The Role & Powers of the Office of the Director of Corporate Enforcement

The Role & Powers of the Office of the Director of Corporate Enforcement Presentation to the Institute of Incorporated Public Accountants Monday 25th February 2002 Ian Drennan Corporate Compliance Manager, ODCE

Presentation Overview • Background to the establishment of the ODCE • Role & Powers of the ODCE • Timetable for Commencement of Functions • Steps Directors Can Take to Improve Compliance

Background to the Establishment of the ODCE • Increased public concern arising from a number of alleged instances of corporate malpractice e.g. McCracken (Ansbacher (Cayman) Ltd. etc.), Moriarty, Flood, NIB etc. • Working Group on Company Law Compliance & Enforcement (1998) • DIRT Investigation (1999) and resultant reports

Working Group on Company Law Compliance & Enforcement • Established by Government and Chaired by Mr. Michael McDowell SC AG • Government’s decision to establish the Group was influenced by the emergence of strong indications of abuses of company law and the need to allay public concerns • Membership comprised representatives from Government Departments & Agencies, the business community and the legal and accountancy professions

Report of the Working Group • The Working Group, which reported in November 1998, found, inter alia, that: • Irish company law has been characterised by a culture of non-compliance • enforcement of the law in relation to non-registration offences has been very rare and wholly unpredictable • those tempted to commit serious breaches have had little reason to fear detection

How Change Has Been Effected • Two Companies Acts enacted in 1999 (dealing with, inter alia, examinerships and audit exemptions) • Review Group on Auditing, Chaired by Senator Joe O’Toole, established post DIRT (reported in 2000) • Enactment of the Company Law Enforcement Act, 2001

Company Law Enforcement Act, 2001 • Enforcement of filing obligations remains with the Registrar of Companies • Company Law Review Group established, on a statutory basis, in recognition of the need for a modern company law regime • Office of Director of Corporate Enforcement establishedto deal with Companies Acts in general • Other measuresintroduced to streamline enforcement

Office of the Director of Corporate Enforcement • Director: Mr. Paul Appleby • Staff of approximately 40 comprising legal and accounting professionals, members of An Garda Síochana and administrative staff • Budget of approximately €3.7m per annum

Role and Powers of the ODCE • Under the provisions of the Corporate Enforcement Act, 2001, the role of the ODCE is twofold i.e. • a Compliance role, and; • an Enforcement role

Compliance Role • The ODCE will encourage compliance with the Companies Acts through: • The delivery of public presentations • Pursuing information strategies through the electronic and printed media e.g. Consultation Papers (2 issued to date) • Engaging with relevant professional bodies • Other initiatives as appropriate

Enforcement Role • Company investigations • Breaches of the Companies Acts • Restriction • Disqualification • Unliquidated insolvent companies and companies in liquidation • Supervision of liquidators and receivers • Other measures

Company Investigations The Director may: • conduct a preliminary examination of a company’s books and records for the purposes of establishing whether breaches have taken place • appoint an Inspector directly to establish the beneficial ownership and control of a company’s shares/debentures • apply to the High Court for the appointment of an Inspectorto conduct a wide-ranginginquiry

Breaches of the Acts • Where breaches of the Companies Acts are detected, the Director can: • Impose a fine in respect of summary offences. (Where the fine is paid and the default remedied within 21 days of notification, no prosecution will ensue) • Initiate a summary prosecution • Refer the case to the DPP for decision

Restriction • Provision for restriction of directors (and secretaries) was originally introduced in the Companies Act, 1990 • S150 allowed (but did not require) liquidators of insolvent companies to apply to the Court for the restriction of directors • Where a restriction order is granted, it lasts for 5 years. Saver exists where a person can demonstrate that he/she acted honestly and responsibly in the conduct of the company’s affairs

Restriction • Where a restriction order is granted, any company of which the restricted person is a director (or secretary) must fulfil certain criteria, including, inter alia: • Must have a minimum alloted share capital of €317k (plcs) or €63k (other companies) • Each alloted share must be paid for in cash

Restriction • The Company Law Enforcement Act, 2001 requires the liquidators of insolvent companies to apply to the Court for the restriction of directors, unless exempted from doing so by the Director • The Director may also apply to the Court for restriction orders e.g. against directors of unliquidated insolvent companies

Disqualification • Provision for disqualification was originally introduced in the Companies Act, 1990 (S160) • Disqualifed persons are precluded from acting as a director, secretary, auditor, liquidator, receiver or examiner of a company • Disqualification is automatic where a person is convicted on indictment of any offence involving fraud or dishonesty

Disqualification • The Director can seek a disqualification order from the Court where: • a person is guilty of three or more defaults in relation to Companies Acts requirements • where a person is guilty of two or more offences of failing to keep proper books (new) • a director of an insolvent company fails, on request, to file all annual returns due and the company is subsequently struck off

Unliquidated Insolvent Companies and Companies in Liquidation In such cases, the Director can seek: • a Court order to inspect books • to have Court examine directors, officers etc • a Court order to search for and acquire property, etc. • an arrest warrant • a Court assessment of damages • an Asset-Freezing Order

Supervision of Liquidators and Receivers • The Director: • will receive a copy of each notice of appointment filed with the Registrar • may require production of the liquidator’s/receiver’s books and records • may seek explanations of their conduct • must be notified as to whether, at the close of a receivership, the company in question is solvent

Other Measures • Corporate Enforcement Act, 2001 introduced the mandatory reporting of suspected breaches of company law by auditors, liquidators and professional bodies • Penalty provisions have been increased (maximum fines have been increased to €1,900 (£1,500) and prison terms to 5 years) • Director is responsible for the regulation of undischarged bankrupts acting as company directors • The Director may also seek other Court orders/injunctions

Commencement Timetable 1st October 2001 or earlier • Part 1 (Preliminary and General) • Part 7 (Company Law Review Group) • Part 9 (Transactions involving Directors) • Part 10 (Miscellaneous) 20 sections

Commencement Timetable 28th November 2001 • Part 2 (Director of Corporate Enforcement) • Part 3 (Investigations) – most sections • Part 8 (Auditors) • Part 10 (Miscallaneous) – a further 4 sections

Commencement Timetable Early – Mid 2002 • Part 4 (Restrictions & Disqualifications) – most sections • Part 5 (Winding Up and Insolvency) – most sections • Most of the remaining sections, including those relating to the Registrar

Steps Directors Can Take • Ensure that general filing obligations are satisfied e.g. • Annual return • Change in directors/secretary • Change of registered office • Increase in nominal/issued share capital • Registration of mortgages/charges

Steps Directors Can Take • Ensure that the following are maintained, kept up to date and are readily available for inspection: • Minutes • Register of directors and secretary • Register of directors’/secretary’s interests • Directors’ service contracts • Register of members • Register of debenture holders

Steps Directors Can Take • Hold regular Board meetings • Maintain proper books and records • Regularly prepare and review management accounts • Ensure that delegatees are properly supervised • Seek professional advice where necessary • Hold an AGM when required • Circulate members with signed financial statements and audit report in advance of AGM • Hold EGMs where the circumstances require

Conclusion Immediate priorities of the ODCE are to: • prepare Company Law Compliance Statements (ongoing) • publish Decision Notices • expand the ODCE Website (http://www.odce.ie) • enforce suspected Companies Acts breaches End

The Role & Powers of the Office of the Director of Corporate Enforcement