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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Halley v. Nolan & Ors [2005] IEHC 224 (1 July 2005) URL: http://www.bailii.org/ie/cases/IEHC/2005/H224.html Cite as: [2005] IEHC 224

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[2005] IEHC 224

THE HIGH COURT

[2004 No. 127 Cos]

IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT, 1990

AND SECTION 56 OF THE COMPANY LAW ENFORCEMENT ACT, 2001

BETWEEN

WILLIAM WALTER HALLEY

APPLICANT

AND EDWARD NOLAN (Senior) MARIE NOLAN EDWARD NOLAN (Junior)

RESPONDENTS

Judgment of Mr Justice O'Leary delivered on the 1^st day of July 2005

Facts

The three respondents are directors of Tullow Farm Machinery Limited (in liquidation) and held their positions within 12 months of the date of the liquidation. The Court is satisfied that the company was unable to pay its debts at the appropriate time. The applicant was appointed liquidator on 27^th March, 2000. The court accepts that the company was at some point in the eighteen month period ending on the 3^rd July, 1998, reaching insolvency. Based on facts ascertainable in 1998 and/or subsequently acquired facts the decision to liquidate was postponed from July, 1998, to March, 2000.

The directors co-operated with the liquidator at all times.

The liquidator seeks the restriction of the directors on foot of the provisions of s.150(1) and (2) (a) Companies Act, 1990.

The liquidator raised some issues relating to three matters which may reflect on the honesty of the first named respondent. They were as follows:-

1. An invoice for alleged purchase of goods

2. Double raising of finance on an asset and

3. Use of investment funds.

The Court having considered the explanation of the first named respondent is satisfied that these matters raise no issue regarding the honesty and/or the responsibility of the directors. This being so the Court is satisfied that the only remaining issue to be considered is whether, in the circumstances of the company's apparent inability to pay its debts, the delay in appointing a liquidator from July, 1998, to March, 2000, was reasonable or did it indicate a lack of responsibility in the conduct of the affairs of the company.

The applicant is entitled to the presumption that such a long delay (in the absence of a reasonable explanation) arose as a result of a failure by the directors to act responsibly within the meaning of s. 150 (2)(a) Companies Act, 1990.

Evidence

The following evidence was before the court in the matter;

1. Affidavit of William Halley dated 22^nd March, 2004.

2. Replying affidavit Edward Nolan (senior) 31^st May, 2004.

3. Affidavits of second and third named respondents both dated 31^st May, 2004.

4. Further affidavits of William Halley dated 1^st July, 2004 and 12^th November, 2004.

5. Further affidavits of Edward Nolan (senior) dated 18^th October 2004, 29^th October, 2004 and 20^th March, 2005.

6. Affidavit of Michael Doyle dated 18^th October 2004.

A full examination of all this evidence has been conducted by the Court and reference to that documentation is necessary to obtain a full picture of the evidence considered by the Court. What follows is a brief summary only of that evidence.

1. The parties are in agreement with the timetable of liquidation and insolvency.

2. The directors have fully co-operated with the liquidator.

3. The company was an applicant for investment in the scheme organised by the government whereby persons who wished to take out Irish citizenship would be assessed favourably if they invested in approved Irish industry (herein after called the 'passport for investment scheme').

4. The company was approved as a suitable vehicle for investments under that scheme.

5. In 1997, the company reached an agreement with an English company to market the Irish company's product in the U.K.

6. This agreement gave rise to substantial investment need within the now liquidated company which was outside the capacity of the existing shareholders.

7. In December, 1995, the company applied for funds under the 'passport for investment scheme'.

8. The company after a substantial vetting process received in June, 1998, a payment of £1,000,000 under the 'passport for investment scheme'.

9. A second tranche of £1,000,000 was applied for and a particular investor identified as a possibility. Unfortunately this potential investor developed a fatal illness and died.

10. The scheme had been altered by the time the ill investor withdrew and an issue arose as to whether a replacement investor was possible as the scheme had been altered in a manner as to render the company ineligible under the amended scheme.

11. In due course it became clear that a replacement investor for the deceased would not be permitted and as a result the second investment never took place.

The Court is satisfied that the second tranche of investment would have rendered the continued trading of the company reasonable up to the date of actual liquidation.

Issues relating to the 'Passport for Investment Scheme'.

There is a clear division between the applicant and the first named respondent as to the date at which the impossibility of a second investment became apparent.

The applicant dates this at July, 1997, when the company received a letter indicating that the substitution of anew investor would be considered a new application

and that the company would not be eligible under the new scheme.

From an examination of the documents it appears that the substitutions under the old scheme remained possible only in so far as there were in existence at the date of the termination of the old scheme approved applications which were not at that time

allocated to a particular investment. Newer applicants under the revised scheme were not eligible for investment in the company the subject matter of this application. The company made political representations in the following year to clarify if an unallocated investor under the old scheme could by allocated to the company. The matter was finally addressed in a letter from the Department of Justice Equality and Law Reform date 22^nd

July, 1988.

The letter of July, 1998, was a classic civil service document. While conveying

the information that new applications would not be approved and pointing out the limitations in recruiting from any existing free applications it does conclude as follows (emphasis added):

'…….I would suggest if you wish to receive further funding under the scheme at this stage you should contact Mr Willie Fitzgerald of Forbairt'.

Thus having been informed in 1997 that a second £1,000,000 was not possible in 1998 the investment appears to be still possible. Further, in a letter to the company dated 9^th March, 2000, from the private secretary of the Minister for Justice Equality and Law Reform also repeats that if any unallocated investor approved under the old scheme came forward then (even at that late stage) they could be approved but that no new investor would qualify. The letter points out that the likelihood of such a person coming forward is at that stage highly unlikely. There is considerable force in the argument put forward by the first named respondent that this letter of March, 2000, was the proper catalyst for the assessment of the company's future. The Court is conscious that other criticisms are made of the management of the company up to that date but in the overall scheme of things the absence of the second tranche of investment was by far the most significant event in the determination of the future of the company. The Court is therefore satisfied that the actions of the first named respondent were honest and responsible though not, in hindsight, perfect. The application in respect of the first named respondent is therefore refused. The applications, in respect of the second and third named respondents, are subject to other considerations. In each case there is no question relating to the honesty of these directors. Whether they acted in a responsible manner is at issue. In each of these cases the affidavits filed set out that the directorships were formal in nature and each director did not carry out any duties except the signing of documents. This signing was carried out at the direction of the first named respondent. The second named respondent avers that she signed under the direction of her husband (the first named respondent). The third named respondent avers that he signed under the direction of his father (the first named respondent).

The Court is of the view that such lack of independent decision-making is not the responsible exercising of a director's function. It is true that these directors (on the same basis as the first named respondent) are excused in respect of the major cause of complaint relating to the timing of the liquidation. However, it has come to light in the course of the liquidation that the manner in which these second and third named respondent carried out their directorial duties was so far removed from the proper exercise of their functions that such failure falls within the definition of 'lack of responsibility' used in s. 150 (2) 9a) Companies Act, 1990. The other circumstances necessary to give effect to the provisions of s. 150 are also present in respect of these respondents.

For that reason the application will succeed against the second and third named respondent.

Approved by: O'Leary J.