Ireland: Court Of Appeal Decision – Disqualification Of Directors

Last Updated: 8 February 2016
Article by Jamie Ensor and Kate Curneen


On 20th January 2016, the Irish Court of Appeal (the "Court") handed down an important decision in the case of Director of Corporate Enforcement v Walsh & ors [2016] IECA 2 in relation to the law on the disqualification of directors. This judgment provides useful clarity on the law in this area.


This case concerned an appeal by the Director of Corporate Enforcement (the "DCE") against a decision of Barrett J in which the judge declined to make a disqualification or restriction order against three company directors. The main complaint against the directors was that they had failed to file annual returns for two companies, namely Walfab Engineering Limited ("Walfab") and RPB Products Limited ("RPB"), which led to these companies being struck off the Register of Companies (the "Register"). An application was brought by the DCE under Section 160(2)(h) of the Companies Act 1990 (the "Act") which is applicable to company directors who, through culpable inaction, have permitted an insolvent company to be struck off the Register when they should have proceeded to wind up the relevant company.

Defence of the directors

The directors of Walfab and RPB blamed the downturn in the economy for the decline of the financial affairs of the companies and did not dispute their failure to file annual returns. They claimed that they had at all times acted honestly and responsibly in relation to the companies and that when the companies became insolvent, resources were not available to allow them to liquidate the companies.

One of the directors argued that it was never her intention to be actively involved in Walfab and she took no active role in its management. She also highlighted that she never received any director's remuneration, wages, salary or otherwise and never took any drawings from Walfab.

Decision of the Court

Kelly J, giving judgment for the Court, relied heavily on the judgment of Finlay-Geoghegan J in Re Clawhammer where she stated:

"There is potential prejudice to creditors of an insolvent company if the directors, by default, permit it to be struck off the register rather than taking steps to wind it up. In such circumstances such assets of the company as remain are not applied, as a matter of course, in the discharge of creditors according to statutory priorities... Accordingly, I accept the submission made on behalf of the Director that the Oireachtas regards the fact that directors may have permitted a company to be struck off the register as a result of their failing to make annual returns as more than a technical breach of their obligations under the Companies Acts."

Kelly J noted that the approach set out by Finlay-Geoghegan J was one which had been endorsed and followed in subsequent applications under Section 160(2)(h) and said that he could see no reason why the trial judge had departed from this approach in the instant case. He rejected the contention that financial difficulty or difficult trading conditions changed the purpose of Section 160; the aim of which is to promote proper corporate governance. In addition, he refused to accept that difficult financial circumstances alter the obligations placed upon directors where companies under those directors' control become insolvent. In such cases, they should take the necessary steps to bring about the orderly winding up of the relevant company.

Kelly J also disagreed with the weight Barrett J attached to what he described as the "scale of enterprise and qualification of directors" and the "context in which director transgression" occurred. Kelly J did not accept that these factors could be regarded as relevant to the exercise of the Court's discretion under Section 160. He concluded that neither the qualifications of the directors nor the economic challenges that a company may be confronted with affect the obligations on directors to act responsibly in respect of an insolvent company.

Past behaviour of directors

In rejecting the reasoning of Barrett J, Kelly J took the view that Section 160(2)(h) does not impose any burden on the DCE to establish any instances of past bad behaviour in order to justify the making of a disqualification order. He noted that the intent of the legislature would be frustrated if an obligation was placed upon the DCE to put before the court evidence of the historical behaviour of directors. Indeed, in many cases where annual returns have not been filed by the company and no Section 56 report (a liquidator's report in respect of an insolvent company) is available from a liquidator as the company has not been placed into liquidation, the DCE would not be in a position to form any view as to how directors have carried out their obligations in the past.

Passive Directorships

Kelly J then moved on to consider the issue of passive directorships. He noted that it would be contrary to the entire notion of proper corporate regulation if passive directors (i.e. those directors who do not take an active role in the management and day-to-day operation of a company) could be exonerated from liability or relieved from disqualification or restriction on the basis of the passive nature of their role. He stated that all directors are required to undertake all reasonable steps to file annual returns and that there was no reason to limit the disqualification or restriction of passive directors to cases where there is "real moral blame" on their part.

Court's discretion under section 160(9A)

Kelly J then considered the Court's discretion pursuant to Section 160(9A) of the Act to make a declaration of restriction under Section 150 of the Act as an alternative to a declaration of disqualification. He rejected the contention of Barrett J in the High Court that Section 160(9A) allows the court to make a Section 150 declaration only where such could be made on foot of a Section 150 application. He was satisfied that Section 160(9A) vests the Court with the discretion to impose the lesser sanction of a Section 150 declaration on a Section 160 application, provided that it is appropriate to do so. On a consideration of the evidence, Kelly J concluded that this was a case where the Court ought to exercise its discretion in favour of making a restriction order rather than a disqualification order and accordingly, he imposed a restriction of five years against each director.

Implications of the Court's Decision

This decision clearly reinforces and re-establishes the case law regarding the disqualification of directors. In contrast to recent decisions of the High Court, the Court's judgment strongly suggests that it will be less tolerant towards directors who have breached the Act (and, one assumes, the Companies Act 2014, which updates but largely re-enacts what was the legislative position covering this area). In particular, it highlights that passive directors will not be afforded any differential treatment when an examination of their duties as directors is being undertaken by the court and that financial and trading conditions will not be afforded any significant weight in determining whether a disqualification or restriction order should be made where there is a clear breach of a director's obligations under Irish company law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions