An important judgement was given by Mr. Justice Gilligan in a restriction case involving Glenda Gilson in determining the role of a second “passive director” plays in a company. The judge in a 32 page judgement, addressed the role a second director plays in a company that they have a duty and a responsibility toward their creditors that they will act responsibly and carry out their duties in accordance with common law and their obligations under the Companies Acts.
All directors should read the judgement and be aware that acting as a director carries an important duties to play an active role in the company and not to rely on the actions of other directors in the company.
Restriction
The High Court made a restriction order against model and TV presenter Glenda Gilson and a disqualification order against her brother Damien Gilson for their involvement as directors of Gilson Motor Company Limited.
These orders were sought by Gary Lennon the liquidator of the company which operated a car sales company and operated a car park and valet services.
The company was wound up by the High Court in 2011 after it failed to pay €141,937 in taxes to Revenue.
No proper books and records were kept by the company, company funds were diverted into accounts for the purpose of defrauding Revenue, for the purposes of deliberate avoidance of paying the company’s taxes.
The company was struck off in 2008 for failure to file annual returns and financial statements. The company was restored and continued not to file annual returns and financial statements until it was wound up in 2011. The company was in a Section 40 of Companies (Amendment) Act 1983 which was never held.
Damien Gilson did not contest the Section 150 of Companies Act 1990 order and was disqualified from acting as a director, secretary, officer or manager of a company for 5 years.
Glenda Gilson opposed the liquidators application on the grounds that she had no hand, act or part in running the business and that she had gained no personal benefit from the company. Ms. Gilson was represented by Carlow Law Firm Clarke Jeffers.
The judge accepted that “she played no active role, that she wrongly understood that a second director was an administrative step and did not want to disappoint her brother by refusing to be put forward as a director, did not act dishonestly and was deceived by her brother in the way he ran the affairs of the company”. Her brother accepted full responsibility and it was “difficult to attach any real moral blame to Ms. Gilson”.
The judge was satisfied that she “acted honestly in relation to the conduct of the affairs of the company” however he said that “she had displayed a want of proper standards in not taking any interest in the affairs of the company and had not kept herself informed of the company’s affairs and must suffer the consequences as provided for in Section 150 of Companies Act 1990”.
Judge’s comments
Directors including directors such as (Ms. Gilson) who consider their role as administrative, or indeed nominal, have a duty and a responsibility toward their creditors that they will act responsibly and carry out their duties in accordance with common law and their obligations under the Companies Acts.
The purpose of Section 150 is to protect the public against the future supervision and management of companies by persons whose past records as directors of insolvent companies have shown them to be a danger to creditors and others. It is also established that the purpose of the section is not to punish the individuals concerned.
Ms Gilson has not complied with the obligations imposed on her pursuant to the Companies Acts 1963-2013 insofar as annual returns were not filed, never saw the writing on the wall for the company for the simple reason that she didn’t not involve herself in any way in the affairs of the company.
Ms. Gilson owed a duty to the company to exercise skill and diligence in the exercise of her function. In my view she failed in this regard. She also individually had a continuing duty at common law to require and maintain sufficient knowledge and understanding of the company’s business to enable her to properly discharge her duties as a director.
Carrol J in Re Hunting Lodges deftly sums up the situation wherein she stated that a director who continues as a director but abdicates all responsibility is not lightly to be excused and that, as regards a passive director, consideration can be given for that person to be excused liability, where they reasonably endeavoured to keep abreast of the company affairs and had been deceived.
I am prepared to accept Ms Gilson was deceived by her brother in the improper manner in which he ran the affairs of the company
In my view the situation that arises turns on the fact as to whether or not Ms. Gilson endeavoured to keep abreast of the affairs of the company and, in my view she did not do so and must suffer the consequences as provided for in section 150 of Companies Act 1990. I take the view that this Court cannot condone or justify the alternative conclusion which would suggest that a family member can be one of the two directors of a company and if he or she fails to reasonably endeavour to keep abreast of the affairs of the company which is insolvent they are not to suffer restriction despite loss to creditors.
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