The High Court refused an application to restrict three former non-executive directors of Doherty Advertising Limited, which is in liquidation. The court found no evidence of dishonesty and concluded that the directors’ shortcomings did not meet the standard of irresponsibility needed to justify restriction orders.
The judgment, delivered by Mr Justice Sean O’Leary on 13 March 2006, concerned an application by official liquidator James Stafford under section 150 of the Companies Act 1990. The case against two other respondents had already been rendered moot by orders made in separate proceedings. The judgment dealt only with the third, fourth and fifth named respondents.
The court identified the company’s management buyout in March 2001 as the single biggest factor in its collapse. The buyout was largely financed by a €3.5 million loan from the company to Craigbury, later rising to €4.6 million. The court said this left the company over-borrowed and vulnerable, and described the scale of the assistance and the company’s financial position as unwise, almost reckless. But none of the three respondents was a director at the time of the buyout, and the court found the liquidator’s general complaint about their responsibility for it failed.
The liquidator also raised concerns about payments, company records and board oversight. The court found that the three had not been involved in negotiating a settlement with a former employee. It said a bad debt involving Dublin Daily was unsupported as evidence of improper conduct by one respondent, and rejected allegations concerning another respondent’s connection with that publication and a director’s dual role at Watermarque and Doherty Advertising.
The court identified two shortcomings in the non-executive directors’ oversight: a lack of formal board meetings and a failure to seek cash-flow projections from late 2002 until the receiver’s appointment in August 2003. It said the latter was a failure of which the directors should not be proud. Those matters did not apply to the fifth respondent, who resigned in November 2002.
Applying section 150, the court considered whether the directors had acted honestly and responsibly and whether restriction orders were just and equitable. It found no evidence that the remaining directors contributed to the company’s insolvency or net deficiency. Their conduct might be criticised, but the court said it did not reach the higher threshold of irresponsibility or show a lack of commercial probity or proper standards. It also concluded that public protection did not require the requested orders.
The application against the third, fourth and fifth respondents was refused. The judgment made no order concerning the first or second respondents. Costs could be re-listed if the parties required an order on that issue.