Ireland: Delinquent Directors and Others — The Irish Approach

Date01 January 1996
Publication Date01 January 1996
AuthorHoward Linnane
SubjectAccounting & finance
Journal of Financial Crime Vol. 3 No. 3 International
Delinquent Directors and Others The Irish
Howard Linnane
Part VII of Ireland's Companies Act 1990 brought
about significant reforms to counter the abuse of
the privilege of limited liability by directors and
other officers. The new measures are based on
recommendations in the Cork Report but contain
significant differences to the (similarly influenced)
British provisions on disqualification.
Part VII replaced s. 184 of the Companies Act
which had been cast in similar terms to s.
188 of Britain's Companies Act 1948 although
under s. 184 the court could disqualify a person
for any period it might specify and was not limited
to a maximum of five years as in Britain. In prac-
tice s. 184 was rarely used and few people were
disqualified under it.
Chapter 1 of Part VII deals with restrictions on
directors of insolvent companies and provides that
in the event of an insolvent liquidation or receiver-
ship the court must declare that a person who is,
or was during the preceding 12 months, a director
of the company must not for a period of five years
be appointed or act directly as director, shadow
director or secretary or be concerned in the pro-
motion or formation of any company that does not
meet certain minimum share capital requirements,
unless it is satisfied that the person concerned
acted honestly and responsibly and that there is no
other reason why it would be just and equitable to
do so or, subject to that, that he was the nominee
venture capital company, or a financial institu-
tion that did not hold a personal guarantee from
any director or shadow director of the company.
The director affected may apply to the court for
relief from the restriction in whole or in part
within a year but not later.
The Act reverses the normal burden of proof so
that the court is obliged to impose a restriction
order so long as it is established that the company
which is being wound up or is in receivership is
insolvent and that the person concerned is a direc-
tor or shadow director of it, or was within the
previous year, unless he can show that he acted
honestly and responsibly or that he was a nominee
in the circumstances set out above.
The minimum capital requirements are that the
nominal value of the allotted share capital of the
company must, in the case of a public limited
company, be at least IR£100,000 and in the case of
any other company, be at least IR£20,000, with
each allotted share fully paid up in cash, including
the whole of any premium.
A company for which such a restricted director
acts and which is subject to the minimum capital
requirements may not make a loan or quasi-loan to
or enter into a guarantee or give security in con-
nection with any such transaction by a third party
for a director or connected person. If a private
company it is subject to the same statutory restric-
tions (with certain modifications) on the purchase
of non-cash assets as a public company (but
extended to cover directors and promoters as well
as subscribers) and may not avail of the exemption
procedure for private companies set out in s. 60 of
the Companies Act 1963 which prohibits a com-
pany giving financial assistance for the purchase of
its shares. The 1990 Act also imposes certain
requirements as to shares allotted by such a com-
pany which are not fully paid up in cash.
The court may on just and equitable grounds
grant a company contravening these provisions, or
any person adversely affected thereby, relief on
such terms as it sees fit including exemption.
The Cork Committee had expressed the opinion
that there should be a statutory duty on every
liquidator of an insolvent company to consider
whether there were grounds for a restriction-type
application to be made. Part VII does not provide
for this.
In July 1994 in the course of liquidation pro-
ceedings a High Court judge said that the onus of
proving that a director had acted honestly and
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