Developers Michael and Thomas Bailey have been disqualified from acting as company directors for seven years after the High Court found them guilty of "particularly serious" misconduct and fraud in the conduct of the affairs of their company, Bovale Developments.
The fraud included understating their gross remuneration over a two-year period by some €6 million.
The disqualification orders have been stayed to January 20th to facilitate the bringing of an application to vary them so the brothers may continue to co-operate with the National Assets Management Agency (Nama) concerning Bovale.
The brothers did not dispute evidence presented by the director of corporate enforcement that satisfied the court that they, as directors of Bovale, were guilty of a fraud in relation to Bovale and the Revenue over two years to end of June 1998.
While they did not oppose the disqualification orders, they argued mitigating factors should reduce the disqualification period to be applied. They also acknowledged and apologised for the misconduct, said they had “learned from their mistakes” and intended to set matters right.
In her judgment yesterday, Ms Justice Mary Finlay Geoghegan said the "particularly serious" misconduct, involving "systematic falsification" of books of account, plus a €6 million understatement of the brothers' gross remuneration, left them unfit to be directors of a company and would justify a period of 14 years of disqualification were it not for certain mitigating factors.
A managing partner with accountancy firm PricewaterhouseCoopers (PwC) had given evidence that, during his 35-year career in public accounting in Ireland, he had never encountered such a failure to maintain proper books and records.
However, mitigating factors included that the fraud and misconduct at issue occurred more than 15 years ago and the brothers had in 2000 made what they described as “voluntary disclosure” to the Revenue, leading to their having paid tax, interest and penalties in “significant amounts” – some €22 million.
While the director of corporate enforcement had “with some justification” queried to what extent the disclosure was voluntary, it was still disclosure, even if, in practice, the brothers had no option, she said. It was also not disputed the brothers had been tax compliant since 2001.
In relation to corporate governance, the brothers had sworn they had since 2001 ensured that Bovale kept proper books and records.
There was some objective support for those sworn statements arising from a “forensic review” of Bovale’s accounts conducted by PwC and from their co-operation with Nama, she said.
While she believed, given the gravity of the conduct and the deterrent purpose of disqualification orders, there must be a disqualification period, she would reduce that to seven years given the mitigating factors.
Bovale has been in Nama since 2010 and an application is to be made for an effective variation of the orders so as to allow that co-operation continue. The judge placed a stay on her orders, made under section 160 of the Companies Act, to January 20th to facilitate that application.
The Office of the Director of Corporate Enforcement (ODCE) began the disqualification proceedings in 2006 but they were delayed after the Baileys challenged the admissibility of material the director wanted to rely upon, including the PwC report.
The Supreme Court later ruled the ODCE could use the PwC report but could not use reports of the planning tribunal as additional evidence of wrongdoing by the brothers or evidence of alleged wrongdoing over a 12-year period from 1988 to 2000.