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Stopping company directors from jumping ship - Ged Nash

Posted on July 19, 2017 at 02:19 PM

The report from the Company Law Review Group takes over 150 pages to decide: “Yerra, ’twill do”.

In my report to Government two years ago on the sale and liquidation of Clerys, I wrote of the widespread public concern about the way Clerys was closed and how those whose livelihoods depended on the business were treated.

When a company becomes insolvent, then clearly not all creditors can be paid in full. Hence the vital importance of ensuring that there has been fair dealing with the company’s assets and that all property that should be available is used to pay off the company’s debts.

It is vitally important that we have remedies available where the use of a corporate group structure results in profits and assets being kept in one company while losses accumulate in another, and the insolvent loss-making entity is then liquidated.

And it is equally important that the remedies work well in practice, rather than being just theoretically available.

I highlighted in my 2015 report that section 599 of the Companies Act 2014 sets out a means by which a liquidator or a creditor can bolster the assets of the company in liquidation by applying to court for an order that a related company must contribute to paying its debts. However, while the purpose of the section is to provide a remedy for creditors and employees who, through the use of company structures, have been deprived of their rightful entitlements, there were – and still are – no reported cases on this section and so we don’t know when and how it might be applied.

The same section was highlighted by the report Richard Bruton and I commissioned from Nessa Cahill B.L. and Kevin Duffy, then Chairman of the Labour Court. They pointed out that the provisions of the Companies Act 2014 that are already available “do not appear to be in need of amendment, but more in need of use. It is striking that many of the provisions of the Companies Act which may be of assistance are not frequently invoked (such as section 608) or are not invoked at all (such as section 599).”

In this most recent report, the Review Group says that it asked itself the question: Does what the section says achieve the policy which it aims to achieve? I do not see that any law can be said to achieve its policy if it sets out a remedy that has never been applied for. So long as no application has been made under the section, it is absurd to say that section 599 has achieved anything.

However, and notwithstanding the lack of any case law, the Review Group decided that it could not recommend any amendment of section 599 because “there is no deficiency to address”. They found that the mere possibility of contribution orders being made “has a dissuasive effect in the insolvency landscape” and that section 599 should provide an exceptional remedy, to be used only where very rare circumstances are present.

These conclusions are complacent, indeed smug, and are unacceptable. It is also unacceptable that these conclusions were arrived at without even considering the set of circumstances - and the resultant public outrage - that gave rise to the request for this report from the CLRG in the first place.

The Review Group’s complacency can be seen where, on a related issue, the report notes that directors of an insolvent company can simply cease trading and abandon the company without putting it into liquidation. When this is done, creditors are not paid what they are owed and employees are not able to access the State Insolvency or Redundancy Funds for their statutory entitlements.

The report says that the ODCE can and does seek to disqualify directors who abandon companies with outstanding debts in this manner. “However, there is a limit to the number of such cases that the ODCE is in a position to pursue. It is not possible to estimate how many companies are abandoned in this manner each year.”

This is a truly shocking admission. Company law is being abused on a routine basis, so frequently that it is not possible even to count the instances let alone prosecute them all. Yet the ODCE continues to insist to Government that it is adequately resourced.

Our company law enforcers and reformers seem to be happy to preside over a regulatory system that works well in theory but is unenforced in practice.

I can only conclude that the process was a complete waste of time.

Bluntly, there is nothing in this weak and anaemic report that will prevent another Clery’s style arrangement from occurring tomorrow.I reject this complacent approach. I agree with the ICTU submission outlining real and practical steps that can be taken to improve law enforcement in this area and protect employees and unsecured creditors – as well as safeguard the public exchequer – from rogue directors.

The best thing the Minister for Employment and Social Protection can do now is to legislate to give effect to the proposals in the Duffy-Cahill report to better protect employees caught up in insolvencies by, for example, providing for the right to a 30 day consultation period where collective redundancies are being contemplated (whether the company is insolvent or not) and an automatic entitlement to two years pay were an employer fails to engage under the consultation clause.

An edited version of this article initially appeared in the Sunday Business Post on Sunday 16th July.

Permanent link | Categories: Enterprise Trade & EmploymentGerald Nash