Two directors of a liquidated pet products company have been restricted by the High Court for five years from involvement with any company unless it meets capitalisation requirements under the Companies Act.
Mr Justice Michael Quinn made the orders against Brian Stenson and David Stenson, who were directors of Winning Ways Ltd, with registered offices in Finglas, Dublin, which was liquidated in August 2016 after operating for 22 years, employing 13 people. Brian Stenson was managing director and David Stenson was in charge of company operations.
Liquidator Claire Kelly was obliged to apply for the orders, under section 819 of the Companies Act, after the Office of the Director of Corporate Enforcement informed her the respondents had declined to give restriction undertakings.
In opposing the application, both respondents said they acted honestly and responsibly at all times in relation to the conduct of the company’s affairs.
In his judgment on Tuesday, Mr Justice Quinn said the company traded profitably, and without significant issues, between 1992 and 2012.
The main cause of its failure was the loss in late 2014 of a contract with Royal Canin, a major supplier of pet food products. It was accepted the company was unable to pay its debts at the date of winding up when it had an excess of liabilities over assets of some €1 million.
Loss of contract
Having analysed the evidence and law, the judge said he was not making a finding of dishonesty against the respondents but had concluded they had not proven they acted responsibly in relation to the company’s affairs.
While the Royal Canin contract was a major loss, an examination of the company’s accounts from 2012 to 2014 inclusive showed it was in financial difficulty before losing that contract, he said.
From, at the very least, July 2015, when clear financial information was available to the respondents, they were under a duty, both collectively and individually, to acquire and maintain sufficient knowledge and understanding of the company’s business to enable them properly discharge their duties as directors.
The fact the company traded for 22 years without difficulties was a “fair and relevant” fact to balance against the events of its last 18 months but did not justify the delay from July 2015 to August 2016 in deciding to cease trading and liquidate.
From the time the directors were aware of the insolvency, they had to have regard to the interests of creditors and “act accordingly”.
While the respondents had said they believed the company could trade its way out of its difficulties, and referred to efforts to get new business and taking advice, the evidence of such measures was not sufficient to discharge the onus on them to prove they acted responsibly in relation to the affairs of the company.
Trade vs liquidation
The continuance of trade and failure to liquidate for a full year at least after the insolvency became known to the respondents had the effect that substantial payments to the bank directly, to the directors for rent, and ultimately to their bank and to their personal pension schemes, continued to accumulate for the year to February 2016 and thereafter.
He could not accept the respondents’ argument, in the year to end-February 2016, payments totalling €338,712 for directors salaries, defined pension contributions and rates and rent in respect of the company’s premises were not disproportionate to turnover of some €3 million. That was the fourth continuous year of losses, which that year were some €436,268 and had by then accumulated to €1,352,681, and any retained profits had been clearly extinguished, he said.
The ultimate result of this continuance was that a deficit to unsecured creditors grew to €856,326 and exceeded €1 million in the final outcome of the liquidation.
The respondents had not demonstrated they acted honestly and responsibly in relation to the affairs of the company and he would make the restriction orders for a five-year period, he said.