Wallace v Fergus and Others

• Jurisdiction: Ireland
• Judge: Mr. Justice Herbert
• Judgment Date: 08 February 2013
• Neutral Citation: [2013] IEHC 53
• Court: High Court
• Date: 08 February 2013

[2013] IEHC 53

THE HIGH COURT

[No. 339 COS/2008]

Wallace v Fergus & Fergus-Sheridan

IN THE MATTER OF FERGUS HAYNES (DEVELOPMENTS) 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

KIERAN WALLACE

APPLICANT

AND

CHARLES FERGUS, DAIMON FERGUS AND JOANNE FERGUS-SHERIDAN

RESPONDENTS

COMPANIES ACT 1990 S150

COMPANIES ACT 1990 S150(3)

BANK OF SCOTLAND PLC v FERGUS UNREP FINLAY GEOGHEGAN 30.3.2012 2012 IEHC 131

COMPANY LAW ENFORCEMENT ACT 2001 S56

COMPANY LAW ENFORCEMENT ACT 2001 S56(2)

COMPANIES ACT 1963 S214

COMPANIES ACT 1963 S125

COMPANIES (AMDT) ACT 1986 S7

MITEK HOLDINGS LTD, IN RE; GRACE (LIQUIDATOR) v KACHKAR & MCCELLAN CARRIGAN 2010 3 IR 374 2010/36/9110 2010 IESC 31

DIGITAL CHANNEL PARTNERS LTD (IN VOLUNTARY LIQUIDATION), IN RE; KAVANAGH v CUMMINS & ORS 2004 2 ILRM 35 2004/24/5602

COMPANIES ACT 1990 S202

HEALY v HEALY HOMES LTD & KILCOYNE 1973 IR 309

MANTRUCK SERVICES LTD (IN LIQUIDATION), IN RE; MEHIGAN v DUIGNAN 1997 1 IR 340 1997 1 ILRM 171 1997/5/1673

MDN ROCHFORD CONSTRUCTION LTD (IN LIQUIDATION), IN RE; FENNELL v ROCHFORD UNREP MACMENAMIN 18.8.2009 2009/21/5127 2009 IEHC 397

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

COMPANIES ACT 1963 S245(1)

COMPANIES ACT 1990 S150(1)

COMPANY LAW

Directors

Liquidation - Application to restrict respondents - Failure to make annual returns for one year - Failure to prepare management accounts and board minutes - Whether failure to prepare management accounts potentially constituting breach of respondents' common law duty - Whether failure by respondents to act responsibly - Fennell v Rochford [2009] IEHC 397, (Unrep, MacMenamin J, 18/8/2009) considered - Companies Act 1990 (No 33), s 150 - Declarations granted against first and third respondents (2008/339COS - Herbert J - 8/2/2013) [2013] IEHC 53

Wallace v Fergus

Facts The applicant as official liquidator of an insolvent company, brought an application to restrict the respondents (who had been directors of the company) from acting as directors pursuant to section 150 of the Companies Act 1990. The company had been involved in the construction business but had run into difficulties and the company had been wound up. The applicant contended that the respondents had not acted responsibly in running the financial affairs of the company. It was also contended that there had been a failure to ensure that annual returns were made in accordance with company law. It was contended that the failure of the respondents to keep audited accounts after a certain date would have meant that they would have been incapable to make reasonable commercial decisions in the conduct of the company”s affairs. In this regard it was also claimed that the third named respondent had failed to keep accurate records.

Held by Herbert J in making the following orders: The failure to have filed an annual return in respect of one year only could not reasonably be said to have contributed to the insolvency of the company. The discovery of additional liabilities to the Revenue Commissioners would not of itself be sufficient to warrant a finding of lack of responsibility on the part of the respondents. Section 202 of the Companies Act 1990 required every company to keep proper financial records so that the financial position of a company could be determined with reasonable accuracy. The court was satisfied that the first named respondent, as managing director of the company, had failed in his duty to act responsibly in managing the company and the court would grant the declaration sought. There was no evidence that the second named respondent played any real role in the day to day management of the company and the court would decline to make the declaration sought. The third named respondent as an executive director had been constantly dealing with important financial information concerning the company. The third named respondent had failed to discharge the onus of showing that she had acted responsibly and the court would make the declaration sought.

1 1. The applicant seeks a declaration, pursuant to the provisions of s. 150 of the Companies Act 1990, that the respondents named in the title hereof, who were directors of the insolvent company named in the title hereof at the date of and within twelve months prior to the commencement of its winding-up, failed to act responsibly in relation to the conduct of the affairs of that company. If so satisfied the section imposes a mandatory obligation on the Court to declare that the respondents shall not for a period of five years, be appointed to act in any way, whether directly ors indirectly, as a director or secretary, or to be concerned or take part in the promotion or formation of any company unless that company meets the requirements set out in s. 150(3) of the Act of 1990.

2 2. The company was incorporated in the State on the 26 ^th April, 1973. The principal objects named in the Memorandum of Association were to carry on the business of constructing residential homes, property speculation, the rental of plant and machinery and, the rental of holiday homes. The original directors of the company were the first named respondent and Ms. Marlyn Fergus. The second named respondent, a son of the first named respondent, was appointed a director of the company on the 29 ^th May, 2003. The third named respondent, a niece of the first named respondent, was appointed a director of the company on the 8 ^th March, 2005. The second and third named respondents resigned as directors of the company on the 1 ^st September, 2008. Apart from a single issued share held by Ms. Marlyn Fergus, the entire issued share capital of the company was held by the first named respondent.

3 3. In Bank of Scotland plc. v. Charlie Fergus [2012] I.E.H.C. 131 (Unreported, High Court, 30 ^th March, 2012), it was held by Finlay Geoghegan J. that the first named respondent was at all material times the chief executive and principal promoter of the company and the director thereof. In an affidavit sworn on the 19 ^th August, 2008, in a matter in this Court, bearing record No. 2008/347 COS, and entitled, "In the matter of the Companies (Amendment) Act 1990, (as amended) and In the matter of Fergus Haynes (Developments) Limited", in which the company sought an order of the Court appointing an examiner to the company, the first named respondent stated that he had been involved in the day to day running of the company since its incorporation, that the second named respondent had responsibility for the company's plant and machinery, that the third named respondent was involved in the company on a day to day basis and was charged with taking care of the administrative side of the company's business, including the maintenance of its management accounts, and that Ms. Marlyn Fergus was not involved in the day to day running of the company. However, it is noted that a "Ms. Marlene Fergus" as a director of the company, together with the first named respondent, signed the annual returns of the company and the directors' report for the financial years ending 31 ^st December, 2005 and 31 ^st December, 2006.

4 4. The company petitioned for the appointment of an examiner on the 20 ^th August, 2008. The application was refused on the 1 ^st September, 2008. On the 6 ^th September, 2008, Bank of Scotland (Ireland) plc by deed, appointed a receiver over the property, assets and undertaking of the company on foot of a fixed and floating charge. On the 17 ^th September, 2008, on the petition of Atradius Credit Insurance N.V. claiming a debt unsatisfied after demand of €1,267,676.65, this Court made an order winding up the company and appointed the applicant, an insolvency partner in the firm of K.P.M.G., 1 Stokes Place, St. Stephens Green, Dublin, Official Liquidator. On the 24 ^th February, 2010, Bank of Scotland (Ireland) plc, issued the proceedings, hereinbefore referred to against the first named respondent as guarantor on foot of an unsatisfied demand dated the 15 ^th December, 2009, for a sum of €8,444,457.88.

5 5. On the 13 ^th May, 2010, the applicant furnished a Report pursuant to the provisions of s. 56 of the Company Law Enforcement Act 2001, to the Director of Corporate Enforcement. By letter dated the 2 ^nd September, 2010, the director, pursuant to the provisions of s. 56(2) of the Act of 2001, relieved the applicant of his statutory obligation to bring an application pursuant to the provisions of s. 150 of the Act of 1990 against Ms. Marlyn Fergus, but not as regards the respondents. On the 13 ^th October, 2010, the applicant issued a Certificate that the company was unable to pay its debts within the meaning of s. 214 of the Companies Act 1963. The present motion was issued on the 13 ^th October, 2010, grounded on an affidavit of equal date but was adjourned from time to time pending the decision of this Court in the aforementioned guarantee proceedings taken by Bank of Scotland (Ireland) plc, against the first named respondent. On the 30 ^th March, 2012, this Court, (Finlay Geoghegan J.) gave judgment in favour of Bank of Scotland (Ireland) plc, against the first named respondent for a sum of €9,211,746 on foot of a guarantee dated 1 ^st June, 2006.

6 6. The applicant in the present application claims that the respondents had not acted responsibly. The claim that they had not acted honestly as directors of the company in the management and conduct of the affairs of the company which is insolvent was not pursued by counsel for the applicant at the hearing of the application.

7 7. The applicant claims that the respondents had not acted responsibly in failing to ensure that annual returns, required by s. 125 of the Companies Act 1963 and s. 7 of the Companies...