The High Court refused to restrict two directors of AMS I.T. Consultants Limited from managing companies, concluding that their failures over audited accounts did not show a sufficient lack of responsibility for an order under section 150 of the Companies Act 1990.
In a judgment delivered on 25 January 2006, Mr Justice Clarke considered an application by liquidator Thomas L. Keane to impose a five-year restriction on Jas Kalsi and Maeve Kalsi. Both were directors when the company entered voluntary liquidation on 31 March 2003. Its inability to pay its debts was undisputed.
An earlier allegation that the directors had dishonestly preferred creditors was no longer pursued. The remaining concerns were that the company had not kept proper books and records or made required returns. The liquidator also raised two minor matters: an apparent overstatement of sales in one instance and an unpaid VAT repayment. The judge said neither, on its own, warranted a restriction order.
The company had made no returns to the Revenue Commissioners and, apart from its first year, no returns to the Companies Office. It had not produced audited accounts. The judge found those failures stemmed from the absence of audited accounts, rather than independent reasons. The company had filed a return effective to 10 January 2000, received by the Companies Office in September 2002; later returns were overdue when it went into liquidation.
The court found no proper basis to criticise the directors’ commercial management or their handling of company assets before liquidation. The business suffered a serious downturn after the September 11, 2001 attacks, and the directors had believed it could recover while making phased payments to the Revenue. When the Revenue attached the company’s bank accounts on 18 February 2003, the directors moved promptly to wind it up, the judge found.
The central accounting problem concerned how to treat money spent developing an IT product. The directors wanted it recorded as an asset; their accountants disagreed. The company used standard accounting software and kept detailed income and expenditure records. The judge found that management accounts gave the directors an accurate picture of its finances, apart from the unresolved accounting treatment. Although there was evidence of potentially conflicting professional advice, the court did not find that the directors had irresponsibly refused to heed advice.
The judge said the directors were at fault for not resolving the accounting issue in a timely way and stressed that directors must do so to finalise audited accounts. But, considering the complete underlying financial records and the lack of criticism under other aspects of their conduct, he concluded that their overall record did not show sufficient irresponsibility to justify a section 150 order. The court therefore declined the restriction sought.