Tuesday, January 6, 2009

Reckless Governing

Tony O'Reilly's decision to step down as a director of Waterford Wedgewood got me thinking about directors and their liabilities. During the boom years we have built up a body of legislation which uniquely assumes that directors of companies are guilty until proven innocent when it comes to their companies experiencing difficulties. As with so much similar legislation (e.g.: minumum wages, working conditions) there is an unhealthy dose of economic wishful thinking driving the spirit and letter of these particular laws: the kind that assumes actions don't have any unforeseen consequences, and incentives don't really count. Maybe on Planet Partnership.

Back in the real world, we can identify yet another built-in-destabiliser in the Irish economy. This time, it is one that says to any would be entrepreneur, 'angel' investor/director, or seasoned executive with non-director potential DON'T RISK IT. Leave directorships and all that messy, risky business to the poor patsies who don't have any choice: sure the Office of the Director of Corporate Enforcement (real business-friendly that) will put manners on them. It's a destabiliser which also says: if there is the slightest doubt your business won't survive do everything NOW to avoid that outcome and a trip to the High Court (where you will be guilty until proven innocent) by laying off staff, screwing suppliers and borrowing as little as possible. Any wonder that the latest NCB Services Index shows employment intentions on the part of service sector employers falling off a cliff.

But it also got me wondering if, say, our cabinet ministers were directors of a company rather than a country what their legal liabilities might be? According to the ODCE's guide to the duties and powers of directors we learn that:
The Court has the discretion to disqualify a person for such period as it deems fit where that person, while acting as director, promoter, auditor, officer, receiver, liquidator, or examiner of a company has been guilty of any of the following:

(a) a fraud in relation to the company, its members or creditors;
(b) a breach of duty in relation to the company;
(c) conduct which makes them unfit to be concerned with the management of a company or fraudulent or reckless trading which resulted in a declaration of personal liability for some or all of the debts of the company;
(d) persistent default in relation to obligation under the Companies Acts. Persistent default is defined as being conclusively proven where in any five year period a person has been guilty of three or more defaults;
(e) two or more offences of failure to maintain proper books of account;
(f) in the case of a director of an insolvent company, failure to file all outstanding annual returns on request and the company is struck off the register of companies as a result.
Looking at yesterday's end of year Exchequer Returns, I'm beginning to wonder what the definition of 'reckless governing' might look like. Maybe we need an Office of the Director of Political Enforcement?

3 comments:

  1. Yep. Beheading is the proper punitive action as I understand it?

    ReplyDelete
  2. It is incorrect to say that directors are "presumed guilty until proven innocent" under companies legislation.

    ReplyDelete
  3. You're wrong on that one Fergus.

    According to this report on the ODCE web site

    http://www.odce.ie/GetAttachment.aspx?id=15a39f70-78fa-4bbf-8e23-ccc17b207b4e

    we are told that:

    "Moreover, liquidators of all such insolvent companies are also required to make application to the High Court for the restriction of each of the company’s directors unless specifically relieved of that obligation by the Director of Corporate Enforcement." page 6

    Restriction is defined as follows:

    "The provisions relating to the restriction of company directors apply to insolvent companies i.e. companies that are unable to pay their debts as they fall due. Where a company which goes into liquidation or receivership is insolvent, a director of the company who fails to satisfy the High Court that he or she has acted honestly and responsibly will be restricted for a period of up to five years." page 23

    In other words: directors of failed companies are presumed to have acted dishonestly and irresponsibly unless proven otherwise since BY DEFAULT a liquidator must apply for their restriction unless instructed not to do so by ODCE.

    ReplyDelete

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