A recent High Court case has illustrated the powers the courts have under the Companies Acts to make directors personally responsible for the actions of a commercial organisation in failing to abide by a court order and the limits of that power.
Under Irish law the responsibility to manage the business and affairs of a company is entrusted to its directors. This means there is a legal relationship between the directors and the company which, in some circumstances, can result in the directors themselves being exposed to a potential legal risk. Arguably one of the most prevalent dangers for any director is where the company is subject to a court order (which it either can’t or won’t comply with) and the court seeks to sanction the director or directors behind the corporate structure.
A recent High Court case has illustrated the powers the courts have under the Companies Acts to make directors personally responsible for the actions of a commercial organisation in failing to abide by a court order and the limits of that power.
Background
In 2020 Stateline Transport Ltd (“Stateline”) contracted with Tesco to use a piece of land within Fingal County Council for the storage of shipping containers for an agreed period of 10 years. Subsequently, Fingal County Council took enforcement proceedings against Tesco and Stateline on the basis that the use of the land was an unauthorised development. Stateline agreed to remove the containers from the land but were seeking a 12-month period to do so. Separately, Stateline sought an appeal to An Bord Pleanála (as it then was) to retain use of the land for the storage of the containers.
In relation to the enforcement proceedings Tesco brought a High Court action, as the owner of the lands, against Stateline wherein it was agreed that the lands must be vacated. Stateline’s position was that it was awaiting the decision on retention and had also sought permission from Fingal County Council to operate at an alternative site – this permission was denied but a revised application was lodged in February 2024.
The High Court held that the use of the lands for the storage of shipping containers represents an unauthorised development and was unwilling to support the continuation of such for a period of twelve months. Stateline were given a 6-week period to remove all shipping containers. The Court (when delivering its judgment in November 2023) was clear that failure to comply with the order could constitute contempt of court and noted that section 53 of the Companies Act 2014 (“the Act”) could be a relevant consideration meaning the company directors of Stateline could be liable to a process of attachment and their property to sequestration should the order be disobeyed. This could potentially mean the directors face imprisonment and the shipping containers, or the property of the directors could be sequestered.
The decision of the High Court was upheld on appeal resulting in certainty that the containers must be removed within 6 weeks (by 5 April 2024). The case is a reminder that there are some significant consequences for company directors both personally and in respect of their business should they fail to comply with court orders.
Exposure of directors
Company directors in some circumstances face potential exposure to serious sanctions under section 53 of the Act which provides that any judgment or order against a company wilfully disobeyed may, with leave of the court, be enforced by:
Attachment
Attachment is an order to have a named individual arrested and brought before the court to answer the contempt, which has been alleged. If they do not purge their contempt, they may then be committed to prison. This can be used as a coercive tool, to encourage them to abide by the ruling that they are in breach of, or in a punitive manner to express the court’s disapproval of some particular behaviour.
Sequestration and Fines
An order for sequestration involves the court appointing a sequestrator to take possession of all property and assets in the possession of a person in contempt of court and to manage that property and assets until the contempt has been purged. The High Court also has a power to impose fines on a contemnor. These fines may be of a continuing nature.
Relevant case law
Sligo Corporation v Cartron Bay Construction Ltd concerned a defunct company who had failed to comply with an order for many years. The High Court ordered the sequestration of the personal assets of two of the directors until compliance was assured or a cash lodgement was made into court.
Section 53 applies where a company is found to have ‘wilfully disobeyed’ a judgment or Order. What amounts to ‘wilful’ disobedience will be a matter for the court to decide. However, the courts have previously agreed that ‘wilfully’ is intended to exclude only ‘casual or accidental and unintentional acts.’ This means that a careless disregard as to whether a court order is adhered to, can add up to a ‘wilful’ breach.
In deciding whether to impose a sanction on a company officer, such as imprisonment, it is relevant that such a sanction is typically sought for its coercive rather than punitive effects. In such a case, the courts has previously taken account of undertakings made by officers on oath, and in particular their complicity in the contempt, for example where they only newly hold the office.
More recently in Kelly Dunne v Guessford Ltd t/a Oxigen Environmental Simons J refused an application for attachment and committal of two directors of a waste facility company finding that the court order did not contain specific wording around section 53 of the Act putting the directors on alert of the potential of imprisonment. Furthermore, the Court held that the failure to adduce evidence of the corporate structure of the directors’ company meant orders against specific directors of the company would be inappropriate. This case was upheld by the Court of Appeal though the particular dicta in relation to section 53 was not addressed.
The Stateline case detailed above re-affirms the position that the courts have significant powers under the Companies Acts to make directors personally responsible for the actions of a commercial organisation in failing to abide by a court order and will generally not entertain long periods of time for companies to comply with those orders.
Conclusion
As is clear from the terms of section 53, unlike in many other situations, the separate legal personality of the company will not always protect the personal assets of corporate officers in certain cases of contempt. The provision ensures that corporate officers cannot stand behind the shield of the corporate veil and where those officers have failed to ensure that court orders are complied with, they may find themselves contending in a personal capacity with the remedies available to the court with the caveat that fair procedures must be followed if any sanctions are to be lawfully imposed.
