New developments in Section 150 Applications

On the 1st February, 2008 Mr. Justice Hardiman delivered the long awaited Judgment of the Supreme Court in the Appeal brought by Mr. Simon Coyle – a former Director of Tralee Beef and Lamb Limited (In Liquidation) – against the Order and Judgment of Ms. Justice Finlay Geoghegan of the High Court dated the 27th of July, 2004. O’Gradys Solicitors represented the Liquidator in both the High Court and Supreme Court hearings.

In a written Judgment which ran to some 17 pages, the Supreme Court allowed Mr. Coyle’s Appeal and set aside the Order of the High Court. The Supreme Court Judgment raises a number of important issues in the context of future Section 150 Applications, in particular;

The Test to be applied – must a Director now satisfy the Courts that he has complied with his Common Law duties in addition to his Statutory Obligations?

In deciding the question as to whether a Director has acted honestly and responsibly in relation to the conduct of the affairs of a Company, the Courts have historically looked to the Judgment of Shanley J. in La Mosselle Clothing-v- Soualhi – which was subsequently approved by McGuiness J. in the Supreme Court decision of in re: Squash (Ireland) Limited. In her High Court Judgment , Ms Justice Finlay Geoghegan held that the criteria laid down by Shanley J. required “amplification” and noted that the Courts should have regard not only to the extent to which a Director has or has not complied with any obligation imposed upon him by the Companies Acts “but also with duties imposed by Common Law”.

In the Supreme Court Judgement, Mr. Justice Hardiman – whilst noting that he was in agreement with the proposition of law enunciated by the Trial Judge – held that Mr. Coyle had legitimate grounds for complaint as the proposed amplification of the La Mosselle test was not discussed nor debated at the High Court hearing. The Supreme Court held, that having regard to the constitutional right of Mr. Coyle to his good name and the associated right to earn a living, it was not appropriate to amplify the criteria in this manner post hearing.

The Supreme Court has however welcomed an open debate on the proposed wording of any such future amplification of the criteria for the restriction of a Director and it remains to be seen therefore whether the proposed amplification of the La Mosselle / Squash (Ireland) criteria will be incorporated into the jurisprudence in this area.

The appropriate standard for the Non-Executive Director?

The respective obligations and responsibilities to be imposed upon non-executive and executive Directors remain unresolved. The Supreme Court appears to reject the proposition that the same standard should be applied to executive and non-executive Directors and further suggests that an individual appointed to a Company Board for a specific and defined purpose should not be subject to the same criteria and obligations as an Executive board member who is responsible for the day to day running of the Company.

The Role of the Director of Corporate Enforcement and the S56 Report?

In circumstances where a Liquidator, in his Section 56 Report, requests to be relieved by the Director of Corporate Enforcement (DCE) from the obligation to bring a Section 150 Application as against a Respondent Director, the Supreme Court is now urging the DCE – if he is to refuse to accede to the Liquidator’s request – to provide reasons for his decision. It remains to be seen whether the DCE will adopt the practice of providing reasons for his decision – which will inevitably require the DCE to become intimately familiar with the affairs of the Company and the steps taken by the directors - or whether he will simply bow to what Mr Justice Hardiman described as the Liquidator’s “Professional Judgement”.

A Constitutional Challenge?

The Supreme Court Judgment openly questions whether the “blanket reversal of the onus of proof” contained in Section 150 of the Companies Act, 1990 is consistent with fundamental fairness and constitutional justice. The Supreme Court also criticised the sanctions contained in Section 56 of the Company Law Enforcement Act, 2001 which make the failure of a Liquidator to bring a Section 150 Application a criminal offence.

The appropriate evidence?

The Supreme Court has held that when deciding whether or not a particular Director should be the subject of a Section 150 Restriction, the Courts should steer clear from relying upon evidence contained in the Affidavits of Co-Directors. Mr. Justice Hardiman noted that he was disturbed by the possibility of the Court relying on evidence proffered by a Respondent – who was effectively defending his own position – and in using this as evidence against a Co-respondent. This raises the issue as to how Section 150 Applications ought to be determined in the future in circumstances where there are multiple Respondents who have not adopted a common position – should there be separate hearings or must an Application be made to the Trial Judge pre hearing to determine the relevant and appropriate evidence?

Supreme Court Judgment 01 02 2008 (797.3 KB)