High Court of Ireland Decisions

28 January 1997

COSTELLO P:

This is an application for a declaration under section 150 of the Companies Act 1990 to the effect that Mr and Mrs Whelan and Mr Martin Ryan should not act as a director of any company (otherwise than as permitted by the section) for a period of 5 years. A petition to wind up the company was filed on the 10 September 1991. On that date a voluntary liquidation had commenced but following a petition by the major creditors of the company the company was ordered to be wound up by the court on the 21 October 1991 and Mr Peter Fitzpatrick was appointed official liquidator in place of Mr Liam Grant who had been the nominee of the shareholders Mr and Mrs Whelan were directors of the company, Mr Whelan being its chairman. As it appeared that a Mr Martin Ryan was also a director of the company a declaration under the section was sought in respect of him as well. In relation to a Mr John Patchell, who also appeared to have been a director of the company, no declaration is now sought. The company was seriously insolvent and unable to pay its debts. The statement of affairs filed by Mr and Mrs Whelan established that as of the 5 September 1991 the company had a deficit of £792,194.00.

The business of the company consisted in the provision of sites for outdoor advertising. The evidence establishes that the company was facing financial difficulties at the end of 1990 and these became much more serious in the Spring of 1991. It became clear to the directors that a major investor was required to save the company and negotiations took place between representatives of the company and of an English company called Poster Publicity Limited. The object of the negotiations was a complete take-over by PPL of the company.

The company's principal creditor was David Allen Limited (who according to the Statement of Affairs was owed £845,245.00). It appears from the affidavit of Mr Colm O'Cuilleanain (whose evidence I unreservedly accept) that he became aware of the take-over discussions in July 1991. David Allen Limited agreed on or about the 3 July 1991 to an extension of credit from 60 days to 90 days to the company as a temporary extension to facilitate the discussions between the company and PPL. This extension was granted because PPL was a major customer of Mills and Allen Holdings Limited which is the UK parent company of David Allen Limited. The evidence satisfies me that had that extension not been granted the company in July 1991 would have been unable to pay its debts at that time as they fell due.

An important meeting took place on Wednesday the 14 August 1991 in London. PPL requested Mr Allen to attend and representatives from PPL, Mills and Allen and David Allen Limited took part. The Chairman of PPL (Mr McSharry) informed the meeting that he was aware of the extent of the liabilities of the company and that PPL had concluded that since the liability to David Allen was so great and that a collapse of the company was not in the industry's best interest David Allen should be asked to assist in the rescue of the company by additional commissions in excess of that being paid at the time to specialist agencies and that the extended credit period should be continued. The meeting was informed that David Allen were not prepared to fund the deficit of the company by way of an increase in the commission and the continuance of the extended credit period. Then Mr McSharry indicated that PPL would be obliged to withdraw from their negotiations with the company without this kind of support from David Allen. The chief executive of Mills and Allen reiterated that the support as sought was not available and the meeting then concluded.

No representative of the company attended this meeting. But it is obvious that Mr Whelan, the company's chairman, was informed of what transpired because he wrote to the solicitors for PPL on the 16 August as follows;

"Dear Sirs,

On behalf of the Board of Outdoor Advertising Services Limited, I wish to state that as negotiations regarding the proposed takeover of the Whelan Communications Group by your client, Poster Publicity Limited, now appear to have reached a stalemate following the meeting between representatives of your client and representatives of our company's principal creditor, David Allen Holdings Limited, which took place in London on Wednesday the 13 of August last, our company cannot continue to trade indefinitely under the present circumstances.

Accordingly, I would be grateful if you would inform your client as a matter of the utmost urgency that unless a firm commitment to proceed with this proposal is received by us before 12.00 noon on Tuesday next the 20 of August, we will have no alternative but to take immediate action based upon legal advice to my Board to protect the position of our Directors, Shareholders and Creditors.

For obvious reasons, I would be obliged if, when speaking to your clients, you would impress upon them the need for the utmost confidentiality in the treatment of any copies of this letter in view of the highly sensitive nature of its contents.

Yours faithfully,"

The letter refers to a "stalemate" in the negotiations. I think this was a euphemism for a "breakdown" because the remainder of the letter can only be construed as meaning that the company would go into liquidation unless a commitment to proceed with the proposed takeover was received on the 20 August. By letter of the 19 August (received on the 20) PPL announced that it was not proceeding with the take-over. It placed on record the fact that the meeting of the 14 August took place with the knowledge of Outdoor Advertising Services Ltd.

During these negotiations with PPL the company continued to trade and cheques were signed on its behalf in favour of a number of payee. What is of particular concern to the issues that arise on this motion are two cheques which were signed on the 16 August 1991, the day Mr Whelan wrote the letter to PPL's solicitor. Both were signed by Mrs Whelan and Mr Martin Ryan. The first was payable to Allied Irish Banks and was for the sum of £22,426.29. The second was payable to the Bank of Ireland and was for the sum of £17,561.48. The first cheque was paid to reduce the overdraft of a company known as Prime Spaces Limited. This company was owned by Mrs and Mrs Whelan and both were its directors. Prime Spaces Limited was not a creditor of the company. It was insolvent and went into liquidation on the 5 September following.

The second cheque was paid to discharge the overdraft of a company called Remagan Limited with the Bank of Ireland. This was a company also owned by Mr and Mrs Whelan which was concerned with the production of a trade magazine. Mrs Whelan had personally guaranteed the overdraft of this company up to a figure of £18,000.00 and the payment relieved her of this contingent liability. Remagan was not a creditor of the company.

Section 150 of the Companies Act 1990 provides that the court "shall" declare a person to whom the chapter of the Act applies not for a period of five years be appointed or act in any way, inter alia, as a director of any company (unless it meets certain requirements set out in the section) unless it is satisfied as to certain matters specified in sub-section 2 of the section. The matters relevant for these proceedings are those contained in sub-section 2(a). The effect of the section is that unless the court is satisfied that Mr and Mrs Whelan had acted "honestly and responsibly" in relation to the conduct of the affairs of the company the declaration will be made. The onus of avoiding a declaration is on the directors. Mr and Mrs Whelan have failed to establish to my satisfaction that they acted honestly and responsibly in relation to the two payments to which I have just referred. I have reached this conclusion for the following reasons.

The evidence on behalf of Mr and Mrs Whelan was given in a number of affidavits filed by Mrs Whelan, Mr Whelan contenting himself with two short affidavits confirming the veracity of her evidence and his own honesty and responsibility. In her first affidavit (of the 30 March 1995) Mrs Whelan made no reference to these payments. They were referred to by the liquidator in a later affidavit of the 30 March 1995 (in response to an affidavit by Mr Ryan). Mrs Whelan swore a supplemental affidavit on the 16 June 1995. In the course of this affidavit she referred to the fact that she had been "advised' that only essential payments should be made after the 1 August 1991 and in paragraphs 17 to 21 of that affidavit she attempted to explain why the payments were made to the two banks. I found her explanations totally unconvincing. She stated that Remagen Limited was not a creditor of the company but that it was "understood" that the liabilities of Remagen Limited would be taken over by PPL and that the payment was made because PPL intended to acquire the business of Remagen Limited. Further, Remagen Limited and Prime Space Limited were, she claimed, perceived "in the market place as companies closely associated with outdoor advertising limited . . . and any default by those companies would have a serious effect on the take-over discussions with Poster Publicity Limited". She further claimed that it was "understood" that PPL would take over the liabilities of Prime Space Limited and that "it was anticipated that the payments made by the company in respect of Remagen Limited and Prime Space Limited would be taken into account by Poster Publicity Limited on the conclusion of the deal". She explained that, in summary "the payments were made primarily to forestall any precipitative action by the banks in relation to those companies which would have had a knock-on affect on the take-over discussions with Poster Publicity Limited, particularly if those two companies were seen to be associated with outdoor advertising services limited".

These explanations failed to take into account what had occurred at the meeting two days previously and the letter of the 16 August which her husband wrote (and of which presumably she was aware) which establishes that he knew that the take-over negotiations had broken down. In the light of these facts no explanation has been forthcoming as to why these payments were made (if, as claimed, they were made to facilitate the take-over discussions) on the 16 instead of waiting until the 20 August when the company would know definitely whether the negotiations would be revived.

Both Mr and Mrs Whelan were fully aware of the enormous insolvency of the company. They had clear responsibilities as the company's directors and by making these payments to benefit non-creditors and Mrs Whelan personally they acted irresponsibly. In addition they did not act honestly as they consciously and deliberately sought to benefit both Mrs Whelan personally and two outside companies owned by them who were not creditors of the company at the expense of the company's creditors.

As pointed out already, Mr Whelan attempted to discharge the onus placed on him under the section by averring that his wife's affidavit "is a true and accurate summary of the events leading to the liquidation of OAS and that insofar as it referred to meetings attended by him that the affidavit was true and correct". This was sworn on the 30 March 1995. On the 1 December 1995 he swore a further short affidavit in which he claimed that he had at all times acted honestly and responsibly and that he had been conscious at all times of the need to get the best possible result for the creditors of the company. This affidavit was sworn after the official liquidator had referred to the two payments on the 16 August and to Mr Whelan's letter of that date to PPL's solicitor. Mr Whelan made no reference in this second affidavit to the cheques or to his letter. He failed to state the source of his knowledge of what had occurred at the meeting in London on the 14 August and whether he had any belief other than that the negotiations were at an end. He has failed to discharge the inference that he knew what Mr O'Cuilleanain has deposed to. Although the two cheques were not signed by him there is a very strong inference that he was aware that they had been signed by his wife and Mr Ryan and he has not denied it.

In the light of these conclusions it is unnecessary to express any view on the other issues raised in the affidavits.

I should make it clear that I am aware that section 128 proceedings were taken against Mr and Mr Whelan and that these were compromised on a without prejudice basis. I have disregarded them in reaching my conclusions in this case.

MARTIN RYAN.

Mr Ryan's position in the company was a highly ambiguous one. He agreed with Mr and Mrs Whelan that he would become managing director of the company and although he was described as a director on the company's stationery and in the mandate provided to the company's bankers he was never in fact appointed a director or managing director of the company. He ceased to act as a de-facto director about nine months before the liquidation. He has satisfied me that his continued involvement with the company thereafter was not that of a director, notwithstanding appearances to the contrary. Accordingly he has satisfied me that the court is not required to make any declaration under the section in his case.