There is a saving clause in respect of directors of private companies only and it protects those in office on the 31st March, 1962. If in future private companies wish to have permanent directors, would they be prevented by this section as it stands?
SECTION 182.
Question proposed : " That Section 182 stand part of the Bill."
My understanding is that they would not be prevented from appointing them. There would, nevertheless, be nothing to prevent the members of such a company coming along and availing of the provisions of Section 182 to remove a life director, but I do not believe that the appointment of life directors is prohibited. In all companies which are well run and in which no great difficulties are experienced the position of life director would, I think, be much the same as in the past. There would not be any reason to reject him but if he was not doing his job properly then Section 182 might be of use to the company to secure his removal.
Under this section would an ordinary resolution override every contractual arrangement between the company, say, and the directors ?
Yes—" notwithstanding anything in its Articles or in any agreement between it and him ". But it is also subject to subsection (7). The possibility that they might have to pay a large amount of compensation would be a deterrent to a company wishing to avail of Section 182 except where it was absolutely essential.
In future would this involve companies—or certainly directors—in making arrangements on the basis that compensation would be payable to cover possibly the removal by ordinary resolution ?
Perhaps, but the fact is that those agreements could be examined to see whether they were entered into bona fide and for a proper corporate purpose and the directors would be answerable to the company.
Why have this section at all ?
Because otherwise the control which members of the company exercise over directors is largely illusory. They cannot remove them. Articles which provide that a director might be removed by special resolution are no protection. In most companies you could not get sufficient numbers together to get the 75 per cent majority, but it might be easier to get 50 per cent. The model article in the Act of 1908 provided for an extraordinary resolution which requires 75 per cent majority. That would be quite impossible to get in most cases here in Ireland.
Why militate against private companies ? Negotiators of financial interests sometimes lend money on the understanding that they have the right to appoint a director. I am apprehensive that if that is made impossible by law financial interests might be rather loath to negotiate with private companies in circumstances where in the past they have not been prepared to do so.
I doubt if a situation like that was envisaged in the drafting of this section.
It is a very common device for the owner of a business, if he turns it into a private company, to hand over his shares to the son or members of his family and to have himself appointed a governing director for life. This device is primarily for saving estate duty. Is there any such consideration behind the section ?
None, I believe.
It does, in fact, mean that the appointment of governing directors for life will not be possible in the future. Am I right ?
It would be possible, except that under the law as we now propose it, it would be easier to remove them.
If he is removed he is not a governing director for life. My own view is that there is a good case for this. I fail to see its necessity in the case of a small private family company.
Your concern is that the small private company would not need it ?
It does not need these provisions.
Again, we find ourselves coming into the position of deciding what is a small private family company and of creating a distinction in law which would be impossible to effect.
Is it not customary in most articles to make the provision that a director shall resign if called upon by his co-directors ?
That is common.
Even in a small private company such as Deputy Byrne has in mind, if all the members of the family turned against the aging father they could get rid of him in that way, even as the articles usually stand at the moment.
He could take the precaution of having himself appointed a life director—he will not be able to do it in future.
You might say that it is in the interests of the family generally. Where the aged parent becomes obstructive due to old age or infirmity, it might be some help to the family concerned to be able to get rid of him.
Those interested in the purposes of this Bill were very strong on this point. However, having listened to the views of the members of the Committee, I think it is one of the points which I could take back and think about again for the Recommittal. I shall give it more thought myself.
In regard to subsection (4), which envisages certain representations being made by a director, the company can apply to the court to ensure that they will not be circulated to shareholders. Subsection (4) does not seem to provide for notice to the director. In these circumstances, if an application is made to the court, is notice being served on him by the court of proceedings ?
We had an exactly similar provision in Section 161 in connection with the removal of auditors and, by a coincidence, it happens to be subsection (4) of the section. I think subsection (2) deals with the point: " the company shall forthwith send a copy thereof to the director concerned ".
Notice of the application to have his representations overruled, so to speak.
I thought that the notice in subsection (2) was different from the notice in subsection (4), in the sense that subsection (4) would be the notice in respect of a court application.
There is no reference in subsection (4) to any notice at all.
What I mean is that there is no reference in subsection (2) to the court. If an application is made under subsection (3) to the court, there is no obligation—or is there—to send a notice to the director ?
The structure of the section is that under subsection (2) a director must be notified of the resolution. He can require the company to circulate a statement of his position. Subsection (4) states that the statement shall not be sent out in circumstances which are mentioned in regard to defamatory matter. That is all.
He would have to be notified of an application.
Under subsection (2).
No.
An application to the court.
That is a question of legal procedure.
That surely is a matter for the Rules of Court ?
I do not think you could have a motion like that ex parte.
Would it not be satisfactory to leave as a matter for the Rules of Court ?
There are many provisions in the Bill about application to the court.
Yes, the point has come up before.
Question put and agreed to.