THE SUPREME COURT

212/01

Murphy J
Murray J
McGuinness J

IN THE MATTER OF CB READYMIX LIMITED IN LIQUIDATION
IN THE MATTER OF THE COMPANIES ACTS 1963-1999
IN THE MATTER OF AN APPLICATION PURSUANT TO SECTION 160 OF
THE COMPANIES ACT 1990

Between:

EDMUND P CAHILL
OFFICIAL LIQUIDATOR
						applicant/respondent

AND

DR  MICHAEL GRIMES
						respondent/Appellant 

Judgment of Mr Justice Francis D Murphy delivered the 1st day of March, 2002 [Nem Diss.] 
_________________________________________________________________________

By order dated the 20th July, 2001, made pursuant to a judgment delivered by him on the same date, Mr Justice Thomas Smyth disqualified the respondent (Dr Grimes) from being concerned in the management of a company as a liquidator, receiver or examiner for a period of seven years from the 20th day of July, 2001, and imposed conditions limiting the right of Dr Grimes to act as auditor, director or secretary of any company during the same period.  It is from that judgment and order, which was made pursuant to s.160 of the Companies Act 1990, that Dr Grimes appeals to this Court.
The above named CB Readymix Limited (Readymix) was incorporated on the 7th of April, 1988.  The formation of the company was procured, apparently, by Cork Company Registrations an enterprise owned/or controlled by Dr Grimes.  Readymix engaged in the business of quarrying and selling sand and gravel.  As the learned trial Judge explained in his judgment, Readymix got into financial difficulties, in particular, in respect of returns and payments to the Revenue both in respect of PAYE and VAT.  The Revenue commenced proceedings against the company by way of summary summons on the 15th of March, 1995, seeking liberty to enter final judgment in the sum of £50,510.70.  When the matter was eventually listed before the Master, the Revenue became aware that the company had been struck off the Register of Companies on the 25th of September, 1995, for failure to furnish the appropriate annual returns.  On the 15th January, 1996, the company, although struck off the Register, purported to pass a resolution winding up the company and appointing Dr Grimes as liquidator.  On the 25th of March, 1996, Barron J ordered the restoration of Readymix to the Register and at the same time made an order restraining Dr Grimes from acting as liquidator thereof on or before the 22nd of April, 1996.  It was on the 27th of March, 1996, that the Master of the High Court granted the Revenue liberty to enter final judgment against Readymix in the sum of £50,510.70.  On the 18th day of April, 1996, a petition was presented for the winding up of Readymix by the Court.  On the 25th April, 1996, the applicant (Mr Cahill) was appointed as provisional liquidator.  On the 29th April, 1996, Mr Justice Barron ordered a stay on the appointment of Mr Cahill as provisional liquidator.  On the 27th of January, 1997, Mr Justice Barron discharged the stay restraining Mr Cahill from acting as provisional liquidator and by the same order declared that the resolution purporting to wind up Readymix voluntarily and the appointment of Dr Grimes as liquidator thereof on the 15th of January, 1996, was invalid.  In addition a stay was put on the order dated the 25th of March, 1996, pending an appeal to the Supreme Court.  That appeal was never prosecuted.
It is clear that Dr Grimes was never validly appointed as liquidator of Readymix.  It is equally clear that in the relatively brief period from the 15th of January 1996 to the 25th of April 1996 he did purport to act as liquidator of Readymix and between the latter date and the 27th of January, 1997, Dr Grimes disputed the entitlement of Mr Cahill to act as provisional liquidator of the company.  There is no doubt that Dr Grimes held himself out as being the liquidator of Readymix and repeatedly asserted in affidavits and other legal documents that he held that position.  

Ultimately Mr Cahill was appointed official liquidator of the company by order of the High Court made on the 23rd day of January, 1997.

In the period subsequent to his appointment as provisional liquidator Mr Cahill had several meetings and communications with Dr Grimes.  Whilst the communications ranged over a wide variety of topics Mr Cahill in his evidence drew attention to a particular observation made at a meeting which he had with Mr Grimes on the 2nd of May, 1996, at Grattan Court, Washington Street, Cork, when he, Mr Cahill recorded part of the conversation between them in the following terms:-

“Dr Grimes then stated that surely EFC (Mr Cahill) did not expect to get any books and records of the company.  EFC inquired why and Dr Grimes stated quite categorically that the books could have an accident.  EFC stated that he would have to get the books but made no further comment on this aspect.”

Other topics discussed between the parties were the ownership of the lands and the identity of the persons who were working in the quarries which appeared to be owned by Readymix.  In an affidavit grounding an application for judicial review by way of order of certiorari to quash the decision of the Revenue Commissioners to raise certain assessments on Readymix Dr Grimes did swear (at para. 70) that:-

“I have looked at the company’s books and I am satisfied that no money whatever is owing to Revenue.”

On the 16th of May, 1997, Mr Cahill wrote to two persons, namely, Anne Carey and Carol O’Sullivan who, it appeared to him, had been appointed directors of the company in place of the original directors.  In a reply dated the 30th May, 1997, Ms Anne Carey explained that the company had been put into liquidation and Dr Grimes appointed liquidator thereof.  She said that “all the books were handed over to him”.

In an affidavit sworn on the 31st of July, 2001, Dr Grimes set out the position in relation to the books and records of the company in the following terms:-

“ 22	I contacted Mr Cahill and offered to meet him so that I could hand over the books of the company which I had in my capacity of liquidator.

23	Mr Cahill took legal advice and wrote back saying that on legal advice he declined to meet me.

24	I was then stuck with the situation wherein the court informed me that I was never liquidator.  I had offered the books to the only person entitled to them and he did not want them.  The Acts that I read said that only officers of the company were responsible for the books and I had never taken any hand, act or part in running or operating the company and was not even liquidator I therefore had no duty to keep them and consequently I was not going to be having them around for years so I destroyed them.  I did not fall into any category covered by the Act with a duty of care.  Nobody wanted them and there was no court order extant dealing with them.”

At a meeting on the 12th October, 1996, Dr Grimes was recorded by Mr Cahill as having stated:-

“That he had the books and records of the company in his possession and he further stated that the books and records were, in his opinion, adequate.”

In an affidavit sworn by him on the 29th of October, 1996, Dr Grimes explained the position with regard to the records as follows:-

“My understanding for this was that I was finished, not going to be consulted further and therefore had no further responsibility for any of the books of the company which I had and now I no longer needed.  I checked the relevant Acts insofar as I was able and it appeared to me that since I never had been an officer of the company and never been liquidator, I had nothing to do with the company and that I did not expect that I was going to be brought back before this honourable court and asked to produce the documents which, not having any need of, I decided not to keep and dumped.”

The learned trial Judge in his judgment records the description given to him by Dr Grimes as to the manner in which the documents were “dumped” in the following terms:-

“On inquiry as to how ‘the dumping’ was done, Mr Grimes, who represented himself, stated that he had filled about two and a half sacks and put them out for collection with the garbage.  On further inquiry he has stated the books and records were ‘dockets for sand and gravel’ and where they went.”

In this Court, as in the High Court, Dr Grimes sought to make light of the documents which he “dumped”.  He drew a fine, but unreal, distinction between putting aside documents so that they would be destroyed by others and destroying them himself.  Again his contention that the documents which he caused or permitted to be destroyed were merely documents which could be replaced or duplicated cannot be reconciled with the abundant evidence given by himself and others that he did have access to the books and records of the company but was no longer in a position to hand them over to the official liquidator.  The learned trial Judge rejected the argument and evidence to that effect.  In my view he was correct in so doing.

In his very careful judgment the learned trial Judge recorded a series of remarks made by Dr Grimes in the course of his submissions to him.  They included the following:-

 1	“I was determined to screw the Revenue no matter what it took.”

2	“I was prepared to blow up anyone who got in my way.”

3	“I was going to make an example of Mr Cahill.”

4	“I would not obstruct the liquidator but I would not help”.

5	“Whatever tactics it took I was going to bring the Revenue to book.”

Whilst Dr Grimes did not use the same extreme language in this Court, the terms in which he explained his approach to the problem were entirely consistent with the observations aforesaid. Dr Grimes explained that Readymix employed twenty-four people and he was willing to do everything in his power to preserve their employment.  He was engaged in a battle with the Revenue authorities.  He explained that he had a feud with them but it was not malicious.  He asserted that  no creditor of the company - other than the Revenue authorities - made any complaint about his conduct.  Indeed he explained that he had engaged in many liquidations and that it had never been alleged that he was unfit to act as liquidator.  It is common case that Dr Grimes destroyed - or dumped with a view to their destruction - documents relating to the financial affairs of Readymix.  In my view the inescapable conclusion is that those documents included the books and records of that company and that this was done with a view to depriving the official liquidator of access thereto.  An experienced liquidator - and Dr Grimes rightly claims to be such - would immediately appreciate the importance of the records to which Dr Grimes admits he had access.

The present application was brought by Mr Cahill under s.160 of the Companies Act, 1990.  As this is the first occasion on which that section has come before this Court for consideration it may be helpful to set out the material parts of that section as follows:-

“160	(1)	Not relevant.

	(2)	Where the court is satisfied in any proceedings or as a result of an 		application under this section that:-

	(a)	a person has been guilty, while a promoter, officer, auditor, receiver, 		liquidator or examiner of a company of any fraud in relation to the 		company,  its members or creditors; or
(b)	a person has been guilty, while a promoter, officer, auditor, receiver, liquidator or examiner of a company,  of any breach of his duty as such promoter, officer, auditor, receiver, liquidator or examiner; or
	(c)	Not relevant
(d)	the conduct of any person as promoter, officer, auditor, receiver, liquidator or examiner of a company, makes him unfit to be concerned in the management of a company; or
	(e)	Not relevant
	(f)	Not relevant

The court may, of its own motion, or as a result of the application, make a disqualification order against such a person for such period as it sees fit.”

(3)	Not relevant

(4)	Not relevant

(5)	Not relevant

(6)	Not relevant

(7)	Where it is intended to make an application under subsection (2) in respect of any person, the applicant shall give not less than ten days’ notice of his intention to that person.

(8)	Any person who is subject or deemed subject to a disqualification order by virtue of this Part may apply to the court for relief, either in whole or in part from that disqualification and the court may, if it deems it just and equitable to do so, grant such relief on whatever terms and conditions it sees fit.

(9)	Not relevant

(10)	Not relevant

A “disqualification order” is defined in s.159 of the Companies Act, 1990, as meaning:-

“(a)	An order under this Part that the person against whom the order is made shall not be appointed or act as an auditor, director or other officer, receiver, liquidator or examiner or be in any way, whether directly or indirectly, concerned or take part in the promotion, formation or management of any company or any society registered under the Industrial and Provident Societies Acts 1973 to 1978; or
(b)	Not relevant”

The learned trial Judge concluded that the applicant had made out a case under s.160 for a disqualification order.  The order made by Smyth J directed that Dr Grimes “be disqualified from being concerned in the management of the company as a liquidator, receiver or examiner for a period of seven years from the 20th day of July 2001” but in relation to the other offices to which s.160 extends, namely, auditor, director or secretary provided that Dr Grimes “may act as an auditor, director or secretary of a company if he complies with the following conditions”:-

“(I)	That he has such professional qualifications as are necessary or required by law so to do.

(II)	That at no stage or time is he to have possession, custody or control of the seal of any such company or any of its books or records of any kind whatsoever, so however he is entitled to have access to such books and records only as are necessary to enable him to discharge his legal obligations.”

It was further ordered that Dr Grimes “may only act as a director of a company whose constitution and management provide for a board of directors of three or more persons”.

In submissions made with a clarity and brevity which might be envied by barristers and a moderation which should be emulated by other lay litigants - Dr Grimes argued:-

1	That the order of the learned trial Judge was misconceived because it was in part a 

disqualification and in part a restriction.

He contended that the only order which could be made under s.160 was a disqualification order which would prevent the person to whom it applied from holding any of the offices comprised in the definition of a disqualification order.  It was, as he said, “an all or nothing section”.  The Court had no power to differentiate between the different offices or to impose conditions as to the terms on which anyone or more of the offices might be exercised.

Dr Grimes properly recognised the dangers of this argument.  He appreciated that if it succeeded he - or persons in a similar position - might be wholly disqualified for the prescribed period from all relevant offices.  Moreover, he was fully conscious of the care which the learned trial Judge had taken to balance the need for a sanction with the desirability of the respondent continuing certain commercial activities.  Dr Grimes submitted that his rigid interpretation of the section was correct whatever consequences flowed from it.

In my view this argument is refuted by the provisions of subsection 8 of section 160 (see above).  The express power of the Court to grant relief to a person who is subject or deemed subject to a disqualification order “either in whole or in part” and to “grant such relief on whatever terms and conditions it see fit” would enable the Court to review a disqualification order in the days immediately following the making thereof by imposing precisely those terms which Mr Justice Smyth had required in the first instance.  In my view it would be unthinkable that the Court could have a power to revise its own order in that way and in that time frame and not have the same powers in the first instance.  I am fully satisfied that the learned trial Judge did have the powers which he purported to exercise so humanely in disqualifying the respondent from filling certain offices and yet permitting him to fill others subject to stipulated conditions.

(2)	That s.160 had no application to Dr Grimes as he never was an officer or liquidator of the company. 

Whilst the members purported to so appoint him it seems clear on the facts and confirmed by the order of Mr Justice Barron that he was never validly appointed.  In Re Lo-line Electric Motors Ltd  [1988] 2 All ER 692 the High Court in England concluded that the disqualification provisions contained in s.300 of the UK Companies Act 1985 - which is similar but by no means identical with s.160 of the 1990 Act - applied or extended to de facto directors.  Sir Nicolas Browne-Wilkinson VC expressed his views (at p. 699) as follows:-

“As a matter of construction, I would hold that the word ‘director’ in section 300 does include a person who is de facto acting as a director even though not appointed as such.  [Counsel for Mr Browning] submitted that as the disqualification of a director is a penal process the words should be strictly construed.  But, as I have said, the paramount purpose of disqualification is the protection of the public not punishment.  I therefore approach the question of construction on the normal basis.  Section 300 requires the court to have regard to ‘conduct as a director’.  I can see no reason why Parliament should have intended that the decision to disqualify should turn on the validity of his appointment.  The conduct relevant to future suitability to act as a director depends upon a man’s past record as a director irrespective of the circumstances in which he came to act as such.  [Counsel for Mr Browning] relied on section 733 (2) of the Act of 1985 as showing that when Parliament intended to include a de facto director it referred expressly to ‘any person who was purporting to act in any such capacity’.  But section 733 extends the criminal liability of a company to others and it is not surprising that in an exclusively penal provision the criminal liability of a de facto director has to be expressly referred to.”

The decision of the Vice Chancellor was supported by earlier authorities cited in his judgment and is, in my opinion, fully vindicated by a purposive reading of the relevant English and Irish legislation and it is, in my view,  as applicable to a de facto liquidator as it is to a de facto director.

3	That the section is draconian and accordingly there is a heavy onus on the applicant to establish that the matter falls within the section and that there should be a corresponding reluctance on the Court to exercise its undoubted discretion against making a disqualification order.  

In principle this argument is correct.  The onus does fall on the applicant to establish the allegations on which he relies and, even where a case is made out, the use of the word “may” in s.160 (2) confers a discretion on the Court whether or not to make the order as was pointed out in Re Newcastle Timber Ltd (Unreported, High Court, McCracken J, 16th October, 2001).

The appropriateness of the sanction imposed by the learned trial Judge must be considered in the light of the conduct of the respondent and the purpose for which the section was enacted.  

In Lo-line Motors (supra, at p.696) Browne-Wilkinson VC provided a general approach to the application of the UK disqualification provisions in the following terms:-

“What is the proper approach to deciding whether someone is unfit to be a director?  The approach adopted in all the cases to which I have been referred is broadly the same.  The primary purpose of the section is not to punish the individual but to protect the public against the future conduct of companies by persons whose past records as directors of insolvent companies has shown them to be a danger to creditors and others.  Therefore, the power is not fundamentally penal.  But, if the power to disqualify is exercised, disqualification does involve a substantial interference with the freedom of the individual.  It follows that the rights of the individual must be fully protected.  Ordinary commercial misjudgment is in itself not sufficient to justify disqualification.  In the normal case, the conduct complained of must display a lack of commercial probity, although I have no doubt that in an extreme case of gross negligence or total incompetence disqualification could be appropriate.”

That passage was quoted with approval by the learned trial Judge and likewise was adopted by Shanley J in La Moselle Clothing Ltd .v. Soualhi [1998] 2 ILRM 345 by McGuinness J in Squash (Ireland) (Unreported, High Court, McGuinness J, 8th February, 2001) and in the judgment of McCracken J in Re Newcastle Timber Ltd (supra).

It is I believe a correct statement of the law and represents a proper approach to the application and interpretation of s.160 of the Companies Act 1990.

The fact that Dr Grimes deprived the official liquidator of the books and records of Readymix was, to my mind, extremely serious. The grace with which Dr Grimes defended his conduct was attractive but alarming.  His apparent belief that the commendable motive of saving employment would justify the destruction of documents and the frustration of the liquidation of a company shows a completely mistaken view as to the duties of a liquidator and would undoubtedly raise concern as to the propriety of his being involved in the management of companies which are subject to detailed regulations for the protection of the interests of the public whether as shareholders, creditors or employees.

Carrying on business as a corporate entity necessarily involves meetings of shareholders and meetings of directors.  Of its nature this type of enterprise must generate substantial documentation.  In addition, since the formation of corporate status by registration, the Companies Acts have required the creation, maintenance and preservation of documents relating to the affairs and finances of companies and public access to much of that information.  The obligation to maintain such records is imposed on directors and failure to do so may, in addition to particular penalties, leave directors open to a charge of acting irresponsibly.  In Business Communications Ltd .v. Baxter & Anor (Unreported, High Court, Murphy J, 21st July, 1995) I pointed out that:-

“To obtain exemption from the restraint which must otherwise be imposed by virtue of section 150 of the 1990 Act, all that is required is the exercise of a suitable degree of responsibility.  Ordinarily responsibility will entail compliance with the principal features of the Companies Acts and the maintenance of the records required by those Acts.  The records may be basic in form and modest in appearance. But they must exist in such a form as to enable the directors to make reasonable commercial decisions and auditors (or liquidators) to understand and follow the transactions in which the company was engaged.”

The fortuitous reference in that passage to the importance of appropriate documentation being available for liquidators underscores the gravity of the misconduct of Dr Grimes in the present case.  Adequate records are necessary to enable a liquidator to perform his statutory functions properly and some records are necessary to enable him to perform his functions at all.  Whilst I accept that Dr Grimes did not act maliciously, his decision to destroy or permit the destruction of the books and records of Readymix was a very serious wrong indeed.  Dr Grimes did argue that a liquidator or director should not be severely penalised for one error in relation to a particular company in a context where no allegations of inappropriate conduct are made against him in respect of many other such offices held by him.  That argument has considerable force.  However a significant  feature of the judgment of Mr Justice Smyth was his statement that he allowed time to Dr Grimes to reconsider the argument which he made to the Court and notwithstanding the opportunity given to him he, Dr Grimes, “continued in a vein as to betoken a total disregard in his conduct complained of”.  It was the fact that Dr Grimes could not then - and does not now - appreciate the gravity of his misconduct that justifies the conclusion that he is unfit to hold the office of liquidator and casts serious doubt upon his suitability to participate in the management of any company.

4	Dr Grimes contended that subsection 8 of s.311 of the Companies Act 1963 was unconstitutional because it provided that a company which had been struck off the Register but was restored pursuant to the order of the Court was “deemed to have continued in existence as if its name had not been struck off”.   Dr Grimes argued that this deeming provision could create a retrospective criminal liability and was accordingly unconstitutional.  As I understand it, that argument might have been made in the outstanding appeal to this Court which Dr Grimes indicated he does not now intend to pursue.  Clearly it would not be possible for this Court in the present proceedings to consider this argument as it was not made in the High Court and could not be argued in the absence of notification to the Attorney General.

5	It was submitted that the imposition of conditions on Dr Grimes acting as an auditor, director or other officer of the company was an unwarranted and unfair interference with the regulation and management of companies which might wish to retain the services of the respondent. 

In particular Dr Grimes contended that the condition which permitted him to “only act as a director of a company whose constitution and management provided for a board of directors of three or more persons” was an impermissible intrusion into the affairs of a company which was not a party to the proceedings.  In my view this is a mistaken analysis of the particular condition.  It does not of itself impose any obligation on any company.  It imposes a limitation on Dr Grimes with the result that any company seeking to avail of his managerial skills can only do so if its corporate structure is such that will permit Dr Grimes to comply with the condition.  

The other conditions imposed on the respondent acting as auditor, director or secretary of a company, namely, “that he should not have possession, custody or control of the seal of the company or any of its books or records of any kind whatsoever so however he is entitled to access to such books and records only as are necessary to enable him to discharge his legal obligations” will be, as Dr Grimes has pointed out, difficult to police.  On the other hand, having regard to the facts of this case as found by the learned trial Judge I believe that the inclusion of such a condition is entirely appropriate.  The only alternative would be a comprehensive disqualification order which the learned trial Judge was reluctant to make.  In the final analysis it is a matter for Dr Grimes to comply with these conditions.  If he fails to do so it must be anticipated that a comprehensive order will then be made.

In these circumstances I would dismiss the appeal and affirm the order of the learned trial Judge.