By Aisling Byrne
The High Court ordered restriction declarations against two directors of insolvent construction company SPH Limited after finding that they failed to show they had acted responsibly in managing the company's financial affairs.
Sean Shanahan and Marie Shanahan, who are husband and wife, were directors of the company before it entered voluntary liquidation in May 2003. Mr Shanahan was described as the main figure in its day-to-day operation, while Mrs Shanahan was a non-executive director.
SPH had traded as a construction business since about 1996 or 1997 and secured a number of substantial building contracts. It stopped trading on 16 April 2003. The directors' statement of affairs estimated a deficiency of about €1.727 million, excluding liquidation costs, including approximately €1.3 million owed to trade creditors.
The liquidators identified the company's financial controls as a central concern. Revenue records showed significant unpaid Relevant Contracts Tax and PAYE/PRSI liabilities. The court found that, by late 2001 or early 2002, the directors either knew or should have known that substantial tax liabilities were accumulating.
Finlay Geoghegan J found that the directors had not taken adequate steps during 2002 to provide for payment of those liabilities. Taxes deducted by the company were used for trading purposes while the company's overall financial position continued to deteriorate.
The court acknowledged positive factors. Proper books and records had generally been kept, apart from outstanding audited accounts and annual returns for one year, and the directors had cooperated with the liquidators. There was also no issue concerning their honesty.
However, under section 150 of the Companies Act 1990, directors of an insolvent company had to satisfy the court that they acted honestly and responsibly to avoid restriction. The court held that employing an accountant did not remove the directors' own duty to understand, supervise and control the company's finances.
As the court was not satisfied that either director had acted responsibly, it said it was bound to make the restriction declarations sought by the liquidators.