Ireland: Court of Appeal sends a clear message on directors' responsibilities and disqualification

An important decision on the making of disqualification orders and restriction orders was given by the Irish Court of Appeal last month in Director of Corporate Enforcement v Walsh [2016] IECA 2. At first instance, the trial judge (Barrett J., in [2014] IEHC 365) was asked to make such orders against several individuals but declined to do so. The Director of Corporate Enforcement appealed, arguing that the trial judge was in error in not making the orders and had also made in his judgment several statements that created undesirable confusion in the context of corporate regulation.

The judgment of the Court of Appeal was delivered by the President of the High Court, Mr Justice Peter Kelly, sitting with Justices Mary Irvine and Gerald Hogan. The President held that case was one where the discretion not to make a disqualification should be exercised; it was, however, a case where restriction orders, for a period of five years, should be made.

The judgment is of interest for several reasons. The President rejected as relevant to the court's discretion some of the factors that the trial judge had identified, and stated that the "whole thrust of the legislative provision is to ensure that all directors of all companies comply with their obligations. It matters not that they be directors of family companies, or be at the helm of large or quoted enterprises. Neither do the qualifications of the directors or the economic challenges that the companies may be facing affect the obligations of directors to act responsibly in respect of an insolvent company" (para. [60]).

Also of interest is what was said about passive directorships. The President rejected the suggestion, in the trial judge's judgment, that the disqualification or restriction of passive directors should require "real moral blame" on their part. To quote the President: "It would be contrary to the whole notion of proper corporate regulation that passive directors would be exonerated from liability or relieved from disqualification or restriction on the basis of the passive nature of their role" (para. [70]).