StubbsGazette analysis shows that there were some 826 disqualified company directors in 2011, up from 704 in 2010. The figure for restricted directors was 94 and 147, respectively – a somewhat puzzling drop in restricted directors for 2011 for reasons we shall see later.
These two types of status – disqualified versus restricted – should not be confused and the differences in definition accounts for the huge discrepancy in numbers.
While directors may be disqualified by the court on a number of grounds following an Order of Disqualification (failure to comply with the Companies Acts, incompetence/irresponsibility, lack of commercial probity and standards), the vast amount of individuals disqualified from becoming a company director are due to some financial crime that has nothing to do with running a company but that automatically adds them to the disqualified list because of the nature of the crime (Section 160 of the Companies Acts, 1990 provides that a director may automatically be disqualified if found guilty of any indictable offence).
Restricted directors, on the other hand, are usually guilty of some kind of offence directly related to the Companies Act – perhaps misrepresenting something in the company accounts or continuing to trade while insolvent or some other corporate misdemeanour.
Ironically, restricted directors may still take part in company formation and act as a company director subject to the company meeting certain requirements around minimum paid-up share capital.
As Corporate Ireland become an increasingly hostile environment, quite a few people are waking up to the reality of their situations vis àvistheir position as directors or in relation to personal guarantees they may have made in relation to companies that have now become spectacularly insolvent. Legal provisions for orders of disqualification and restriction are made so unscrupulous or unsuitable individuals have some sanction in respect of abuse of limited liability status.
Without question there are people who take on the responsibility of directorship or become shareholders of companies where they take no meaningfully active participation in the company affairs and have no real executive role; in other words, they assume the mantle of director and therefore assume responsibility of a director but aren’t necessarily aware of those responsibilities. Many spouses, for example, fit that bill – although some of the pleading by spouses of prominent businessmen-turned-bankrupt are rather difficult to swallow.
While in Ireland we have a rather relaxed attitude to directors;’ responsibilities, in the UK since the 2006 Companies Act it has become increasingly difficult to recruit non-executive directors. Where once an individual could attend a few board meetings for a welcome fee – with little regard for the limited consequences should anything serious go wrong with the company – UK non-exec directors now find themselves accountable and are being brought to book even if they had no executive role in the company.
But these “notional” – and comparatively innocent – directors are just a sideshow.
In Ireland, there were 2,285 company liquidations and 207 petitions for winding up in 2011. If one considers just how many of these were likely to have been “unfavourable” business outcomes where there were was at least a suspicion that the directors may not have acted in the best interests of the company and its creditors – as opposed to themselves – and that in the same year there were just 94 restricted directors, it seems fairly certain that a great deal of unscrupulous activity is taking place without fear of sanction.
Also, as we alluded to earlier, the numbers of restricted directors actually decreased in 2011 as compared with 2010 (94 versus 147) even though there were more company failures in 2011 (there were 1929 liquidations and 170 petitions to wind up in 2010). One would have expected more not less restricted directors in 2011 given the increase in rate of business failure year-on-year.
It is clear that there should be many, many more disqualifications and restrictions. For too long in Ireland the majority of ultimately liquidated companies have traded while obviously insolvent until the company is bled white only for those same directors to rise again in a phoenix-type situation.
Of course, Ireland is a particularly hard case because, unlike the UK, there is no public source of information post-liquidation. In the UK one can go and see exactly what happened and obtain statement of affairs from a public register and form an opinion on whether there has been any wrongdoing. In the Republic of Ireland, unless you are a direct creditor there is no access to a statement of affairs and, even if you are a creditor, if you fail to attend the meetings of creditors you may not be able to get a statement of affairs.
In short, there is a complete lack of transparency: not only is justice not being done but there is no opportunity to see if justice needs to be done. So, for dodgy directors, when it comes to questions of integrity or competence, there is no case to answer.