Directors and Secretaries

Part 4 – Corporate Governance

A company is now allowed to have one director, rather than the old two director minimum. If for some reason the company fails to have a director for a period of 28 consecutive days, the company and any defaulting officer are open, on summary conviction, to a €5,000 fine and a six month prison sentence.

Each company must have a secretary, and one of the directors may also be the secretary. The directors of the company have a duty to ensure that the person appointed secretary has the necessary skills to discharge the role. A director could not nominate himself to be secretary knowing that he did not have the necessary skills.

As before, no company is allowed to have another body corporate as a director. If a body corporate were appointed director, the appointment would be void.

The old law allowed for minors to be appointed as directors. The Act provides for a minimum age requirement of 18. With the commencement of the Act, any company directors in Ireland who have not reached 18 automatically cease to be directors.

The law disqualifying undischarged bankrupts from acting as directors or secretaries remains unchanged (Section 132). If the Director of Corporate Enforcement suspects that an undischarged bankrupt is holding one or other of those positions, she can require the person to make a sworn statement detailing his or her financial position (Section 132).

If an act must be carried out by a director and a secretary, it cannot be done by the same person. If one person wears the hat of secretary as well as director, the act will not be valid if he signs off first in his capacity as a director and second in his capacity as secretary. This is a re-enactment of an old provision.

From the point of view of the outsider dealing with the company, it doesn’t matter if a director or secretary have been appointed properly or if there is some defect present. Their acts will be as valid as if they were properly appointed (Section 135). This section is an extension of that de facto director rule to secretaries, so a de facto secretary could now be spoken of.

There is no statutory requirement for directors to hold shares in the company (Section 136). If the constitution of the company says there is such an obligation, the directors must take up the shares within two months (or a shorter time, if the constitution specifies so).

All companies must have one director who is resident in an EEA state. There is, however, a way around this. If none of the company’s directors are EEA resident, the company can lodge with the Registrar a bond to the value of €25,000. The bond would provide that if the company failed to pay any fine arising from the Taxes Consolidation Act 1997, the fine could be paid out of the bond. This is dealt with in Sections 137 and 138.

If the company only has one EEA resident director, and that director ceases to be a director, that person must notify the Registrar of the CRO of this new situation within 14 days of ceasing to be director. If this is not done, then that person will be jointly and severally liable for any fine or penalty that may come to be imposed on the company. That person can be pursued by the Revenue Commissioners for the sum in question, as if it were a simple contract debt.

There is one way for a company to be exempted from the requirement to have one EEA resident director: if it can show that it has “a real and continuous link with one or more economic activities that are being carried on in the State” then it may be exempted from the requirement (Section 140). The decision is a matter for the Revenue and the CRO.

The test for determining whether a director is resident in the State can be found at Section 141. A person is resident if he or she has spent 183 days in Ireland in a given year. Those days don’t have to be consecutive. An alternative test is also offered: if a person has spent a total of 280 days in Ireland over a 24 month period (also not consecutive). There is a qualification to this second test which should be noted: the person in question must have spent at least 30 of those 280 days in Ireland in the most recent year. If a person spent 260 days in year 1, and 20 days in year 2, that would not meet the requirement; 250 days in year 1 and 30 days in year 2 would, however, just make the requirement.

The general rule regarding the directorships limitation is that a person may be director of a maximum of 25 companies. There are, however, exemptions. They can be found at Sections 142 and 143.

Directorships of PLCs do not count. Nor do directorships of companies which have no EEA director but which have a “real and continuous link” with the Irish economy.

Appointment of a director made in contravention of these provisions is void. Contraventions of the limitation can lead to a fine of €5,000, and it is the person accepting the appointment rather than the company that offers the directorship who commits the offence.

A director must consent to his appointment. If he does not, the appointment is void (Section 144).

Directors may be appointed at general meetings. They may be appointed “from time to time to fill a casual vacancy”; in such cases they only hold office until the next general meeting, when they may be re-elected.

At general meetings, the question of whether a given person should be elected director must be decided on its own, i.e. there must not be a single motion for the appointment of two or more people as directors (unless the meeting unanimously decides to deal with all of them at once). Non-observance of this rule will make the resolution to appoint void, whether or not the course of action was objected to at the time.

Section 146 provides that a company can remove a director before the end of his period of office by ordinary resolution; this is notwithstanding anything in the company’s constitution, or any agreement between the company and the director in question. The only exception to this rule is a director holding office for life.

Where such a resolution is tabled, 28 days’ notice must be given. The director must be given opportunity to defend himself. The section provides that he can make representations in writing to the company. The director can ask that they be given to the shareholders. The company must send the representations to the shareholders, along with notice of the meeting. If the representations were submitted late in the day, the director can require them to be read out at the meeting. The only circumstance where the representations need not be sent out or read out, is if they contain defamatory matter or needless abuse. The company, however, cannot make that call on its own. It must apply to court in these circumstances (costs can be awarded against the director in question, despite the fact that he was not party to the application).

None of the above rules deprive a director of his right to seek compensation or damages (Section 147).

Section 148 deals with circumstances where directors must vacate office: bankruptcy, disqualification, restriction, absence for more than six months without permission, and so on (Section 148). There is one new element: the director must vacate his office if he is sentenced to a term of imprisonment (including a suspended sentence).

Section 149 – on the register of directors and secretaries – is a re-enactment. The basic things to be aware of are:

1. A company must keep a register of its directors and secretaries at its registered office.
2. The register need not contain details of any directorship held more than 5 years before (this is new; previously the time period was 10 years).
3. A body corporate may be a secretary.
4. Particulars regarding deputy or assistant secretaries must be kept (new).

Section 150 deals with the situation that arises where a director has been disqualified in another jurisdiction, and outlines the statement he or she must deliver to the CRO in this State.