Judgment in Stokes case to go to ODCE

THE JUDGMENT and papers in the Residence club examinership case will be referred to the Office of the Director of Corporate Enforcement (ODCE), Mr Justice Peter Kelly said yesterday.

A receiver was appointed by Zurich Bank to the insolvent private members’ club at Dublin’s St Stephen’s Green, whose directors are restaurant owners Simon and Christian Stokes, after the High Court refused to extend it court protection.

Mr Justice Peter Kelly strongly criticised the Stokes brothers’ management of the club, particularly the fact it traded using employees’ tax monies owed to the Revenue and said he was referring his judgment and papers in the case to the Director of Corporate Enforcement.

The judge said there was “at least a question mark” over the propriety of the directors’ behaviour relating to the wrongful retention of tax monies and the making of loans to related companies. A 100-day examinership would not allow for a proper investigation into those matters but would allow the directors to have the liabilities of the company written down and avoid the full investigation which he believed was warranted.

Examinership should not be allowed when it was likely to have a beneficial effect for “delinquent directors” and its purpose was not to provide directors with “a ready form of absolution” in relation to corporate wrongdoing.

“There must come a time when companies that have flouted the obligations of company law, revenue law and their obligations to employees should not be allowed to call in aid the very legislation they have ignored so as to save the enterprise.”

The judge also said he was “extremely sceptical” of positive opinions by an independent accountant and the interim examiner of the prospects for survival of the club, which has liabilities of more than €4 million, given the “unprecedented recession”.

It was “a remarkable feature” that this club had never traded profitably but actually traded using tax monies and now owed some €1.2 million to the Revenue. It had spent €800,000 in tax monies on capital expenditure which had been described by independent accountant Paul Wyse as “working capital”.

The judge said it was “high time” accountants abandoned what Mr Wyse had told him was their “normal” convention to treat as “working capital” for companies monies due to the Revenue but wrongfully retained by companies, as had happened here. That accountancy convention “effectively gave a respectability” to the “misuse” of Revenue monies.

The Revenue had said it was “very guardedly neutral” on the protection application and had urged, if protection was granted, there should be a change in management. All other creditors, including Zurich Bank, supported protection.

The Residence club, a haunt of celebrities and Dublin socialites, opened in May 2008 and has 1,450 members and some 41 employees. All its creditors supported protection and reports from Mr Wyse and interim examiner Jim Stafford said they believed the club had a reasonable prospect of survival, particularly given its location, provided certain conditions were met, including securing investment of some €1 million.

After Mr Justice Kelly’s judgment was delivered just after noon yesterday, Ross Gorman, for Missford Ltd, the holding company for Residence, sought a short stay pending consideration whether to appeal.

Rossa Fanning, for Zurich Bank, which is owed €2.3 million secured on charges over the club premises, insurance policies and personal guarantees of the Stokes brothers, said the bank wished to appoint a receiver immediately.

The judge granted a short stay to allow Missford consider whether to appeal. On being told there would be no appeal, he lifted the stay and was told Zurich would move immediately to appoint Mr Stafford, who had been interim examiner, as receiver.

Earlier, Mr Justice Kelly said the business plan prepared by the company’s current management “rather remarkably” projected, having had actual losses of €678,342 in 2009, the club would return profits in 2010 and 2011 and would increase its income this year to €3.8 million. He found it extremely difficult to believe the company’s fortunes would improve to that extent.

It was the court’s “unfortunate experience”, in an ever increasing number of cases, optimistic expressions at this stage of an examinership were shown later to be far too optimistic and the examinership collapsed. In this case, he was highly sceptical as the opinion ran counter to what was happening in the hospitality sector.

Despite his scepticism he had to accept the expressions of opinion as there was no evidence to the contrary but that was not the end of the matter as the court had discretion to refuse examinership after taking all the circumstances into account. In this case, given the issues over the management of the company, he was refusing protection. He noted the independent accountant and interim examiner had agreed there was a need for further investigation of matters related to how the company was run, including the making of some €616,709 loans to related companies, Mayfair Properties Ltd, trading as Bang Cafe, and Auldcarn Ltd. The judge said he was very mindful of the situation of the employees but believed their position would be no worse under receivership. It had been intended, whatever happened yesterday, to reduce the number of employees, he noted.

The Revenue had placed an attachment order in December 2009 on the Residence account over the failure to discharge tax monies due. The judge said blame had been attached to the former financial controller of the company over this but the directors accepted they carried responsibility. It was difficult to understand, given the size and single-site location of the company’s business, that they could have been “totally unaware of miscreancy of this order”.

Golden boys of the scene lose their sheen

THE SHEEN has well and truly been taken off the golden boys of Dublin’s hospitality scene, as their bank, the Revenue, and now possibly the Director of Corporate Enforcement, close in on the Bang brothers.

The impeccably coiffed and suited restaurateurs-about-town Simon and Christian Stokes were dealt a body blow yesterday when a receiver was appointed to their insolvent private members’ club Residence on Dublin’s St Stephen’s Green. However, the brothers insist it’s business as usual at their exclusive venue.

“Residence remains open during the receivership,” they said in a statement last night, adding that they have been heartened by the “tremendous support” received from the club’s members. “The strong trade they are giving Residence through these weeks means it can be a viable business for the future.”

They are committed to working with the receiver, Jim Stafford, to ensure that the trading of the club is unaffected while he seeks a purchaser for the business.

Despite their fighting talk, the brothers have a tough battle on their hands if they are to salvage their crumbling business empire, and their reputations, even if a white-knight investor rides to their rescue at this late stage, as has been speculated.

Their chi-chi restaurant around the corner on Merrion Row, Bang Cafe, has also gone wallop, while a third company owned by the 34-year-old identical twins, Auldcarn Limited (which once owned the Clarendon Inn in Dublin’s city centre), is facing insolvency.

Their behaviour as directors of Residence has been called into question by Mr Justice Peter Kelly, who sharply criticised the failure to pass on PAYE and PRSI deducted from the club’s employees to the Revenue. He has referred the case to the Director of Corporate Enforcement.

As the only children of former model Jeff Stokes, who owns the Unicorn restaurant (also on Merrion Row), and Pia Bang, who ran an eponymous clothing store on Grafton Street until 2005, followed by Pia Bang Home, business and style was in their blood. The timing of the launch of Bang in 1999 was as impeccable as their quiffs, but by the time the brothers opened Residence at 41 St Stephen’s Green in the summer of 2008, the economic downturn was already under way.