The Gazette 1984

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INCORPORATED LAW SOCIETY OF IRELAND
GAZETTE
Vol. 78 No. 9 November 1984
In this issue . . .
Comment 235
SADSI News 243
Crossword 252
Comment . . .
Executive Editor:
Editorial Board:
. . . Company Law — the
abuse of Limited Liability
Mary Buckley
William Earley, Chairman
John F. Buckley
Gary Byrne
Charles R. M. Meredith
Michael V. O'Mahony
Maxwell Sweeney
Advertising: Liam O hOisin, Telephone 305236
Printing: Turner's Printing Co. Ltd., Longford
The views expressed in this publication, save where
other-wise indicated, are the views of the contributors
and not necessarily the views of the Council of the
Society.
The appearance of an advertisement in this publication
does not necessarily indicate approval by the Society for
the product or service advertised.
ABC Membership has been approved pending first audit
for the period July to December 1984.
Published at Blackhall Place, Dublin 7.
DURING the debate on the Bill which became the
Limited Liability Act, 1855 the Law Times, in a most
hostile article, described the Bill as a "rogues' charter".
Other adverse comment at the time referred to the Bill as
being "subversive of the high moral responsibility which
has . . . . distinguished our partnership law".
All a bit excessive, no doubt. In general, in the
intervening 129 years the concept of limited liability has
served its purpose of enabling "men with small capitals"
to promote and establish businesses through companies
with a separate legal existence. Other businessmen and
the public at large have been more or less aware of the
potential risks in dealing with a limited liability company;
it might be argued that dealing with sole traders or
partnerships, not so protected, has not shown itself to be a
more profitable or secure endeavour for creditors if such
businesses go bankrupt.
Nor is there any great novelty in the phenomenon of the
unscrupulous businessman rising 'phoenix-like' from the
ashes of a failed company to promote a new one with a
similar name and similar business. What is changing,
however, is the attitude of the public in this regard.
Programmes such as Checkpoint on BBC Radio 4 and
Public Account on RTE have raised public awareness of
the fact that limited liability has moved from being a
legitimate protection to the fledgling entrepreneur to
becoming, on occasion, a shield for the scoundrel or
recklessly careless businessman.
As has been recently pointed out in the press, the ability
of a liquidator to commence proceedings against former
directors of a liquidated company for fraudulent trading
under Section 297 Companies Act 1963 (under which
section directors may be made personally liable without
limit for the debts of an insolvent company) is limited by
the high degree of proof involved in establishing intent
under the Section. We urgently need a more flexible and
generally applicable law so that, firstly, directors of a
company which has gone into insolvent liquidation may
in appropriate circumstances be debarred from
promoting or being directors of other companies for a
specified period; secondly, that the degree of "real moral
blame" necessary for directors' personal liability under
Section 297 should be widened to include reckless and/or
chronic disregard for the interest of creditors; thirdly, that
these protections for creditors should be extended to
cover other interested parties, such as employees of a
company.
No case could be made for the abolition of limited
liability. However, the case is clear, that those who abuse
limited liability should be denied its protection. •
235