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‘Directors face personal risks’ on court orders

Lawyers at McCann FitzGerald have highlighted a recent High Court case that they say illustrates the powers the courts have under the Companies Acts to make directors personally responsible for the actions of a commercial organisation in failing to abide by a court order.

They point out that, under Irish law, the responsibility to manage the business and affairs of a company is entrusted to its directors.

This means there is a legal relationship between the directors and the company which, in some circumstances, can result in the directors themselves being exposed to a potential legal risk.

“Arguably one of the most prevalent dangers for any director is where the company is subject to a court order (which it either can’t or won’t comply with), and the court seeks to sanction the director or directors behind the corporate structure,” the McCann FitzGerald note states.

Stateline case

The recent High Court case involved a company called Stateline Transport Ltd, which was ordered to remove shipping containers from a piece of land within Fingal County Council after enforcement action by the local authority.

The company agreed to remove the containers but sought a 12-month period to do so.

The High Court held that the use of the lands for the storage of shipping containers represents an unauthorised development, and was unwilling to support the continuation of such for another 12 months. This finding was later upheld on appeal.

According to McCann FitzGerald, the court “was clear that failure to comply with the order could constitute contempt of court”, and noted that section 53 of the Companies Act 2014 could be a relevant consideration.

This meant that the company directors of Stateline could be liable to a process of attachment, and their property to sequestration should the order be disobeyed.

“This could potentially mean the directors face imprisonment and the shipping containers, or the property of the directors, could be sequestered,” the McCann FitzGerald lawyers stated.

Powers

The briefing points to the powers available to the courts under section 53 to enforce any judgment or order against a company that has been wilfully disobeyed, including:

• Sequestration against the property of the company,
• Attachment against the directors or other officers of the company, or
• Sequestration against the property of such directors or other officers.
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Attachment is an order to have a named individual arrested and brought before the court to answer a contempt that has been alleged. If they do not purge their contempt, they may then be committed to prison.

“As is clear from the terms of section 53, unlike in many other situations, the separate legal personality of the company will not always protect the personal assets of corporate officers in certain cases of contempt,” the law firm’s analysis concludes, adding that the provision ensures that corporate officers “cannot stand behind the shield of the corporate veil” in such cases.