High Court of Ireland Decisions

1. The company was incorporated on the 6th of November 1995 and, as the name suggests, was involved in the importation of motor cars through Mototec Limited.

2. On the 31st of July 1998, two years and nine months later, Mr. David M. Hughes was appointed as liquidator under a winding up Order on the petition of Guinness & Mahon Ltd..

3. The Court required a statement of affairs to be filed by the first named Respondent within twenty one days from the date of the winding up. On the 12th of March 1999, over six months later, a statement of affairs was filed showing a deficit of £171,202. I understand that a copy of the statement of affairs was, in fact, sent to the liquidators’ solicitors in February of 1999.

4. In the absence of records, the liquidator estimates, from records from the Revenue Commissioners Vehicle Registration Tax Unit that a total of 230 vehicles were imported at a cost of £1,196,000.

5. The reconstructed bank accounts further show lodgements of £836,000 leaving a shortfall of £360,000.

6. It would appear that trade continued after the appointment of the liquidator until the 18th of September 1998.

7. During a fourteen month period from June 1996 to August 1997 Mr. Delaney, the third named Respondent, received £105,000 from the Company. Mr. Brady, the first named Respondent, can offer no explanation as to losses. He says he received a gross payment of between £400 and £500 per week from the company in respect of which no PAYE or PRSI was paid.

8. A meeting between the first named Respondent, Mr. Brady, and the liquidator was held on the 19th of October 1998. Mr. Brady, who was the only signatory in respect of the cheques, stated that he “ would not have seen bank statements ”. He could not believe that Guinness & Mahon were owed £160,000. He said the trading ceased in May 1997.

9. Mr. Brady swore two Affidavits one on the 28th of January 1999 with the statement of affairs (filed, as referred to above on the 12th of March 1999) and another Affidavit on the 9th of March 2000.

10. In the first Affidavit Mr. Brady says that the company accountant was Mr. Tom Delaney, the third named Respondent herein in whom he had placed particular trust and reliance to carry out the necessary functions of the company in the relation to the handling of monies, the making of lodgements and the keeping of records. He says that he was unable to obtain full access to all of his records which had been formally held by Mr. Delaney when Mr. Delaney ceased practising. Some documentation was, however, retrieved from a member of Mr. Delany’s staff and given to the liquidator on the date of the swearing of that Affidavit.

11. With regard to the statement of affairs Mr. Brady refers to three vehicles which were traded in valued at £3,400. One of these, at £2,000, was retained by a customer who claimed compensation in respect of the repair of her own vehicle. While the Gardaí indicated where the vehicle was parked Mr. Brady could not locate it and now knows nothing about it.

12. Mr. Brady says that he does not know at this stage whether or not any of the furniture referred to in the statement of affairs is available since a Notice to Quit was served on the company.

13. The liabilities in respect of that, PRSI and PAYE are at present unascertainable and are matters, Mr. Brady says, which were handled by his accountant Mr. Delaney, the third named Respondent.

14. Mr. Brady’s background is detailed in his second Affidavit sworn on the 9th of March 2000. He had been employed as a shipping purchasing manager with a large motor company for fourteen years and subsequently became chairman of International Vehicle Imports were he was director and shareholder between 1989 and 1991. That company had large qualified personnel dealing with all regulatory matters and company accounts. He was not involved in the day to day work in relation to that aspect of the business.

15. From 1991 to late 1995 he was a director of Ridlie Trading Limited which was engaged in car repair and sales. The books of that company were maintained by his sister.

16. Some trading of the company, the subject matter of this Application began in the premises occupied by Ridlie Trading Limited and subsequently in premises which were owned by Mr. Delaney the third named Respondent who, from 1996 to 1997, also carried out business in the same premises.

17. Mr. Brady says he ceased trading from that premises in or about the month of April 1998 and commenced trading under his own name in association with another company Silview Trading Limited but as a sole trader under his own name.

18. Mr. Brady says that he had been introduced to Mr. Delaney early in 1996. He says that Mr. Delaney offered to make himself available as his accountant if he took the premises in which Mr. Delaney practised at a rent of £300 per week. Mr. Brady says that Mr. Delany’s practice, Delaney and Associates commenced taking over the accounting affairs of the company in or about April 1996 and were given by him old documents books and records then available. He believes that the business of the company initially operated through a bank account at the Ulster Bank in Camden Street. He has made enquiries with that bank in relation to any records they may hold in respect of company affairs but had not, at the time of the swearing of the Affidavit, received any reply.

19. Mr. Brady avers that it was a term of the agreement between the company and Delaney and Associates and, in particular, with Mr. Delaney, that they and he would look after the financial affairs of the company and carry out the preparation of all accounts and make all necessary VAT returns and keep the books of the company. All correspondence, including bank statements, were directed to the premises of Delaney & Associates.

20. Fees were paid to Delaney & Associates by way of loans form Smurfit Finance in the sum of £3,221 on the 24th of October 1996 and £4,618 on the 20th of January 1997. Repayments were made to Smurfit Finance from the company by way of regular direct debits. In addition , Mr. Brady says that Mr. Delaney opened a bank account for the company at the National Irish Bank branch at Swords under Mr. Brady’s personal guarantee. He says that Mr. Delaney advised him as to what cheques to write and payments to make. Furthermore he signed blank cheques which allowed Mr. Delaney to determine himself, as part of his auditing role according to Mr. Brady, which suppliers of cars were to be paid. He says that it was part of the function of Mr. Delaney and his firm to be substantially in control of all financial lodgements made on behalf of the company for the bank. However, it is also clear that Mr. Brady made lodgements on behalf of the company to Guinness & Mahon after the company experienced difficulties in operating its account with National Irish Bank.

21. Mr. Brady says that, while he has no recollection of ever having signed a guarantee with Guinness & Mahon (which account operated from the 3rd of February 1997), he was advised by Mr. Delaney to sign a personal guarantee in the sum of £15,000 and is currently repaying £750 per month in respect of the said guarantee.

22. While the Guinness & Mahon account operated from the 3rd of February 1997 it would appear that by June of that year the overdraft had reached £150,000. Mr. Brady says he was informed of that fact, without explanation, by Mr. Delaney.

23. In December of that year, together with Mr. Delaney, he met with Guinness & Mahon to discuss extra finance involving the re-mortgage of his family home. Mr. Delaney reassured him that the company was operating successfully.

24. Mr. Brady says he was further advised by Mr. Delaney that it was proper to make a further mortgage with Guinness & Mahon in the sum of £190,000. He was prepared to do so but his wife, the second named Respondent herein, adamantly refused to do so. The offer was never taken up.

25. Notwithstanding the reference to the meeting in December 1997 with Guinness & Mahon, it would appear from Mr. Brady’s Affidavit that the account with that bank had been closed on the 31st July 1997 and that no further cheques could be drawn on the account. Indeed Mr. Brady avers that from October 1997 he was unable to contact Mr. Delaney. He says he then became aware that Mr. Delaney was no longer carrying out the day to day supervision of the accounts. He became aware late in 1997 that only one VAT return had been completed for the company. In December 1997 he received a Notice to Quit which expired on the 11th of January 1998.

26. Mr. Brady believes that Mr. Delaney acted in such a manner as to grossly prejudice the company by failing to keep proper books and records as required in respect of which he had received a substantial level of fees.

27. Later that month, 24th of January 2000, he was able to obtain a file of documents from the security personnel at his former premises. In Mr. Bradys description these appeared to be detailed accounts and working papers of the company. However what is exhibited (and deposed to in the Affidavit of John Kelly, Chartered Secretary), are cash receipts, cheques journal and analysis and summaries together with bank account reconciliation and stock take all in respect of the period July 1996 to December 1996. There are no primary records in these papers which would appear to be working papers of Delaney & Associates.

28. While Mr. Brady comments on the liquidators Affidavit he is unable to give an explanation in respect of the monies paid to Mr. Delaney. He was never informed by Mr. Delaney that the company was insolvent. The company had ceased trading in March 1998. He had delegated accounting matters and matters of record to Delaney & Associates whom he says did not honour their obligation. He is unaware of the extent of the liabilities to the Revenue Commissioners.

29. Mr. Brady admits that the company was issued with a trading account number (TAN) number issued by the Custom and Excise Commissioners and that this number continued to be used by him after the winding up order.

30. Mr. Brady agrees that he just did not refer to the bank account with Ulster Bank which existed prior to the retention of Delaney & Associates and which did not come into his mind until the preparation of the Affidavit.

31. Mr. Brady concludes his affidavit by reference to an Application to the Court for the purpose of obliging Mr. Delaney to assist the liquidator. There follows a request for five specific Orders against Mr. Delaney, Guinness & Mahon and against officers of Guinness & Mahon.

32. This request was, however, not pursued by Mr. Brady.

33. The Notice of Motion in this matter was originally returnable for the 24th of January 2000. Mr. Delaney appeared in person. Counsel for John and Philomena Brady requested time to file Affidavits.

34. Following three adjournments a Peremptory Order was made requiring Affidavits to be filed by the 15th of May 2000.

35. On that date there was no appearance for Mr. Delaney. However the liquidator had been furnished with a hand-written draft Affidavit dated the 12th of May which was subsequently typed and sworn on the 2nd of June 2000. However, Mr. Delaney did not appear on the adjourned date of the 24th of July 2000. On that date the matter was fixed for hearing on the 5th of October 2000.

36. On that date Michael Mulcahy BL, instructed by Ferris & Co. Solicitors for Mrs. Delaney, out of courtesy informed the Court that Mr. Delaney, for whom he could not act, wished to oppose the Application. Counsel informed the Court that he believed that Mr. Delaney was in Germany.

37. The Court, having been satisfied as to the Affidavit of Service of Neil Cloake sworn the 14th of January 2000 that Mr. Delaney had been served by prepaid registered post on the previous day, directed that the trial continue.

38. Both the liquidator, and the first named Respondent submitted that Mr. Delaney was a shadow director of the company. Counsel for the liquidator submitted that it was significant that Mr. Delaney did not deny that he was a shadow director.

39. His Affidavit relates to the landlord and tenant arrangement between himself and the company. He says that it was not until late 1996 that he had contact with the company other than in relation to the letting.

40. It was at that stage, Mr. Delaney avers, that Mr. Brady asked him to assist him in bringing up to date matters of an accounting nature. He completed the various returns. Mr. Delaney avers that Mr. Brady told him that he would deal with the liability to the Revenue Commissioners directly. It is significant that the draft Affidavit of the 12th of May which is described as an Affidavit and which was to be typed differs significantly insofar as it states:-

41. There is no reference in this draft to Mr. Brady dealing directly with the Revenue Commissioners in respect of the tax liability.

42. While the Court has no wish to treat what is, in fact, unsworn evidence by way of letter to the liquidators Solicitors as if it were on oath it is significant with regard to the bona fides of Mr. Delaney.

43. The liquidator is clearly of the view that Mr. Delany’s relationship with, and involvement in the company was such as to constitute him as a shadow director within the meaning of Section 149(5) of the 1990 Act.

44. Shadow Director has the meaning assigned to it by Section 27 of that Act. A Shadow Director is a person in accordance with whose directions or instructions the directors of a company are accustomed to act. They are treated for the purpose of Section 150 as a director of the company unless the directors are accustomed so to act by reason only that they do so on advice given by the Shadow Director in a professional capacity.

45. Mr. Hughes, the liquidator is satisfied that Mr. Delaney had a significant involvement in and control over the management of the company’s business during its short trading life between February 1996 and 31st of July 1998. However Mr. Delaney says that he became involved in late 1996 and, accordingly to Mr. Brady was unavailable after October 1997.

46. To say that Mr. Delaney was the company’s accountant with responsible for maintaining and auditing the company accounts does not, of course, signify that he is a person in accordance with whose directions for instructions the directors of the company are accustomed to act.

47. He would appear to have received substantial monies (£105,000) in the short period in which, according to his own sworn evidence, he was involved in the company.

48. The liquidator says that until such time as Mr. Delaney makes himself amenable to the Court and offers evidence that he did not act as a shadow director that the Court should make an order restricting him from acting as a director. This is, of course, to beg the question.

49. Mr. Brady’s Affidavit goes much further in detailing the involvement of Mr. Delaney in arranging bank facilities, in dealing with lodgements (though not all lodgements) and in undertaking, on his own admission, to bring matters of an accounting nature up to date.

50. These duties have been conveniently summarised in Barings and I would adopt the seven headings in the head note to the Barings case (re: Barings Plc. & Others Secretary of State for Trade and Industry-v- Baker & Others (1999) 1BCLC 433 at 435-6, more extensively detailed at 486-489) as follows:-

51. Whilethe above matters in relation to Mr Delaney, of themselves, fall short of constituting a person a shadow director, even taken cumulatively, the uncontroverted evidence of Mr. Brady that he signed blank cheques to be filled in by Mr. Delaney does sit within the definition of shadow director in Section 27. Moreover the evidence of Mr. Brady as to the arrangements with National Irish Bank and Guinness & Mahon and, in particular, the recommendation to give security does provide substance to that allegation.

52. Of course, there may very well be plausible explanations which Mr. Delaney could have given with regard to these matters. He could very well have been a landlord and accountant providing a service to a company in difficulty.

53. However the lack of denial in his Affidavit is ominous. Mr. Delaney, I understand, is a certified accountant. If the maxim , ignorantia juris haud excusat, ignorance of the law is no defence, is to have any application it must have particular application to a person recognised by the Companies Acts as qualified to audit books of account.

54. With regard to the conflict of evidence between Mr. Brady and himself with regard to his involvement I prefer the evidence of Mr. Brady.

55. In relation to a Restriction Order I would have no hesitation in applying that to a shadow director. There is prima facie evidence which is not rebutted.

56. I think it appropriate, in the circumstances, to make such an Order but to grant a stay of twenty one days from the making of this Order to enable Mr. Delaney to make an application, if he so deems fit, under Section 152.

57. This does not, however exonerate Mr. Brady. The duties of directors have been clearly annumbrated in the cases both the liquidator and, indeed, Mr. Brady’s Counsel as referred to.

58. It is useful to distinguish the absence of books and records, or the inadequacy of any proper books and records in three time frame of the companies relatively short lifetime:-

59. It is significant that trading continued from April to September 1998 (in respect of which the TAN number of the company was utilised by Mr. Brady), despite the evidence of Mr. Brady that the company had ceased trading in April 1998.

60. Whatever about the absence of records during the first period - there appear to be records in which the detailed analysis of Delaney & Associate were made - and the absence of records in the second period there can be no doubt that Mr. Brady had the responsibility for the keeping of books and records after he failed to contact Mr. Delaney in October 1997.

61. Moreover, Mr. Brady was the only signatory of cheques. His evidence that he "would not have seen bank statements " is vague and incredible.

62. Moreover, his attempt at exoneration by blaming Mr. Delaney is crude and has no basis after Mr. Delaney's departure.

63. However, the obligation is not limited to a period in which a fellow (shadow) director has reputedly responsibility for the keeping of the books. The responsibility is a joint and separate liability on each of the directors.

64. It seems to me that a Restriction Order should be made in respect of Mr. Brady and I would so order. I will not grant any stay on the Order.

65. In respect of Mrs. Brady, the second named Respondent, it is clear that, despite her lack of involvement in the company, she is a director and must in principle comply with her duties as director.

66. There is no doubt that this duty extends to non-executive directors. In re. Hunting Lodges Limited (1985) ILRN 75 referred to the position of a wife taking what Mrs. Brady in the instant case calls a named directorship. It is clear from the judgment of Ms. Justice Carroll at 85 that such a director has responsibility to discharge her functions to the company.

67. And then in relation to all directors Carroll J. Continued (also at 75):

68. There is, indeed, a distinguishing feature in relation to Mrs. Brady. Curiously it is not contained in her Affidavit but in the Affidavit of Mr. Brady. That is that she opposed the increased borrowing of the company. This, in itself, should have been an indication to Mr. Brady as to the precarious nature of the company’s finances.

69. It would seem to me that this was, in the circumstances, a responsible position for Mrs. Brady to take. Accordingly, but not without some hesitation, given the duties of directors to the company and its creditors, it may be appropriate not to make such an order in respect of Mrs. Brady.