A&L Goodbody LLP
  July 11, 2005 - Ireland

Company Case Law - Section 150 Companies Act 1990 – Directors’ Restriction Orders – Whether Application Should be Struck Out on Grounds of Delay

David Hughes v Seamus Duffy and Eugene Hanratty, 19 April 2005, High Court Facts: This case was taken under Section 150 of the Companies Act 1990, by the Official Liquidator of the Supreme Oil Company Limited. Section 150 provides for a prohibition or restriction of persons acting as company directors for a period of five years. The respondents sought to have the application dismissed or refused by reason of the delay in bringing the application. The order winding the company up was made in November 1991 but the application under Section 150 was not made until December 2003. The High Court applied the principles set down by the Supreme Court in Duignan v Carway [2001] 4 IR 550 in deciding whether to dismiss the application on grounds of delay. Ms. Justice Finlay Geoghan stated that there were two separate circumstances in which the court might determine that the balance of justice was against proceeding with an application under Section 150, namely: 1. where the delay would put a just hearing at risk; and 2. where the delay would represent a breach of the respondent’s constitutional right to fair procedures. In examining the latter ground, the Judge gave consideration to the mandatory five year restriction period under Section 150 and the shift in the onus of proof onto the respondent directors. Held: The court held that since no explanation had been offered for the delay, and that it appeared that the Section 150 application had been overlooked, that the balance of justice would be against permitting the application to proceed. In the Matter of Mitek Holdings Limited (In liquidation), Tom Grace v Jack Kachkar and Robert McClellan Carrigan, 5 May 2005 Whether liquidator’s remuneration recoverable as costs. This case is related to a previous High Court case of 21 February 2005 last, involving the same company, in which restriction orders were imposed on two directors under Section 150 of the Companies Act 1990. Facts: In this case, the Liquidator applied for costs pursuant to the Section 150 restriction application, under Section 150 (4B) of the Companies Act 1990. The issue for the court was the proper construction of Section 150 (4B) and specifically, whether the phrase “any costs incurred by the applicant in investigating the matter” includes remuneration due to the liquidator for time spent by him and his colleagues investigating the Section 150 matter and reporting it to the Office of the Director of Corporate Enforcement. Held: Ms Justice Finlay-Geoghegan stated that on a literal interpretation of the section, the phrase “costs incurred by the applicant” does not include the liquidator’s remuneration. There were no grounds, she stated, for applying a special meaning to this section. The phrase “costs of the application” means the normal costs of an application to the court which are recoverable following an order for costs made by the High Court and the taxation process. Where the applicant is a liquidator, such costs do not include the remuneration of the liquidator in respect of the time spent working on the application to court. Therefore the part of the claim for costs relating to the remuneration of the applicant and his colleagues was refused by the Court. In the Matter of Tipperary Fresh Foods Limited (In liquidation), William Riordan v Joseph Coleman O’Connor, Joseph Peter O’Connor and Donal O’Connor 5 May 2005, High Court Whether liquidators’ remuneration recoverable as costs Facts: This case concerned a judgment with regard to the costs of a Section 150 investigation. The claim was in respect of the remuneration of the Official Liquidator, a senior manager and a senior associate of his firm in investigating the Section 150 matter. The respondents opposed the claim for the remuneration of the liquidator on the basis that the sums incurred were not “costs incurred by the applicant” within the meaning of Section 150(4B). Held: Ms Justice Finlay Geoghegan referred to her related judgment in Mitek Holdings Limited (in liquidation), which dealt with a similar application. In that case she had concluded that Section 150(4B) of the Act of 1990 cannot be construed so as to include in the phrase “costs incurred by the applicant in investigating the matter” the amount claimed by the Official Liquidator as remuneration in respect of the time spent by him and his colleagues in investigating the matter. The judge disallowed the part of the claim that related to remuneration for time spent by the Official Liquidator investigating the matter but allowed the claim for legal costs. Ken Fennell and Richard McGuire as joint liquidators of SPH Limited (in voluntary liquidation) v Sean Shanahan, Marie Shanahan, Declan Fitzpatrick and Padraic Cullen, 25 May 2005, High Court Whether directors acted responsibly in relation to financial affairs of company. Facts: This Section 150 application concerned the first and second named respondents of the company. The first named respondent was described as the “prime mover” in the company and in day to day control. The second named respondent was a non-executive director. The company operated under significant financial pressure in its last six months of trading and the liquidator expressed the view that the company may have lacked the necessary measurement controls to trade successfully or profitably resulting in constant cash flow issues. Shortly before the company was wound up it received a demand from the Revenue Commissioners for €277,569.54. The Directors estimated in their statement of affairs that the deficit facing the company was in the order of €1.7 million. The issue facing the court was whether the respondents acted responsibly in relation to the control and supervision of the financial affairs of the company, having regard in particular to the amount of liability to the Revenue Commissioners, and the manner and period of which this had been allowed to accumulate. Held: The Judge stated that the first and second named respondents either knowingly permitted significant sums due to the Revenue Commissioners to accrue without providing for the payment thereof, or alternatively, if they were unaware of the liabilities accruing that they failed to have in place appropriate systems to inform themselves of the financial position of the company to allow them properly control and manage the affairs of the company. The Judge said that whilst the company employed an accountant, even if the day to day management of the finances were delegated to him, it could not relieve the first and second named respondents of their obligations to inform themselves about the financial affairs of the company and with their fellow directors to supervise and control the delegated functions. The Judge concluded that the court was not satisfied that either the first or second named respondents had acted responsibly in relation to the conduct of the affairs of the company whilst a director and therefore made directors of restriction orders against both directors.

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