The High Court has refused an application to restrict two former directors of Derbar Developments Ltd, finding that they acted responsibly in the company’s affairs despite its failure to pay a capital gains tax bill in full when it fell due.
The application was brought by official liquidator Thomas McGuinness under section 150 of the Companies Act 1990. The court considered whether Barry Dobbin and Derek Lavelle should be barred for five years from acting as directors or taking part in the formation or promotion of companies. In a judgment delivered on 20 April 2012, Ms Justice Finlay Geoghegan refused the application. No restriction declaration was made.
The tax liability arose after the company sold land in Nenagh, County Tipperary, in 2006 for €6.6 million. Capital gains tax of €836,530 was due on 31 October that year. The company used the sale proceeds to acquire subsidiaries and did not pay the tax by the deadline. It later paid €390,831 in March 2008 and a further €60,000 in June 2008, using money borrowed from Allied Irish Banks. The directors personally guaranteed the borrowing.
The liquidator’s complaint focused on the directors’ failure to retain enough of the sale proceeds to pay the tax. The judgment records that he made no allegation of dishonesty and raised no other reason for restricting them. The directors said they intended to meet the liability through sales of completed houses and bank funding, and that the property market collapse disrupted those plans. The judge accepted their evidence about that intention and the circumstances at the time.
The court also considered the directors’ conduct across their tenure, rather than looking only at the tax decision. It noted evidence of maintained accounts and company returns, active monitoring of the company’s finances, and no allegation of selective payments to creditors or personal interests being put ahead of the company. The judge said the decision to reinvest the proceeds was not the prudent course, but that this alone did not establish irresponsibility when assessed objectively in the circumstances of 2006.
The judgment stated that the company’s insolvency followed the property market collapse, which reduced the value of subsidiary lands and was accompanied by banks’ reluctance to extend further facilities. The immediate cause of the winding up was the company’s failure to pay the outstanding capital gains tax balance. The court concluded that the directors had acted responsibly for the purposes of section 150 and refused the liquidator’s application.