Directors restricted for failing to act in company's interests

In Downtul Limited [In Liquidation] v Companies Act [2025] IEHC 358, the Irish High Court ordered the restriction of two directors for five years, following a finding that they failed to act responsibly and consider the interests of Downtul Limited (the Company) as a standalone company within a complex corporate arrangement. The case is a valuable reminder of the complexity of directors’ duties in group-type situations and the importance of considering the interests of individual companies. 

The consequence of the restriction order means that the two individuals, who currently serve as directors of over 100 Irish companies apiece, cannot act as company directors for five years unless the relevant company has a nominal share capital of at least €100,000 (or €500,000 in the case of a public limited company or an unlimited company). 

Background

The individuals were the directors of the Company, which leased a commercial premises that was subsequently occupied and operated as a Starbucks café by another company, Atercin. They were also the directors of Atercin. The central issue in the case was that the directors had put in place a structure whereby the Company bore all the costs and obligations of the lease but had no revenue-earning capacity to meet those obligations. Atercin paid a fee to the Company in exchange for occupying the property, but there was no formal agreement in place to govern this arrangement.

The precarious nature of the arrangement became apparent during the pandemic when the directors ceased paying rent on the premises. They simultaneously ceased payment of the fee from Atercin to the Company, even though it was still operating a café out of the premises and receiving pandemic support payments from the Irish Government. The end result was that the Company became unable to pay its debts to the landlord as they fell due and a creditors’ liquidation was triggered in late 2022.

Decision 

While the Court did not have a problem, in principle, with the arrangement between the Company and Atercin, it noted that “there needs to be clear and enforceable terms and conditions governing the rights and obligations of the parties to such an arrangement”. 

The arrangement favoured Atercin at the expense of the Company and this highlighted the directors’ “fundamental failure to understand or appreciate the need to separately consider and weigh the interests of Downtul as a separate legal entity”. The Court therefore had “no hesitation” in finding that it was not responsible for the Company to hand over occupation of the property without any enforceable or documented mechanism to secure payment of rent. 

As well as this primary ground for its finding against the directors, the Court also found failings in how the directors managed the Company’s accounting and business records. The Court expressed dissatisfaction with the level of disclosure in the Company’s annual financial statements, which omitted material information, such as “the sole asset and purpose of the Company, the lease”. Similarly, the Court concluded that the Company’s books of accounts were “not sufficient to demonstrate a responsible approach … to the maintenance of accounting records”. 

Finally, the Court noted that there was no record kept of any board meetings held, or decisions taken with regard to the Company, from the end of 2017 onwards, which constituted a failure of governance. The Court was not convinced by arguments that the directors, as brothers, “saw and spoke to each other all the time” and that meetings were not needed unless legally mandated. 

It is worth noting that this lack of documentation also made it extremely challenging for the directors to convince the Court that they had conducted the Company’s affairs responsibly.

Why is the case significant?

Multiple directorships

It emerged during the trial that the directors of the Company hold directorships in approximately 134 and 170 Irish companies respectively. While not contrary to law, the Court was of the opinion that this “created a heightened onus to identify, and separately document and formalise, the decisions as between the many companies whose affairs they directed”. 

Directors’ duties in group situations

The Court considered the leading case of Re 360 (Atlantic) Ireland Limited [2004] 4 IR 266, which is authority in Ireland for the principle that, while the broader interests of a group may be taken into account when managing the affairs of an individual/subsidiary company, this does not replace or decrease a director’s duties towards the individual company. The fact that they were directors of so many companies increased the need for the directors in this case to ensure “their minds were applied to the conduct of the affairs of the distinct legal entities” – and to be able to demonstrate this through careful record-keeping.

Dishonesty

The Court rejected the liquidator’s assertions that the directors also demonstrated dishonesty in their conduct of the Company’s affairs, determining that the liquidator’s evidence fell “wholly short” of the “exacting” test in restriction applications. While acknowledging that it is not a statutory requirement, the Court opined that, as a matter of fair procedures, a director should be informed in advance of any intention to allege dishonesty and given an opportunity to address such an allegation and the grounds on which it is made, before a report is made by the liquidator to the Corporate Enforcement Authority. 

Expert evidence

Both sides tendered expert evidence, a highly unusual occurrence in restriction cases. The Court identified serious problems with this evidence, but also expressed “significant doubt as to whether or how expert evidence is relevant or of assistance to the court in such an application”.

Possible appeal

The Court placed a four-month stay on its restriction orders in July and the directors are reportedly considering their options with regards to an appeal. Given the number of directorships they hold, the restriction would have “significant implications for them, beyond the symbolic or reputational”.

Date publihsed: 3 September 2025