Service Contracts
Companies Act
Copies of directors’ service contracts
154. (1) Subject to the provisions of this section, a company shall keep—
(a) in the case of each director whose contract of service with the company is in writing, a copy of that contract;
(b) inthe case of each director whose contract of service with the company is not in writing, a written memorandum setting out the terms of that contract;
(c) in the case of each director who is employed under a contract of service with a subsidiary of the company, a copy of that contract or, if it is not in writing, a written memorandum setting out the terms of that contract;
(d) a copy or written memorandum, as the case may be, of any variation of any contract of service referred to in paragraph (a), (b) or (c),
and all copies and memoranda kept by a company in pursuance of this subsection shall be kept at the same place.
(2) Sections 215 to 217 (rights of inspection, etc.) apply to those copies and memoranda.
(3) Where a contract of service is only partially in writing, paragraphs (a), (b), (c) and (d), as appropriate, of subsection (1), and subsection (4) shall also apply to such a contract.
(4) Subsection (1) shall not apply in relation to a director’s contract of service with the company or with a subsidiary of the company if that contract required him or her to work wholly or mainly outside the State, but the company shall keep a memorandum—
(a) in the case of a contract of service with the company, setting out the name of the director and the provisions of the contract relating to its duration;
(b) in the case of a contract of service with a subsidiary of the company, setting out the name of the director, the name and place of incorporation of the subsidiary and the provisions of the contract relating to its duration,
at the same place as copies and the memoranda are kept by the company in pursuance of subsection (1).
(5) If default is made in complying with subsection (1) or (4), the company concerned and any officer of it who is in default shall be guilty of a category 3 offence.
(6) This section shall not require to be kept—
(a) a copy of, or memorandum setting out the terms of, a contract; or
(b) a copy of, or memorandum setting out the terms of a variation of, a contract,
at a time at which the unexpired portion of the term for which the contract is to be in force is less than 3 years or at a time at which the contract can, within the next ensuing 3 years, be terminated by the company without payment of compensation.
Remuneration of directors
155. (1) Each provision of this section applies save to the extent that the company’s constitution provides otherwise.
(2) The remuneration of the directors of a company shall be such as is determined, from time to time, by the board of directors and such remuneration shall be deemed to accrue from day to day.
(3) The directors of a company may also be paid all travelling, hotel and other expenses properly incurred by them—
(a) in attending and returning from—
(i) meetings of the directors or any committee referred to in section 160 (9); or
(ii) general meetings of the company,
or
(b) otherwise in connection with the business of the company.
Prohibition of tax-free payments to directors
156. (1) It shall not be lawful for a company to pay a director of the company remuneration (whether as director or otherwise)—
(a) free of income tax or the universal social charge, or
(b) otherwise calculated by reference to or varying with the amount of his or her income tax or to or with the rate of income tax,
except under a contract which was in force on 31 March 1962 and provides expressly and not by reference to the constitution for payment of remuneration in that manner.
(2) Any provision contained in—
(a) a company’s constitution;
(b) any contract other than such a contract as is mentioned in subsection (1); or
(c) any resolution of a company or a company’s directors,
for payment to a director of remuneration in the manner referred to in subsection (1) shall have effect as if it provided for payment, as a gross sum subject to income tax and the universal social charge, of the net sum for which it actually provides.
Contracts of employment of directors — control by members over guaranteed periods of employment
249. (1) In this section “relevant term” means a term by which a director’s employment with the company of which he or she is a director or, where he or she is the director of a holding company, his or her employment by any company comprised in the group, is to continue or may be continued, otherwise than at the instance of the company, for a period exceeding 5 years during which the employment—
(a) cannot be terminated by the company by the giving of notice, or
(b) can be so terminated only in specified circumstances.
(2) References in subsection (1) to employment being continued (or its potential to be continued) are references to its being continued (or its potential to be continued) whether under the original agreement concerned or under a new agreement entered into in pursuance of the original agreement concerned.
(3) A company shall not incorporate in any agreement a relevant term unless the term is first approved by a resolution of the company in general meeting and, in the case of a director of a holding company, by a resolution of that company in general meeting.
(4) A resolution of a company approving a relevant term shall not be passed at a general meeting of the company unless a written memorandum, setting out the proposed agreement incorporating the term, is available for inspection by members of the company both—
(a) at the registered office of the company for not less than the period of 15 days ending before the date of the meeting, and
(b) at the meeting itself.
(5) If it is proposed to use the means under section 193 or 194 , in lieu of passing a resolution at a general meeting of the company, to approve a relevant term those means shall not be used unless a written memorandum setting out the proposed agreement incorporating the relevant term has been circulated to the members of the company (being those entitled to attend and vote at a general meeting of the company) with the proposal for the written resolution.
(6) A term incorporated in an agreement in contravention of this section shall, to the extent that it contravenes this section, be void and the agreement shall be deemed to contain a term entitling the company to terminate it at any time by the giving of reasonable notice.
(7) No approval is required to be given under this section by any body corporate unless it is a company formed and registered under this Act, an existing company or a wholly owned subsidiary of a body corporate.
(8) For the purposes of this section—
“employment” includes employment under a contract for services;
“group”, in relation to a director of a holding company, means the group which consists of that company and its subsidiaries.
Anti-avoidance provision — section 249
250. (1) In any case where—
(a) a person is or is to be employed with a company under an agreement which cannot be terminated by the company by the giving of notice or can be so terminated only in specified circumstances, and
(b) more than 6 months before the expiration of the period for which he or she is or is to be so employed, the company enters into a further agreement (otherwise than in pursuance of a right conferred by or by virtue of the original agreement on the other party to it) under which he or she is to be employed with the company, or where he or she is a director of a holding company, within the group,
the definition of “relevant term” in section 249 shall apply as if to the period for which the person is to be employed under that further agreement there were added a further period equal to the unexpired period of the original agreement.
(2) Where subsection (1) has effect in relation to the definition of “relevant term” in section 249 , subsection (6) of that section has effect as if there were substituted “the agreement and the original agreement referred to in section 250 (1) shall each be deemed to contain a term entitling the company to terminate it at any time by the giving of reasonable notice” for “the agreement shall be deemed to contain a term entitling the company to terminate it at any time by the giving of reasonable notice”.
(3) For the purposes of this section “employment” and “group” have the same meaning as they have for the purposes of section 249 .
Approval of company necessary for payment by it to director or directors’ dependants for loss of office
251. (1) It shall not be lawful for a company to make to any director of the company any payment by way of compensation for loss of office or as consideration for or in connection with his or her retirement from office, unless the following conditions are first satisfied.
(2) Those conditions are—
(a) particulars relating to the proposed payment (including the amount of it) are disclosed to the members of the company, and
(b) the proposal is approved by resolution of the company in general meeting.
(3) Without prejudice to the exceptions provided for by section 254 (5), a payment made bona fide in discharge of an existing legal obligation does not fall within this section.
Approval of company necessary for payment to director of compensation in connection with transfer of property
252. (1) It shall not be lawful in connection with the transfer of the whole or any part of the undertaking or property of a company for any payment to be made to any director of the company by way of compensation for loss of office or as consideration for or in connection with his or her retirement from office, unless the following conditions are first satisfied.
(2) Those conditions are—
(a) particulars relating to the proposed payment (including the amount of it) are disclosed to the members of the company, and
(b) the proposal is approved by resolution of the company in general meeting.
(3) Where a payment which is not lawful under subsection (1) is made to a director of a company the amount received shall be deemed to have been received by him or her in trust for the company.
(4) Without prejudice to the exceptions provided for by section 254 (5), a payment made bona fide in discharge of an existing legal obligation does not fall within this section.
Duty of director to disclose to company payments to be made to him or her in connection with transfer of shares in company
253. (1) The following duty arises on the part of a director where, in connection with the transfer to any persons of all or any of the shares in a company being a transfer resulting from:
(a) an offer made to the general body of shareholders, or
(b) an offer made by or on behalf of some other body corporate with a view to the company becoming its subsidiary or a subsidiary of its holding company, or
(c) an offer made by or on behalf of an individual with a view to his or her obtaining the right to exercise or control the exercise of not less than one-third of the voting power at any general meeting of the company, or
(d) any other offer which is conditional on acceptance to a given extent,
a payment is to be made to that director of the company by way of compensation for loss of office or as a consideration for or in connection with his or her retirement from office.
(2) That duty on the part of that director is to take all reasonable steps to secure that particulars of the proposed payment (including the amount of it) are included in or sent with any notice of the offer made for their shares which is given to any shareholders.
(3) Without prejudice to the exceptions provided for by section 254 (5), a payment to be made, or that is made, bona fide in discharge of an existing legal obligation does not fall within this section.
(4) If—
(a) any such director fails to take reasonable steps as mentioned in subsection (2), or
(b) any person who has been properly required by any such director to include the particulars specified in that subsection in, or send them with, any such notice so mentioned fails to do so,
he or she shall be guilty of a category 3 offence.
(5) Unless—
(a) the requirements of subsections (1) and (2) are complied with in relation to any such payment as is mentioned in subsection (1), and
(b) the making of the proposed payment is, before the transfer of any shares in pursuance of the offer, approved by a meeting summoned for the purpose of the holders of the shares to which the offer relates and of other holders of shares of the same class as any of those shares,
any sum received by the director on account of the payment shall be deemed to have been received by him or her in trust for any persons who have sold their shares as a result of the offer made and the expenses incurred by him or her in distributing that sum amongst those persons shall be borne by him or her and not retained out of that sum.
(6) Where the shareholders referred to in paragraph (b) of subsection (5) are not all the members of the company and no provision is made by the constitution for summoning or regulating such a meeting as is mentioned in that paragraph, the provisions of—
(a) this Part and the rest of Parts 1 to 14 , and
(b) the company’s constitution,
relating to general meetings of the company shall, for that purpose, apply to the meeting either without modification or with such modifications as the Director of Corporate Enforcement, on the application of any person concerned, may direct for the purpose of adapting them to the circumstances of the meeting.
(7) If at a meeting summoned for the purpose of approving any payment as required by paragraph (b) of subsection (5), a quorum is not present and after the meeting has been adjourned to a later date a quorum is again not present, the payment shall be deemed for the purposes of that subsection to have been approved.
“Existing legal obligation”— definition and other provisions in relation to sections 251 to 253
254. (1) “Existing legal obligation” for the purposes of—
(a) section 251 (3), means an obligation of the company concerned, or any body corporate associated with it, that was not entered into in connection with, or in consequence of, the event giving rise to the payment for loss of office in question,
(b) sections 252 (4) and 253 (3), means an obligation of the person making, or proposing to make, the payment that was not entered into for the purposes of, in connection with or in consequence of, the transfer in question.
(2) In the case of a payment to which both sections 251 and 252 apply, or to which both sections 251 and 253 apply, paragraph (a) of subsection (1) and not paragraph (b) of it shall have effect.
(3) Where in proceedings for the recovery of any payment which it is alleged is recoverable as having, by virtue of—
(a) subsections (1) and (3) of section 252 , or
(b) subsections (1), (2) and (5) of section 253 ,
been received by any person in trust, it is shown that—
(i) the payment was made in pursuance of any arrangement entered into as part of the agreement for the transfer in question or within one year before or 2 years after the date of that agreement or the offer leading to it, and
(ii) the company or any person to whom the transfer was made was privy to that arrangement,
the payment shall be deemed, except in so far as the contrary is shown, to be one to which the subsections concerned apply.
(4) If, in connection with any such transfer as is mentioned in section 252 or 253 —
(a) the price to be paid to a director of the company for any shares in the company held by him or her is in excess of the price which could at the time have been obtained by other holders of the like shares, or
(b) any valuable consideration is given to any such director,
the excess or the money value of the consideration, as the case may be, shall, for the purposes of that section, be deemed to have been a payment made to him or her by way of compensation for loss of office or as consideration for or in connection with his or her retirement from office.
(5) References in sections 251 to 253 to payments to any director of a company by way of compensation for loss of office or as consideration for or in connection with his or her retirement from office include references to payments to him or her by way of compensation for—
(a) loss of office as director of the company,
(b) the loss, while director of the company, or on or in connection with his or her ceasing to be a director of the company, of any other office in connection with the management of the company’s affairs or of any office as director or otherwise in connection with the management of the affairs of any subsidiary,
but do not include references to any bona fide payment by way of—
(i) damages for breach of contract, or
(ii) pension in respect of past services,
and, for the purposes of this subsection, “pension” includes any superannuation allowance, superannuation gratuity or similar payment.
(6) Nothing in section 251 or 252 shall be taken to prejudice—
(a) the operation of any rule of law requiring disclosure to be made with respect to any such payments as are mentioned in that section or with respect to any other like payments made or to be made to the directors of a company, or
(b) the operation of any rule of law or enactment in relation to the accountability (if any) of any director for any such payment received by him or her.
(7) References in sections 251 to 253 and this section to a director include references to a past director.
(8) For the purposes of subsection (1)(a) a body corporate is associated with a company if one is the subsidiary of the other or both are subsidiaries of the same body corporate.
Contracts with sole members
255. (1) Subject to subsection (2), where a single-member company enters into a contract with the sole member of the company and the sole member also represents the company in the transaction, whether as a director or otherwise, the single-member company shall, unless the contract is in writing, ensure that the terms of the contract are forthwith set out in a written memorandum or are recorded in the minutes of the first meeting of the directors of the company following the making of the contract.
(2) Subsection (1) shall not apply to contracts entered into in the ordinary course of the company’s business.
(3) If a company fails to comply with subsection (1), the company and any officer of it who is in default shall be guilty of a category 3 offence.
(4) Subject to subsection (5), nothing in this section shall be taken to prejudice the operation of any other enactment (including a provision of this Act) or rule of law applying to contracts between a company and a director of that company.
(5) Failure to comply with subsection (1) with respect to a contract shall not affect the validity of that contract.
The text in italics on this page is sourced from the Irish Statute Book and is re-published under the Licence for Re-Use of Public Sector Information made pursuant to Directive 2003/98/EC Directive 2013/37/EU of the European Parliament and of the Council on the re-use of public sector information transposed into Irish law by the European Communities (Re-Use of Public Sector Information) Regulations 2005 to 2015.
Cases
Kelly -v- Monson & anor
[2014] IEHC 573 (09 December 2014)
Judgment of Mr. Justice Max Barrett delivered on 9th December, 2014.
1. The key issue in this case is whether the payment of excessive director remuneration at a time of overall decline in a particular company’s financial performance has the present effect that a declaration of restriction must now issue against either or both of Mr. Jason P. Monson and Ms Tracey A. Monson pursuant to s.150 of the Companies Act, 1990, as amended.
Background facts.
2. JPM CAD Design Limited was incorporated on 20th December, 2006, and ceased trading in or around 31st March, 2013. The objects for which the company was established were to carry on the business of architectural and engineering activities and related technical Consultancy work, and any pursuit incidental thereto. Although both respondents were directors of the company, Mr. Jason Monson was its prime operator. His wife, Ms Tracey Monson, does not appear from the evidence before the court to have played any significant part in the running of the company’s business, nor was she remunerated as a director. The company was tax compliant up to about the second half of 2010; thereafter it was not. From about the end of 2010, the liquidator contends that the company was insolvent and should have been wound up. The liquidator avers in his affidavit evidence that “the difficulties encountered by the Company derived significantly, if not entirely from the decisions taken by the company’s directors in regard to director remuneration”, albeit that the general economic downturn in the national economy also played a part. The director remuneration paid by the company makes for startling reading. It is outlined in Table 1 overleaf.
Year End
Turnover
Director Remuneration
Percentage increase in director remuneration
Director remuneration as percentage of Turnover
2009
€59,546
€37,366
n/a
63%
2010
€66,022
€51,146
13.7%
77%
2011
€39,841
€53,548
4.7%
134%
2012
€48,936
€85,870
60.4%
175%
Table 1
3. As the company was trading at a slight loss in 2009 and a more significant loss in 2011 and 2012 (the company appears from the liquidator’s averments to have turned a small profit in 2010), it seems that throughout a period of general decline in the company’s financial performance, and a shorter period of non-compliance with the tax code, director remuneration was increasing significantly. This is in contrast to the position that one sometimes sees in companies in decline where the first persons to ‘take a hit’ remuneration-wise are board members. The liquidator is critical of the director remuneration arrangements that pertained within JPM CAD, observing that “Notwithstanding …poor trading performance, when it might be expected that there would be at least a commensurate reduction in Directors Remuneration, the directors remuneration actually increased year on year by significant amounts.” The court cannot but conclude, having regard to Table 1, that the amount of director remuneration paid as a percentage of turnover, and the percentage increases in director remuneration effected, by JPM CAD during a period of overall decline in its financial performance, were excessive.
Legal background.
4. It is an unpleasant truth that companies often become insolvent. Sometimes as they go through the liquidation process, director misbehaviour is identified. Directors guilty of such misbehaviour can be prevented at law from acting in the future as directors or otherwise in relation to a company. One of the means by which this is achieved is through s.150 of the Companies Act, 1990, as amended. In a nutshell, s.150 requires the court to declare that a former director of an insolvent company be restricted from acting as a director or secretary of a company or otherwise being involved in the formation of a company, save in certain instances. Such an order need not be made if, for example, the court is satisfied that the former director acted honestly and responsibly in relation to the affairs of the relevant insolvent company and there is no other reason why it would be just and equitable for him or her to be restricted as proposed. There is more to the provision than that. However, the foregoing captures its essence, at least insofar as the present proceedings are concerned. The logic of the provision is simple: people who misbehave as directors of one company ought not lightly to be entrusted with stewardship of another. But a page of history is worth a volume of logic, and history suggests that s. 150, though possibly unassailable in theory, suffers from some weaknesses that arise in practice. Some of these are considered hereafter.
Some weaknesses in the operation of s.150.
5. Parity of sanction. Section 150 applies the same sanction to any former director of an insolvent company who is found guilty of a want of honesty or responsibility or whom justice and equity suggest to be worthy of restriction from acting as a director. Anyone who falls foul of its provisions is subject to the same five-year restriction. Logic may suggest such equality of treatment to be fair; the experience of this Court is that it is not, certainly not always. It is this Court’s repeated experience that it is presented with individuals who fall foul of s.l50, yet whose behaviour does not appear to the court to merit the parity of sanction which that provision imposes. It is, of course, the right of the Oireachtas to determine when enacting legislation that parity of sanction is merited. However, it is the respectful duty of the court to sound a cautionary note when it finds that it is encountering circumstances in practice where the application of this parity of sanction is yielding results that seem to it to be unfair. In the present case this is an issue which would have affected Ms Monson in particular, had the court not concluded below that it is not in any event required to issue a s.150 declaration against her.
6. Non-contested applications. It is the experience of the court that many affected directors choose not to contest s.150 applications. It is clear to the court from some of the submissions that have been made to it in this regard that this is not always, if ever, because directors are satisfied that their alleged wrongdoings are such that they merit sanction under s. 150. Rather, having seen their small or family business ‘wiped out’ -for some reason it seems more often than not to be small business operators who are brought before the court – and having often been reduced to dire financial straits, affected former directors are simply not in a position, whether financially or otherwise, to fight the application made against them. Their difficulties are compounded in this regard by the fact that it has long been held that s.150 effectively imposes a burden on affected former directors to establish that no blame attaches to them as a result, for example, of either dishonesty or want of responsibility. (See in this regard Business Communications Ltd. v. Baxter and Parsons (21st July, 1995, unreported), High Court (Murphy J.)). The decision in Business Communications cannot perhaps be flawed as a matter of law. Yet that decision and, it would seem, s.150 of the Act of 1990, have the practical consequence that at the very moment when former directors are most vulnerable, they are required to discharge a difficult burden of proof, generally in circumstances when they cannot afford to be legally represented, are confronted by counsel who are expert in company law, and must ‘fight their corner’ in the daunting setting of a courtroom through the unfamiliar medium of ‘legalese’. Such a combination of factors, when they present, might perhaps be contended to have the consequence that s.150, in its practical operation but not its intended object, can involve a certain intrinsic imbalance that may be conducive to an unfairness of outcome, something to which the court must ever be alive.
7. Perhaps two further, incidental observations might be made by this Court at this time as regards non-contested applications:
– Attendance in court. It is preferable that, as in the instant proceedings, affected directors should present themselves in court when a s.150 application against them comes to hearing. They know best how a company was operated, particularly in its waning days, and why. This Court has been struck in a number of cases by how different the truth of matters can appear to be when the insight and observations of affected directors are brought to s.150 proceedings, and has ruled accordingly. This is a people’s court, funded by the people’s taxes; people should be unafraid to come before it; if they have right on their side, right will prevail.
– Consent letters. The court notes that it is regularly being presented in the course of s.150 applications with letters from affected former directors which run along the lines of ‘I know that application under s.150 is being made against me. I am not contesting these proceedings. I consent to the issuance of a declaration under s.150 against me.’ It is not always clear to the court that, when it comes to such ‘consent letters’, it is being presented with informed consents, i.e. that the signatories know exactly what a s.150 restriction entails, that they appreciate how it might impact on their future earning potential, and are knowingly consenting to same. But who is to explain to affected former directors the impact of what they are doing when they may no longer have the benefit of independent legal advice? It does not seem to the court that liquidators or their lawyers should be required to do so and thereby run the risk of later being sued in negligence by disaffected former directors. In order that the court might continue to treat such ‘consent letters’ as involving an informed consent, it appears to this Court that such letters, as a matter of prudence, ought perhaps to contain text along the lines of the suggested text set out in the appendix to this judgment. The court notes that, in the present case, the affected directors, though in poor financial circumstances, were able to avail of at least some independent legal advice from a solicitor and thus the court accepts, as an informed consent, their letter of consent to the making of a s. 150 declaration against each of them on the grounds of want of responsibility, assuming the court considers such a declaration to be required.
8. The ‘crash’ of 2008. The court notes that numerous cases coming before it concern small or medium-sized enterprises whose insolvency is attributable in some shape or form to the economic ‘crash’ of 2008. In this regard, the court notes that legislation, as Oliver Wendell Holmes once famously observed, is the skin of a living thought and may vary in colour and content according to the circumstances in which it is used. It is this Court’s view, as previously expressed in its judgment in Director of Corporate Enforcement v. Walsh and Ors [2014] IEHC 365, that given the desperate circumstances in which many companies and company directors were placed around 2008, when sales collapsed and revenue disappeared with a swiftness that had to be experienced to be believed, when income evaporated but families still had to be provided for and mortgages paid, and when hard-pressed directors sought to preserve their own jobs and those of their employees in the face of often insuperable odds, that the court must sometimes be prepared to countenance, as legitimate behaviour, that which at another time and in another context might fall to be treated, say, as wanting in responsibility, or to offer a basis on which it would otherwise be just and equitable to issue a declaration of restriction pursuant to s. 150. That said, the present case is not a case where a company collapsed as a result of the crash of 2008, albeit that the general downturn in the economy did not assist. To quote the liquidator once more, “the difficulties encountered by [JPM CAD]…derived significantly, if not entirely from the decisions taken by the company’s directors in regard to director remuneration”.
9. ‘Ties of affection’. This is yet another case in which the court is confronted with the issue of how to treat a spouse who, as the liquidator has averred, “does not appear to have participated actively in the running of the business.” In the circumstances presenting to the court, it seems that Ms Monson was primarily motivated by ‘ties of affection’ when she agreed to act as the required second director of a company in which her husband was the principal actor. The court has previously considered the issues that such an amalgam of facts presents, and relevant precedent, in its judgment in Director of Corporate Enforcement v. Slattery [2014] IEHC 363 at paras. 15-16. In that case the court had particular regard to the decision in Re Hunting Lodges Limited (in liquidation) [1985] I.L.R.M. 75, in which Carroll J. effectively indicated, in a different but analogous context, that a married female director cannot escape liability as a director by reference, for example, to some sort of subservience to husbands that may have existed before the modem age of equality between the sexes. It is important, however, to recognise the true ambit of what Carroll J. stated in Re Hunting Lodges:
– first, by way of general remark, it is perhaps worth noting that Carroll J.’s observations were made solely in relation to a married woman who embarks upon a passive company directorship. In our contemporary society where there are many couples in which the wife is the principal commercial actor, and there are many unmarried and same-sex couples, there seems no reason why Carroll J.’s comments should not be considered to apply by analogy to any spouse or indeed to any romantic partner, male or female, heterosexual or homosexual, or any person who, motivated primarily by virtue of ties of affection, agrees to act as a passive director in a company so as to satisfy the minimum two-director requirement that arises under current company law.
– second, Carroll J. did not say that a married female director can never escape liability as a director where she embarks upon a directorship primarily out of ties of natural affection and never does anything of substance in relation to the company of which she is director. That would place so great a premium on legal reality above practical reality as to be almost certain to result in injustice in some instances, an outcome which Carroll J. undoubtedly did not intend.
– third, Carroll J. does not dismiss the possibility that a passive or ‘nominal’ director may be excused liability in some circumstances. Indeed she cites one instance, at p.85 of her judgment, that of where a passive director “reasonably endeavoured to keep abreast of company affairs and had been deceived”, in which it might be possible to excuse such director from liability.
– fourth, Carroll J. does not indicate that there are no other instances in which a nominal director might be so excused. She establishes as the litmus-test of personal liability in respect of such a director that there should, as a matter of necessity, be some “real moral blame” attaching to her before personal liability should arise.
10. Looking to the context and features of this case, it does not appear from the facts before the court that Ms Monson played any part in the running of the company. Notably, she did not even draw a salary from the company. One will search in vain to find that “real moral blame” on Ms Monson’s part which the decision in Re Hunting Lodges effectively posits as the litmus test of personal liability in these instances. The court finds that Ms Monson’s behaviour was not wanting in honesty or responsibility and it does not consider that any other reason arises why it would be just and equitable that she should be the subject of a declaration of restriction under s.150 of the Act of 1990. Ms Monson, frankly, did no more and no less than many or most, perhaps even all, spouses placed in her position would do for her (or, as appropriate, his) partner. She agreed to be the required second director in what was, in effect, her husband’s company; thereafter, the division of labours between Mr. and Ms Monson was such that Mr. Monson ran the company and Ms Monson derived an indirect benefit from the company’s operations but played little or no active part in its operation. The court does not consider that the Oireachtas, when it enacted the Act of 1990, intended that a spouse or person in like relationship should be sanctioned for so acting, and without the court having any regard to either context or motive. To read the Act otherwise would be to import a policy that goes beyond its intended ambit and to divorce the law from reality. This does not mean that it is ‘closed season’ as regards bringing s.150 applications against, for example, husband-and-wife directors or persons in like relationships. All it means is that just as it did not suffice for the female director in Re Hunting Lodges to claim that she should be excused from liability as a director because of her status as spouse, neither does statute or case-law require the imposition of liability on a person regardless of the fact that it may be primarily ‘ties of affection’ that drove such person to assume what is in practice, albeit not in law, a nominal directorship. Neither in wording nor effect does the Act of 1990 disavow the fundamental precept that the demands of law must ever yield to the supplications of context.
Conclusions.
11. The court finds that Mr. Monson, as the managing director of JPM CAD Design Limited, evinced a lack of commercial probity and/or a want of proper standards in allowing director remuneration to increase as it did, and for those increased amounts to be paid as they were, during a period of overall decline in the financial performance of JPM CAD from 2009 through to 2012.
12. For the reasons outlined above, the court does not consider that it is required to issue any declaration in respect of Ms. Monson pursuant to s.150.
APPENDIX
Suggested text of consent letter
“TO WHOM IT MAY CONCERN
Re: Proposed or pending application for declaration of restriction under section 150 of the Companies Act, 1990, as amended.
1. I am aware that application has been commenced or will be commenced against me before the High Court of Ireland seeking that a declaration of restriction issue against me under section 150 of the Companies Act, 1990, as amended.
2. I do not wish to contest the said application and hereby consent to the making against me of the declaration that has been sought, subject to the High Court being satisfied that it is required to make such declaration.
WARNING
BY SIGNING TIDS LETTER, YOU MAY MAKE IT MORE LIKELY THAT A COURT WILL ISSUE A DECLARATION AGAINST YOU UNDER S.150 OF THE COMPANIES ACT 1990, AS AMENDED. IT IS PREFERABLE THAT YOU SEEK INDEPENDENT LEGAL ADVICE BEFORE SIGNING TIDS LETTER.
CONSENT
3. I have read all of the above text, including the warning set out above and the important notes that follow*, and am satisfied to sign this letter of consent:
Signature Date
Name [CAPS]:
Address:
*IMPORTANT NOTES
(1) What is the legal result of a declaration being made against you under s.150?
Any such declaration will have the effect that you will not, for a period of five years from the date of the declaration, be able to be appointed or to act in any way, directly or indirectly, as a director or secretary of a company or take part in the promotion or formation of a company unless that company meets certain capital/shareholding requirements. (In certain instances you can be relieved from the five year limitation upon application being made by you within one year of the restriction being imposed).
(2) What is the practical result of a declaration being made against you under s.150?
Perhaps the most significant result of such a declaration is that it may make it difficult for you to continue in business, at least through the medium of a company.
(3) Why would a declaration issue against you under s.150?
Typically a declaration would issue on the basis that you have not acted (a) honestly or (b) responsibly in relation to the conduct of the affairs of a now insolvent company of which you were formerly a director. A declaration may also issue because the court considers it otherwise just and equitable that such a declaration should now be made. You may consider that (i) your actions as director of the relevant insolvent company were honest and responsible and (ii) there is no other reason why it would be just and equitable that a declaration should issue against you. If so, you should think very carefully before signing this letter.
(4) Why would you ever sign a letter consenting to an order being made against you? Because, for whatever reason, you do not wish to contest the application being made against you.
(5) Your right to be heard.
You are entitled to be heard by the court when the application for a declaration is made. If you sign this letter and later wish to contest the application, you should try to communicate this in advance to the party bringing the application. If you cannot communicate this in advance, you should still come to court on the day of the hearing so that your views may be heard. If you engage a professional advisor he or she can advise you further about your right to be heard.