Disqualification Process

Automatic Disqualification

Certain disqualifications are automatic. Others follow from a court order or conviction. The 2014 Act provides for automatic disqualification for certain offences under the Companies Act and other prescribed enactments.

A person is automatically disqualified, if he is convicted on indictment of any offence under the Companies Act or any other enactment as may be prescribed, in relation to a company or of any offence involving fraud or dishonesty. The Act contemplates that the Minister shall make orders prescribing legislation for this purpose.

A disqualified person is disqualified for five years from the date of conviction or such longer or shorter period as the court, on the application of the prosecutor or defendant, having regard to all the circumstances, may order.

The principal offences which carry automatic disqualification are those where

  • the person concerned has been committed of a crime involving fraud or dishonesty on indictment (jury trial);
  • the person failed to disclose a disqualification in another jurisdiction;
  • the person was convicted of an offence breaching a restriction declaration or other disqualification order,
  • the person acted in relation to the company while an undischarged bankrupt.

Procedural Aspects

If a director is charged with an offence or is the subject of civil proceedings, and the charge or proceedings relate to the company or involve alleged fraud or dishonesty, then the court may, on its own motion or at the request of any party if it considers appropriate, require the director to lodge a written notice giving the names of all companies of which he is a director, or has been a director within the previous 12 months. He must state whether or not he was ever subject to a disqualification order, and give details of the dates and duration of each such period.

Where a court makes a disqualification order, or grants relief from a disqualification order, convicts the person of an offence which is deemed to be the subject of a disqualification order, or convicts in respect of the offence of contravening a disqualification or restriction order, the prescribed officer of court, shall ensure that the CRO is given prescribed particulars of the order, relief and conviction.

The Court has a general discretion to make a restriction order, rather than a disqualification order, where it is of the opinion that disqualification is not warranted.

Where a restricted person becomes a director of a company that commences to be wound up within the five years of the earlier insolvency which caused him to be restricted, and it appears to the liquidator that the company is insolvent,  the liquidator must report the matter to the court.  The court, if it considers it proper to do so, may make a disqualification order against the restricted person for such period as it sees fit. Failure to so notify is an offence.


Disqualification Grounds

On the application of the ODCE, the DPP, Registrar, a member, contributory, officer, employee, receiver, liquidator, examiner or creditor, the court may make a disqualification order, if it is satisfied that one or more of the below grounds of disqualification apply. The earlier grounds may be relied on by most applicants. Some of the later grounds may be relied on, only by the ODCE or DPP.

The relevant grounds are

  • that the person has been guilty while a promoter, officer (director or secretary), statutory auditor, receiver, liquidator or examiner of any fraud in relation to the company, its members or creditors or if he has breached his duty as such office holder;
  • that a declaration has been granted in relation to a person’s civil liability for fraudulent or reckless trading;
  • there is disclosed in a report of inspectors, conduct which makes him unfit to be concerned in the management of a company;
  • he has been persistently in default in relation to relevant requirements;
  • he is guilty of two or more offences in relation to keeping accounts;
  • he was a director of a company which was struck off by reason of default in Companies Act obligations;
  • he is disqualified under the law of any other State from being appointed a director or secretary of a body corporate, and it would have been proper to make a disqualification order against him if the same circumstances had taken place in the State.

A person has been persistently in default in relation to relevant requirements if he has been guilty of three or more defaults in relation to those requirements in the preceding five years. A person is treated as having been found guilty of a default in relation to a relevant requirement if he or she is convicted of any offence consisting of a contravention of a relevant requirement or a default order is made against him or her.


Application Issues I

Where it is intended to bring an application for a disqualification order, the applicant must give not less than ten days’ notice to the person concerned. The Court considers whether the respondent is unfit to be a director or to be concerned in the management of a company.

The principal focus is the protection of the public, rather than punishment.  Deterrent may be a secondary effect.On an application for a disqualification order, the court may as an alternative, if it considers that disqualification is not justified, make a restriction order.

If the applicant for disqualification is a liquidator of the company, and the insolvency gave rise to the application, then, the liquidator shall as soon as practicable notify the creditors and contributories.  On the hearing of the application, the Director, the applicant for disqualification or liquidator, any creditor or contributor, may appear and give evidence.  Default on the part of the liquidator is a category 3 offence.


Application Issues II

The court may not make a disqualification order, if the person concerned shows that the company in question had no liabilities, actual or contingent, in the case of a company being  struck off in default, or where it did have such liabilities, that they were discharged before the date of the making the application for the disqualification order.

The court may make a disqualification order, notwithstanding that the person concerned is or is deemed already to be subject to a disqualification order. A disqualification order may be made, notwithstanding that the person who is the subject of the order may be made criminally liable on the ground or grounds on which it is made.

The court may order that the person disqualified or against whom a declaration or restriction order is made, shall bear the costs of the application.  In the case of an application by the DPP, a liquidator, a receiver or examiner, or OCDE, this may include their costs and expenses both in investigating the matters and collecting evidence as well as the application.

A court may grant relief to a person subject to disqualification order if it considers that it is just and reasonable.  Relief may be given in whole or in part, and on such terms and conditions as the court sees fit.  The application for relief must be served on the applicant for the disqualification order, and the OECD, if another applicant applied.  Not less than 14 days’ notice of intention to seek relief must be given in writing.


Substantive Considerations I

The court considers the entire circumstances. Ordinary commercial misjudgement does not suffice to justify an order. The conduct alleged to make the person unfit must display a lack of commercial probity. In an extreme case of gross negligence and total incompetence, disqualification may be appropriate.

The Court considers the person’s ability to control the matters complained of, his experience and qualifications, the extent to which he has attempted to rectify the matters complained of, the lapse of time, the effect of an order and his attitude to the proceedings.

Disqualification may be ordered where a person has been declared personally responsible for the debts of a company, by reason of fraudulent or reckless trading. It may be ordered where the person has been persistently in default in relation to Companies Act requirements.


Substantive Considerations II

Continuing to trade while insolvent will not necessary result in disqualification.  Non-payment of revenue debts will not necessarily result in disqualification

A person who permits a company to be struck off the register may be made subject to a disqualification order for that reason.  The Court will not make an Order if the company had no liabilities, actual or contingent or the liabilities have been since discharged.

A person who is disqualified cannot be appointed as an auditor, director, officer, receiver, liquidator or examiner.  He may not be concerned in the promotion, formation or management of a company.


Disqualification Undertakings I

The 2014 Act allows for disqualification and restriction undertakings.  This is a consensual undertaking by the person concerned, to be bound by disqualification or restriction without court process.

Where the Director of Corporate Enforcements has reasonable grounds for believing that one or more of the circumstances in which a court may disqualify a person, applies to a person, he may give notice to that person or his agent, setting out:

  • which of the circumstance applies;
  • particulars of the facts and allegations that give rise to that belief;
  • the period of disqualification which the Director in his opinion, believes is warranted in the circumstances; and
  • the date of commencement of the disqualification period, if a disqualification undertaking is given.

The notice shall state that during a period of least 21 days, that in the event of a request by the person being acceded to, the person may notify the Director, of his willingness to give a disqualification undertaking for the disqualification period and return the disqualification acceptance document duly signed.


Disqualification Undertakings II

During that period, the Director shall refrain from making an application to the court for disqualification in relation to the relevant facts and circumstances.  If the person, accepts the undertaking within the period specified in the notice or an extended period, he shall not make an application.

The notice shall state that

  • the person may request an extension of the notice period;
  • set out the legal effects of giving a disqualification undertaking for the disqualification period;
  • that if the person gives the undertaking, he may be relieved of the undertaking only by applying to the court,
  • on the making of such application, the court may only grant relief if it considers just and equitable, and then only on such terms as it sees fit.

Where a notice is given, the Director and every person who is aware of the notice shall not, during the notice period, make an application.  The person may make a request, for extension of the notice period.  Where the notice is delivered, the Director may, at any time before the specified time, extend the relevant notice period.


Giving the Undertaking

Where a person, the subject of a notice indicates his willingness to enter the disqualification undertaking and returns the signed undertaking, the Director is to cause the Companies Registration Office to be furnished with the prescribed particulars.

The Registrar shall enter them on the registrar of disqualified persons.  He shall notify the person of the undertaking furnished and provide a copy of the disqualification acceptance document. If this procedure is completed, the Director and no other person may make an application for a disqualification order, based on the circumstances.

For the duration of the disqualification period, the person shall not be appointed as the director, officer, statutory auditor, receiver, liquidator or examiner or be in any way, directly or indirectly, concerned or take part in the promotion, formation or management of a company or friendly society or Industrial and Provident Society.

The Director shall not exercise his above powers in relation to a person if, in the Director’s opinion, a period of disqualification, longer than five years is warranted by the facts and circumstances, or the Director is aware that an application has been already made by another.

Where a person is already disqualified, the disqualification undertaking, the period specified in the immediate undertaking shall run concurrently with the remaining period for which the person is already disqualified.


References and Sources

Primary References

Companies Act 2014 (Irish Statute Book)

Companies Act 2014: An Annotation (2015) Conroy

Law of Companies 4th Ed.  (2016)     Ch. 29 Courtney

Keane on Company Law 5th Ed. (2016) Part VIII Hutchinson

Other Irish Sources

Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury

Introduction to Irish Company Law    4th Ed. (2015) Callanan

Bloomsbury’s Guide to the Companies Act 2015      Courtney & Ors

Company Law in Ireland 2nd Ed. (2015) Thuillier

Pre-2014 Legislation Editions

Modern Irish Company Law   2nd Ed. (2001) Ellis

Cases & Materials Company Law 2nd Ed. (1998) Forde

Company Law 4th Ed. (2008)  Forde & Kennedy

Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy

Companies Acts 1963-2012   (2012)  MacCann & Courtney

Constitutional Rights of Companies   (2007)  O’Neill

Court Applications Under the Companies Act (2013) Samad

Shorter Guides

Company Law – Nutshell 3rd Ed. (2013) McConville

Questions & Answers on Company Law (2008)        McGrath, N & Murphy

Make That Grade Irish Company Law 5th Ed. (2015) Murphy

Company Law BELR Series (2015)   O’Mahony

UK Sources

Companies Act 2006 (UK) (Legilsation.gov.uk)

Statute books Blackstone’s statutes on company law (OUP)

Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington

Company Law in Context 2nd Ed. (2012) D Kershaw

Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam

Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington

 

UK Practitioners Services

Tolley’s Company Law Handbook

Gore Browne on Companies

Palmer’s Company Law