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| Timely Reminder to Non-Executive Directors to “Get Involved” in Company Activities |
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By
Conor Sweeney, OmniPro
Apr 24, 2012 |
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Mr. Justice Kevin Feeney has issued a timely reminder to all Directors and in particular Non-Executive Directors to keep a close watch on the companies they act as Director or face restriction or disqualification by the High Court in a recent case.
The Judge found evidence of conduct which can be equated with reckless trading in JR Shaft Bearing Limited prior to the company going into Court liquidation in January 2008.
The Judge said he intended to disqualify the Managing Director of the Company Patrick Fagan from ever acting as a Company Director. He said Mr Fagan “was guilty of not only a lack of commercial probity but also of conduct that can be equated with reckless trading”.
The Judge said he would impose restriction orders on two non-executive directors, Joseph Kenny and Noreen Kenny. The non-executive directors provided company secretarial services to the company, however the Judge said both directors had failed in their obligations as directors through “lack of involvement or oversight of the company and failed to any real extent to inform themselves about the business and affairs of the company”.
The Judge will issue the restriction and disqualification orders and will determine the length of the orders at the end of April.
It is important for all Directors to be aware of their duties and responsibilities to any company that they act as Director. In particular “Non-Executive” Directors should ensure that they are fully aware of the activities of the company and request and obtain all necessary information to perform their duties. They should also be able to devote sufficient time to each company.
Essential Advice for Companies Facing Financial Difficulty
- Hold frequent Board Meetings to assess the financial, trading & solvency position of Co.
- Ensure up-to-date key financial & trading information is available & considered
- Take financial & legal advice
- Keep the bank, creditors, employees & customers informed
- Document all key decisions made & advice taken
- Don’t bury your head in the sand & put off difficult decisions
- Don’t prioritise creditors incorrectly (particularly directors & connect persons)
- Don’t mislead the bank, Revenue, suppliers or your accountant
Restriction & Disqualification
A Director faces restriction proceedings when their company is placed into Creditors or Court Liquidation. A Liquidator is statutory required to take restriction proceedings against the Directors of the company unless they have been granted relief by the Office of the Director of Corporate Enforcement (“ODCE”).
The ODCE grants relief to Liquidators in approximately 90% of cases however, of the cases that do go before the High Court approximately 95% of directors are restricted or disqualified.
To avoid a restriction order each Director must prove to the Court that they acted “honestly and responsibly and that there is no other reason why they should be restricted”. If a restriction order is granted the Director cannot act as a Director or Secretary of a company for the period of the restriction, usually 5 years, unless the company has been capitalised to a certain amount.
Directors may also be disqualified by the High Court on foot of a liquidation if their conduct is deemed so serious that it warrants a disqualification order. The liquidator must prove to the court that director’s conduct justifies a disqualification order.
A Director may also be disqualified for the following actions:-
- the person, while acting as a promoter, officer, auditor, receiver, liquidator or examiner of a company, has been guilty of any fraud in relation to the company;
- such person has been guilty of breach of duty;
- the person has been made liable for reckless trading;
- the conduct of the person while acting as a promoter, officer, auditor, receiver, liquidator or examiner of a company, makes him unfit to be concerned in the management of a company;
- in consequence of an inspectors' report, the conduct of any person makes him unfit to be concerned in the management of a company;
- a person has been persistently in default in relation to any provision of the Companies Acts relating to the filing or delivery of documents.
The most common disqualification order is for Directors of companies who were struck off the Register of Companies for failure to file annual returns and the Directors could not prove that at the time of the company being struck off there was not outstanding debts or that they debts have been settled before the disqualification proceedings have been commenced.
For more information on Directors Duties click here to access a recent article on Directors Duties & Responsibilities.
If you have any company law queries or require assistance with company formations or drafting company secretarial documentation, please contact Conor Sweeney on 059 9183888 or csweeney@omnipro.ie.
Conor Sweeney,
OmniPro,
Unit 3, South Court,
Wexford Road Business Park,
Carlow.
059 9183888
csweeney@omnipro.ie
Twitter:- www.ConorOnTwitter.com
LinkedIn:- www.ConorOnLinkedIn.com
www.omnipro.ie
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