Quick question. When a company goes into liquidation and is wound up, are the directors barred from starting another company for a given period of time?
What is to stop a company with serious debts putting itself into liquidation, starting another company and doing it all again?
All wrong I’m afraid. I assume the OP is referring to an insolvent liquidation. If it’s not an insolvent one i.e. it’s a members voluntary, then no restrictions on acting as directors in another company. If it’s an insolvent liquidation, then the liquidator needs to examine the conduct of the directors to establish whether in his view an action should be taken to restrict the directors from acting in any other companies; fraudulent trading will certainly result in the liquidator taking an action and indeed so will reckless trading. The liquidator is required by law to make a report to the ODCE as to whether an action should be taken to restrict the directors (amongst other things). Ultimately the ODCE has the final say; it can overrule the decision of the liquidator or agree with his decision.
AFAIK, if the liquidation doesn’t cover the creditors, the liquidator is supposed to apply to have the director(s) restricted for 5 years (unless the DCE gets them off in court), but a restricted director can still be director, if the new company has sufficient capital (63.5K) - not a massive amount these days.
The director would have to convicted of something to be disqualified (which would make them absolutely unable to be a director of another company).
In practice, I believe that the number of directors restricted each year is pathetically small. You practically have to sexually assault the revenue commissioner while burning €100 notes out of your ass and laughing about not paying your debts before you get restricted.
Although Pill may correct me on this…
Edit: 2007 numbers from the ODCE: 14 directors disqualified, 144 restricted. So perhaps I was exaggerating just a little
My understanding is that people will get banned from being a director if:
a) they committed a crime of dishonesty or fraud while acting on behalf of that company (whether that action was for the benefit of the person or the company is immaterial); or
b) they continued to trade while the company was insolvent knowing that the company was insolvent (in such a circumstance, the directors are also personally responsible for any losses caused while trading insolvent).
Otherwise there is a discretion which is rarely used. As most of these provisions came in with the 1990 Act, and the period since then has seen relatively few insolvency situations, it hasn’t really come up all that much. But we might see it start to happen in large numbers in the near future.
RB, the liquidator is not “supposed to apply to have the director(s) restricted for 5 years unless the ODCE gets them off in court”. As explained above the liquidator is required by law to make a report to the ODCE about the liquidation and whether in his opinion an action should be taken to restrict/disqualify the directors. The ODCE may agree with the liquidator’s decision or disagree. If the ODCE disagrees then the liquidator (not the ODCE) needs to take the action through the high court to restrict/disqualify the director(s) to be funded by the liquidation funds.
What does the ‘DCE gets them off in court’ mean?
Sec 160 above applies to fraud and where a director is convicted. A liquidator/the ODCE may also form the view that the director should be restricted as a result of reckless trading. I’m just trying to provide clarification
In principal then, there isn’t really anything to stop a company director running up unsecured debts with creditors and then having the company put into liquidation. Or, alternatively, there is nothing to stop a really bad businessman setting up one limited company after another and leaving a trail of creditors out of pocket (bad luck or stupidity rather than being reckless)?
It is open to the arbitrary judgement of a liquidator?
If a business fails because of bad luck then a liquidator is not going to recommend to the ODCE that the director(s) be restricted/disqualified - why would he? If it’s as a result of stupidity it will really depend on what exactly this menas on a case by case basis.
Remember though that the ODCE can overrule the decision of the liquidator.