Restriction Of Directors: 'Passive Director' Defence Fails

• Published date: 28 October 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Directors and Officers, Insolvency/Bankruptcy, Trials & Appeals & Compensation
• Law Firm: William Fry
• Author: Mr Fergus Doorly, Craig Sowman, Ruairi Rynn, Alice O'Connor and 'ine Murphy

In a recent decision, the Court of Appeal upheld a High Court finding, which granted a declaration under section 819 of the Companies Act 2014 (CA 2014), restricting the appellant director (Appellant) from acting as a director or secretary of a company for a period of five years, unless the company meets the requirements set out in subsection (3) of section 819.

The Appellant was a director of Alvonway Investments Limited (Company) from its incorporation in 2005 until the appointment of a liquidator in March 2014. There were two other directors of the Company in place at the time the liquidator was appointed (Director A and Director B).

The Company was grossly insolvent with liabilities, including guaranteed liabilities, of approximately '300m. The liquidator sought an order for disqualification against Director A and restriction orders against the Appellant and Director B. The principal reason for seeking these orders was the making of payments totalling '450,032 (Payments) from the Company's current account to Director A and a firm of accountants the day before NAMA's appointment of a statutory receiver to the Company.

The High Court held that Director A was the sole director responsible for the Payments. However, the liquidator did not believe that Director B and the Appellant acted responsibly as directors. The Appellant submitted that he had little knowledge of what happened in the Company. He submitted that at the time of making the Payments, NAMA were effectively in control of the Company and that NAMA dealt exclusively with Director A and had no contact with him, as did the statutory receiver once appointed. As a result, the Appellant argued that he had no knowledge of the affairs of the Company. The Appellant also claimed that he always co-operated with the liquidator.

The High Court referred to the fact that the Appellant was the only director to have served continually as such from the incorporation of the Company to the time of its liquidation. It was held that he adduced no evidence as to (i) his contribution to the decisions of the directors at any time in the life of the Company and / or (ii) his response to the development of the Company's financial difficulties and the transfer of its loans to NAMA. Furthermore, the Appellant did not demonstrate any active steps that he took to keep himself informed of the affairs of the Company. As such, it was held he...