Top club operated under form of thieving -- judge
EXCLUSIVE private members' club 'Residence' operated under "a form of thieving" in which employees' tax contributions were used to subsidise the business, a court heard yesterday.
Residence directors, the well-known restaurant owners Simon and Christian Stokes, are seeking a continuation of court protection because of its financial difficulties. Residence opened in May 2008 and is a favourite haunt of celebrities and Dublin socialites.
Mr Justice Peter Kelly said it was effectively subsidised by the "hard-pressed Irish taxpayer" through employees' tax deductions not been passed on to the Revenue Commissioners, who were owed €1.2m.
He said it was "a form of thieving" to use employees' money deducted for PAYE and PRSI contributions to subsidise a business.
The laws on examinership were not intended to provide "a form of absolution for recalcitrant directors", the judge added.
After being told by chartered accountant Paul Wyse that many companies were "regrettably" doing the same thing, the judge said the accountancy description of such tax money as "working capital" appeared "extraordinary" and gave "a form of respectability to money being improperly used" by a company. Mr Wyse agreed.
Earlier, counsel for the directors of Missford Ltd, the holding company for Residence, accepted they bore ultimate responsibility for the conduct of its business.
However, counsel said, they did not know the employee tax contributions had not been passed on to the Revenue until the Revenue itself initiated an audit after the company claimed a VAT refund.
Saying the case raised "very serious" issues, Mr Justice Kelly postponed to next Wednesday a decision on whether to continue court protection for Missford, which employs 58 people.
The club has 1,450 members and its initial fees were €1,600 a year, plus a €250 joining fee.
Pending the court's decision, interim examiner Jim Stafford continues in place and the judge has also made orders for payment of wages. The application for protection was supported by all the creditors, including Zurich Bank -- owed more than €2.3m -- while the Revenue said it was "very guardedly neutral".
Rossa Fanning, for the bank, said Missford's directors had provided personal guarantees over loans and the bank also had charges over insurance policies.
Alison Keirse, for the Revenue, said it had "the gravest of concerns" about the ability of the management of Missford and had heard nothing in court to give it any comfort. There must be a change of management, she said.
Missford's directors had claimed the underpayments of tax were attributable to a previous financial controller, but the Revenue asserted the directors bore ultimate responsibility.
While a new financial controller had been put in place, the Revenue had difficulty seeing how the company could pay taxes as they fell due given it had never done so.
The Revenue was also concerned Missford had made no profit since it began operating in May 2008 and that the evidence to the court was all based on projections.
If court protection was granted, counsel said, the Revenue would expect the examiner to report back to the court within a very short time on his investigations into certain payments made about which the independent accountant had expressed concerns.
In seeking protection, Lyndon MacCann, for the company, said Mr Wyse, in his independent accountant's report, believed the company had a reasonable prospect of survival.
The club had gone against the industry trend by increasing its membership by 45pc to 1,450 in 2009 and there were no membership cancellations since the interim examiner was appointed. Both directors were also taking 33pc cent salary cuts, leaving them with salaries of €1,000 weekly in one case and €900 in the other.
Whatever "irregularities" predated this application could be dealt with in the scheme of arrangement, counsel added.
In evidence, Mr Wyse said the club was a "unique" venue, he believed the projected levels of growth were attainable and the business was viable. There were expressions of interest from four potential investors and some €1m in investment would be required, he said.
The court also heard Missford loaned €616,000 to related companies Mayfair Properties Ltd, which traded as Bang Cafe, and Auldcarn Ltd, a subsidiary of Mayfair, both of which were unable to repay the loan and were in liquidation.