A more lenient approach towards Directors?
There has been a trend towards leniency in some of the reported decisions from 2014 which represents a change of direction by the courts.
In Taite (Official Liquidator of Shellware Limited) v Breslin Judge Barrett in refusing a restriction application remarked that Mr. Breslin had displayed some "misplaced optimism" but ultimately had not acted irresponsibly. The liquidator had criticised Mr. Breslin for a number of issues including failing to maintain adequate books and records, the late/non-payment of taxes, the steps taken when the company was in financial difficulty, the making of payments to a related company, the use of company credit cards for personal expenses and lack of co-operation with the liquidator. While Judge Barrett described Mr. Breslin's behaviour as 'open to criticism', 'reproachable', and 'irresponsible' he found that he substantively co-operated with the liquidator, did not engage in irresponsible use of credit cards and did not cross the line in relation to the payments to a related company.
A similar approach was taken by Judge Barrett in Van Dessel v Gill & Anor. The company had failed to meet tax liabilities and it appeared that its day to day operations were financed by the arrears of taxes. The Court took into account the fact that one of the directors had put capital into the company around the time of the difficulties and had also offered to deal with the Revenue debt on an instalment basis. Again, the Court referred to the conduct of the directors as highly reproachable but held that it was not dishonest or irresponsible and refused to make a restriction order.
In Hughes v Caffrey & anor, Judge Barrett declined to restrict directors whose actions were 'reproachable' in that it had taken them three years to appoint an examiner to the company and they had also failed to file an annual return and allowed a significant debt to arise with a related company.
Judge Barrett has also indicated that unequivocal evidence will be required before he will grant a restriction order. In DLOK Electrical Services Limited & Cos Acts: Kirk v O'Kane & anor it was alleged that the directors had failed to make certain employee pension contributions and this was evidenced by an order from the Labour court. The Court indicated non-payment by an employer of money, to a contributory social protection scheme was something which would typically result in restriction. However, here the directors had raised significant and credible issues in respect of the Labour Court ruling and the Court refused to grant a restriction order.
Judge Barrett also refused to disqualify directors in two decisions in 2014 holding that, in exercising the discretion as to whether to make a disqualification order, the Court should not act lightly given the penal consequences of such an order. In Director of Corporate Enforcement v Slattery & Anor and Director of Corporate Enforcement v Walsh & Ors, the directors had failed to file annual returns and had allowed the company to be struck off the Register of Companies. The Judge recognised, with some sympathy, the real economic and financial pressure under which the individuals concerned were acting. He concluded that although the failure to file could be held to be “foolish, unwise or reproachable”, when put in context it was also to some extent understandable and not of such a nature as to require that the Court must exercise its discretion so make a disqualification order.
Small Companies and Non-Professional Directors given more leeway by the Court
In recent cases, Judge Barrett has drawn a distinction between the responsibility of directors of “small enterprises” who are unskilled in law, tax and accounting, on the one hand, and directors who are professionally qualified, or are directors of large or quoted companies, on the other hand. The Judge warns that, in his view, "more exacting standards of behaviour" will typically be applied by the courts in the latter case. Unfortunately he did not elaborate, for the benefit of such directors, on what exactly he meant by "more exacting standards of behaviour" and the issue would benefit from some clarification.
In Cotter v Gilligan & Ors Judge Barrett stated "The documentation trail may not be what a professionally qualified individual might have put in place but it appears to the court that it is unreasonable to expect the same exactitudes of non-professional people engaged in trade that one would expect of a professionally qualified person placed in the same circumstances" and later "He undoubtedly acted in a manner that would be surprising in someone who was professionally qualified but is perhaps less surprising when done by a non-professional gentleman engaged in the hurly-burly of commercial life." He reiterated this view in Doherty v Donohoe & Ors, in refusing to grant a restriction order against three directors.
In Director of Corporate Enforcement v Walsh & ors and Director of Corporate Enforcement v Slattery & anordisqualification orders were refused where directors had allowed companies to be struck off the register of companies for failure to file annual returns instead of putting them through a formal liquidation process. The Court noted that the companies were small family run enterprises and stated that while the failure to file annual returns was foolish, unwise or reproachable it was to some extent understandable. The Judge suggested that non-professionals who are not experts in law, tax or accounting should not fact the same standards as professionally qualified directors or directors of a large or quoted company.
Reliance on Professional Advice
In Doherty v Donohoe & Ors, the court refused to make a restriction order in respect of three directors who relied on professional legal advice. The Court held that, where a director, acting in good faith, seeks comprehensive professional advice from qualified advisors, and acts in accordance with such advice, that will generally suffice to prevent such director from later being the subject of a restriction order. Judge Barrett stated: "A director of a small enterprise who, as here, was unskilled in law, tax or accounting and who enlisted suitable professional assistance to ensure that his or her enterprise acted in compliance with applicable law and regulation would nonetheless suffer very serious sanction in the event of non-compliance. Were a director to suffer so, a question would surely arise as to whether there was any advantage to engaging professional advisors if the law was effectively going to set the value of their advices at nought.”
In Director of Corporate Enforcement v Slattery & anor the directors had received professional advice from an accountant not to place the Company in liquidation but to seek an investor who would inject fresh capital into the Company and the directors acted on this advice. The Court declined to grant a disqualification order noting that the directors had sought professional advice in relation to identifying the best way forward for the Company in confronting its financial difficulties.
The cases in 2014 have also made clear that more leeway will be given to 'passive directors' who are the subject of restriction or disqualification orders. In Hughes v Caffrey & anor restriction orders were sought against husband and wife directors. The Court refused the orders sought but it noted the argument advanced by the wife that she was a passive director who had acted as director solely to satisfy the minimum two director requirement. Judge Barrett indicated that he did not have to render judgment on this point but stated that he did not see any "real moral blame" attaching to the conduct of the wife in this case. This issue was touched on again in Director of Corporate Enforcement v Walsh & Ors and Director of Corporate Enforcement v Slattery & anor where Judge Barrett endorsed the decision of Carroll J in Re Hunting Lodges Limited (in liquidation) which suggests that there should be "real moral blame" attaching to such a director before a restriction or disqualification order will apply.
The point was also raised again in Zuccini Café and Restaurant Ltd: McCoy v Courtney and Mint Restaurant Limited: McCoy v Courtney. However, in those cases Mrs. Courtney was a holder of a company credit card and had made private purchases with the card which she failed to explain. Accordingly, Judge Barrett held that the argument that she was a passive director failed and granted the restriction orders sought.
In May of this year Judge Finlay Geoghegan disqualified Richard Mockler and his wife Janette for a period of five years and one year respectively. Mr. Mockler was accused of attempting to defraud the Revenue, and using company funds for “personal lifestyle expenditure”. The Court accepted that Mrs. Mockler was a “passive” director but held that this did not excuse her of all responsibility and so disqualified her.