Restriction Of Directors Flashcards
What is the statutory basis for the restriction of directors in an insolvent company under Irish company law?
Section 819 of the Companies Act 2014 (formerly s.150 of the Companies Act 1990).
What is the primary purpose of imposing a restriction order on directors?
To protect the public, creditors, and potential investors by preventing unfit or irresponsible directors from managing companies, and to combat the “Phoenix Syndrome.”
Who is eligible to apply for a restriction order under section 820(1) of the CA 2014?
The Corporate Enforcement Authority, the liquidator of the insolvent company, or a receiver of the company’s property.
Within what time frame must a liquidator apply for a restriction order under section 683 of CA 2014?
Within 2 months after the Corporate Enforcement Authority notifies the liquidator that the obligation has not been relieved.
Which persons can be restricted under the CA 2014 provisions?
Directors (including formally appointed, de facto, and shadow directors) of a company that is insolvent at or during its winding up, where the director acted within 12 months prior to the commencement of liquidation.
What criteria can establish that a person is a de facto director (as per Gray v McLoughlin)?
The person is held out as a director, uses the title “director,” has access to company information (e.g., accounts), and exercises significant control or decision-making powers.
Under section 819(2), what three cumulative conditions must a director satisfy to avoid a restriction order?
They must have acted honestly and responsibly in relation to the company’s affairs (both before and after insolvency).
They must have cooperated, as far as reasonably expected, with the liquidator during the winding-up.
There must be no other reason why it would be just and equitable to impose the restriction.
What is the effect of a restriction order on a director?
The director is prohibited from acting as a director, secretary, or being involved in forming or promoting a company for 5 years unless the new company meets specific paid-up capital requirements.
What are the capital requirements for a company to employ a restricted director?
€500,000 for a public limited company (or public unlimited company) and €100,000 for other types of companies.
What is the difference between a restriction order and a disqualification order?
A restriction order is a conditional bar (subject to capital requirements and potential relief) preventing a director from holding certain positions, while a disqualification order completely bars a person from acting as a director.
How can a director avoid the court process associated with a restriction order?
By submitting to a voluntary restriction undertaking under section 852 of the CA 2014, which has the same legal effect as a court-issued order.
What mechanism is available for a director to obtain relief from an imposed restriction order?
The director can apply for relief under section 822 of the CA 2014, seeking either partial or full lifting of the restrictions, subject to notifying the liquidator and the Corporate Enforcement Authority.
What factors did the ‘La Moselle Clothing’ case establish for determining whether a director acted responsibly?
The factors include:
Compliance with legal duties (e.g., filing requirements, maintaining proper books).
The degree of incompetence in their management.
Their responsibility for the company’s insolvency and asset deficiency.
Their overall commercial probity.
What are some common issues that can trigger a restriction order against a director?
Issues include failure to keep proper books and records, failure to file tax returns or pay taxes properly, misappropriation of company funds, and a general lack of commercial probity and responsibility in managing the company.
