Supreme Court of Ireland Decisions

1. By order dated the 20th July, 2001, made pursuant to a judgment delivered by him on the same date, Mr Justice Thomas Smyth disqualified the respondent (Dr Grimes) from being concerned in the management of a company as a liquidator, receiver or examiner for a period of seven years from the 20th day of July, 2001, and imposed conditions limiting the right of Dr Grimes to act as auditor, director or secretary of any company during the same period. It is from that judgment and order, which was made pursuant to s.160 of the Companies Act 1990, that Dr Grimes appeals to this Court.

2. The above named CB Readymix Limited (Readymix) was incorporated on the 7th of April, 1988. The formation of the company was procured, apparently, by Cork Company Registrations an enterprise owned/or controlled by Dr Grimes. Readymix engaged in the business of quarrying and selling sand and gravel. As the learned trial Judge explained in his judgment, Readymix got into financial difficulties, in particular, in respect of returns and payments to the Revenue both in respect of PAYE and VAT. The Revenue commenced proceedings against the company by way of summary summons on the 15th of March, 1995, seeking liberty to enter final judgment in the sum of £50,510.70. When the matter was eventually listed before the Master, the Revenue became aware that the company had been struck off the Register of Companies on the 25th of September, 1995, for failure to furnish the appropriate annual returns. On the 15th January, 1996, the company, although struck off the Register, purported to pass a resolution winding up the company and appointing Dr Grimes as liquidator. On the 25th of March, 1996, Barron J ordered the restoration of Readymix to the Register and at the same time made an order restraining Dr Grimes from acting as liquidator thereof on or before the 22nd of April, 1996. It was on the 27th of March, 1996, that the Master of the High Court granted the Revenue liberty to enter final judgment against Readymix in the sum of £50,510.70. On the 18th day of April, 1996, a petition was presented for the winding up of Readymix by the Court. On the 25th April, 1996, the applicant (Mr Cahill) was appointed as provisional liquidator. On the 29th April, 1996, Mr Justice Barron ordered a stay on the appointment of Mr Cahill as provisional liquidator. On the 27th of January, 1997, Mr Justice Barron discharged the stay restraining Mr Cahill from acting as provisional liquidator and by the same order declared that the resolution purporting to wind up Readymix voluntarily and the appointment of Dr Grimes as liquidator thereof on the 15th of January, 1996, was invalid. In addition a stay was put on the order dated the 25th of March, 1996, pending an appeal to the Supreme Court. That appeal was never prosecuted.

3. It is clear that Dr Grimes was never validly appointed as liquidator of Readymix. It is equally clear that in the relatively brief period from the 15th of January 1996 to the 25th of April 1996 he did purport to act as liquidator of Readymix and between the latter date and the 27th of January, 1997, Dr Grimes disputed the entitlement of Mr Cahill to act as provisional liquidator of the company. There is no doubt that Dr Grimes held himself out as being the liquidator of Readymix and repeatedly asserted in affidavits and other legal documents that he held that position.

4. Ultimately Mr Cahill was appointed official liquidator of the company by order of the High Court made on the 23rd day of January, 1997.

5. In the period subsequent to his appointment as provisional liquidator Mr Cahill had several meetings and communications with Dr Grimes. Whilst the communications ranged over a wide variety of topics Mr Cahill in his evidence drew attention to a particular observation made at a meeting which he had with Mr Grimes on the 2nd of May, 1996, at Grattan Court, Washington Street, Cork, when he, Mr Cahill recorded part of the conversation between them in the following terms:-

6. Other topics discussed between the parties were the ownership of the lands and the identity of the persons who were working in the quarries which appeared to be owned by Readymix. In an affidavit grounding an application for judicial review by way of order of certiorari to quash the decision of the Revenue Commissioners to raise certain assessments on Readymix Dr Grimes did swear (at para. 70) that:-

7. On the 16th of May, 1997, Mr Cahill wrote to two persons, namely, Anne Carey and Carol O’Sullivan who, it appeared to him, had been appointed directors of the company in place of the original directors. In a reply dated the 30th May, 1997, Ms Anne Carey explained that the company had been put into liquidation and Dr Grimes appointed liquidator thereof. She said that “all the books were handed over to him”.

8. In an affidavit sworn on the 31st of July, 2001, Dr Grimes set out the position in relation to the books and records of the company in the following terms:-

9. At a meeting on the 12th October, 1996, Dr Grimes was recorded by Mr Cahill as having stated:-

10. In an affidavit sworn by him on the 29th of October, 1996, Dr Grimes explained the position with regard to the records as follows:-

11. The learned trial Judge in his judgment records the description given to him by Dr Grimes as to the manner in which the documents were “dumped” in the following terms:-

12. In this Court, as in the High Court, Dr Grimes sought to make light of the documents which he “dumped”. He drew a fine, but unreal, distinction between putting aside documents so that they would be destroyed by others and destroying them himself. Again his contention that the documents which he caused or permitted to be destroyed were merely documents which could be replaced or duplicated cannot be reconciled with the abundant evidence given by himself and others that he did have access to the books and records of the company but was no longer in a position to hand them over to the official liquidator. The learned trial Judge rejected the argument and evidence to that effect. In my view he was correct in so doing.

13. In his very careful judgment the learned trial Judge recorded a series of remarks made by Dr Grimes in the course of his submissions to him. They included the following:-

14. Whilst Dr Grimes did not use the same extreme language in this Court, the terms in which he explained his approach to the problem were entirely consistent with the observations aforesaid. Dr Grimes explained that Readymix employed twenty-four people and he was willing to do everything in his power to preserve their employment. He was engaged in a battle with the Revenue authorities. He explained that he had a feud with them but it was not malicious. He asserted that no creditor of the company - other than the Revenue authorities - made any complaint about his conduct. Indeed he explained that he had engaged in many liquidations and that it had never been alleged that he was unfit to act as liquidator. It is common case that Dr Grimes destroyed - or dumped with a view to their destruction - documents relating to the financial affairs of Readymix. In my view the inescapable conclusion is that those documents included the books and records of that company and that this was done with a view to depriving the official liquidator of access thereto. An experienced liquidator - and Dr Grimes rightly claims to be such - would immediately appreciate the importance of the records to which Dr Grimes admits he had access.

15. The present application was brought by Mr Cahill under s.160 of the Companies Act, 1990. As this is the first occasion on which that section has come before this Court for consideration it may be helpful to set out the material parts of that section as follows:-

16. The learned trial Judge concluded that the applicant had made out a case under s.160 for a disqualification order. The order made by Smyth J directed that Dr Grimes “be disqualified from being concerned in the management of the company as a liquidator, receiver or examiner for a period of seven years from the 20th day of July 2001” but in relation to the other offices to which s.160 extends, namely, auditor, director or secretary provided that Dr Grimes “may act as an auditor, director or secretary of a company if he complies with the following conditions”: -

17. It was further ordered that Dr Grimes “may only act as a director of a company whose constitution and management provide for a board of directors of three or more persons”.

18. In submissions made with a clarity and brevity which might be envied by barristers and a moderation which should be emulated by other lay litigants - Dr Grimes argued:-

19. He contended that the only order which could be made under s.160 was a disqualification order which would prevent the person to whom it applied from holding any of the offices comprised in the definition of a disqualification order. It was, as he said, “an all or nothing section”. The Court had no power to differentiate between the different offices or to impose conditions as to the terms on which anyone or more of the offices might be exercised.

20. Dr Grimes properly recognised the dangers of this argument. He appreciated that if it succeeded he - or persons in a similar position - might be wholly disqualified for the prescribed period from all relevant offices. Moreover, he was fully conscious of the care which the learned trial Judge had taken to balance the need for a sanction with the desirability of the respondent continuing certain commercial activities. Dr Grimes submitted that his rigid interpretation of the section was correct whatever consequences flowed from it.

21. In my view this argument is refuted by the provisions of subsection 8 of section 160 (see above). The express power of the Court to grant relief to a person who is subject or deemed subject to a disqualification order “either in whole or in part” and to “grant such relief on whatever terms and conditions it see fit” would enable the Court to review a disqualification order in the days immediately following the making thereof by imposing precisely those terms which Mr Justice Smyth had required in the first instance. In my view it would be unthinkable that the Court could have a power to revise its own order in that way and in that time frame and not have the same powers in the first instance. I am fully satisfied that the learned trial Judge did have the powers which he purported to exercise so humanely in disqualifying the respondent from filling certain offices and yet permitting him to fill others subject to stipulated conditions.

22. Whilst the members purported to so appoint him it seems clear on the facts and confirmed by the order of Mr Justice Barron that he was never validly appointed. In Re Lo-line Electric Motors Ltd [1988] 2 All ER 692 the High Court in England concluded that the disqualification provisions contained in s.300 of the UK Companies Act 1985 - which is similar but by no means identical with s.160 of the 1990 Act - applied or extended to de facto directors. Sir Nicolas Browne-Wilkinson VC expressed his views (at p. 699) as follows:-

23. The decision of the Vice Chancellor was supported by earlier authorities cited in his judgment and is, in my opinion, fully vindicated by a purposive reading of the relevant English and Irish legislation and it is, in my view, as applicable to a de facto liquidator as it is to a de facto director.

24. In principle this argument is correct. The onus does fall on the applicant to establish the allegations on which he relies and, even where a case is made out, the use of the word “may” in s.160 (2) confers a discretion on the Court whether or not to make the order as was pointed out in Re Newcastle Timber Ltd (Unreported, High Court, McCracken J, 16th October, 2001).

25. The appropriateness of the sanction imposed by the learned trial Judge must be considered in the light of the conduct of the respondent and the purpose for which the section was enacted.

26. That passage was quoted with approval by the learned trial Judge and likewise was adopted by Shanley J in La Moselle Clothing Ltd .v. Soualhi [1998] 2 ILRM 345 by McGuinness J in Squash (Ireland) (Unreported, High Court, McGuinness J, 8th February, 2001) and in the judgment of McCracken J in Re Newcastle Timber Ltd ( supra).

27. It is I believe a correct statement of the law and represents a proper approach to the application and interpretation of s.160 of the Companies Act 1990.

28. The fact that Dr Grimes deprived the official liquidator of the books and records of Readymix was, to my mind, extremely serious. The grace with which Dr Grimes defended his conduct was attractive but alarming. His apparent belief that the commendable motive of saving employment would justify the destruction of documents and the frustration of the liquidation of a company shows a completely mistaken view as to the duties of a liquidator and would undoubtedly raise concern as to the propriety of his being involved in the management of companies which are subject to detailed regulations for the protection of the interests of the public whether as shareholders, creditors or employees.

29. Carrying on business as a corporate entity necessarily involves meetings of shareholders and meetings of directors. Of its nature this type of enterprise must generate substantial documentation. In addition, since the formation of corporate status by registration, the Companies Acts have required the creation, maintenance and preservation of documents relating to the affairs and finances of companies and public access to much of that information. The obligation to maintain such records is imposed on directors and failure to do so may, in addition to particular penalties, leave directors open to a charge of acting irresponsibly. In Business Communications Ltd .v. Baxter & Anor (Unreported, High Court, Murphy J, 21st July, 1995) I pointed out that:-

30. The fortuitous reference in that passage to the importance of appropriate documentation being available for liquidators underscores the gravity of the misconduct of Dr Grimes in the present case. Adequate records are necessary to enable a liquidator to perform his statutory functions properly and some records are necessary to enable him to perform his functions at all. Whilst I accept that Dr Grimes did not act maliciously, his decision to destroy or permit the destruction of the books and records of Readymix was a very serious wrong indeed. Dr Grimes did argue that a liquidator or director should not be severely penalised for one error in relation to a particular company in a context where no allegations of inappropriate conduct are made against him in respect of many other such offices held by him. That argument has considerable force. However a significant feature of the judgment of Mr Justice Smyth was his statement that he allowed time to Dr Grimes to reconsider the argument which he made to the Court and notwithstanding the opportunity given to him he, Dr Grimes, “continued in a vein as to betoken a total disregard in his conduct complained of”. It was the fact that Dr Grimes could not then - and does not now - appreciate the gravity of his misconduct that justifies the conclusion that he is unfit to hold the office of liquidator and casts serious doubt upon his suitability to participate in the management of any company.

31. In particular Dr Grimes contended that the condition which permitted him to “only act as a director of a company whose constitution and management provided for a board of directors of three or more persons” was an impermissible intrusion into the affairs of a company which was not a party to the proceedings. In my view this is a mistaken analysis of the particular condition. It does not of itself impose any obligation on any company. It imposes a limitation on Dr Grimes with the result that any company seeking to avail of his managerial skills can only do so if its corporate structure is such that will permit Dr Grimes to comply with the condition.

32. The other conditions imposed on the respondent acting as auditor, director or secretary of a company, namely, “that he should not have possession, custody or control of the seal of the company or any of its books or records of any kind whatsoever so however he is entitled to access to such books and records only as are necessary to enable him to discharge his legal obligations” will be, as Dr Grimes has pointed out, difficult to police. On the other hand, having regard to the facts of this case as found by the learned trial Judge I believe that the inclusion of such a condition is entirely appropriate. The only alternative would be a comprehensive disqualification order which the learned trial Judge was reluctant to make. In the final analysis it is a matter for Dr Grimes to comply with these conditions. If he fails to do so it must be anticipated that a comprehensive order will then be made.

33. In these circumstances I would dismiss the appeal and affirm the order of the learned trial Judge.