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Directors’ Duties in the context of Covid-19 | ODCE Guidance
The Office of the Director of Corporate Enforcement (“ODCE”) recently published guidance regarding the duties of directors of Irish companies in the context of the Covid-19 pandemic. The publication can be accessed here, and provides a welcome reference point for the directors of Irish companies which continue to navigate the challenges associated with trading during this uncertain period.
As Irish companies continue to work through this challenging climate, some companies may find themselves in financial difficulties or facing an insolvency situation brought about as a result of the pandemic and related restrictions. The recent guidance published by the ODCE addresses concerns directors may have regarding the operation of certain company law provisions (specifically in relation to the potential for a director to be restricted) where a company becomes unable to pay its debts as they fall due, or is at risk of so becoming. While the publication places particular focus on insolvency concerns and potential related liabilities, it should also serve as a helpful reference point for directors generally when considering their duties under Irish law and the manner by which they can safeguard their position and continue to fulfil their duties. In particular, the publication provides guidance on the processes which should be followed by directors and the basis upon which decisions should be made.
We include below an outline of some key takeaways from the ODCE publication, which relate to (i) the considerations taken into account by the ODCE when assessing the conduct of directors, and (ii) the basis upon which directors’ decisions should be made.
In assessing liquidator reports on the actions of directors of companies which enter insolvent liquidation over the coming months, the ODCE has confirmed that it will have regard to the impacts of the pandemic on the relevant company, along with the following:
- the adequacy of the directors’ processes and procedures for monitoring the company’s financial position on an ongoing basis;
- whether, and if so at what point, directors sought professional advice relating to the insolvency / impending insolvency;
- the basis upon which the company’s directors formed the view that the company would be able to trade out of its difficulties within a reasonable timeframe;
- the length of time that trading continued after it had become apparent, or should have been apparent, that the company was insolvent;
- the extent to which the company’s financial position continued to deteriorate, as well as the nature of any additional liabilities that accrued, during the period during which the directors knew, or ought to have known, that the company was insolvent;
- in cases where there are material tax liabilities involved, the extent to which such liabilities arose prior to, or during, the pandemic and, where they arose during the pandemic period, the extent to which the company availed of, and complied with, the Revenue Commissioners’ requirements for deferred payment and warehousing of liabilities; and
- the steps taken to reduce costs and / or to restructure the business.
In the context of the Covid-19 Temporary Wage Subsidy Scheme, the ODCE has helpfully acknowledged the Revenue Commissioners’ stated position that a declaration made as part of an application for the Scheme is not a declaration of insolvency.
Importantly, the publication notes that it is unlikely that the ODCE will consider that the directors of a company should be restricted provided the directors’ decisions and judgments were:
- made on the basis of objectively verifiable evidence;
- based on assessments and assumptions that were reasonable in the context of the circumstances pertaining at the relevant times; and
- made in good faith and the directors otherwise acted honestly and responsibly.
The overarching takeaway of note, and one which should provide welcome comfort to directors, is that where the directors of an insolvent company continued to act honestly and responsibly, in good faith in the best interests of the company, and exercised reasonable and objective judgement in the context of the circumstances, it is unlikely that the ODCE will consider that they should be restricted. These principles are core concepts of Irish company law which are equally relevant to the directors of solvent companies which continue to trade during these challenging times and into the future.