The Gazette 1995

GAZETTE

MAY/JUNE

1995

specified in subsection (2), declare

that a person to whom this Chapter

applies shall not, for a period of five

years, be appointed or act in any

way, whether directly or indirectly,

as a director or secretary or be

concerned or take part in the

promotion or formation of any

company unless it meets the

requirements set out in subsection

(3); and, in subsequent provisions of

this Part, the expression "a person

to whom section 150 applies"

shall

be construed as a reference to a

person in respect of whom such a

declaration has been made.

Nature of Restriction

First it is notable that the restriction is

mandatory and that the onus of proof

is squarely placed on the directors to

show that they should not be subject to

a restriction order. This provision to an

extent contrasts with the position in

respect of director disqualification.

There mandatory disqualification

subsists against a director who is

convicted of an indictable offence

involving the company, fraud or

dishonesty

, while in all other

instances disqualification is at the

court's absolute discretion'

. Indeed

where liability is sought to be imposed

against an officer of a company for

fraudulent or reckless trading

disqualification is still at the Court's

discretion. Secondly, the period of the

restriction is invariable at five years,

regardless of the situation and appears

to run from the date of the

declaration

. Again this element of the

restriction provisions contrasts with

disqualification where the period of

disqualification is ultimately at the

discretion of the Court

In the UK disqualification of a

director of an insolvent company

found to be,

. . unfit to be concerned in the

management of a company'"

ranges from a minimum of two years

up to a maximum of fifteen years

While this may seem more equitable

and pragmatic, experience showed

that such leeway lead to

inconsistencies. Consequently a set of

parameters was drawn up by the Court

of Appeal with the disqualification

period dependant on the gravity of

each case

. The fixing of a time frame

by the legislature here has therefore

eradicated such inconsistencies arising

in the application of section 150 on a

case By case basis.

The first aspect to be noted in relation

to a restriction order is that it will not

only apply to a director taking up a

fresh appointment with a company,

but also is applicable to any other

companies in respect of which that

director is already acting at the time

of the making of the restriction order.

A director having been restricted may

however continue to act, or take part

in the formation or promotion of other

companies if these companies meet

the capital requirements of the

section

These are that the value of the nominal

share capital of the company in which

the restricted person is involved, must

be at least £100,000, (in the case of

public limited company), or £20,000,

(for other companies). The Minister

may vary the amounts

and the

amounts for companies of a different

class or description

. These shares

must be fully paid up and in cash.

Allottees to these shares, or their

subsequent holders

, who do not pay

the full amount are liable for the full

amount of the share and any interest

therein. Provision will be made

however for any consideration

applied

. These liabilities do not apply

to the allotment of bonus shares unless

the allottee,

". . . knew or ought to have known

that the share was so allotted. "

It should be noted that the capital

requirements equally apply to

companies in which "restricted"

directors are already a part of, and not

merely companies they may in the

future become concerned with.

Consequently, a director at the time of

his restriction order on the Board of

another company that already meets

these financial requisites will have to

notify that company of his restriction

order

These requisites as to the financial

structure of a company are to a large

extent the rationale behind the

legislation on restriction and the

situation "whereby a fly-by-night

director liquidates one company,

leaving a trail of unpaid creditors

behind, and then turns up in the

business the following day, in the

same premises with nothing having

changed except perhaps the name over

the door"

. An obvious drawback to

the legislation is that a winding up

will have to have occurred.

Consequently a company that merely

ceases trading will not be affected by

the provisions of Chapter 1, unless a

creditor or member of the company

goes to the expense to see that the

company is wound up.

It should be noted that the wording of

section 150(1) prevents directors from

continuing to act, as well as starting to

act and hence a director of a number

of companies, one of which is in an

insolvent liquidation, leading to his

restriction, will have to bear in mind

the notification provisions of the

Chapter

, (see below). A restriction

order however does not preclude a

person taking part in the management

of a company

Restrictions on Section 150(3)

Companies

Companies to which any person the

subject of a restriction order,

". . . is appointed or acts in any

way, whether directly or indirectly,

as a director or secretary or is

concerned in or takes part in the

promotion or formation or that

company"

are themselves curtailed by the Act.

However persons subject to such a

restriction order are not to take on

such an appointment or so act unless

they have notified the company's

registered office 14 days prior to their

appointment or so acting that they are

so restricted

These "section 150(3) companies" are,

first precluded from availing of the

provisions of section 60 of the

Principal Act

and thereby the giving

of financial assistance for the

purchase of shares unless the

company's ordinary course of

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