Restriction of Directors

Liquidators must apply to court to restrict directors of insolvent companies unless relieved by the Office of the Director of Corporate Enforcement (ODCE). They must report to the ODCE on whether restriction or disqualification is appropriate, providing details of directors’ actions and any relevant legal proceedings. In cases of suspected offences, liquidators must inform the ODCE or Director of Public Prosecutions (DPP) and assist in any subsequent prosecution.

A restriction order is effectively mandatory unless directors demonstrate they acted honestly and responsibly, cooperated with the liquidator, and show no reason it would be unjust to restrict them. Directors must meet statutory duties, and failures such as tax non-compliance, reckless trading, or mismanagement typically result in restriction. Courts assess conduct over the director’s tenure, focusing on legal compliance, financial responsibility, and avoidance of detrimental actions, such as self-dealing or disadvantaging creditors.

Directors cannot delegate responsibility or claim ignorance of the company’s affairs. Failures to engage with deteriorating financial situations, maintain proper records, or differentiate between group companies’ interests are seen as serious failings. Non-executive directors may rely on executives but must intervene if mismanagement is evident. Passive directors, including nominees, face increasing scrutiny and are generally held to the same standards as active directors.

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