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1. This is an Application by Liam Dowdall (hereinafter called “The Liquidator”), the Official Liquidator of Gasco Limited (hereinafter called “The Company”) pursuant to Section 150 of the Companies Act 1990. Section 150(1) reads:-

2. As far as this Application is concerned, the relevant provision of Section 150(2) is:-

3. The persons to whom the chapter applies are set out in Section 149(2) of the Act as follows:-

4. The Order in this case is being sought by the Liquidator against three persons, namely Richard Berney and Thomas Doyle, both of whom clearly were Directors of the company within the 12 months preceding the liquidation, although both had resigned before the actual date of the liquidation , and David Rooney, against whom the relief is sought on the basis that he was a shadow Director. Mr. Rooney denies that he was a shadow Director, and his position must be determined as a preliminary issue before considering whether an Order should be made against him.

5. The company has an issued share capital of 100,002 shares. 50 per cent of these shares are in the name of Mr. Doyle, but would appear to be held by him in trust for Mr. Rooney. The other 50 per cent are in the name of a company and it is not clear who is the beneficial owner. The company commenced trading in October, 1993 as a heating and plumbing supplies company and it appears from the returns in the company’s office that Mr. Berney was appointed Secretary and a Director on 1st October, 1995 and that Thomas Doyle was appointed a Director on the same date, although both claim in their Affidavits not to have been appointed Director until 1996. Mr. Berney is described as Financial Controller and Mr. Doyle as Managing Director. Sometime about the year 1995 the company expanded its business to include the supply of kitchen units.

6. There are serious disputes on the Affidavits between the three Respondents as to the management of the company. Mr. Berney says that the company traded profitably for the financial year ending 31st August, 1997, but as there are no accounts in existence either for that year or for the previous year it is impossible to verify this statement. However, it seems extremely unlikely that this was so in view of the financial situation of the company on 27th April, 1998, the date of the winding up Order. It is also unlikely because it appears that the need for a substantial injection of capital was realised by everybody much earlier than this, and indeed Mr. Berney states that a business plan was drawn up in 1996, but that he refused to contribute any capital on the basis he did not think that the proposed injection of £200,000.00 was sufficient.

7. It is clear that the side of the business which was concerned with gas fittings was very closely tied in with a company called Hutchinson and Rooney Limited, which traded as Gazview. This company was also controlled by Mr. Rooney and purchased large quantities of equipment from the company. One of the reasons given by Mr. Berney for the failure of the company is the large and extended credit given by the company to Gazview, and it would appear that by the end of October, 1997 Gazview was indebted to the company in the sum of some £213,000.00.

8. Mr. Berney resigned as a Director on 26th September, 1997 although he claims that he was excluded from management meetings of the company from 15th May, 1997, and this claim is not denied either by Mr. Rooney or by Mr. Doyle. Mr. Doyle remained as Managing Director until December, 1997, when he obtained employment abroad and also resigned as a Director. It is notable that neither Mr. Berney nor Mr. Doyle were replaced as Directors, and in effect the company operated from December, 1997 until its winding up without any Directors.

9. I propose now to turn to examine the position of each of the Respondents.

10. Mr. Rooney was never a Director, but he was certainly a 50 per cent shareholder and possibly a 100 per cent shareholder beneficially. The company had very close trading relationships with Hutchinson and Rooney Limited. He claims that he was not involved in the day to day management of the company, but this is contradicted by the evidence of both Mr. Berney and Mr. Doyle. Mr. Berney says that the management of the company was in effect controlled by Mr. Rooney, and Mr. Doyle says that all decisions in respect of the affairs of the company were made collectively by all the shareholders and directors, and further says that a decision taken in late 1997, after Mr. Berney had left, to move to new premises was taken jointly by the shareholders and directors of the company, including Mr. Doyle and Mr. Rooney. Mr. Rooney was a signatory on the company’s cheques, which Mr. Berney was not. Finally, after Mr. Doyle left in December 1997, Mr. Rooney, although the controlling shareholder, chose not to appoint new directors, but instead, in his own words:-

11. Clearly, therefore, Mr. Rooney effectively employed two persons to run the company, one of whom, Mr. Joe Flood, had previously been an employee of Hutchinson and Rooney Limited. There is no doubt that from December, 1997 Mr. Rooney effectively ran the company on his own. In these circumstances, he was clearly a shadow Director and therefore his position falls to be considered under Section 150 of the Companies Act 1990.

12. In the circumstances where Mr. Rooney was the controlling shareholder of both Hutchinson and Rooney Limited and of the company, and was a signatory on the cheques of the company and took part in the decision making in the company, he must have been aware of the level of credit being afforded to Hutchinson and Rooney Limited, and he acknowledges that at least from the middle of 1997 he was aware of the cash flow problems and of the business plan being proposed. Notwithstanding this, the high level of credit afforded to Hutchinson and Rooney Limited continued certainly into February 1998. Mr. Rooney has sought to show that Hutchinson and Rooney Limited made very substantial payments to the company in 1997, but I am far from satisfied that the reality of the balance between the two companies changed very much, at least until a very late stage.

13. One of the serious difficulties for the liquidator in this case is that, when he took possession of the assets after his appointment, he found virtually no books and records. Mr. Berney has sworn that when he left the company there were basic monthly accounts showing profit and loss and monthly debtors and creditors balances and statements. The Liquidator has been unable to locate any monthly accounts for 1997 or 1998 and there are a number of gaps in the invoice files. Mr. Doyle confirms that monthly management accounts were prepared, but again he left the Company some four months before its liquidation. The clear implication is that either these records never existed, or they were in some way destroyed during the last few months of the life of the company when Mr. Rooney was effectively in charge. By this stage the company was in serious difficulties, and if only for the purpose of collecting in as many debts as possible, it was very important that the company should have kept proper records. However, the liquidator avers that this lack of records in respect of many of the Company’s debtors have contributed to the poor recovery of debts by him.

14. It should be said that, according to the statement of affairs, Hutchinson and Rooney Limited only owed the company £13, 514.00 at the date of the winding up, and Mr. Berney states the sum owing is £15,000.00. However, because of the lack of records, the liquidator has been unable to find evidence of substantial payments to the company in the last few months of its existence. One would expect that if such substantial payments were made to reduce the debt to these sort of figures, Mr. Rooney would have been very careful to keep records to demonstrate that Hutchinson and Rooney Limited had paid off most of their debt. The fact that no such records exist may make me suspect many things, but certainly is clear evidence of serious irresponsibility by Mr. Rooney during the last few months of the trading life of the company.

15. In addition to that act of irresponsibility, Mr. Rooney was aware according to his own affidavit by June 1997 at the latest of serious cash flow problems and of the existence of a business plan. I think it is clear from the other affidavits that he must have been aware of these matters sometime before that. Nevertheless, he allowed credit which had been extended to his own company, Hutchinson and Rooney Limited, to remain at a level of over £200,000.00 at least until mid-February 1998. To have done so in the knowledge of the cash flow problems of the company was again gravely irresponsible.

16. For these reasons I would propose to make a restriction order under Section 150 against Mr. Rooney.

17. Mr. Berney was called the Financial Controller of the company. He was effectively the in-house Accountant to the company. He has sworn that monthly management accounts and profit and loss accounts were kept during his time. This has been confirmed by Mr. Doyle and certainly has not been denied by Mr. Rooney, and therefore I must accept that this was so. I also accept his averment that he was effectively excluded form the management of the company from May 1997, that is for almost a year before the winding up, as again this is not denied by Mr. Rooney. He saw the difficulties that the company was in at a fairly early stage and in conjunction with Mr. Doyle drew up the business plan. However, he appears to have disagreed with Mr. Doyle and Mr. Rooney as to the amount of capital necessary, and refused to make any contribution himself. Ultimately, having been excluded from management, he resigned as a Director in September 1997.

18. There is one provision of Section 149 of the Companies Act 1990 which in my view is of considerable importance, and assists in indicating the purposes and scope of the part of the Act dealing with restrictions on directors. Section 149 (2) applies the restriction provisions to any person who is a director of the relevant company at the date of, or within twelve months prior to, the commencement of its winding up. I think it is quite significant that no restrictions can attach to somebody who ceased to be a director of the Company more than twelve months before the winding up. This seems to me to indicate that the primary aim of Section 150 is to deal with directors who have behaved irresponsibly or dishonestly during the last twelve months of the life of the Company, and that the actions of a director who is subject to Section 150 are to be looked at primarily in the light of his actions during that period. This indeed has a considerable practical logic, as it is presumably intended to focus attention on the behaviour of the directors in the period leading up to the winding up, and to try to ensure that they deal responsibly with creditors when a company is in difficulties. In my view, therefore, there should be particular scrutiny of the actions of directors during the final months before winding up.

19. Applying that to the present case, Mr. Berney recognised serious problems in the company more than twelve months before it was wound up, he assisted in drawing up a business plan, but when it did not meet what he considered the necessary requirements, he refused to go along with it, and possibly for that reason was excluded from management. He then resigned within a few months. In my view he did act honestly and responsibly in his actions in relation to the Company and I would not propose to make a restriction order against him.

20. Mr. Doyle was termed the Managing Director of the company, and he was clearly in charge of sales and technical matters. It appears that he was aware at all times that the company had difficulties, and indeed was primarily responsible for ensuring that the company entered into an agreement with the revenue to reduce its revenue debt in an orderly manner, and which agreement appears to have been adhered to a considerable degree. When the business plan was prepared, he believed that the proposed introduction of £200,000.00 would be sufficient, and this is clearly so in that he himself advanced £25,000.00 to the company out of monies he borrowed in August 1997. He confirms that there were monthly management accounts, and says that these accounts did not show that the Company was unable to pay its debts as they fell due. I certainly accept that he believed in August 1997 that the Company could be saved, and that, even if his belief was mistaken, it was genuinely held. I also accept that he believed, whether correct or otherwise, that from mid 1997 Mr. Rooney was trying to reduce the debt owed to the company by Hutchinson and Rooney Limited.

21. I think that undoubtedly Mr. Doyle was somewhat naive in relation to the financial affairs of the company, and probably did not concern himself as much as he ought to have in this regard. However, in considering the application of Section 150 to individual directors, regard must be had to the area of management in the company for which that director was personally responsible. This does not mean, of course, that a director can disclaim responsibility altogether on the basis that financial matters were the responsibility of another director, but nevertheless one of the matters to be considered in assessing whether he acted responsibly was whether his reliance on the actions of another director was itself responsible. In this case, my impression is that Mr. Doyle initially relied upon Mr. Berney, and latterly relied on Mr. Rooney with an optimism that certainly was not justified, but which perhaps was understandable. While I think Mr. Doyle’s position is somewhat borderline, on balance he did act honestly and responsibly and no order will be made against him.