Sept 11 Twin Tower attacks spelled end for USIT

The USIT Group, which collapsed with debts of up to €155m in 2001, would have survived had it not been for the attack on the Twin Towers in New York on September 11, a High Court judge has ruled.

Mr Justice Michael Peart refused an application by the liquidator appointed to the group to suspend the original directors of USIT World Plc.

The liquidator, Mr Ray Jackson, had alleged that the original directors, Mr Gordon Colleary and his wife, Mairin, and three other named directors had not acted honestly and responsibly in conducting company affairs.

The liquidator had claimed that the directors had failed to file audited accounts since October 1999, maintain proper books and records or convene an extraordinary general meeting of the company.

He also alleged that the company had traded for some time between the year 2000 and 2001 while it was insolvent on a balance sheet basis.

Also because of a lack of records the liquidater had been unable to establish the proper position concerning company employees and had been concerned about Mr Colleary having sold 40% of USIT World to a majority shareholder, Mr Gregory Mc Cauley, for one US dollar.

Mr Justice Michael Peart said in a reserved judgment today that the lack of filing of returns and proper bookkeeping had been blamed by the directors on the sudden resignation of auditors at the time. But he said even if there had been a failure to observe these requirements they had not been responsible for the company’s demise.

The judge also said the directors did not behave irresponsibly in regard to trading difficulties and had put considerable effort into addressing the problems identified.

He declined an application to make a finding of trading while insolvent saying that the directors had taken advice from reputable professional firms to address the difficulties.

Judge Peart also rejected claims that the type of computerized auditing system used had in any way been responsible for the company’s insolvency.

"I am not left with an impression, taking both companies as a whole, Usit World Plc and Usit Ltd., that this was a group which was run in some sort of haphazard, flipshod, reckless or even unprofessional manner," Judge Peart said.

He said there had been sophisticated systems in place to enable the group to function efficiently. There had been no evidence that systems failure had contributed to the collapse of the group.

Highly experienced personnel had been drafted in for key positions of responsibility.

Judge Peart said the catostrophic decline in fortune after August 2001 could be blamed on the decision of the board to buy the remaining 60 per cent shareholding of the U.S. Student Travel Company, TPS, before Ulster Bank funding had been put in place which had been followed by the instantaneous fall-out of September 11.

He said it was in his view the one single act of all the tragic saga for all concerned which leapt out from the final chapter in the story of the USIT group inn 2001/2002.

"It is the very essence of entrepreneurial endeavour that risks are taken," Judge Peart said.

"If an entrepreneur were to be obliged, on pain of being found to be irresponsible and of being disqualified under the section, to avoid taking any decisions which at some date in thefuture might be found to have risk attached to it, the business life and a large component of the economic driver of the economy of the State would stultify," he said.

He did not think that was what the State had in mind when they had drawn up the Companies legisllation.

Judge Peart said Mr Colleary’s decision to complete the CTS purchase with cash reserves in anticipation of a bank loan that had not been formally sanctioned had placed the group in jeopardy but it had been a calculated risk and lacked recklessness or carelessness or willful disregard of the interests of others.

He said September 11 had been the "double whammy" and if that had not happened the group probably would have survived. The reason Ulster Bank had not gone ahead with the loan was because of what had happened at the Twin Towers in New York on September 11.