Disqualification

Disqualification Order I

A disqualification order is a court order that a person shall be disqualified from being appointed as a director or other officer, statutory auditor, receiver, liquidator or examiner of a company or being in any way, directly or indirectly, involved, concerned or take part in the promotion, formation or management of a company, a friendly society or an Industrial and Provident Society.

Disqualification is a complete ban on holding the relevant office. It prohibits the person concerned from acting as a de facto director, without being appointed as such.

Breach of a disqualification order is an offence. The court may declare the person liable for all of the company’s debts in respect of the company concerned. Another director who acts on his instructions may also be disqualified.


Disqualification Order II

The CRO maintains a register of disqualified persons.  The particulars of disqualification are entered on the register.  Particulars of relief and other orders above are also to be entered.  The entries are to be removed on the expiration of the period of the disqualification order (not restriction order in this context).

Certain disqualifications are automatic.  The 2014 Act provides for automatic disqualification upon conviction for certain offences under the Companies Act and other prescribed enactments. Other disqualifications follow a court order made on foot of an application for disqualification.


Disqualification Abroad

Where a person becomes disqualified under the law of another State, whether under an order of a judge, tribunal or otherwise, from acting as a director or secretary of a body corporate or undertaking, then the following obligations apply.

The director who has become disqualified abroad must give notice of this fact to the directors of the company. His failure to do so is an offence. The company must register the fact of such disqualification in the Companies Registration Office.

If the company fails to notify the requirement because of a default on the part of the director concerned, or the if the company sends false or misleading particulars of the foreign disqualification, the director is deemed to be subject to a disqualification order for the period of the foreign disqualification period.  The obligation of disclosure applies to an existing director who becomes disqualified abroad and to a director who is already disqualified from becoming appointed as director.

A person may be disqualified for failing to notify a foreign disqualification order to the Companies Registration Office.


Offences

A person is guilty of a category 2 offence if he breaches a disqualification order, a restriction order, a disqualification undertaking or a restriction undertaking. A person so convicted is deemed to be subject to a disqualification order from the date of conviction unless he is already so subject.

A person convicted of any of offences which carry the sanction of disqualification, who is subject to a disqualification order before the date of the conviction, shall have his period of disqualified extended for up to further period of 10 years, or such longer or shorter period as the court, on the application of the prosecutor or defendant may order.

A person is guilty of a category 2 offence if he while a director, acts in accordance with the directions or instructions from another, knowing that person to act in contravention of the provisions regarding restriction and disqualification.  A person so convicted shall be deemed to be the subject of a disqualification order from the date of disqualification, unless already so subject.


Consequences of Breach I

If a person acts, in relation to a company, in a manner or capacity in which he is prohibited from doing, by reason of being restricted or disqualified, the company may recover any consideration or an amount representing its value given by the company for any act or service performed while he was so acting.  This may be recovered as simple contract debt.

A disqualified person who acts in a manner which is prohibited by the disqualification order may be made personally liable for the debts of the company.  A court order is required.  Winding up must commence while he is acting in a prohibited manner or within 12 months of his ceasing to so act.

The provision applies to any person who acts in relation to a company, in a manner in which is prohibited, while he is the subject of a restriction, declaration or disqualification order or undertakings. If the company commences to be wound up while he was so acting or within 12 months afterwards in insolvent liquidation, then the court may on the application of the liquidator or creditor declare that the person is personally liable, without limitation  for all or part of the debts or liabilities of the company incurred during the period while he was so acting.


Consequences of Breach II

A person who is convicted on indictment, of an offence of acting under the directions of a disqualified or restricted person, may be made personally liable, without limitation, for the debts of the company incurred during the period while he was so disqualified.

In any such proceedings, persons who would otherwise have unlimited liability may be given relief in whole or in part from such liability by the court on such terms as it sees fit. A person who is the subject of a disqualification order may apply to the court for relief, either in whole or in part, on such terms as the court considers equitable.

The Registrar of Companies keeps a register of disqualified persons. It is a serious offence to act as a director or be concerned in the management of a company while being disqualified.  A conviction for such offence carries an automatic continuation of disqualification for a further ten years.  No relief is possible. Consideration paid by that company may be recovered by it.

Disqualification Undertakings

Where the ODCE has reasonable grounds for believing that one or more of the circumstances specified in relation to disqualification of directors applies to a person, it may in its discretion deliver a disqualification notice. The procedure may be used only where the ODCE believes that the appropriate period of disqualification is five years or less.

The grounds are those on which an order of disqualification may be made.  Where the ODCE has reasonable grounds for believing that one or more such grounds exists, it is obliged to set out in the disqualification notice, which of the grounds it believes to be applicable and the particulars of the facts giving rise to this belief.

The notice must set out the period of disqualification.  The disqualification notice shall state that for 21 days ending on the date when disqualification would commence, the person addressed may notify the ODCE of his willingness to give the undertaking and to execute a disqualification acceptance document.  The ODCE is to refrain from making an application during this period. Other parties, such as liquidators, who are aware of the notice, must not make an application in this period.

If the disqualification undertaking is given, an application for restriction or disqualification may not be taken. Where a disqualification undertaking has been given, the ODCE furnished the details to the CRO and issues the disqualification acceptance document. A person who accepts the disqualification undertaking is deemed to be subject to a disqualification order.


Relief from Disqualification

The 2014 Act confirms that the person disqualification period is five years, or such shorter or longer period as the court on an application made to it, may order.  An application for variation of the automatic disqualification period applicable to offences regarding fraud or dishonesty may be made by the defendant.

An application for relief against disqualification must be served on the persons who applied for the order and the ODCE, at least 14 days in advance. The liquidator, if the matters concerned arose from the liquidations shall as soon as practicable, notify the creditors and contributories of which he is aware.

The ODCE, creditors, shareholders and the persons who applied for the disqualification may appear and be heard on the application.  The court may require the applicant to give security for costs.

A person who gives a disqualification undertaking may apply to be relieved of the undertaking, in whole or part, by the court.  The court may grant such relief only if it considers it just and equitable and may do so on such terms and conditions as it sees fit.  If the person is already subject to a disqualification order, it will run concurrently.


References and Sources

Primary References

Companies Act 2014 (Irish Statute Book)

Companies Act 2014: An Annotation (2015) Conroy

Law of Companies 4th Ed.  (2016)     Courtney

Keane on Company Law 5th Ed. (2016) 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