The various business supports introduced by Government in response to the Covid-19 crisis have been both wide ranging and obviously welcome during a very challenging time.
As we move into the reboot phases of the Government’s roadmap some of these supports will over time be wound down. Company Directors and their advisors may face difficult decisions in the months ahead as they look to restart their businesses in the face of much uncertainty. One area of significant concern for Directors is insolvency as their business faces financial strain. They may well think that despite their best efforts in good faith to save their business, they could face potential consequences. These include restriction proceedings and, in more extreme cases, disqualification or even personal liability being imposed.
In other jurisdictions, including the UK and Australia, temporary legislative changes suspending certain wrongful trading provisions are being introduced for a limited period to help protect and reassure Directors. It appears at present that Ireland will not follow suit instead relying on the fact that our legislation has sufficient flexibility to assess Directors’ actions, and the key consideration of whether they acted “honestly and responsibly”, in the context of the Covid-19 crisis and on the specific merits of individual cases.
Recognising the position that Directors may find themselves in as a result of the pandemic, and perhaps in reaction to certain misperceptions and media coverage, the Office of the Director of Corporate Enforcement (“ODCE”) has recently issued timely guidance that should provide significant reassurance to Directors who act in a professional manner, with appropriate professional advice, in the best interests of their companies, employees and creditors in these unprecedented circumstances. Key elements of the guidance include:-
- Confirmation that the ODCE will generally grant relief to liquidators from their obligation to make a restriction application in any case where the available evidence clearly demonstrates that a company director has acted honestly and responsibly in the conduct of a company’s affairs. Adding that as the majority of company insolvencies arise as a result of legitimate business failure, the ODCE grants relief in the large majority of cases.
- That the ODCE would generally not consider directors to have acted dishonestly or irresponsibly in circumstances where the company has become insolvent as a consequence of events largely, and genuinely, outside the directors’ control and that it will have due regard to the impacts of the pandemic as it carries out its functions of examining, and adjudicating upon liquidators’ reports.
- The ODCE’s assessment will be informed by a number of factors including the adequacy of financial information, whether professional advice was sought and reviewing the basis upon which the Directors formed the view that the company would be able to trade out of its difficulties within a reasonable timeframe. Additional factors outlined include the length of time trading continued after the company was insolvent, the extent to which the financial position continued to deteriorate, treatment of taxes and steps taken to reduce costs and/or restructure the business.
- The note concludes by stating that, provided that directors’ decisions and judgements were, (a) made on the basis of objectively verifiable evidence, (b) based on assessments and assumptions that were reasonable in the context of the circumstances pertaining at the relevant times and (c) made in good faith and the directors otherwise acted honestly and responsibly, it is unlikely that the ODCE will consider that the company directors concerned should be restricted.
For more information on how we can help you and your business navigate these uncertain times please contact Stephen Scott, Head of Restructuring and Recovery or any of the Smith & Williamson Team.
Above article based on “Covid-19 and the insolvency-related functions of the ODCE” published by the Office of the Director of Corporate Enforcement on 4th June 2020.
We have taken great care to ensure the accuracy of this publication. However, the publication is written in general terms and you are strongly recommended to seek specific advice before taking any action on the information it contains.
Smith & Williamson Freaney Limited Authorised to carry on investment business by the Institute of Chartered Accountants in Ireland. A member of Nexia International.
Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice before making decisions.