In Ireland, company directors must act:- in good faith, honestly and reasonably, and in the interests of the Company. They must also have regard to “the interests of the company’s employees in general, as well as the interests of its members”. As we set out below there are serious implications where directors choose to ignore these duties.
Recent Decision
Earlier this year the High Court decision in Kirby v Rabbitte [2020] IEHC 703, provided an example of the serious implications that can arise for directors who choose to ignore their statutory duties. In this case O’Moore J issued one of the longest disqualifications of a company director in Ireland to the Respondent, who had consented to an order for disqualification being made against him.
Section 842 of the Companies Act 2014 (the “Act) provides the court with the power to disqualify directors for multiple reasons and for any period that the court deems appropriate. In the aforementioned case O’Moore J noted that the company involved maintained no books or records and that it appeared to the court that “the only trade engaged in by the company has been the business of fraud” (per O’Moore J, at paragraph 5).
The judgment goes on to note that due to the actions of the Company, Revenue lost substantial amounts which would have been properly due as VAT. In light of these losses and in view of the fact that the Respondent admitted to “knowingly [being] a party to the carrying on of business of Westman with intent to defraud creditors of the company” the court determined that a 15-year disqualification was warranted, but due to the admission it was reduced to 14 years and three months.
When reaching this determination, the court considered the need to protect the public from directors who have a history of unpaid creditors. It was held that disqualifications of over 10 years are reserved for the most serious of examples of fraudulent trading.
Disqualified directors’ details are published on the Company Registration Office’s website in searchable format.
Possible Defences
Where the conduct of a director is in question the first question that should be asked is whether the director acted in good faith and in what the director considers to be the best interests of the company?
Where a company is being wound up and the court determines that adequate accounting records have not been kept, the officers of that company may be personally liable for the debts under Section 609 of the Act.
Accordingly, it is a good idea for directors to take advice from suitably qualified professionals whenever they are unsure about an upcoming decision. Similarly, directors should take time to consider all relevant information before acting to ensure that they have as clear an understanding of the issue as possible.
It is always worthwhile for directors to keep contemporaneous notes of their decisions so that it can be shown at a later date that they considered the information available and acted in accordance with their duties.
The legislation is not unreasonable in this regard and Section 610(8) of the Act provides that, where the court determines a director to have acted honestly and responsibly on behalf of the company, then the court may relieve them of personal liability, depending on the other circumstances of the case.
If you have any queries regarding the conduct of directors or if you would like more information regarding the above please do not hesitate to contact either Brendan Dillon or Conor White on 01-2960666.
