The Companies Act 2014 contains various offences that both a company and directors may be prosecuted for breaching. Click here to a recent article on company law offences.
The two main ways in which a director may be prosecuted under the Companies Act 2014 are by way of disqualification or restriction. Disqualification of a director usually happens if a company has been struck off the register involuntarily and there was debt outstanding at the time it was struck off the register or the director was a director of a number of companies struck off involuntarily, Restriction of a director usually happens if a company has been placed into a creditors or court liquidation and the liquidator was not granted relief from taking restriction proceedings against the director.
Disqualification
Disqualification means a person being disqualified from being appointed or acting as a director or other officer, statutory auditor, receiver, liquidator or examiner or being in any way, whether directly or indirectly, concerned or taking part in the promotion, formation or management of any company.
This is a significant impediment against any person who acts as a director of a number of companies or wishes to manage a company in the future.
A person can be disqualified by way of:
- Disqualification Order by the court; or
- accepting a Disqualification Undertaking – whereby the person submits to being subject to disqualification, by accepting and signing a prescribed disqualification undertaking.
The most common way for a director to be disqualified is where a company they act as director has been struck off involuntarily and the Corporate Enforcement Authority (the “Authority”)has taken disqualification proceedings against those directors in accordance with Sec 842(h) Companies Act 2014.
Automatic Disqualification
A person is automatically disqualified by the court, if that person is convicted on indictment of:
- any offence under the Companies Act or any other enactment in relation to a company as prescribed; or
- any offence involving fraud or dishonesty.
A person disqualified by the court is subject to a disqualification order for a period of 5 years or other period as specified by the court. The court is obliged to send details of the disqualification order to the Registrar of Companies so that the details supplied are included in the public register of disqualified persons.
The Authority can also apply to the Courts seeking the disqualification of any person on a number of grounds including:
- guilty of two or more offences in relation to accounting records offences (section 286);
- guilty of persistent defaults under the Companies Act;
- guilty of fraudulent or reckless trading while an officer of a company
Disqualification Undertaking
This is an administrative procedure that provides a person (where the Authority is of the opinion that certain circumstances in relation to a person apply) with an option to submit to a disqualification without the need for a court hearing. This procedure can be availed of where the Authority has reasonable grounds for believing that one or more of the circumstances specified in section 842(a)to(i) of the Companies Act applies to the person.
The Authority may, at its discretion, offer the person an opportunity to submit to a disqualification. Where the person submits to a “disqualification undertaking” and returns the disqualification acceptance document duly signed to the Authority, they are deemed to be a disqualified person. The Authority is obliged to send details of the disqualification to the Registrar of Companies, for inclusion in the public register of disqualified persons.
Restriction
The most common way directors of insolvent companies are prosecuted is by way of restriction. The provisions relating to the restriction of company directors apply to insolvent companies, i.e. companies that are unable to pay their debts as they fall due. Where a company which goes into liquidation or receivership and is insolvent, a director of the company who fails to satisfy the Authority or the Court that he or she has acted honestly and responsibly may be restricted for a period of up to five years.
Restriction Undertaking
This is an administrative procedure that provides the person with an opportunity to submit to a restriction without the need for a court hearing. The Authority may, at its discretion, offer the director of an insolvent company an opportunity to submit to be restricted. The offer will include the circumstances, facts and allegations leading to the Authority forming the belief that restriction is appropriate.
Where the person accepts the restriction, and returns the restriction acceptance document, duly signed, the Authority will send details of the “restriction undertaking” to the Registrar of Companies, for inclusion in the register of restricted persons.
Such a restriction prevents a person from being appointed or acting in any way, directly or indirectly as a director or secretary or being involved in the formation or promotion of any company unless it is adequately capitalised.
- In the case of a public limited company (other than an investment company), the capital requirement is €500,000 in allotted paid up share capital, and
- in the case of a Company Limited by Guarantee €100,000 by virtue of the company’s memorandum of association specifying that the amount of the contribution on the part of a member of it is not less than €100,000. The member must be an individual rather than a body corporate.
- in the case of any other company, the capital requirement is €100,000. Such a company is also subject to stricter rules in relation to capital maintenance.
A person who continues in office as a director of a company on the restriction taking place without the company being adequately capitalised, will be deemed, without proof of anything more to have contravened the Companies Act and will be automatically disqualified as a director.
A person who acts in relation to any company in a manner or a capacity which they are prohibited by virtue of being:
(a) subject to a disqualification order, or
(b) subject to a declaration of restriction, shall be guilty of a category 2 offence.
The above information is taken from the Corporate Enforcement Authority Company Directors Guidance booklet. https://cea.gov.ie/en-ie/Publications/Information-Guidance
NB: The content of this article is provided for information purposes only and does not constitute legal or other advice.
Share this on...