Court Of Appeal Decision – Disqualification Of Directors

Introduction

On 20th January 2016, the Irish Court of Appeal (the "Court") handed down an important decision in the case of Director of Corporate Enforcement v Walsh & ors [2016] IECA 2 in relation to the law on the disqualification of directors. This judgment provides useful clarity on the law in this area.

Background

This case concerned an appeal by the Director of Corporate Enforcement (the "DCE") against a decision of Barrett J in which the judge declined to make a disqualification or restriction order against three company directors. The main complaint against the directors was that they had failed to file annual returns for two companies, namely Walfab Engineering Limited ("Walfab") and RPB Products Limited ("RPB"), which led to these companies being struck off the Register of Companies (the "Register"). An application was brought by the DCE under Section 160(2)(h) of the Companies Act 1990 (the "Act") which is applicable to company directors who, through culpable inaction, have permitted an insolvent company to be struck off the Register when they should have proceeded to wind up the relevant company.

Defence of the directors

The directors of Walfab and RPB blamed the downturn in the economy for the decline of the financial affairs of the companies and did not dispute their failure to file annual returns. They claimed that they had at all times acted honestly and responsibly in relation to the companies and that when the companies became insolvent, resources were not available to allow them to liquidate the companies.

One of the directors argued that it was never her intention to be actively involved in Walfab and she took no active role in its management. She also highlighted that she never received any director's remuneration, wages, salary or otherwise and never took any drawings from Walfab.

Decision of the Court

Kelly J, giving judgment for the Court, relied heavily on the judgment of Finlay-Geoghegan J in Re Clawhammer where she stated:

"There is potential prejudice to creditors of an insolvent company if the directors, by default, permit it to be struck off the register rather than taking steps to wind it up. In such circumstances such assets of the company as remain are not applied, as a matter of course, in the discharge of creditors according to statutory priorities... Accordingly, I accept the submission made on behalf of the Director that the Oireachtas regards the fact that directors may have permitted a company to be...