Supreme Court dismisses appeal against director disqualification for failing to act responsibly during company insolvency.

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.