Member Article

In the Matter of Swanpool Ltd (in Voluntary Liquidation) and Travelodge Ltd (in Voluntary Liquidation) and in the Matter of Section 150 of the Companies Act 1990; McLaughlin v Lannen and Lannen, High Court, Clarke J, 4 November 2005 Facts: McLaughlin, the liquidator of Swanpool and Travelodge, sought a declaration that two directors of the companies be restricted (i.e. prohibited from acting as directors of companies for 5 years). In this case, the companies in liquidation held a piece of land, which, with planning permission for development, was worth approximately € million. After planning permission was granted for development, the directors of the company secured an investment through a business expansion scheme (BES). After this investment took place, An Bord Pleanála (the Irish Planning Board) successfully appealed the planning permission. This reversal of permission greatly reduced the value of the land, to the extent that the company was not in a position repay its debts. However, even after the company was aware that it could not repay its debts, it proceeded to repay the BES investors in full, thereby reducing the amount of assets left for other creditors in a liquidation situation. The liquidator claimed that this act was sufficiently serious to warrant the restriction orders. Issue: Was this single incident sufficiently serious to warrant the making of a restriction order, notwithstanding the otherwise proper conduct of the company’s business affairs? Held: The court held that one of the most important obligations of any director is to ensure that when a company is facing insolvency, its assets are dealt with in accordance with law. Any significant failure in that regard has to be taken as demonstrating a level of irresponsibility sufficient to warrant making a restriction order. While the conduct of the respondents was at the lower end of the spectrum of seriousness, it was still sufficient to meet the threshold for the making of the orders.

 

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