The High Court has refused to restrict three former directors of Camoate Construction Limited despite finding that an €87,500 payment connected with the purchase of shares breached the Companies Act.
Liquidators Simon Coyle and Ken Fennell sought restriction orders against John Gerard Callanan, Michael Hughes and Annami Eija Callanan following the construction company’s liquidation in April 2003.
Camoate had been incorporated in October 1999. Its turnover grew sharply, from €506,000 over an earlier two-year period to €2.848 million in the nine months to August 2002. Draft accounts for the following 12 months showed turnover of €3.864 million, a €65,000 loss and a balance-sheet deficit of €37,000.
Mr Justice O’Leary concluded that the company failed partly because of overtrading and an equity base that was too narrow for the scale of its expanding business.
Michael Hughes had sold his 50% interest and resigned as a director in July 2002. The court found no basis for describing his conduct in relation to the eventual insolvency as dishonest or irresponsible.
The position of the first and third respondents was less straightforward. By January 2003, the judge said, “alarm bells were sounding”, but the company continued trading for another three months. Although that decision proved wrong, the court held that it was not dishonest or irresponsible. Fresh capital introduced by the first respondent also supported his bona fides.
A separate issue concerned the €87,500 paid when Hughes sold his shares. The court found that the arrangement amounted to the company assisting in the purchase of its own shares and was contrary to section 60 of the Companies Act 1963.
However, the company’s solicitor had advised that the arrangement was not contrary to section 60. O’Leary J held that the directors were entitled to rely on that advice for the purpose of the restriction application, although the advice was wrong.
The restriction applications against all three directors were therefore refused.