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Judgment
Title:
Mitek Holdings Limited & Companies Acts
Neutral Citation:
[2010] IESC 31
Supreme Court Record Number:
334/05
High Court Record Number:
2002 438 Cos
Date of Delivery:
05/13/2010
Court:
Supreme Court
Composition of Court:
Hardiman J., Fennelly J., Finnegan J.
Judgment by:
Fennelly J.
Status:
Approved
Result:
Dismiss
Judgments by
Link to Judgment
Concurring
Fennelly J.
Hardiman J., Finnegan J.



THE SUPREME COURT
RECORD NO. 334/2005
      Hardiman J.
      Fennelly J.
      Finnegan J.

      IN THE MATTER OF:-

      MITEK HOLDINGS LIMITED

      (FORMERLY KNOWN AS ANTIGEN HOLDINGS LIMITED),

      MITEK PHARMACEUTICALS LIMITED

      (FORMERLY KNOWN AS ANTIGEN PHARMACEUTICALS LIMITED),

      CASTLEHOLDING INVESTMENT COMPANY LIMITED,

      MITEK LIMITED (FORMERLY KNOWN AS ANTIGEN LIMITED)

      (ALL IN LIQUIDATION)

      AND IN THE MATTER OF: -

      MIZA IRELAND LIMITED (IN LIQUIDATION), A RELATED COMPANY


      AND IN THE MATTER OF THE COMPANIES ACTS 1963 TO 2001

      AND IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT, 1990, AND SECTION 56 OF THE COMPANY LAW ENFORCEMENT ACT 2001





      BETWEEN:

      TOM GRACE, OFFICIAL LIQUIDATOR
Applicant/Respondent
- and -

JACK KACHKAR, ROBERT McCLELLAN CARRIGAN

Respondent/Appellants
      JUDGMENT of Mr. Justice Fennelly delivered the 13th day of May 2010.

      1. On 10th May 2005 the High Court on foot of the judgment of Finlay Geoghegan J of 21st February 2005 made an order (“the restriction order”) pursuant to section 150(1) of the Companies Act 1990 that the above named appellants be restricted for a period of five years from acting as directors of any company. The application for the restriction order had been made by the respondent as liquidator of the five companies, in Liquidation, named in the title to this appeal. I will describe him as the liquidator. The appellants have appealed to this Court against the making of the restriction order.

      2. The companies were formerly part of the Irish Antigen group of companies. Following examinership, a scheme of arrangement was approved by the High Court. The Antigen companies and the Antigen business were sold out of the examinership near the end of 2001. Part of the group represented by four of the above companies became part of the Canadian Miza Group. The appellants were made directors of the companies. The companies did not trade successfully.

      3. The applicant was appointed as official liquidator on 11th December 2002. In his application to the High Court for the making of the restriction order, he contended that the appellants had failed to act responsibly as directors of the companies under four headings. The learned trial judge found that the appellants had failed to satisfy her, the burden being upon them, that they had acted responsibly in respect of two of these headings. They appeal to this Court against these findings.

      4. A proper appreciation of the discharge by the appellants of their responsibilities as directors necessitates an account of the background to the former Antigen group, the scheme of arrangement which emerged from the examinership and the particular acts which most concerned the liquidator.

      5. The Antigen group was a niche manufacturer of branded and non-branded generic pharmaceutical products. In the year 2000, the group was required to upgrade its manufacturing processes in order to comply with the requirements of the Irish Medicines Board. For that purpose, it had to cease production in July 2000. These and related events caused financial difficulties for the group. In May 2001, the companies were placed in examinership.

      6. The examiner formulated a scheme of arrangement, which he proposed to the creditors in August 2001. It provided that all creditors would be paid in full the principal sums due to them over a specified period.

      7. The High Court approved the scheme of arrangement on 8th November 2001. The shareholdings and assets of the group were acquired in a joint venture between Goldshield, a United Kingdom group, and the Canadian corporation, Miza Inc. Each of the participants was to contribute equally to the total investment of IR£24 million. The principal shareholder in Antigen was to be paid IR£6.7 and IR£17.3 million was to be provided to discharge the creditors of the group companies.

      8. The plan under the scheme of arrangement and related agreements was that the manufacturing part of the Antigen group consisting of the four companies named in the title, namely Mitek Holdings Limited, Mitek Pharmaceuticals Limited, Castleholding Investment Company Limited and Mitek Limited were purchased by Miza Ireland Limited. The last-named company was a shelf company incorporated for the purpose of giving effect to the scheme of arrangement and is a wholly owned subsidiary of Miza Inc. Three other companies of the former Antigen group, which had been responsible for the worldwide sale and distribution of the Antigen pharmaceutical products, were purchased by a subsidiary of Goldshield called Startville Limited. Thus, manufacturing assets went to the Miza group and sales and marketing went to Goldshield through its subsidiary, Startville.

      9. On 3rd November 2001, a Sale and Purchase Agreement was entered into providing for the sale, in effect, of the manufacturing part of the Antigen group to Miza and of the sale and marketing part to a subsidiary of Goldshield. That agreement also provided that the two purchasers would invest sufficient funds to enable the companies to comply with the obligations under the scheme of arrangement and to facilitate the companies continuing to trade as going concerns.

      10. Under a manufacturing and supply agreement dated 28th November 2001, Mitek Pharmaceuticals Limited, the manufacturing company, was obliged to sell virtually all its products to Goldshield Group plc, a United Kingdom public company, which had acquired the relevant product licences and authorizations. Dr. Kachkar claims that the price was intended to cover all manufacturing costs plus a premium or fixed profit of IR£0.4p per ampoule, which would enable the Miza group to meet all of its costs as well as payments to creditors under the scheme of arrangement.

      11. A crucially important aspect of these arrangements was that all Antigen group creditors were to be paid in full the principal sums due to them. Payments were to be made over a period of time ranging from three months in some cases to thirty months in others. Furthermore, the investor envisaged by the scheme of arrangement was to be willing to invest sufficient money in the companies to facilitate compliance with the proposals and to enable them to continue to trade as going concerns. Under an associated sale and purchase agreement an assurance was provided that the two purchasers under the agreement, namely Miza Inc. and Goldshield would invest sufficient funds to enable the companies to comply with their obligations under the scheme of arrangement and to facilitate their continuing to trade as going concerns.

      12. The appellants were appointed as directors of each of the five relevant companies in November 2001. It is not disputed that they were directors at least until October 2002 when they purported to resign. The liquidator questions the validity of these resignations. It is sufficient that they were directors at the date of or within twelve months prior to the commencement of the winding up each of the companies.

      13. Dr. Jack Kachkar was the majority shareholder, president and chief executive officer of Miza Inc., a privately held Canadian pharmaceutical manufacturing consulting and holding company. Mr. Robert McClellan Carrigan was executive vice-president of that corporation with responsibility for operations. It appears from Dr. Kachkar’s own affidavit that the various arms of the Miza group in the UK, USA and Canada had variously been placed in administration, sold or ceased to be active by the middle of 2003.

      14. Dr. Kachkar became a director of the companies in order to assist management on business and corporate development matters. Being based in Canada, he was not involved in the day-to-day affairs of the companies, but saw his role as being to bring to a successful conclusion the acquisition of the Antigen group of companies, and to give effect to the business and commercial agreement with the Goldshield group.

      15. The scheme of arrangement and associated agreements were structured in a way which left the companies under significant pressure from the outset. An important part of the scheme as carried out was that Startville Limited acquired the product licences, authorisations, goodwill and finished stock of the former Antigen Pharmaceuticals Limited thus diminishing the asset base of the companies. Startville paid IR£6.7, but this money was used to fund the purchase of the shares of the ultimate shareholder in the Antigen group, Mr. George Fasenfeld. Thus the liquid assets available to meet the commitments to creditors under the scheme of arrangement had been substantially depleted. In addition, the gross margins provided under the exclusive sale agreement whereby the Miza group companies sold product to Goldshield were substantially lower than what had obtained prior to November 2001. At the same time, the Miza group assumed the liabilities.

      16. In these circumstances, in the absence of any new injection of funds, the companies were simply unable to discharge the payments due to the former Antigen creditors. The first such payment, which fell due in February 2002, was to have been €2,206,966. The companies were in a position to pay only €1,217,651. In the view of the liquidator, it was then apparent that the group was insolvent. The companies continued, nonetheless, to trade and to incur further liabilities.

      17. The liquidator swore in his grounding affidavit that all of the companies were unable to pay their debts within the meaning of section 214 of the Companies Act, 1963. This is not disputed. The core of the liquidator's complaint against the appellants is that they permitted Miza Inc. (the Canadian parent) to diminish the asset base of the companies by extracting fixed assets and working capital to the value of approximately €2.8 million. Against this background, the companies were unable to pay the creditors the monies due under the scheme of arrangement. Neither Miza Inc. nor Goldshield was willing to make any direct investment in the companies.

      18. The liquidator complains, in addition, that the appellants did not act responsibly in the granting of security in September 2002 to CCL Industries.

      19. Consequently, on 29th October 2002, the principal creditors, Bank of Ireland and Bank of Scotland (Ireland) Ltd petitioned for the appointment of an examiner. Mr. Tom Grace (the liquidator) was appointed as examiner prior to the liquidation. By that time, creditors had increased from IR£17.3 million (€21.9 million) to IR£22.5 million (€28.6 million). A total of €4.9 million had been paid to scheme creditors up to 29th October 2002 as against €10 million, which, in accordance with the scheme of arrangement should have been paid by that stage. No new investor could be found. It was not possible to formulate a new scheme of arrangement and Mr. Grace was appointed as Official Liquidator on 11th December 2002.

      20. Dr. Kachkar says that there were delays in establishing a proper commercial relationship with Goldshield, which failed to purchase and resell the Miza group production during the first quarter of 2002. He claims that Goldshield did not comply with its payment and pricing obligations. There were extensive disputes with Goldshield and the Miza group faced declining cash flow relative to the needs of the business. During 2002, the group used the resources and personnel of its sister companies in Canada to improve the operation, quality systems and working conditions of the former Antigen group.

      22. Dr. Kachkar refers extensively to attempts to finance the Miza group as a whole from late 2001 and into 2002. The financial negotiations were complex and fraught with difficulties. In the end, the principal proposed financier withdrew. In the interim, however, a shareholder in the parent Canadian company provided interim finance in the sum of US$3 million to the Miza Group. A part of this amount, a sum of less than US$1 million was provided by way of loan to the Irish companies but the lender required security over those companies’ assets. In addition, less than a month after this money was provided, Miza Inc. extracted €501,526 in cash from the Miza group for the use of its own operations and those of its UK subsidiary.

      23. The liquidator has provided a schedule showing that that between 28th February 2002 and 20th August 2002 a total of €2,836,381 was transferred out of the Irish Miza Group. In round figures €922,000 went to Miza Pharmaceuticals USA, Inc, €1,211,000 went to Miza Pharmaceuticals (UK) Ltd and €703,000 went to Miza Pharmaceuticals Inc (the Canadian Company). One item related to the transfer of a fixed asset valued at less than €50,000. It is unnecessary to consider it in detail. An item of €185,000 related to the collection by Miza Pharmaceuticals Inc. of a debt due to Mitek Pharmaceuticals Ltd.

      24. The liquidator was informed by the financial controller of Mitek Pharmaceuticals Ltd. that these cash extractions were justified as being management charges, although no justifying documentation was provided. There was no agreed structure of intra-company and corporate overhead allocations or transfers between the Irish companies and Miza Inc. and other companies in the group. In a letter of 2nd December 2002 Mr. Carrigan wrote to the Group Financial Controller in Ireland stating that:


        “ all said funds transferred between the Miza Group of Companies consisted of inter-company and corporate allocations and overhead recoveries. Consequently, said funds were transferred without any terms or conditions.”

      On 6th June 2003, Dr. Kachkar said in a letter to the liquidator:

        “there were no material transfers to any person during the period commencing 12 months prior to December 11th 2002 other then inter-company and corporate allocations and/or transfers as was normal company practice in the Miza group of Companies.”

      25. In his affidavit in reply to the liquidator’s application, Dr. Kachkar repeated this justification in different words. He said that the company charges were fully reflected in group accounts and referred to what he described as sample correspondence regarding the group’s “corporate policy of accounting for inter-company transfers and allocations.” The exhibited correspondence does not include any document describing any group policy. It seems to show sums amounting to a total of almost US$800,000 deducted from the Irish companies up to April 2002. These figures do not appear to correspond with the list of transfers exhibited by the liquidator. In any event, they are not quantified, in any way, so as to reflect the value of any services supposedly provided to the Irish companies.

      26. At a telephonic meeting of the board of directors of Miza Ireland Ltd on 10th September 2002, Dr. Kachkar indicated that it would not be possible to continue to trade in the event that Goldshield did not support the specific requirements to improve the performance of the business.

      27. The liquidator brought this application in the High Court by notice of motion dated 6th November 2003. He had reported to the Director of Corporate Enforcement pursuant to section 56 of the Company Law Enforcement Act, 2001. The Director did not relieve him pursuant to that section of his obligation to make application to the High Court pursuant to section 150 of the Companies Act, 1990.

      The High Court Judgment
      28. The learned judge stated that no question arose relating to the honesty of the appellants in relation to the conduct of the affairs of any of the five companies of which they were directors. She pointed out that the liquidator had raised matters for consideration under four headings. The following is an abbreviated version of those complaints:

      1. That the appellants had taken part in the scheme of arrangement when funding had not been provided by Miza Inc.; this was not upheld by the learned judge and is now not relevant, though it remains as part of the background;

      2. The liquidator’s allegation that the appellants permitted or directed the payment of sums and assets to the value of some €2.8 million is central to the appeal. It was contended that these transfers were made on the basis of inter-company charges but without any real basis, legal or otherwise, that the companies were insolvent at the time and were unable to make payments due to the scheme creditors;

      3. The allegation that the appellants procured arrangements for the Irish companies to give security at a time when the companies were insolvent also remains an issue. At this stage, the relevant security is a composite guarantee and mortgage debenture dated 13th September 2002.

      4. The allegation that the appellants permitted the Irish companies to continue to trade while insolvent was not upheld by the learned judge and is no longer relevant.

      29. The learned judge referred to the following authorities: La Moselle Clothing Limited v Soualhi [1998] I.L.R.M. 345; Re Squash (Ireland) Limited [2001] 3 I.R. 35; Re Barings plc. and others; Secretary of State for Trade and Industry v Baker and others (No. 5) [1999] 1 BCLC 433; 360 Atlantic (Ireland) Limited (in receivership and liquidation) [2004] 4 I.R. 266. In particular, the learned judge recalled her own decision in Tralee Beef and Lamb Limited (In Liquidation) of 20th July, 2004), [2005] 1 ILRM 34, where she had “concluded that the court……should also have regard to the duties imposed on a director at common law.” The judgment of this Court on appeal from her judgment in Tralee Beef and Lamb Limited (in Liquidation), now reported at [2008] 3 I.R. 347 had not yet been decided.

      30. Recalling her own judgment in 360 Atlantic (Ireland) Limited (in receivership and liquidation), she said:


        "The fact that the Company is a wholly owned subsidiary within a worldwide group does not appear to alter the legal principles applicable to the duties of directors but rather to create a particular factual scenario which must be taken into account when considering the discharge of those duties."

      Thus she accepted that:

        “. . . it would appear totally permissible and indeed a proper exercise of the duties of directors in the interests of the [Irish] Company for the directors to fully take into account and indeed even to follow the policies adopted for the entire group when managing the business of the Irish Company.”

      31. She explained her general approach to considering whether a director had acted responsibly as follows:

        “whether a director of the wholly owned Irish subsidiary company acted responsibly in the sense of discharging the minimum common law duties, he must be able to establish at a minimum that he did inform himself about the affairs of the Irish subsidiary company as distinct from any other company within the group and together with his fellow directors that he did take real steps to consider and take decisions upon at least significant transactions to be entered into or projects undertaken by the Irish subsidiary company. There must be evidence of a real consideration by the directors of whether significant transactions or operations to be undertaken were desirable in the interest of the Irish subsidiary company or could be said to be for the benefit of the Irish subsidiary company. I readily recognise that in many instances the interests of the Irish subsidiary company may be so intertwined with the affairs of the group as a whole that the answer may be obvious. However, the fact that the answer is obvious does not appear to absolve the directors from at least addressing the question.”

      32. She took into account the fact that the appellants were the only executive directors of other companies within the worldwide Miza Group who were also directors of the Irish companies. She accepted that they were under obligations to all the companies within the Miza Group. She also took into account the fact that they were appointed as directors of the Irish companies at a time when they were coming out of examinership and had obligations under a scheme of arrangement which had been put to and approved by the High Court with their support. She commented on the “straitened financial circumstances” of the companies in the context of the directors’ common-law duty of care.

      33. She said that she could not be satisfied that the appellants had acted responsibly as directors in relation to the control and supervision of the financial affairs of the companies in particular relating to the intra-group corporate charges and transfers out of Ireland to other Miza Group companies and the granting of security in September 2002 to CCL Industries. She commented:


        “Dr. Kachkar and Mr. Carrigan as directors of the companies in the Irish Miza Group do not appear between February 2002 and August 2002 to have taken steps to supervise and control the financial affairs of the Irish Miza companies particularly in relation to transfers of monies from it to other companies within the Miza worldwide group. There is no evidence that Dr. Kachkar and Mr. Carrigan as directors of the Irish companies took any decision in this period as to the appropriateness of the transfers being directed having regard to the then financial situation of the Irish companies.”

      34. Having noted various factors which may have contributed to the difficult financial situation of the Irish Miza group, she observed that “if anything this increased the obligations on Dr. Kachkar and Mr. Carrigan as directors of the Irish companies to control and supervise the financial affairs of those companies.” With regard to the work done by executives of other Miza companies for the benefit of the Irish group, she questioned the appropriateness of the Irish companies making payments to meet such charges at a time when they were unable to pay the amounts due to creditors under the scheme of arrangement as well as being under considerable financial pressure from their own suppliers. She noted the absence of any evidence that the appellants considered or made any decision as to whether these payments were appropriate in the interest of the Irish Miza Group.

      35. Finally, she observed that from the beginning of September 2002 the appellants were properly concerned about the ability of the Irish Miza Group to continue trading. Nonetheless, on 13 September 2002 a debenture was created over its assets in favour of CCL Industries Inc. She considered that no real explanation had been offered as to how it was proper to issue a debenture, given the financial condition of the group.

      36. Accordingly, she was not satisfied that the appellants had acted responsibly as directors in relation to the conduct of the affairs of the companies.

      The Appeal
      37. The appellants, in their notice of appeal, mount a broad challenge to the conclusions of the learned trial judge that they had failed to act responsibly in either of the two principal respects in which she had made adverse findings. They cite, in particular, firstly, the responsibilities and duties owed by them to the entire Miza Group and, secondly, the fact that the Irish Miza Group had been in examinership between May and November 2001.

      38. The points made by the parties on the appeal may be summarised as follows:


        1. In accordance with the decision of this Court in Re Tralee Beef & Lamb Limited [2008] 3 IR 347, the reliance by the learned trial judge on claimed breaches by the appellants of their common law duties as directors entailed an erroneous amplification of the legal principles applicable to a restriction application. The appellants maintain that this case is governed by the decision in Re Tralee Beef & Lamb. The respondent points out that at the date of the hearing in the High Court, the Court had already, on 20th July 2004, in Tralee Beef and Lamb, amplified the La Moselle criteria. The Tralee Beef and Lamb decision was referred to by Counsel for one of the other directors, Mary Buckley and had been opened to the Court. Thus, any amplification of the La Moselle criteria did not occur after the hearing, which was a principal reason underlying the judgment on appeal in Tralee Beef and Lamb.

        2. When due account is taken of the obligations of directors acting within the context of a group of companies, there was no breach by the appellants of any common law duties as directors. The respondent emphasises that the appellants were the executive directors of the Miza Companies and importantly they were also directors of Miza Pharmaceuticals Inc. (“Miza Inc”) a Canadian Corporation and the parent company of Miza Ireland Limited.


      Consideration and Conclusions
      39. The judgment of this Court in Tralee Beef and Lamb and, in particular, the judgment of Hardiman J in that case looms large in the appellants’ submissions, from, firstly, a substantive and, secondly, a procedural point of view.

      40. It is best, prior to any consideration of the case law, to commence by setting out the statutory basis of the exercise of the jurisdiction to restrict persons from acting as directors of companies.

      41. Section 150(1) of the Companies Act 1990 appears in Chapter 1 of Part VII of that Act. That Chapter applies, by virtue of section 149 to any company where it is proved that, at the date of commencement of its winding-up, it is unable to pay its debts. The Chapter applies to any person who was a director of such a company at the date of or within 12 months prior to the commencement of its winding-up. Section 150(1) provides:


        1) The court shall, unless it is satisfied as to any of the matters specified in subsection (2), declare that a person to whom this Chapter applies shall not, for a period of five years, be appointed or act in any way, whether directly or indirectly, as a director or secretary or be concerned or take part in the promotion or formation of any company unless it meets the requirements set out in subsection (3); and, in subsequent provisions of this Part, the expression "a person to whom section 150 applies" shall be construed as a reference to a person in respect of whom such a declaration has been made.
            (2) The matters referred to in subsection (1) are—

            ( a ) that the person concerned has acted honestly and responsibly in relation to the conduct of the affairs of the company and that there is no other reason why it would be just and equitable that he should be subject to the restrictions imposed by this section, or

            ( b ) subject to paragraph (a), that the person concerned was a director of the company solely by reason of his nomination as such by a financial institution in connection with the giving of credit facilities to the company by such institution, provided that the institution in question has not obtained from any director of the company a personal or individual guarantee of repayment to it of the loans or other forms of credit advanced to the company, or

            ( c ) subject to paragraph (a), that the person concerned was a director of the company solely by reason of his nomination as such by a venture capital company in connection with the purchase of, or subscription for, shares by it in the first-mentioned company.

      42. As can be seen, sub-paragraphs (b) and (c), which are to be read in the light of the definitions set out in sub-section (5), exempt directors to whom their provisions apply. Subsection (3) very significantly limits the effect of a restriction under the section. A restriction order does not apply to participation as a director in a company which meets certain minimum nominal and allotted share capital requirements. Following amendment by section 41 of the Company Law Enforcement Act, 2001, these minimum capital requirements are the euro equivalent of £250,000 in the case of a public limited company and of £50,000 in the case of any other company. Nonetheless, the section is mandatory, where it applies. The disqualification must be for a fixed period of five years.

      43. Section 56 of the Company Law Enforcement Act, 2001 imposes an obligation on the liquidator of an insolvent company. Within a specified period after his reporting to the Director of Corporate Enforcement, he is obliged to “apply to the court for the restriction under section 150 of the Act of 1990 of each of the directors of the company, unless the Director has relieved the liquidator of the obligation to make such an application.” As already stated, he was not relieved of his obligation in the present case.

      44. The essential question for the court, in a case such as the present is whether “the person concerned has acted honestly and responsibly in relation to the conduct of the affairs of the company.” The question is further narrowed, in this case, by the express acknowledgement by the learned High Court judge that there was no question touching or affecting in any way the honesty of the two directors. It is fair to say that the liquidator had not made any allegation casting doubts on their honesty.

      45. Thus, what they were required to show, the burden being on them, was that they had acted “responsibly in relation to the conduct of the affairs of the company.” The section does not qualify any further the aspects of “the affairs of the company” in respect of which the directors must be shown to have behaved responsibly.

      46. Murphy J, in his judgment of 21st July 1995, (still unreported) in Business Communications Limited v. Baxter and Parsons examined the restriction provisions of the Act of 1990 in considerable detail. Like all the observations of that great exponent of company law, his opinions concerning section 150 are deserving of particular respect. He considered that these provisions were "of the utmost importance to the commercial community generally and in particular to those who have undertaken or propose to undertake the duties of a director of a company.” It is apparent that Murphy J did not regard the purpose of the section to be limited to protection of the interests of the company itself. He said at page 15:


        “Since the introduction of legislation permitting people to incorporate with limited liability, it has been recognised that the protection which this conferred on those taking advantage of the privilege had to be counterbalanced by statutory provisions to protect and safeguard the interests of those dealing with them.”

      47. He compared the circumstances in which restrictions might be imposed under section 150 and those in which directors might be disqualified under chapter II (in effect, section 160) of the same Part of the Act. In the latter case, he considered that there was a "substantial burden to be discharged before the Court has jurisdiction to make the appropriate order.” This led him to conclude that “the comprehensive nature of a disqualification order…… is seen as constituting an appropriately severe sentence for conduct which is manifestly more blameworthy than merely failing to exercise an appropriate degree of responsibility in relation to an insolvent company in liquidation of which the person was a director.” He continued:

        “ It is hardly unreasonable to require a person who was a director of a failed company in respect of which he committed no misconduct but for which he neglected to exercise an appropriate degree of responsibility from resuming such an office in another company, again with the privilege of limited liability except on condition that a stipulated and not excessive sum was provided for the paid-up capital thereof.”

      48. Murphy J did not, it appears, consider the restriction order in itself to represent a particularly severe sanction, but he observed: "it would seem that the more serious penalty which the restraining order imposes is the stigma which attaches as a result of the making of the order and its filing in the Companies Office.” With regard to the application of section 150, he thought that all that was required was “the exercise of a suitable degree of responsibility.” He continued:

        “Ordinarily responsibility would 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.”

      49. While that passage might give the impression that the learned judge intended to restrict consideration of responsibility by directors to the quality of the record keeping by the company, it is quite apparent from the concluding passages of the judgment that that would be a misreading. He cautioned that:

        “Of course, one must be careful not to be wise after the event. There must be no ‘witch hunt’ because the business failed as businesses will.”

      50. He ultimately refused the directors’ applications for exemption following expressions of opinion that continuing to trade in circumstances which he described was "imprudent in the extreme,” and that, in a particular period, the conduct of the affairs of the company and the making of such payments was "of questionable commercial morality.” These matters went far beyond mere considerations of record keeping.

      51. More recently, consideration of the application of section 150 have generally commenced with the judgment of Shanley J in La Moselle Clothing Ltd. v. Soualhi [1998] 2 I.L.R.M. 345. The learned judge, like Murphy J, commented on the lacuna in the Act arising from the absence of any provision imposing an obligation on any particular party to bring an application before the court for the restriction of a director. This deficiency has now been corrected in section 56 of the Act of 2001.

      52. Shanley J referred extensively to the judgment of Murphy J in Business Communications Limited v Baxter, before stating that “ there are three hurdles that a director [faced with such an application] has to surmount:


        (a) he must establish that he has acted honestly in relation to the affairs of the company.

        (b) he must establish that he has acted responsibly in relation to the affairs of the company.

        (c) he must satisfy the court that there is no other reason why it would be just and equitable that he should be subject to the restrictions imposed by the section.”


      53. He referred to the absence, in England and Wales, of any provision comparable to section 150. He then referred to section 300 of the [English] Companies Act 1985, providing for disqualification of directors found “unfit to be concerned in the management of a company.” In this context, he quoted, an oft-cited passage from the judgment Browne-Wilkinson V.C. in In re Lo-Line Motors Ltd. [1988] B.C.L.C 698 concerning unfitness of directors. That is a question which may arise, in our law, under section 160 of the Act of 1990, but is not precisely the same as whether the director has acted “responsibly.” Nonetheless, the dictum of Browne-Wilkinson V.C. has been found to be of assistance. It is as follows:

        '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 record as directors of insolvent companies have shown them to be a danger to creditors and others … 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.'

      54. Shanley J proceeded to interpret section 150 in the following way:

        “Thus it seems to me that in determining the 'responsibility' of a director for the purposes of s. 150 (2)(a) the court should have regard to:
            a) The extent to which the director has or has not complied with any obligation imposed on him by the Companies Acts 1963-1990.

            (b) The extent to which his conduct could be regarded as so incompetent as to amount to irresponsibility.

            (c) The extent of the director's responsibility for the insolvency of the company.

            (d) The extent of the director's responsibility for the net deficiency in the assets of the company disclosed at the date of the winding up or thereafter.

            (e) The extent to which the director, in his conduct of the affairs of the company, has displayed a lack of commercial probity or want of proper standards.”

      55. McGuinness J, in her judgment, with which the other members of this Court agreed, in Re Squash Ireland Limited [2001] 3 I.R. 31 at 40 said that she found this “passage of considerable assistance in the instant case…” McGuinness J expressed herself as follows regarding the inquiry as to whether a director had acted responsibly:

        “The question before the court is whether they acted responsibly and this, as was correctly stated by counsel on behalf of the respondent must be judged by an objective standard. In the cases of all companies which have become insolvent it is likely that some criticisms of the directors may be made; but to categorise conduct as irresponsible I feel that one must go further.

      56. She added that she agreed with Shanley J that “the court should look at the entire tenure of the director and not simply at the few months in the run up to the liquidation.” She proceeded to examine the behaviour of the directors under a number of headings. Only one of these related to whether the director had complied with the Companies Acts.

      57. It does not appear to me that either the decision of Shanley J or its approval by this Court limits consideration of the responsibility of directors’ behaviour to the first of the headings mentioned by Shanley J, namely the extent of compliance with the requirements of the Companies Acts. As I have already remarked, the judgment of Murphy J in Business Communications Limited v Baxter, while also referring to maintenance of the records required by the Acts, cannot properly be interpreted as limiting consideration of “responsibility of directors” to that issue. It may be, however, that the passage has been interpreted in that way. For that reason, it is necessary to consider the decisions of the High Court and of this Court in Tralee Beef and Lamb.

      58. Finlay Geoghegan J in her judgment in that case, reported as Kavanagh v Delaney, delivered on 20th July 2004, cited briefly from the judgments in La Moselle and In re Squash (Ireland) Ltd. She continued, however, at page 41:


        “I would respectfully suggest that the above matters need the following amplification………………Shanley J at paragraph (a) refers only to the obligations imposed on a director by the Companies Acts. At common law, directors owe duties to the company which are normally divided into duties of loyalty based on fiduciary principles developed initially by the courts of equity and duties of skill and care developed initially by the common law courts from the principles of the law of negligence. There is no suggestion in the above decisions that the courts should ignore these duties. Accordingly, it appears to me that when considering the matters referred to by Shanley J…………………… under paragraph (a) a court should have regard not only to the extent to which a director has or has not complied with any obligation imposed on him/her by the Companies Acts but also with duties imposed by common law.”

      59. Finlay Geoghegan J cited extensively from authority in support of this formulation of the duties of directors. The general principle had been stated in Keane, Company Law (3rd Ed. Dublin, 2000). I will come back to this matter later. The learned author wrote as follows:

        “ the directors owe a duty to the company to exercise skill and diligence in the discharge of their functions.”

      60. In addition, Finlay Geoghegan J cited the decision of Roderick Murphy J in In Re Vehicle Imports Ltd. (in liquidation), [2000] IEHC 90 of 23rd day of November 2000, in which he had approved the summary of directors’ duties given in the judgment of Jonathan Parker J in Re Barings plc (No. 5) Secretary of State for Trade and Industry v Baker [1999] B.C.L.C. 433; [2000] 1 WLR 634. Finlay Geoghegan J cited the following parts of that judgment as approved by Roderick Murphy J:

        • Each individual director owes duties to the company to inform himself about its affairs and to join with his co-directors in supervising and controlling them.

        • Directors had, both collectively and individually a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company’s business to enable them properly to discharge their duties as directors.

        • Whilst the directors were entitled (subject to the articles of association of the company) to delegate particular functions to those below them in a management chain, and to trust their competence and integrity to a reasonable extent, the exercise of the power of delegation did not absolve a director from the duty to supervise the discharge of the delegated functions.

        • No rule of universal application can be formulated as to the duty referred to in (ii) above. The extent of the duty, and the question whether it had been discharged, depended on the facts of each particular case, including the director’s role in the management of the company. (As summarised on page 436)


      61. The Barings Bank case concerned a disqualification order under English legislation. The Bank had famously collapsed as a result of the unauthorised trading activity of an employee, one Nick Leeson.

      62. Finlay Geoghegan J, in Tralee Beef and Lamb, made restriction orders pursuant to section 150 in respect of a number of non-executive directors of the company.

      63. An appeal was taken to this Court by one of the persons in respect of whom a restriction order had been made. Hardiman J delivered the unanimous judgment of this Court. He pointed out that it was undisputed that the company was, at that time of the commencement of the winding-up, unable to pay its debts. He noted the very large excess of liabilities over assets disclosed at that date. The appellant, a chartered accountant and partner in a well-known firm, had been nominated as a director solely to represent the interests of participants in a business expansion scheme. He was not expected to play any active part in the management of the company.

      64. It was an important feature of the case that the liquidator of the company had unsuccessfully petitioned the Director of Corporate Enforcement to be relieved of his statutory obligation to apply for a restriction order. Hardiman J was particularly concerned that the Director of Corporate Enforcement had given no reasons for his decision and had not attended or sought to be heard either in the High Court or in this Court, a result which Hardiman J described as "unfortunate.” The result was, of course, that the liquidator accepted that he had formed the view that the appellant in that case “ had acted honestly and responsibly in relation to the affairs of the company…”

      65. Hardiman J commented at page 354: “ this lends an air of unreality to the circumstances of the present case: the applicant has positively concluded that the fourth respondent [the appellant] did act in an honest and responsible manner in relation to the company.”

      66. Hardiman J noted that the section had been interpreted as placing the burden of proof on the respondent director to show that he had acted “ responsibly and honestly in relation to the company.” While expressing some doubt as to the compatibility of such a provision with fundamental fairness and constitutional justice. he also noted a passage from Keane, on Company Law, the authoritative Irish work to the effect that “the burden of proof rests on the director to satisfy the court that the order should not be made…” In any event, the appellants have not, on this appeal, invited the Court to depart from its established jurisprudence to the same effect.

      67. Hardiman J. in his review of the applicable case-law, cited La Moselle and Re Squash Ireland, before citing the passage from the High Court judgment under appeal in that case, where she referred to “amplification” of the criteria set out by Shanley J. At p[age 357, he described the passage as “central to the result arrived at” and said that the "judgment of the High Court judge [had] discussed common law duties of directors at great length,” describing this amplification of the criteria as the "engine of the finding" against the appellant. It seems to me that the decisive passage in the judgement is the following at page 358:


        “ Having regard to the need to respect the [appellant’s] Constitutional rights, not only to fair procedures to his good name and the associated right to earn a living by the practice of his profession, I do not consider that it was appropriate to "amplify" the criteria for restricting a director after the hearing. Furthermore, I do not consider that the findings against the [appellant] which were in fact made could have been made without such amplification.”

      68. It is apparent from this passage that Hardiman J was predominantly concerned to emphasise the need to observe fair procedures insofar as the appellant was concerned. He was at pains ( page 357) to emphasise that he was "in agreement with these propositions of law enunciated by the High Court Judge,” especially as they were endorsed by a citation from Keane, Company Law (3rd Ed. Dublin, 2000). This discussion might, therefore, be “of the greatest use in future cases under the relevant sections.”

      69. I have found it necessary to discuss the decision in Tralee Beef and Lamb because of the special reliance placed upon it by the appellants. There is a crucial procedural difference between the two cases. At the time of the High Court decision in Tralee Beef and Lamb, it had been assumed, rightly or wrongly, that the criteria adopted by Shanley J in La Moselle, understood as being limited to compliance with obligations to observe the provisions of the Companies Acts, applied unmodified. Hardiman J was concerned that an unheralded departure from or amplification of these criteria would be unfair to respondent directors. Clearly, the present case is distinguishable. The High Court judgment of Finlay Geoghegan J in Tralee Beef and Lamb had been delivered before, even if only the day before, the hearing in the present case and it was referred to in the course of argument at the hearing.

      70. The passage from the third edition of Keane on Company Law in Ireland, is repeated in the Fourth Edition (Tottel publishing, Dublin 2007) at page 374. It is that:


        “The director's owe a duty to the company to exercise skill and diligence in the discharge of their functions.”

      71. The learned author says that this general principle has been broken down in a succession of cases into a number of sub-propositions, "most of them tending to limit or modify the extent of the duty owed by directors.” He cites the leading case of City Equitable Fire Insurance Ltd [1925] Ch 407, where Romer J reviewed the authorities regarding the standard of care expected of directors. Firstly, he said at page 427:

        “In order, therefore, to ascertain the duties that a person appointed to the board of an established company undertakes to perform, it is necessary to consider not only the nature of the company's business, but also the manner in which the work of the company is in fact distributed between the directors and the other officials of the company, provided always that this distribution is a reasonable one in the circumstances, and is not inconsistent with any express provisions of the articles of association. In discharging the duties of his position thus ascertained a director must, of course, act honestly; but he must also exercise some degree of both skill and diligence. To the question of what is the particular degree of skill and diligence required of him, the authorities do not, I think, give any very clear answer.”

      72. Romer J proceeded to identify “one or two other general propositions that seem to be warranted by the reported cases.” They were as follows and are discussed in the ensuing passages in Keane:

        1. “A director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. A director of a life insurance company, for instance, does not guarantee that he has the skill of an actuary or of a physician…………………..It is perhaps only another way of stating the same proposition to say that directors are not liable for mere errors of judgment….

        2. A director is not bound to give continuous attention to the affairs of his company. His duties are of an intermittent nature to be performed at periodical board meetings, and at meetings of any committee of the board upon which he happens to be placed. He is not, however, bound to attend all such meetings, though he ought to attend whenever, in the circumstances, he is reasonably able to do so.

        3. In respect of all duties that, having regard to the exigencies of business, and the articles of association, may properly be left to some other official, a director is, in the absence of grounds for suspicion, justified in trusting that official to perform such duties honestly.”


      73. It seems to me that these passages and much of the supporting citations reflect the more relaxed standards of business in another age. City Equitable concerned an action on negligence on behalf of the company against the directors, where huge losses had been suffered as a result of the fraudulent behaviour of a managing director. It is certainly of assistance to consider the scope of the duties of a director, but section 150 is not concerned with the breach of duties to the company alone. It is broader.

      74. It is always appropriate to keep in the forefront of one’s mind the terms of the applicable statutory provision. The question to be considered, in a case such as the present, where no question of honesty arises, is whether the director against whom an application for a restriction order is made “has acted responsibly in relation to the conduct of the affairs of the company.” The context is, of necessity, a company which is unable to pay its debts. The court should, in the words of Shanley J “look at the entire tenure of the director and not simply at the few months in the run up to the liquidation.”

      75. The respondent has referred the Court to a passage from the judgment of Clarke J in In Re Swanpool Ltd. McLaughlin v Lannen [2006] 2 ILRM 217 at page 224, as follows:


        “One of the most important obligations of any director is to ensure that when a company is facing an insolvency situation, its assets are dealt with in accordance with law. For the reasons identified by McCracken J. in Gasco the actions taken at such a time must be subject to particular scrutiny. While understanding the pressures, which may have been on the directors it does have to be noted that all directors in insolvent circumstances are likely to be subjected to significant pressure. It is their job to resist such pressure and to ensure that the company's assets are properly dealt with. Any significant failure in that regard has to be taken as demonstrating a level of irresponsibility sufficient to warrant making an order under the section.”

      76. Earlier in the same judgment, Clarke J had made remarks which rightly emphasied the need, above all, to consider the responsibility of directors in their context. He thought that, in broad terms there were three types of situation with which the court is typically concerned:

        1. “Issues involving compliance by the company with its formal obligations under the Companies Acts including keeping books and records, making returns, holding meetings and the like;

        2. The commercial management of the company most particularly at the period when the company was insolvent or heading in that direction; and

        3. Compliance by the directors with the obligations identified in Frederick Inns [ reported at [1994] 1 I.L.R.M. 387] to ensure that once the company was facing insolvency its assets were dealt with in a manner designed to ensure the proper distribution of those assets in accordance with insolvency law want to find it but the went.”


      77. In my view, this is a particularly useful classification of the principal settings for consideration of the responsibility of directors in a modern business. It concentrates correctly on the essential question raised by section 150 in a case, such as the present, where no issue of honesty arises. It does not concern itself with formal definitions of the scope of directors’ duties which predominantly concerned the obligations owed by directors to the company itself. The concern of the legislation is wider. The further passage the judgment of Clarke J, like that already cited from Murphy J in Business Communications, demonstrates that directors should also be aware of the interests of persons dealing with the company.

      78. Clarke J went on to make a number of comments which further demonstrate the need to take account, in every case, of context. He said:


        “ The considerations that will apply will necessarily be different depending on the sort of issues that the court is considering. In the first category it is of course particularly important to have regard to the entire history of the involvement of the directors concerned with the company. For the very reasons identified by Murphy J in Costello Doors [High Court unreported 21st July 1995] it would be difficult to make a finding of irresponsibility where there is a relatively short-term failure to comply with formal obligations in the light of an historical compliance with such obligations over a much longer period. On the other hand a failure to comply with formal obligations which might be said to have contributed either to the insolvency or to the knowledge of parties dealing with the company of the likelihood of that insolvency will necessarily be regarded more seriously.”

      These passages from the judgment of Clarke J rightly concentrate on the need to identify the issues which are important in the particular case.

      79. I would not be disposed to limit the matters to which regard should be had or to substitute standardised judicial criteria for the general words of the statute. The judgments of Murphy J, Shanley J, McGuinness and Clarke J show that compliance with statutory requirements may be relevant. On the other hand, whether in that respect or in respect of common law duties, it is not every criticism that enables one, in the words of McGuinness J, “to categorise conduct as irresponsible.” In one sense, it is obvious that a director must behave responsibly. In order to discharge his duties, he must, in the first instance, inform himself about the business and affairs of the company and about his own duties as a director. Circumstances will inform the nature and extent of these duties. Even non-executive directors of companies must be increasingly conscious in the times we live in that they cannot be mere ciphers or purveyors of votes at the whim of management. There was a time when even such a distinguished text as Gower (The Principles of Modern Company Law 3rd Ed. Stevens, London 1969 page 549) could state: “ public opinion has come to recognise that directorships are little more than sinecures, requiring, at the most, attendance at occasional board meetings.” The Act of 1990 itself evinces public concern that directorships involve real responsibility and that persons who do not conform at least to some generally acceptable minimum standards either should not, in the public interest, be permitted or should be restricted in regard to future holding of directorships.

      80. There will usually be a real difference between the duties of executive and non-executive directors. The latter will usually be dependant on the former for information about the affairs and of the finances of the company, a fact which will impose correspondingly larger duties on the former. Tralee Beef and Lamb was a notable example of a non-executive director with little role or influence in the company. As, in the present case, the inter-relationships of companies in a group may affect the extent of a director’s responsibilities. In the light of these considerations, I turn to the present case.

      Application to the present case
      81. The appellants were, in effect, the controlling directors of the companies from the moment of the implementation of the scheme of arrangement. There was only one other director of four of the companies, namely Ms. Mary Buckley. As the liquidator swore in his affidavit, the appellants were much more actively involved in the affairs of the companies than she. The appellants represented the interests of the Canadian Miza group of which the Irish group was, in effect, a wholly owned subsidiary. As already stated, Dr. Kachkar was the majority shareholder, president and chief executive officer of Miza Inc., and Mr. McClellan Carrigan was executive vice-president of that corporation with responsibility for operations.

      82. An outstanding feature of the situation facing the appellants from the beginning was that the Irish group was emerging from examinership burdened with the obligation to repay IR£17.3 million to the creditors of the former Antigen group. It would be unable to meet these payments in the absence of a combination of the subscription of new capital and/or successful trading.

      83. Dr. Kachkar has described his own role as being "to bring to a successful conclusion the acquisition of the Antigen group of companies, including a business and commercial agreement with the Goldshield Group of Companies.” He describes receiving reports from management with regard to the sales, financial, business and technical affairs of the subsidiaries. He received reports from Mr. Carrigan, who was in touch with and visited the Irish manufacturing facilities. He says that there were telephonic conference calls and telephonic board meetings during 2002. Dr. Kachkar explains, in his affidavit, the steps taken to improve the manufacturing and quality systems of the former Antigen companies and describes the persistent difficulties in getting Goldshield to honour the terms of the agreement under which they were purchasing all of the product.

      84. It is quite apparent that Dr. Kachkar was deeply involved in the development of the business and fully aware of its problems. Equally, Mr. Carrigan was directly engaged in detail in the operations of the Irish companies. He also expressed concern about the failure of Goldshield to perform its obligations. He said that in the months from March to June 2002 "the companies failed to generate sufficient cash flow to meet the obligations of operations as well as scheme payments.”

      85. The appellants did not perform the role of being merely non-executive directors. They were fully conscious of the terms of the scheme arrangement and the payments due thereunder. They were aware of and concerned about the failure of the business to perform. They appear to have placed all their faith in Goldshield and attribute the financial problems of the companies to that group. Like the learned trial judge, I find it unnecessary to resolve issues of responsibility between Goldshield and the Miza group. What is relevant is that, to the knowledge of the appellants, the companies were in severe and growing financial difficulties. They do not respond to the liquidator’s complaints regarding the failure of either of the joint-venture purchasers to invest in the companies. The fact is that, whoever was responsible, no new capital was subscribed.

      86. The result is that, from as early as February 2002, the companies were simply unable to meet their obligations under this scheme of arrangement. Nonetheless, from February through to late in August 2002, the Miza parent group caused sums amounting to more than €2.8 million to be extracted from the Irish companies and transferred to the US (€922,000), UK (€1.2 million) and Canadian (€703,000).

      87. I have quoted, earlier in this judgment, the terms of the replies of each of the respondents to this complaint. They say, using identical language, that these payments were "inter-company and corporate overhead allocations and/or transfers as was normal practice in the Miza group of Companies." Mr. Carrigan also said that the funds "were transferred without any terms or conditions." This remark is interesting when considering the affidavit of Dr. Kachkar, which I have mentioned above. The small number of accounting documents proffered seem to show a monthly charge in US dollars, but there is no reference to terms or conditions. It should be noted that the appellants are not saying that they were unaware of these payments. Given their important executive positions in the Canadian parent company, they could scarcely say so and their explanation is referable to claimed normal group practice.

      88. The appellants, in putting forward this argument, appear to ignore entirely the separate corporate existence of the Irish companies and their entitlement to their own property. The learned trial judge accepted that the position of the Irish companies in a worldwide group could “create a particular factual scenario which must be taken into account when considering the discharge of those duties.” She rightly pointed out, however, that:


        “There must be evidence of a real consideration by the directors of whether significant transactions or operations to be undertaken were desirable in the interest of the Irish subsidiary company or could be said to be for the benefit of the Irish subsidiary company.”

      89. The appellants have provided no evidence of independent consideration of the rights and property interests of the Irish company. It may indeed be normal and permissible, within a group of companies, to take account of group policy. That does not mean that the property of one company can simply be transferred, at the behest of the parent, to another company in the group. That would be to ignore entirely the separate existence of each company. The expression “inter-company and corporate overhead allocations and/or transfers” used by the appellants is meaningless in the absence of some form of objective and lawful justification. Even if there were proper documented and quantified justification, a large question would arise as to whether the Irish companies were in a position to make corporate group contributions when they were unable to meet their basic obligations to normal creditors under the scheme of arrangement. Dr Kachkar has sworn that “Goldshield’s delay or refusal to make payments caused the scheme payments to be delayed.” He makes no attempt to explain how, in these difficult circumstances, the companies were, nonetheless, in a position to make payments to other group companies. Two payments are striking: on 28th February 2002 a sum of €185,000 was debited as relating to “the collection by Miza Pharmaceuticals Inc of monies due to Mitek Pharmaceuticals Limited from their sale of tablet equipment to Pharma Machines Limited;” on 28th April €487,751, described as “cash” was transferred to Miza Pharmaceuticals UK Limited, no reason being given.

      90. I am satisfied that the learned trial judge was quite correct to hold that the appellants had not acted responsibly in this respect.

      91. I am also satisfied that she was correct to hold that they had not acted responsibly in the granting of security in September 2002 to CCL Industries. There is no doubt that, by 10th September at the latest, as expressed in the clearest terms in the record of a telephonic board meeting of that date, the appellants were concerned, not to say alarmed about the financial state of the Irish companies and their ability to continue trading. On 9th September 2002 Dr. Kachkar received a letter by fax from Matheson Ormsby Prentice, who had been the Miza solicitors, warning him that “the directors will need to consider whether entering into this security arrangement is in the best interests of the Irish companies (as opposed to only the interests of MPI [Miza Pharmaceuticals Inc.])” Notwithstanding this, on the 13th September, 2002, a debenture creating security over the Irish Miza Group was given in favour of CCL Industries Inc. The learned trial judge noted that the appellants sought to justify this as being based on an earlier contractual commitment. If so, it was a commitment by Miza Inc. She considered that no real explanation had been offered by the appellants as to how it could be proper to issue a debenture in favour of CCL Industries Limited on the 13th September, 2002, in the light of the state of the companies, as disclosed at the telephonic meeting of 10th September.

      92. I am in full agreement with the learned trial judge. It was not responsible to allow security to be created over the assets of the companies at a time when it was becoming very apparent that they were insolvent.

      93. I would dismiss the appeal and affirm the order of the High Court.











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