Restriction Of Directors

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Section 150 CA 1990

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Restriction of Directors that become involved with another company in order to safeguard creditors. Used to combat 'Pheonix Syndrome'

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Who Can Apply for An Order?

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Prior to the 2001 act, a liquidator had discretion on whether or not to apply. Now, under s56, obliged to make an application, unless DoCE directs otherwise.

Business Communications v Baxter critisised the procedure whereby it was left to the liquidators to decide.

Now, within 6 months of appointment must send report to DoCE and if no reply within 3 months he must bring restricition proceedings.

Re Verit Hotel highlighted the mandatory nature of the proceedings as no power in the liquidator to intimate proceedings would be 'settled'.

S150(4A) DoCE, Liquidators and Recievers can make an application. They may also order directors to pay costs under s150(4B)

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About the Restriction

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Once restricted, cannot become director, secretary or promoter of a company for 5 years unless a number of criteria are met. A company but be insolvent for the restriction to apply and be filed for winding up (unless the DoCE directs otherwise). Applications only where co. is insolvent on winding up.

Re Lo-Line Electric Motors Ltd "the primary purpose of the section is not to punish the individual but to protect the public against the future conduct of companies by persons whose past records...have shown them to be a danger to creditors and others".

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Who Can Be Restrticted

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s149(2) holds that shadow directors, directors and other forms of directors of insolvent companies which are being wound up due to inability to pay debts. They must have held this position in the 12 months prior to winding up.

Fennell v Carolan directors had resigned, leaving B10 form on secretary's desk who never recieved them. They were excluded from proceedings.

Re Gasco Ltd the primary use of the s150 order is to deal with directors who have behaved irresponsibly or dishonestly during the last 12 months of the company's life.

Re Squash (Ireland) Ltd in deciding irresponsibility regard should be given to the totality of the directors tenure

McLaughlin v Lannen acts become more significant in the leading up to winding up

Re USIT Ireland only directors during 12 months prior to winding up

Re Lynrowan Enterprises Ltd de facto directors subject to restrictions also

Gray v McLoughlin 1 director was de facto as per

Sec of State for Trade v Tjolle test for de facto

Re Kaytech International 'director' within s2(1) of the 1963 CA includes a person occupying the position of director.

Re Worldport Ltd a parent company could be a shadow director and therefore be restricted.

Re Euroking Miracle applicable to non-resident directors

Re Tralee Beef & Lamb Ltd nominee directors appointed to safeguard the interests of investors will not be restricted.

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Consequences of a Restriction Order

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The sins of the director follow him to other companies in which he is involved. He must notify a new company within 14 days that he is restricted. There must be a minimum share capital of €63,500 in a private co and €317,500 in a public co. S155 also provides that no financial assistance be given to the director. S157 provides that the HC can provide relief from the above restrictions set out in s155 if it deems it is just and equitable to do so. Under s161 a failure to comply with the order is a criminal offence with penalties (s240) of 12 months/€1270 or 3years/€12,700

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Defences

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-Acting honestly and responsibly

-Appointment by a financial institution

-Appointment by a venture capital company

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Acting Honestly and Responsibly

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In the Matter of Costello Doors Ltd 2 directors not irresponsible because the person hired to take care of records had fallen ill

La Moselle Clothing with regard to obligations imposed by the CA

-the extent to which conduct was incompetent to amount to irresponsibility

-the extent of Director's responsibility for insolvency

-the extent of Director's responsibility for net deficiency in the assets

-the extent to which the Director has displayed a lack of commercial probity or want of proper standards.

Re Mitek Holdings Ltd granted transfer of £2.8mill out of group of co's. Irresponsible

La Moselle Clothing no attempt made to wind up even when insolvency clear.

Re Squash Ireland must go beyond commercial errors and misjudgments.

Re Tralee Beef & Lamb test to consider obligations imposed not only by legislation but also general duties.

Re Barings Ltd must supervise delegated duties

Kavanagh v Reidler where non-exec director on notice of facts which indicate that he should not rely on info given my exec's, irresponsible

McLaughlin v Lannen one incident can give rise to irresponsibility - paying some creditors in preference to others

Business Comm v Baxter records of the co must exist on such a form as to enable auditors to understand and follow transactions

Ray Vehicle Imports Ltd generally books and records are the responsibility of all directors.

Re Verit Hotel & Leisure use of PAYE and PRSI money towards contributions - totally irresponsible

Re Digital Channel Partners failure to pay tax returns over a limited period of time would not give rise to irresponsibility.

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Section 152 and Lifting the Order

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This section permits the courts to disapply a restriction order in whole or in part so long as application is brought within one year and where it is just and equitable to grant relief. Subsequent behavior following the winding up order should also be considered, such as cooperation with the liquidator, as seen in Fennell v Carolan.

In Robinson v Forest the company was wound up in 1992 and orders against 2 directors, 1 contested the restriction. Lifted on just and equitable grounds. Wide discretion.