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Restriction of Non-executive Directors update

The recent decision of the Court of Appeal in Fennell v Appelbe  [2022] IECA 160, upholding the decision in the High Court, appears at first glance to endorse a stricter approach to restriction proceedings with regard to non-executive directors.

On closer analysis however, it is clear that the judgment is very much fact specific and not inconsistent with the decision of the Supreme Court in the Re Tralee Beef & Lamb Limited [2008] 3 IR 347 case and the decisions of the High Court in cases such as:

  • Re Vehicle Imports Ltd (In Liquidation) [2000] IEHC 90;
  • Re Mitek  Holdings Ltd & others [2010] 3 IR 374;
  • Kavanagh v Riedler [2004] 3 IR 498;
  • Wallace v Edgeworth & ors [2017] IEHC 475 and;
  • Fitzpatrick v Connaughton [2016] IEHC 533.

The case concerned, amongst other matters, a director who self-avowedly "had little knowledge of what happened in the company". The liquidator's primary focus was on certain unlawful payments made in the period immediately prior to the appointment by NAMA of a Statutory Receiver to the company, one of which was to an executive director of the company.

The Court of Appeal (and the High Court) accepted that the non-executive director in question, Mr Appelbe, was not aware of the payments. This in itself, the court implicitly accepted, did not warrant restriction, as another director in respect of whom the High Court declined to make a restriction order was also unaware of the payments. Mr Appelbe's self-avowed lack of knowledge of the affairs of the company was however clear evidence that he had breached the duty of all directors to inform themselves of the affairs of the company.

The court agreed with the High Court that, as is clear from a line of cases going back to Re Mitek Holdings Ltd & others [2010] 3 IR 374, failure to so inform oneself constitutes irresponsibility warranting restriction.

The Court did not however purport to interfere with the well-established distinction (adverted to in the cases mentioned above) between executive and non-executive directors for the purposes of restriction proceedings and, provided a director informs him or herself of the affairs of the company and joins with co-directors in supervising and controlling the affairs of the company, certain functions can be delegated to co-directors.

For further information in relation to the effect of this decision, please contact a member of our Corporate Restructuring and Insolvency Group or your usual Matheson contact.