The recent High Court decision in Patrick O’Connell v Ciaran Butler and Colum Butler [2025] IEHC 358 draws attention to both the duties of directors of multiple companies within a group structure as well as the level of caution that landlords should exercise when granting a commercial lease.
Background
A restriction application was brought by the liquidator of Downtul Limited (“Downtul”) against two directors of the company, brothers, Colum Butler and Ciaran Butler, following the commencement of a creditor’s voluntary liquidation of the company. The brothers were also directors of a related company, Atercin Liffey Unlimited Company (“Atercin”).
The central issue in this case is that Downtul entered a lease on 19 December 2013 for a ground floor commercial premises at St. Stephen’s Green Dublin, which was subsequently occupied and operated as a Starbucks café by Atercin, on the basis of an informal agreement with no enforceable legal obligation on Atercin to pay rent. Downtul essentially bore all of the obligations of the lease while having no trade, operations, or revenue-earning capacity to meet the obligations of the lease.
Atercin paid a fee to Downtul only when Downtul requested same to cover the cost of the rent. During the covid pandemic, Atercin occupied the property rent free for a period of 2.5 years, while receiving financial support from the Government. Throughout that period, Downtul received no contribution from Atercin towards the rent and was therefore unable to pay its debts as they fell due. As there was no formal arrangement in place, Downtul had no enforceable mechanism to recover monies from Atercin to discharge the rent.
Judgment
Ms Justice Nessa Cahill noted in her judgment that it was irresponsible for Downtul to hand over the property without any enforceable or documented mechanism to secure payment of rent. She also noted the respondents submitted “striking evidence” to the court whereby they disclosed an arrangement in which one company permits another to have the full use and benefit of its one asset with no guarantee of payment and noted that the directors based the arrangement on them personally knowing about the other company’s liquidity and having a confidence or a ‘feeling’ that they can access the money. The court held that this was not a responsible approach to Donwtul’s affairs.
The directors argued that the arrangement comprised a typical structure within the group and insulated both companies from risk. The directors did not have any board meetings or minutes evidencing the arrangement and advised the court that they were common directors and common members of the two companies and that it was like “…taking your right hand to your left hand…”. The Court concluded that on consideration of the evidence, the directors paid “… no attention to the separate legal personality or rights of Downtul or Atercin with regard to the occupation of the Property or the payment of rent, save when convenient to do so.”
The Court held that the asserted arrangement with Atercin had the impact of favouring Atercin at the expense of Downtul and its creditors. The Court further noted that the informal agreement between the two related companies was fundamentally at odds with the need to ensure protection of Downtul as a separate legal entity.
Notably, the Court held that a structure can be used whereby one company is the lessee of a property in which a separate company is the occupier however there needs to be clear and enforceable terms and conditions governing the rights and obligations of such parties to such an arrangement.
In addition to the failure to act responsibly in respect of the lease of the property, the Court held that the director’s failures to keep the minutes of board meetings since 2017 and the omission of material disclosures from financial statements of the companies led to a finding of irresponsibility and the granting of a restriction order against both directors.
The effect of the restriction order is that both directors are now restricted from acting as a director or secretary of a company for a period of five years, unless the company meets certain requirements as laid out in section 819(3) of the Companies Act 2014. This will have significant consequences for the two brothers as they act as directors for 134 and 170 Irish companies respectively.
What Can Company Directors Learn?
Directors of multiple companies within a group should not enter into any informal agreements within the group whereby one company bears all the obligations and risks while the other company enjoys all the benefit with complete insulation from any risk. Being a director of a group of companies does not absolve a director from its duties and obligations and in particular the requirement to separately consider whether transactions are in the interest and for the benefit of each of the individual companies. This case should act as a reminder to directors to ensure that the creditors of each company are offered sufficient protection and that all financial decisions are sufficiently documented and recorded.
Landlords Beware
The decision also acts as an important reminder to landlords of commercial properties that the act of allowing one company to occupy and operate from a premises while another related company holds the lease for the premises is not, in itself, unlawful. Landlords granting commercial leases ought to be mindful to ensure that clauses dealing with sub-leasing, assigning, and sharing of occupation of the premises, whether within a group of companies or not, are carefully drafted. Otherwise, a landlord could find itself in a position of seeking payment from a shell company of little or no means.
Contact Us
Should you require more information on the roles and responsibilities of company directors, please contact Michelle Cross in our Corporate and Commercial department.
Should you require more information on commercial leases, please contact Colm Tobin in our Commercial Property department.
