Xnet Information Services Ltd v Companies Act

• Jurisdiction: Ireland
• Judge: O'Neill J.
• Judgment Date: 10 October 2006
• Neutral Citation: [2006] IEHC 289
• Court: High Court
• Date: 10 October 2006

XNET INFORMATION SYSTEMS LTD, IN RE (HIGGINS v STAFFORD)

IN THE MATTER OF XNET INFORMATION SYSTEMS LIMITED

(INVOLUNTARY LIQUIDATION) AND IN THE MATTER OF SECTION

152 OF THE COMPANIES ACT 1990

BETWEEN

AIDAN HIGGINS

APPLICANT

AND

JAMES STAFFORD

RESPONDENT

AND

THE DIRECTOR OF CORPORATE ENFORCEMENT

NOTICE PARTY

[2006] IEHC 289

[No. 112 COS/2005]

THE HIGH COURT

COMPANY LAW

Directors

Restriction - Application to lift restriction - Factors which court should have regard to - Conduct of applicant since winding up - Hardship suffered by applicant - Fundamental purpose behind declaration of restriction - Risk to third parties - Impecunious applicant - Whether court should have regard to need or interest of applicant in having restriction lifted - Whether Oireachtas intended that directors could be rehabilitated quickly after declaration of restriction made - Companies Act 1990 (No 33), s 152 - Relief from restriction granted (2005/112Cos - Ó Néill J - 10/12/2006) [2006] IEHC 289

In re Xnet Information Systems Ltd: Higgins v Stafford

: The applicant sought relief pursuant to s. 152 Companies Act 1990, from a declaration of restriction granted under s. 150 Companies Act 1990. The applicant submitted that he had agreed to repay sums to the liquidator, that personal hardship had resulted to the applicant from the restriction and that he was unable to now exploit commercial ideas.

Held by O’ Neill J., in granting the relief sought, that there was a need established so as to permit the applicant to engage his entrepreneurial skills. Little risk remained to the public from damage or injury through any relief that would be granted. The capitalisation requirements would be reduced. Notification conditions would apply and all other aspects of the restriction would remain in place until their statutory expiration.

Reporter: E.F.

COMPANIES ACT 1990 S152

COMPANIES ACT 1990 S150

COMPANIES ACT 1990 S150(1)

COMPANIES ACT 1990 S150(3)

ROBINSON v FORREST (FERNGARA ASSOCIATES LTD) 1999 1 IR 426 1999 2 ILRM 169

CAROLAN & COSGRAVE v FENNELL UNREP FINLAY-GEOGHEGAN 24.10.2005 2005 IEHC 340

MURPHY v STEWART 1973 IR 97

AG v PAPERLINK 1984 ILRM 373

COX v IRELAND 1992 2 IR 503

BUSINESS COMMUNICATIONS LTD v BAXTER UNREP 21.7.1995 1995/6/1869

COMPANIES ACT 1990 S152(1)

COMPANIES ACT 1990 S153

COMPANIES ACT 1990 S153(2)

COMPANIES ACT 1990 S155

CONSTITUTION ART 40.1

1 JUDGMENT of O'Neill J. delivered the 10th day of October, 2006 .

2 In these proceedings the applicant seeks an order pursuant to s. 152 of the Companies Act, 1990, granting the applicant relief from the Declaration of Restriction pursuant to s. 150 of the Companies Act 1990, made by order of this Court of the 24th of May, 2004 (Finlay Geoghegan J.).

3 On the 5th December, 2005, the Director of Corporate Enforcement was joined as a notice party to the proceedings.

4 The background to this matter is as follows:

5 The company recited in the title hereof was incorporated in 1995, its two shareholders being the applicant and one Kevin Moore. Until 2000 they were also its directors. The company engaged in the business of computer data storage and carried on this business out of a Victorian house at Haigh Terrace in Dun Laoghaire. The business of the company thrived and by the year 2001 it employed 26 people and had generated a turnover in excess of €4 million. By that time, it had for two years been in the top ten fastest growing companies in its trading sector in Ireland and had won the Deloitte and Touche Award for its achievements in the years ended March, 2000 and March, 2001. It was also numbered amongst the top 100 European Technology Companies and had received a variety of other awards. In the Spring of 2001, the affairs of the company appeared to be in a very good condition. Apart from the foregoing, it had at that time cash reserves in excess of €600,000.00, enough to cover three months operating costs.

6 The company did have one very pressing difficulty and that was that the premises, it occupied at Haigh Terrace in Dun Laoghaire was inadequate to accommodate the business. An additional difficulty, at that time, was that a Portakabin that had been brought on site to provide additional accommodation was refused planning permission.

7 To remedy this problem, a decision was taken to move to more suitable premises.

8 Such a premises was located at Glencormac, Kilmacanogue, Co. Wicklow and there was consensus amongst the directors; who at this stage had grown to four, with the addition of Mr. Howard Roberts and Mr. Nicholas Koumarianos; that these premises would be bought by the applicant and Mr. Moore who would then lease the premises to the company at an appropriate rent, i.e. the going rate per square foot for that kind of premises. This methodology was perceived as the way to get the company into the new premises, but with the minimum disbursement of cash so as not to interfere with its cash flow situation.

9 No doubt this might have been the way events would have unfolded were it not for the events that led to the resolution to wind up the company on 19th July, 2002, and in particular the events that persuaded this court (Finlay Geoghegan J.) to declare pursuant to s. 150(1) of the Companies Act 1990, that the applicant be not for a period of five years from the date of the order i.e. 24th May, 2004, appointed or act in any way whether directly or indirectly as a director or secretary or be concerned or take part in the promotion or formation of any company unless it met the requirements set out in s. 150(3) of the Act. The following passage from the judgment of Finlay Geoghegan J. delivered on 6th May, 2004 best tells the tale:-

"In summary, the following occurred. Between December 2000 and May 2001 the possibility of the Company moving to new premises was under consideration by the board. The board agreed that an independent advisor, Peter Cagney be appointed. He was retained and did give advice until May of 2001. He ultimately only appears to have given informal advice to the individual directors rather than any formal advice to the board of directors. His advice appears to have been that the price to be paid for the property was high by market standards but that the proposed rent to be paid by the Company for the property was fair."

10 I am satisfied that the first and second named respondents made the third and fourth named respondents aware that they proposed personally purchasing the property and that it would then be leased by them to the Company. This purchase was completed by the first and second named respondents in May 2001. A lease was entered into with the Company, which does not appear to have been approved by the board of directors though the Affidavits of the third and fourth named respondents make clear that they were aware from a conversation between Mr. Cagney and the third named respondent of the proposed initial rent.

11 The Company moved to the new premises in June 2001.

12 I have concluded, on the Affidavits, that the third and fourth named respondents did not become aware of the financing arrangements for the purchase of the premises and for the fit out of the premises until a board meeting of the 18th July 2001. In particular, I have concluded that they were not aware of any loan obtained by the Company in connection with the purchase nor any loan made by the Company to the first and second named respondents.

13 I have further concluded that the first and second named respondents, in organising the finance for the purchase of the premises at Kilmacanogue in their two names, made the following arrangements without consultation with the third and fourth named respondents, their fellow directors and without approval of the board of directors:

14 (i) They obtained a loan to the Company from ICC in the sum of €285,691. This was expressed to be a business development loan.

15 (ii) The Company made a loan to the first and second named respondent of €285,691. This appears to have been to provide the balance of the purchase monies payable by the first and second named respondents.

16 (iii) The Company made a loan of €177,763 to the first and second named respondents. This appears to have been for the purpose of the deposit on the premises in Kilmacanogue.

17 (iv) The Company made a loan of €119,355 to the first and second named respondents. This was for the stamp duty payable on the purchase of the premises.

18 (v) The first and second named respondents purported to sell to the Company and the Company purported to agree to purchase the fixture and fittings in the building for a sum of €152,368.

19 It appears that when the third and fourth named respondents became aware of the above financial transactions at the board meeting of the 18th July and objected to same, the first and second named respondents indicated that the loans were of a temporary nature only and that it was intended to re-mortgage the premises within a period of six months and to repay to the Company the loans made to the directors. This appears to have been confirmed in a memorandum from the second named defendant to the third named defendant dated 21st August 2001.

20 In August 2001 when, as is accepted by all the respondents, the Company was in very difficult financial circumstances it appears that the first and second named respondents, without seeking the approval of the board of directors of the Company, procured the increase of the rent payable to them by the Company from IR£125,000 per annum to IR£145,000. This was done following a special resolution of the Company on the 7th August 2001 and a fresh lease entered into between the Company and the first and second named respondents at this rent. This lease does not appear to have been approved...