The Gazette 1991

GAZETTE

i SEPTEMBER 1991

" . . . a person in accordance wi th whose directions or instructions the directors of a company are accustomed to ac t. . . shall be treated for the purposes of this Part as a director of the company unless the directors are accustomed so to act by reason only that they do so on advice given by him in a professional capacity." Accordingly, it seems clear that solicitors and accountants who advise a company will not ipso facto be deemed to be "shadow directors" solely by virtue of advice given qua solicitor/accountant. However, where their advice goes beyond that of "professional advice", and more particularly where the solicitor/accountant has a legal or beneficial interest in the company (Borrowings Ltd) it would be open to a court to find that he was in fact and in law a "shadow director". 3. The concept off "Control". Fortunately, at least from the point of view of interpretation, the Act does not leave the concept of "control" hanging in the air. S.26 (3) provides that " . . . a director of a company shall be deemed to control a body corporate if, but only if, he is, alone or together with any of the persons referred to in paragraph (a), (b) or (c) of subsection (1), interested in more than one-half of the equity share capital of that body or entitled to exercise or control the exercise of more than one-half of the voting power at any general meeting of that body."

As with so many sections of the Act, one cannot make sense of any given provision without cross- reference to another. As such it is necessary to examine two con- cepts which are referred to in S.26 (3). In the first place, there is the question of "aggregation" of the interests of the director with certain other persons (listed in S.26 (1)) to determine whether or not that director will be deemed to "control" Borrowings Ltd. These are: (a) that director's spouse, parent, brother, sister or child; (b) a person acting in his (c) a partner of that director. Secondly, one should note that "control", is determined by reference to "equity share capital" and "voting power". By virtue of S.26 (4) (a) of the Companies Act, 1990, "equity share capital" is given the same meaning as in S.155 Companies Act, 1963, and hence, in any given situation, one should refer to this section. The alternative test is that regarding the control of " t he exercise of more than one-half of the voting power at any general meeting of that body". S.26 (4) (b) of the Companies Act, 1990 provides that: "references to voting power exercised by a director shall include references to voting capacity as the trustee of any trust, the principal beneficiaries of which are the director, his spouse or any of his children or any body corporate which he controls; or

power exercised by another body corporate which that director controls." From the foregoing it is evident that the S.31 prohibition has been drafted very widely by the legislative draftsmen. 4. Anti-Avoidance Provisions It should also be noted that S.31, subsections (2) and (3) contain anti-avoidance measures. S.31 (2) has the effect of preventing Guarantor Ltd from arranging for an assignment or assuming rights, liabilities or obligations under a transaction which, if entered by Guarantor Ltd itself, would have contravened S.31 (1). S.31 (3) prevents Guarantor Ltd from taking part in an arrangement in which another person enters a transaction which if entered by Guarantor Ltd itself, would have contravened S.31 (1) where that other person obtains any benefit from Guarantor Ltd or related companies. Furthermore, while Part III of the Act is not retrospective in the true sense, S.25 (7) provides that: ". . . for the purposes of deter- mining whether an arrange- ment is one to which section 31 (2) or 31 (3) applies the transaction to which the arrangement relates shall, if it was entered into before the said commencement, be deemed to have been entered into thereafter." And, if it were thought that the S.31 prohibition were capable of being avoided by the parties executing documentation abroad, S.25 (8) provides that Part III has effect in relation to arrangements/ transactions whether governed by

Doyle Court Reporters Principal: Áine O'Farrell Court and Conference Verbatim Reporting Specialists in Overnight Transcription 2, Arran Quay, Dublin 7. Tel: 722833 or 862097 (After Hours) Fax: 724486 T^ceiknce in (Reporting since 1954

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