The Director of Corporate Enforcement -v- Bailey & Anor [2013] IEHC 561

On 9 December 2013 Finlay Geoghegan J. made disqualification orders against two company directors, Michael Bailey and Thomas Bailey of Bovale Developments Limited (Bovale) for a period of seven years.

The decision of Finlay Geoghegan J. is of importance as it reformulates the principles to be applied by the Court in deciding the period of disqualification orders pursuant to Section 160 of the Companies Act 1990 (CA 1990).

The facts of the case which concerned company accounts from 1998 to 2000 were undisputed. During that period, both directors were held to have engaged in systematic falsification of company books of account and significantly understated gross remuneration by in excess of IR£6 million.

Finlay Geoghegan J. raised two main concerns namely (i) the period of disqualification orders generally and (ii) the purpose of Section 160 CA 1990 which was to protect the public from persons whose past conduct had shown them to be a danger to creditors or others.

Finlay Geoghegan J. reformulated the applicable principles which were previously set out by her in Re Ansbacher: Director of Corporate Enforcement v. Collery [2007] 1 I.R. 580 as follows:

  • A primary, but not the only, purpose of an order of disqualification is to protect the public against future conduct of companies by persons whose past record has shown them to be a danger to creditors or others.
  • It is also to improve corporate governance.
  • It should act as a deterrent, both in respect of a respondent director and/or other directors of companies (which is why the period of disqualification should contain deterrent elements).
  • The period of disqualification should reflect the gravity of the conduct of wrongdoing as found by the Court in accordance with the relevant sub-paragraphs of Section 160(2) CA 1990.  
  • A period of disqualification in excess of ten years should be reserved for particularly serious cases.
  • The Court should firstly assess the correct period in accordance with the foregoing and then take into account any mitigating factors prior to determining the actual period of disqualification.

Applying these principles to the facts of the case Finlay Geoghegan J. determined that, prior to considering any mitigating factors; the appropriate period of disqualification was 14 years.

The Bailey brothers sought to rely upon the following mitigating factors:

  • The conduct upon which the Court’s findings was based took place during the two years ending June 1998 (i.e. in excess of fifteen years previously).
  • In 2000, they had made “voluntary disclosure” to the Revenue Commissioners resulting in the payment of tax then due together with interest and penalties.
  • They had been Revenue-compliant since 2001.
  • In relation to corporate governance, they had ensured, since 2001, that Bovale kept proper books and records.
  • There was objective support of Revenue and corporate governance compliance issues. Firstly, PwC had conducted a forensic review of Bovale’s accounts from 2007 to 2009 and had not raised any issues.  Secondly, Bovale had been in NAMA since 2010 and had co-operated with NAMA and made new appointments in furtherance of corporate governance.
  • They swore a joint Affidavit containing an acknowledgement of their wrongful past conduct and also averring to having learnt from their past mistakes and set forth their intention to set matters right.

The two most important mitigating factors in the opinion of the Court were the 12 year period that had elapsed since the wrongful conduct of the Bailey brothers and the positive evidence of both corporate governance and Revenue compliance since approximately 2001 which demonstrated that their expressed intentions had already been put into practice.  Finlay Geoghegan J. considered that this was relevant to the purpose of protecting the public. 

However, the Court held that, by reason of the gravity of the conduct of the Bailey brothers, the period of disqualification must be significant. The Court concluded that the appropriate period of disqualification for both Bailey brothers was seven years. 

A stay was placed on the order to enable an intended application under Section 160(8) CA 1990 to be brought.  This section permits any person who is subject or is deemed subject to a disqualification order to apply to Court for relief either in whole or in part from such disqualification which was lifted on 1 May 2014.  On this date, Counsel on behalf of the Bailey brothers indicated that they intended to make a future application to ascertain whether or not they could provide consultancy services to a number of their other companies.  Finlay Geoghegan J. stated they could make such an application provided that any such consultancy arrangement be “genuine” and not in breach of the disqualification orders.