Role of Directors
Cases
Lynrowan Enterprises Ltd., Re.
[2002] IEHC 90
O’Neill J.
9. The first issue which arises for consideration is whether or not James V. Mealy can be considered to be a “director” to whom Section 150(1) of the Companies Act, 1990 can be applied. It is accepted he was not a duly appointed director and therefore he can only be caught by Section 150 if he was either a “shadow director” or also, in the submission of the liquidator was de facto acting as a director so as to come within the definition of “director” in Section 2(1) of the Companies Act, 1963.
10. The question of the precise kind of activity or role which will result in a person being deemed to be either a de facto director or a shadow director does not appear to have been considered in any reported judgments in this jurisdiction.
11. In the jurisdiction of England and Wales the question has received some attention, and the law in regard to de facto directors was reviewed in the case of Re Richborough Furniture Limited (1996) 1 BCLC 507.
12. In this case Timothy Lloyd QC sitting as a Deputy Judge of the High Court in the Chancery Division comprehensively reviewed the English authorities. In that case what was in issue was whether or not a person could be disqualified to act as a director under Section 6(1) of the Company Directors Disqualification Act of 1996 where the person had not been validly appointed as a director.
13. In the course of his review the learned Deputy Judge quoted the following passage from the judgment of Brown-Wilkinson V-C in the case of Re: Lowe-Line Electric Motors Limited (1998) BCLC 696 at 706, (1998) Ch. 477 at 489 where the following was said
“As a matter of construction I would hold that the word “director” in Section 300 does include a person who is de facto acting as a director even though not appointed as such. Counsel for the respondent submitted that as the disqualification of a director is a penal process the word should be strictly construed. But, as I have said, the paramount purpose of disqualification is the protection of the public not punishment. I therefore approach the question of construction on the normal basis. Section 300 requires the Court to have regard to “conduct as a director”. I can see no reason why parliament should have intended that the decision to disqualify should turn on the validity of his appointment. The conduct relevant to future suitability to act as a director depends on a man’s past record as a director irrespective of the circumstances in which he came to act as such. Counsel for the respondent relied on Section 733(2) as showing that when parliament intended to include a de facto director it referred expressly to “any person who was purporting to act in any such capacity”. But Section 733 extends the criminal liabilty of a company to others and it is not surprising that in an exclusively penal provision the criminal liabilty of a de facto director has to be expressed therefore.”
14. Later on in his judgment the learned Deputy Judge quotes the following additional passage from the judgment of Brown Wilkinson VC in the same case as follows
“for the reasons I have given the plain intention of parliament in Section 300 was to have regard to the conduct of a person acting as a director whether validly appointed, invalidly appointed, or just assuming to act as a director without any appointment at all. In this context there is no logic in drawing the distinction put forward by counsel for the respondent.. In my judgment therefore under Section 300 the Court must have regard to the conduct of the respondent as director when validly appointed or invalidily appointed or merely de facto acting as a director.”
15. Later in his own judgment the learned Deputy Judge says the following
“in my judgment where Section 6(1) speaks of a person being or having being a “director” and of his conduct “as a director”, it includes the case where he has acted as a director even though not validly appointed or even if there has been no appointment at all. I accept the reasoning of Brown Wilkinson VC which fits with Millett J’s observation: “liability cannot sensibly depend on the validity of the defendant’s appointment”. Given the purpose of the legislation it seems to me that it would be bizarre if a person was liable to the jurisdiction if he had acted as a validly appointed director or as a shadow director, but not if he had acted as a director under an appointment which was for some technical reason invalid or if he had acted in the absence of any appointment at all.”
16. The learned Deputy Judge goes on further to say the following
“It seems to me that for some one to be made liable to disqualification under Section 6 as a de facto director, the Court would have to have clear evidence that he had been either the sole person directing affairs of the company (or acting with others all equally lacking in a valid appointment, as in Morris -v- Kanssen) or, if there were others who were true directors, that he was acting on an equal footing with the others in directing the affairs of the company. It also seems to me that, if it is unclear whether the acts or the person in question are referable to an assumed directorship, or to some other capacity such as shareholder or as here, consultant, the person in question must be entitled to the benefit of the doubt.”
17. I find the above quoted passages persuasive, in the light of the purpose of Section 150 which was stated by Shanley J. in La Mosele Clothing Limited -v- Soualhi (1998) 2 I.L.R.M, 345, at p. 350 to be as follows
“Quite apart from the injustice that results from the failure to restrict directors whose conduct merits restriction, there is the fact that the primary purpose of the Section 150 restriction is the protection of the public from persons who by their conduct, have shown themselves unfit to hold the office of, and discharge the duties of, a director of a company and, in consequence, represent a danger to potential investors and traders dealing with such companies.”
18. I am of opinion that a person although not validly appointed a director of a company may nonetheless be said to be a de facto director and thus deemed to be “a director” within the meaning of Section 2(1) of the Companies Act 1993 and thus amenable to the restriction contained in Section 150 of the Companies Act 1990, in the following circumstances:
1. Where there is clear evidence that that person has been either the sole person directing the affairs of the company or
2. Is directing the affairs of the company with others equally lacking in valid appointment or
3. Where there were other validly appointed directors that he was acting on an equal or more influential footing with the true directors in directing the affairs of the company.
4. In the absence of clear evidence of the foregoing and when there is evidence that the role of the person in question is explicable by the exercise of a role other than director, the person in question should not be made amenable to the Section 150 restriction.
5. Where the object of the Section is the protection of the public from dishonest or irresponsible persons the absence of a valid appointment should not permit an escape from the restriction in Section 150. It would be nonsensical if a person who had been validly appointed a director was to be treated differently to someone who lacked valid appointment but nevertheless assumed in all other respects the role of director. I would agree that “liability cannot sensibly depend upon the validity of the defendant’s appointment”.
6. In the light of all of the foregoing then in my view the Companies Act 1963 to 1990 recognise and embrace in the provision of Section 2(1) of the Act of 1963 and Section 150 of the Act of 1990, the concept of the “de facto director”.
19. A somewhat different role is that of the “shadow director”. The essence of that role is to be found in Section 27(1) of the Act of 1990 already quoted and it would appear to be that the true directors of the company act on the instructions and directions of someone who is not a validly appointed director.
20. In the English case of Re Hydrodan (Corby) Limited (1994) 2 BCLC 180 the following was said by Millett J. at p. 183
“A de facto director, I repeat, is one who claims to act and purports to act as a director although not validily appointed as such. A shadow director by contrast does not claim or purport to act as a director. On the contrary claims not to be a director. He lurks in the shadows, sheltering behind others who he claims, are the only directors of the company to the exclusion of himself.”
Thus it would appear that an invariable characteristic of a shadow director is that his role is hidden behind that of the validly appointed or indeed de facto directors, through whom, in a concealed way, the shadow director directs the affairs of the company.
21. On the evidence in this case I am satisfied that James V. Mealy was not a “shadow director” he did not direct the affairs of this company by instructions or directions to the other director named James A. Mealy. His role, such as it was, was not hidden or concealed in anyway.
22. The evidence does however satisfy me, on the balance of probabilities that James V. Mealy was a de facto director of the company. From October 1996 until April of 1998 the evidence establishes to my satisfaction that James V. Mealy had virtual complete control over the affairs of the company and the only other director James A. Mealy had virtually no involvement in its affairs during that time. This fact is most visibly illustrated by the fact that during that period James V. Mealy carried out all bank transactions for the company. Whilst it could be said that the carrying out of bank transactions is not necessarily indicative of the role of a director, I am satisfied that in the context of the affairs of this company and the fact that its affairs could only have been directed either by James A. Mealy or James V. Mealy the fact that all of these transactions were carried out by James V. Mealy points to him having a decisive role in the direction of the affairs of the company. This conclusion, I think is fortified by the fact that James V. Mealy was the authorised signatory for the purposes of the bank account whereas James A. Mealy was not. The fact that James A. Mealy could not have written a cheque drawn on the company tends to persuade me that his role in the company was nominal only. In his evidence before the Master he appeared to readily accept that, and his lack of knowledge of the affairs of the company seemed to confirm that position. Thus the only person who could have exercised direction over the affairs of the company was James V. Mealy and there is ample evidence, in the conduct of the banking transactions of the company the inclusion of the company in advertisements for James V. Mealy’s own company to support this conclusion. The evidence establishes that 80% of the business done by the company was with the Futon and Fabric Workshop Limited a company in which James V. Mealy appears to be the principal shareholder and director. On its own, this fact would not be decisive in persuading me that James V. Mealy was a director of the company but in combination with the other evidence it tends to paint a picture of control and direction of the affairs of the company by James V. Mealy.
23. I have therefore come to the conclusion that James V. Mealy was a de facto director of the company and is therefore amenable to the restriction in Section 150.
Worldport (Ireland) Limited & Companies Acts
[2008] IESC 68
Fennelly J.
22. I am also satisfied that the learned judge was correct in his primary conclusion on the interpretation of the relationship between section 150 of the Act of 1990 and section 176 of the Act of 1963. The appellant’s case is that it follows from the prohibition of a body corporate from being a director of a company that a body corporate cannot be a shadow director for the purposes of section 27(1) of the Act.
23. That argument is based on the fallacy that section 27 is concerned with persons who formally hold the position of director. The learned judge rightly held “that shadow directors are not a subset of the office of directors but entirely separate…” The section is addressed to persons who, in many if not most cases, will not hold any formal title as director. The shadow director is a “person in accordance with whose directions or instructions the directors of a company are accustomed to act…” A finding that a person is a shadow director is a finding about how that person is accustomed to behave in relation to the company. It is quite unrelated to and distinct from the observance of any formalities concerning that person’s appointment or election as a director. No such formalities are required. There is nothing inconsistent about finding a person to be a shadow director for the purposes of section 27 and the fact that the person is legally ineligible to hold the position of director.
25. Finally, Laffoy J considered whether a body corporate could be a shadow director in her judgment in Fyffes plc v DCC plc and others [2005] IEHC 477 (Judgment 21st December 2005). In that judgment, the learned judge applied the reasoning of O’Leary J in his judgment in the present case. Following a detailed analysis of the statutory provisions, she concluded as follows:
“The word “director” is defined as including a shadow director within the meaning of s. 27. The drafting technique employed in Part V, in my view, was not intended to, and does not affect the proper interpretation of s. 27. By virtue of s. 11(c) of the Act of 1937, the word “person” in s. 27 is to be construed as including a company unless the contrary intention appears. I can discern no contrary intention in Part V of the Act of 1990. Interpreting the word “person” in s. 27 as importing a company is not in any way inconsistent with s. 176 of the Act of 1963. The latter provision precludes a company from having a body corporate as a director; the former identifies the type of person who, by reference to the manner in which he acts vis-à-vis the company, is to be treated as a director.”
26. I would respectfully agree with that statement of the law. I should add that her conclusion with regard to the effect of the Interpretation Act on section 27 does not determine the interpretation of section 150, discussed below.
27. Thus a body corporate may be a shadow director for the purposes of section 27. “
Hocroft Developments Ltd -v- Companies Acts
[2009] IEHC 580
McKechnie J.
The Director Issue:
55. As above outlined, this issue arises out of a submission by the applicant that Mr. David Cullen was either a shadow or a de facto director of the Company, and accordingly should be treated as a “director” for the purposes of s. 150 CA 1990. A de facto director has been defined as a person “occupying the position of director”, by whatever name, (s. 2(1) CA 1963). An example of a de facto director would be a person, who although not properly appointed, (e.g. lacking the requisite share qualification), nonetheless continued to act in the capacity of a director. His position is different from a de jure director only because his status as a director is technically invalid. O’Neill J. in Re Lynrowan Enterprises Ltd. [2002] IEHC 90 at para. 18, held that a person could be a de facto director in the following circumstances:
“1. Where there is clear evidence that that person has been either the sole person directing the affairs of the company, or
2. Is directing the affairs of the company with other equally lacking valid appointment, or
3. Where there were other validly appointed directors that he was acting on an equal or more influential footing with the true directors in directing the affairs of the company.”
This view of the learned trial Judge was considerably influenced by the decision in Re Richborough Furniture Ltd. (1996) 1 BCLC 507, which he followed.
56. On one reading of In Re Lynrowan it might be thought that a positive finding could only be made if one or more of the three set of circumstances mentioned were met, but if not, no such finding could result. Courtney, in “The Law of Private Companies (2nd Ed.)” (2002) comments on this: he doubts the existence of any requirement to satisfy either the first or second of these conditions, before a person may be a de facto director ([8.054]). Whilst acknowledging the value of highlighting certain evidential factors, which Lynrowan did, the author nonetheless specifies as his preferred test the following:-
“–– Although the person was not, in fact, a formally appointed director, he ‘occupied the position of director’; and
–– The company held him out as a director and he acquiesced in this or, in the alternative, he held himself out as a director and the company acquiesced in this.
It is thought that in order to be a de facto director, it is essential to show that a person was held out as such. …” (ibid. at [8.056])
57. This general description of such a director reflects the decision of Millett J. in Re Hydrodam (Corby) Ltd. [1994] BCC 161 at 163 where he said:
“A de facto director is a person who assumes to act as a director. He is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such. To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director. It is not sufficient to show that he was concerned with the management of the company’s affairs or undertook tasks in relation to its business which can properly be performed by a manager below board level.”
58. It seems to me on this point that a comparative assessment, as to power and influence between a true and de facto director, is not required in any formal sense; although evidently a de facto director must be a person of considerable influence so as to exercise similar power and authority as a true director. It is more likely I think that no one test is decisive but that all relevant factors must be considered, as Jacob J. did in Secretary of State for Industry v. Tjolle [1998] BCC 282, later endorsed by Walker LJ in Re Kaytech International plc., Portier v. Secretary of State for Trade and Industry [1999] BCC 390. Undoubtedly one such factor, always of considerable weight, is whether the person in question, with the approval of the true directors or a majority of them, held himself out as a director or was allowed by the company to do so. But there are others. In the final analysis I would respectfully share the view of Finlay Geoghegan J., who in Gray v. McLoughlin, McLoughlin & Tuohy (ex tempore delivered on 9th July 2004) described as the critical issue whether the person has assumed the status and function of a director.
59. Before leaving In Re Lynrowan, there is a further passage that should be referred to, which is:
“4. In the absence of clear evidence of the foregoing [see para. 55 supra.] and when there is evidence that the role of the person in question is explicable by the exercise of a role other than director, the person in question should not be made amenable to the section 150 restriction.” (para. 18)
Even though this statement was said in the context of a de facto director, it must likewise apply to a shadow director as both are equally exposed, inter alia, to the restriction provision. See La Moselle Clothing Ltd v. Soualhi [1998] 2 ILRM 345 at 350 (Shanley J.). So if uncertainty remains about whether the acts alleged are referable to an assumed directorship or to some other interest or role, whether within or outside the company, the onus will not be discharged and the provisions of s. 150 CA will not apply.
60. A de facto director should be contrasted with a shadow director, who has been statutorily described, if not defined, as:
“…a person in accordance with whose directions or instructions the directors of a company are accustomed to act (in this Act referred to as ‘a shadow director’) shall be treated for the purposes of this Part as a director of the company unless the directors are accustomed so to act by reason only that they do so on advice given by him in a professional capacity.” (s. 27(1) CA 1990)
The proviso within the section is not relevant to these proceedings. To be such therefore, the true directors must at least regularly, if not habitually, take decisions on company matters, though not all, which effectively have previously been made by the shadow director.
61. As previously stated, the Liquidator in this case has alleged that David Cullen was either a de facto director or in the alternative a shadow director. Millett J. in Hydrodam had some strong words to say about assimilating the two concepts; expressing them as follows:
“[A]n allegation that a defendant acted as a de facto or shadow director, without distinguishing between the two, is embarrassing. It suggests … that the liquidator takes the view that de facto or shadow directors are very similar, that their roles overlap, and that it may not be possible to determine in any given case whether a particular person was a de facto or a shadow director. I do not accept that at all. The terms do not overlap. They are alternatives, and in most and perhaps all cases are mutually exclusive.” ([1994] BCC 161 at 163)
…..
72. From the above it seems to me that the following can be stated:-
1. The question of whether a person is a “shadow director” is purely a question of statutory interpretation with the normal applicable rules of construction applying:
2. The interpretation of the phrase will be influenced by:-
(i) The purpose of the relevant provisions of the Companies Act 1990, where that definition is to be found (s. 27(1)), and
(ii) The fact that a shadow director so found is identified with a duly appointed director for company act purposes, which include:-
(a) Transactions involving directors where conflicts of interest arises,
(b) The restriction/disqualification provisions of ss. 150 and 160 of the Companies Act 1990, as amended,
(c) Insider trading formerly under Part V of the Companies Act 1990, now covered by market abuse under Part 4 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005, and
(d) Fraudulent and reckless trading under ss. 297 and 297A of the Companies Act 1963, as inserted by ss. 137 and 138 of the Companies Act 1990 and under ss. 33 and 34 of the Companies (Amendment) Act 1990.
3. For a finding to be made there must be directors of a company, either de jure or de facto and, in addition, two further requirements must be met,
(i) Firstly that directions/instructions were given by the person in question, and
(ii) Secondly, that the true directors (or majority) were accustomed to act upon such instructions or directions.
4. These conditions, in addition to being conjunctive are interlinked by cause and effect: the implementation must be causatively connected to the communication.
5. The making of such communication and the reliance thereon must be by force of habit, that is habitual: they must be repetitive, customary and recurring: they must be part of the usual course of things. Or, as said, they must constitute “a well established practice or pattern” of behaviour. (Forde & Kennedy “Company Law (4th Ed.)” para. 613). On the other hand if either the communication, reliance or both are infrequent, rare or occasional they will not come within the section.
6. The nature or character of the communication, however so labelled, couched or phrased, must, by objective assessment, be such as to equate with the ordinary meaning of the words direction or instruction. It must have an obligatory or imposing force or command behind it. This may be self evident or may be deducible from the habitual responses of the directors.
7. Any communication falling short of this standard is excluded, including advices “per se”.
8. Advices given by a person in a professional capacity (“professional advice”), including those upon which directors are accustomed to act, are for the avoidance of doubt, expressly excluded: professional advice is to be understood in context.
9. The nature of the affected business must be of a type in respect of which the directors would as a matter of course act executively. The scope of the affected business, must be such as to demonstrate a real influence over a wide ranging area of the company’s affairs; although not its total affairs.
10. The above analysis is to be judged by the entire circumstances as presented. Factors such as motive, intention, expectation etc., are all useful to consider but not decisive. Neither is the ability to show, in all cases, an abdication of independence greater than that envisaged above, or that the company or the subject person took steps to conceal his true role. The weight of each admissible and material factor is relative and degree based. Finally,
11. Where the involvement of the person in question is explicable, or at least equally explicable, by the exercise of a role other than that of director, a positive finding should not be made.
Petroceltic International PLC -v- Worldview Capital Management SA & anor
[2015] IEHC 612
Abbott J.
“29. The importance of an artificial construct such as a company is realised when it is considered that the actors in the capital markets such as actual or potential shareholders and bondholders as well as other stakeholders such as creditors and traders dealing or intending to deal with the artificial construct of a company are doing so facing the myriad of commercial risks of the real world, but they are protected from the risk of change in the artificial construct of the company by the rules in the articles of association and the statutory and regulated provisions as described in this judgment. They are not fully protected from the risk of change by the artificial construct of a company because this artificial construct may be changed itself through the removal and replacement of directors, and/or the alteration of the articles of association. However, in relation to these two later changes the potential and actual shareholders and other stakeholders have a substantial protection from risks arising insofar as such changes require their promoters to marshal the support of 50% of the shareholders in the case of change of directors and the support of 75% of shareholders in respect of alteration of articles. To allow resolutions “for the expression of opinion” which in varying degrees would amount to a de facto restraint or impediment in market terms would be adding an intolerable risk to the jungle of risks faced by those working in the commercial world, so that the creation of value added such as employment, product, interest, and profit would, be greatly hampered. It was submitted by the defendants that to deny the possibility of such resolutions expressing opinions would amount to “disenfranchisement and marginalisation” of the members on key issues and the suppression of their freedom of expression and the damage which would result to the members from that course of events is self evidently inestimable; and further, that it was “counter intuitive” that shareholders cannot collectively express an opinion on the matter of concern in an era of increasing incorporate democracy and shareholder activism. However, the artificial construct of the company does, in fact, in an ordered way restrict the decision making powers of the shareholders. The articles of association of any company may in particular cases increase such involvement with decision making and therefore aid democracy of shareholders but it is difficult to envisage any changes however liberal which would not at least in some way seek to put order on the expression of shareholders views so that such expression did not have the direct or indirect effect of altering the way in which the company did business as it was intended by articles, statute and regulation, or (as in this case) to have to face de facto market impediments engendered by such “expressions of opinion”.
30. While shareholder activism has attracted increasing public attention, especially since the unfortunate events leading to the recession following 2008, such activism is properly pursued within the structures of the company. In this case, a great deal of the evidence placed before the Court by way of affidavit dealt with the correspondence, public statements and twitter/social media comments promoted by the defendants. While these comments can be taken as evidence to explain the intent behind the resolutions presented by the defendants as seeking an expression of shareholder opinion, they must be accepted as part of the modern commercial environment of freedom of public and shareholder expression in relation to public companies outside of the artificial construct of the company and it is the formal recording of its transactions such as resolutions and minutes of resolutions which might be crucially examined by parties such as actual or potential bondholders before finalising a commercial relationship with the company.
Lynrowan Enterprises Ltd., Re. (further extract)
[2002] IEHC 90
O’Neill J.
9. The first issue which arises for consideration is whether or not James V. Mealy can be considered to be a “director” to whom Section 150(1) of the Companies Act, 1990 can be applied. It is accepted he was not a duly appointed director and therefore he can only be caught by Section 150 if he was either a “shadow director” or also, in the submission of the liquidator was de facto acting as a director so as to come within the definition of “director” in Section 2(1) of the Companies Act, 1963.
10. The question of the precise kind of activity or role which will result in a person being deemed to be either a de facto director or a shadow director does not appear to have been considered in any reported judgments in this jurisdiction.
11. In the jurisdiction of England and Wales the question has received some attention, and the law in regard to de facto directors was reviewed in the case of Re Richborough Furniture Limited (1996) 1 BCLC 507.
12. In this case Timothy Lloyd QC sitting as a Deputy Judge of the High Court in the Chancery Division comprehensively reviewed the English authorities. In that case what was in issue was whether or not a person could be disqualified to act as a director under Section 6(1) of the Company Directors Disqualification Act of 1996 where the person had not been validly appointed as a director.
13. In the course of his review the learned Deputy Judge quoted the following passage from the judgment of Brown-Wilkinson V-C in the case of Re: Lowe-Line Electric Motors Limited (1998) BCLC 696 at 706, (1998) Ch. 477 at 489 where the following was said
“As a matter of construction I would hold that the word “director” in Section 300 does include a person who is de facto acting as a director even though not appointed as such. Counsel for the respondent submitted that as the disqualification of a director is a penal process the word should be strictly construed. But, as I have said, the paramount purpose of disqualification is the protection of the public not punishment. I therefore approach the question of construction on the normal basis. Section 300 requires the Court to have regard to “conduct as a director”. I can see no reason why parliament should have intended that the decision to disqualify should turn on the validity of his appointment. The conduct relevant to future suitability to act as a director depends on a man’s past record as a director irrespective of the circumstances in which he came to act as such. Counsel for the respondent relied on Section 733(2) as showing that when parliament intended to include a de facto director it referred expressly to “any person who was purporting to act in any such capacity”. But Section 733 extends the criminal liabilty of a company to others and it is not surprising that in an exclusively penal provision the criminal liabilty of a de facto director has to be expressed therefore.”
14. Later on in his judgment the learned Deputy Judge quotes the following additional passage from the judgment of Brown Wilkinson VC in the same case as follows
“for the reasons I have given the plain intention of parliament in Section 300 was to have regard to the conduct of a person acting as a director whether validly appointed, invalidly appointed, or just assuming to act as a director without any appointment at all. In this context there is no logic in drawing the distinction put forward by counsel for the respondent.. In my judgment therefore under Section 300 the Court must have regard to the conduct of the respondent as director when validly appointed or invalidily appointed or merely de facto acting as a director.”
15. Later in his own judgment the learned Deputy Judge says the following
“in my judgment where Section 6(1) speaks of a person being or having being a “director” and of his conduct “as a director”, it includes the case where he has acted as a director even though not validly appointed or even if there has been no appointment at all. I accept the reasoning of Brown Wilkinson VC which fits with Millett J’s observation: “liability cannot sensibly depend on the validity of the defendant’s appointment”. Given the purpose of the legislation it seems to me that it would be bizarre if a person was liable to the jurisdiction if he had acted as a validly appointed director or as a shadow director, but not if he had acted as a director under an appointment which was for some technical reason invalid or if he had acted in the absence of any appointment at all.”
16. The learned Deputy Judge goes on further to say the following
“It seems to me that for some one to be made liable to disqualification under Section 6 as a de facto director, the Court would have to have clear evidence that he had been either the sole person directing affairs of the company (or acting with others all equally lacking in a valid appointment, as in Morris -v- Kanssen) or, if there were others who were true directors, that he was acting on an equal footing with the others in directing the affairs of the company. It also seems to me that, if it is unclear whether the acts or the person in question are referable to an assumed directorship, or to some other capacity such as shareholder or as here, consultant, the person in question must be entitled to the benefit of the doubt.”
17. I find the above quoted passages persuasive, in the light of the purpose of Section 150 which was stated by Shanley J. in La Mosele Clothing Limited -v- Soualhi (1998) 2 I.L.R.M, 345, at p. 350 to be as follows
“Quite apart from the injustice that results from the failure to restrict directors whose conduct merits restriction, there is the fact that the primary purpose of the Section 150 restriction is the protection of the public from persons who by their conduct, have shown themselves unfit to hold the office of, and discharge the duties of, a director of a company and, in consequence, represent a danger to potential investors and traders dealing with such companies.”
18. I am of opinion that a person although not validly appointed a director of a company may nonetheless be said to be a de facto director and thus deemed to be “a director” within the meaning of Section 2(1) of the Companies Act 1993 and thus amenable to the restriction contained in Section 150 of the Companies Act 1990, in the following circumstances:
1. Where there is clear evidence that that person has been either the sole person directing the affairs of the company or
2. Is directing the affairs of the company with others equally lacking in valid appointment or
3. Where there were other validly appointed directors that he was acting on an equal or more influential footing with the true directors in directing the affairs of the company.
4. In the absence of clear evidence of the foregoing and when there is evidence that the role of the person in question is explicable by the exercise of a role other than director, the person in question should not be made amenable to the Section 150 restriction.
5. Where the object of the Section is the protection of the public from dishonest or irresponsible persons the absence of a valid appointment should not permit an escape from the restriction in Section 150. It would be nonsensical if a person who had been validly appointed a director was to be treated differently to someone who lacked valid appointment but nevertheless assumed in all other respects the role of director. I would agree that “liability cannot sensibly depend upon the validity of the defendant’s appointment”.
6. In the light of all of the foregoing then in my view the Companies Act 1963 to 1990 recognise and embrace in the provision of Section 2(1) of the Act of 1963 and Section 150 of the Act of 1990, the concept of the “de facto director”.
19. A somewhat different role is that of the “shadow director”. The essence of that role is to be found in Section 27(1) of the Act of 1990 already quoted and it would appear to be that the true directors of the company act on the instructions and directions of someone who is not a validly appointed director.
20. In the English case of Re Hydrodan (Corby) Limited (1994) 2 BCLC 180 the following was said by Millett J. at p. 183
“A de facto director, I repeat, is one who claims to act and purports to act as a director although not validily appointed as such. A shadow director by contrast does not claim or purport to act as a director. On the contrary claims not to be a director. He lurks in the shadows, sheltering behind others who he claims, are the only directors of the company to the exclusion of himself.”
Thus it would appear that an invariable characteristic of a shadow director is that his role is hidden behind that of the validly appointed or indeed de facto directors, through whom, in a concealed way, the shadow director directs the affairs of the company.
21. On the evidence in this case I am satisfied that James V. Mealy was not a “shadow director” he did not direct the affairs of this company by instructions or directions to the other director named James A. Mealy. His role, such as it was, was not hidden or concealed in anyway.
22. The evidence does however satisfy me, on the balance of probabilities that James V. Mealy was a de facto director of the company. From October 1996 until April of 1998 the evidence establishes to my satisfaction that James V. Mealy had virtual complete control over the affairs of the company and the only other director James A. Mealy had virtually no involvement in its affairs during that time. This fact is most visibly illustrated by the fact that during that period James V. Mealy carried out all bank transactions for the company. Whilst it could be said that the carrying out of bank transactions is not necessarily indicative of the role of a director, I am satisfied that in the context of the affairs of this company and the fact that its affairs could only have been directed either by James A. Mealy or James V. Mealy the fact that all of these transactions were carried out by James V. Mealy points to him having a decisive role in the direction of the affairs of the company. This conclusion, I think is fortified by the fact that James V. Mealy was the authorised signatory for the purposes of the bank account whereas James A. Mealy was not. The fact that James A. Mealy could not have written a cheque drawn on the company tends to persuade me that his role in the company was nominal only. In his evidence before the Master he appeared to readily accept that, and his lack of knowledge of the affairs of the company seemed to confirm that position. Thus the only person who could have exercised direction over the affairs of the company was James V. Mealy and there is ample evidence, in the conduct of the banking transactions of the company the inclusion of the company in advertisements for James V. Mealy’s own company to support this conclusion. The evidence establishes that 80% of the business done by the company was with the Futon and Fabric Workshop Limited a company in which James V. Mealy appears to be the principal shareholder and director. On its own, this fact would not be decisive in persuading me that James V. Mealy was a director of the company but in combination with the other evidence it tends to paint a picture of control and direction of the affairs of the company by James V. Mealy.
23. I have therefore come to the conclusion that James V. Mealy was a de facto director of the company and is therefore amenable to the restriction in Section 150.
Worldport (Ireland) Limited & Companies Acts
[2008] IESC 68
Fennelly J.
22. I am also satisfied that the learned judge was correct in his primary conclusion on the interpretation of the relationship between section 150 of the Act of 1990 and section 176 of the Act of 1963. The appellant’s case is that it follows from the prohibition of a body corporate from being a director of a company that a body corporate cannot be a shadow director for the purposes of section 27(1) of the Act.
23. That argument is based on the fallacy that section 27 is concerned with persons who formally hold the position of director. The learned judge rightly held “that shadow directors are not a subset of the office of directors but entirely separate…” The section is addressed to persons who, in many if not most cases, will not hold any formal title as director. The shadow director is a “person in accordance with whose directions or instructions the directors of a company are accustomed to act…” A finding that a person is a shadow director is a finding about how that person is accustomed to behave in relation to the company. It is quite unrelated to and distinct from the observance of any formalities concerning that person’s appointment or election as a director. No such formalities are required. There is nothing inconsistent about finding a person to be a shadow director for the purposes of section 27 and the fact that the person is legally ineligible to hold the position of director.
25. Finally, Laffoy J considered whether a body corporate could be a shadow director in her judgment in Fyffes plc v DCC plc and others [2005] IEHC 477 (Judgment 21st December 2005). In that judgment, the learned judge applied the reasoning of O’Leary J in his judgment in the present case. Following a detailed analysis of the statutory provisions, she concluded as follows:
“The word “director” is defined as including a shadow director within the meaning of s. 27. The drafting technique employed in Part V, in my view, was not intended to, and does not affect the proper interpretation of s. 27. By virtue of s. 11(c) of the Act of 1937, the word “person” in s. 27 is to be construed as including a company unless the contrary intention appears. I can discern no contrary intention in Part V of the Act of 1990. Interpreting the word “person” in s. 27 as importing a company is not in any way inconsistent with s. 176 of the Act of 1963. The latter provision precludes a company from having a body corporate as a director; the former identifies the type of person who, by reference to the manner in which he acts vis-à-vis the company, is to be treated as a director.”
26. I would respectfully agree with that statement of the law. I should add that her conclusion with regard to the effect of the Interpretation Act on section 27 does not determine the interpretation of section 150, discussed below.
27. Thus a body corporate may be a shadow director for the purposes of section 27. “
Hocroft Developments Ltd -v- Companies Acts
[2009] IEHC 580
McKechnie J.
The Director Issue:
55. As above outlined, this issue arises out of a submission by the applicant that Mr. David Cullen was either a shadow or a de facto director of the Company, and accordingly should be treated as a “director” for the purposes of s. 150 CA 1990. A de facto director has been defined as a person “occupying the position of director”, by whatever name, (s. 2(1) CA 1963). An example of a de facto director would be a person, who although not properly appointed, (e.g. lacking the requisite share qualification), nonetheless continued to act in the capacity of a director. His position is different from a de jure director only because his status as a director is technically invalid. O’Neill J. in Re Lynrowan Enterprises Ltd. [2002] IEHC 90 at para. 18, held that a person could be a de facto director in the following circumstances:
“1. Where there is clear evidence that that person has been either the sole person directing the affairs of the company, or
2. Is directing the affairs of the company with other equally lacking valid appointment, or
3. Where there were other validly appointed directors that he was acting on an equal or more influential footing with the true directors in directing the affairs of the company.”
This view of the learned trial Judge was considerably influenced by the decision in Re Richborough Furniture Ltd. (1996) 1 BCLC 507, which he followed.
56. On one reading of In Re Lynrowan it might be thought that a positive finding could only be made if one or more of the three set of circumstances mentioned were met, but if not, no such finding could result. Courtney, in “The Law of Private Companies (2nd Ed.)” (2002) comments on this: he doubts the existence of any requirement to satisfy either the first or second of these conditions, before a person may be a de facto director ([8.054]). Whilst acknowledging the value of highlighting certain evidential factors, which Lynrowan did, the author nonetheless specifies as his preferred test the following:-
“–– Although the person was not, in fact, a formally appointed director, he ‘occupied the position of director’; and
–– The company held him out as a director and he acquiesced in this or, in the alternative, he held himself out as a director and the company acquiesced in this.
It is thought that in order to be a de facto director, it is essential to show that a person was held out as such. …” (ibid. at [8.056])
57. This general description of such a director reflects the decision of Millett J. in Re Hydrodam (Corby) Ltd. [1994] BCC 161 at 163 where he said:
“A de facto director is a person who assumes to act as a director. He is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such. To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director. It is not sufficient to show that he was concerned with the management of the company’s affairs or undertook tasks in relation to its business which can properly be performed by a manager below board level.”
58. It seems to me on this point that a comparative assessment, as to power and influence between a true and de facto director, is not required in any formal sense; although evidently a de facto director must be a person of considerable influence so as to exercise similar power and authority as a true director. It is more likely I think that no one test is decisive but that all relevant factors must be considered, as Jacob J. did in Secretary of State for Industry v. Tjolle [1998] BCC 282, later endorsed by Walker LJ in Re Kaytech International plc., Portier v. Secretary of State for Trade and Industry [1999] BCC 390. Undoubtedly one such factor, always of considerable weight, is whether the person in question, with the approval of the true directors or a majority of them, held himself out as a director or was allowed by the company to do so. But there are others. In the final analysis I would respectfully share the view of Finlay Geoghegan J., who in Gray v. McLoughlin, McLoughlin & Tuohy (ex tempore delivered on 9th July 2004) described as the critical issue whether the person has assumed the status and function of a director.
59. Before leaving In Re Lynrowan, there is a further passage that should be referred to, which is:
“4. In the absence of clear evidence of the foregoing [see para. 55 supra.] and when there is evidence that the role of the person in question is explicable by the exercise of a role other than director, the person in question should not be made amenable to the section 150 restriction.” (para. 18)
Even though this statement was said in the context of a de facto director, it must likewise apply to a shadow director as both are equally exposed, inter alia, to the restriction provision. See La Moselle Clothing Ltd v. Soualhi [1998] 2 ILRM 345 at 350 (Shanley J.). So if uncertainty remains about whether the acts alleged are referable to an assumed directorship or to some other interest or role, whether within or outside the company, the onus will not be discharged and the provisions of s. 150 CA will not apply.
60. A de facto director should be contrasted with a shadow director, who has been statutorily described, if not defined, as:
“…a person in accordance with whose directions or instructions the directors of a company are accustomed to act (in this Act referred to as ‘a shadow director’) shall be treated for the purposes of this Part as a director of the company unless the directors are accustomed so to act by reason only that they do so on advice given by him in a professional capacity.” (s. 27(1) CA 1990)
The proviso within the section is not relevant to these proceedings. To be such therefore, the true directors must at least regularly, if not habitually, take decisions on company matters, though not all, which effectively have previously been made by the shadow director.
61. As previously stated, the Liquidator in this case has alleged that David Cullen was either a de facto director or in the alternative a shadow director. Millett J. in Hydrodam had some strong words to say about assimilating the two concepts; expressing them as follows:
“[A]n allegation that a defendant acted as a de facto or shadow director, without distinguishing between the two, is embarrassing. It suggests … that the liquidator takes the view that de facto or shadow directors are very similar, that their roles overlap, and that it may not be possible to determine in any given case whether a particular person was a de facto or a shadow director. I do not accept that at all. The terms do not overlap. They are alternatives, and in most and perhaps all cases are mutually exclusive.” ([1994] BCC 161 at 163)
…..
72. From the above it seems to me that the following can be stated:-
1. The question of whether a person is a “shadow director” is purely a question of statutory interpretation with the normal applicable rules of construction applying:
2. The interpretation of the phrase will be influenced by:-
(i) The purpose of the relevant provisions of the Companies Act 1990, where that definition is to be found (s. 27(1)), and
(ii) The fact that a shadow director so found is identified with a duly appointed director for company act purposes, which include:-
(a) Transactions involving directors where conflicts of interest arises,
(b) The restriction/disqualification provisions of ss. 150 and 160 of the Companies Act 1990, as amended,
(c) Insider trading formerly under Part V of the Companies Act 1990, now covered by market abuse under Part 4 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005, and
(d) Fraudulent and reckless trading under ss. 297 and 297A of the Companies Act 1963, as inserted by ss. 137 and 138 of the Companies Act 1990 and under ss. 33 and 34 of the Companies (Amendment) Act 1990.
3. For a finding to be made there must be directors of a company, either de jure or de facto and, in addition, two further requirements must be met,
(i) Firstly that directions/instructions were given by the person in question, and
(ii) Secondly, that the true directors (or majority) were accustomed to act upon such instructions or directions.
4. These conditions, in addition to being conjunctive are interlinked by cause and effect: the implementation must be causatively connected to the communication.
5. The making of such communication and the reliance thereon must be by force of habit, that is habitual: they must be repetitive, customary and recurring: they must be part of the usual course of things. Or, as said, they must constitute “a well established practice or pattern” of behaviour. (Forde & Kennedy “Company Law (4th Ed.)” para. 613). On the other hand if either the communication, reliance or both are infrequent, rare or occasional they will not come within the section.
6. The nature or character of the communication, however so labelled, couched or phrased, must, by objective assessment, be such as to equate with the ordinary meaning of the words direction or instruction. It must have an obligatory or imposing force or command behind it. This may be self evident or may be deducible from the habitual responses of the directors.
7. Any communication falling short of this standard is excluded, including advices “per se”.
8. Advices given by a person in a professional capacity (“professional advice”), including those upon which directors are accustomed to act, are for the avoidance of doubt, expressly excluded: professional advice is to be understood in context.
9. The nature of the affected business must be of a type in respect of which the directors would as a matter of course act executively. The scope of the affected business, must be such as to demonstrate a real influence over a wide ranging area of the company’s affairs; although not its total affairs.
10. The above analysis is to be judged by the entire circumstances as presented. Factors such as motive, intention, expectation etc., are all useful to consider but not decisive. Neither is the ability to show, in all cases, an abdication of independence greater than that envisaged above, or that the company or the subject person took steps to conceal his true role. The weight of each admissible and material factor is relative and degree based. Finally,
11. Where the involvement of the person in question is explicable, or at least equally explicable, by the exercise of a role other than that of director, a positive finding should not be made.
Petroceltic International PLC -v- Worldview Capital Management SA & anor (further extract)
[2015] IEHC 612
Abbott J.
“29. The importance of an artificial construct such as a company is realised when it is considered that the actors in the capital markets such as actual or potential shareholders and bondholders as well as other stakeholders such as creditors and traders dealing or intending to deal with the artificial construct of a company are doing so facing the myriad of commercial risks of the real world, but they are protected from the risk of change in the artificial construct of the company by the rules in the articles of association and the statutory and regulated provisions as described in this judgment. They are not fully protected from the risk of change by the artificial construct of a company because this artificial construct may be changed itself through the removal and replacement of directors, and/or the alteration of the articles of association. However, in relation to these two later changes the potential and actual shareholders and other stakeholders have a substantial protection from risks arising insofar as such changes require their promoters to marshal the support of 50% of the shareholders in the case of change of directors and the support of 75% of shareholders in respect of alteration of articles. To allow resolutions “for the expression of opinion” which in varying degrees would amount to a de facto restraint or impediment in market terms would be adding an intolerable risk to the jungle of risks faced by those working in the commercial world, so that the creation of value added such as employment, product, interest, and profit would, be greatly hampered. It was submitted by the defendants that to deny the possibility of such resolutions expressing opinions would amount to “disenfranchisement and marginalisation” of the members on key issues and the suppression of their freedom of expression and the damage which would result to the members from that course of events is self evidently inestimable; and further, that it was “counter intuitive” that shareholders cannot collectively express an opinion on the matter of concern in an era of increasing incorporate democracy and shareholder activism. However, the artificial construct of the company does, in fact, in an ordered way restrict the decision making powers of the shareholders. The articles of association of any company may in particular cases increase such involvement with decision making and therefore aid democracy of shareholders but it is difficult to envisage any changes however liberal which would not at least in some way seek to put order on the expression of shareholders views so that such expression did not have the direct or indirect effect of altering the way in which the company did business as it was intended by articles, statute and regulation, or (as in this case) to have to face de facto market impediments engendered by such “expressions of opinion”.
30. While shareholder activism has attracted increasing public attention, especially since the unfortunate events leading to the recession following 2008, such activism is properly pursued within the structures of the company. In this case, a great deal of the evidence placed before the Court by way of affidavit dealt with the correspondence, public statements and twitter/social media comments promoted by the defendants. While these comments can be taken as evidence to explain the intent behind the resolutions presented by the defendants as seeking an expression of shareholder opinion, they must be accepted as part of the modern commercial environment of freedom of public and shareholder expression in relation to public companies outside of the artificial construct of the company and it is the formal recording of its transactions such as resolutions and minutes of resolutions which might be crucially examined by parties such as actual or potential bondholders before finalising a commercial relationship with the company.
Phoenix Shannon plc & Others v Harold Purkey & Other
1997 No. 3661P
High Court
7 May 1997
[1997] 2 I.L.R.M. 381
(Costello P)
COSTELLO P
delivered his judgment on 7 May 1997 saying:
The facts
Phoenix Shannon plc is a public limited company and was incorporated in the State on 11 November 1985. It carries on business manufacturing and distributing dental products. In March 1996 Mr George Wolfe (sixth named defendant) was co-opted onto the board of directors of the company. He was the President of Nen Dental Incorporated (an American wholly owned subsidiary of the company). On 21 October 1996 Mr Harold Purkey, Mr Keith Hartley, Mr Philip Platek, Mr Nico Pronk and Mr Benjamin Swirsky (first to fifth named defendants) were co-opted as directors of the company. They had been nominated to act as directors by the company’s merchant bankers, Noble Investment Bankers, and a United States Corporation, Forum Capital Markets, which had been instrumental in raising $20,000,000 by way of a bond for the company. It is common case that the company was then in serious financial difficulties. At the time of the second co-option all but three of the existing directors resigned, except for Mr Ola Johansson, Mr Brian Boland and Mr Keith Westrich. In December 1996 Mr Westrich resigned. These three are now the second, third and fourth named plaintiffs in these proceedings. This action arises from serious disputes between the six directors co-opted in 1996 and the three other directors to whom I have referred.
The last annual general meeting of the company was held on 30 November 1995. By s. 131 of the Companies Act 1963 (as well as by article 52) the company was required to hold its annual general meeting at intervals of no more than 15 months and the plaintiffs’ contention is that the annual general meeting for the year 1996 should, at the latest, have been held on 28 February 1997. In fact no meeting was held for 1996. The reason for the failure to convene it is a matter of dispute, the defendants claiming that it was not possible to finalise the audit of the company’s accounts for presentation to the meeting because of the lack of co-operation of Mr Johansson. Mr Johansson is the major shareholder in the company, owning 39% of its issued share capital. He and Mr Boland (his co-plaintiff) control 42% of the shares of the company. It is relevant to note that both agreed to the co-options which took place last year.
It is agreed that on 26 March 1997 Mr Johansson and Mr Boland decided that because the annual general meeting had not been held by 28 February 1997 all the directors co-opted as required in 1996 under article 92 (that is the six *384 defendants) had automatically vacated office on that day. They accepted that Mr Johansson was also deemed to have vacated office because of his obligation to retire by rotation at the annual general meeting which should have been held in 1996. He had been the company’s managing director and as such he would not have been liable to retire by rotation but he had been dismissed by the company as its managing director by the new board. For the avoidance of doubts Mr Johansson was prepared, for the purposes of the steps then to be taken, to accept that although continuing as director he was not the company’s managing director and accordingly he also automatically vacated office because of the failure to hold the annual general meeting. Mr Johansson and Mr Boland concluded that the company had only one director, namely Mr Boland, arising from the aforesaid failure.
Mr Boland then purported to exercise the powers conferred on him by article 106 of the company’s articles of association. This provides as follows:
The continuing director or directors may at any time act notwithstanding any vacancy in their body but if the directors shall at any time be reduced in a number of less than the minimum number fixed by or in accordance with these articles, the continuing director or directors may act for the purpose of appointing an additional director or directors to make up such minimum, or for summoning a general meeting of the company, but for no other purpose.
The quorum necessary for the transaction of the business of directors was two (article 105) but Mr Boland as the only continuing director firstly appointed Mr Johansson as a director. Under article 106 Mr Boland and Mr Johansson then co-opted Mr Westrich as a director (who, it will be recalled, had resigned in December 1996). These three persons then co-opted three additional directors, Mr Jason Fensterstock, Mr George Skakel and Mr Hugh Regan. These six gentlemen now claim that they constitute the board of directors of the company and on their authority the company is joined as a plaintiff in this action. This claim is hotly contested by the six defendants who say that the steps taken by Messrs Johansson and Boland were invalid and who claim that they are members of the company’s board.
The proceedings
Mr Johansson commenced proceedings against the company in December 1996 challenging his dismissal as managing director. Mr Boland also instituted proceedings against the company challenging his dismissal as an executive of the company (a dismissal which did not affect his position as a director of the company) and on 18 April 1997 he was granted interlocutory relief. The third set of proceedings arising from the internal disputes in this company is the present one. In these the plaintiffs have claimed various reliefs including an *385 injunction restraining the defendants from acting as directors of the company. Interlocutory relief was refused to the plaintiffs by order of 1 March 1997 but by agreement between the parties the court has now been asked to determine two issues as follows:
1. Whether the defendants as persons co-opted onto the board of directors of Phoenix Shannon plc in 1996 are deemed to have retired as directors on 28 February 1997, the last annual general meeting of the company having taken place on 30 November 1995.
2. If so, was the third named plaintiff Mr Brian Boland, as a continuing director entitled to exercise the powers of co-option construed in article 92 of the articles of association to co-opt onto the board of directors Messrs Ola Johansson and Keith Westrich, the second and fourth named plaintiffs.
The plaintiffs’ submissions
I can summarise the plaintiffs’ submissions on the first issue as follows. S. 131 of the Companies Act 1963 provides that every company shall in each year hold a general meeting and not more than 15 months shall elapse between the date of one annual general meeting of a company and that of the next. This is replicated in article 52. Article 92 provides as follows:
92. The directors may from time to time and at any time appoint any person to be a director either to fill a casual vacancy or as an additional director provided that the total number of directors shall not exceed the maximum number fixed by or in accordance with these articles. Subject to the provisions of the Acts, a director so appointed shall hold office only until the commencement of the annual general meeting following next after his appointment, when he shall retire. A director who retires under this article shall be eligible for re-appointment at the meeting at which he retires.
Article 82 provides that unless otherwise determined by the company the number of the directors shall not be less than three and not more than ten and article 87 that ‘one-third of the directors for the time being (other than a ‘managing director … or a director holding an executive office with the company’) or, if their number is not three or a multiple of three then the number nearest to, but not exceeding, one-third shall retire from office at each annual general meeting ….’
The plaintiffs submit that the clear meaning of article 92 is that the directors co-opted under this article (as all the defendants were) are required to retire pursuant to its provisions, that this is a mandatory requirement insofar as it provides that a director so appointed ‘ shall hold office only until the commence *386 ment of the annual general meeting following next after his appointment’ and by providing that such director ‘ shall retire’. The obligation to retire must be read in conjunction with article 52 and s. 131 of the 1963 Act which oblige the directors to convene annually an annual general meeting in accordance with their terms. It follows therefore that the ‘annual general meeting following next’ referred to in article 92 after a co-option must mean that which should be held in accordance with those provisions. The plaintiffs then submit that should the directors fail to comply with these provisions and neglect to convene an annual general meeting then those directors who should have resigned will be deemed to have vacated their office on the last day on which the ‘next annual meeting’ should lawfully have been held. In this case the annual general meeting for 1996 should have been held on or before 28 February 1997 and so it is claimed that after that all the directors co-opted in 1996 vacated office on that day.
In support of this submission the plaintiffs refer to In re Consolidated Nickel Mines Ltd [1914] 1 Ch 883 and a number of subsequent decisions of the English courts. It is agreed that there is no decision in the Irish courts on the issue which I now have to determine. In the first instance I propose to consider the plaintiffs’ construction of the articles and the relevant statutory provisions without reference to the authorities to which I have been referred. I will then examine those conclusions in the light of those authorities.
Conclusions
It is clear that the company is required to hold an annual general meeting every year and that not more than 15 months may elapse between the date of one annual general meeting and that of the next annual general meeting (see article 52 and s. 131 of the 1963 Act). I agree that the ‘annual general meeting next following’ the date of co-option referred to in article 92 must refer to the annual general meeting which should be held under article 52 and s. 131. But the article is silent as to what is to happen if the directors fail in their duty to convene the meeting. In effect the plaintiffs require the court to imply a provision in article 92 to the effect that should the directors fail to convene an annual general meeting as required by the article the co-opted directors will automatically vacate office on the last day on which the meeting should lawfully have been held.
There are two reasons why I think the court should not imply the suggested provision.
(a) S. 131(3) of the 1963 Act makes express provision as to what is to happen should the directors default in convening an annual general meeting.
It provides that:
The minister may, on the application of any member of the company, call or direct the calling of a general meeting of the company and give such ancillary *387 or consequential directions as the minister thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the company’s articles, and it is hereby declared that the directions which may be given under this subsection include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
The next subsection, subs. (4) provides that a general meeting held in pursuance of subs. 3 shall:
be deemed to be an annual general meeting of the company but, where a meeting so held is not held in the year in which the default in holding the company’s annual general meeting occurred, the meeting so held shall not be treated as the annual general meeting for the year in which it is held unless at that meeting the company resolves that it shall be so treated.
These provisions not only provide a practical remedy should the directors fail to convene an annual general meeting but also a means by which the default can be legally rectified. In this case this means that any member could request the holding of a meeting after 28 February 1997 and that meeting could be treated as the 1996 annual meeting at which the co-opted directors would be required to resign. In the light of this express statutory provision should default occur I do not think the court should imply into the article the suggested provision of automatic resignations.
(b) There is another reason, derived from the articles themselves, which suggests that no provision should be implied. Article 93 provides:
The office of a director shall be vacated forthwith;
(a) If a receiving order be made against him, or he makes any arrangement or composition with his creditors generally;
(b) If he becomes of unsound mind;
(c) If he ceases to be a director, or be prohibited from being a director by any order made under the provisions of the Acts;
(d) If he is absent from meetings of the directors for six successive months without leave and his alternative director (if any) shall not during such period have attended instead of him and the directors resolve that his office be vacated;
(e) If he (not being a director holding an executive office in his capacity as a director) resigns his office by notice in writing to the company; or
(f) If he be required in writing by all his co-directors, not being less than two in number, to resign they having shown cause for such resignation.
It is submitted by the defendants, and it is a submission with which I find *388 myself in agreement, that had it been intended that the failure to hold an annual general meeting as contemplated by article 92 would result in the automatic vacation of office by co-opted directors that such a provision would have been made in article 93. It seems to me that the failure to make such an express provision in article 93 is a compelling reason why the court should not imply one in article 92.
I think the same arguments apply to the provisions of article 87 relating to the resignation of directors by rotation. At ‘each annual general meeting’ one-third are required to retire from office, but I do not think that the court should imply a provision into their article to the effect that should the company fail to hold an annual general meeting the directors whose turn it is to retire should be deemed automatically to have vacated office.
The United Kingdom authorities
The judgments of the courts of the United Kingdom have, of course, persuasive authority in this jurisdiction and I will now turn to examine those relied on by the plaintiffs with a view to considering whether I should alter the conclusions which, in the absence of authority, I have reached on the plaintiffs’ construction of the articles.
The first, and indeed the authority which forms the basis of the plaintiffs’ contentions, is In re Consolidated Nickel Mines Ltd [1914] 1 Ch 883, a case relating to a claim in the liquidation of a company for arrears of remuneration by persons claiming to have been directors of the company. The liquidator denied the claims contending that by virtue of the company’s articles the directors had vacated office and accordingly no remuneration was payable. The court upheld the liquidator’s contention. It is, however, important to note that the relevant article which the court construed was significantly different to that in the present case. Consolidated Nickel Mines Ltd had been incorporated on 25 June 1903 and article 101 provided:
101. At the ordinary meeting in 1906 all the directors and in every subsequent year one-third of all the directors shall retire from office. A retiring director shall retain office until the dissolution of the meeting at which his successor is elected.
No general meetings of the company were called in 1906 or in 1907 but two persons, Mr Steele and Mr Phillips continued to act as directors. The court held that ‘the meaning of article 101 is that the holding of the office of director was only to last until the end of 1906, or until the earlier date on which the ordinary meeting for that year was held …. The duty of the directors was to call a meeting in 1906 and 1907, and they cannot take advantage of their own default in that respect and say that they still remain as director …. Steel and Phillips are *389 therefore not entitled to any remuneration for the period between December 1906 and August 1930, when Steel was again a director’ (pp. 888–889).
I will accept for present purposes that this construction of article 101 is correct. The court decided that the ordinary and natural meaning of the words used in the article was that, having specified the year in which the directors were to resign, vacation of office would occur at the end of that year even if the company failed to hold an annual general meeting at which the resignations would formally take place. The construction does not assist the court in construing an entirely different clause, one which provides for the resignation of co-opted directors not in a specified year but at the happening of a future event, the ‘annual general meeting next following’ their appointment. In Consolidated Nickel Mines the court construed the article in accordance with the words used — in this case the court is required to imply a provision into the relevant article, and for this purpose the decision in Consolidated Nickel Mines affords no assistance. I am satisfied that the views which I have expressed on article 92 of Phoenix Shannon plc need not be qualified in any way by this authority.
I was referred to three later cases which considered the effect of a failure of directors to convene annual general meetings on articles which required a proportion of directors to resign by rotation at such meetings. In each of these cases it was (a) assumed without argument that the construction of article 101 of Consolidated Nickel Mines Ltd established a principle which applied to a differently drafted provision relating to resignations by rotation and (b) it was accepted without argument that a failure to hold an annual general meeting as required by the articles (and the law) resulted in the automatic vacation of office of the directors who should have resigned. In a fourth case an article relating to the resignation of co-opted directors similar to article 92Phoenix Shannon plc was considered and the same comments I have just made apply to the decision in that case.
The consequences of a failure to hold an annual general meeting on the operation of article 93 in Table A to the Companies Act 1929 was considered in Kannsen v. Rialto (West End) Ltd [1944] Ch 346. This article (amended in the company’s articles in a way not relevant for present purposes) dealt with the rotation of directors and provided that at the first general meeting of the company all the directors would retire and at ‘the ordinary meeting in every subsequent year one-third of the directors for the time being, or, if their number is not three or a multiple of three, then the number nearest one-third shall retire from office’. It was established that an annual general meeting at which a Mr Cromie should have retired was not held in the year 1941 and the Master of the Rolls held (p. 352) that ‘Mr Cromie had been a director but he had vacated office on 31 December 1941 by reason of article 73 of the company’s articles of association; (see In re Consolidated Nickel Mines Ltd).’ The effect of the distinction between article 73 of Rialto (West End) Ltd and article 101 of Consolidated Nickel Mines *390 was not discussed, nor was it considered in the House of Lords (see [1946] AC 459) in which it was pointed out (p. 467) that it was admitted in the course of the trial and before the House of Lords that the effect of article 73 was that Cromie had not been a director since the end of 1941.
The same situation occurred in Alexander Ward & Co. Ltd v. Samyang Navigation Co. Ltd. In that case (as appears from p. 80 of the Scots Law Times, 1973) the defenders submitted that that company had ceased to have any directors because its articles provided that all the directors should retire at the annual general meeting which was held in each calendar year. No such meeting was held in 1969 nor in 1968. The report went on:
After hearing evidence Lord Brand held that no meeting of the company was held in 1968 or 1969 and that accordingly when the action was raised on 5 November 1970, there was no person capable of giving instructions on behalf of the company.
In the House of Lords ([1975] 2 All ER 424) the finding that there were no directors at the relevant time and no relevant general meeting was not challenged (see pp. 427, 428).
Re Zinotty Properties Ltd [1984] 3 All ER 754 was another case in which the effect of a failure to hold annual general meetings was considered in relation to an article dealing with the rotation of directors. The company adapted article 89 of Table A to the Companies Act 1948 (as adapted) with the result that the company’s articles provided that ‘at the first annual general meeting and at the annual general meeting in every subsequent year one-third of the directors for the time being, or, if their number is not three or a multiple of three, then the number nearest one-third, shall retire from office’. The court held without discussions that as no annual general meetings were held this fact coupled with article 89 meant that the original directors ‘must both be deemed to have retired by 1970’ (p. 783).
The final case to which I was referred was In re New Cedos Engineering Co. Ltd [1994] BCLC 797. This was a case in which one of the issues turned on the operation of clause 95 of the company’s articles which contains provisions relating to the appointment of directors to fill casual vacancies similar to those in the present and a similar provision to the effect that a director so appointed shall hold office ‘until the next following annual general meeting’. The court held that a Mr N.J. Green, who had been co-opted under clause 95 was bound to retire at the next annual general meeting, that a meeting called on 27 November 1972 was a nullity and so either this was no meeting at all, in which case Mr Greene and another director who was due to retire by rotation retired under the principle of Re Consolidated Nickel Mines Ltd or if the so-called meeting was effective at all it was effective to bring about the retirement of the *391 directors but was ineffective to re-appoint them (p. 810).
As the issues raised in the proceedings before me were not considered in the cases to which I have referred they do not afford any compelling reasons for departing from the conclusions which I reached on an examination of the relevant articles without their assistance.
Final conclusions
I must hold therefore that the construction placed by the plaintiffs on the articles is incorrect, that the failure to hold an annual general meeting on or before 28 February 1997 did not mean either that the six directors co-opted in 1996 had vacated office or that Mr Johansson (who was due to resign by rotation) had vacated office. Accordingly, since the resignation of Mr Keith Westrich in December 1996 the directors of the company have been and still are the six defendants namely Mr Purkey, Mr Hartley, Mr Platek, Mr Pronk, Mr Swirsky, and Mr Wolfe, together with Mr Johansson and Mr Boland (the second and third named plaintiffs). I will answer the question raised in the first issue ‘no’ and because of the views I have expressed on that issue it is not necessary to express any on the second.
National Irish Bank Ltd & Anor -v- Companies Acts
[2011] IEHC 172
JUDGMENT of Mr. Justice Roderick Murphy dated 8th day of April, 2011.
10.3 Finding on Delegation Policy
The respondent had averred that he was not aware that there were bogus non-resident accounts in the Bank. He submitted that, as Chief Executive, he was necessarily required to delegate responsibilities, such as the reading of the internal audit reports. His evidence was that it was a reasonable practice and involved no dereliction of duty. He submitted that the Inspectors made no finding that he had failed to keep himself informed of the affairs of the Bank by failing to read all the internal audit reports and that the applicant could not ask the court to go beyond the Inspector’s findings. Thus, the respondent submitted, the inferences drawn by the Inspectors in their Report were not reasonable.
The court is not satisfied from the evidence of the respondent, that there was a proper system in place or that he properly supervised the delegation of reading the internal audit reports. Indeed, given their importance as a control of the performance of the branches, their limited number and relative brevity, it is surprising that he only read those few categorised as poor or unsatisfactory.
While the respondent was entitled to delegate it did not follow that he was not under any duty in relation to the discharge of that delegated function, notwithstanding that the person to whom the function had been delegated appeared both trustworthy and capable of discharging the function. Where a delegation had taken place he, as delegating Chief Executive and director, remained responsible for the delegated function or functions and had a residual duty of supervision and control.
In this particular case the respondent was the Chief Executive, director and a member of the Executive Committee of a licensed bank. He was the most senior manager of the Bank
In Re National Irish Bank Ltd: Director of Corporate Enforcement v. Seymour [2007] IEHC 102, the respondent’s immediate successor was also the most senior and responsible employee of the Bank. Within a short period after his appointment he had commissioned the DIRT Theme Audit Report to investigate the extent of non-compliance. Notwithstanding this, some levels of non-compliance continued. Mr. Seymour could have prevented non-compliance but he did not. This Court disqualified Mr. Seymour.
In the present case, the respondent, notwithstanding delegation was copied with six years of internal audit reports, which referred to repeated non-compliance with the provisions of s. 37 of the Finance Act 1986, in relation to DIRT.
In National Irish Bank Ltd. Director of Corporate Enforcement v. D’Arcy [2006] 2 IR 163 at 177, Kelly J. referred to Mr. D’Arcy as being “in the upper echelons of bank management” and, while he was not at the very top level of management, he was just one remove from it. The court disqualified Mr. D’Arcy for his role in CMI.
Kelly J. also referred to the special position of banks in society:
“An extremely serious element of the conduct was that all of it was taking place within a bank. Banks are not just ordinary corporate entities of the type that the court had to deal with in various cases which I have cited. They occupy a special position in society . . . the ediface of banking is built on a foundation of trust.”
Mr. D’Arcy though not a director of the Bank, was responsible as a senior manager.
Gower and Davies, Principles of Modern Company Law, 8th Ed., Sweet & Maxwell 2008, refers to delegation as follows:
“Provided the articles of association permit such delegation, as they may inevitably will in large organisations, delegation in itself is not evidence of unfitness. However, the responsible director may be found to be unfit if there is put in place no system of supervising the discharge of the delegated functions or if the director in question is not able to understand the information produced by the supervisory system. In other words, in large organisations directors must ensure there are in place adequate internal systems for monitoring risk.”
. . .
“. . . the proposition that directors ‘have a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company’s business to enable them properly to discharge their duties as directors’ applies not just to delegated duties but also to reliance by directors on their board colleagues to take responsibility for particular functions and duties. Although such reliance is again in principle acceptable, so that there can be a division of functions of the board, most obviously between executive and non-executive directors, all directors must maintain a minimum level of knowledge and understanding about the business so that important problems can be identified and dealt with before they bring the company down”.
In the Barings Bank (No. 5) [1999] 1 B.C.L.C. 433, Jonathon Parker J. at 486 referred to the duties of directors in the following terms:
“Each individual director owes duties to the company to inform himself about its affairs and to join with his co-directors in supervising and controlling them. Lord Woolf M.R. in Re Westmid Packaging Services Ltd, Secretary of State for Trade & Industry v. Griffiths & Ors. [1998] 2 B.C. L.C. 646 at p. 653 said:
‘It is of the greatest importance that any individual who undertakes the statutory and fiduciary obligations of being a company director should realise that these are inescapable personal responsibilities.’”
Some degree of delegation is almost always essential the company’s business to to be carried on efficiently. Jonathan Parker J. at p. 487 made reference, in an earlier Barings hearing, to Sir Richard Scott V.-C. who said, when making a disqualification order, against on the respondents in that case:
“Overall responsibility is not delegable. All that is delegable is the discharge of particular functions. The degree of personal blameworthiness that may attach to the individual with the overall responsibility, on account of a failure by those to whom he has delegated particular tasks, must depend on the facts of each particular case. Sometimes there may be a question whether the delegation has been made to the appropriate person; sometimes there may be a question of whether the individual with overall responsibility should have checked how his subordinates were discharging their delegated functions. Sometimes the system itself, in which the failures have taken place, is an inadequate system for which the person with overall responsibility must take some blame.”
In summarising the duties of directors, Parker J. said at p. 436:
“The extent of the duty, and the question whether it has been discharged, depended on the facts of each particular case, including the director’s role in the management of the company.”
The issue in that case was not whether the conduct of the respondents fell below some accepted practice in investment banking but rather whether the respondents acted incompetently (at p. 494 ).
The following summary of the propositions of Jonathon Parker J. in Barings (see pp. 486 – 489), was adopted by this Court in Re. Matter of the Vehicle Imports Limited (In Liquidation) (Unreported, 23rd November, 2000):
(a) Each individual director owes duties to the company to inform himself about its affairs and to join with his co-directors in supervising and controlling them.
(b) Subject to the articles of association of the company, the Board of Directors might delegate specific tasks and functions. Some degree of delegation was almost always essential if the company’s business was to be carried out efficiently: to that extent, there was a clear public interest in delegation by those charged with the responsibility for the management of a business.
(c) The duty of an individual director however does not mean that he might not delegate. Having delegated a particular function it does not mean he was no longer under any duty in relation to the discharge of that function, notwithstanding that the person to whom the function had been delegated appeared both trustworthy and capable of discharging the function.
(d) Where delegation has taken place the Board (and the individual directors) remained responsible for the delegated function or functions and retained a residual duty of supervision and control. The precise extent of that residual duty will depend on the facts of each particular case, as will the question of whether it has been breached.
(e) A person who accepted the office of Director of a particular company undertook the responsibility of ensuring that he understood the nature of the duty a director was called upon to perform. That duty would vary according to the size and business of that particular company and the experience or skills which the director held himself or herself out to have in support of appointment to the office. The duty included that of acting collectively to manage the company.
(f) Where there was an issue as to the extent of a directors duties and responsibilities in any particular case, the letter of reward which he was entitled to receive or which he might reasonably have expected to receive from the company might be a relevant factor in resolving that issue. It was not that the unfitness depended on how much he was paid. The point was that the higher the level of reward, the greater the responsibilities which might reasonably be expected (prima facie at least) to go with it.
(g) The following general propositions could be stated with respect to the directors duties:-
(i) Directors had, both collectively and individually a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company’s business to enable them properly to discharge their duties as directors.
(ii) Whilst the directors were entitled (subject to the articles of association of the company) to delegate particular functions to those below them in a management chain, and to trust their competence and integrity to a reasonable extent, the exercise of the power of delegation did not absolve a director from the duty to supervise the discharge of the delegated functions.
(iii) No rule of universal application can be formulated as to the duty referred to in (ii) above. The extent of the duty, and the question whether it had been discharged, depended on the facts of each particular case, including the director’s role in the management of the company. (As summarised on page 436)
Where delegation has taken place the Board (and each individual director) will remain responsible for the delegated function or functions and will retain a residual duty of supervision and control. It is clear that the duty will vary according to the size and business of the particular company and the experience or skills which the director held himself or herself out to have had in support of appointments to the office.
The Inspectors received no evidence that any of the improper practices investigated were brought to the attention of the Board of the Bank, all of the other members of which appeared to be non-executive. In the circumstances the Inspectors were of the opinion that the Board could not have been held responsible for the existence of these practices. The respondent had a responsibility to ensure that he understood the nature of the duty which he had to perform in acting as Chief Executive and as director to manage and supervise the operation of the Bank.
10.4 Systemic Non-Compliance
In Seymour this Court held that it was not a necessary proof of disqualification that the director’s conduct involved the commission of wrongdoing. Nonfeasance in relation to systemic non-compliance was sufficient. The clear evidence was that after the DIRT Theme Audit in December 1994, Mr. Seymour, did know of the recurrent problems and, at least in respect of the bogus non-resident accounts could have re-designated these as resident accounts, accounted for the DIRT unpaid and disciplined senior and branch management for non-compliance. The failure to do so was, in the opinion of the court, a lack of a proper standard of conduct.
The respondent had, of course, ceased to be Chief Executive in May 1994 when Mr. Seymour succeeded him before the DIRT Theme Audit was commissioned.
The respondent’s evidence was that he did not know the extent of the non-compliance notwithstanding receipt of the internal audit reports, the memorandum of Mr. Hunt and the concerns of Mr. Brennan and other senior managers of the Bank.
There is no doubt, however, that if he had so known he would have been in a position to and had authority to bring about a cessation of the systemic improper practices.
In DCE v. Curran [2007] IEHC 181 this court was satisfied that Mr. Curran, a regional manager of the Bank, was aware, from internal audit reports, of the “deficiencies and irregularities” in relation to the non-resident, DIRT-exempt accounts held at branches at his region and that he ought to have been aware, at least since his promotion to the Head of Retail Banking, of the widespread existence of bogus non-resident accounts. However, this Court was satisfied that he did not have the authority to bring about a cessation of the improper practices. While the court might have expected a more assiduous approval to compliance when Mr. Curran had become Head of Retail, the court was satisfied that he did not have the authority to bring about cessation of the improper practices and, accordingly, held that it was not appropriate to make a disqualification order.
…
10.9 CMI Policies
The evidence of the respondent on affidavit and under cross examination was that the Bank had been a loss making subsidiary of Midland Bank and had been “pushed onto National Australia Bank by Midland” when it was selling some of its subsidiaries in England and Ireland. When the respondent was made chief executive in 1988 discussions regarding “new products” took place.
The managers of the branches had up to then been insurance agents and, according to the respondent’s evidence, were earning £20,000 to £30,000 per year before the agencies were bought out by the Bank on the 1st January, 1990. The respondent’s evidence was that National Australia Bank, who had an involvement in insurance business, encouraged the Bank to become involved in such business in Ireland.
Part 5 of the Inspector’s report entitled “Evasion of Revenue of Obligations: The Sale of CMI, Scottish Provident International and Old Mutual International Policies” referred to Mr. Nigel D’Arcy commencing employment with the Bank on the 1st May, 1989, to establish the financial advice in the services divisions (“FASD”) of the Bank in order to provide a range of independent financial services, primarily in the insurance and investment related sector, to Bank customers and others.
The Bank used a wholly owned subsidiary, National Irish Bank Financial Services Limited, to account for the income and expenses of the FASD relating to the sale of life assurance and investment type products. The subsidiary but not the Bank, was authorised as an insurance intermediary under the Insurance Act 1989, in its capacity as a broker. The Scottish Provident International Policy shared the key features of, and was promoted in the same manner as, the CMI personal portfolio product. References by the Inspectors to CMI products were taken as references to the Scottish Provident International product also. The sales brochure issued by FASD, who, according to the Inspectors’ Report, introduced life assurance business to CMI from March 1990 onwards, referred to the proceeds of the investment being available immediately on death with no foreign probate requirement. Confidentiality and the continuation of the investment in the event of death was stated to be of vital importance. In the opinion of the Inspectors, a more important advantage from the investors’ point of view, which would have been known to Mr. D’Arcy, was the absence of the need for probate. This meant the funds could be kept concealed from the Revenue Commissioners.
When questioned about widespread evasions of tax both through fictitious accounts and insurance products such as CMI, the respondent said that he “did not see that as coming through from the Inspectors Reports”, and that he was never presented with any documentation, either directly or through audit committees to support such a conclusion. He did not see any reference in the Bank to widespread tax evasion.
In particular, he did not accept the evidence from the Inspectors report that officers within FASD targeted customers with “hot” money in order to sell the CMI products to them. He said that he did not have any knowledge of that himself but that if he did, they should not have done it. Had he known he would put a stop to it. It breached Bank procedures. It would have been a very serious disciplinary matter and it would have been dealt with accordingly. He said he was not aware of what FASD was doing in his time at the Bank. He said he had no knowledge whatsoever of that. On no occasion did Mr. D’Arcy, who reported to him, indicate that his staff had been targeting customers who had “hot money”.
However, it was clear that Mr. D’Arcy reported directly to the respondent. The respondent has acknowledged that he was aware of the level of deposits made by CMI with the bank. He submitted that his concerns in this regard were entirely and properly treasury concerns that such funds could possibly be moved at short notice and the fact that the bank could not become over reliant on them.
His concerns were based on an awareness of the level of deposits made by CMI with the Bank. This should have put the respondent on enquiry of the source of such funds.
The court acknowledges that the Inspectors do not make any finding in relation to the respondent’s awareness of the product being promoted to persons wishing to conceal, or continue to conceal, funds from the Revenue.
While the court accepts the respondent’s evidence that he was not aware that CMI was promoted so as to facilitate tax evasion, he was aware of its promotion to non resident account holders and of the growth and investment.
The Inspectors had already noted that internal audit did not deal with the manner of promotion of the CMI policies and the Inspectors were of the view that the manner of promotion of those policies was not within the remit of internal audit.
The court notes that the respondent had referred to the “wide range of policies offered by the Bank” of which he had to keep himself informed and that he could not be criticised for not knowing the purpose of promotion of the CMI product. No evidence was given of the wide range of policies offered by the Bank.
The court is aware of the products being offered by the Bank within the normal course of the banking business. It would appear to be part of the responsibility of the chief executive of a bank to be aware of the nature and performance of such products.
However the use of the word “policies”, which may be unintended in the submissions, would appear to refer to insurance business for which the Bank was not licensed. Given that the very essence of banking business involves the holding of a banking licence it would seem to follow that in pursuing assurance or insurance business, a chief executive should be aware of the need for appropriate licensing.
The conclusion of Part 5 of the Inspectors’ Report was that monies which were undisclosed to the Revenue Commissioners, including funds held in bogus non resident accounts, were targeted by bank personnel for investment in CMI policies as a secure investment for such monies. The Inspectors found that this practice served to facilitate the evasion of Revenue obligations by third parties.
The respondent said that he put in place an auditing, review and control system which should have highlighted such practices but did not. His evidence was that he first became aware of the CMI malpractices just before the Inspectors were appointed. This would appear to evidence a lack of awareness of an important element of the Bank’s business.
The policies were off shore investment schemes used to evade tax by way of a single premium as an alternative to maintaining bogus non resident accounts or incorrectly of fictitiously named accounts. These had been the subject of the RTE exposure in 1998. The programme had alleged that senior managers in the Bank were aware that these schemes were used to evade tax. The Inspectors were appointed to examine these allegations.
The court is satisfied, from the evidence of the respondent, that Mr. D’Arcy was recruited not by the respondent personally but through the normal recruitment procedures. The respondent agreed that Mr. D’Arcy reported directly to him. The Inspectors found as a fact that the respondent was aware of the level of the deposits made by CMI with the Bank. His evidence to the court confirmed this awareness. There was no evidence of actual knowledge of how the product was being promoted.
The Inspectors opinion was that the respondent knew or ought to have known how the product was being promoted. This is a less emphatic finding than that in relation to the bogus non resident accounts.
It is not a finding of fact in the sense of the distinction made by s. 22 of the 1990 Act, much less a finding of lack of probity.
The respondent in his evidence in cross examination noted that the Inspector had not made any findings that he knew or ought to have been aware of the promotion of CMI and sales practices by the Bank.
It is necessary to examine the distinction between facts and opinion.
Section 22 of the Companies Act 1990 provides that a document such as the Report of the Inspectors is admissible in any civil proceedings as evidence both of the facts set out therein without further proof unless the contrary is shown and also of the opinion of the Inspectors in relation to any matters contained in the Report. It seems clear that the opinion of the Inspectors is admissible in such proceedings in the absence of contrary evidence. In the Supreme Court, Fennelly J. stated at p. 360 of Director of Corporate Enforcement v. Byrne [2009] IESC 57, that the Inspector’s findings “should be accepted, unless they are clearly shown to be incorrect”.
In Countyglen plc v. Carway [1998] 2 I.R. 540 at 550 – 551, Laffoy J. held that on a literal interpretation of s. 22 the word “facts” means primary or basic facts and no secondary or inferred “facts”. The words “without further proof” indicated that the legislative intended was that facts which would be provable by witnesses in the ordinary way and not deductions from facts found or admitted, should acquire the status of proven facts under section 22.
The court in that case referred to the judgment of Henchy J. in V.C. v. J.M. & G.M. [1987] I.R. 510 at 522 which distinguished primary or basic facts as found depending on the assessment by the judge on the credibility and quality of the witness: such facts will not normally be reversed on appeal. Secondary or inferred facts were held not to follow directly from an assessment or evaluation of the credibility of witnesses or the weight to be attached to their evidence, but derive from inferences drawn from the primary facts.
The Inspectors had referred to the CMI Personal Portfolio being targeted principally at customers of the Bank, many of whom held bogus non resident accounts and certain persons who ere not customers of the Bank but were known. In relation to the respondent’s knowledge of this practice the Inspectors found that he was aware of the level of deposits made by CMI with the Bank and knew or ought to have known how the product was being promoted. The Inspectors found that whether he knew or not he had to bear the responsibility for the existence of this practice which served to facilitate customers of the Bank and others in evading tax.
The court is satisfied from the respondent’s evidence to the court that he had a responsibility to acquaint himself with the practice and its propriety given the relative size and growth of the investment following his awareness of the extent and persistence of the so called bogus non resident accounts.
The Inspectors noted in each of the areas the subject of the investigation, with the exception of the manner of promotion of the CMI policies, internal audit staff identified, and reported to senior management in the bank, instances of improper practices. The Inspectors were of the view that the manner of promotion of the CMI policies was not within the remit of internal audit.
The Inspectors also accepted that it was not the function of internal auditors to correct improper practices or deficiencies in procedures discovered by them.
To that extent it appears to the court that the conclusion of the Inspectors that the respondent as Chief Executive of the Bank bears responsibility for the existence of the promotion of the CMI product is appropriate.
Despite some unanswered questions, the court is of the view that the findings of the Inspectors in this regard do not on their own justify the orders sought by the applicant.
Under s. 160(2)(e) however, the court is of the view that the respondent had a duty as officer of the company to familiarise himself with the business of the Bank to adhere to and comply with statutory provisions and while delegating to take ultimate responsibility to discharge the Bank’s statutory obligations.
Notwithstanding many of the internal audit reports continued to refer to non-compliance. While the court accepts that the Bank’s procedures referred to compliance with the requirements of the 1986 Finance Act, there was not any evidence of a “rigorous audit system” in place with follow up action to which the respondent alluded. The respondent, in his evidence in cross examination, added that some managers failed to take action and some falsified documents. He did not say why this was not detected and did not emerge until many years later. The court concludes that there was a failure to supervise and control compliance.
10.10 Fictitious or Incorrectly Named Accounts
The Inspector’s Report found that the respondent may not have had knowledge of the existence of fictitious or incorrectly named accounts at the branches as distinct from bogus non resident accounts. Nonetheless the Inspectors found that, as Chief Executive, he had to bear ultimate responsibility for the practice of opening and maintaining fictitious and incorrectly named accounts during the period that he held his position.
The court accepts in this case that there have been no facts found in the Inspectors Report or adduced in cross examination that the respondent knew of the existence of such accounts.
The Inspectors found that that respondent had to bear ultimate responsibility for the practice. The court is of the view that, in the absence of evidence of actual or constructive knowledge, there can be no finding of a breach of duty or unfitness on this ground.
10.11 SSA Accounts
The court agrees with the submissions of the respondent that the Inspectors did not make a finding that he had knowledge of the deficiencies in the operation of the SSAs in the branches.
Nonetheless the Inspectors conclude that he must nonetheless bear ultimate responsibility for the shortcomings which existed in this area during the period.
On the basis of the principles enumerated in Barings, the respondent had a responsibility to supervise the tax compliance of such accounts to inform himself of the irregularities, and to take remedial measures where necessary. This he failed to do.
10.12 Improper Charging of Interest
The court has taken into account the submissions of the respondent in relation to the Inspectors’ findings which relate to the adverse internal audit reports on interest loading which the respondent had received. The Inspectors also referred to the respondent’s reaction to receipt of the April 1990 report on Carrick-on-Shannon as being appropriate in that he directed that the practice cease. However the Inspector’s believed that the reaction was incomplete in that it failed to address the issue of refunds to customers.
The court is of the view that the consequence of awareness and action should have prompted a consideration and a repayment of interest overcharged. While this might be said to be based on hindsight, it would seem to the court that the Bank had an obligation towards its customers to ensure that not alone no improper interest be charged but that such interest be returned. The respondent was not entitled to assume that such interest loading would be refunded by the branches.
He failed to manage the charging of interest and supervise the refunding of interest improperly charged.
10.13 Fee Increases
The Inspectors found that the respondent was made aware of consistently reported shortcomings and the lack of explanation for fee increases recorded.
The Inspectors also found that the respondent was made aware, through receipt of branch audit reports, that the Customer Action Pad introduced in July, 1992 was not being used. It was his responsibility, the Inspectors held, to ensure that there was a system in place in the branches for the contemporaneous recording of management and administration time. Such a system was introduced in March 1996 after the respondent had ceased to be chief executive following pressure from the Director of Consumer Affairs.
The court is satisfied that the respondent had notice of the consistently reported shortcomings regarding fee increases and the failure of the branches to use the Customer Action Pad which, in recording increases, may have exposed the practice.
While the subsequent pressure by the Director of Consumer Affairs after the respondent had ceased to be Chief Executive changed the practice, it seems to the court that having had notice of deficiencies that the Inspectors were entitled to conclude that the respondent should bear ultimate responsibility for the failure of the Bank to put in place in the branches an appropriate system for recording management and administration time which was chargeable to customers.
The respondent had notice of shortcomings and did not remedy the deficiencies.
10.14 Bank’s Management Structure
The court notes the legal submissions in respect of the assertion that the Inspector’s Report was flawed in its lack of understanding of the bank’s management structure. The respondent also submitted that the Inspectors had absolved the audit committee, the Board and the external auditors of any fault and, accordingly, could not fault the respondent.
This submission, it appears to the court, ignores the responsibility of the Chief Executive and Director in relation to the governance, supervision and control, of the Bank.
The position of the internal auditors has already been referred to above. Internal audit staff identified and reported to senior management in the Bank, instances of improper practices. The Inspectors had accepted that it was not the function of internal auditors to correct improper practices or deficiencies in procedures discovered by them. This, the court believes is the function of the Chief Executive or his delegate.
The respondent submitted that the internal audit function was independent of the executive function. That is no in relation to their independence. However, the implementation of their recommendation is a matter for the executive.
The Inspectors also noted the duties of the Board of Directors and noted that the Board had appointed a committee to deal with audit matters, had an internal audit function in place with independent access to the Board and had an audit committee.
The Inspectors had received no evidence that any of the improper practices being investigated were brought to the attention of the Board. In those circumstances, the Inspectors were of the opinion that the Board of the Bank could not be held responsible for the existence of improper practices.
The Inspectors’ reference to the external auditor’s reliance on internal audit satisfied the Inspectors (with the exception already referred to).
It is clear that the thrust of the Inspectors’ findings were in relation to the senior management of the Bank, including its Chief Executive.
It does not appear to this court that the report is flawed in its understanding of the Bank’s management structure and the respondent’s place within that structure. It appears to this court that the reasoning of the Inspectors in relation to the entities referred to was neither flawed nor inappropriate.
The submissions of the respondent in relation to placing trust in the management systems and procedures and in the delegated functions omit reference to the control of the systems and procedures and the overall responsibility of monitoring and controlling in relation to delegation which was referred to in the judgment of Jonathan Parker J. in Barings. Each individual director owes duties to the company to inform himself of its affairs and to join with his co-directors in supervising and controlling them. It follows that a managing director or Chief Executive has particular duties in this regard.
Moreover the reference to non-compliance being common through the banking industry generally cannot constitute a defence to the application against the respondent, but rather confirms the existence of improprieties, shortcomings and deficiencies within the Bank among other banks and the awareness of the respondent of the prevalence thereto.
In relation to the bogus non-resident deposit accounts the Inspectors had found that during the time when he was Chief Executive of the Bank from 1988 – 1994 the respondent was copied with internal audit reports and accordingly had notice of the deficiencies or “irregularities” which existed in the operation of DIRT-exempt non-resident accounts at branches. They referred to “the majority of such reports”.
The opinion of the Inspectors was that the audit reports pointed to the likelihood that the non-resident accounts referred to in the majority of the reports were in fact bogus. In addition, the extent of reported documentary non-compliance was on such a scale that, in the opinion of the Inspectors, it constituted a further indication that a substantial proportion of the non-resident accounts could be bogus.
Thirdly, the Inspectors believed the inevitable inference from the above was that the respondent should not only have been aware of the failure of the branches to hold properly completed non-resident account declarations but should also have been aware that bogus non-resident accounts existed throughout the branch network.
The Inspectors conclude that as Chief Executive, the respondent had ultimate responsibility to ensure that DIRT was deducted from interest paid or credited on all accounts subject to DIRT under the Finance Act 1986 and that he failed to discharge that responsibility. This is an inference from the fact that the internal audit reports were copied and received by the respondent. The court must therefore assess the evidence of the respondent in consideration of his evidence on affidavit.
10.15 Mr. Long’s Evidence
It is clear that Mr. Long has had extensive experience in banking. Equally he was not personally familiar with the structure and reporting lines within the Bank and, indeed, that there was little contact with the respondent after 1987. Hereafter the respondent became Chief Executive of the bank. He admitted that he did not have any direct personal knowledge of the matters the subject of the Inspectors’ Report. His views were based on a review of the report and of the affidavits sworn in the proceedings. He was not cross examined on his affidavit.
He criticised the absence of a structure chart of the Bank in the Inspectors’ Report. The court agrees that this would have been helpful. His remarks in relation to the Board of Directors, the Chief Executive Officer, the audit committee and the external auditors are understandably general and not based on an examination of the structure of the Bank.
He referred to the work load of the Chief Executive without reference to the number of branches and the relative infrequency of reports. He averred and said that it would not be expected that a Chief Executive would read all internal audit reports. He said that the general practice at the time was to furnish the Chief Executive with a summary of the reports highlighting significant issues.
This is to ignore the relevant infrequency of audit reports and, given what he regarded as the autonomy of branch managers, of the necessity that control of branch operations be monitored by the Chief Executive as well as by the audit committee.
It would appear that Mr. Long may have relied upon what the respondent told him. It is not clear on what basis he concluded that the respondent went much further than most Chief Executives in his experience in relation to the review of the internal audit reports. On the basis that only six audits reports identified as poor, were carefully read by him and that there were no reports categorised as unsatisfactory, it seems that the respondent’s evidence does not accord with what Mr. Long assumed or was told.
To attribute the deficiencies identified by the Inspectors to others, particularly at branch management level, does not excuse the responsibilities of a Chief Executive. The assumption which Mr. Long ascribed to the independence of the audit committee raises questions about the overall role and function of Chief Executive. There would be a systemic failure on the part of the organisation, particularly a licensed bank if internal audit reports were not considered by and responded to by the Chief Executive.
To say that the weakness was owing to the calibre of the management of the branches and their decisions to ignore senior management in the policies and procedures of the Bank is to beg the question as to what controls there were to report on the extent of this and to eliminate this weakness.
The court has considered the affidavit of Mr. Long regarding the concerns identified in the internal audit reports. Mr. Long believed that these were to be addressed and remedied by the internal auditors and the audit committee.
There was no evidence between the Court as to how these responsibilities were to be discharged. What is clear is that the respondent was the first named recipient of the internal audit reports.
Mr. Long’s evidence was in relation to banking practice in general and not to the practice of Irish banks or, more appositely, the Bank. He understood, notwithstanding, that it was not the position that concerns were brought to the attention to the respondent such understanding did not derive from his own knowledge. Indeed, he said that he had no direct personal knowledge of the matters referred to in the Inspectors’ Report
The double condition suggested by him was that the responsibility of a Chief Executive depended on items being specifically brought to his attention and his being told that these matters were not being addressed adequately or in a timely manner.
The evidence in this case, to the contrary, was that the matters were brought to the specific attention of the respondent in the reports which stated matters of non-compliance were not being addressed adequately or in a timely fashion or, in a few cases, at all.
Mr. Long believed that the respondent’s review of the reports represented best practice and went further than most Chief Executives in his experience. He averred to the fact that the respondent considered all of his reports personally below a certain rating was, in his view, commendable.
The evidence, however, was that there were relatively few reports that were unsatisfactory or poor and, indeed, that the number of reports received each year had not imposed a great burden on the respondent, even if he had read all of them as there were fewer than one per week. There was no evidence of any alternative overview or any evidence of the supervision, control or performance of each branch by the respondent.
The court is satisfied that the failure to provide such governance in relation to tax compliance, in particular during the respondent’s term of office justified the Inspector’s findings in relation to the conduct of the respondent. The respondent had sought to explain why there might have been discrepancies in relation to Virginia (1990 and 1992), Ballinamore (1991) and Walkinstown (1992) while, at the same time, saying that he did recall seeing the reports or having details or, in one case, having had an opportunity to consult with the head of audit or of not being shown by counsel what follow up actions had been taken.
Mr. Long’s evidence did not deal with governance, management or supervision or responsibility for tax compliance.
10.16 Case Law
Re Lo-Line Limited [1988] Ch. 477, a leading English case, has been cited with approval by the Supreme Court in Re. C.B. Readymix Ltd: Cahill and Grimes [2000] 1 I.R. 373, and subsequent cases in this jurisdiction, including the recent Director of Corporate Enforcement v. Byrne [2009] IESC 57.
In that case Browne-Wilkinson V.C. held at 486:
“Ordinary commercial misjudgement is in itself not sufficient to justify disqualification. In the normal case, the conduct complained of must display a lack of commercial probity, although I have no doubt that in an extreme case of gross negligence or total incompetence disqualification could be appropriate.”
The judgment in Lo-Line recognised that disqualification does involve a substantial interference with the freedom of the individual even if the power is not fundamentally penal.
The observation of Lord Woolf M.R. in Re Westmid Packing Limited [1998] 2 All ER 124, have been cited with approval on a number of decisions of the High Court. At 132 of that case it was stated:-
“. . . other factors come into play in the wider interest of protecting the public, i.e the deterrent element in relation to the Director himself and a deterrent element as far as other Directors are concerned. Despite the fact that the courts have said disqualification is not a ‘punishment’ in truth the exercise that has been engaged in is little different from any sentencing exercise. The period of disqualification must reflect the gravity of the offence. It must contain deterrent elements.”
This Court in Re. National Irish Bank Limited, Director of Corporate Enforcement v. Seymour [2007] I.H.E.C. 102 said that:-
“It is clear that an order made under s. 160 is not penal in nature – it is not a criminal sanction nor a determination of liability in respect of any losses that proved to members, creditors or the regulatory authorities – but an indication of a lack of commercial probity in relation to the management of the company. In addition to the objective of protecting the public, disqualification orders may also have a deterrent purpose.”
The Supreme Court In the Matter of Kentford Securities Limited: Director of Corporate Enforcement v. Patrick McCann, 30th November, 2010, referred to the system of disqualification being complex and containing many elements reflecting different legislative concerns and referred to the act requiring a two stage inquiry of findings of unfitness which establishes jurisdiction to make a disqualification order as was observed by Fennelly J. in Re. Wood Products (Longford) Limited: Director of Corporate Enforcement v. McGowan [2008] 4 IR 598.
The Supreme Court was of the view that it was clear from an analysis of the Act that it directed attention to the past conduct and certainly the best, if not the only, guide to the necessity for disqualification and that past conduct was the key to disqualification. O’Donnell J. referred to the useful test of Gibson J. in Re. Bath Glass [1988] B.C.L.C. 329 at 333, which was specifically approved by the Court of Appeal in Re. Seven Oaks Stationers Limited [1991] Ch. 164 at 183, identifying the conduct and behaviour which constitutes such past, and present, of unfitness:
“To reach a finding of unfitness the court must be satisfied that the director has been guilty of a serious failure to perform those duties which are attendant on the privilege of trading through companies with limited liability.”
The court is satisfied that the respondent has been guilty of a serious failure to perform his duties as Chief Executive and as director of the Bank in respect of his continual failure to ensure compliance with the statutory requirements regarding non resident deposit accounts and CMI policies. The court is satisfied that the findings of the Inspectors of this Court that the respondent had breached his duty in failing to ensure whether the company’s legal requirements were complied with failed to carry out his common law duties with care, skill and diligence engaged in conduct which made him unfit to be concerned in the management of a company.
In Barings plc: Secretary of State for Trade and Industry v. Baker (No. 5) [1999] 1 B.C.L.C. 433, the applicant’s case was that each respondent was guilty of serious failures as management in relation to the activities of Nick Leeson which lead to the insolvency of Barings Bank. The failures of management demonstrated incompetence of such a high degree as to justify a disqualification order.
Section 6 of the English Act imposes a duty on the Court to make a disqualification order, however the respondent was or had been a director of a company which had become insolvent and his conduct as the director of that company made him “unfit to be concerned in the management of company”.
The burden on the applicant was to satisfy the Court that the conduct complained of was demonstrated incompetence of a high degree by reference to the director’s role in the management of the company.
The Court in that case, held at 435 in the context of s. 6, that the standard of competence had to be applied to the facts of each case. It was possible to envisage a case where the respondent had shown himself to be completely lacking in judgment as to justify a finding of unfitness, notwithstanding that he had not been guilty of misfeasance or breach of duty.
In this jurisdiction, the relevant s. 160 is of more general application in that it applies to directors and officers. The pre-requisite of the company being or becoming insolvent applies to a restriction order under s. 150.
The principle enumerated in Barings derives from the duty of directors to exercise skill and diligence in the discharge of that duty (See: Keane: Company Law, 3rd Ed. (Dublin 2000) at 357). Barings has been referred to by this Court Vehicle Imports Ltd. (Unreported, 23rd November, 2000) and cited with approval in Re. Tralee Beef and Lamb Ltd; Kavanagh v. Delany [2005] I.L.R.M. 34, where the Supreme Court (Hardiman J.) distinguished between executive and non executive directors.
Re. SPH Ltd; Fennell v. Shanahan [2005] IEHC 152, Finlay Geoghegan J. held that the directors know or ought to have known of the accrual of significant tax liability. They were obliged to inform themselves about financial affairs of the company and to supervise and control the delegation of that function that the court held that the respondents had not satisfied the court that they had acted at all times responsibly in relation to the affairs of the company.
Ahern, (“Directors’ Duties”, Roundhall. 2009) on Directors Duties characterises Barings as being a radical shift in judicial thinking and the most significant judgment since Re. City Equitable [1925] Ch.. Whatever limited application may be made to the director of such a small family company, there is little doubt that Barings is relevant to the present case.
10.17 Conclusion
The Court is required by s. 160(2)(d) and (e) of the Companies Act, 1990 to satisfy itself, in relation to the application of the applicant, and the conduct of the respondent makes him unfit to be concerned in the management of the company or that, in consequence of a report of Inspectors appointed by the Court on the Companies Act, the conduct of any person makes him unfit to be concerned in the management of company.
The Court has identified a number of breaches of duty on the respondent’s part.
The respondent’s evidence in cross examination tended to criticise and blame branch managers while at the same time maintaining that it was never highlighted that particular managers were actually falsifying documentation. The respondent maintained that the failure happened at branch level and was never highlighted by any of the control systems including, presumably, the vigorous systems which he put in place.
He said he did not know that senior employees were communicating with one another regarding “hot money” and Revenue sensitive funds.
He said he was not aware of what FASD was doing at his time at the Bank.
He said that had he known he would have put a stop to it.
He said he saw no reference to widespread tax evasion and was never presented with anything to support the conclusion that there was tax evasion.
Turning to the Inspectors’ Report he said that they had information which he did not have and also that they did not have all of the documents in relation to his responses to the internal audit reports. However, he did not say what those documents might indicate. The court is satisfied that the follow up of the audit reports showed continuing non disclosure.
The Hunt memorandum of the 18th November, 1993, pointed to Revenue consequences. The respondent in saying that he was unable to explain his reaction to that memorandum appeared to confirm that he did not inform himself about a critical element in the affairs of the bank.
He said that there was no reference to widespread tax evasion in the internal audit reports. He would appear to have not seen the pattern of internal audit reports as pointing to anything more than documentary deficiencies.
In relation to the Inspectors’ Report he did not see references to tax evasion “as coming from the Inspectors’ Report”. He said he did not accept a lot of what was in the Report.
The court is satisfied that his responses themselves indicated a failure. He failed to follow up identified deficiencies notified to him. He failed to react to the concerns expressly communicated to him by the Hunt memorandum in November 1993 in the year before his term of office came to an end though he remained a director.
In D.C.E. v. Seymour, this Court held that;-
“(A) director must familiarise himself or herself with the business of the company in order to carry out his or her duties. The business of banking requires adherence to and compliance with the statutory provisions relating to deposit taking. While a director may rely on delegating to others, there remains an ultimate responsibility (on the directors) to the discharge of the statutory obligations.”
The Revenue Commissioners and the regulatory authorities place very considerable trust in the banks’ strict compliance with the law.
The Court regards these breaches of duties by the respondent as Chief Executive and director as grossly negligent. Taking all of the matters as pleaded by the applicant in the Notice of Motion, the Court is satisfied that the applicant has discharged the substantial burden of establishing that the respondent was grossly negligent, in breach of his duty and that his conduct as the Chief Executive and Director of the Bank had fallen below the required standard and constituted a fundamental failure of governance. Such a failure must also lead to a finding of breach of duty as officer under s. 160(2)(b) of the Act.
The Court also finds that the respondent is “unfit to be concerned in the management of company”, within the meaning of section 160(2)(d) and (e). The court will answer each of the three issues in the notice of motion in the affirmative.
In the light of that conclusion the court is obliged to make a disqualification order in respect of the respondent.
No submissions have been made with regard to the length of such disqualification order. The Court will hear counsel’s submissions in relation to the appropriate length of the disqualification order and in relation to any applications to the court for relief pursuant to section (8) of section 160.