Company Guarantees Section 31 Certificates
In making the financial facilities available to customers, certain financial institutions have adopted a practice of requesting the customer's solicitor to provide an unqualified certificate that Section 31 of the Companies Act, 1990 has been complied with. The Company and Commercial Law Committee of the Law Society recommend that such certificates be given by solicitors only where they are absolutely certain as to the nature of the inter-company shareholding and that the effect of such shareholding does not result in breach of Section 31. For example, amongst other things, the solicitor should be absolutely certain that neither company is a shadow director of the other.
Financial institutions and their advisers are at liberty to seek whatever certificates they deem appropriate for their protection. However, such certificates should not be given by solicitors unless they have a clear understanding of the application of Sections 31 - 40 of the Companies Act, 1990 and have direct access to the share registers of the appropriate companies. Accordingly, extreme caution should be exercised in giving such certificates.
Solicitors should be aware that should they give such an unqualified certificate and it transpires that there was a connection resulting in a breach of Section 31, thereby rendering the transaction voidable, the solicitor giving the certificate could be personally liable to make good to the financial institution the total sum involved.