Company Liquidations: Directors May Pay

The Divorce Act: A Summary

The Transfer Of Undertakings Regulations

Stamp Duty On Residential Property

Important Changes in Trade Mark Law

Section 31 of the Companies Act, 1990

Directors who fail to keep proper books and records could find themselves footing the bill if their companies go into liquidation. This is a new development and follows a High Court judgment late last year, when Mr Justice Shanley made a director of Mantruck Services Ltd (in Liquidation) liable for the liquidation costs. Our firm acted on behalf of the official liquidator in this case, which concluded successfully after nine days at hearing in the High Court.

The Mantruck case was the first of its kind and was brought by the official liquidator under section 204 of the Companies Act, 1990. This section allows the court to declare an officer or former officer of a company personally liable (without any limitation of liability) for all or part of the debts and other liabilities of the company.

The heavy fine imposed on the Mantruck director represented the cost of 80% of the time that the liquidator spent trying to overcome deficiencies in the company's books and records. Mr Justice Shanley held that the losses which flowed from this expenditure of time were reasonably foreseeable by the respondent as a consequence of the contravention of section 202 of the Act. The liquidator was also awarded the costs of the proceedings. Before it imposes liability under section 204, the court must be satisfied that: The company contravened section 202.
This contravention contributed to the company's inability to pay its debts, or impeded its orderly winding-up.

The officer (or former officer) of the company knowingly and wilfully authorised or permitted the contravention by the company of section 202.

Mr Justice Shanley expressed the view that where the contravention of section 202 involved the maintenance of false records (for example, for the purposes of tax evasion), the court might be disposed to regard such a situation as a basis for imposing greater personal liability than in a case where the contravention comprised simply the failure to properly record goods sold.

What the Act says

Section 202 of the Companies Act, 1990 sets out guidelines on the books and records to be maintained by a company. The books and records are required to:
Correctly record and explain the transactions of the company.
Enable the financial position of the company to be determined with reasonable accuracy. Enable the directors to ensure that any balance sheet, profit and loss account or income and expenditure account of the company complies with the requirements of the Companies Acts. Enable the accounts of the company to be properly audited.
The books of account must be kept on a continuous and consistent basis and must be preserved for at least six years after the date to which they relate. It is a criminal offence to contravene section 202.

For further information please contact Hugh Garvey.

Divorce finally became available in Ireland at the end of February, with both parties free to remarry after a decree of divorce has been granted. The Family Law (Divorce) Act, 1996 is a lengthy and complex document and what follows is only a brief summary of some of its more important provisions.

In order to obtain a divorce, the couple must comply with a number of essential pre-requisites:

• They must have lived apart from one another for a period of at least four years during the previous five years.
• The court must be satisfied that there is no reasonable prospect of reconciliation.
• The court must also ensure that the spouses and children are properly provided for.

What will happen to the children?

Basically the court may make any directions in relation to the welfare of the children, including custody of and access to the children, as it considers proper. Unless there is agreement, one or both of the divorcing spouses will generally apply for custody of the dependent children. A spouse who is not awarded custody by the court is generally given rights of access. The father and mother of the infant shall continue to be joint guardians after the decree of divorce.

What orders may the court make?

The court may make a number of orders at the time of the divorce application or at any time afterwards. Preliminary orders might include safety, barring and/or protection orders under the Domestic Violence Act, 1996, orders in relation to the children under section 11 of the Guardianship of Infants Act, 1964 and orders for the protection of the family home under the Family Home Protection Act, 1976.
The Family Law (Divorce) Act, 1996 allows the court to make orders for interim maintenance, pending the full hearing of the divorce proceedings. Maintenance orders can be made in favour of either spouse when a divorce is granted or at any time thereafter, but a maintenance order will cease to have further effect if the spouse, in whose favour it is made, remarries. When it makes the maintenance order, the court will make an attachment of earnings order unless the respondent can satisfy it that there is no need to do so. The court can also make lump sum payment orders, property adjustment orders, or order the family home to be sold and the proceeds to be divided as it sees fit. In deciding whether to make any of the orders for financial relief, and in determining the provisions of any such order, the court shall take into account the terms of any separation agreement which is in force.
Much time will have to be devoted in divorce proceedings to the assessment and valuation of family assets and the area of financial discovery. It is anticipated that an application for a divorce is likely to be very costly in terms of both time and money.

For further information please contact Jennifer Clarke.

The European Communities (Safe-guarding of Employees' Rights and Transfer of Undertakings) Regulations, 1980 came into effect on 3 November 1980. The regulations were designed to implement an EC Directive to give protection to employees where there was a transfer of an undertaking or a business or a part of a business. This meant that the rights and obligations contained in an employee's contract at the time the business was sold, or otherwise disposed of, were transferred to the new employer.

The regulations fundamentally altered the pre-existing position under Irish law which afforded no protection to employees in these circumstances. They also had the effect of transferring to the new employer any accrued claims that the transferring employees had against their previous employer.

In recent European court cases, the Directive has been held to have a much broader application. It has been applied to situations where a lease was determined between a landlord and tenant and a new lease granted to another tenant who then carried on a similar business. In other cases where parties decided to use the services of outside contractors instead of continuing to employ personnel to carry out those functions, such situations were found to come within the ambit of the Directive.

More recently, in a number of cases concerning businesses with independent contractors providing services and where the businesses tendered for new service suppliers, it was found that the Directive would apply and that the new service providers were obliged to take on the employees of the old service provider.

There have been a number of cases before the Irish Employment Appeals Tribunal in which the regulations have been held to apply in similar situations. The European Commission is currently preparing a new Council Directive amending the Directive on this area. When this is ultimately implemented in Irish law, it will involve considerable changes to the interpretation of the Directive and the regulations and the extent of the protection afforded to employees.

For further information please contact Jennifer O'Neill.

In January, the Minister for Finance replaced residential property tax with increased stamp duty on residential property transactions, where the property is worth more than £150,000. This was done at a time when the market was witnessing a dramatic increase in the value of large and medium-sized residential properties and may also have been an attempt to prevent over-heating of the property market.

The three new rates of stamp duty which apply to conveyances or leases of residential property are:

In relation to non-residential and residential property having a value of £150,000 or less, the maximum rate of duty remains at 6%.

Residential property

Residential property does not necessarily mean 'owner-occupied' property. It includes conveyances on sale and gifts of property which have been let in flats, bed and breakfast and residential nursing homes. All residential property, whether rented or not, is subject to the new higher rates if the consideration exceeds £150,000.

Mixed property

In a mixed property conveyance or lease where both residential and non-residential property are included, the higher stamp duty rates will only apply to the residential portion where the consideration attributable to the residential portion exceeds £150,000.

The provisions dealing with mixed property are bound to result in confusion. The rating test introduced by the Revenue Commissioners has been described as both crude and inaccurate. It has been pointed out that there are many reasons why a building which has a legitimate use for non residential purposes may not be recorded as such in the rate books for the previous year.

Vendors of mixed property must now furnish certificates of value to the Revenue Commissioners. Valuations of this kind have in the past proven to be difficult to determine in practice and may expose parties to a transaction, who submit a bona fide apportionment to the Revenue Commissioners, to draconian surcharge provisions.

If you have registered a trade mark, or are thinking of registering one, you may be interested in the changes brought about by the Trade Marks Act, 1996. The Act came into force last July and means that it may now be possible to register smells, gestures, colours and sounds which may be represented by musical notation. Previously, this would have been difficult, if not impossible.

As well as making it possible for the first time to register a trade mark in respect of services, the Act also contains a new definition of 'trade mark'. A trade mark now means any sign capable of:

• Being represented graphically.
• Distinguishing goods or services of one undertaking from those of other undertakings.

It may consist of words (including personal names), design, letters, numerals, the shape of goods or the packaging.

The Act also provides that certain transactions affecting trade marks are registerable transactions, such as licences and assignments. Unless such transactions are registered with the Trade Marks Office, they may not bind third parties. The Act also introduces the concept of 'exclusive licensee' to whom certain rights are given.

For further information contact Eoin Cunneen.

Section 31 of the Companies Act, 1990 has been described as 'one of the most complex, ambiguous and difficult pieces of legislation in recent years'. Basically, it bars companies (subject to certain exceptions) from entering into certain transactions in favour of certain persons.

The prohibited transactions range from straightforward loans to directors, to fairly obscure and difficult issues, such as security in connection with a credit transaction made by a third party for a person connected with a director of the company's holding company. Section 31 seems clearly aimed at delinquent directors who abuse their position by milking a company's assets in favour of another company in which they have an interest, but its provisions are causing problems for bona fide commercial transactions. It introduces what can be described as a five-fold prohibition, preventing a company from doing any one of the following five things in favour of a relevant person

• Making a loan
• Making a quasi-loan
• Entering a credit transaction as creditor
• Giving a guarantee or providing any security in connection with a loan or a quasi-loan made by any other person
• Providing any security or giving a guarantee in connection with a credit transaction made by any other person.

Relevant persons

There are five main categories of relevant person: a) directors of companies; b) shadow directors of companies; c) directors of that company's holding company; d) shadow directors of that company's holding company; and e) persons connected with such directors. A person is said to be connected with a director of a company if (unless also a director of the company) he is the director's spouse, parent, brother, sister or child or the trustee of a trust whose principal beneficiaries are the director, his spouse or any of his children or any body corporate which he controls.

The Companies Act, 1990 lists a number of heavy penalties for breaches of section 31. It imposes, on summary conviction, a fine of £1,000 and/or imprisonment for no longer than 12 months and on conviction on indictment, a fine of no greater than £10,000 and/or imprisonment for not more than three years.

Section 31 and the other relevant sections in the Act are creating many difficulties for companies carrying on bona fide commercial transactions. We hope that the new Government will look afresh at the implications of the Act and, if necessary, amend it to accord with commercial realities.

For further information contact Emmet Scully.