Company's chairman claims he was defrauded along with bank

THE CHAIRMAN of the board of a kitchen and bathroom supply company has denied claims of carrying on the company’s business in a reckless manner and has claimed he too was a victim of a “fraud” allegedly perpetrated on the company by its chief executive and chief operating officer.

Conor Phelan also alleged Bank of Scotland Ireland (BOSI) continued to provide funds to Delta Homes (Ireland) Ltd (in receivership) after he made it aware company management accounts had been falsified.

Mr Phelan, a non-executive director and principal shareholder of Delta, said he had taken all the proper steps in relation to the company and had lost his own investment of €5.47 million.

Mr Justice Peter Kelly yesterday transferred to the Commercial Court proceedings in which BOSI wants orders to have Mr Phelan, of Kilnagleary, Carrigaline, Co Cork, and two executive directors of Delta – Peter Hanan, Weavers Point, Crosshaven, Co Cork, and Patrick O’Callaghan, Mount Oval Park, Rochestown, Co Cork – made personally liable for a debt of €1.1 million allegedly owed to BOSI.

The judge noted agreement by the parties that mediation might be useful and he directed the parties to explore that option.

BOSI claims it advanced some €1.1 million to Delta between July 14th, 2006, and July 26th, 2006, in reliance on management accounts which, it claims, were deliberately falsified by Mr Hanan with the “connivance” of Mr O’Callaghan so as to mask the insolvency of the company. Delta ceased to trade on September 5th, 2006.

BOSI claims the suspicions of Delta’s board about the accounts were aroused on May 4th, 2006, but Mr Phelan had failed to notify the bank until July 26th, 2006.

BOSI claims Mr Hanan had, in a letter of resignation of July 25th, 2006, confirmed he had falsified stock valuations “to produce a positive bottom line for the business”, not for any personal gain, but to buy some time for the “volume in the pipeline to materialise”.

It noted Mr O’Callaghan had stated he was not involved in the false stocktaking exercise, but had been summarily dismissed by the board after being told he had a duty to check the stocktake.

The bank is seeking declarations Mr Phelan knowingly carried on the company’s business in a reckless manner and therefore should be held personally liable for debts to the bank. In its claim against Mr Hanan and Mr O’Callaghan, it alleges they knowingly carried on company business in a fraudulent, reckless manner.

The application to transfer the case to the Commercial Court was made by Eoin McCullough for Mr Phelan, who said his client denied the claims and wanted the case resolved as soon as possible.

In an affidavit, Mr Phelan said Mr Hanan and Mr O’Callaghan falsified management accounts for the first quarter of 2006. He said he had queried the figures presented to the board in May 2006 and was assured they were based on a full stocktake. He only became aware on July 14th, 2006, that the draft accounts were incorrect. On July 15th he asked the company’s auditors, Deloitte and Touche, to investigate. He did not know until the board meeting of July 26th, 2006, that the accounts had been given to BOSI and, when he learned that, he left the meeting to phone the bank.

Mr Phelan claims he only became aware of the true financial position of Delta on Friday, July 21st, 2006, when he was shown draft management accounts. While the accounts showed excess of liabilities over assets, he believed the company had a viable future. It was not possible to bring the board meeting of July 26th forward.