This
is an application for a declaration under
section 150 of the
Companies Act 1990
to the effect that Mr and Mrs Whelan and Mr Martin Ryan should not act as a
director of any company (otherwise than as permitted by the section) for a
period of 5 years. A petition to wind up the company was filed on the 10
September 1991. On that date a voluntary liquidation had commenced but
following a petition by the major creditors of the company the company was
ordered to be wound up by the court on the 21 October 1991 and Mr Peter
Fitzpatrick was appointed official liquidator in place of Mr Liam Grant who had
been the nominee of the shareholders Mr and Mrs Whelan were directors of the
company, Mr Whelan being its chairman. As it appeared that a Mr Martin Ryan was
also a director of the company a declaration under the section was sought in
respect of him as well. In relation to a Mr John Patchell, who also appeared to
have been a director of the company, no declaration is now sought. The company
was seriously insolvent and unable to pay its debts. The statement of affairs
filed by Mr and Mrs Whelan established that as of the 5 September 1991 the
company had a deficit of £792,194.00.
The
business of the company consisted in the provision of sites for outdoor
advertising. The evidence establishes that the company was facing financial
difficulties at the end of 1990 and these became much more serious in the
Spring of 1991. It became clear to the directors that a major investor was
required to save the company and negotiations took place between
representatives of the company and of an English company called Poster
Publicity Limited. The object of the negotiations was a complete take-over by
PPL of the company.
The
company's principal creditor was David Allen Limited (who according to the
Statement of Affairs was owed £845,245.00). It appears from the affidavit
of Mr Colm O'Cuilleanain (whose evidence I unreservedly accept) that he became
aware of the take-over discussions in July 1991. David Allen Limited agreed on
or about the 3 July 1991 to an extension of credit from 60 days to 90 days to
the company as a temporary extension to facilitate the discussions between the
company and PPL. This extension was granted because PPL was a major customer of
Mills and Allen Holdings Limited which is the UK parent company of David Allen
Limited. The evidence satisfies me that had that extension not been granted the
company in July 1991 would have been unable to pay its debts at that time as
they fell due.
An
important meeting took place on Wednesday the 14 August 1991 in London. PPL
requested Mr Allen to attend and representatives from PPL, Mills and Allen and
David Allen Limited took part. The Chairman of PPL (Mr McSharry) informed the
meeting that he was aware of the extent of the liabilities of the company and
that PPL had concluded that since the liability to David Allen was so great and
that a collapse of the company was not in the industry's best interest David
Allen should be asked to assist in the rescue of the company by additional
commissions in excess of that being paid at the time to specialist agencies and
that the extended credit period should be continued. The meeting was informed
that David Allen were not prepared to fund the deficit of the company by way of
an increase in the commission and the continuance of the extended credit
period. Then Mr McSharry indicated that PPL would be obliged to withdraw from
their negotiations with the company without this kind of support from David
Allen. The chief executive of Mills and Allen reiterated that the support as
sought was not available and the meeting then concluded.
No
representative of the company attended this meeting. But it is obvious that Mr
Whelan, the company's chairman, was informed of what transpired because he
wrote to the solicitors for PPL on the 16 August as follows;
"Dear
Sirs,
On
behalf of the Board of Outdoor Advertising Services Limited, I wish to state
that as negotiations regarding the proposed takeover of the Whelan
Communications Group by your client, Poster Publicity Limited, now appear to
have reached a stalemate following the meeting between representatives of your
client and representatives of our company's principal creditor, David Allen
Holdings Limited, which took place in London on Wednesday the 13 of August
last, our company cannot continue to trade indefinitely under the present
circumstances.
Accordingly,
I would be grateful if you would inform your client as a matter of the utmost
urgency that unless a firm commitment to proceed with this proposal is received
by us before 12.00 noon on Tuesday next the 20 of August, we will have no
alternative but to take immediate action based upon legal advice to my Board to
protect the position of our Directors, Shareholders and Creditors.
For
obvious reasons, I would be obliged if, when speaking to your clients, you
would impress upon them the need for the utmost confidentiality in the
treatment of any copies of this letter in view of the highly sensitive nature
of its contents.
Yours
faithfully,"
The
letter refers to a "stalemate" in the negotiations. I think this was a
euphemism for a "breakdown" because the remainder of the letter can only be
construed as meaning that the company would go into liquidation unless a
commitment to proceed with the proposed takeover was received on the 20 August.
By letter of the 19 August (received on the 20) PPL announced that it was not
proceeding with the take-over. It placed on record the fact that the meeting of
the 14 August took place with the knowledge of Outdoor Advertising Services Ltd.
During
these negotiations with PPL the company continued to trade and cheques were
signed on its behalf in favour of a number of payee. What is of particular
concern to the issues that arise on this motion are two cheques which were
signed on the 16 August 1991, the day Mr Whelan wrote the letter to PPL's
solicitor. Both were signed by Mrs Whelan and Mr Martin Ryan. The first was
payable to Allied Irish Banks and was for the sum of £22,426.29. The
second was payable to the Bank of Ireland and was for the sum of
£17,561.48. The first cheque was paid to reduce the overdraft of a company
known as Prime Spaces Limited. This company was owned by Mrs and Mrs Whelan and
both were its directors. Prime Spaces Limited was not a creditor of the
company. It was insolvent and went into liquidation on the 5 September
following.
The
second cheque was paid to discharge the overdraft of a company called Remagan
Limited with the Bank of Ireland. This was a company also owned by Mr and Mrs
Whelan which was concerned with the production of a trade magazine. Mrs Whelan
had personally guaranteed the overdraft of this company up to a figure of
£18,000.00 and the payment relieved her of this contingent liability.
Remagan was not a creditor of the company.
Section
150 of the
Companies Act 1990 provides that the court "shall" declare a person
to whom the chapter of
the Act applies not for a period of five years be
appointed or act in any way, inter alia, as a director of any company (unless
it meets certain requirements set out in the section) unless it is satisfied as
to certain matters specified in sub-section 2 of the section. The matters
relevant for these proceedings are those contained in sub-section 2(a). The
effect of the section is that unless the court is satisfied that Mr and Mrs
Whelan had acted "honestly and responsibly" in relation to the conduct of the
affairs of the company the declaration will be made. The onus of avoiding a
declaration is on the directors. Mr and Mrs Whelan have failed to establish to
my satisfaction that they acted honestly and responsibly in relation to the two
payments to which I have just referred. I have reached this conclusion for the
following reasons.
The
evidence on behalf of Mr and Mrs Whelan was given in a number of affidavits
filed by Mrs Whelan, Mr Whelan contenting himself with two short affidavits
confirming the veracity of her evidence and his own honesty and responsibility.
In her first affidavit (of the 30 March 1995) Mrs Whelan made no reference to
these payments. They were referred to by the liquidator in a later affidavit of
the 30 March 1995 (in response to an affidavit by Mr Ryan). Mrs Whelan swore a
supplemental affidavit on the 16 June 1995. In the course of this affidavit she
referred to the fact that she had been "advised' that only essential payments
should be made after the 1 August 1991 and in paragraphs 17 to 21 of that
affidavit she attempted to explain why the payments were made to the two banks.
I found her explanations totally unconvincing. She stated that Remagen Limited
was not a creditor of the company but that it was "understood" that the
liabilities of Remagen Limited would be taken over by PPL and that the payment
was made because PPL intended to acquire the business of Remagen Limited.
Further, Remagen Limited and Prime Space Limited were, she claimed, perceived
"in the market place as companies closely associated with outdoor advertising
limited . . . and any default by those companies would have a serious effect on
the take-over discussions with Poster Publicity Limited". She further claimed
that it was "understood" that PPL would take over the liabilities of Prime
Space Limited and that "it was anticipated that the payments made by the
company in respect of Remagen Limited and Prime Space Limited would be taken
into account by Poster Publicity Limited on the conclusion of the deal". She
explained that, in summary "the payments were made primarily to forestall any
precipitative action by the banks in relation to those companies which would
have had a knock-on affect on the take-over discussions with Poster Publicity
Limited, particularly if those two companies were seen to be associated with
outdoor advertising services limited".
These
explanations failed to take into account what had occurred at the meeting two
days previously and the letter of the 16 August which her husband wrote (and of
which presumably she was aware) which establishes that he knew that the
take-over negotiations had broken down. In the light of these facts no
explanation has been forthcoming as to why these payments were made (if, as
claimed, they were made to facilitate the take-over discussions) on the 16
instead of waiting until the 20 August when the company would know definitely
whether the negotiations would be revived.
Both
Mr and Mrs Whelan were fully aware of the enormous insolvency of the company.
They had clear responsibilities as the company's directors and by making these
payments to benefit non-creditors and Mrs Whelan personally they acted
irresponsibly. In addition they did not act honestly as they consciously and
deliberately sought to benefit both Mrs Whelan personally and two outside
companies owned by them who were not creditors of the company at the expense of
the company's creditors.
As
pointed out already, Mr Whelan attempted to discharge the onus placed on him
under the section by averring that his wife's affidavit "is a true and accurate
summary of the events leading to the liquidation of OAS and that insofar as it
referred to meetings attended by him that the affidavit was true and correct".
This was sworn on the 30 March 1995. On the 1 December 1995 he swore a further
short affidavit in which he claimed that he had at all times acted honestly and
responsibly and that he had been conscious at all times of the need to get the
best possible result for the creditors of the company. This affidavit was sworn
after the official liquidator had referred to the two payments on the 16 August
and to Mr Whelan's letter of that date to PPL's solicitor. Mr Whelan made no
reference in this second affidavit to the cheques or to his letter. He failed
to state the source of his knowledge of what had occurred at the meeting in
London on the 14 August and whether he had any belief other than that the
negotiations were at an end. He has failed to discharge the inference that he
knew what Mr O'Cuilleanain has deposed to. Although the two cheques were not
signed by him there is a very strong inference that he was aware that they had
been signed by his wife and Mr Ryan and he has not denied it.
In
the light of these conclusions it is unnecessary to express any view on the
other issues raised in the affidavits.
I
should make it clear that I am aware that
section 128 proceedings were taken
against Mr and Mr Whelan and that these were compromised on a without prejudice
basis. I have disregarded them in reaching my conclusions in this case.
MARTIN
RYAN.
Mr
Ryan's position in the company was a highly ambiguous one. He agreed with Mr
and Mrs Whelan that he would become managing director of the company and
although he was described as a director on the company's stationery and in the
mandate provided to the company's bankers he was never in fact appointed a
director or managing director of the company. He ceased to act as a de-facto
director about nine months before the liquidation. He has satisfied me that his
continued involvement with the company thereafter was not that of a director,
notwithstanding appearances to the contrary. Accordingly he has satisfied me
that the court is not required to make any declaration under the section in his
case.
