Supreme Court Upholds Decision to Grant Restriction Orders against Two Company Directors

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Supreme Court Upholds Decision to Grant Restriction Orders against Two Company Directors

July 2, 2010

The Supreme Court recently upheld a High Court decision to grant Restriction Orders against two directors of Mitek Pharmaceuticals Limited (formerly Antigen Pharmaceuticals). The Restriction Orders were made following an application by the Liquidator of the company, represented by William Fry.

The Supreme Court noted the difference between the duties of executive and non-executive directors, recognising that in most cases non-executive directors are dependant on executive directors for information about the affairs and finances of the company. However the Judge stated that “even non-executive directors of Companies must be increasingly conscious in the time we live that they cannot be mere ciphers or purveyors of votes at the whim of management”.

The Supreme Court endorsed an earlier case which put forward the following three broad issues with which the Court is typically concerned when assessing the conduct of directors:

Compliance with statutory obligations;
Commercial management of the company, particularly at the time when the company was insolvent or heading in that direction; and
Compliance by the directors with the obligations identified in the Re: Frederick Inns case to ensure that the assets of a company facing insolvency are dealt with in a manner designed to ensure the distribution of those assets in accordance with insolvency law.

The Judge stated that this classification is useful because “it does not concern itself with formal definitions of the scope of directors’ duties which predominately concern the obligations owed by the directors to the company itself. The concern of the legislation is wider”, meaning that directors should be aware of the interests of persons dealing with the company.

The High Court had found that the fact that the Irish companies were subsidiaries within a worldwide group does not alter the legal principles applicable to the duties of the directors. The Supreme Court upheld this finding and stated that the separate existence of each company in the group cannot be ignored.

This judgment provides welcome guidance on the scope of the duties of both executive and non-executive directors and reminds us that directors owe a duty not only to the company but also to the interests of all persons who deal with companies in financial distress.