Member Article

The Director of Corporate Enforcement is targeting company directors who abandon insolvent companies and leave them to be involuntarily struck off the Register as an alternative to a formal liquidation. The Director has indicated that he will take proceedings under Section 160 of the Companies Act, 1990 to secure disqualification orders against such directors in appropriate cases. He is getting support for this in the High Court. Where the High Court makes a disqualification order under Section 160, the disqualified director is prohibited from acting as a director of or being involved with any company for the period set by the Court, (usually between 1 to 5 years). Recently, the Director of Corporate Enforcement has brought proceedings under Section 160 against directors who have failed to formally liquidate their companies. In November 2004, the Director secured a two-year disqualification order against a director of a struck off company, and in March 2005, he secured disqualification orders against the directors of three companies, namely, Clawhammer Limited, Shinrone Food Market Limited and Cautious Trading Limited. In each case, the company was insolvent when struck off the Register and there was a failure to file annual returns. In her judgment in the Clawhammer case, Ms Justice Finlay-Geoghegan said that there was a potential prejudice to creditors of an insolvent company if the directors, by default, permit a company to be struck off the Register as opposed to taking steps to wind it up. In such circumstances, such assets of the company as remain, are not applied in the discharge of creditors according to statutory priorities. Accordingly, she accepted the submission by the Director that such behaviour by company directors is much more than a technical breach of their company obligations.