A director of an insolvent company that has gone into liquidation may face a restriction application under section 819 of the Companies Act 2014. If that restriction application succeeds, the director will be prohibited from acting as a director or secretary or being involved in the formation of a company for five years unless that company meets certain criteria. The main requirement is that the company maintains a minimum allotted and issued share capital during that five year period. In the case of a private limited company, the issued share capital must be €50,000 which can have significant financial implications. The Companies Registration Office also maintains a list of all restricted directors, which can cause adverse publicity for the restricted director.
A director may be invited to submit to a restriction undertaking by the Office of the Director of Corporate Enforcement in advance of a court application being brought. The main advantage of a director agreeing to the undertaking is that it avoids the need for a court application and the director consequently avoids having a court order imposed against them making them responsible for the costs of such an application.
If a director wishes to contest a restriction application, the main defence requires the director to establish:
– they had acted honestly and responsibly in relation to the conduct of the affairs of the insolvent company; and
– that when requested by the liquidator of the insolvent company, they cooperated in so far as reasonably could be expected in relation to the winding up; and
– there is no other reason why such restriction would be just and equitable in the circumstances.
It is important to note that in assessing the above grounds, a court will not only examine solely the extent a director’s conduct may have contributed to the insolvency of the company but they will also examine whether they have discharged their directors duties in accordance with the companies acts. It is not enough therefore for a director to show that they were not responsible for the insolvency (such as if the insolvency was caused by the actions of another employee or director). In particular, the defence that a director was only a named director with no real responsibilities will not cut it if that director failed to discharge their duties under the companies acts.
We have experience of advising directors in defending restriction applications.