Directors In The Dock - Restrictions And Disqualification

Author:Mr John Doyle
Profession:Dillon Eustace

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


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...

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