Behaving like a “Model” Director

The High Court issued a very clear reminder to company directors that they cannot avoid their obligations under the Companies Act simply by not taking any part in the running of the company and leaving that to others.

A well known model, Glenda Gilson, was a director in her brother’s company, Gilson Motors Limited. That company ran into financial difficulties and ultimately went into liquidation. The liquidator brought an application against Glenda Gilson for an Order under Section 150 of the Companies Act which would have had the effect of restricting her ability to act as a director of any other company.

Ms Gilson tried to resist that application and argued that she became a director of the company in her early 20s, having had no commercial experience. She maintained that she did not sign company cheques, she wasn’t involved in any way in the trading of the company and she only owned one share out of 100.

Ms Gilson also argued that by becoming a director she was really only trying to assist her brother and was of the mistaken view that being named as a second director was simply an administrative step necessary to set up the company.

The liquidator accepted that she was not involved in the day to day running of the business but maintained that, as a director, she had an obligation to keep herself informed with regard to the affairs of the company and that she couldn’t absolve herself of responsibility simply by having taken “a back seat”. There was no allegation that Ms Gilson had acted in any way dishonestly.

In the High Court, Judge Gilligan held that:

“the purpose of Section 150 is to protect the public against the future supervision and management of companies by persons whose past records as directors of insolvent companies have shown them to be a danger to creditors and others.”

He held that abdicating all responsibility is not an excuse. He accepted that Ms Gilson was deceived by her brother in the improper manner in which he ran the company.

The liquidator’s application was successful and the relevant restrictions were imposed on Ms Gilson.

This decision serves as a clear warning to directors that they cannot absolve themselves from responsibility simply by having no day to day operational oversight of the companies in which they are involved.

If you have any queries in relation to this or any other case featuring in our blog please don’t hesitate to contact Killian O’Reilly or Mark Kelly at the e-mail addresses below:

Killian O’Reilly: koreilly@mcdowellpurcell.ie

Mark Kelly: mkelly@mcdowellpurcell.ie