ODCE issues guidance on directors’ duties during COVID-19 - Crowe Ireland

ODCE issues guidance on directors’ duties during COVID-19 

16/06/2020
ODCE issues guidance on directors’ duties during COVID-19 - Crowe Ireland

The Office of the Director of Corporate Enforcement (ODCE) recently issued a statement outlining the implications of the COVID-19 pandemic on its insolvency-related functions. In particular, the statement provided an update on how the ODCE will assess the actions of directors of companies which have gone into an insolvent liquidation as a consequence of the COVID-19 pandemic. 

ODCE statement

The guidance in this statement by the ODCE does not represent a change in the law, but rather a helpful clarification of how the conduct of directors and reports received from liquidators of insolvent companies will be considered by the ODCE in light of the COVID-19 pandemic. The ODCE will continue analyse the actions of directors with regard to honesty and responsibly and with regard to their duties under company law, as outlined in our previous article Director’s duties in company insolvency. 

Where companies enter insolvent liquidation over the coming months, the ODCE will have due regard to the impacts of the COVID-19 pandemic as it carries out its functions of examining, and adjudicating upon, liquidators’ reports. In that context, the ODCE will expect liquidators to have examined, and which the ODCE will itself have regard to, will include:

  • the adequacy of the directors’ processes and procedures for monitoring the company’s financial position on an ongoing basis;
  • whether, and if so at what point, directors sought professional advice relating to the insolvency/impending insolvency;
  • the basis upon which the company’s directors formed the view that the company would be able to trade out of its difficulties within a reasonable timeframe (which might include, for example, the potential impact of access to Government grants, loans and other supports, both already announced and in prospect);
  • the length of time that trading continued after it had become apparent, or should have been apparent, that the company was insolvent;
  • the extent to which the company’s financial position continued to deteriorate, as well as the nature of any additional liabilities that accrued, during the period during which the directors knew, or ought to have known, that the company was insolvent;
  • in cases where there are material tax liabilities involved, the extent to which such liabilities arose prior to, or during, the pandemic and, where they arose during the pandemic period, the extent to which the company availed of, and complied with, the Revenue Commissioners’ requirements for deferred payment and warehousing of liabilities;
  • the steps taken to reduce costs and/or to restructure the business.

The ODCE have also further stated that, while it reviews the facts and circumstances of each individual case and cannot provide prescriptive guidelines, provided that directors’ decisions and judgements were:

  • made on the basis of objectively verifiable evidence;
  • based on assessments and assumptions that were reasonable in the context of the
  • circumstances pertaining at the relevant times;
  • made in good faith and the directors otherwise acted honestly and responsibly,

it is unlikely that the ODCE will consider that the company directors concerned should be restricted.

Finally, the statement reiterates Revenue’s position that any declaration made as part of an application for the COVID-19 Temporary Wage Subsidy Scheme is not a declaration of insolvency. Company directors should be cognisant of this when reviewing a company’s financial position and their duties as directors. 

Summary

The guidance provided by the ODCE will provide some welcome comfort to the directors of companies, which have been adversely effected by the COVID 19 pandemic. It does however not absolve company directors of their duties to act honestly and responsibly in their stewardship of a company and ongoing review and analysis of a company’s financial positon should be carried out and documented to ensure informed and appropriate decisions are made. 

If you wish to find out more about any aspect of the above or wish to seek professional advice about restructuring or winding up a business, please do not hesitate to contact our restructuring and insolvency team for a confidential consultation.

Partner, Corporate Recovery - Crowe Ireland
Aiden Murphy  
Partner
Corporate Recovery
Declan Hanly, Associate Director, Corporate Recovery - Crowe Ireland
Declan Hanly
Associate Director, Restructuring & Insolvency