Directors beware – limited liability may not protect you
An Irish High Court ruling in December 2022 highlights the personal risks of being a company director.
In this case, the protection of limited liability was set aside to hold directors of the company personally liable for the liabilities of the company. The firm in question had been used to facilitate fraud.
This is the first time such a ruling has happened in Irish company law.
Read more: Boards must lead and be accountable.
What was the case involved in this decision?
The case was called Powers v Greymountain Management Limited (in liquidation).
In his ruling, the judge, Mr Justice Twomey, set aside the protection of limited liability and ruled that two directors (along with two other individuals regarded as shadow directors) were personally liable for claims filed by members of the public who lost money in a binary options scam.
It turned out that the Irish company had been used as a vehicle for a series of payments that resulted in many millions of euros in losses.
The plaintiff, in this case, a member of the public who lost money due to the liquidation of the company, asked for the registered directors (i.e. those formally registered and registered as directors) and two other individuals who were deemed shadow directors to be personally liable for the loss of funds.
Since the company was only intended to be an instrument of fraud, the judge decided that the fraud could have been prevented if the Irish-registered directors had taken a more active role.
While the Irish directors did not know about the fraud and were unwitting participants, the fact that they did not exercise any oversight or supervision at the board level led the court to conclude that they would be held personally liable for any losses incurred.
Read more: What is D&O insurance?
What does this mean for anyone considering joining a board?
It’s now evident that anyone who signs up to become a company director must carry out due diligence, make sure they have D&O insurance, and attend board meetings.
- Anyone considering becoming a director should carefully investigate the company before joining.
- Even if they are appointed as non-executives, directors should strive to actively oversee the business.
- A director should always put the interests of the company ahead of the interests of any shareholder who appointed them (unless a ministerial directive is made under applicable legislation).
- To protect their liabilities, directors and officers should ensure that comprehensive D&O insurance is in place.
Read more: The full article by Neil Keenan, a corporate partner in the Dublin office of Pinsent Masons.
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