The High Court imposed five-year restrictions on three directors of Kelly Technical Services (Ireland) Limited after finding their conduct during the company’s final months was irresponsible. It refused the liquidator’s application against two other respondents, finding he had not proved that the restriction provisions applied to them.
In a judgment dated 28 July 2005, Mr Justice MacMenamin ordered Raymond Kelly, Declan Kelly and Brian Harnett not to act as directors or secretaries, or take part in promoting or forming a company, for five years unless it met the requirements in section 150(3) of the Companies Act 1990, as amended.
The company supplied contract labour for telecommunications cabling and relied heavily on work for Eircom. After Eircom reduced the work under its contract from late 1999, the company continued trading and incurred liabilities before entering liquidation in July 2000. A settlement in proceedings brought by South African employees required payments and costs totalling more than €1.3 million; the company paid only part of the settlement. The judgment also recorded a substantial deficit at liquidation and outstanding PAYE and PRSI liabilities.
The liquidator argued that the three directors continued trading despite the company’s financial difficulties, allowed liabilities to remain with the Irish company while new Eircom work went to a connected company, and failed to distinguish clearly between the Irish and UK businesses. The respondents disputed that account. They said they believed further work and funding would keep the Irish company trading, and argued that the UK company had continued to support it until the UK business entered receivership.
The judge found that the directors’ conduct from January to May 2000 showed more than poor commercial judgment. He concluded that they had allowed liabilities to accumulate in the Irish company, relied on overly optimistic projections, and distanced new projects from the existing companies as pressure on the UK business grew. The court said there was insufficient evidence that they had reasonable grounds to believe the Irish company could trade out of its difficulties.
The court dismissed the application against Tim Kelly. Although his signature appeared on a form consenting to act as an Irish company director, the judge accepted that informed consent had not been established on the evidence. The liquidator had not discharged the burden of proving that the restriction provisions applied to him.
The application against Patrick O’Flaherty, whom the liquidator alleged was a de facto or shadow director, was also dismissed. The court found insufficient evidence that he formed part of the Irish company’s governing structure or directed its affairs as a director. The ruling concerned the restriction application; it did not determine every dispute or liability mentioned in the judgment.