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When a Company fails-

When a Company fails-. Who is to blame?. The Blame Game. The Economy The Banks The Government The customers who won’t/can’t pay the company what they owe it The supplier who won’t /can’t wait any more to be paid by the company The bank that withdrew the credit facility

heidi-farmer
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When a Company fails-

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  1. When a Company fails- Who is to blame?

  2. The Blame Game • The Economy • The Banks • The Government • The customers who won’t/can’t pay the company what they owe it • The supplier who won’t /can’t wait any more to be paid by the company • The bank that withdrew the credit facility • Your neighbour, brother, sister, parent, spouse • Company management/Directors • All of the above?

  3. What does Company law say? • Since 2001-it’s the Directors fault. • (s.56 Company Law Enforcement Act 2001) •  (1)  A liquidator of an insolvent company shall….. provide to the Director a report in the prescribed form. • (2)  A liquidator of an insolvent company shall,….. apply to the court for the restriction under section 150 of the Act of 1990 of each of the directors of the company, unless the Director has relieved the liquidator of the obligation to make such an application. • (3)  A liquidator who fails to comply with subsection (1) or (2) is guilty of an offence.

  4. What does restriction mean? • S.150 1990 Companies Act- • The court shall, unless it is satisfied as to any of the matters specified in subsection (2) , declare that a person ……shall not, for a period of five years, be appointed or act in any way, whether directly or indirectly, as a director or secretary or be concerned or take part in the promotion or formation of any company unless it meets the requirements set out in subsection (3) ;

  5. Requirements to practice when restricted • (a)  the nominal value of the allotted share capital of the company shall—(i)  in the case of a public limited company, be at least [£250,000 [€317,434.51]], • (ii)  in the case of any other company, be at least [£50,000 [€63,486.90]], • (b)  each allotted share …….shall be fully paid up, including the whole of any premium thereon, and • (c)  each such allotted share and the whole of any premium thereon shall be paid for in cash. • In effect you must pay a cash lump sum to be allowed to practice as a director/secretary/promoter.

  6. Why should a Director care? • Principally because he /she is guilty until proven innocent. • To prove innocence the 1990 Act requires a director to; • (a)  show that the director concerned 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 imposed by this section , (s.150(2) 1990)

  7. Burden of Proof • The point here is that the burden of proof has shifted to the director(Re Streamline Ltd. 1998(Ire)) • -it is up to him/her to prove their own innocence-ie that they acted honestly and responsibly in their dealings as directors.(-test La Moselle case) • There is no burden of proof on the liquidator to show that the director acted dishonestly or irresponsibly as directors

  8. What if director ignores s.150 • If the director fails to show that they acted honestly and responsibly, • or fails to turn up at a s.150 Court Hearing, • > then they can be restricted in their absence and charged to pay the costs of the High Court Hearing. • Does this constitute fair procedure?.. • Is this Constitutional?....

  9. Other defences to s.150 • , show that the person concerned was a director of the company solely by reason of his nomination as such by a financial institution in connection with the giving of credit facilities to the company by such institution, provided that the institution in question has not obtained from any director of the company a personal or individual guarantee of repayment to it of the loans or other forms of credit advanced to the company, or

  10. Other defences contd. • Show that the person concerned was a director of the company solely by reason of his nomination as such by a venture capital company in connection with the purchase of, or subscription for, shares by it in the first-mentioned company.

  11. What about the wife? • The courts have interpreted this section as applying to ‘de facto directors’ • and ‘shadow directors’- s.27 1990=someone in accordance with whose instructions the directors act. • Re Gasco Ltd. 2001(Ire) • Held: a shadow director was restricted after a liquidator found no books or records in the company. 2 other directors who had acted honestly and responsibly were not . • Re Vehicle Imports Ltd 2001 Ire • Held: a company accountant was held to be a shadow director and was restricted following liquidation of the company • and non executive directors in some circumstances. • Kavanagh v Delaney 2004 HC Ire • 3 non exec. Dirs. Who had simply ignored and taken no interest in the fate of the co. were restricted. • See criticism of s.150 by Hardiman J in S.C. appeal of this case

  12. Business Communications Ltd. V Baxter and Parsons 1995(Ire) • Held: acting responsibly entails compliance with the Companies Acts and maintenance of records required by the Companies Acts • If a restricted director acts a director of another company which goes into liquidation within 12 months , the restricted director can be made personally liable without limit for the debts of the second company. • It is a criminal offence to act for a company while restricted and this leads to automatic disqualification • S.152 1990- can seek relief from restriction .Can apply to court within 1 yr of restriction and court may grant relief as it sees fit.

  13. Test for Directors Behaviour: • La Moselle Clothing Ltd. V Soualhi 1998 Ire-HC • Souahli was a director and a 99% shareholder of La Moselle Clothing Ltd. Soualhi was restricted because the company had traded while insolvent. • The court looked at the following to see if the director had acted responsibly; • -the extent of compliance with the Companies Acts • -whether the Directors conduct was so incompetent as to be irresponsible • -the extent of the directors responsibility for insolvency. • -the extent of the directors responsibility for the net deficiency in assets at winding up. • -the extent to which the director displayed a lack of commercial probity or want of proper standards • Test approve by Irish Supreme Court in • Re Squash (Ireland) Ltd. 2001

  14. Equality of treatment? • What if the insolvent/failed company is a Bank? • A recent dilemma-most of the banks have been rescued and therefore are not in the process of being liquidated and therefore s.150 has not arisen.

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