Director of Corporate Enforcement -v- Byrne HIGH COURT Judgment delivered on May 26th, 2008, by Mr Justice Murphy
JUDGMENT
The court made an order of disqualification against Patrick Byrne, former head of finance and strategy in National Irish Bank, under Section 160(2)(e) of the Companies Acts. It will hear counsel on the period of such disqualification. This judgment is one of three issued on the same day, following the court's examination of the report of High Court inspectors on the affairs of the bank between 1988 and 1998.
BACKGROUND
The report of the High Court Inspectors was published on July 23rd, 2004, and gave rise to the Director of Corporate Enforcement seeking disqualification orders under Section 160 of the Companies Acts against three senior managers. Mr Byrne was Head of Finance and Strategy of National Irish Bank from April 1994 until May 1998. Gerry Hunt had been in this position until December 1993.
Among the issues examined by the inspectors was the bank's compliance with the Revenue Commissioners' requirements regarding the deduction and payment of Dirt tax on deposits, in the light of revelations that some non-resident accounts were bogus. The inspectors were required to report on the identities of those responsible for, or aware of, the practices being investigated. Their inquiries included internal audit, the external auditors, KPMG, as well as the role of senior managers.
On February 9th, 1995, a meeting of senior managers was held in relation to the Dirt Theme Audit. The Theme Audit Report had disclosed that there was a lack of clear and concise guidelines on Dirt compliance issues in relation to non-resident and special savings accounts. The report stated: "This is a risk area and the penalties for non-compliance at the level shown in this report will be very significant."
"Three major audit findings in relation to Dirt were given a high significance rating," Mr Justice Murphy said. "It was clear from the findings that both in regard to non-resident accounts and special savings accounts there had been significant failure on the part of the bank to observe the relevant statutory requirements. The corrective action proposed by internal audit and accepted by management did not include any proposal to deal with the issue of the bank's liability for such arrears of Dirt as might be due in the circumstances."
Mr Justice Murphy examined the state of knowledge of Mr Byrne of the deficiencies in the bank's Dirt regime. His predecessor, Mr Hunt, had written a memo in November 1993 warning of the dangers of a Revenue Commissioners audit of banks' non-resident accounts, and its exposure.
Because of his attendance at the February 9th meeting, the inspectors concluded that Mr Byrne "was aware of the extent of non-compliance in the operation of Dirt-exempt non-resident accounts and ought to have known the consequences of such non-compliance for the accuracy of the returns of Dirt being made by him, or persons under his control, to the Revenue Commissioners".
Mr Byrne gave evidence to the court that he had honestly completed the tax return. He said he was not aware of the existence of bogus non-resident accounts, and that there was nothing in the Dirt Theme Audit to make him change his mind. No one had raised with him the possibility of retrospective tax liability, or an issue of irregularity. He said there was no issue of probity in the 10 years in which he worked with the bank or indeed in the 17 years of his previous employment.
He said that responsibility for the assessment of withholding tax lay with Mr Bowden, head of tax - Europe.
After hearing evidence from Mr Bowden and others, Mr Justice Murphy said: "The court finds that, notwithstanding the role of Mr Bowden as head of tax - Europe, Mr Byrne retained responsibility for making the interim and end-of-year returns.
"Whatever about the position prior to the Dirt Theme Audit Report and the meeting of 9th February 1995, after that point Mr Byrne could no longer assume that the returns made by the branch managers were accurate. Returns made, especially after that meeting without verification from the general managers as to their accuracy, could not have merited the declarations made." He added: "The court does not find it credible that the Dirt Theme Audit Report identifies the problem and the solution only in terms of documentary non-compliance."
The court, having heard the evidence of Mr Byrne, confirmed the inspectors' finding that Mr Byrne ought to have known that the reference to non-compliance affected the accuracy of the returns of Dirt being made by him, or persons under his control, to the Revenue Commissioners.
Referring to whether this justified disqualification, he said Mr Byrne had failed to raise the issue of potential retrospective liability for Dirt on accounts wrongly classified as Dirt-exempt.
"Did this failure amount to a lack of commercial probity? Does it go far enough that it should be categorised as grossly irresponsible or being a danger to the public? Or is such failure ordinary commercial misjudgment?" the judge asked.
DECISION
Mr Justice Murphy examined the case-law, including Re Ansbacher: Director of Corporate Enforcement -v- Collery, where there were clear findings of tax evasion. He said: "No such findings were made in relation to Mr Byrne. The court finds no evidence of gross negligence or total incompetence, nor a danger to the public."
He said the question to be determined was whether there was a lack of commercial probity. "Such probity is required, not alone in regard to the discharge of one's responsibility to the company, but also to its creditors. The creditors include, of course, the Revenue Commissioners."
Referring to the fact that Mr Byrne "felt that declarations were a matter for branch managers and tax was a matter for London", he stated: "The court is not satisfied with such explanation. It believes that, in the circumstances, following the meeting of 5th February 1995, Mr Byrne had the responsibility to raise the issue, and failed to do so.
"The court finds that Mr Byrne, in the circumstances, displayed a lack of commercial probity." Mr Justice Murphy said he was mindful of making an order under s. 160(2)(e) and said he would hear counsel in relation to a period for such disqualification.
The full text of this judgment, and the related judgments, is available on www.courts.ie
Maurice Collins SC and Eileen Barrington BL, instructed by Ann Keating of the ODCE (for the applicant); Michael Collins SC and John Hennessy BL, instructed by McCann Fitzgerald (for the respondent)