoors which resulted in weather damage. He further states that the sums now owed to Weston Airport and Waterford Airport are €105,600 and €40,000 respectively.

14 The third ground of complaint of the applicant is that the second named...