Case: Re Gerano (Liquidator) Doherty v. Donoghue [2014] IEHC 187, Judge Barrett
In an application to restrict a director from acting as a director and/ or secretary of a company for five years under section 150 of the Companies (Amendment) Act 1990 (1990 Act), the High Court refused to restrict three former directors of a company that were the former proprietors of two Eddie Rockets restaurants. The key issue in this case is the extent to which directors may be held liable in law when they rely on the advices and services of professional advisors.
Under section 150 of the 1990 Act, the court must grant the declarations sought and restrict the directors unless it is satisfied that any of a variety of circumstances identified in section150 (2) exist. These circumstances include whether the directors acted a) honestly and b) responsibly in relation to the conduct of the affairs of the company and c) that there is no other reason why it would be just and equitable that an order under section150 should issue.
The only substantive issue in this case to be determined by the court was whether the company directors acted responsibly in the conduct of the affairs of the company, in particular in regards to the re-organisation of the company in 2008. At that time, in 2008, a corporate re-organisation took place of the company, also known as a ‘three party swap’ and if done in accordance with the law, represents a tax-efficient method of corporate re-organisation.
The directors received expert advice prior to the re-organisation which stated that there had been no breach of their duties. The court held that the directors were not expected to be experts in matters of law, tax or accounting and accordingly did not fail to act responsibly in relation to the re-organisation.