Directors not disqualified, despite 'persistent failure'

THE SUPREME Court has clarified the law on what is meant by "persistent" default of company director's obligations in a judgment on issues relating to proper standards for management of limited companies.

The Director of Corporate Enforcement had argued, in a case where a Co Longford wood company had failed to file annual returns over a 13-year period from 1991 to 2004, that the High Court had wrongly interpreted the relevant provisions of the Companies Act relating to the meaning of "persistent" default.

The Supreme Court yesterday agreed with the director that the High Court had erred in its interpretation of Section 160.2.f of the Act, which provides a disqualification order can be made against an officer of a company when the court is satisfied a person "has been persistently in default in relation to the relevant requirements".

The High Court had ruled persistent default was not just default which continued over a period of time but also continued "in the teeth of intervention on the part of the courts more than once". While finding the failure to make returns "reprehensible", the High Court found it was not "persistent" under the Act and, given those and other findings, refused to make disqualification orders against the respondent directors.

Giving the Supreme Court judgment on the director's appeal, Mr Justice Nial Fennelly said the question was whether, on the admitted facts, there was "persistent default" by the two directors, Patrick McGowan and his wife Patricia, in relation to their company, Wood Products (Longford) Ltd. Ms McGowan resigned as a director in February 2004 and the judge said that, in fairness to her, her husband was "entirely responsible" for the company's defaults.

He said to "persist" involves not just continuing but also an element of determination. In this case, the directors had failed for 13 years to comply with their legal obligations to file prescribed returns with the registrar of companies. Each failure constituted the commission of a criminal offence and this met the requirements of "persistent failure".

The judge said neither director had disputed the claims they had not performed their duties in a manner appropriate to their positions. He said the main purpose of disqualification was to protect the public, not to punish. He agreed with the director there should be an element of deterrence in the exercise of the court's discretion relating to disqualification.

In this case, it was a small private firm with 12 employees trading profitably and it was right for the court to consider their interests and the fact that disqualification would impact on the firm's intention to discharge its liabilities to the Revenue. In all circumstances, a disqualification order would serve no useful purpose and was not warranted, the judge concluded.