The Gazette 1995

GAZETTE

MAY/JUNE

1995

Restriction of Company Directors and the Provisions of the Companies Act, 1990

by Andrew Walker, Barrister-at-Law

which will invariably be a winding up, will expose more on the internal workings of the company. All persons at the date of the commencement of the winding up of such a company who are directors, or were directors at any time in the 12 months prior to such date, become liable under the Act. Shadow directors 9 are subject to such liability as well 10 . However the provisions are only applicable to companies wound up or placed in receivership on, or after August 1, 1991. As has been clearly accepted in this jurisdiction legislation will not operate retrospectively if it, ". . . takes away or impairs any vested right acquired under existing laws, or creates a new obligation, or imposes a new duty, or attaches a new disability in respect to transactions or considerations already past"." The imposition of a restriction order on a director who has resigned from his position prior to the operative date of the provisions would be tantamount to imposing on him such a disability for his prior actions and therefore such directors must be exempt from the Act. By way of example, therefore, a former director of a company that went into liquidation on November 1, 1991 and who resigned his position on 1 May, 1991 will not be liable to restriction under the Act. Hence all directors of a company that goes into liquidation, or is placed in receivership and is shown to be unable to pay its debts, either at the time of the commencement of the winding up or receivership, as the case may be, or at any time thereafter, are liable to restriction under section 150. This section provides that:-

Part 1*

Recently Mr. Justice Murphy has indicated that in the course of the winding up of insolvent companies the provisions of the Companies Act, 1990 with regard to director restriction shall, as far as he is concerned, be enforced. This development has far reaching consequences for all directors, be they executive, non- executive, part-time or shadow directors, of such companies and is yet another area where company directors can face severe sanction from the court. This article proposes to consider these provisions and their effects on directors, the manner in which restriction can be avoided along with the procedural aspects of the area and indeed, the shortcomings of the legislation. directors jvould close down one insolvent company with numerous unpaid creditors, and set up the next day without sanction and without having to meet any capital requirements. In the UK such a scenario was neatly summarised by Browne-Wilkinson V-O as, leaving behind the creditors of the old business. This is exactly the kind of behaviour by directors that is most to be deplored in that it is the use of the fabric of a limited company to deprive creditors of their money and simply to change the cloak in which that is done from one company to the next." 2 The statutory intent regarding director restriction is to avoid situations where . . an attempt to carry on the same business on the same premises,

Andrew

Walker

and apply to any company 4 if:-

(a) at the date of the

commencement of its winding up it is proved to the court, or (b) at any time during the course of its winding up the liquidator of the company certifies, or it is otherwise proved, to the court, that it is unable to pay its debts. 1 It should be emphasised that the provisions apply to all insolvent liquidations, whether compulsory or voluntary. These provisions in respect of insolvent liquidations equally apply, with the necessary modifications, to receiverships 6 . The Act is silent on the extent of property to which a receiver must be appointed before the provisions are to apply 7 , yet it appears that the receiver should be appointed over the whole of the company's property, as otherwise all receiverships would precipitate the restriction procedure. In the UK it has been held 8 that where there are two events of insolvency, i.e. an administrative receivership followed by a winding up, that the first date of insolvency is to be applied in relation to any time limits that may arise. This seems unsatisfactory as the latter event,

The Provisions

The provisions on restriction of directors which are found in Part VII of the Companies Act, 1990, came into force on the 1st August, 199P

(1) The court shall, unless it is satisfied as to any of the matters

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