Analysis Of Directors' Liability In Ireland

• Published date: 05 December 2022
• Subject Matter: Corporate/Commercial Law, Criminal Law, Corporate and Company Law, Directors and Officers, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Maples Group
• Author: Mr Brian Clarke, Donna Ager, Colm Rafferty, Morgan Pierse, Kyle Nolan and Alex Walsh

In a landmark decision, the Irish High Court recently held directors and shadow directors personally liable for funds misappropriated by a company as part of a fraudulent investment scheme worth €186 million. This represents the first time that an Irish court has pierced the corporate veil to hold directors personally liable, notwithstanding the well-established company law principle that a company has a separate legal personality to its members and directors. The judgment serves as a stark reminder of the importance of directors' duties and, in particular, the potential consequences for their dereliction by passive directors.

Background

The judgment arose from an application by a plaintiff 'investor' against two directors and two shadow directors of an Irish registered company called Greymountain Management Limited ("Greymountain") which was in liquidation. Greymountain acted as a key middleman in a supposed binary option trading enterprise that defrauded unsuspecting members of the public, primarily based in the US, with the assistance of 'brokers' from a call centre in Israel. The use of an Irish company was said to have provided a 'veneer of legitimacy' in that 'investors' understood they were investing in an entity which was registered and regulated in Ireland and the European Union.

Greymountain was beneficially owned by Mr David Cartu who, together with his brother Mr Jonathon Cartu (the "Cartu Brothers"), were deemed to be shadow directors of Greymountain and to be the controlling minds behind its use as an instrument of fraud.

The directors of Greymountain during the period of the fraud were both Irish. The first director was a consultant to a firm of accountants and an experienced company director who maintained that his role was purely administrative. The second director was a college student who maintained that he became a director in name only and because the owners 'needed a local person'.

The Test for Piercing the Corporate Veil

The High Court concluded that, while lifting the corporate veil is not to be done lightly, the Irish courts will contemplate finding directors personally liable for the acts or omissions of a company, if:

• it is a case of fraud or the misapplication of monies or misrepresentation, on the part of the directors;
• a case of the directors syphoning off large sums of money out of the company so as to leave the company unable to fulfil its obligations; or
• there is negligence or impropriety on the part of the directors in...