In a recent decision, the Court of Appeal upheld a High Court finding, which granted a declaration under section 819 of the Companies Act 2014 (CA 2014), restricting the appellant director (Appellant) from acting as a director or secretary of a company for a period of five years, unless the company meets the requirements set out in subsection (3) of section 819.
The Appellant was a director of Alvonway Investments Limited (Company) from its incorporation in 2005 until the appointment of a liquidator in March 2014. There were two other directors of the Company in place at the time the liquidator was appointed (Director A and Director B).
The Company was grossly insolvent with liabilities, including guaranteed liabilities, of approximately €300m. The liquidator sought an order for disqualification against Director A and restriction orders against the Appellant and Director B. The principal reason for seeking these orders was the making of payments totalling €450,032 (Payments) from the Company’s current account to Director A and a firm of accountants the day before NAMA’s appointment of a statutory receiver to the Company.
The High Court held that Director A was the sole director responsible for the Payments. However, the liquidator did not believe that Director B and the Appellant acted responsibly as directors. The Appellant submitted that he had little knowledge of what happened in the Company. He submitted that at the time of making the Payments, NAMA were effectively in control of the Company and that NAMA dealt exclusively with Director A and had no contact with him, as did the statutory receiver once appointed. As a result, the Appellant argued that he had no knowledge of the affairs of the Company. The Appellant also claimed that he always co-operated with the liquidator.
The High Court referred to the fact that the Appellant was the only director to have served continually as such from the incorporation of the Company to the time of its liquidation. It was held that he adduced no evidence as to (i) his contribution to the decisions of the directors at any time in the life of the Company and / or (ii) his response to the development of the Company’s financial difficulties and the transfer of its loans to NAMA. Furthermore, the Appellant did not demonstrate any active steps that he took to keep himself informed of the affairs of the Company. As such, it was held he had not acted responsibly, and a restriction order was made against him.
The High Court reached an alternative conclusion concerning Director B. He had demonstrated that he acted responsibly, as he had knowledge of and an understanding of the Company’s business, its strategy, and the constraints under which it operated. He co-operated fully with the liquidator and there were no other just and equitable reasons why he should be restricted; therefore, he was not.
The Appellant appealed to the Court of Appeal (COA) on the basis that the High Court erred in making the restriction order where the liquidator had not made out a case to answer against him.
The COA upheld the order of the High Court. It found that the Appellant provided no information concerning the role he played in the Company, adduced no evidence to demonstrate that he informed himself of the Company’s affairs at any time, and there was a total failure by the Appellant to provide information from which the High Court could derive that the Appellant had fully informed himself in relation to the affairs of the Company consistent with his obligations as a director.
The COA noted that even if the Appellant had proven co-operation with the liquidator, he had to establish that he acted honestly and responsibly; and he had not established that he acted responsibly.
Important Takeaway from the Judgment
This judgment reaffirms that a claim of ignorance in relation to company affairs will not absolve a non-executive director of their responsibilities under the CA 2014. It is crucial that directors remain informed of company affairs, even if they are not involved in the day-to-day running of a company’s business.
To discuss any aspect of the judgment in Fennell v Applebe  IECA 160, or if you have any queries on the topic, please contact a member of the William Fry Corporate Restructuring & Insolvency team.
Contributed by Alice O’Connor & Áine Murphy