The High Court has restricted John Joseph Fleming and Maria Fleming from acting as company directors or secretaries for five years after finding they acted with gross irresponsibility in the affairs of Pineroad Distribution Limited, which went into voluntary liquidation.
In a judgment delivered on 7 March 2007, Mr Justice Hanna said the directors had shut their eyes to a longstanding and growing tax debt and continued trading for about two years when they should have known the scale of the problem. The court said their conduct was grossly reckless and contrary to creditors’ interests. It found they had not acted consciously dishonestly.
James Stafford, the company’s liquidator, brought the restriction application under section 150 of the Companies Act 1990, as amended. The company’s insolvency was accepted by all parties. The court’s order restricts both respondents for five years; it does not make a finding of conscious dishonesty.
The company operated in haulage. In 2001, after its operations manager, Patrick Farrell, resigned, the respondents arranged for him to take a 10 per cent stake in a new company, Euroute. Euroute used Pineroad’s employees, vehicles and equipment, with the intention that it would meet Pineroad’s costs. No payment for Pineroad’s goodwill was provided for in the arrangement.
The liquidator argued the arrangement benefited Euroute while Pineroad accumulated losses and substantial Revenue debts. The respondents said Euroute met the company’s costs and that money received was used to pay historic liabilities. The judge found that explanation difficult to accept and said the directors had not adequately considered the scale of the tax debt when structuring the arrangement. He also said that, considered in isolation, the absence of a goodwill payment might not have been criticisable in the circumstances.
The judgment recorded the liquidator’s estimate of about €1.8 million in Revenue liabilities, compared with about €900,000 in the company’s statement of affairs. The judge accepted the liquidator’s higher figure and evidence that the problem extended back to 1994. He found the directors failed to acquaint themselves with the company’s tax affairs and that, by 2001, they ought to have understood the VAT problem. The court also accepted the liquidator’s analysis that the company continued trading using Revenue money, including PAYE and PRSI liabilities.
The first respondent said he paid €1.1 million to Revenue in 2003 and 2004 as evidence of confidence in the company’s prospects. The judge was not satisfied that the payment should be viewed that way, noting that more than €600,000 was paid by bank draft under threat of seizure of company assets. The court concluded that, despite the directors’ lack of conscious dishonesty, their conduct warranted the five-year restriction.