# Restrictions on acting as a director



## sartay (10 Nov 2009)

Quick query. The scenario is:

A person was an owner, manager, director and secretary of a limited company which went into liquidation at the end of 2008 after oweing a lot of money to various creditors (and also to some of their employees!).

In early 2009, this same person set up another limited company providing the same services as the previous one. This person is again an owner, manager, director and secretary of the new company.

The creditors (including the Revenue as far as I know) have therefore all lost out and the individual is just picking up where they left off. 

Are there automatic restrictions to prevent this sort of thing? I know that a person can't just close down a company, walk away from their debts and start up again under a new name. Does someone have to complain to the ODCE *before* a person is restricted from behaving as outlined above? Or is there an automatic restriction in place whereby a person can't act as a director again for a period of time when they were director of a company that went into liquidation?

Thanks for any input.


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## DBRAN (10 Nov 2009)

Hi

I believe that the liquidator of a company has to report to the ODCE on the conduct of the director and whether or not he believes this was a factor in causing the company to fail.

However one should distinguish between the actions of a bad business trader as opposed to a fraudulent business trader.

Just because the business fails does not mean that the director should be banned from being a director. That is after all why one has limited liability and limited companys.

However if the revenue believe that there is a so called "phoenix company" at play then they will act accordingly. This will mean that put the company on the fast track as regards enforcement. If the company shows any signs of defaulting on it tax liabilities then it moves very quickly to enforcement with the sheriff being called in after only a few months.

Kind Regards

dbran


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## onq (10 Nov 2009)

Your description suggests he was operating as a one man band.

Wasn't there a second director requirement for limited companies?

I seem to recall I've had this pointed out to me on another thread.

If I'm right, check that there was a valid second director in the company's documents.

Its one thing to suffer a business failure, quite another not to abide by the Companies Act as amended.

FWIW

ONQ.


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## Pope John 11 (10 Nov 2009)

onq said:


> Your description suggests he was operating as a one man band.
> 
> Wasn't there a second director requirement for limited companies?
> 
> ...


 
See attached

[broken link removed]


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## sartay (10 Nov 2009)

Thanks for the replies. The second director in the first company which was liquidated has nothing to do with this second company. A new person is acting as the second director. 

But it is the common director of both companies that is the owner and runs the show.

I understand that limited liability is there to protect the directors and that's fair enough. IMO the director let things continue for far too long and was well aware of the cash flow problems but wouldn't face up to them. The director continued to seek credit from anywhere they could get it until all doors were well and truly shut. The company really should have been liquidated much sooner. Although I certainly do understand that it can be difficult to make that decision and admit failure when you feel that you have put a lot into a business and you are desperate to save it. 

I am sympathetic to the director for the experience of having a failed business but a lot of the people who lost out are small businesses creditors and also employees of the business. Employees were left not paid and creditors were left out of pocket for the cost of goods supplied etc. 

It just seems that this director can walk away from all these debts, having left a lot of other people in the lurch. The director however has suffered no real financial consequences as they have simply started trading again under a different company name.


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## patftrears (10 Nov 2009)

sartay said:


> Thanks for the replies. The second director in the first company which was liquidated has nothing to do with this second company. A new person is acting as the second director.
> 
> But it is the common director of both companies that is the owner and runs the show.
> 
> ...


Who will lend him money, give him credit, stock or work for him.


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## sartay (11 Nov 2009)

patftrears said:


> Who will lend him money, give him credit, stock or work for him.


 
New suppliers and individuals who haven't come across this person before.


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## onq (11 Nov 2009)

Pope John 11 said:


> See attached
> 
> [broken link removed]



Thanks Pope, but I think its the single member company here I was thinking about; -

[broken link removed]



ONQ.


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## sartay (11 Nov 2009)

Just to clarify onq, there is no problem regarding any single member issues in this situation. There were two directors at all times. And there is no problem with a company having just one shareholder.

Thanks.


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## mcaul (11 Nov 2009)

There's nothing to stop him setting up a new business at the moment. However the liquidator will go through the books of the previous company and will make a series of reports to the odce which may result in restriction proceedings.

This can take up to 2 1/2 years and can only be issued by the high court. Until then he may continue to trade and if he is restricted he must either resign or bring share capital up to €63500.


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## onq (12 Nov 2009)

sartay said:


> Just to clarify onq, there is no problem regarding any single member issues in this situation. There were two directors at all times. And there is no problem with a company having just one shareholder.
> 
> Thanks.



Saw the clarification in the other posts, sartay, and I wasn't keeping it going, just clarifying my original comment.



ONQ.


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## Padraigb (12 Nov 2009)

sartay said:


> ... I understand that limited liability is there to protect the directors and that's fair enough.



To be exact, it's for the protection of _shareholders_, who might not be the same set of persons.



> IMO the director let things continue for far too long and was well aware of the cash flow problems but wouldn't face up to them. The director continued to seek credit from anywhere they could get it until all doors were well and truly shut. The company really should have been liquidated much sooner. Although I certainly do understand that it can be difficult to make that decision and admit failure when you feel that you have put a lot into a business and you are desperate to save it...



It is possible that the behaviour that you describe could be seen as "reckless trading". Have a look at http://www.irishstatutebook.ie/1990/en/act/pub/0033/sec0138.html.


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## sartay (12 Nov 2009)

onq said:


> Saw the clarification in the other posts, sartay, and I wasn't keeping it going, just clarifying my original comment.
> 
> 
> 
> ONQ.


 
No problem -just wanted to make sure in case we ended up on a bit of a tangent! Thanks for the input though


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## sartay (12 Nov 2009)

Padraigb said:


> To be exact, it's for the protection of _shareholders_, who might not be the same set of persons.
> 
> 
> 
> It is possible that the behaviour that you describe could be seen as "reckless trading". Have a look at [broken link removed]


 
Ok, thanks for correcting the technical point, but the director is also the owner as stated in my first post, so that's all I meant.

I'm aware of reckless trading but I've heard that it's often quite hard to prove these cases though.

So I suppose the answer to my original question is no, there are no automatic restrictions. And if anything was to be done about it, it would be necessary to go through all the formal complaint procedures with the ODCE etc first.


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## sartay (12 Nov 2009)

Just a thought.. are the reports that liquidators make to the ODCE available for the public to view or are they private? Is it is possible to see how any funds remaining in the company at the time of liquidation were ultimately distributed? e.g. 'x' amount to Revenue, 'x' amount to secured creditors etc.


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## mcaul (15 Nov 2009)

sartay said:


> Just a thought.. are the reports that liquidators make to the ODCE available for the public to view or are they private? Is it is possible to see how any funds remaining in the company at the time of liquidation were ultimately distributed? e.g. 'x' amount to Revenue, 'x' amount to secured creditors etc.


 
afaik they are available for download on the cro website - the liquidator has 2 years to file all details of the liquidation, so it could be a while before you can read the reports. In the meantime, you may make a report to the liquidator about your concerns and the liquidatot must take account of your report in his findings.


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## Bill Struth (16 Nov 2009)

mcaul said:


> *afaik they are available for download on the cro website* - the liquidator has 2 years to file all details of the liquidation, so it could be a while before you can read the reports. In the meantime, you may make a report to the liquidator about your concerns and the liquidatot must take account of your report in his findings.


Yes, you can obtain copies of all filings here: [broken link removed]

Look out for E2, E3, E4, and E5 forms (appointment of liquidator, and liquidators accounts.)


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## jack2009 (17 Nov 2009)

mcaul said:


> afaik they are available for download on the cro website - the liquidator has 2 years to file all details of the liquidation, so it could be a while before you can read the reports. In the meantime, you may make a report to the liquidator about your concerns and the liquidatot must take account of your report in his findings.


 
You are not entitled to see any reports made by a liquidator to the ODCE.  However, you as a creditor are entitled to receive reports from the liquidator.  The liquidators report will give you the answers you are looking for.

If 12 months has not passed as yet ask for a copy of the reports issued to the committee of inspection.


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