Wood Products [Longford] Ltd [(in Liquidation)] v Companies Act
| Jurisdiction | Ireland |
| Judge | Mr. Justice Robert Haughton |
| Judgment Date | 18 May 2017 |
| Neutral Citation | [2017] IEHC 314 |
| Docket Number | [2016 No. 107 COS] |
| Court | High Court |
| Date | 18 May 2017 |
[2017] IEHC 314
THE HIGH COURT
COMMERCIAL
JUDICIAL REVIEW
Haughton Robert J.
[2016 No. 107 COS]
IN THE MATTER OF WOOD PRODUCTS (LONGFORD) LTD (IN LIQUIDATION)
AND
IN THE MATTER OF SECTIONS 819, 842 AND 682 OF THE COMPANIES ACT 2014
AND
Company – The Companies Act 2014 – Restriction of directorship – Past conduct – Disqualification
Facts: The applicant/liquidator sought an order for disqualifying or alternatively restricting the respondents from being directors. The liquidator alleged that the company continued to trade despite being insolvent and that showed that the respondents were unfit to work as directors. The liquidator also alleged that the respondents had failed to file annual returns of the company for the relevant period and permitted the company to be struck off the register of companies for the second time. The second respondent claimed that he was not involved in the day-to-day running of the company, and thus, he was a passive director.
Mr. Justice Robert Haughton acceded to the application filed by the liquidator for the restriction of directorship. The Court held that the appropriate disqualification period should be in the range of 5 to 10 years. The Court held that both the respondents were guilty of misconduct. The Court held that even if the second respondent was a passive director, he could not sidestep the misconduct in relation to trading the company while being insolvent and failing to make the annual returns. The Court found that the respondents did not conduct the affairs of the company as per the prescribed requirements, and thus, they were liable for restrictions.
In these proceedings the applicant as the liquidator of Wood Products (Longford) Ltd (‘the Company’) seeks orders pursuant to the Companies Act 2014 disqualifying or alternatively restricting the respondents from being directors.
The first named respondent attended court but was unrepresented and indicated to the court in writing that he was not opposing the application, that he would be 70 at his next birthday, that he had not worked in the past three years and had no plans to work in the future, and that he was in receipt of the OAP. He confirmed verbally to the court that he was not opposing the application.
The second named respondent who is an accountant attended court and was represented by solicitor and counsel, and fully opposed the applications both in respect of disqualification and restriction.
In determining these applications I have considered the affidavits of the applicant and two replying affidavits sworn by the second named respondent Mr Fox. I have also had the benefit of written and oral submissions on behalf of the applicant and the second named respondent.
By way of general background, the Company commenced trading in 1975 and continued to trade until wound up by order of Moriarty J. made on 1 May, 2014, on foot of a Petition brought by the Revenue Commissioners dated 13 January, 2014. The first named respondent became a director of the company on 23 June, 1975, and is the principal shareholder, together with his wife. He was primarily responsible for the day-to-day running of the Company. The second named respondent became a director of the Company on 27 February, 2004. Both respondents continued to be directors of the Company at the date of, or within 12 months prior to, the commencement of the winding up.
The basis upon which the applicant seeks Disqualification Orders is provided for in section 842(d) of the Companies Act 2014 –
‘842. On the application of a person specified in section 844 or of its own motion, the court may make a disqualification order in respect of a person for such period as it sees fit if satisfied –
(d) the conduct of the person as promoter, officer, statutory auditor, receiver, liquidator or examiner of a company makes him or her unfit to be concerned in the management of a company’.
In addition the applicant draws the Court's attention to s.842, subparagraphs (f) and (h) –
‘(f) that the person has been persistently in default in relation to the relevant requirements,
(h) that the person was a director of a company when a notice was sent to the company under section 727 and the company, following the taking of the other steps under Chapter 1 of Part 12 consequent on the sending of the notice, was struck off the register under section 733’.
It is only of the court's own motion that directors can be struck off under (f) and (h).
In its approach to its task in these cases, the court takes into account the following principles. First, the burden of proof in respect of disqualification rests with the applicant. The applicant must first establish that the conduct of the directors comes within one of the relevant subparagraphs in order to trigger the court's jurisdiction. This is a matter of ‘objective forensic enquiry’ – see Fennelly J. in Re Wood Products Ltd: Director of Corporate Enforcement v McGowan [2008] IESC 28, followed and approved in Director of Corporate Enforcement v Seymour [2013] 1 IR 82. Once the jurisdiction is established a Disqualification Order may be made unless in the exercise of the court's discretion it decides not to make such an order. The court should look at the respondents past performance as directors of the company because ‘…past conduct is certainly the best, if not the only, guide to the necessity for disqualification.’ As to the meaning of ‘unfit to be concerned in the management of the company’, in Seymour Macken J. in delivering the judgement of the Supreme Court quoted with approval the judgement of Browne-Wilkinson V.C. in In Re Lo-Line Ltd [1988] Ch. 477, at pp 485 to 486: –
‘What is the proper approach to deciding whether someone is unfit to be a director? The approach adopted in all the cases to which I have been referred is broadly the same. The primary purpose of the section is not to punish the individual but to protect the public against the future conduct of companies by persons whose past records as directors of insolvent companies have shown them to be a danger to creditors and others. Therefore, the power is not fundamentally penal… Ordinary commercial misjudgement is in itself not sufficient to justify disqualification. In the normal case, the conduct complained of must display a lack of commercial probity, although I have no doubt that in an extreme case of gross negligence or total incompetence disqualification could be appropriate.’
It was common case that in the exercise of its discretion the court is entitled to take into account the effect of a disqualification on a director and that the effect may be greater on a professional person such as an accountant – see the judgement of Denham J. in Director of Corporate Enforcement v Byrne [2010] 1 I.R. 222 at page 241. Further, as Denham J. noted at page 240: –
‘(iii) the conduct necessary to justify a disqualification order must be manifestly more blameworthy than merely failing to exercise an appropriate degree of responsibility…’.
By way of further background the undisputed evidence was that the Company was twice struck off on two prior occasions by the Register of Companies for failure to file annual returns on 25 June, 1999, (subsequently dissolved on 2 July, 1999) and again on 10 October, 2011 (and subsequently dissolved on 15 October, 2011). The first named respondent was previously a named respondent to an application made by the Office of the Director of Corporate Enforcement who by notice of motion dated 26 November, 2003, sought inter alia an order of disqualification arising from the failure of the Company to file annual returns. As appears in the judgement of Laffoy J., in those proceedings the Company was restored to the Register by order of the High Court (O'Neill J.) on 14 May, 2001. It was further ordered that the respondent directors, including the first named respondent in this application (but not the second named respondent) deliver all outstanding returns to the CRO and the Revenue Commissioners. Despite that Order having been made, the respondent directors, including the first named respondent in this application, had not complied with the obligation to file outstanding returns with the CRO as they were directed to do by O'Neill J. and, as recorded in the judgement of Laffoy J., the said returns were ultimately made on 22 April, 2004, following the commencement of the 2003 proceedings. At that time the outstanding returns dated back to 1990.
It was in response to the difficulties in 2003/2004 that the second named respondent became a director of the Company on 27 February, 2004. The first named respondent was the second named respondent's wife's brother. The second named respondent averred that he became involved for family reasons and because he was a practising accountant. He had never been a director of any other company. He says that his involvement with the Company arose only when called upon by the first named respondent and was dictated by events where the company needed ‘experienced financial and/or legal difficulties, and my activities were remedial in nature’ (paragraph 6 of his first affidavit sworn on 16 January, 2017).
The applicant presents a number of grounds upon which it is asserted that the respondents are unfit to be directors.
First, he asserts that the Company continued to trade while insolvent and he suggests that the insolvency arose in 2003. At paragraph 15 of his principal affidavit sworn on 1 April, 2016, the liquidator sets out a table of accumulated liabilities...
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