IT WAS not unusual for company directors to confuse and misconceive increased turnover as improved profitability, a High Court judge said yesterday.

Mr Justice John MacMenamin held that brothers Michael and David Rochford, directors of MDN Rochford Construction Ltd, Blanchardstown, Co Dublin, had acted irresponsibly in running their company, currently in liquidation.

He said it was the directors’ responsibility to ensure there were management accounts available to them to ascertain whether, on a month by month basis, that the company was trading profitably.

This was not to impose a counsel of perfection on directors, it was prudence to ensure that an enterprise was not over-trading.

“Monthly management accounts and a clear assessment of where the company is going are as essential to company directors as navigation instruments are to a pilot,” the judge said. They could not excuse the fact that they had been “flying blind” for an extended period by asserting that their duties had simply been delegated to someone else.

He adjourned the making of an order until October next declaring that the Rochfords should be banned for five years from acting as directors of a company. He said that while they acted irresponsibly, they did not act dishonestly and incurred significant losses through loans and guarantees.

The documentary evidence available to the court did not even begin to indicate that the Rochfords had been engaging in a continuing assessment of MDN’s profitability or paying tax liabilities as they had fallen due, he said.

They appeared to confuse total turnover figures, which may have been achieved from potential future contracts, as being in themselves entirely potential profit sufficient to redress previous losses.

“There comes a point where optimism becomes hubris and where belief that a company can trade out of its difficulties is simply wilful self-delusion.

“Commercial acumen is necessary. Hope must be matched by verification and objectivity. The absence of all of these necessary characteristics constitutes irresponsibility and they were unfortunately absent here,” he said.

The company, which had done a lot of work for Dublin City Council, had never been profit-making as the brothers claimed and they had never taken into account tax and VAT liabilities. Even now they did not seem to appreciate the difference between profit and turnover.

He said that on October 9th, he would make orders under Section 150 of the Companies Act barring the Rochfords from holding a directorship or acting as secretary of a company subject to one proviso – that no case was made that they had acted dishonestly.

He felt the extent of the sanction should be proportionate and the Rochfords could apply to the court under Section 152 for relief from the restrictions.

In the light of the evidence as to the Rochfords’ honesty and if there was sufficient proof they educated themselves on the reality of running a firm and their duties as directors, a court may consider it just to reduce the restrictions.