The Gazette 1995

GAZETTE

MAY/JUNE 1995

Restriction of Company Directors and the

Provisions of the Companies Act, 1990

by Andrew Walker, Barrister-at-

Law

Part 2*

Avoiding Restriction

Broadly speaking a director will avoid

a restriction order on one of two

grounds. First on the basis that he,

". . . has acted honestly and

responsibly in relation to the

conduct of the affairs of the

company and that there is no other

reason why it would be just and

equitable that he should be subject

to the restrictions. . . "

Secondly where, though subject to a

restriction order, the person acts in

respect of, is appointed to, or is

involved in the formation or

promotion of a company that meets

certain financial requirements. These

provisions are now looked at in turn.

The phrase "honestly and responsibly"

provides in company legislation an

outlet from penalties that could

otherwise be imposed on persons.

Recently in

Re Hefferon Kearns (No

Lynch J.

made the following

observation on the wording in its

context there as absolving a director

from liability for reckless trading.

"It seems to me that the

expression

"acted honestly and responsibly in

relation to the conduct of the affairs

of the company " is wider than the

corresponding

provisions in sub-s 3 of

s.2I4 of the U.K. Act, [Insolvency

Act,

1986] and the court in this

jurisdiction

is given specific power to

relieve such a director from any

personal liability whatsoever. "

The UK provision in respect of

wrongful trading imposes a fairly

stringent objective test by which

directors are to be judged. It was held

Re Produce Marketing

Consortium

Andrew

Walker

Ltd. (No.

21" that the test extended to

judging the directors by the standards

of what might reasonably be expected

of a person fulfiling their functions

and showing reasonable diligence in

doing so. It was further held that in an

applying the test the court will have

regard to the functions to be carried

out by the particular director and the

particular company and its business.

In relation to restriction, while a

subjective test it is submitted must be

applied in relation to the "honesty" of

a particular director, an objective test

should govern the question of

"responsibility". The parameters of

this latter test remain to be set by the

court in a case by case application of

the provisions, but surely it is closer

to the UK position of ascertaining,

". . . the levels of general knowledge,

skill and experience which the

director in question subjectively did

possess and which objectively he

ought to have possessed in view of the

position held",

than the wide berth afforded by Lynch

J. which absolves reckless trading by

a director on the basis that they acted

within the ambit of s.297A(6) and

with honesty and responsibility.

The

rationale behind this is that it is hard

to reconcile a director's conduct being

reckless, yet at the same time

responsible. Indeed

Murphy J.

has

emphasised that responsibility must

be shown.

The duties and powers of a director

will invariably differ depending on the

nature and size of the company

involved, even where two companies

are in the same line of business. For

this reason it is difficult to postulate

any sort of hard and fast criteria that

will exempt a director from

restriction. However it is of use to

look at the decided cases on

disqualification of directors to show

what kind of actions may, and may

not be tolerated.

First the sentiments expressed by

Browne-Wilkinson

V-C

regarding the

provisions on director disqualification

in England

are applicable to

restriction.

"The primary purpose of the section

is not to punish the individual but to

protect the public against the future

conduct of companies by persons

whose past records as directors of

insolvent companies have shown

them to be a danger to creditors

and

others. "

He went on to state,

". . . ordinary

commercial

misjudgment is in itself not

sufficient to justify

disqualification.

In the normal case, the conduct

complained of must display a lack of

commercial probity "

It is submitted that these criterion

should be applied here in evaluating

whether a director has been 'honest

and responsible'.

Re Bath Glass

it was stated that,

"the court must be satisfied that the

conduct in question is sufficiently

serious to lead it to the

conclusion

168