Chairman of kitchen supply firm board denies he acted in a reckless manner
Conor Phelan also alleged Bank of Scotland Ireland (BOSI) continued to provide funds to Delta Homes (Ireland) Ltd (in receivership) after he made it aware company management accounts had been falsified.
Mr Phelan, a non-executive director and principal shareholder of Delta, said he had taken all proper steps in relation to the company and had lost his own entire investment of €5.47 million.
Mr Justice Peter Kelly yesterday transferred to the Commercial Court proceedings in which BOSI wants orders to have Mr Phelan, of Kilnagleary, Carrigaline, Co Cork, and two executive directors of Delta — Peter Hanan, Weavers Point, Crosshaven, Co Cork, and Patrick O’Callaghan, Mount Oval Park, Rochestown, Co Cork — made personally liable for a debt of €1.1m allegedly owed to BOSI.
The judge noted there was general agreement by the parties mediation might be useful and he directed the parties to explore that option.
BOSI claims it advanced some €1.1m to Delta between July 14, 2006, and July 26, 2006 in reliance on management accounts which, it claims, were deliberately falsified by Mr Hanan with the “connivance” of Mr O’Callaghan so as to mask the insolvency of the company. Delta ceased to trade on September 5, 2006.
BOSI claims the suspicions of the board about the authenticity of the management accounts were aroused on May 4, 2006, but Mr Phelan had failed to notify the bank of the fact and nature of the alleged falsification until July 26, 2006.
BOSI claims Mr Hanan had, in a letter of resignation of July 25, 2006, confirmed he had falsified stock valuations “to produce a positive bottom line for the business”, not for any personal gain but to buy some time for “the promised volume in the pipeline to materialise”. It also noted Mr O’Callaghan had stated he was not involved in the false stock taking exercise, but had been summarily dismissed by the board after being told he had a duty, as chief executive, to check the stock-take.
The bank is seeking declarations Mr Phelan knowingly carried on the company’s business in a reckless manner and therefore should be held personally liable for the debts of the company to the bank. In its claim against Mr Hanan and Mr O’Callaghan, it alleges they knowingly carried on the company’s business in a fraudulent and reckless manner.
The application to transfer the case to the Commercial Court was made by Eoin McCullough SC, for Mr Phelan, who said his client denied the claims against him and wanted the case resolved as soon as possible.
In an affidavit, Mr Phelan said BOSI had granted Delta an invoice discounting facility in March 2006 and Mr Hanan and Mr O’Callaghan falsified management accounts for the first quarter of 2006 which overvalued the firm’s stock by €1.3m.
Mr Phelan said he had queried the figures presented to the board in May 2006 and was assured they were based on a full and comprehensive stock-take. He said he only became aware of the evening of July 14, 2006, the draft management accounts were incorrect. He said he had on July 15, asked the company’s auditors, Deloitte and Touche, to immediately investigate and also sought to convene a board meeting.
Mr Phelan said he did not know until the board meeting of July 26, 2006, the draft accounts had been given to BOSI and, when he learned that, he immediately left the meeting to phone the bank.
Mr Phelan also claims he only became aware of the true financial position of Delta on Friday July 21, 2006, when he was presented with draft management accounts. He discussed the matter over that weekend and believed, while the accounts showed an excess of liabilities over assets, the company still had a viable future. It was not possible to bring the board meeting of July 26 forward and another company was retained to negotiate the sale of Delta, he added.
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