The Office of the Director of Corporate Enforcement (ODCE) has recently published welcome guidance for directors trading during these uncertain times.
As a result of the ongoing pandemic, countless companies have been unable to pay their debts as they fall due which raises the risk of directors of these companies having a declaration of restriction made against them if they continue to trade.
The document released by the ODCE notes several components that will be considered in these cases. If the guidance is followed by company directors, they should be protected from personal liability for trading whilst insolvent. Some of these key components are set out below.
Key Points
- ODCE considers each company's case on its own merits.
- ODCE would generally not consider directors to have acted dishonestly or irresponsibly in circumstances where the company has become insolvent because of events largely, and genuinely, outside the directors’ control.
- Whilst continuing to trade while insolvent would generally give rise to a significant risk, ODCE acknowledges that the Courts have demonstrated a willingness to afford some latitude to continue trading for a short period in certain circumstances.
- When assessing the conduct of directors, the ODCE will consider:
- the adequacy of the directors’ processes and procedures for monitoring the company’s financial position on an ongoing basis;
- whether, and if so at what point, directors sought professional advice;the basis upon which the directors formed the view that the company would be able to trade out of its difficulties within a reasonable timeframe;
- the length of time that trading continued after it had become apparent, or should have been apparent, that the company was insolvent;
- the extent to which the company’s financial position continued to deteriorate, as well as the nature of any additional liabilities that accrued during the period during which the directors knew, or ought to have known, that the company was insolvent;
- the steps taken to reduce costs and/or to restructure the business.
Conclusion
Provided that directors’ decisions and judgements are made on the basis of objectively verifiable evidence and the directors otherwise act honestly and responsibly, it is unlikely that the ODCE will consider that company directors should be restricted.
For more information on this contact Barry Cahir (Insolvency & Corporate Restructuring).
To discuss any other COVID-19 related issues impacting your business, please get in touch with Thomas O'Dwyer (Litigation), Sharon Delaney (Litigation), Dorit McCann (EU, Competition & Procurement), Damian Maloney (Corporate and Commercial), Aidan Marsh (Commercial Property), Gerry Gallen (Commercial Property), Sandra Masterson Power (Employment), Paul Gough (Employment), Edward Evans (Corporate & Commerical), Fidelma McManus (Housing) or your usual Beauchamps contact.
