The Gazette 1991

GAZETTE

i SEPTEMBER 1991

" . . . a person in accordance

wi th whose directions or

instructions the directors of a

company are accustomed to

ac t. . . shall be treated for the

purposes of this Part as a

director of the company unless

the directors are accustomed

so to act by reason only that

they do so on advice given by

him in a professional capacity."

Accordingly, it seems clear that

solicitors and accountants who

advise a company will not

ipso

facto

be deemed to be "shadow

directors" solely by virtue of advice

given qua solicitor/accountant.

However, where their advice goes

beyond that of "professional

advice", and more particularly

where the solicitor/accountant has

a legal or beneficial interest in the

company (Borrowings Ltd) it would

be open to a court to find that he

was in fact and in law a "shadow

director".

3. The concept off "Control".

Fortunately, at least from the point

of view of interpretation, the Act

does not leave the concept of

"control" hanging in the air. S.26

(3) provides that

" . . . a director of a company

shall be deemed to control a

body corporate if, but only if,

he is, alone or together with

any of the persons referred to

paragraph (a), (b)

(c) of

subsection (1),

interested in

more than one-half of the

equity share capital of that

body or entitled to exercise or

control the exercise of more

than one-half of the voting

power at any general meeting

of that body."

As with so many sections of the

Act, one cannot make sense of any

given provision without cross-

reference to another. As such it is

necessary to examine two con-

cepts which are referred to in S.26

(3).

In the first place, there is the

question of

"aggregation"

of the

interests of the director with certain

other persons (listed in S.26 (1)) to

determine whether or not that

director will be deemed to

"control" Borrowings Ltd.

These are:

(a) that director's spouse,

parent, brother, sister or

child;

(b) a person acting in his

capacity as the trustee of

any trust, the principal

beneficiaries of which are

the director, his spouse or

any of his children or any

body corporate which he

controls; or

(c) a partner of that director.

Secondly, one should note that

"control",

is determined by

reference to "equity share capital"

and "voting power". By virtue of

S.26 (4) (a) of the Companies Act,

1990, "equity share capital" is

given the same meaning as in S.155

Companies Act, 1963, and hence,

in any given situation, one should

refer to this section.

The alternative test is that

regarding the control of " t he

exercise of more than one-half of

the voting power at any general

meeting of that body". S.26 (4) (b)

of the Companies Act, 1990

provides that:

"references to voting power

exercised by a director shall

include references to voting

power exercised by another

body corporate which that

director controls."

From the foregoing it is evident

that the S.31 prohibition has been

drafted very widely by the

legislative draftsmen.

4. Anti-Avoidance Provisions

It should also be noted that S.31,

subsections (2) and (3) contain

anti-avoidance measures. S.31 (2)

has the effect of preventing

Guarantor Ltd from arranging for an

assignment or assuming rights,

liabilities or obligations under a

transaction which, if entered by

Guarantor Ltd itself, would have

contravened S.31 (1). S.31 (3)

prevents Guarantor Ltd from taking

part in an arrangement in which

another person enters a transaction

which if entered by Guarantor Ltd

itself, would have contravened S.31

(1) where that other person obtains

any benefit from Guarantor Ltd or

related companies.

Furthermore, while Part III of the

Act is not retrospective in the true

sense, S.25 (7) provides that:

". . . for the purposes of deter-

mining whether an arrange-

ment is one to which

section

31 (2)

31 (3)

applies the

transaction to which the

arrangement relates shall, if it

was entered into before the

said commencement, be

deemed to have been entered

into thereafter."

And, if it were thought that the

S.31 prohibition were capable of

being avoided by the parties

executing documentation abroad,

S.25 (8) provides that Part III has

effect in relation to arrangements/

transactions whether governed by

Doyle Court Reporters

Principal: Áine O'Farrell

Court and Conference Verbatim Reporting

Specialists in Overnight Transcription

2, Arran Quay, Dublin 7.

Tel: 722833 or 862097

(After Hours)

Fax: 724486

T^ceiknce in (Reporting since 1954

262