Winning Ways Ltd v Companies Acts
| Jurisdiction | Ireland |
| Judge | Mr. Justice Quinn |
| Judgment Date | 02 June 2020 |
| Neutral Citation | [2020] IEHC 264 |
| Docket Number | 2018 No.188 COS |
| Court | High Court |
| Date | 02 June 2020 |
IN THE MATTER OF WINNING WAYS LIMITED (IN LIQUIDATION) AND IN THE MATTER OF SECTION 819 OF THE COMPANIES ACT 2014
AND
[2020] IEHC 264
Quinn
2018 No.188 COS
THE HIGH COURT
The applicant liquidator seeks a declaration that both respondents, being persons to whom Chapter 3 Part 14 of the Companies Act 2014 applies, shall not for a period of five years be appointed or act in any way, whether directly or indirectly as a director or secretary of a company or be concerned to take part in the formation or promotion of a company unless that company meets the requirements set out in subsection 3 of section 819 of the Companies Act 2014.
Winning Ways Limited (‘the Company’) was incorporated on 21 December, 1992 with a registered office at Unit 9 Century Business Park, St Margaret's Road, Finglas, Dublin 11.
The Company carried on business as wholesale traders of pet products to retail shops.
The first named respondent, Mr. Brian Stenson, was the Managing Director of the Company and oversaw the running of the Company. This function included primary responsibility for finance. He dealt with making bank payments, and lodgements and checking cash on a daily basis. He also managed cash flow, debtors and suppliers. He was responsible for seeking new sales opportunities and the negotiation of pricing.
The second named respondent, Mr. David Stenson, was in charge of operations of the Company. He was involved in the day to day running of the business including scheduling on-site staff and warehouse staff.
The respondents are directors also of a retail company called Pet Zone Limited (“Pet Zone”), established in 2006. The first respondent is also a 25% shareholder of Pet Zone.
The Company traded profitably and without significant issues between 1992 and 2012.
The Company ceased trading on 4 August, 2016. On 22 August, 2016, it was resolved to wind up the Company and to appoint the applicant liquidator.
At the commencement of the winding up, the first respondent and second respondent were directors of the Company, the former since 1995 and the latter since 2003. Other family members, Jennifer Stenson and Kieran Stenson were also directors of the Company at the date of liquidation but no order was sought against them. The Office of the Director of Corporate Enforcement (“ODCE”) relieved the liquidator of her obligations in that regard.
The applicant submitted her report to the ODCE pursuant to section 682 of the Companies Act 2014 on 11 April, 2017.
On 12 February, 2018, the ODCE wrote to the applicant to inform her that the respondents had declined to accept the offer to give Restriction Undertakings. Consequently, the applicant was obliged to make an application to this court pursuant to section 819 of the Companies Act 2014 for a declaration of restriction in respect of each of the respondent directors.
This application is grounded on the affidavit of the applicant sworn 8 May 2019 and her supplemental affidavit sworn 7 June 2019. The first respondent swore two affidavits dated 27 February 2019 and 29 October, 2019, addressing the substance of the liquidator's complaints. The second respondent swore an affidavit dated 29 October, 2019, for the purposes of adopting the contents of the first respondents affidavits.
It is accepted that the Company was unable to pay its debts at the date of winding up. The applicant certified in a letter dated 3 May, 2018, that the Company has at all times from the date of the commencement of the winding up, been and continues to be, unable to pay its debts within the meaning of section 569 (1)(d) of the Companies Act 2014.
At the date of liquidation, a total sum of ₠91,392 was due to the Revenue Commissioners for outstanding VAT and PAYE/PRSI payments. A total sum of ₠ 95,546 was due to the Ulster Bank (the “Bank”). The Company had debts owed to unsecured trade creditors of ₠856,326, giving rise to an excess of liabilities over assets of over ₠1 million.
It is common case that the principal cause of the failure of the Company was the loss in December 2014 of a contract with Royal Canin, a major supplier of pet food products. At that time Royal Canin commenced direct supply to MaxiZoo, which was a chain of approximately 16 retail stores and was a key customer of the Company. The impact of this loss was a decrease in revenues between 2014 and 2015, of approximately ₠3,000,000, representing 50% of turnover.
Although the Company began to experience trading losses in 2013 and again in 2014, it is said by the respondents that these were capable of being absorbed by significant profits retained from previous years’ trading. This was true in part and only up to a certain point in time, but the losses sustained following the loss of Royal Canin / MaxiZoo were at a level from which the Company never recovered. The accounts of the Company from the period to end of February 2013 onwards show the following:
| YEAR | SALES | NET LOSS |
| 2013 | ₠7,185,133 | (₠110,710) |
| 2014 | ₠6,097,165 | (₠196,252) |
| 2015 | ₠3,575,577 | (₠609,451) |
| 2016 | ₠3,008,368 | (₠436,268) |
The liquidator brings the attention of the Court to eight matters which she believes should be considered in determining whether it is appropriate to make orders under s.819(2);
(i) Failure to place the company in a timely liquidation,
(ii) Failure to deliver an accurate statement of affairs to the liquidator,
(iii) Failure to file tax returns,
(iv) Preferential payments to reduce personally guaranteed bank facilities,
(v) Excessive pension payments to directors,
(vi) Preferential payment of rent to directors,
(vii) Failure to protect the rights of employees,
(viii) Failure to comply with obligations under company law.
Counsel on behalf of the respondents correctly pointed out that “(viii) Failure to comply with obligations under Company Law” was not later substantively addressed by the liquidator in her affidavits.
Both respondents raise the defence under s.819(2)(a) that they acted honestly and responsibly in relation to the conduct of the affairs of the Company, whether before or after it became insolvent.
The applicant says in her first affidavit that the respondents “failed in their obligations under the Companies Act 2014 and acted dishonestly in the management of the Company”. This is a very general allegation of dishonesty made once only and to which the applicant does not return. There is no focus in any of the affidavits on evidence establishing dishonesty as distinct from evidence of “failure to act honestly and responsibly”. Throughout both of her affidavits the applicant says that the respondents failed to demonstrate that they acted honestly and responsibly. Therefore, it is unclear whether the applicant intended to allege dishonesty, as opposed to a failure to act “honestly and responsibly”. If her intention was the former, she has not made clear what parts of her evidence support such a claim. I do not in this judgment make a finding of dishonesty.
I have concluded that the respondents have not proved that they acted responsibly in relation to the affairs of the Company and therefore that a declaration should be made under Section 819 (1) of the Act.
Section 819(1) of the Companies Act 2014 provides:
“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).”
Subsection (2) provides:
“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 locus classicus for the factors to be taken into account when considering whether a director has acted honestly and responsibly were set out by Shanley J. in Re La Moselle Clothing Ltd (1998) 2 ILRM 401, and approved by the Supreme Court in Re Squash (Ireland) Limited [2001] 3 I.R. 35. They are as follows:
(i) the extent to which the director has or has not complied with any obligations imposed on him by the Companies Acts;
(ii) the extent to which his conduct could be regarded as so incompetent as to amount to irresponsibility;
(iii) the extent of the directors’ responsibility for the insolvency of the company;
(iv) the extent of the directors’ responsibility for the net deficiency in the assets of the company disclosed at the date of the winding up or thereafter;
(v) the extent to which the director, in the conduct of the affairs of the company, has displayed a lack of commercial probity or want of proper standards.
The Court is obliged to make a declaration of restriction under s.819(1) of the 2014 Act against each of the respondents unless satisfied that he falls within the circumstances set out in s.819(2). The onus is on each respondent director to whom the restriction application is directed to prove that he has satisfied those criteria.
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