The High Court has declared two former directors of Appleyard Motors Limited personally liable to Toomey Leasing Group for €48,250 after the company accepted payment for three Ford Fiesta cars it never delivered.
In a judgment delivered on 21 January 2015, Mr Justice Binchy found that Graham Sedgwick and Colin Farrell could be held liable under section 297A of the Companies Act 1963. The application originally named four respondents, but the court noted that the third and fourth had been released from the proceedings. The declaration concerned the applicant’s loss from its dealings with the company in the weeks before its creditors’ voluntary liquidation.
Toomey paid the company on 13 June 2012. The cars had been sourced through Ashley Motors, but the company did not pay for or take delivery of them, and they were never supplied to Toomey. The company ceased trading on 15 June and entered creditors’ voluntary liquidation on 26 June 2012.
The court reviewed the company’s financial difficulties, including VAT arrears, the loss of a car-stock financing facility, falling sales and trading losses. It also considered the directors’ efforts to secure replacement finance and investment. The judge found they had acted honestly and responsibly up to 26 April 2012, when Ulster Bank extended a guarantee supporting vehicle purchases from Ashley Motors.
But the judge found that by the end of May there was no investor, no replacement stocking facility, no agreement to reorganise the company’s bank debt, and no reasonable prospect of improvement. The directors should have obtained further professional advice, protected creditors or taken steps to wind up the company by 31 May, the court said. They had instead taken too much assurance from the bank’s extension of the guarantee and failed to keep creditors’ interests in the forefront.
The judge did not find that the respondents knowingly participated in reckless trading. He concluded, however, that under section 297A(2), given the information available and the knowledge and skill reasonably expected of them, they ought to have known their actions or the company’s actions would cause creditor losses after 31 May 2012. Because their failure to act responsibly meant they did not qualify for relief under section 297A(6), the court granted the declarations sought and made them personally liable to Toomey for €48,250.