The Gazette 1995

GAZETTE

MAY/JUNE 1995

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

to reconcile a director's conduct being reckless, yet at the same time responsible. Indeed Murphy J. has emphasised that responsibility must be shown. The duties and powers of a director will invariably differ depending on the nature and size of the company involved, even where two companies are in the same line of business. For this reason it is difficult to postulate any sort of hard and fast criteria that will exempt a director from restriction. However it is of use to look at the decided cases on disqualification of directors to show what kind of actions may, and may not be tolerated. First the sentiments expressed by Browne-Wilkinson V-C regarding the provisions on director disqualification in England 56 are applicable to restriction. "The primary purpose of the section is not to punish the individual but to protect the public against the future conduct of companies by persons whose past records as directors of insolvent companies have shown them to be a danger to creditors and others. " 57

by Andrew Walker, Barrister-at- Law

Part 2*

Avoiding Restriction

Broadly speaking a director will avoid a restriction order on one of two grounds. First on the basis that he, ". . . has acted honestly and responsibly in relation to the conduct of the affairs of the company and that there is no other reason why it would be just and equitable that he should be subject to the restrictions. . . " 49 Secondly where, though subject to a restriction order, the person acts in respect of, is appointed to, or is involved in the formation or promotion of a company that meets certain financial requirements. These provisions are now looked at in turn. The phrase "honestly and responsibly" provides in company legislation an outlet from penalties that could otherwise be imposed on persons. 50 Recently in Re Hefferon Kearns (No 2) 5 ', Lynch J. made the following observation on the wording in its context there as absolving a director from liability for reckless trading. expression "acted honestly and responsibly in relation to the conduct of the affairs of the company " is wider than the corresponding provisions in sub-s 3 of s.2I4 of the U.K. Act, [Insolvency Act, 1986] and the court in this jurisdiction is given specific power to relieve such a director from any personal liability whatsoever. " 5: The UK provision in respect of wrongful trading imposes a fairly stringent objective test by which directors are to be judged. It was held in Re Produce Marketing Consortium "It seems to me that the

Andrew

Walker

Ltd. (No. 21" that the test extended to judging the directors by the standards of what might reasonably be expected of a person fulfiling their functions and showing reasonable diligence in doing so. It was further held that in an applying the test the court will have regard to the functions to be carried out by the particular director and the particular company and its business. In relation to restriction, while a subjective test it is submitted must be applied in relation to the "honesty" of a particular director, an objective test should govern the question of "responsibility". The parameters of this latter test remain to be set by the court in a case by case application of the provisions, but surely it is closer to the UK position of ascertaining, ". . . the levels of general knowledge, skill and experience which the director in question subjectively did possess and which objectively he ought to have possessed in view of the position held", 54 than the wide berth afforded by Lynch J. which absolves reckless trading by a director on the basis that they acted within the ambit of s.297A(6) and with honesty and responsibility. 55 The rationale behind this is that it is hard

He went on to state,

". . . ordinary commercial misjudgment is in itself not sufficient to justify

disqualification.

In the normal case, the conduct complained of must display a lack of commercial probity " 5H It is submitted that these criterion should be applied here in evaluating whether a director has been 'honest and responsible'.

In Re Bath Glass 59 it was stated that,

"the court must be satisfied that the conduct in question is sufficiently serious to lead it to the conclusion

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