WHAT IS A DIRECTOR?

The Companies Acts 1963-1990 do not provide a conclusive definition of a director. Instead the term is defined in a factual and inclusive way to include "any person occupying the position of director by whatever named called". In order to answer the question of what is a director one must have regard to the Companies Acts and to the role that a director plays in company life.

Typically, Irish company law acknowledges the following types of directors:-

(a) Executive Director - is a full time director working for the company appointed formally by the shareholders, registered at the Companies Registration Office and often a party to an employment contract with the company.

(b) Non-executive Director - is formally appointed in the same way as an Executive Director but is not involved in the day-to-day management of the company. Often appointed by a shareholder group to represent its particular interests. Irish law imposes the same duties and obligations as for Executive Directors while, increasingly, it is expected that Non-executive Directors will provide an objective view to complement Executive Directors.

(c) Shadow Director - defined in the 1990 Companies Act - is a person in accordance with whose directions or instructions the directors of a company are accustomed to act, unless the advice is given by him in a professional capacity. Shadow Directors are subject to the same duties and obligations as Executive Directors and, in particular, need to be formally registered and acknowledged as directors by the company.

(d) Defacto Director - there is some debate as to the distinction between a shadow director and a defacto director. The best method of describing the difference between these types of director is that usually a shadow director is not formally appointed but is deemed to be a director and might be expected to claim not to be a director of the company. A defacto director in is a person who would claim to be a director of a company or to act as a director of a company although not formally appointed.

(e) Alternate Directors - usually the articles of association of a company provide for the appointment by a director of another person (an alternate director) to act instead of the director.

QUALIFICATIONS REQUIRED TO BE A DIRECTOR

  • No formal qualifications are required. A director is required to act with due skill, care and diligence and an objective standard is used to measure the duty of care owed. This standard is the same care as would reasonably be expected from an "ordinary" person with the same experience and qualifications as the director.
  • Often the articles of association of a company may state that in order to act as a director a person must hold a certain number of shares. There is a requirement that they must be acquired within a 2 month period in order for the director to take up his post as a director of the company.
  • Subject to disqualification, restriction or incapacity as noted below any human person can act as a company director if duly appointed.

APPOINTMENT AS A DIRECTOR

  • The first directors of a company are named in forms submitted to the Companies Registration Office on the incorporation of a company.
  • Subsequent directors are appointed by a method prescribed in the articles of association or if no method is prescribed by election of a majority of members in a general meeting.
  • The articles of association may allow for the appointment of the directors by the Board of Directors. Where there is such a provision the members cannot alter the appointment of a director but they can alter the articles of association by a special resolution at a general meeting.

WHO CANNOT ACT AS A DIRECTOR?

The following cannot act as a director of an Irish company:-

  • A body corporate.
  • An undischarged bankrupt.
  • A person convicted of an indictable offence (can be prevented from acting as a director).
  • The Auditor of the company.
  • A director may be forced to vacate his position as a director where he is found to be:- 

          (a) of unsound mind

          (b) where he has been absent from meetings for more than six 
              months without permission; or 

          (c) where he has been subject to a restriction or a 
              disqualification order.

RESTRICTION AND DISQUALIFICATION ORDERS:-

Both restriction and disqualification orders are granted by court order.

A restriction order may be imposed on a director or shadow director of a company which is being wound up if, at the date of or within 12 months prior to the commencement of its winding up, it is proved to the court that a company is or was unable to pay its debts i.e. the company is insolvent. This is to prevent a director of a company which has become insolvent from establishing another company to abuse the advantages of limited liability. Defences are available to a director against the imposition of a restriction order, where the director acted honestly and responsibly in relation to the conduct of the affairs of the company; the director was a director only by reason of his nomination by a financial institution; or he was a director nominated by a venture capital company in connection with the purchase of or subscription of shares in the company. The effect of a restriction order is that a person is prohibited from becoming a director or secretary of another company or involved in the promotion of another company for a period of up to 5 years unless the other company fulfils mandatory capital requirements i.e. in the case of a private company, the company has a share capital of œ20,000 allotted and fully paid up in cash .

A disqualification order can be granted where a director is proven to have acted in breach of duty or in a fraudulent or reckless manner; where the director would be unfit to act as a director, on the basis of an inspector's report; or for persistent breach of Companies Acts' requirements. The periods of disqualification can vary greatly depending on the seriousness of the action.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.