Business Irish

Sunday 26 January 2020

'Wake-up call' for non-exec directors after court ruling

Donal O'Donovan

Donal O'Donovan

THE High Court has issued orders restricting two non-executive directors from acting as company directors after they failed to keep a close enough watch on a company that engaged in reckless trading.

Legal sources say the ruling is a wake-up call to all non-executive directors, putting the onus on them to play a meaningful role overseeing companies where they have legal duties.

The case has significant implications for all company directors -- in particular 'non-execs' with multiple directorships.

The judgment sets out a minimum standard for involvement in the day-to-day affairs of a company, and imposes significant penalties for failing to meet the standard.

Mr Justice Kevin Feeney found evidence of "conduct which can be equated with reckless trading" at Dublin security firm JR Shaft Bearing before it collapsed into insolvency in 2008.

The judge said he intended to ban the former managing director of JR Shaft Bearing, Patrick Fagan, of 641 Howth Road, Raheny, Dublin, from ever acting as a company director, under the Companies Act.

The judge said that he would impose lesser restrictions on two non-executive directors of the company, Joseph Kenny and Noreen Kenny, both with an address at 101 Furry Park Road in Killester, Dublin, under section 150 of the Act.

A section 150 order can restrict a person from acting as a director of most companies for up to five years, unless special conditions are met.

The judge said orders restricting the non-executives should be made, even though the High Court "accepts (they) acted honestly".

The Kennys were not shareholders in the company and only become involved as directors following a long-standing arrangement to provide company secretarial services to the business.

Meetings

Despite their peripheral involvement, Mr Justice Feeney said the Kennys had failed in their obligations as directors through "lack of involvement or oversight of the company" when they sat on the board.

He said, the non-executive directors "failed to any real extent to inform themselves about the business and affairs of the company".

Ms Kenny did not attend any directors' meetings between her appointment to the board and the collapse of the business, the judge said. He said Mr Kenny attended one directors' meeting via a phone conference.

In a harshly worded ruling the judge said Mr Fagan "was guilty not only of a lack of commercial probity but also of conduct that can be equated with reckless trading".

The case is due for a follow up hearing on April 17, when the length of restrictions and orders for costs are expected to be decided.

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