Exploring the purpose of Ireland’s restriction of company directors’ regime and its impact on directors’ constitutional rights

The restriction of company directors’ regime has been a feature of Irish company law for over 30 years. Restriction is a declaration made by the High Court that a director of an insolvent company cannot act as a director or secretary of a subsequent company for a period of five years. This thesis first identifies theories within corporate governance and insolvency law, identifying important elements of those theories and then applying those elements to the restriction regime to identify the purpose of the regime. This thesis finds contractual efficiency, shareholder wealth maximisation, agency problems and entity theory are not objectives pursued by the restriction regime. Instead, the regime focusses on creditors. The most coherent theory to apply to the restriction regime to identify its purpose is creditor protection. Specifically, the restriction regime operates as a capital maintenance device to protect future creditors of the restricted person but at the cost of the current creditors of the insolvent company. The directors’ duty to creditors is also considered in this thesis. Archival materials are used in this research to identify what the originally envisaged purpose for the restriction regime was. This thesis finds the restriction regime was originally envisaged as an expansion of the disqualification regime and not as a free-standing sanction on company directors. Restriction originated from the proposal to debar directors during the specific period of time between insolvency and the completion of the liquidation process, unless sufficient capital enabled those directors to continue to act as a director of other companies. Finally, having identified the purpose for the restriction regime, this thesis considers the impact of the restriction regime on different constitutional rights and guarantees. This thesis finds the restriction regime is an administration of justice. Further, there are limited arguments to challenge the constitutionality of the restriction regime provided by the right to earn a livelihood, freedom of association, and silence under the Irish constitution given that the restriction regime does not provide an absolute ban against employment or business life. Some weaknesses to the restriction regime arise from the right to a good name and associated fair procedures guarantees under the Irish Constitution. The European Convention on Human Rights is also considered in this thesis and similar conclusions to those arising from considerations of the Irish Constitution are reached.