I move amendment No. 203:
In page 115, subsection (3), line 14, to delete "section 128 (5)" and substitute "section 129 (3)".
SECTION 139.
Amendment agreed to.
Question proposed: "That section 139, as amended, stand part of the Bill."
This section refers to a person convicted of an offence under section 136. How would a court decide on the extent of the personal liability, or would it be always the entire liability? It seems to me that this creates the conditions in which a technical breach — acting while under a disqualification order — perhaps would lead to personal liability and though, for instance, the court might decide the person should get the Probation Act on a criminal charge on the basis that while he broke the law, he was not really very culpable, the court could grant personal liability. I know it is up to the court to decide whether and to what extent to do this, but it seems that in a matter of this kind where it is a criminal offence we are talking about really — a criminal offence of disregarding a court order, not a criminal offence of mismanaging a company to the damage of creditors — personal liability has no place here. You might as well put in personal liability in respect of road traffic offences or something like that. It is imputing a whole new type of penalty into an area where it does not really apply. I do not see the logical connection.
Subsection (2) states:
. . . for all or any part of the debts of other liabilities of the company incurred in the period during which he was acting in a capacity or manner from which he was prohibited under this Part.
That could arise from a misunderstanding that he thought he was no longer subject to a disqualification order. The court may have made a disqualification order and he would have thought that it expired after five years but it was still in place because it had not been cancelled, and he became a director and did not realise that he was committing a crime at all; he was brought to court and the judge was satisfied that he had a technical breach but meanwhile a creditor of the company had applied for personal liability. I do not quite see what personal liability has to do with this, unless there is a suggestion that he did something while acting in this way that was adverse to the creditors.
The section covers that. The court has the discretion — after fixing the period of time — to decide whether or not to impose personal liability either in part or in whole in the circumstances, but it is when he is "acting in a capacity or manner from which he was prohibited under this Part.". It would not just apply in the circumstances to which the Deputy refers.
Even so, he might have been acting as a director in a perfectly proper fashion in terms of what he did with the exception of——
The court has the discretion here.
We should make the law to set guidelines for the courts. I do not think we should be saying that the court can do anything it wants.
It is only when he is acting when he was disqualified.
I know that. I do not see the point of bringing in personal liability here. Let us have criminal penalties for acting while disqualified. I do not think personal liability has anything in particular to do with this.
If he was prohibited from acting in a particular capacity or manner, then it seems reasonable that the court would be able to impose personal liability in those situations if it saw fit.
Is it a question that somebody acts in a manner or capacity that he should not be acting in because he was disqualified and that company of which he was a director during that period goes into liquidation?
Subsection (4) reads:
In any proceedings brought against a person by virtue of this section the court may if, having regard to the circumstances of the case, it considers it just and equitable to do so, grant relief in whole or in part from the liability to which he would otherwise be subject thereunder and the court may attach to its order such condictions as it sees fit.
This is a litigator's charter. People spend their lifetime in court sorting out this sort of stuff.
As an example, if I were a disqualified person and I accepted a position as a director of a company and then it came to light that I should not be a director of a company, does this section empower the court to impose a personal liability on me in relation to debts incurred by that company of which I am now a director? What debts would they be? Is there a question that I am now a director of a company I should not be a director of and that company now goes into liquidation? Is it at that point that I am personally liable, or is it if the company is trading on?
The limited liability would disappear for those debts. The company would then be relieved of debts that they would otherwise have. A company could be in a very healthy situation if they had a director on their board who was disqualified and if they incurred debts during the period he was on their board and the court decided that he was personally liable. All that would happen would be that instead of the company having to pay the debts, the individual director would have to pay them personally and the only person who would benefit from this would not be creditors but ironically, the company.
If the company could pay the debts, then there would be no question of making the person who would be disqualified liable to pay the debts.
That is not what it says.
Disqualified directors will not be ten a penny. Disqualified directors under section 135 should come to the notice to any future companies for whom they are acting. Therefore, because the law will take such a dim view of any disqualified director subsequently being involved in any future commercial dealing, he will be personally responsible in respect of any consideration he brings upon the company.
That is not what it says.
You do not have to be disqualified under section 135. You could be just an ordinary director who became insolvent and either you did not apply to the court for relief or the company of which you are a director did not have a paid up capital of, say £20,000, if it was a private company.
This is just an additional penalty. If a director, regardless of whether he has been disqualified, continues to act, then it seems reasonable that the court can make him personally liable in part or in whole for any debts that have been incurred.
The point I am making is that if the company is solvent and remains solvent and he is a disqualified director serving on the board of that company and we are told he is personally liable for the debts of the company incurred during the period he served while he was disqualified, the only people who will get off the hook in that situation will be the company.
He will not be automatically personally liable. The court will decide whether or not it is appropriate.
If the court so decide, the only people they will be giving any benefit to will be the company who took him on to the board and not the creditors. If the company is solvent it has a liability to pay those debts anyway. I do not understand why a penalty should involve the conferring of a private benefit on a company simply because there was a disqualified member director on the board, which will be the net result of this.
The point has been made that it will be up to the court to decide whether or not to hold the company responsible.
There might be no need to hold anybody responsible in the sense that if the company is solvent and has incurred debts the company is obliged under the normal civil law to pay them. If we are saying that the disqualified director serving on the board of a company is personally liable for those debts, who is going to be responsible, the company or the director? If the court makes an order saying that the director is responsible it seems the end result will be that the director will have to pay the debts and the company will get away scot free.
As a company shall be entitled to recover the losses from a disqualified director it is the company who will make the application to the court. If in all the circumstances it is not just and equitable for the director to be responsible for those debts on the basis that the company is still solvent then the company will have to pay the debts just as they will have to pay the cost of having gone to the court in the first place. There will be no question of a private benefit in those circumstances. The company will actually incur further costs if they try to pull a fast one on a restricted or disqualified director of the company because the court would see there were sufficient funds within the company for them to meet their own contract debts. It would be stupid for the directorship of a company to try to pull a fast one on a restricted or disqualified director because the court would throw out the case and order them to pay costs to the disqualified director plus the debt they owed in the first place.
I do not understand why this provision for personal liability is brought in here at all. It seems to have no place in this section.
The Chairman's explanation about the consequence of the law as it stands seems to be that there is no reason why personal lability should be there.
It would only come into play if the company could not pay their creditors. If a disqualified or restricted director goes about doing business on behalf of the company, which is patently not in accordance with the Companies Act because he does not have the power to do it, it is another possible avenue for the creditors or people who are owed money to get some compensation in an insolvent situation.
Perhaps it would be helpful if the Minister gave us an example of the sort of situation in which the Department envisage using this section. I appreciate some of the confusion that seems to arise.
I do not think I can give the Deputy any particular example. The purpose of this provision is to act as a further penalty to a disqualified director who continues to act after such period as he has been disqualified. It is to give discretion to the court to impose civil liability either in part or in whole. It is just an additional penalty against a director who would so act.
Section 139 (2) makes some sense because a disqualified director of a company which for argument sake, goes into liquidation could be held personally liable for the debts of the company. Is that correct?
Yes.
In other words, there is a fear that if section 139 (2) was not there the provisions of section 116 could not apply because the director is disqualified. Is that correct?
In cases where criminal sanction would not satisfy the facts of the case it would be better to go after him by way of civil action. If a person who has been disqualified as a director of the company continues to act in that capacity and is not in a position to be in a contract with you, there is no point in saying to you that we will disqualify him for five years for fraud because you will want to get your money back. This is simply providing you with a civil course of action. There is no good in sending him to jail when you will be out of pocket. You will want to have that avenue open to you as well as the criminal sanction.
It is really only an additional penalty to act as a deterrent against those who are disqualified.
Question put and agreed to.
Sections 140 and 141 agreed to.