The High Court has made restriction declarations against two former directors of Fáilte Logistics and Distribution Limited after finding they had not established that they acted responsibly in managing the company’s affairs.
In a judgment delivered on 21 October 2016, Mr Justice David Keane considered an application by liquidator Eamonn Leahy under section 819 of the Companies Act 2014. The company, which operated a courier service, entered voluntary liquidation. Its insolvency at the start of the winding up, the respondents’ status as directors and the liquidator’s obligation to apply for restriction were not disputed.
The issue was whether either director could rely on the statutory defence by showing he had acted honestly and responsibly. The court said it was required to make a restriction declaration unless that defence was established.
The company began trading in June 2011 and stopped in about July 2013. The respondents became directors in November 2012, when the company already had a history of losses and a Revenue debt. At liquidation, it owed the Revenue Commissioners €171,735 in VAT and PAYE/PRSI. The liquidator estimated a deficiency of €533,067 before liquidation costs, with net realisable assets of €250.
The liquidator accepted that the directors co-operated with him and that the company had filed annual returns except for its 2014 return. He said the company lacked capital to absorb continuing losses, and that it lost key customers before its invoice discounting facility was withdrawn. His analysis suggested further losses after the respondents became directors, though he accepted the estimate might be overstated because recorded sales appeared disproportionately low.
In an affidavit opposing the application for both respondents, Michael O’Keefe said they had been told an instalment arrangement with Revenue was being met and believed the company could trade out of insolvency. He described proposed cost reductions and an invoice discounting arrangement. The judge noted that these claims were not corroborated and that no detail supported the asserted belief the plan would succeed. The court also observed that payments to Revenue during the directors’ tenure were accompanied by a further increase in Revenue liabilities.
The judge distinguished the case from one involving a single commercial misjudgment. He noted the company had never been profitable, the respondents took control while it was already in default on Revenue obligations, and there was scant evidence they had adequately investigated the company’s position or obtained professional advice before deciding it should continue trading. He stressed that attempting to trade out of difficulty is not inherently irresponsible, but directors must take effective, realistic steps supported by proper advice and planning.
The court concluded that neither respondent had shown he acted responsibly. It therefore made restriction declarations against both under section 819(1). The judgment does not set out the duration or further terms of those declarations.