knowledge 1 March 2023 |

Contempt of Court: Part 2 - Personal Liability of Directors

Breach of a court order by a company could see its officers also subject to sanction. Section 53(1) Companies Act 2014 provides that any judgment or order against a company wilfully disobeyed may, with leave of the court, be enforced by:

• sequestration against the property of the company,

• attachment against the directors or other officers of the company, or

• sequestration against the property of such directors or other officers.

However, s53(2) goes on to say that an application may not be made against the directors or other officers unless the relevant court judgment or order contained a statement indicating the liability of those persons or their property to attachment or sequestration in the event that the company disobeyed the order.

A copy of the relevant court order should then be served on the company in accordance with s51 of the Companies Act. This order should contain a penal endorsement setting out the consequence of non-compliance. It is also prudent to serve the officers of the company if an application under s53 is anticipated.

If there is non-compliance, the moving party can consider whether to bring contempt proceedings and the various means of enforcement that may be open to it against the company or its officers.

Attachment

Attachment is an order to have a named individual arrested and brought before the court in order to answer the contempt, which has been alleged. If they do not purge their contempt, they may then be committed them to prison. This can be used as a coercive tool, in order to encourage them to abide by the ruling that they are in breach of, or in a punitive manner to express the court’s disapproval of some particular behaviour.

Sequestration and Fines

An order for sequestration involves the court appointing a sequestrator to take possession of all property and assets in the possession of a person in contempt of court and to manage that property and assets until the contempt has been purged. The High Court has also a power to impose fines on a contemnor. These fines may be of a continuing nature.

Relevant case law

Order 42 rule 32 of the Rules of the Superior Courts, which predates the Companies Act 2014, is largely identical to s53. Relying on that rule, in a case where a defunct company had failed to comply with an order for many years, the High Court ordered the sequestration of the personal assets of two of the directors until compliance was assured or a cash lodgement was made into court.¹

Section 53 applies where a company is found to have ‘wilfully disobeyed’ a judgment or order. What amounts to ‘wilful’ disobedience will be a matter for the court to decide. However, the courts have previously agreed that ‘wilfully’ is intended to exclude only ‘casual or accidental and unintentional acts.’² ‘This means that a careless disregard as to whether a court order is adhered to, can add up to a ‘wilful’ breach.

In deciding whether to impose a sanction on a company officer, such as imprisonment, it is relevant that such a sanction is typically sought for its coercive rather than punitive effects. In such a case, the court has previously taken account of undertakings made by officers on oath, and in particular their complicity in the contempt, for example where they only newly hold the office.³

Conclusion

As is clear from the terms of s53, unlike in many other situations, the separate legal personality of the company will not always protect the personal assets of corporate officers in certain cases of contempt.

The provision ensures that corporate officers cannot stand behind the shield of the corporate veil and where those officers have failed to ensure that court orders are complied with, they may find themselves contending in a personal capacity with the remedies available to the court for contempt.