As the repercussions of the ongoing COVID-19 crisis continue to unfold across all business sectors, it is a time of great uncertainty for many company directors as insolvency becomes reality and the decision to liquidate looms. The Office of the Director of Corporate Enforcement (ODCE) has however helpfully published a statement (click here) to provide clarity and guidance for directors during this difficult time.
As we know only too well, directors at the helm of companies who continue to trade from an increasingly insolvent position run the serious risk of facing the penalties imposed by company law in these circumstances, such as, being made personally liable for the debts of the company or, more commonly, finding themselves the subject of restriction or disqualification proceedings.
It is the ODCE who ultimately determines whether the conduct and actions of directors of failed companies merits the pursuit of legal action against them personally by the relevant appointed liquidator. On receipt of confirmation from the ODCE, the liquidator of a company has a statutory obligation to bring restriction and/or disqualification proceedings against the director in question seeking various reliefs, to include an order prohibiting him/her from acting as a director of a company for a minimum period of five years.
Where the insolvency of the company has been significantly induced by the onset of the COVID-19 pandemic, the ODCE has outlined a number of key considerations in its statement which will be of importance in its assessment on whether company directors have satisfied the requirements of having acted honestly and responsibly and, as such, can be absolved of any personal liability relating to the failure of their company. Those considerations include the processes and procedures in monitoring the company’s finances, the extent to which tax liabilities arose, and the obtaining of relevant necessary professional advice.
The recent guidelines issued by the ODCE represent positive support and a degree of flexibility to the directors of companies which have fallen on hard times as a result of the outbreak of COVID-19 together with an acknowledgement towards the genuine and honest efforts of those working to ensure the survival of their businesses.
That being said, this statement should not be seen as a catch all relaxation of the legislation regarding directors’ duties and responsibilities to their company and its creditors, and those who act in blatant disregard of those rules will be doing so at a risk.
How we can help
If we can be of any assistance or address any general queries you may have, please do not hesitate to contact Mark Homan (firstname.lastname@example.org) or Sarah O’Toole (email@example.com) in our Insolvency & Corporate Restructuring Department or by telephone on 01 440 8300.
This article is for general information purposes. Legal advice must be obtained for individual circumstances. Whilst every effort has been made to ensure the accuracy of this article, no liability is accepted by the author for any inaccuracies.
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