Directors faced with a court application to restrict them as a director must be able to demonstrate clearly that they acted responsibly at all times to avoid restriction.
By Claire Lord
A liquidator of a company that is unable to pay its debts is required to apply to court for a declaration that any director of that company, either at the time of commencement of its winding up or during the period of 12 months before that date, cannot be appointed or act as a director of a company or be concerned in or take part in the formation or promotion of a company, for a period of five years.
This requirement does not apply where the Director of Corporate Enforcement relieves the liquidator of the obligation, or the company in question meets certain share capital requirements.
In addition, the court is not required to make a declaration of restriction where it is satisfied that the director in question acted honestly and responsibly in relation to the conduct of the affairs of the company, whether before or after it became unable to pay its debts.
The concept of “acting responsibly” was recently considered by the Irish High Court in connection with an application made by the liquidator of IQ Content Limited for a declaration of restriction against two of its directors. One of these directors was Morgan McKeagney, the founder and former managing director of IQ Content Limited.
The case
IQ Content Limited was an IT consulting and web design firm that had enjoyed considerable success until 2014, when an unfortunate coincidence of events caused it to suffer an unprecedented collapse in revenues. As a consequence, in July 2014, a decision was made to wind up the company.
At that time, Morgan McKeagney remained as a director of the company but was no longer involved in its day-to-day operations.
Representing himself, and assisted by a successful application for an order of discovery of documents held by the company, Morgan McKeagney presented evidence of “a story of intrigue” to the court. The evidence presented by Mr McKeagney demonstrated that his colleagues had acted in a coordinated and calculated manner to drive the company into liquidation while at the same time, establishing a new company into which they planned to move all of the company’s assets. Mr McKeagney was also able to show the court that throughout this period of crisis, he had been deliberately removed from decisions that were made and otherwise isolated within the company.
The judgment
The application for Morgan McKeagney to be declared by the court as being restricted from acting as a director was declined. The presiding judge instead declared that Mr McKeagney had acted responsibly and with integrity throughout the process.
The judgment notes that the court was highly impressed with Mr McKeagney’s actions in his role as a director of IQ Content Limited and in opposing the restriction application. In this regard, it is stated in the judgment that Mr McKeagney had presented his case in a clear and articulate manner and had presented clear evidence that he had acted in the best interests of the company at all times.
This case demonstrates that the court will decline to make an order for restriction in circumstances where a director has acted responsibly in relation to the conduct of the affairs of a company in liquidation. However, a director in this situation needs to be able to clearly demonstrate to the court that this was the case.
Morgan McKeagney went to impressive lengths to contest the application being made to restrict him as a director, and he was successful in demonstrating that he had truly acted responsibly in relation to the conduct of the affairs of IQ Content Limited. These lengths are indicative of the burden of proof placed on directors that find themselves in a similar position to successfully argue a positive outcome.
Claire Lord is a Corporate Partner and Head of Governance and Compliance at Mason Hayes & Curran.
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