High Court of Ireland Decisions

USIT Ireland Ltd. & Ors, Re [2003] IEHC 44 (30 July 2003)


 


THE HIGH COURT

2002/38 COS

IN THE MATTER OF USIT IRELAND LIMITED AND USIT WORLD.COM LIMITED AND USIT WORLD PLC (IN LIQUIDATION) AS RELATED COMPANIES

AND

IN THE MATTER OF THE COMPANIES ACTS, 1963-2001

AND

IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT, 1990

JUDGMENT of Ms. Justice Finlay Geoghegean delivered on the 30^th day of July 2003

USIT World Plc. ("the Company") was wound up by order of the High Court on the 15^th May, 2002. The official liquidator has issued a notice of motion pursuant to s. 150 of the Companies Act, 1990 seeking declarations of restrictions in respect of certain persons who it is alleged were directors of the Company within one year of the commencement of the winding-up. This application has been brought following the presentation by the official liquidator of a report to the Director of Corporate Enforcement ("the Director") pursuant to s. 56(1) of the Company Law Enforcement Act, 2001. The official liquidator was not relieved of his obligation to bring the application under s. 150 of the Act in respect of the directors. The official liquidator now takes the view that he is obliged pursuant to s. 56(2) to bring an application under s. 150 in respect of all persons who were directors of the Company within twelve months of the commencement of the winding-up and in respect of whom he has not been relieved by the Director under s. 56(2).

Included amongst those directors is Mr. Gerard Connelly. When this motion first came before the court, counsel for Mr. Connelly indicated that he wished to raise as a preliminary issue the question as to whether or not the official liquidator was

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obliged under s. 56 of the Act of 2001 to bring an application under s. 150 of the Act of 1990 in respect of Mr. Connelly. It was his contention that the official liquidator was not so obliged.

I directed that I would hear as a preliminary issue on the motion the question as to whether or not the official liquidator was obliged pursuant to s. 56(2) to bring the application under s. 150 in respect of Mr. Connelly.

The relevant facts to the issue are as follows:-

1. "Mr. Connelly was appointed a director of the Company on the 18^th January, 2001 and ceased to be a director on or about the 2^nd July, 2001.

2. The winding commenced on 15^th May, 2002.

3. The official liquidator provided a report to the director pursuant to s. 56 of the Act of 2001 in which he named Mr. Connelly as a director of the Company and was not relieved of the obligation to make an application under s. 150 in respect of Mr. Connelly.

The law

The following sections are relevant to the issue which I have to determine. Section 149(2), s. 150(1) and s. 150(4A) of the Act of 1990 and s. 56 of the Act of 2001. These respectively provide

"149(2). This Chapter applies to any person who was a director of a company to which this section applies at the date of, or within 12 months prior to, the commencement of its winding-up.

150 (1). The court shall, unless it is satisfied as to any of the matters specified in subsection (2), declare that a person to whom this Chapter applies shall not,

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for a period of five years, be appointed or act in any way, whether directly or indirectly ....

(4A). An application for a declaration under subsection (1) may be made to the court by the Director, a liquidator or a receiver.

56(1). A liquidator of an insolvent Company shall, within 6 months after his or her appointment or the commencement of this section, whichever is the later, and at intervals as required by the Director thereafter, provide to the Director a report in the prescribed form.

(2) A liquidator of an insolvent Company shall, not earlier than 3 months nor later than 5 months (or such later time as the court may allow and advises the Director) after the date on which he or she has provided to the Director a report under subsection (1), apply to the court for the restriction under section 150 of the Act of 1990 of each of the directors of the company, unless the Director has relieved the liquidator of the obligation to make such an application.

(3) A liquidator who fails to comply with subsection (1) or (2) is guilty of an offence."

The Issue

The issue which I have to determine, from the submissions of Counsel for Mr. Connolly and Counsel for the official liquidator is whether the Oireachtas in imposing the obligation on the official liquidator in s. 56(2) to apply for a declaration of restriction under s. 150 of the Act of 1990 "of each of the directors of the company" intended that obligation to be only in respect of persons who are directors of the company at the date the obligations arises or, as was conceded by Counsel for Mr.

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Connelly possibly at the date of commencement of the winding-up or whether it includes persons who had been directors of the company in the twelve months preceding the commencement of winding-up. The following are the principles which appear to me to apply to the construction of the section:

1. The court should seek to ascertain the intention of the Oireachtas from the plain meaning of the words used in s. 56(2).

2. The Act of 2001 must be construed with the Act of 1990 (and the other Companies Acts) as one Act (see s. 1(2) of the Act of 2001).

3. No special rule of construction applies to s. 56(2) upon the basis that it is a penal provision. Such construction was contended for by Counsel for Mr. Connelly. Section 56(2) does not impose potentially any penalty on a director of the company.

Conclusions

Applying the above principles I have concluded that the obligation imposed in s. 56(2) is not limited to those persons who either are a director of the company at the time that the obligation arises or were a director at the date of commencement of the winding-up. I have concluded that in referring to "each of the directors of the company" the legislature intended, at minimum, that the obligation exist in relation to any person whom the official liquidator considers to be a director to whom s. 150 applies and in respect of whom he had not been relieved by the Director. The reasons for which I have reached this conclusion are the following.

It is undisputed that the legislature in imposing the obligation in respect of "each of the directors of the company" did not expressly specify the point in time at

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which a person must be or have been a director of the company in order to come within the section. If one was to apply a very literal approach and consider that the section only referred to persons who were directors of the company at the date the obligation arose this would lead to an absurd result. Persons who potentially may have been the subject of a mandatory application could simply resign after the commencement of the winding-up and in advance of the relevant date and avoid the potential impact of the section. This could not have been the intention of the Oireachtas.

Likewise there is nothing in the section either when construed on its own or in conjunction with the other relevant sections which suggest that the Oireachtas intended that the obligation be confined to persons who were directors of the company at the date of the commencement of the winding-up.

Section 56(2) imposes an obligation on a liquidator to bring an application under s. 150. The liquidator is given the power to bring such an application under s. 150(4A). It is undisputed that the power of an official liquidator to bring the application under s. 150(4A) is in respect of all persons to whom Chapter I of the Act of 1990 applies. Those persons include under subss. 149(2) and (5) persons who were directors of the Company at the date of, or within twelve months prior to, the commencement of the winding-up and also "shadow directors" as defined.

Section 56(2) must be construed in conjunction with s. 150. Insofar as s. 56(2) does not specify the point in time at which a person must be a director of the company in order that the obligation applies to him or her it appears to me appropriate to seek to ascertain the intention of the Oireachtas in that regard from s. 150 and the remaining provisions of Chapter I of the Act of 1990. Having regard to the power granted to a liquidator to bring an application under s. 150(4A) and the provisions of

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s. 149(2) and the absence of any indication that the obligation under s.56(2) is not to apply to all directors to whom s.150 applies, it appears that the intention of the Oireachtas was that, at minimum, the obligation of the liquidator under s. 56(2) is to bring an application under s. 150 in respect of persons who were directors of the company at the date of commencement of the winding-up or within twelve months prior to that date.

Mr. Connelly falls into the latter category and hence I have concluded that the official liquidator is under an obligation, not having been relieved by the Director, to bring an application under s. 150 for a declaration of a restriction in respect of Mr. Connelly.

No issue arises on the facts of this application as to whether the obligation under s.56(2) of the Act of 2001, relates to persons considered to have been shadow directors rather than directors. I expressly reserve my decision on this point to an appropriate case.