The Gazette 1995

GAZETTE

MAY/JUNE 1995

by a "financial institution"

or a

"venture capital company"

. However

they too are subject to the provision

that they act honestly and reasonably

and therefore the provisions seem

needless.

Civil Consequences of Acting while

under Restriction

Any company may recover as a simple

contract debt any consideration, or

amount representing its value, paid

over to a person who acted in relation

to that company while under a

restriction declaration

. Further if the

person is so acting and,

". . . the company

concerned

commences to be wound up - (i)

while he is acting in such a manner

or capacity, or (ii) within 12 months

of his so acting, and (c) the

company is unable to pay its

debts. . . "

they may be made liable for all the

debts and liabilities incurred during

the period he acted in contravention of

a restriction order. An application for

such personal liability may be made

either by the c ompany 's liquidator or

any of its creditors. Consequently the

winding up may be after the five year

restriction is over. It seems that

personal liability may be sought even

where the company has been notified

o f the restriction, under s. 155(5),

though presumably the court in those

circumstances will grant some degree

o f relief.

Officers of a company which;

(1) has been notified of a restriction

declaration by a person,

(2) continues business without

fulfiling the capital requirements

of section 150(3) within a

reasonable period, and

(3) is wound up and at the

commencement of the winding up

is unable to pay its debts,

may themselves be personally liable

for all the debts and liabilities of the

company if they knew of or ought to

have known of the notification to the

company, though relief is available

Applications for such personal

liability can be brought by a

liquidator, creditor or contributory of

the company

. Any officer appointed

to the company after it had met the

requirements will not be liable.

However there are no indications as to

what constitutes a 'reasonable period'

of time for compliance and

consequently the court will have to

decide each case on its facts but

presumably it is longer than the 14

day notification period of section

155(5).

Finally any director, officer, member

o f a committee of management or

trustee of a company who acts in

accordance with any directions or

instructions that are given by a person

they know to be under restriction are

themselves liable to a disqualification

order

. The directions or instructions

made however must be in

contravention of the restriction order.

Procedure

A major flaw in the provisions on

restriction is that neither the Act, nor

the Rules of the Superior Courts,

make any specific reference to the

procedure which ought to be adopted

in the bringing of a restriction

application under section 150 before

the Court. However R SC 0 . 7 5B of the

Rules adopts procedures in respect of

some of the applications that may

arise in the restriction area.

First by R SC 0 . 7 5B r.3(aa)

applications to have a person or

officer made personally liable for a

company's debts under sections

163(3) or (4), are by way of notice of

motion. These will be on notice to the

person against whom the order is

sought and to the liquidator of the

company, if he is not the applicant

himself.

Secondly by R SC 0 . 7 5B r.5 ex parte

applications may be brought where;

(i)

it appears to the liquidator the

interests of another company or

its creditors are in jeopardy,

s . 1 5 1 ( 1 ); or,

(ii) a company is seeking relief in

respect of prohibited transaction,

s. 157(1); or,

(iii) a liquidator wishes to report the

'relevant matters' of s. 161(5).

There is no indication of the

procedure which should be followed

where a receiver or liquidator wishes

to have directors restricted in the first

place, yet R S C 0 . 74 r.136 (as

amended) provides,

"In any winding up an application .

. . under any other of the section of

the [Companies] Acts not herein

expressly provided for, shall, in the

case of a winding up by the court by

made by motion on notice and in the

case of a voluntary winding up by

originating notice of motion. "

Consequently a liquidator in an

insolvent voluntary liquidation should

apply by originating notice of motion

to High Courts 5 or 6. Murphy J. has

expressed the view that the liquidator

should notify all the directors of the

insolvent company, presumably along

with any person who resigned their

directorship in the 12 months prior to

the winding up, of the Act's

provisions regarding mandatory

restriction and that such notification

be as soon as possible. Therefore in

line with

Re G. & T. Garvey

Limited**

such notification should occur in the

six weeks between the winding up and

the first application by the Liquidator

in the Examiner's list. A liquidator

therefore, after a search of the

Companies Office, to ascertain the

directors, should so notify. It would

follow that creditors of the company

should also be notified, as in the case

where a person is seeking relief under

s.152, so that they may outline to the

court their attitude on the restriction

of the director, or otherwise.

Early notification would appear to be

the preferred course as applications

for relief it is on notice to the

liquidator and also under section 151

the liquidator is to report to the court

if it appears to him that the interests

of another company or its creditors are

being jeopardised. These provisions

would be rendered somewhat otiose if

the director appearance and restriction

were made at the final order stage,

respectively.

It would also be more equitable to

directors if they could explain their

actions at a time when the events of

the company's downfall were fresher

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