The Gazette 1995

193 / 424

GAZETTE MAY/JUNE 1995
that the director is unfit and that is
emphasised by the mandatory
disqualification . . . to be imposed if
that conclusion is reached"M).
There it was found that while,
"imprudent and indeed improper in
part although I think the directors'
conduct to have been, . . . "6I
a disqualification order would not be
imposed.
Hoffmann J. in Re CU Fittings Ltd62
said that,
. . directors immersed in the day-
to-day task of trying to keep their
business afloat cannot be expected
to have wholly dispassionate minds.
They tend to cling to hope.
Obviously there comes a point at
which an honest businessman
recognises that he is only gambling
at the expense of his creditors on
the possibility that something may
turn up.
Consequently a director who admits
to, or is shown to have, entered into
the realm of hazarding creditors'
property should be more liable to
restriction than one who at all times
he attempted to preserve that property.
In Re Cargo AgencyM, a
disqualification order was made where
it was felt that the directors'
remuneration was unreasonably high
during the period of trading by the
company when it was hopelessly
insolvent. Cynical exploitation of the
privilege of limited liability or gross
incompetence would also constitute
disqualification.61
Factors that have also militated
against disqualification have been
where a director has shown that he
was acting on professional advice
which was bona fide and proper66; that
he has himself incurred personal
losses in attempting to keep the
company solvent67 or that the company
was insolvent only for a short period
of time6". Though the cases relate to
disqualification rather than restriction
they express standards by which
directors of insolvent companies
should be governed.
Also of relevance are the comments of
Lynch J. in Re Hefferon Kearns
(No.2)w, in relation to reckless trading
where he held that section 297A,
". . . operates individually and
personally against the officers
(which includes the directors) of a
company and the onus rests on the
plaintiff to prove in relation to each
of the defendants in this case that
his conduct falls within the ambit of
conduct prohibited or liable to be
penalised . . . "7<)
Therefore a director should escape
restriction if he can show
responsibility on his behalf,
notwithstanding the irresponsible
actions or behaviour of the others
directors. A failure however to rectify
irresponsible conduct of which a
I director is aware of, will itself be
deemed irresponsible71.
On 'honesty' Lynch J., in Re Hefferon
Kearns (No. 2) 72, commented,
". . . the first defendant, whilst acting
honestly and bona fide in what he
considered to be the best interests of
the creditors, was in fact party to the
contracting of debts by the company
at a time when he knew that those
debts, together with all the other debts
of the company, including contingent
and prospective liabilities, could not
be paid by the company as they fell
due for payment"",
i.e. he was a party to reckless trading.
There the provisions of s.297A(6)
were used to absolve the director from
a finding of reckless trading. However
while honest conduct may protect a
director from liability for reckless
trading, it is difficult to reconcile how
a director can be both responsible and
reckless simultaneously.
A court after concluding that a
director has acted 'honestly and
reasonably' may still, if it feels it is
"just and equitable"74, restrict the
director nevertheless. This might arise
for instance where the court takes the
view, that though a person has at all
times acted properly, they are simply
not suitable for company
directorships.
Finally in the context of a director
seeking to exonerate himself from
restriction there arises the question as
to whether reliance can be placed on
actions that pre-dated the statute.
Recently Barron J.71 stated that:
"In relation to the retrospective
operation of statutes, two types of
situation exist. The first is the
enforcement of the terms of the
statute to circumstances in existence
as of the date of the statute. To do
so is to give the Act retrospective
effect. The second is the
enforcement of its terms in relation
to circumstances existing
subsequent to its passing but having
regard to events which occurred
before its passing. To do so does not
give the Act retrospective effect
since the right being enforced is one
given by the Act. "76
Lynch J. in Re Hefferon Kearns
(No.2)11 felt that though liability for
reckless trading could only be
incurred on, or after the 29th of
August 1990 (the operative date of
S.297A), it did not follow that,
"... I cannot have regard to acts
done or omitted or knowledge
acquired by the defendants before
the 29th August, 1990 in deciding
whether or not acts done or omitted
between the 29th August and the
11th October, 1990, constituted
reckless trading"."
In imposing liability for reckless
trading the court has a discretion,
whilst under s.l50 there is no such
option. A Court only has to evaluate
the actions of a director prior to
August 1, 1991 (if at all), from the
perspective of whether the restriction
should not be imposed. It is not
concerned with whether the actions of
that time justify restriction, merely
whether they are capable of excusing
the director from restriction.
Consequently it would seem that
directors will be able to point to their
actions of pre-August 1, 1991 in
establishing to the Court that they
were acting "honestly and
responsibly".
Sub-section 2 however excludes the
provisions from directors appointed
169