High Court makes declaration against former directors of freight company
The joint liquidators of a company succeeded in seeking a declaration that three individuals shall not act as directors or secretaries or be concerned in the promotion or formation of any company unless that company meets the requirements of s.150(3) of the Companies Act 1990 (s.819(3) of the Companies Act 2014).
The liquidators were Michael McAteer and Stephen Tennant.
College Freight Ltd., since the commencement of its winding up, had been unable to pay its debts. The respondents, Seamus McBrien, Ann McBrien and Michelle Cunningham, had all been directors of the company at the date of liquidation.
Its PAYE and PRSI liabilities had been subject of incorrect filings in 2011. In 2012 Mr McBrien had negotiated an arrangement with the Revenue Commissioners in which he could pay the company’s liability of €796,642.08 over a period of nine months.
However, in August 2012 the Revenue Commissioners issued an attachment order to the company’s bank for €151,000, which resulted in the company having insufficient funds to pay staff wages. The company ceased to trade on the 27 August 2012.
The Court noted that it was obliged to make the declarations sought unless the defendants proved that they had acted responsibly and honestly.
It was noted that College Freight Ltd. was part of a group of companies which provided freight services. The company suffered from 2009 onwards as a result of the economic downturn, increasing costs and lower charges.
In 2011 the Bank of Scotland had given notice that it was withdrawing its invoice discounting arrangements for the company.
Close Involve Finance Ltd was the only company which offered to maintain such a facility, and bought the debtors book for an unknown amount. It obtained a charge over the book debts and the family home.
The affidavits of Harry Parkinson (formerly of Close Invoice Finance Ltd) and Mr McBrien left the Court to wonder about the reasoning of the respondent directors, if any, concerning the benefit of the arrangement with Close for the creditors of the company.
“Effectively the Court was left wondering how the company estimated book debts of €5,873,000.00 on the date of appointment of the joint liquidators while Close then found that €2,596,000.00 was uncollectible. The bold averment of Mr. Parkinson that “Close sustained no loss as a result of its commercial association with” the company underscored the sense of the questions posed by the liquidator.
The Court agreed with the liquidators that the enormity of the uncollectible balance on some €2.5 million in debts raised the prospect of irresponsible behaviour, and begged the question as to how long the company was trading while insolvent.
It was noted that the respondents had failed to give satisfactory answers to these questions, and that the statement of affairs which was eventually sworn did not accurately reflect the standing of the company.
The incorrect PAYE and PRSI returns for the company in 2011 were not explained by the respondents. The Court was not made aware of any understandable excuse for the mistake which resulted in a liability of €151,000 for 2011. Moreover, the Court was given no reason for the non-payment of the sum due under the instalment agreement in July 2012.
Further, it was found that the respondents had failed to satisfy the Court that they had in place reasonable measures to identify and secure the vehicles of the company.
The Court observed that:
‘Although the respondents did not have to investigate each and every debt, the whereabouts of vehicles or communications with the Revenue on behalf of the company, they all had an independent duty to question the viability and solvency of the company over the years after 2009. Moreover they ought to have put safeguards in place for compliance with Revenue requirements and to protect assets for the benefit of the company’s creditors. They also had a duty to assist the liquidators.”
The Court was not satisfied that the respondents had acted responsibly, and found that no acceptable reason had been given as to why the declarations should not be given.
“Finally if the Court is wrong in respect of any particular finding - for example in relation to its conclusion about the duty to consider measures which ought to have been taken- each of the other concerns outlined in this judgment taken individually or collectively have not been addressed by the respondents in a way which satisfies this Court that the respondents acted responsibly before the appointment of the liquidators. The evidence of conduct or lack of action after the appointment is only a small factor for consideration by the Court. Nothing in the post liquidation conduct makes it just and equitable for the Court to refrain from making the declarations sought.”