Directors of a company and the Company Secretary (known collectively as officers) have ultimate responsibility for the running of a company. They have duties to comply with company law and to act in good faith in the best interests of the company. They have a duty to actively comply with legislation, and to take an active role in oversight of the affairs of the company; a lack of knowledge is not a defence if issues arise.
Specifically, Section 228 of the Companies Act 2014 provides that a director shall:-
(a) act in good faith in interests of the company;
(b) act honestly and responsibly in relation to the company;
(c) act in accordance with the company’s constitution and the law;
(d) not use the company’s property, information or opportunities for his or her own or anyone else’s benefit (unless such is expressly permitted by the company constitution, or has been approved by the members at a general meeting);
(e) act independently not restrict their judgement unless a restriction of independence is expressly permitted by the company’s constitution;
(f) avoid any conflict between the director’s duties to the company and the director’s other (including personal) interests (unless the conflict is expressly permitted by company’s constitution in that behalf or by a resolution of the members in a general meeting);
(g) exercise the care, skill and diligence which would be exercised in the same circumstances by a reasonable person having both the knowledge and experience that may reasonably be expected of a person in the same position as the director; and the knowledge and experience which the director has; and
(h) have regard to the interests of the employees and the members.
In the main, directors will not be personally liable for the wrongdoing of the company in the absence of fraud or dishonesty. However, in the event of an insolvent winding-up the directors can find themselves restricted or disqualified from acting as a company director in the future if they are found to have in anyway neglected their duty of oversight. This can have a serious impact on individuals.
Certain legislative provisions allow for criminal liability of company officers. A number of criminal offences arise under the Companies Act 2014, mostly relating to fraud, dishonesty, failure to keep proper books and records, and improper conduct.
The penalties are serious. Category 1 offences are punishable by a fine of up to €500,000 and/or up to ten years in prison. Category 1 offences include offences relating to fraudulent trading (Section 722) and falsifying accounting records (Section 286).
Category 2 offences are punishable by a fine of up to €50,000 and/or up to 12 months in prison. They include offences under a number of sections of the Companies Act 2014 such as the limitation on offers of securities to the public (section 68), restrictions on financial assistance for the purchase of the company’s own shares (Section 82) and on the company acquiring its own shares (Section 102), the prohibition on loans to directors (Section 248), false statements to auditors (Section 389), false statements in returns or financial statements (Section 406), and dispositions of property after winding-up commences (Section 602).
Category 3 offences (which include a failure to have at least one company director, a failure to file annual returns, a failure to hold an AGM, trading without a certificate of incorporation, and failure to hold service contracts for directors) are punishable by a fine of up to €5,000 and/or up to six months in prison.
Category 4 offences (which includes failure to keep meeting minutes, failure to display the correct company name and details, and failure to properly issue share certificates) are punishable by a fine of up to €5,000.
Of course, in the event of fraud, dishonesty or a misappropriation of company funds, the corporate veil will be lifted civilly and officers will be liable to also account to the company or others.
Another area of personal liability is health and safety legislation. The Safety, Health and Welfare at Work Act 2005 provides that the Health and Safety Authority may bring prosecutions against directors, officers or managers of a company, and guilt may be established if the officer has been guilty of neglect. Interestingly, in such cases the burden of proof falls to the accused to demonstrate that they did not authorise the breach or neglect, and that they did all that could be reasonably expected of theme to comply with health and safety legislation.
This liability may arise if the directors do not ensure proper risk assessments, policies, procedures and mitigations are put in place, if records are inadequate or if there has been any neglect of a known risk. Penalties can be a fine of up to €3,000,000 and/or two years in prison.
Directors can fulfil their obligation by attending regular meetings, by ensuring that there is a a good reporting and governance structure in place, by asking questions, by taking appropriate legal, accounting, and health and safety advices, and by disclosing their personal interests and abstaining from decision-making where conflicts arise.
The above is provided for information purposes and is not intended as legal advice. We, at Fitzsimons Redmond LLP, would be happy to talk to you about your company law compliance. Please contact us on 01-676 3257 or email Lisa at firstname.lastname@example.org.
By Lisa Quinn O’Flaherty
Partner at Fitzsimons Redmond LLP