The High Court has refused an application to restrict two directors of Red Herring Seafood Limited, a Clonmel restaurant company that went into liquidation in 2018. Mr Justice Quinn concluded that the directors had acted honestly and responsibly in the company’s affairs and that there was no other reason to impose restrictions.
The application was brought by liquidator David Kennedy under section 819 of the Companies Act 2014. The court heard that the company traded from September 2016 until 2 April 2018. Its directors faced a restriction declaration unless they satisfied the court that they had acted honestly and responsibly, cooperated with the liquidator and that no other reason justified restrictions.
The liquidator’s central claim was that the company’s structure disadvantaged its creditors. A separate company, Red Herring Capital Limited (RHCL), held the restaurant premises’ 25-year head lease and sublet them to the trading company. The trading company paid for fit-out works, while the liquidator said creditors received no value for fixtures and fittings recorded at €71,643. RHCL later rented the premises to other businesses.
The liquidator initially described the arrangements as “phoenix activity” and alleged deliberate creditor disadvantage. At the hearing, however, his counsel did not pursue fraud and accepted that the case was not a classic phoenix situation. The judgment records that RHCL did not take over the restaurant trade. The court also noted that there was no established connection between RHCL and the later tenants, Marblecrest Limited and SVJ Foods Limited.
The directors said they had adopted a lease-holding and trading-company arrangement based on a franchise model, after accounting and commercial advice. They said the fit-out costs were incurred so the restaurant could trade, and that the company used the improvements for most of its trading period. They also pointed to the directors’ lost €43,029 loan to the company and their personal exposure under guarantees for a bank loan with €43,115 outstanding at liquidation. The court did not decide the separate dispute over the quality of Mansfield Construction’s work or the balance it claimed.
Mr Justice Quinn said the franchise explanation had weaknesses, including that the Esquires Coffee franchiser was independent, unlike RHCL. But the directors’ evidence that the company incurred and used the fit-out expenditure was uncontradicted. The court found insufficient evidence that the structure was intended to defraud creditors or that the directors had acted irresponsibly. It also criticised the liquidator’s failure to investigate allegations from a creditor and noted that no failure to cooperate with the liquidator had been alleged.
The court refused the declaration sought. That means no section 819 restriction order was made against either respondent in this application.