Ireland: directors' duties and corporate groups

Ireland's court of final appeal - the Supreme Court - delivered its judgment in Mitek Holdings Ltd & The Companies Acts [2010] IESC 31 last week. The Supreme Court unanimously upheld an order restricting two individuals from acting as company directors for a period of five years. The order was made by the High Court in May 2005 on the application of the liquidator of five companies in liquidation, following the judgment Grace (Liquidator) v. Kachkar & Ors [2005] IEHC 63, under Section 150(1) of the Companies Act (1990).

In upholding the restriction order, the Supreme Court considered directors' duties, the increased expectations placed on non-executive directors and the conflicts that can arise in corporate groups. With regard to directors' duties, the famous propositions in Re City Equitable Fire Insurance Ltd. [1925] Ch 407 - including the statement that directors' responsibilities were of an intermittent nature - were described by the court as reflecting "the more relaxed standards of business in another age" (para. [73]).

The court made clear that where a company is part of a group, its directors must consider and act in the interests of each company. With regard to "group policy" in such structures, the court stated (para. [89]):

It may indeed be normal and permissible, within a group of companies, to take account of group policy. That does not mean that the property of one company can simply be transferred, at the behest of the parent, to another company in the group. That would be to ignore entirely the separate existence of each company".

With regard to non-executive directors, the court stated:

... non-executive directors of companies must be increasingly conscious in the times we live in that they cannot be mere ciphers or purveyors of votes at the whim of management. There was a time when even such a distinguished text as Gower (The Principles of Modern Company Law 3rd Ed. Stevens, London 1969 page 549) could state: 'public opinion has come to recognise that directorships are little more than sinecures, requiring, at the most, attendance at occasional board meetings.' The Act of 1990 itself evinces public concern that directorships involve real responsibility and that persons who do not conform at least to some generally acceptable minimum standards either should not, in the public interest, be permitted or should be restricted in regard to future holding of directorships".