Directors In The Dock - Restrictions And Disqualification

Author:Mr John Doyle
Profession:Dillon Eustace
 
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  1. Introduction

    The culture of corporate enforcement has become a very real

    issue for directors. In the last two years in particular there

    has been an increase in the number of directors who have found

    themselves in the High Court facing applications to restrict or

    disqualify them for various breaches of the Companies Acts or

    their general duties as directors. A restriction or

    disqualification order obviously has extremely serious

    implications for a director and any company they are involved

    in. This article looks at the two relevant sections of the

    Companies Acts and the approach taken by the Courts.

    The Company Law Enforcement Act 2001 requires a liquidator

    of an insolvent company to report to the Director of Corporate

    Enforcement and then to apply to the High Court for the

    restriction of each of the directors of the company, unless the

    Director of Corporate Enforcement has relieved the liquidator

    of the obligation to apply. If a liquidator does not do so he

    is guilty of an offence. The provisions relating to liquidators

    apply equally to receivers. Therefore, the likelihood of

    directors appearing in Court has increased significantly.

  2. Restrictions

    Section 150 of the Companies Act 1990 ("the Act")

    allows the Director of Corporate Enforcement, a liquidator or a

    receiver to apply to have a person who was a director or shadow

    director of an insolvent company within 12 months prior to its

    winding up, restricted from being appointed or acting in any

    way, whether directly or indirectly, as a director or secretary

    or being concerned or taking part in the promotion or formation

    of any company unless that company meets certain requirements

    relating to share capital. The names of restricted directors

    are kept in a register maintained in the High Court.

    This does not apply where a person was a director simply

    because he was nominated by a financial institution as part of

    a credit facility (provided that the financial institution has

    not obtained a personal guarantee from a director of the

    company) or where a person is a director as nominee for a

    venture capital company in connection with a share

    purchase.

    The application is based on an affidavit sworn by the

    liquidator setting out all the facts he considers should be

    brought to the attention of the Court for the purpose of

    determining whether the director has acted honestly or

    responsibly in relation to the conduct of the affairs of the

    company or whether there is any other reason for which it would

    be just and equitable to restrict the director. If the director

    wishes to contest the application, he must file an affidavit

    setting out his reasons for contesting the application.

  3. Mandatory Period

    The Court must impose a five year restriction unless the

    director can convince the Court that he acted honestly and

    responsibly in relation to the conduct of the affairs of the

    company and that there is no other reason why it would be just

    and equitable that he should be subject to the restriction. The

    onus of establishing that he acted responsibly rests on the

    director. The Court has total discretion in respect of ordering

    any party to pay costs and in some cases may...

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