High Court Grants Disqualification Orders against Directors

Aug 9, 2013, 09:00 AM
By William Fry

The High Court has made an order disqualifying the two directors of Mossway Limited (In Liquidation) for a period of 12 months.

The principal business of the company had been the provision of haulage services with a warehousing and distribution facility. On 3 June 2011, the Revenue Commissioners presented a petition to wind up the company on the basis that it was unable to pay its debts as they fell due. The Court made the order sought and appointed an Official Liquidator. 

Due to the manner in which the directors had conducted the company’s business together with their failure to co-operate with the liquidation process, the Official Liquidator sought to have the directors restricted or disqualified.

The Official Liquidator referred to the following as evidencing a lack of commercial probity by both directors:

• Non-payment of revenue debt (while this is not of itself an automatic ground for disqualification, it is a factor to be taken into consideration by the Court in determining whether or not a director may be deemed to be “unfit”)
• Failing to keep adequate books and records and to deliver up books and records making it extremely difficult for the Official Liquidator to ascertain the underlying reasons for the company’s insolvency
• Use of company funds for director’s personal expenditure
• Engagement by the directors of a self-administered wind down whereby payments were made in disregard of statutory obligations and obligations to the Revenue Commissioners
• The transfer of assets, employees and customers out of the company after it ceased to trade, to another company of which one of the company’s directors was a director together with his wife

The Court was satisfied from the evidence provided that the conduct of both directors was of such a serious nature as to deem them both unfit to be concerned in the management of the company. Disqualification orders were made against both directors. One of the directors argued that he had left much of the running of the business of the company to the other director and had not been actively involved in the company’s affairs. However, the judge decided that this, of itself did not detract from the responsibilities which he ought to personally have been exercising as a director in any event. Having satisfied itself as to the appropriateness of granting disqualification orders, the Court then had to consider the appropriate duration of such disqualification orders. The judge concluded that a disqualification period of 12 months was appropriate for both directors. The Order against one of the directors was postponed for two weeks to afford him time to resign as a director of the other company to which the company’s assets and employees had been transferred. 

David Van Dessel, Partner with kavanaghfennell commented “Although Directors are not precluded  from purchasing assets from a liquidated company, it is very important that a liquidator is appointed to manage that process. Directors would have an inherent conflict of interest if they were to undertake the purchase of assets directly from their own insolvent entity. In this instance it would appear that the Directors undertook a self administered wind down of an insolvent company, without appointing a liquidator, which should be avoided. Directors are best placed to manage a business when it is a going concern and I believe they would be well advised to get independent insolvency advice at the earliest opportunity, when corporate insolvency arises. A lot of value can be salvaged from a liquidation process, but it has to be managed appropriately, which is where an experienced liquidator can bring added value to a difficult situation.”

William Fry acted for the Official Liquidator, Myles Kirby.

Contributed by Delia McMahon.

Experts Area

Who can appoint a Receiver over a Company?
A Receiver is usually appointed by a secured creditor under a Debenture containing a fixed and / or floating charge over all or most of the company's assets. Click here for more information on Receiverships

What are my obligations as a director when I have identified that my company is insolvent?
Seek advice now to ensure you meet the Companies Acts requirements as your actions will be reviewed by the Director of Corporate Enforcement. Click here for more information

What is a Creditors' Voluntary Liquidation or CVL?
A Creditors' Voluntary Liquidation is where a company takes the decision to call a creditors' meeting as the company is insolvent.
Click here
for more information on Creditors' Voluntary Liquidations

An Examinership is a process whereby the protection of the High Court is obtained to assist the survival of a company. Click here for more information on Examinnerships


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