The Irish Courts recently dealt with Directors’ duties, holding Non-Executive Directors personally liable in a case of corporate fraud even though they had been unaware of that fraud.
In Powers v Greymountain Management Limited (in Liquidation), Coates, Grainger, Cartu and Cartu  IEHC 599, Mr. Powers asked the Irish High Court to find Directors personally liable in circumstances where the company had played a key role in defrauding individuals including the Plaintiff.
Mr. Powers invested his savings in an online enterprise which allegedly traded in binary options. The business informed him it was based in Dublin and the payments were to be made through Greymountain Management Limited, an Irish Company. In fact the moneys were paid to two non-nationals (the Cartu brothers) and it appears no monies were invested. The Cartu brothers controlled the company as Shadow Directors and used two Irish Non-Executive Directors to comply with Irish legislation.
The Court found the two Shadow Directors personally liable for the losses. It then considered the position of the two Non-Executive Directors and found they failed to observe the basic duties of a Director as they:-
failed to inform themselves about the nature of their duties as Director (or if they did, they ignored those duties);
failed to acquaint themselves with the Company’s affairs generally;
failed to exercise appropriate supervision or oversight at board level in respect of the execution or discharge of whatever tasks or functions had been properly and appropriately delegated to others.
The Court held that this was sufficient to impose personal liability on all of the Directors including the Non-Executive Directors notwithstanding that they had no knowledge of the fraud and had either a limited or no role in the management of the company.
This case highlights the dangers for Directors, and in particular for Non-Executive Directors, in failing to have an appropriate level of understanding of the affairs of a company. All Directors (including Non-Executive Directors) should inform themselves about the affairs of the business and exercise appropriate supervision and oversight at Board level in respect of any tasks that are delegated to others and should inform themselves of the business of a company and not leave this to others.
O’Connor LLP advises on Corporate and Commercial matters. For further information please contact us.