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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Kavanagh v. Delany & Ors [2004] IEHC 139 (20 July 2004) URL: http://www.bailii.org/ie/cases/IEHC/2004/139.html Cite as: [2004] IEHC 139 |
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HC 284/04
2003 239COS
BETWEEN
APPLICANT
RESPONDENTS
JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 20th day of July, 2004
This is an application under s. 150 of the Companies Act, 1990 brought by the applicant who is the official liquidator of Tralee Beef and Lamb Limited ("the Company") having been so appointed by order of the High Court of the 28th January, 2002.
The respondents were each directors of the Company within twelve months of the date of commencement of winding up. It is undisputed that the Company is and was at the date of commencement of the winding up insolvent and accordingly, that
s. 150 of the Act of 1990 applies both to the Company and the respondents.
The liquidator had made his report to the Director of Corporate Enforcement under s. 56 of the Company Law Enforcement Act, 2001 and has not been relieved of his obligation to bring this application.
Background Facts:
The Company was engaged in the slaughter of cattle and lamb, (primarily cattle) which it either deboned and sold in Ireland and the United Kingdom or sent to other deboning halls. Those deboning halls were ones which sold the deboned beef to countries outside the European Union.
The first named respondent, John Delaney, was the only executive director of the Company and the managing director of the Company. He had bought into this Company in 1996. He had experience of working in the meat trade since 1974.
The second named respondent, Mrs. Delaney, is the wife of the first named respondent was never an executive in the Company and became a director at his request.
The third named respondent, Mr. Dunne, was a non-executive director of the Company. He is the managing director of Commodore Holdings Limited which he states is the holding Company for the Garvey Group of companies. Garveys prior to 1996 owned the business subsequently carried on by the Company. In that year or in early 1997 (nothing turns on the differences in this respect stated in the affidavits) it sold the assets of the then business carried on under the name "Tralee Beef and Lamb" to the first named respondent. It appears the first named respondent effected the purchase through a company then controlled by him which subsequently changed its name to Tralee Beef and Lamb Limited and is the Company.
It appears that as part of the sale and purchase deal between the Garvey Group and the first named respondent, Mr. Dunne became a non-executive director of the Company. This was an unremunerated position. Mr. Dunne asserts that the basis upon which he was appointed a director of the Company was that he would have no involvement in the day to day running of the business and that his primary role would be to foster and maintain the business relationship of the Company with both the Garvey Group and the Musgrave Group which operates the Super Valu franchise. It appears that he fulfilled such a role for approximately two years but that in 1999 Musgraves decided to centralise the supply of chilled foods to Super Valu supermarkets and reduced the number of its suppliers of chilled meat to one supplier which was not the Company. Accordingly, there was no business relationship between the Company and Garveys or Musgraves to be maintained. It appears common case that Mr. Dunne had no further involvement in the running of the business of the Company. However, he did not resign as a director and maintains that he continued to discharge his duties as a non-executive director of the Company.
The fourth named respondent, Mr. Coyle is a chartered accountant and insolvency practitioner. He was nominated to join the board of directors of the Company by CF Investment Managers Limited ("CFIM") which is a company that manages a number of distinct funds vested in Business Expansion Schemes ("BES") in accordance with part 16 of the Taxes Consolidated Act, 1997 (as amended). It appears that at the time of the acquisition of the assets of the business known as "Tralee Beef and Lamb" there was a capital investment in the Company by BES investors in the sum of £1m. These shares were held as is common for a BES scheme through a nominee trust company. Mr. Coyle was appointed a non-executive director of the Company pursuant to the BES investment agreements. Mr. Coyle asserts in his affidavit that the terms of his appointment as a non-executive director were that he should receive and review financial information from the executives of the Company and attend certain directors meetings as a non-executive director. He was not to play any "active part in the control of the Company". This was stated to be by reason of the provisions of the Tax Consolidation Act, 1997.
The affidavits sworn by the liquidator and each of the respondents contain many disputed allegations and facts. However, it appears common case that the Company traded successfully until early 2000. It is to the period subsequent to this that the disputes and complaints primarily relate.
At all stages the management scheme of the Company appears to have been that Mr. Delaney was the managing director and only executive director. Whilst Mr. Coyle refers to attending directors meetings and Mr. Delaney refers to holding directors meetings with Mr. Dunne when he was involved in the Company (presumably prior to the cessation of the relationship with Garveys and Musgraves in 1999), it does not appear that, at least, in the final two years of trading any formal or informal board meetings were held. Mrs. Delaney appears to have signed off on annual accounts and attended statutory annual general meetings.
Each of the three non-executive directors, albeit in slightly different ways, state that they relied upon Mr. Delaney to provide them with the financial information in relation to this Company.
In 2000 the BSE crisis lead to a number of difficulties for the Company including the closure of many significant export markets; the consequent reduction in price to the farmers followed by a blockade of certain factories and its resolution by an increase in the price paid by factories to the farmers. There was also litigation against the Company in 2000 as a result of which it is stated that the Department of Agriculture insisted on the Company spending a sum of IR£100,000 on improvements to the plant and at the beginning of 2001 new stricter provisions were introduced in respect of BSE testing which made the Company's trade more difficult and costly.
Mr. Delaney states on affidavit that he realised by March, 2001, that the Company was in significant financial difficulties. He states that he took various steps subsequent to that to find outside investors to save the Company, but that in early October, 2001, the Company's auditors who were then auditing the accounts for the year ended 30th April, 2001, indicated that the Company's position was worse than had been thought. Thereafter, without consulting either the third or fourth named respondents he took steps to have a receiver appointed by Anglo Irish Bank on 10th October, 2001.
Mr. Coyle asserts that throughout 2000 and 2001 he and colleagues in CFIM were seeking financial information in relation to the Company unsuccessfully from Mr. Delaney and the financial controller and others of the Company. He states he spoke with Mr. Delaney on or about the 3rd September, 2001 and was informed in the course of that conversation that the Company had traded at a loss of approximately £200,000 for the year ended 31st March, 2001, whereas the draft accounts for that year, when prepared showed a loss before taxation of just over £1m. Ultimately, subsequent to the appointment of the receiver by Anglo Irish Bank, Mr. Coyle appears to have arranged that CFIM petition for the winding up of the Company.
Applicable Law:
Section 150 of the Act of 1990 imposes a mandatory obligation on this Court to make a declaration of restriction unless the court is satisfied "as to any of the matters specified in subsection (2)". The most commonly matter referred to in subsection (2) and relevant to this application are those set out in s. (2)(a) which provides:-
"that the person concerned has acted honestly and responsibly in relation to the conduct of the affairs of the company and that there is no other reason why it would be just and equitable that he should be subject to the restrictions imposed by this section,"
The onus of establishing that he/she has acted honestly and responsibly rests on the person concerned i.e. the director. The practice direction of the President of the High Court in relation to voluntary windings up, requires a liquidator in an application under s. 150 to put before the court those matters which he considers the court should take into account in determining whether the director has acted honestly and responsibly and also any matter which he considers might be relevant to a determination, as to whether there is any other reason why it would be just and equitable that the director should be subject to the restrictions imposed by s. 150. This practice is also followed in s. 150 applications in a winding up by the court. Whilst, in practical terms therefore, the directors may seek to satisfy the court primarily in relation to the matters raised by a liquidator that he/she has acted honestly and responsibly or that it does not constitute a reason why it would be just and equitable that he/she be restricted, it must be emphasised that the director is not relieved of the general onus established by s. 150 of the Act of 1990. It is of course, also open to a director to bring to the attention of the court any other matter which he/she considers the court should take into account when considering the overall conduct of that person as this Court is required to do in accordance with the decision of the Supreme Court In re Squash (Ireland) Limited [2001] 3 IR 35.
It is important to note that an application brought by a liquidator under
s. 150(4) even pursuant to his obligation under s. 56 of the Act of 2001 is not a normal inter partes adversarial application. The respondent directors must satisfy the court of the matters specified in s. 150(2) of the Act of 1990 if they are to avoid the declaration of restriction. Further, they must deal in the application with any matters arising in the course of the application including, as in this case matters raised by their fellow directors.
In La Moselle Clothing Limited v. Soualhi [1998] 2 I.L.R.M.345 Shanley J. at p. 352 set out the following matters to which the court should have regard in determining the responsibility of a director for the purposes of s. 150(2)(a):-
"(a)The extent to which the director has or has not complied with any obligation imposed on him by the Companies Acts 1963-1990.
(b) The extent to which his conduct could be regarded as so incompetent as to amount to irresponsibility.
(c) The extent of the director's responsibility for the insolvency of the company.
(d) The extent of the director's responsibility for the net deficiency in the assets of the company disclosed at the date of the winding up or thereafter.
(e) The extent to which the director, in his conduct of the affairs of the company, has displayed a lack of commercial probity or want of proper standards.
These matters were cited with approval by McGuinness J. in the Supreme Court In re Squash (Ireland) Limited [2001] 3 IR 35 where she stated at p. 40:-
"I find this passage of considerable assistance in the instant case and applying the standards set out by Shanley J. to the facts I would say firstly that in speaking of his tenure as a director of the company I would agree with Shanley J. that the court should took at the entire tenure of the director and not simply at the few months in the run up to the liquidation."
I would respectfully suggest that the above matters need the following amplification when being considered in relation to the respondents herein. Shanley J. at paragraph (a) refers only to the obligations imposed on a director by the Companies Acts. At common law, directors owe duties to the company which are normally divided into duties of loyalty based on fiduciary principles, developed initially by the Courts of Equity and duties of skill and care developed initially by the Common Law Courts from the principles in the law of negligence. There is no suggestion in the above decisions that the courts should ignore those duties. Accordingly, it appears to me that when considering the matters referred to by Shanley J. in La Moselle Clothing Limited v. Soualhi [1998] 2 I.L.R.M.345 under paragraph (a) a court should have regard not only to the extent to which a director has or has not complied with any obligation imposed on him/her by the Companies Acts but also with duties imposed by common law.
On the facts of this case, it is the common law duty of skill and care which is relevant. The general principle is stated in Keane, Company Law, 3rd Ed., (Dublin 2000) at p. 357 in the following terms:- "The directors owe a duty to the company to exercise skill and diligence in the discharge of their functions". Further, as pointed out by Keane the courts have in a succession of cases broken down this general principle to a number of sub-propositions, most of them tending to limit or modify the extent of the duty owed by the directors. In re Vehicle Imports Limited (in liquidation) (Unreported, High Court, Murphy J., 23rd November, 2000) Murphy J. cited with approval the relatively recent formulation of those duties by Jonathan Parker J. In re Barings plc. and Ors. (No. 5) Secretary of State for Trade and Industry v Baker and Ors. [1999] 1 BCLC 433. I would also respectfully agree with the general formulation of the duty of an individual director as stated by Jonathan
Parker J. at p. 435:-
"Each individual director owes duties to the company to inform himself about its affairs and to join with his co-directors in supervising and controlling them."
Later at p. 436 Jonathan Parker J. derives three general propositions from earlier authorities in relation to duties of directors which appear helpful:-
(i) "Directors had, both collectively and individually, a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company's business to enable them properly to discharge their duties as directors.
(ii) Whilst directors were entitled (subject to the articles of association of the company) to delegate particular functions to those below them in the management chain, and to trust their competence and integrity to a reasonable extent, the exercise of the power of delegation did not absolve a director form the duty to supervise the discharge of the delegated functions.
(iii) No rule of universal application can be formulated as to the duty referred to in (ii) above. The extent of the duty, and the question whether it has been discharged, depended on the facts of each particular case, including the director's role in the management of the company."
Whilst the above are undoubtedly helpful they do not specifically address the potentially differing responsibilities of executive and non-executive directors. Three of the respondents herein were non-executive directors. It is a fact of commercial life which the courts should not ignore that persons are appointed as non-executive directors to act alongside executive directors. It is also a matter of common sense that the duties and responsibilities of each may differ. The non-executive directors normally do not participate in the day to day management of a company. The directors collectively delegate the day to day management of the company to inter alia the executive directors. As appears from the foregoing principles such delegation does not absolve the non-executive directors from the duty to acquire information about the affairs of the company and to supervise the discharge of delegated functions. However under the principle cited at (iii) above the Court should take into account the differing roles of each director.
Again, in practice where board meetings are regularly held it is normally an executive director (often a managing director or chief executive officer or financial controller or financial director) who brings to the board of directors the relevant information in relation to the affairs of the company. That information should in the normal course, be such as to permit all directors, both non-executive and executive, to inform themselves about the affairs of the company and exercise their collective duties and functions of supervising and controlling the affairs of the company.
The duties of non-executive directors were formulated in a slightly different way by the Court of Appeal of New South Wales, Australia, in Daniels v. Anderson [1995] 16 A.C.S.R. 607 ( a case referred to in In re Barings [1999] 1 BCLC 433):-
"In our opinion the responsibilities of directors require that they take reasonable steps to place themselves in a position to guide and monitor the management of the Company."
The above formulation appears to me similar to that of Jonathan Parker J. In re Barings [1999] 1 BCLC 433 in that undoubtedly it involves an obligation of informing oneself about the affairs of the company and more specifically states the obligation of supervising and controlling the affairs of the company as being one of guiding and monitoring the management of the company.
It also appears important to take into account that non-executive directors from differing backgrounds may be invited to join a board so as to bring a range of skills to the board of directors. It appears appropriate therefore to consider the discharge of duties by such persons in relation inter alia to their particular skills and agreed role on the board.
Notwithstanding this potential consideration of particular facts and circumstances the question of whether a director acted responsibly within the meaning of s. 150 of the Act of 1990 must, as was stated by McGuinness J. In re Squash (Ireland) Limited [2001] 3 I.R. at p.39 "be judged by an objective standard". That objective standard must include the minimum common law duty imposed on a director of participating in the affairs of the company in the manner described above. It is difficult, therefore, to envisage that a director could establish that he or she has acted responsibly in relation to the conduct of the affairs of a company within the meaning of s. 150 (2) of the Act of 1990, if during a significant period he or she either failed to inform himself or herself about its affairs or if he or she did not take steps to join with his or her co-directors in supervising and controlling the affairs of the company at least in the sense of taking reasonable steps to guide and monitor the management of the company.
It is relevant to the facts of this application to point out that in considering an application under s. 150 the court is confined to considering the respondents conduct in relation to the affairs of the company in liquidation. Section 150 does not appear to give a court any discretion to consider how a respondent acted or acts as a director of any other company. The respondent must satisfy the court he or she acted responsibly as a director in relation to the conduct of the affairs of the company in liquidation in which the application is made.
I propose now applying the above principles for the purpose of considering whether each of the respondents have satisfied the court that he or she acted honestly and responsibly in relation to the affairs of the Company.
Honesty:
Each of the respondents has satisfied the court that he or she acted honestly in relation to the conduct of the affairs of the Company. No issue was raised on the facts which required explanations of the second, third and fourth named respondents. There was one matter which required explanation by Mr. Delaney. It related to a sum of approximately £1m invoiced to the Bank of Ireland under a factoring arrangement without the goods having been delivered and a future to reverse the transaction. I am satisfied that on the affidavits sworn by Mr. Delaney that there was no dishonest intent and the admitted failure to reverse the transaction occurred by reason of the pressure then on him. Mr. Delaney has satisfied the court that he acted honestly in relation to the conduct of the affairs of the Company.
Responsibility :-
Mr. John Delaney
The first named respondent was the managing director of the Company. It is undisputed that the remaining respondents had collectively delegated to him and his subordinate executives the responsibility for the day to day management of the Company. There appears to have been a financial controller of the Company. He was not a director. Therefore the first named respondent must be considered as responsible to his fellow non-executive directors for the production at board level of the relevant financial information pertaining to this Company.
The liquidator in his affidavit raises the inadequacy of the financial information available in the Company; the size of the deficit and the acceleration in same in the last six months of trading. He points in particular to the fact that there is a difference of €6.3 million between the deficit in the statement of affairs in October, 2001 and the net asset position in the draft accounts for the year ended March, 2001. He also draws to the courts attention to the fact that it appears to have come as a surprise to Mr. Delaney in September, 2001, at the time of preparation of the accounts for the year ended March, 2001, that the trading losses in the previous year were so bad. He suggests that this is indicative of the fact that there was no proper financial information available. Whilst Mr Delaney suggests that the deficit should have been approx €1.5 million less the other facts do not appear to be significantly disputed. By way of excuse it is stated that the financial controller left in February, 2001.
Mr. Delaney, in his affidavit sworn herein on the 14th July, 2003, states at paragraph 12:-
"By March 2001, I realised that the Company was in significant financial difficulties. Between March and September 2001, its position got worse. During that time, I attempted to find outside investors in order to save the Company. I should say that the Company employed 80 people and I was doing everything in my power to keep the business going and keep them in employment. In early October, 2001, the Company's auditors, D.F. Byrne & Associates, which was auditing the Company's accounts for the year ending 30th April, 2001 indicated to me that the Company's position was worse than had been thought. In the circumstances, I immediately informed the bank of the Company's difficulties and a receiver was appointed".
On the facts of this case, I have concluded that the financial information available to all the directors must have been inadequate. Whilst Mr. Delaney appears to have been aware of significant financial difficulties in April 2001 he does not appear to have been aware of the full extent of same. Also Mr. Delaney was the director responsible for providing to his fellow directors financial information in relation to the Company. Whilst there is some dispute as to the information given, it appears to me, common case on the affidavits that Mr. Delaney did not inform either Mr. Dunne or Mr. Coyle his fellow directors of such "significant financial difficulties" prior to August or September 2001. Applying the general principles stated above, Mr. Delaney, as the managing director and the person with the relevant financial information must be considered to have been under an obligation as part of his duty to exercise skill and diligence to inform his fellow directors of the financial difficulties and to arrange for the holding of board meetings in order that the directors could collectively seek to discharge their duties of supervising and controlling the affairs of the Company at least during this crucial period for the Company.
Further, Mr. Delaney requested the appointment of a receiver by the bank without informing his fellow directors and without holding a board meeting. Likewise this appears to have been inconsistent with his general duty to join with his fellow directors in controlling and supervising the affairs of the Company.
There are two further serious matters raised in relation to the responsibility of Mr. Delaney as a director. The first relates to the fact that a very significant sum of approximately £1m was invoiced to the Bank of Ireland under a factoring arrangement whereas the goods were not delivered. It is accepted that these matters should have been reversed and this was not done in September, 2001. Further at a time undoubtedly when he was under significant pressure Mr. Delaney purported to enter into a lease which he had no authority to do so.
Mr. Coyle asserts that he was unable to obtain through Mr. Delaney as the managing director the appropriate financial information for approximately two years prior to the liquidation of the Company. Mr. Dunne states that he now believes he was given what was effectively misleading financial information upon enquiry. Without the necessity of adjudicating on the detail of facts disputed between them and Mr. Delaney, I have concluded that he did not furnish his fellow directors with relevant information, including financial information about the affairs or the Company.
I have concluded that by reason of the above facts the first named respondent has not established to the satisfaction of the Court that he acted at all times responsibly in relation to the conduct of the affairs of this Company.
Mrs. Patricia Delaney
The second named respondent became a non-executive director at the request of the first named respondent. She appears to have understood her role in the Company to be extremely limited. It is not suggested that she had any particular skills to bring to bear to the Company. She did fulfil the obligations of signing off the accounts when audited and attending annual general meetings when requested. In the last six months of the Company when her husbands accepts he knew the Company was in financial difficulties he indicates that she advised him to seek outside assistance and advice.
On balance I have concluded that the second named respondent has failed to discharge the onus imposed on her of establishing that she acted responsibly in relation to the affairs of this Company. As indicated above it appears to me that I must consider the onus placed on her in the context of her personal skills in the agreed role as a non-executive director of the Company. It appears to have been agreed that she should have a limited involvement. She was not paid any remuneration. I note that she does appear to have discharged certain duties by joining with her husband in approving accounts and placing them before annual general meetings and informing herself about the affairs of the Company through her husband. It is stated in both her affidavit and the first affidavit of her husband that she was aware of the trading situation of the Company. It is also stated that she did not attend directors meetings of the Company.
On these facts I must conclude that Mrs. Delaney was aware, as was her husband in March, 2001, of the significant financial difficulties in the Company. Even as a non-executive director, without any special business expertise, unremunerated and an agreed limited role it appears to me at minimum, that having become aware of the difficult financial situation and as she must have been aware of the fact that there were two other non-executive directors of the Company, both of whom had relevant skills and experience, that she cannot be considered to have acted responsibly in failing to take any step to bring that information to the attention of her fellow two non-executive directors or to insist that a board meeting of the Company be held. She appears simply to have permitted her husband to continue single handed to attempt to resolve matters within the Company. Whilst, I am sure as his spouse she attempted to give him support through this very difficult period, by agreeing to become a director of the Company, she undertook a separate and distinct role which imposed on her certain obligations and which I cannot be satisfied she discharged in a responsible manner.
A consideration of the other matters identified by Shanley J. in La Moselle Clothing Limited v. Soualhi [1998] 2 ILRM 345 does not assist Mrs. Delaney.
Mr. Terry Dunne
As previously indicated Mr. Dunne agreed to become a non-executive director of the Company for a specific purpose namely to maintain and foster the commercial relationship with Garveys and Musgraves. It appears that he did participate in the supervision and control of the Company with the managing director at least during the period when there was a commercial relationship maintained with those companies. Mr. Delaney refers at paragraph 31 of his affidavit of 14th July, 2003, to holding regular directors' meetings with Mr. Dunne "when he was involved in the Company". Mr. Delaney then states however ". . . from early 2000, onwards I was effectively the only director involved in the Company and accordingly no such meetings were held".
Subsequent to the decision of Musgraves Mr. Dunne appears to have had very little contact with the Company. As indicated Mr. Delaney's view was that he was effectively the only director involved in the Company. Whilst, Mr. Dunne in his two affidavits, seeks to assert that he acted responsibly in relation to the conduct of the affairs of the Company, does not state what he did as a director in the final two years. His only connection with the Company appears to have been some conversations with Mr. Delaney during which he asserts Mr. Delaney painted a positive financial picture of the Company.
Mr. Dunne's obligations to the Company must be considered upon the basis that he was an unremunerated non-executive director. The court must also take into account the fact that Mr. Dunne was an experienced businessman and his special agreed role namely to foster the commercial relationship of the Company with the Garvey and Musgrave groups. This special role ended in 1999 with the Musgrave decision. Mr. Dunne did not resign. He chose to remain a director.
In remaining a director in 2000 and 2001 he was under an obligation to discharge the minimum obligations already referred to of informing himself about the Company's affairs and joining with his co-directors in supervising and controlling such affairs in the sense of being in a position to offer guidance and to monitor the management of the Company. I cannot be satisfied that Mr. Dunne discharged this duty to inform himself about the affairs of the Company by simply having some conversations with Mr. Delaney over a period of approximately two years. Further he appears to have taken no step to discharge the duty of joining with his co-directors in supervising and controlling the affairs of the Company during this period.
I am obliged to consider Mr. Dunne's role as a director of the Company in relation to the conduct of the affairs of the Company throughout his entire tenure as a director pursuant to the decision of the Supreme Court In re Squash (Ireland) Limited [2001] 3 I.R.. Having regard to the above failure by Mr. Dunne in his responsibilities during the years 2000 and 2001 (and given the importance of this period for the Company more fully set out below) notwithstanding his earlier activity as a director I cannot be satisfied when considering Mr. Dunne's entire tenure as a director of the Company that he has discharged the onus of satisfying the court that he acted responsibly in relation to the conduct of the affairs of the Company.
As with Mrs. Delaney a consideration of the other matters identified by Shanley J. in La Moselle Clothing Limited v. Soualhi [1998] 2 ILRM 345 does not assist Mr Dunne.
Mr. Simon Coyle
The facts of this case in relation to Mr. Coyle emphasise a difficulty for the High Court in the legislative scheme established by s. 56 of the Act of 2001. The official liquidator both in his s. 56 report and in his affidavit to this court states that he has been satisfied by Mr. Coyle that he acted honestly and responsibly. The official liquidator was not relieved by the Director of Corporate Enforcement of his obligation to bring the application under s.150 of the Act of 1990 in respect of Mr. Coyle. Hence it appears the Director does not agree with the view taken by the liquidator. Section 56 of the Act of 2001 does not expressly oblige the Director to state his reasons for refusing to relieve an official liquidator of his obligation to make an application under s.150 of the Act of 1990 where (as in this case) he so requested. No application was made to the Director to state his reasons. The Director is not a party to this application. The onus is on Mr. Coyle to satisfy the court under s.150 (2) of the Act of 1990. Mr. Coyle asserts he acted honestly and responsibly as a director in relation to the conduct of the affairs of the Company. By reason of the attitude of the official liquidator there is no formal legitimus contradictor to Mr. Coyle in this application.
However, Mr. Delaney is in dispute with Mr. Coyle on many factual issues which pertain to their respective responsibilities as directors including the extent of Mr. Coyle's involvement in the Company as a director. Mr. Coyle addresses these disputed facts on affidavit and was aware that the court was taking into account affidavits sworn by other respondents, including Mr. Delaney in considering the application against him.
Mr. Delaney in his affidavit sworn on the 14th July stated at pars. 25 and 26:-
" 25. . . . I heard nothing from Simon Coyle for an eighteen month period up to September 2001, save for when he wrote to me in January, 2001, thanking me for a Christmas gift of lamb. If he had any concerns in relation to the Company, he could always have telephoned me.
26. Indeed, I would have welcomed contact and assistance from Simon Coyle. With the benefit of hindsight, if he had played an active role, his accountancy experience would have been of assistance to his co-directors. While Simon Coyle has complained about the fact that no board meeting was held with him to discuss the appointment of the receiver, in a context where he had made only one telephone call to me in the previous 22 months and visited the premises only once after his appointment in March 1997, the omission of calling a directors meeting with him is not surprising".
In his subsequent affidavit, Mr. Coyle did not dispute this lack of contact from him personally but did refer to attempts by employees of CFIM to obtain financial information from the Company.
In considering whether Mr. Coyle has discharged the onus of satisfying the court that he acted responsibly it is important to recall that the court in considering this application under s. 150 is only considering whether Mr. Coyle acted responsibly as a director of the Company i.e. Tralee Beef and Lamb Limited (In liquidation). The Court is not considering whether Mr. Coyle acted responsibly as director of any other relevant company such as CFIM. Mr. Coyle was appointed a non-executive director of the Company on the 14th March, 1997, pursuant to the BES investment agreements. He was appointed to represent the interests of the BES investors in the Company. It is not clear on the affidavits whether Mr. Coyle was personally remunerated as a non-executive director of the Company. Whilst, there are references to certain monies being paid, there is a lack of clarity in the affidavits as between Mr. Coyle personally and CFIM and on balance it appears to me probable that the monies referred to were monies paid by the Company to CFIM pursuant to the BES Investment Agreement. Hence, Mr. Coyle should be considered as an unremunerated non-executive director, but also on the basis that he is a professional person with specific skills to bring to a board of directors both in the accounting and financial area and that he was representing the interests of BES investors.
The issue to be decided is whether Mr. Coyle can establish that he acted responsibly in the sense of discharging what might be considered even the minimum duties imposed on a non-executive director by the common law duties referred to above to inform himself about the affairs of the Company and to join with his co-directors in supervising and controlling them.
In relation to the first aspect of this duty namely to inform himself about the affairs of the Company both the official liquidator and Mr. Coyle rely heavily upon the allegedly unsuccessful attempts from January, 2000, to obtain financial information in relation to the Company. It appears from the affidavits that pursuant to the BES Investment Agreements, CFIM had a contractual entitlement to receive from and the Company had a contractual obligation to supply to CFIM quarterly management accounts and annual audited accounts. Mr. Coyle deposes to the fact that until January, 2000, he received and reviewed financial information communicated to him. There is considerable dispute between Mr. Coyle and Mr. Delaney as to communications seeking financial information which occurred after January, 2000. From Mr. Coyle's perspective the furthest it can be put is that there were certain written communications and certain oral communications from executives of CFIM to executives of the Company requesting both the management accounts and audited accounts. Insofar as those communications were in writing and have been exhibited they appear to have been made pursuant to the contractual arrangements under the BES Investment Agreements. The first occasion upon which Mr. Coyle sought to make direct communication with his fellow director and the managing director Mr. Delaney was on the 3rd September, 2001. It does not appear that Mr. Coyle had any direct communication with Mr. Delaney nor anyone else within the Company between January, 2000 and September, 2001.
It must also be added that all the above requests related to accounts. Whilst financial information is very important it is not the only relevant information in relation to the affairs of a trading company such as this. There is no evidence Mr. Coyle sought to inform himself about any other aspects of the affairs of the Company.
In considering the second aspect of the duty namely to join with his co-directors in supervising and controlling the affairs of the Company, Mr. Coyle's affidavits do not disclose any steps taken by him prior to October, 2001, following the appointment of a receiver to the Company other than the general statement at paragraph 8 of his first affidavit:-
"On behalf of the BES investors I attended certain Directors' meetings and reviewed the financial information communicated to me by the Company. Due to the provisions of the Taxes Consolidation Act, 1997 I played no active part in the control of the Company. I pursued a watching brief over the interest of the BES investors and their investment limited by the constraints of the Taxes Consolidation Act."
As already stated there were no directors meetings in 2000 and 2001. Mr Coyle does not state the dates of any such meetings attended. I have concluded they must have been prior to 2000.
He also appears to have attended a meeting with Bank of Ireland Commercial Finance in 1998 with Mr. Delaney and subsequently arranged for staff from CFIM to spend some time in the Company assisting the management in preparing meaningful financial information and financial forecasts. It appears from para. 9 of Mr. Coyle's second affidavit that that took place at the end of 1998. Mr. Delaney at paragraph 24 of his first affidavit refers to an accountant from Mr. Coyle's office spending approximately two weeks in the Company's premises "in or about 1999". I am not clear whether this was the same event referred to or two separate events but nothing turns on this.
Counsel on behalf of Mr. Coyle firstly submits that the court must consider his position as a non-executive director appointed pursuant to a BES Investment Scheme and having regard to the restrictions imposed by part 16 of the Taxes Consolidation Act, 1997. I accept this submission. However, counsel on his behalf did not refer to any section of the Taxes Consolidation Act, 1997 which precluded Mr. Coyle from discharging what might be considered to be the normal duties and obligations of a non-executive director as set out above. I have since the hearing considered part 16 of the Act of 1997 and it does not appear to me that there is any such provision. Section 493 contains certain restrictions in relation to the appointment of directors but once a person is appointed as a director in accordance with those provisions (as I assume Mr. Coyle was in this case) there does not appear to be any statutory provision which would interfere with the normal duties and obligations of a non-executive director.
Counsel on behalf of Mr. Coyle also referred to s.150(2)(c) of the Act of 1990. As has previously been pointed out by Murphy J. In the matter of Cavan Crystal Group Ltd. (In Receivership) (Unreported, the High Court 26th April 1996) it is difficult to make sense of this provision. However counsel accepted that he could not rely on its terms as CFIM is not a "venture capital company" within the meaning of the sub-section. As already indicated I accept that the court in considering Mr. Coyle's actions or inactions as a director of the Company should also take into account the fact that he was appointed to this position by CFIM and for the purpose of safeguarding the interests of the investors in the BES scheme.
The difficulty faced by Mr. Coyle is his apparent inability to demonstrate to the court that at least in the period commencing at latest January, 2000 and lasting until September, 2001, that he sought in any way to discharge his obligations as a non-executive director of the Company, to inform himself about its affairs and to join with his co-directors in supervising and controlling them. I have concluded that Mr. Coyle has offered no convincing evidence to the court that between January, 2000 and September, 2001, he joined with his co-directors in supervising and controlling the affairs of this Company. In using the term "supervising and controlling" I do so by reason as it is the phrase used by Jonathan Parker J. in In re Barings Plc. [1999] 1 BCLC 433 but do not wish to suggest in any way that Mr. Coyle was under an obligation to personally control the Company. He was under an obligation to participate with his fellow directors in collectively controlling and supervising the affairs of the Company at least in the manner stated by the Court of Appeal of New South Wales, in Daniels v. Anderson [1995] 16 A.C.S.R. 607 "to take reasonable steps to place [himself] in a position to guide and monitor the management of the Company".
Even applying this possibly lesser test, Mr. Coyle has not satisfied the court that he took reasonable steps to place himself in a position to "guide and monitor" the management of the Company during 2000 and 2001.
Directors normally collectively discharge these duties through the holding of regular board meetings. It appears common case that no board meetings were held in this Company during 2000 or 2001. Whilst, I accept that the primary responsibility to arrange for the holding of board meetings did not lie with Mr. Coyle, I cannot conclude that the court could be satisfied that Mr. Coyle acted responsibly within the meaning of s. 150 in circumstances where he was one of four directors; one director only was an executive, namely the Managing Director; the Company had in the year ended March, 2000, a turnover of approximately IR£20 million; the Company was operating in a difficult business environment afflicted in the year 2000 by the BSE crisis; a subordinate of Mr. Coyle appears to have written as early as 17th April, 2000, in what Mr. Coyle describes in his first affidavit as "the strongest possible terms" seeking financial information relating to the Company pursuant to the contractual BES investment agreements and no such information was forthcoming. In all those circumstances I cannot conclude that Mr. Coyle, who personally does not appear to have taken any steps even to make contact with Mr. Delaney until 3rd September, 2001, can be considered to have acted, at least during this period, responsibly as a director of the Company.
In accordance with the decision of the Supreme Court In re Squash (Ireland) Limited [2001] 3 I.R. I am obliged to consider Mr. Coyle's role as a director of the Company in relation to the conduct of the affairs of the Company throughout his entire tenure as a director. Mr. Coyle was appointed in 1997. He appears to have played a minimal role as a director of the Company between 1997 and the end of 1999. As already indicated, there is a reference to attending one meeting with the bank; he deposes to attending directors' meetings without specifying the number or dates of same and he arranged for staff of CFIM to work in the Company for a limited period on a remunerated basis at the end of 1998 (or possibly 1999).
Following the appointment of the Receiver on 6th October, 2001, undoubtedly Mr. Coyle took more active steps in relation to the Company. He ultimately arranged for CFIM to petition to wind up the Company in early 2002. It is unclear to me in this period whether Mr. Coyle was taking steps as a director of the Company or as a director or executive of CFIM.
Considering Mr. Coyle's overall tenure as a director of the Company and taking into account the steps taken by him as a director up to the end of 1999 and even assuming that the steps taken post October, 2001, were taken as a director of the Company, it appears to me that by reason of the almost total inactivity of Mr. Coyle as a director of the Company between January, 2000 and September, 2001, I cannot be satisfied that he acted responsibly in relation to the conduct of the affairs of the Company. This was a lengthy period and a crucial one for the Company and a time that Mr. Coyle knew or ought to have known was a difficult period for the meat industry and that therefore the Company was operating in a difficult business environment.
As with the other directors a consideration of the other matters identified by Shanley J. in La Moselle Clothing Limited v. Soualhi [1998] 2 ILRM 345 does not assist Mr Coyle.
Conclusion
For the reasons stated above I am obliged to make a declaration of restriction pursuant to s. 150 of the Act of 1990 in respect of each of the directors. Under the terms of the section the court has no discretion to take into account the performance or position of a respondent as a director of any other Company. The court is obliged to confine itself to the respondent's conduct as a director of the Company in liquidation in respect of which the application is brought.
