In McAteer & anor v McBrien & ors [2016] IEHC 229, the High Court made an order restricting three directors pursuant to Section 150 of the Companies Act 1990 (now Section 819 of the Companies Act 2014).  The first named respondent (A) was the husband of the second named respondent (B) and father of the third named respondent (C) and all were directors of the Company on the date of the liquidation.

Background

The Liquidators of the Company expressed concerns about the conduct of the affairs of the Company, particularly its book debts and the fact that there were tax liabilities of almost €800k which were the subject of incorrect returns in 2011. Director A negotiated a payment plan with the Revenue in respect of these liabilities, but when the Company failed to make a payment, the Revenue issued an attachment order which resulted in the Company having insufficient funds to pay wages and accordingly, it ceased to trade.

Applicable Law

As a preliminary point the Court noted that it was obliged to make the restrictions sought unless it was satisfied that the directors had acted honestly and responsibly in the conduct of the affairs of the Company and the onus was on the directors to prove that they had so acted.

Decision

The Liquidators and the Court were unclear about the invoice discounting facility available to the Company.  Close Invoice Finance Ltd (Close) had purchased the debtors' book and obtained a charge over the book debts of the company but the Court was not made aware of the extent of the facility maintained for the Company in exchange for the book debts. The Court queried how the Company estimated book debts of approximately €5.8 million on the date of appointment of the Liquidators while Close found that over €2.5 million of those debts were uncollectible. The Court agreed with the Liquidators that the enormity of the uncollectible balance of debts:-

  1. raised the prospect of irresponsible behaviour on the part of the respondents; and
  2. begged the question about how long the company was trading while insolvent, particularly when one considered the settlement with the Revenue in 2012.

The Court held that the directors did not provide satisfactory answers on these issues.

Director A had also failed to file a statement of affairs due to the depression which he suffered following the collapse of the business and while the Court was mindful of the trauma and depression suffered by him, it noted that he appeared to be more belligerent than cooperative in his affidavits and submissions and that the statement of affairs eventually sworn, did not reflect accurately the standing of the Company.

The Court also noted that the incorrect tax returns were not explained by the directors nor was any coherent reason given for the non-payment of the sum due under the payment plan with the Revenue. The Court recognised that the non-payment of tax may not of itself be irresponsible, but the duty remained on directors to satisfy the Court that they acted responsibly which they had failed to do.

The Court also recognised that the task of the liquidators was not helped by the absence of records.

The Court held that the directors had an independent duty to question the viability and solvency of the company after the economic downturn.

In all of the circumstances, the Court was not satisfied that the directors acted responsibly in the conduct of the affairs of the company and made the restriction orders sought.