Directors of building supplies company acted honestly, judge rules

Three directors of a timber and building supplies company which went into voluntary liquidation in 2011 acted honestly and responsibly in the conduct of the firm’s affairs in its final months, the High Court has ruled.

Dermot Doherty, John Doherty, and Fergal Doherty, directors of Doherty Brothers Timber, Ashbourne, Co Meath undoubtedly made commercial errors and misjudgments in the twilight period of the firm's existence but they had acted responsibly in relation to the conduct of the company's affairs, Mr Justice David Keane said.

The judge was giving a decision on an application by liquidator Eamonn Leahy for an order under the Companies Act restraining them from directly or indirectly being a director or having similar involvement in the affairs of a company for a five year period.

The liquidator argued this was due to the fact they continued to operate the company between spring or summer 2010, at which point the firm was clearly insolvent, until it ceased trading in March 2011.

Mr Justice Keane said there appeared to have been a suggestion the directors caused the company to acquire goods on credit from suppliers during the final phase of its trading life to allow it effect sales for the ulterior purpose of enabling the preferential repayment of the firm’s invoice finance facility with Bank of Ireland.

It was suggested this was in circumstances where that bank facility was the subject of a personal guarantee from Dermot and John Doherty.

The Dohertys trenchantly denied this and said they were unable to obtain any significant fresh or additional credit from most of their suppliers during this period because of both the prevailing economic situation and the company’s own financial position, the judge said.

Doherty Brothers Timber, set up in 1993, traded profitably until the dramatic collapse of the construction sector in 2008, he said. From a turnover in 2008 of €8 million, employing 25 people full-time, trade dropped to the extent it made a loss of €100,000 in 2009.

The directors did not hide from the firm’s difficulties, the judge said. They took “drastic action”, including selling four of its five forklift trucks, stopping all expense, bonus and pension payments to directors, replacing company cars with cheaper models and reducing the size of their leased premises.

Despite this, and due to the severe weather of 2010 which further hampered activity in the building sector, they decided in early 2011 to seek advice and then took the decision to go into liquidation.