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Robinson v. Forrest [1999] IEHC 103; [1999] 1 IR 426; [1999] 2 ILRM 169 (11th February, 1999)
THE
HIGH COURT
1992
No. 1968P
IN
THE MATTER OF FERNGARA ASSOCIATES LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION)
AND
IN THE MATTER OF THE COMPANIES ACTS 1963 TO 1990
BETWEEN
GERARD
ROBINSON
APPLICANT
AND
BARRY
FORREST
OFFICIAL
LIQUIDATOR OF FERNGARA ASSOCIATES LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION)
RESPONDENT
Judgment
of Ms. Justice Laffoy delivered on the 11th day of February, 1999
This
is the Applicant's application for an Order pursuant to
Section 152 of the
Companies Act, 1990 (the Act of 1990) that he be granted relief in full from
the restrictions imposed on him by order of this Court made on 22nd January,
1998 pursuant to
Section 150 of
the Act of 1990.
1. The
background to the application is that on 30th March, 1992 it was ordered by
this Court that Ferngara Associates Limited (the Company) be wound-up by the
Court and that the Respondent be appointed Liquidator for the purposes of the
winding-up. In the course of the winding-up the Respondent took certain action
against two of the Directors of the Company, namely, Stephen Ross (Mr. Ross)
and the Applicant. First, he procured an Order from this Court that they be
examined pursuant to Section 245 of the Companies Act, 1963 (the Act of 1963)
and such examination was carried out before the Master. Secondly, he brought
proceedings against them and a number of other parties, which I will refer to
as "substantive proceedings", in which he alleged that both Mr. Ross and the
Applicant were party to the carrying on of the Company's business with intent
to defraud the creditors of the Company and that they were both knowingly
parties to the carrying on of the business of the Company in a reckless manner
contrary to Section 297A of the Act of 1963 and in which he sought relief under
Section 298 of the Act of 1963 for recovery of certain sums which he alleged
were misappropriated by or at the behest of Mr. Ross and the Applicant.
Thirdly, the Liquidator sought Orders under Section 150 of the Act of 1990
restricting both Mr. Ross and the Applicant in the manner stipulated in Section
150.
2. On
22nd January, 1998 two Orders were made by this Court in the matter by the late
Shanley J.. In the first, the Respondent was given liberty to compromise the
substantive proceedings in the terms in which they were subsequently
compromised. In the second, the compromise was given effect too. Under the
terms of the compromise the Collector General was joined as an Applicant in the
substantive proceedings. It was the Revenue Commissioners who had provided the
funds to prosecute the substantive proceedings. As against Mr. Ross, it was
ordered that the Collector General should recover the sum of £20,000
against him on the terms specified. As against the Applicant, it was ordered
that the Collector General should recover the sum of £20,000 on terms that
execution should be stayed provided the said sum was paid on or before 19th
March, 1998. That sum was duly paid. The second order also embodied the
Court's determination on the applications under Section 150. As regards Mr.
Ross, the determination of the Court was in the following terms:-
"And
in respect of Stephen Ross THE COURT not being satisfied as to any of the
matters specified in subsection (2)(a) of
Section 150 of the
Companies Act,
1990 DOTH DECLARE pursuant to subsection (1) of that Section that he shall not
for a period of five years from the date hereof be 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 meets the
requirements set out in subsection (3) of the said Section - reserving to him
his right to apply under
Section 152 of the said Act".
3. Mr.
Ross had not resisted the making of that declaration. As regards the
Respondent, the determination was in the following terms:-
"And
in respect of Gerard Robinson THE COURT not being satisfied that he acted
responsibly in relation to the conduct of the affairs of the Company DOTH
DECLARE pursuant to subsection (1) of
Section 150 of the
Companies Act, 1990
that he shall not for a period of five years from the date hereof be 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 meets the requirements set out in subsection (3) of the said Section -
reserving to him his right to apply under
Section 152 of the said Act".
4. The
significance of the terms of the determination in respect of the Applicant is
that the Court, while not satisfied that he had acted responsibly in relation
to the conduct of the affairs of the Company, was satisfied that he had acted
honestly. It was further ordered that the operation of the order under Section
150 against the Applicant should be stayed until after 22nd July, 1998.
5. The
procedural history of this application is as follows:-
(a) The
Applicant's motion was issued on 22nd June, 1998. It was directed to and
served on the solicitors for the Respondent. It was grounded on the Affidavit
of the Applicant sworn on 8th June, 1998, which referred to an Affidavit sworn
by the Respondent in the substantive proceedings on 10th March, 1997 and an
Affidavit sworn by the Applicant in response thereto on 9th May, 1997.
(b) The
motion was returnable for 13th July, 1998 and on that day was transferred from
a Chancery list to the Examiner's Court list for hearing on 20th July, 1998,
that is to say, before the stay expired. Subsection (2) of
Section 152
requires an applicant for relief under that Section to give not less than 14
days notice of his intention to the liquidator of the insolvent company and
subsection (3) requires the liquidator, on receipt of such notice, to forthwith
notify such creditors and contributories of the company as have been notified
to him or become known to him that he has received such notice. Due to an
oversight, the Liquidator had not notified the creditors and the contributories
of the application for relief under
Section 152 and the Applicant's application
was adjourned from time to time to give the Liquidator an opportunity to do so.
(c) Eventually,
the matter was opened to the Court on behalf of the Applicant on 25th January,
1999. Proof in the form of an Affidavit sworn by a staff member of the
Respondent's accountancy firm of notification of the application to 93
creditors by pre-paid registered post and that, in the case of 27 creditors the
letters had been returned by the postal authority undelivered, was put before
the Court. However, the Revenue Commissioners, the creditor which had funded
the substantive proceedings, was not among the 93 creditors who had been
notified. The matter was adjourned until 25th January, 1999 to enable the
Revenue Commissioners to put their views on the application before the Court.
(d) When
this application was first in the Examiner's Court List on 20th July, 1998 the
stay on the Order of 22nd January, 1998 was extended until after the next
adjourned date and thereafter the stay was extended on each adjournment. In
pursuance of the direction contained in subsection (4) of
Section 150 the
particulars prescribed by the
Companies Act, 1990, (Part IV and Part VII)
Regulations, 1991 (S.I. 209 of 1991) have been furnished to the Registrar of
Companies, who has been apprised of the stay on the operation of the Order and
the extension of that stay from time to time.
6. This
is the first application which has been brought under Section 152 of the Act of
1990. Given the procedural difficulties which have arisen on this application,
I think it appropriate to comment on the manner in which a liquidator should
prove that he has complied with his obligation under subsection (3) of Section
152. That that obligation is not to be taken lightly is borne out by the
succeeding subsections. Subsection (4) provides that on the hearing of an
application under Section 152, the liquidator or any creditor or contributory
of the Company may appear and give evidence. Subsection (5) provides that any
liquidator who contravenes subsection (3) shall be guilty of an offence and
liable to a fine. In my view, on an application under Section 152, the
liquidator should personally swear an affidavit that he has notified all of the
creditors and contributories of the company who have been notified to him or
become known to him of receipt by him of the application under Section 152 and
of the return date for that application. In the instant case, the Liquidator
has now filed an affidavit in this form.
"A
person to whom
Section 150 applies may, within not more than one year after a
declaration has been made in respect of him under that Section, apply to the
court for relief, either in whole or in part, from the restrictions referred to
in that Section......and the court may, if it deems it just and equitable to do
so, grant such relief on whatever terms and conditions it sees fit."
"A
person to whom
Section 150 applies" is a person in respect of whom a
declaration has been made under
Section 150 (1) that he:-
"....shall
not, for a period of five years, be 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 meets the requirements
set out in subsection (3).....".
8. In
broad terms the requirements of subsection (3), in the case of a company other
than a public limited company, are that it should have an issued share capital
of at least £20,000 which should be fully paid up and paid for in cash.
9. The
seminal authority on Section 150 is the decision of Murphy J. in
Business
Communications Limited -v- Baxter & Anor.
,
in which judgment was delivered on 21st July, 1995. In his judgment Murphy J.
pointed to two significant features of subsection (1) of
Section 150; first, it
is mandatory and the court has no discretion unless the person against whom an
order is sought establishes that the case falls within one or other of the
three exceptions set out in subsection (2) of
Section 150; and, secondly, the
period of the restriction is a fixed period of five years and, in the first
instance at any rate, the court has no discretion to impose a lesser
restriction. Murphy J. expressed some concern about the duration of the period
of restraint and in general the lack of flexibility in
Section 150.
Nonetheless, he highlighted a distinction between a disqualification order
under
Section 160 of
the Act of 1990 and a restriction order under
Section 150.
The former is comprehensive in its effect in that the person against whom it is
made may not be appointed or act as an auditor, director or other officer,
receiver, liquidator or examiner or be in any way concerned or take part in the
promotion, formation or management of any company, however much the paid up
capital thereof, whereas the latter order does not extend to participation in a
company which meets the requirements set out in subsection (3) of
Section 150.
In relation to this distinction, Murphy J. commented as follows:-
"Financially
and commercially this is clearly a well founded distinction. It is hardly
unreasonable to require a person who was a director of a failed company in
respect of which he had committed no misconduct but for which he neglected to
exercise an appropriate degree of responsibility from resuming such an office
in another company, again with the privilege of limited liability except on
condition that a stipulated and not excessive sum was provided for the paid-up
capital thereof. The figure of £20,000 must represent a very modest sum
as the capital for any commercial enterprise and a very limited obstacle to
anyone wishing to engage in trade through the medium of a limited liability
company. Indeed, it might not be unreasonable to suggest that every limited
liability company should be required to have paid-up capital of at least that
amount. It would seem that the more serious penalty which the restraining
order imposes is the stigma which attaches as a result of the making of the
order and its filing in the Companies Office."
10. In
contrast to Section 150, the Court is given a very broad discretion under
Section 152. The discretion is so broad that the Court may accede to an
application for relief in whole from the restrictions thereby imposed and, in
effect, wholly negative the effect of the Order under Section 150. The only
criterion stipulated in Section 152 for the guidance of the Court is that it
should be "just and equitable" to grant the relief.
11. In
support of the Applicant's contention that it would be just and equitable to
grant relief in whole from the restrictions imposed by the Order dated 22nd
January, 1998, the following submissions were made on behalf of the Applicant
by his Counsel, Mr. Ryan:-
(1) The
Applicant bears a lesser level of culpability for the failure of the Company
than his co-director, Mr. Ross, in that, while the Court was not satisfied that
he acted responsibly, it was satisfied that he acted honestly. The Applicant
accepts that he did not act responsibly but ascribes that to having permitted
himself to be overborne in relation to the Company's affairs by Mr. Ross who
was the Managing Director of the Company and by whom most of the management
decisions were taken.
(2) The
applicant has personally contributed sums in excess of £200,000 to meet
the claims of the Company's creditors. This figure includes the sum of
£20,000 which the Applicant paid to the Revenue Commissioners in pursuance
of the Order of 22nd January, 1998 and sums aggregating £181,998 which he
has discharged or is committed to discharging to certain creditors of the
Company which, in the main, relate to rent and rates due by the Company in
respect of various premises occupied by the Company. The Applicant contends
that he has acted responsibly to the best of his abilities since the winding-up
of the Company and that he has contributed the sums in question in a genuine
effort to minimise the loss suffered by the creditors of the Company.
(3) Since
the winding-up of the Company he has traded through another company, Golden
Spider Web Limited of which he is a director. All of the liabilities of Golden
Spider Web Limited to the Revenue Commissioners are up-to-date. While no
evidence has been adduced on this point, I assume that Golden Spider Web
Limited is not capitalised in the manner stipulated in
Section 150(3) and that
the provisions of
Sections 155 and
156 of
the Act of 1990 would apply to it if
the order of 22nd January, 1998 became operative and continued in force.
(4) His
sole means of livelihood is derived from the business carried on through Golden
Spider Web Limited. That company has five employees at various outlets. In
the event of the restrictions imposed on him continuing, his livelihood and the
livelihood of those employees will be seriously jeopardised.
12. The
Respondent expressed no view to the Court on the Applicant's application.
13. On
behalf of the Revenue Commissioners, their solicitor, Mr. Brennan, objected to
the relief sought being granted. The Revenue Commissioners object both in
point of principle and on the facts. As a matter of principle, it was
submitted, the sanction provided for by the legislature in Section 150 would be
devalued if a restricted director was relieved from the restriction imposed
after six months. In a case in which they have a right to be heard the policy
which the Revenue Commissioners would propose adopting is that they will not
support an application for relief unless the restriction endures for 2½
years at least and all of the debts of the Company are fully discharged. On
the facts, it was submitted as follows:-
(a) While
the Applicant ultimately acknowledged that he acted irresponsibly, initially,
he had refused to co-operate with the Liquidator and, in consequence, the
Liquidator encountered considerable difficulty. There is no evidence before
the Court on this application from the Liquidator or the Revenue Commissioners
on this point. In the absence of such evidence, it is not a point which the
Court can take into consideration. I should perhaps say that no criticism of
the Revenue Commissioners is implied in these remarks. The Court appreciates
the prompt response of the Revenue Commissioners to the application, given that
they did not receive the notification they should have received.
(b) The
Applicant deserves no credit for discharging the debts of the Company which he
has discharged or is committed to discharging because his motive was to assuage
certain creditors with whom he wished to continue to do business through the
medium of his own company. Mr. Ryan's response to this submission on behalf of
the Applicant was to acknowledge that the Applicant may have "cherry picked"
but, nonetheless, the consequence was that the liability of the Company was
reduced due to this action.
(c) The
Company ran up considerable debts in a very short period of trading and was run
as a fraudulent company. Mr. Ryan's response to this submission on behalf of
the Applicant was that this issue was dealt with in the substantive proceedings
and, in any event, the Applicant was less culpable than his co-director, Mr.
Ross.
(d) While
prima facie the Applicant's company, Golden Spider Web Limited is tax
compliant, in the absence of a revenue audit, the Revenue Commissioners cannot
verify that all taxes due by that company have been discharged.
(e) While
the late Shanley J. had indicated when he imposed the restriction on the
Applicant that it was open to the Applicant to apply within a short period for
the removal of the restriction, he did not indicate that the restriction would
be removed.
14. On
the policy approach to applications under Section 152 adumbrated by the Revenue
Commissioners, Mr. Ryan submitted that an erroneous view is being taken of the
effect of Section 150 in conjunction with Section 152, in that these provisions
do not envisage the imposition of a minimum tariff or restriction on the
restricted person and this is evident from Section 152 itself, which empowers
such a person to seek relief either in whole or in part from a restriction
imposed on him.
15. This
case, in my view, is an exceptional case, which falls to be determined on its
own peculiar facts. It weighs heavily with me that the late Shanley J. who
dealt with the Respondent's application for leave to compromise the substantive
proceedings and was aware of the issues of law and fact in the substantive
proceedings and approved of the compromise and who determined the applications
under Section 150 against both Mr. Ross and the Applicant, considered it
appropriate to stay the Order against the Applicant for six months and to
entertain the Applicant's application for relief under Section 152, which came
before the Court within the six month period, to the extent that he adjourned
the matter to enable the Liquidator to deal with the procedural shortcoming
and, that, significantly, he extended the stay on the operation of the Order.
In the light of that factor and having regard to the facts as established on
this application, for my own part, I consider that it would be just and
equitable to give the applicant relief in whole against the restriction
contained in the Order of 22nd January, 1998. In particular, it seems to me
that the deterrent value of the restriction order highlighted in the passage
from the judgment of Murphy J. quoted above and such protection as it affords
to current and prospective creditors of enterprises in which the Applicant is
or may become involved will not be undermined if the restriction is lifted now
because, on the evidence, I am satisfied that the Applicant has learned an
expensive lesson from his involvement in the Company.
© 1999 Irish High Court
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