disqualification Flashcards
what sections deal with disqualification and what is the definition
- Chapter 4 Part 14 provides for the disqualification of directors – ss 838-846.
- A disqualifies person cannot take part in the promotion, formation, or management of any company for the duration of his disqualification for such period as the court thinks fit (minimum 5 years).
definition
- Section 838 defined disqualification as “ … an order under this Part [i.e. Part VII of the 1990 Act] that the person against whom the order is made shall not be appointed or act as director or other officer, statutory auditor, receiver, liquidator, or examiner or be in any way, whether directly or indirectly, concerned or take part in the promotion, formation or management of any company or any friendly society or any other industrial and provident society registered under the Industrial and Provident Societies Acts 1893 to 1978.”
the test for disqualification
- Re Kentford Securities – two step test:
a. Does the conduct fall within the statutory categories?
b. Should the Court exercise its discretion to disqualify?
automatic disqualification
- section 839 - Can happen in certain events. The most important is conviction on indictment of any indictable crime in relation to a company or involving fraud or dishonestly generally
grounds for automatic disqualification
- Examples of grounds for director restriction or disqualification include:
A restricted director continuing to act as a director in breach of their restriction
A conviction for a relevant indictable offence (e.g., fraud or dishonesty) will automatically lead to disqualification without the need for a separate HC application. The disqualification lasts for five years from the conviction date, though the court can set a different period on application by the prosecutor or defendant. - The effectiveness of the disqualification regime depends on the director’s honesty, as the State lacks the means to monitor whether a disqualified director continues to act in that role, introducing an element of self-regulation that can be a potential weakness in the legislation.
- Also occurs where:
A person disqualified as a director in another jurisdiction must notify the CRO, or face penalties under sections 840-841 CA 2014. For example, a UK disqualification automatically applies in Ireland.
person convicted of breaching a restriction order (if not already disqualified) faces penalties under section 855 CA 2014.
voluntary disqualification why apply and who sends the application
- Section 850 – in order to save time and costs, a person may agree to submit a disqualification in certain circumstances.
- Section 850(2) – This applies when the Director of the CEA has reasonable grounds to believe that grounds for disqualification exist for a person. The Director must send a notice to the person informing them of this.
the formalities of the voluntary disqualification
- A liquidator must submit a report under the 2014 Act within six months of their appointment, which is then sent to the CEA. The CEA cannot pursue disqualification without this report from the liquidator.
- Ss 850(3) and 851(6) – the notice must set out the grounds for the CEA’s reasonable beliefs.
- S 851(6) – the CEA Director cannot use this Voluntary process where he is aware that a formal application for Disqualification has already commenced against the person or where the CEA Director is of the opinion that a period of Disqualification longer than 5 years is justified by the facts and circumstances of the case
- S 851(4) Once the disqualification acceptance document is signed, the person is subject to a Disqualification Order, with the period starting from the date specified in the CEA Director Notice – s 851(5). The notice includes the acceptance document, and the disqualification period begins from the date the notice is sent, not when signed.
- S 847(4) – under this procedure, the CEA Director isn’t permitted to grant any subsequent relief of the Disqualification Order. The person disqualified must apply to the HC who may grant relief if it considers it just and equitable, and only on conditions as it sees fit.
benefits of the voluntary disqualification
- Saves costs: avoiding HC proceedings can prevent the significant costs of a case, including court fees if you lose.
- Saves reputation: signing the acceptance form avoids media attention, which can harm your reputation more than going to court.
application for disqualification - who can apply
- S 842 – specified persons may apply on specified grounds for a disqualification order – Director of Corporate Enforcement, members, contributories, creditors, officers, employees, receivers, liquidators, examiners.
- This happens where the director does not sign the acceptance letter – the CEA then applied to the HC for disqualification
grounds for disqualification
- Section 842 – grounds for disqualification:
a) Fraud or
b) breach of duty relating to the company
c) Fraudulent/reckless trading under s.610 CA 2014
d) Conduct as a promoter, officer, auditor, liquidator, etc. showing unfitness inspector’s report or CEA Director’s finding of unfitness
e) Persistent defaults in statutory obligations
f) Two + convictions for failing to keep proper books (s.286 CA 2014)
g) Director of a company struck off under s.727 CA 2014 with unpaid debts
h) Foreign disqualification for conduct that would be disqualifiable in Ireland - Restriction orders are mandatory unless the respondent successfully proves a defence. In contrast, disqualification orders are discretionary; even if the statutory grounds are met, the High Court may choose not to impose one.
who has a burden of proving that a person should be disqualified
- Business Communications Ltd v Baxter, Murphy J emphasised that there is a substantial burden on those seeking a disqualification order.
- There is ongoing criticism that white collar crime is not treated as seriously as other offences, with courts often reluctant to disqualify directors despite meeting the legal criteria.
fraud
- section 842(1)
- The meaning of ‘fraud’ in company law appears to be confined to its criminal sense, requiring proof of criminal intent (mens rea), as seen in Re Barnroe Ltd. Negligence or incompetence alone is not enough.
- However, for disqualification orders, the HC has held that fraud only needs to be proven on the civil standard—the balance of probabilities—as established in Re TMC Mediaworks Ltd. This lower standard explains the court’s caution in finding fraud in company law contexts.
unfit to be concerned in the management of the company
section 842(d) -
- Incompetence or negligence tends to lead to restriction, while dishonesty may justify disqualification for unfitness. Irresponsibility under section 819 CA 2014 alone is not enough.
- English case law highlights a lack of probity or commercial morality, including transferring assets of an insolvent company to another controlled by the directors, reckless trading, failure to maintain proper books, submit returns, or pay tax.
While these can justify restriction, in more serious cases they may support disqualification.
what is the purpose of disqulification
- Re Cladrose – It is a protective power aimed at shielding the public from individuals who lack commercial probity, exploit others for personal gain, or recklessly pursue unjustified ventures under the cover of limited liability—leaving creditors to bear the loss when failure was foreseeable.
what kind of conduct leads to disqualification
- Re Dawson Print Group – disqualification order requires conduct that, while not necessarily dishonest, breaches commercial morality or demonstrates gross incompetence—enough to convince the court that allowing the person to continue managing companies would pose a danger to the public. Each case depends on its specific facts.
- The line between restriction and disqualification can be blurred. However, a way to differentiate – to assess the seriousness of the actions, danger to the public.
- Cahill v Grimes – the SC approved Browne-Wilkinson V.C.’s statement in Re Lo-Line Motors Ltd: the aim of disqualification is not to punish but to protect the public from directors whose conduct with insolvent companies shows them to be a risk to creditors. Ordinary misjudgment is not enough. Disqualification generally requires a lack of commercial probity, though in extreme cases, gross negligence or incompetence may suffice.
o This case highlights the critical importance of maintaining proper books and records. The respondent attempted to prevent the official liquidator from accessing the company’s records by disposing of them via waste collection, believing it would help preserve jobs. The court found that his failure to grasp the seriousness of his actions showed unfitness for company management, and he was disqualified as a director. - In English decisions, a key factor is whether a person is responsible for the company’s tax non-payment. In Cladrose, it was held that this is more serious than failing to pay regular debts. If tax debts are not paid, it should be noted that this is more serious than ordinary debt.
- Re Wood Products – the company failed to make returns for 13 years. When struck off and later restored, the directors were ordered to make tax returns, which they did.
Laffoy J. found the respondents’ actions irresponsible but not lacking in commercial probity. While their conduct was close to crossing the line, she felt it had not reached that point, noting that they had remedied their default when the CEA applied. - Re Nationwide Transport Ltd – the respondents transferred assets to a third party in preparation for the company’s liquidation. Directors are generally expected to preserve the company’s assets for the benefit of creditors. This included debts owed to the company, and creditors were misled about the number of people who owed money.
O’Leary J. ruled that misleading creditors demonstrated a lack of commercial probity, and diverting debts to a third party showed a gross lack of commercial probity.
‘persistent default’ in relation to any provisions of the CA requiring any return, account or other document to be communicated to CRO
section 842(f) - ) provides for disqualification where “a person has been persistently in default in relation to the relevant requirements”. This phrase of “relevant requirements” refers to the making of any returns, accounts or other documentation to be filed with, delivered or sent to, or notice given to the Registrar (CRO): s. 837
Can be shown if the person has been found guilty of 3 or more defaults in relation to the requirements in the five years before the application
- - Re Wood Products 2005 – the company failed to file annual returns for nine years and was struck off the register. When restored at a creditor’s request, the directors were ordered to make certain returns but failed to do so.
Laffoy J. held that while the conduct was serious, “persistent default” under para. (f) required repeated breaches in the face of court intervention—something she felt had not been established.
The SC disagreed. Fennelly J. held that “persistent default” simply required repetition and determination, not necessarily repeated court orders. The directors had failed to file returns for nine years (a criminal offence) and had also ignored a court order, meeting the standard of persistent default.
However, the Court chose not to disqualify them, noting the company had rectified its defaults, was trading profitably, and employed 12 people.
- Aventine Resources Plc 2014 – the Director of the CEA sought to disqualify the directors for breach of duty and persistent default. The directors had failed to finalise the company accounts and were already in breach of two court orders to do so and to file annual returns.
The HC found they were in breach of their duties and persistently in default. Cregan J. emphasised that disqualification aims to protect the public and raise standards of corporate governance, and disqualified the two directors for 6 and 7 years respectively.
directorship of the company has been struck off
section 842(f) - - This section addresses cases where a director was in office when a company received a strike-off notice under s. 727, and the company was later struck off by court order without discharging its liabilities before the application date.
- Under this provision, such a director may be disqualified. It targets unliquidated insolvent companies that are struck off under the CA 2014. Most disqualification applications fall under this subsection. Since 2004, the CEA has focused considerable resources on actions under s. 842(h).
- - Re Clawhammer: Director of Corporate Enforcement v McDonnell and Endicott – Finlay Geoghegan J. stressed that failure to file annual returns leading to a company’s dissolution must be seen as a deliberate act, not just a technical breach.
A successful application under this provision requires only proof that a s. 727 CA 2014 notice was sent, the company was struck off, and the respondents were directors at the time. Directors can offer exculpatory evidence, which the court may consider when deciding the disqualification period.
The court highlighted that this provision targets the harm caused when insolvent companies are struck off without being wound up. In such cases, remaining assets may not be applied according to statutory priorities, and directors might pay creditors selectively—based on personal or future commercial interests—or avoid scrutiny from a liquidator, which could otherwise lead to personal liability.
determining the period for disqualification
- Section 842 – It is up to the Courts discretion
- Section 839 – In case of an automatic disqualification – 5 years or for as long as the court may order
restriction vs short disqualification
- An issue arises in balancing restriction and disqualification orders. While restriction is seen as less serious, allowing directors to act if a company is properly capitalized for 5 years, some directors may prefer a shorter, full disqualification instead, depending on their financial situation. The court must weigh the seriousness of the conduct against the practical impact of each order.
- Re Clawhammer: Director of Corporate enforcement v McDonnell and Endicott – a disqualification application was brought under s. 842(h), as the directors had been in charge of a company struck off while insolvent, owing around €15,000 to Revenue.
Finlay Geoghegan J. noted the failure to file returns and that the directors paid trade creditors, after trading ceased, while leaving Revenue unpaid, despite its preferential status in a formal winding-up.
However, since most creditors were paid, the court considered a restriction order more appropriate. The directors, though, preferred a shorter disqualification over a five-year restriction. The court accepted this and imposed one-year disqualifications on each.
the test for determining disqualification period
- ODCE v Collery – Finlay Geoghegan J. emphasized caution in setting disqualification lengths. The case involved a director linked to tax evasion schemes via Ansbacher (Cayman) Ltd., and the respondent did not contest the findings.
She outlined a test for determining the disqualification period:
1. The aim is public protection, not punishment.
2. The term should reflect the gravity of the misconduct.
3. It should serve as a deterrent.
4. Periods over 10 years are for only the most serious cases.
5. Courts should start with a headline figure and reduce it based on mitigating factors.
The respondent was disqualified for nine years, reduced from a headline of twelve due to mitigation. - Re Irish Gold and Silver Bullion – approved the test in ODCE:
1) The primary, though not sole, purpose is to protect the public from future misconduct by individuals whose past behaviour shows them to be a risk to creditors and others.
2) Disqualification also aims to improve standards of corporate governance.
3) It serves as a deterrent—both to the individual concerned and to other directors—so the period imposed should include a deterrent element.
4) The length of disqualification should reflect the seriousness of the misconduct as determined under the relevant subparagraphs of s. 842.
5) Terms exceeding 10 years should be reserved for the most serious case.
6) The court should first determine the appropriate period based on these principles, then adjust it downwards in light of any mitigating factors.
relief form disqualification orders
- Section 847(1) – the HC might lift the disqualification order if it considers it just and equitable to do so.
- Re Majestic Recording Studious – a director was allowed to be a director of one of the companies, as long as there is an accountant as a co-director. This was allowed since the jobs of 55 people working there would’ve been at risk otherwise.
- Re SB Steel Ltd & Ors – a director disqualified in the UK due to insider trading allegations and was deemed disqualified in Ireland. He sought to have the order lifted to continue managing a family business operating in both jurisdictions. Quinn J. held:
a. The burden was on the director to prove it was just and equitable to lift the order.
b. The Court has broad discretion in such applications.
c. It should be cautious in granting this relief.
d. It must examine the reasons behind the original disqualification and whether the risk of recurrence has been reduced.
In this case, the Court found the compliance measures to be “comprehensive and impressive,” including the involvement of experienced non-executive directors. As a result, the disqualification orders were lifted.
liability for breach of disqualification order
- Section 855(1) – it is a category 2 criminal offence
- Section 855(3) – order may be extended by 10 years or such as the court may order.
- Section 858 – if a person acts for a company while disqualified and fails to inform the company of their disqualification, the company is entitled to recover any remuneration paid to that person for their acts or services.
- Section 856(1) – To prevent disqualified individuals from acting behind the scenes as shadow directors, any director who follows the directions or instructions of a disqualified person will themselves be guilty of a Category 2 offence under company law.
- Section 859 – If a disqualified person acts for a company and the company is wound up within 12 months of that conduct, and is unable to pay its debts, the court may hold that person personally liable for the company’s debts.
Section 861 – The court may grant such relief in whole or in part from any such personal liability
