The Gazette 1984

INCORPORATED LAW SOCIETY OF IRELAND GAZETTE

Vol. 78 No. 9

November 1984

Comment . . .

In this issue . . .

. . . Company Law — the abuse of Limited Liability

Comment

235

Notes on Recent Legislation

237

D URING the debate on the Bill which became the Limited Liability Act, 1855 the Law Times, in a most hostile article, described the Bill as a "rogues' charter". Other adverse comment at the time referred to the Bill as being "subversive of the high moral responsibility which has . . . . distinguished our partnership law". All a bit excessive, no doubt. In general, in the intervening 129 years the concept of limited liability has served its purpose of enabling "men with small capitals" to promote and establish businesses through companies with a separate legal existence. Other businessmen and the public at large have been more or less aware of the potential risks in dealing with a limited liability company; it might be argued that dealing with sole traders or partnerships, not so protected, has not shown itself to be a more profitable or secure endeavour for creditors if such businesses go bankrupt. Nor is there any great novelty in the phenomenon of the unscrupulous businessman rising 'phoenix-like' from the ashes of a failed company to promote a new one with a similar name and similar business. What is changing, however, is the attitude of the public in this regard. Programmes such as Checkpoint on BBC Radio 4 and Public Account on RTE have raised public awareness of the fact that limited liability has moved from being a legitimate protection to the fledgling entrepreneur to becoming, on occasion, a shield for the scoundrel or recklessly careless businessman. As has been recently pointed out in the press, the ability of a liquidator to commence proceedings against former directors of a liquidated company for fraudulent trading under Section 297 Companies Act 1963 (under which section directors may be made personally liable without limit for the debts of an insolvent company) is limited by the high degree of proof involved in establishing intent under the Section. We urgently need a more flexible and generally applicable law so that, firstly, directors of a company which has gone into insolvent liquidation may in appropriate circumstances be debarred from promoting or being directors of other companies for a specified period; secondly, that the degree of "real moral blame" necessary for directors' personal liability under Section 297 should be widened to include reckless and/or chronic disregard for the interest of creditors; thirdly, that these protections for creditors should be extended to cover other interested parties, such as employees of a company.

Practice Notes

240

For Your Diary

241

SADSI News

243

Society of young Solicitors

243

Solicitors' Golfing Society

245

Law Society Council Election 84/85

249

Obituary

251

Crossword

252

Book Review

253

Rent Restrictions: An Ongoing Problem

254

Correspondence

257

Professional Information

258

Mary Buckley William Earley, Chairman John F. Buckley Gary Byrne Charles R. M. Meredith Michael V. O'Mahony Maxwell Sweeney

Executive Editor: Editorial Board:

Advertising:

Liam O hOisin, Telephone 305236

Printing: Turner's Printing Co. Ltd., Longford The views expressed in this publication, save where other-wise indicated, are the views of the contributors and not necessarily the views of the Council of the Society. The appearance of an advertisement in this publication does not necessarily indicate approval by the Society for the product or service advertised. ABC Membership has been approved pending first audit

for the period July to December 1984. Published at Blackhall Place, Dublin 7.

No case could be made for the abolition of limited liability. However, the case is clear, that those who abuse limited liability should be denied its protection. • 235