MBA Association of Ireland

1. MBA Association of Ireland ‘Guest Speaker’ Event 23 November 2004

2. The Office of the Director of Corporate Enforcement (ODCE) and Compliance in Ireland? Paul Appleby Director of Corporate Enforcement

3. Outline of Presentation • ODCE’s Goals/Initial Impact • Issues on the ODCE’s Agenda • Concluding Comments

4. What is the ODCE? • Remit focused on the Companies Acts 1963-2003 • Director must act on an independent basis • Multi-disciplinary agency comprising 35-40 administrative, legal, accounting and Garda staff • Expenditure of €3.05 million in 2004 • Mandatory reporting obligations by auditors, etc.

5. ODCE Goals • Encouraging Improved Compliance • Uncovering Suspected Breaches • Prosecuting Detected Offences • Sanctioning Improper Conduct affecting Insolvent Companies • Quality Customer Services

6. Initial ODCE Impact • Quality Compliance Information Published • Over 2,500 Offence Reports from Auditors • Over 1,000 Reports from Liquidators • Over 600 Public Complaints • More than 60% of issues determined

7. Initial ODCE Impact • Over 100 Convictions of Companies/Directors etc. • 14 Remedial Orders against Liquidators • Three Disqualifications • 11 Types of Offence Prosecuted to date • Some 300 Directors restricted, most via Liquidator Actions

8. ODCE’s Compliance Work • Publications • Consultation Papers on Aspects of the ODCE’s Remit • Information Books on Stakeholder Duties, etc. • Specific Guidance, e.g., Directors’ Transactions • Occasional Articles, e.g., Management Companies • Presentations (about 100 per year) • Press Statements, etc. on ODCE Activity

9. Directors’ Compliance Statements • New Requirement in Section 45 of the 2003 Act • Compliance with Company, Tax and Other Law… • Development of Draft Guidance in early 2004 • Issue of Consultation Paper/Guidance in July 2004 • Submissions under consideration • Commencement date, etc. to be decided by the Minister • Draft Final Guidance to be available by end-2004

10. Directors’ Compliance Statements • Directors must prepare Compliance Statements • a Compliance Policy Statement (‘looks forward’) • An Annual Compliance Statement (‘looks back’) • Any Audit Committee must review the latter • Auditors must opine if the Statements are ‘fair and reasonable’

11. Directors’ Transactions • General Prohibition in Part III of the 1990 Act • Some Exceptions (e.g., up to 10% of ‘relevant assets’) • Aim is to curb personal use of corporate assets • Over 500 Reports from Auditors in 2002-2004 period • Figures may understate the incidence of excessive loans • Publication of ODCE Guidance in November 2003 • ODCE Article for Directors, etc. in next CRO Newsletter

12. Directors’ Transactions • Standard of Proof is wilful default • General ODCE Approach is to: • Encourage voluntary rectification • Seek appropriate evidence of rectification • Warn of sanctions in the event of further default • Seek High Court Order where default continues • Prosecute where wilful default is apparent • Enforcement will be inevitable in some cases

13. Failing to keep Proper Books • Purpose is to Protect Creditor, etc. Interests • Over 30 Cases taken to date; More in Pipeline • 29 Convictions in 2003; 40 in 2004 to date • Range of Companies/Directors Convicted • International and Domestic Businesses • Auditors’ Evidence Usually Persuasive • Recent Case – Court unconvinced by Liquidator Evidence

14. Persons Acting while not Permitted • Purpose is to Protect Company Stakeholders • Acting as Directors while not permitted • Undischarged Bankrupts (Three Cases initiated) • Disqualified Persons (One Person obtained relief) • Restricted Persons (Three Cases initiated) • Acting as Liquidators while not permitted • Company Officer/Related Persons (One Case initiated)

15. Persons Acting while not Permitted Acting as Auditors while not permitted • Unqualified Persons (20 Convictions) • Those with little or no accounting qualifications • Those who may be Accountants but are not Auditors • Disqualified Persons (Six Convictions) • Auditors who had acted as directors of the company

16. Resource-Intensive Cases • Case Types • High Court/Tribunal Inquiries • Various Company Examinations • Other Reported Misconduct • Resources Deployed • Internal ODCE Evaluation • Occasional Consultancy Support • Selective Use of Search/Seizure/Arrest Powers

17. Extending the Prosecuted Offences • Concluded Cases • Provision of False Information (CRO Register) • Fraudulent Trading (Insolvent Company) • Excessive Directors’ Loans • Undischarged Bankrupts Acting as Directors • Ongoing Cases • Restricted Directors acting in breach of the law

18. Extending the Prosecuted Offences • Active Issues • Trading as a Limited Company while Dissolved • Falsification of Company-Related Documents • Company Funding the Purchase of its Shares • Undisclosed Directors’ Share Dealings

19. Insolvent Companies Liquidator Reports 2003 2004 (10 mths) Cases Determined 630 468 Full Relief 57% 69% Partial Relief 4% 4% Relief ‘at this time’ 6% 11% No Relief 32% 15% Other 1% 1%

20. Insolvent Companies • Defaulting Liquidators (14 Remedial Orders) • Restrictions • 153 directors restricted in 2003 via S.56, 2001 Act • Over 120 directors restricted in 2004 to date • Disqualification not Restriction may be sought • Criminal Proceedings option open as well

21. Insolvent Companies High Court Proceedings (12/15 pipeline cases) • Companies ‘in Liquidation’ w/o a Liquidator • Unliquidated Insolvent Companies • Dissolved Companies (Struck Off the Register) • Dissolved Companies (Revenue-Sourced)

22. Advent of Irish Auditing and Accounting Supervisory Authority • Primary Goals • To promote high professional standards • To supervise how the prescribed accountancy bodies regulate/monitor their members • To monitor whether the accounts of certain classes of companies, etc. comply with the Companies Acts, including accounting standards

23. Other Regulatory Developments • Establishment of IFSRA within Central Bank • Restructured Revenue Commissioners • Competition Authority with new powers/resources • Information-sharing between regulators

24. Concluding Comments • ‘Culture of non-compliance’ which was said to prevail is being turned around: • State had failed to regulate effectively • Professional Conduct was not supported • Little Prospect of Sanction for Misconduct • Deficient Accountability Framework in Practice • Company Secretaries have an important role in keeping their clients compliant

25. Concluding Comments • New Situation • Directors, etc. now more accountable • Auditor’s independent role reinforced • Errant and unscrupulous Directors face ODCE Inquiry/Court action • Creditors’ Situation has improved • Better Information Disclosures to Market • Reinforcing Good Practice in other areas

26. Concluding Comments • Effective and Balanced Regulation protects: • The public from fraud • Employees, traders and suppliers from irresponsible conduct • State revenue and the taxpayer’s interest • Investors and credit institutions from bad debts • Legitimate business from fraud-based competition • Personal and Corporate Reputation

27. Thank You Further Information is available from www. odce. ie