Master 18

IN THE HIGH COURT OF JUSTICE IN NORTHERN IRELAND

CHANCERY DIVISION (COMPANIES)

______ 

IN THE MATTER OF MARINE HOTEL (APARTMENTS) WHICH CHANGED ITS NAME TO X (APARMENTS) ON 7TH NOVEMBER 2000 

AND IN THE MATTER OF THE COMPANIES NORTHERN IRELAND ORDER 1989

BETWEEN:

THE DEPARTMENT OF ENTERPRISE TRADE AND INVESTMENT

Applicant;
and

SEAMUS McGINN AND LAURENA McGINN   

Respondents.

______ 

MASTER REDPATH

	In this somewhat unusual application the Department of Enterprise Trade and Investment (`the Department’) apply for Disqualification Orders under Article 9 of the Companies (Northern Ireland) Order 1989 against the respondents Seamus McGinn of 3 Everglades, Ballycastle, Co Antrim BT54 6BE and Laurena McGinn of Leyland House, 65 Leyland Road, Ballycastle, Co Antrim.  The application is grounded on the affidavits of the Official Receiver and Marian Kelly a Senior Examiner in the Disqualification Unit of the Insolvency Service in the Department of Enterprise Trade and Investment.  Neither respondent has filed a statement under Rule 7 or filed affidavit evidence under Rule 8 of the Insolvent Companies Disqualification of Unfit Directors (Proceedings) Rules (Northern Ireland) Order 1991.  Neither respondent appeared or was represented.
	The allegations made against the Respondents are two fold.  It is alleged on behalf of the Department that the Respondents failed to provide for Capital Gains Tax arising from the sale of apartments belonging to the company when the proceedings from the sale were dispersed.  It is also alleged that they failed to ensure that annual accounts for the company were filed for the year ending 31 March 1999.
	It would appear that the company owned apartments know as the Marine Hotel Apartments (the apartments).  It also appears from evidence provided by the Official Receiver from the Company’s solicitor that these apartments were sold and the sale proceeds dispersed as follows:-
(a)	£623,875.05 to Northern Bank Limited;
(b)	£142,572.58 to Bass Ireland Limited.
(c)	£24,211.38 to Cantrell & Cochrane (Belfast) Limited;
(d)	£1,815,494.85 to Oliver Kelly, Solicitors.
	During the course of the sale and disposal of the proceeds of sale no provision was made by the company for Capital Gains Tax and it is quite clear that as a result of that a figure £206,030.80 due and owing to Inland Revenue remains unpaid as all nett proceeds appear to have been transferred to a related company, which may itself now be in financial difficulty.
	Under Article 234 of the Companies (Northern Ireland) Order 1986 the directors of a company are required to prepare annual accounts for each accounting reference period.  Under Article 249 of the Companies (Northern Ireland) Order 1986 they are required to lay copies of the accounts before the Company in General Meeting and to deliver a copy to the Registrar.  Under Article 252 the period allowed in the case of a private company, as this company is, for laying and delivery of the accounts is ten months from the end of the relevant accounting reference period.  A search in the Companies Registry showed that no accounts have been filed for the year ended 31 March 1999.  
What makes this case unusual is the fact that this is not a limited liability company but a company limited by guarantee and accordingly creditors may hope to have some recourse against the guarantor.  The company ceased trading in May 2000 and changed its name to X Apartments on the 7th November 2000.  A Winding Up Petition was presented on 8th August 2000 and the Company was wound up on 30th November 2000.  
The first issue to be decided is whether the directors disqualification regime applies to such companies. The definition of company in the legislation is widely drafted.  Mithani and Wheeler on the Disqualification of Company Directors 1st Edition states at paragraph 3.07
“The expression Company is defined in the Company Directors Disqualification Act 1986 Section 22 (2) as follows:

`(a)	In Section 11 includes ….. an unregistered company, a building society … and a company incorporated outside Great Britain which has an established place of business in Great Britain, and

(b)	Elsewhere, includes any company which may be wound up under Part V of the Insolvency Act and a building society.’

In respect of companies this definition appears unproblematic; it clearly applies to public and private companies, registered and unregistered.”

This definition of company is replicated in our domestic legislation.  
I have been unable to find any case where the directors of a company limited by guarantee have been proceeded against under Article 9 of the Northern Irish legislation.  Furthermore the Department were unable to find any case in England where such an equivalent  application had been made.  There are, however, a number of indicators which show that the legislation does apply to all types of company whether limited or unlimited.  It also applies, and this is quite clear from Article 16 of the 1989 Order, to partnerships.  Furthermore, in the case of Daws and Henderson (Agencies) Limited (Unreported) judgment was given in England on 27 January 1999 in relation to an application for leave to continue to act as a company director in a case where disqualification periods of 5 years had been imposed for conduct in relation to an unlimited company.  
The passage quoted from the 1st Edition of Mithani does not appear to be replicated in the newest edition, but despite this I am of the view that the Companies Directors Disqualification regime does apply to companies limited by guarantee in the same way as it applies to limited liability companies.
The next question to be considered is what is the appropriate period of disqualification for misconduct in relation to the running of a company limited by guarantee.  Obviously the risks to the public are considerably less than they would be where company directors are entitled to the privilege of limited liability.  In this particular case the public purse may well still be at a loss as the person guaranteeing the debt Mr Conail McGinn is himself entering into an individual voluntary arrangement in which he proposes to pay 66p in the pound.  Should such cases as these where there may be some recourse for recovering the deficiency be treated differently from cases involving companies with limited liability?  
It seems to me that any analysis of the company director disqualification scheme would show that its purpose is to protect the public and not to punish an individual offender.  The Second Edition of Mithani states at paragraph 1.8:
“To serve a public protection function there is a clear need for restriction on the extent to which persons with a blemished record can become involved in corporate management.  This is where disqualification of directors comes in.”

I am of the view that given that the purpose of the legislation is the protection of the public there should be no distinction drawn between behaviour as a director of unlimited company and behaviour as a director of a company with limited liability. 
The evidence of the Department was that the First Respondent was involved in the day to day administration of the affairs of the company including the authorisation and signing of cheque payments to company suppliers.  The First Respondent stated that from November 1999 the Second Respondent played no active role in the day to day affairs of the company with the exception of the completion and signing off the Contract of Sale in May 2000.  The First Respondent received no remuneration and the Second Respondent appears to have received remuneration of £20,400.00 per annum.  Accordingly, having taken all matters into consideration I am of the view that an appropriate length of disqualification for the First Respondent is 6 years and for the Second respondent 4 years.  I also direct that the costs of the Department in this application be borne jointly by the Respondents.