Finance Directors Business Strategy Meeting 2003

1. Finance Directors Business Strategy Meeting 2003 Berkeley Court Hotel 18 February 2003

2. The New Regime for Company Law Enforcement Implications for Finance Directors Paul Appleby Director of Corporate Enforcement

3. Outline of Presentation • Scope/Goals of the ODCE • Our Relationships with Auditors, Liquidators, etc. • Some Implications for Finance Directors • How we investigate – Our Legal Powers • Some of the Changes in Prospect

4. ODCE & Corporate Governance • Companies Acts – CRO (Filing Obligations) • Companies Acts – ODCE (All Obligations) • Wider Corporate Obligations – Other Regulators • Listing Rules – Irish Stock Exchange for example • Auditing/Accounting Standards – The Market plus other regulators, e.g., accountancy bodies

5. Goal 1 – Encourage Compliance • Publish Accessible Company Law Information • Promote Compliance • Improve Company Law and Associated Corporate Practices

6. Goal 2 – Uncover Breaches • Develop Detection and Reporting Arrangements • Identify Prima Facie Breaches • Commission/Support Formal Company Investigations

7. Goal 3 – Prosecute Offences • Develop a Balanced Enforcement Policy • Uphold Disclosure Requirements • Sanction Parties disregarding Company Interests • Act against Parties denying Accountability

8. Goal 4 – Supervise Insolvent Companies • Uphold Liquidation Standards • Assess Directors’ Conduct • Sanction Fraudulent or Abusive Corporate Behaviour

9. Goal 5 - Provide Quality Services • Secure/Manage ODCE Resources • Develop Staff • Develop/Maintain Quality Customer Services

10. Headline Progress To Date • Initial Organisation Established • Extensive Compliance Information Published • Reporting Obligations largely in place • Most Legal Powers now conferred

11. Main Information Sources for Suspected Misconduct in 2002 • Auditors (Mandatory) – 385 reports • Liquidators (Mandatory) – 293 reports • The Public – 201 complaints • State/Other Authorities – 32 reports

12. The ODCE and Auditors • Reporting Obligation applies where an auditor is of opinion that a company, officer or agent has committed an indictable offence under the Companies Acts • Its scope covers the auditor’s opinion and details of the grounds for that opinion

13. Nature of Auditor Reports • Filing Offences • General Meetings not being held • Directors’ Loans above 10% assets limit • No Irish-Resident Director • Failure to keep proper books

14. The ODCE and Liquidators • Reporting Obligation applies in respect of the liquidators of most insolvent companies • Its scope relates to the company and the conduct of each company director • Unless relieved, the liquidator must apply to the High Court to restrict each director

15. Nature of Liquidator Reports • No suggestion of misconduct (50%) • No opinion expressed (5%) • Suggestion of misconduct (45%) • Failure to keep proper books • Reckless/fraudulent trading

16. Other Information Sources • The Public • State Authorities, including • CRO • Garda Siochana • Revenue • Non-State Authorities, including • Professional bodies

17. Implications for Finance Directors (1) • Is the Company Auditor qualified/registered? • Accountants acting as “auditors” • Accountants having qualified employee • Auditors disqualified for personal reasons • Non-resident auditors • Consequences of having Unaudited Accounts

18. Implications for Finance Directors (2) • What happens if Auditors report to ODCE? • Auditors will notify Company Officers • Company may wish to prepare commentary for ODCE • Company/Officers may wish to remedy non-compliance

19. Implications for Finance Directors (3) • Loans to Directors/Connected Persons – • No more than 10% of ‘relevant assets’ defined as • Net assets in the last financial statements at an AGM, or • If none, the called up share capital. • A company’s continuing ability to pay its debts as they fall due is not relevant

20. Implications for Finance Directors (4) • Delay in auditing accounts prior to the appointment of a liquidator • This would suggest knowledge that – • ‘going concern’ status no longer applies • Company has traded recklessly or irresponsibly for some time

21. Implications for Finance Directors (5) • Failure to keep proper books of account – • Auditors must report to the CRO • The CRO notifies the ODCE • ODCE policy is to prosecute this offence • In insolvent situations, personal liability potentially arises for company officers

22. Implications for Finance Directors (6) • Preparation/Filing of Group Accounts – • Mandatory if more than one of these conditions is satisfied – • Group balance sheet total exceeds €7.6 million • Group turnover exceeds €15.2 million • Group employees exceed 250

23. ODCE Legal Powers (1) • Investigation • Requests for Documentation • Search Warrants • Witness Statements • Powers of Arrest • Inspectors

24. ODCE Legal Powers (2) • Enforcement • Summary Prosecution • Prosecution on Indictment by the DPP • Restriction/Disqualification • Court Remedial Order

25. ODCE Legal Powers (3) • Insolvency • Examination by the High Court • Court Order to return company property • Asset-Freezing Order • Inspection of Liquidator’s Books

26. Recent/Forthcoming Developments (1) • Things you may know about – • The scheduled move to IAS (in whole or part) • The establishment of IFSRA • The likely revision of the Combined Code • Higgs Report (Review of NEDs Role) • Smith Report (Audit Committees)

27. Recent/Forthcoming Developments (2) • Things you may not know about – • C.J. (Theft and Fraud Offences) Act 2001 • Reporting by Auditors, Advisers (and NEDs?) • Companies (Audit and Accountancy) Bill 2003 • Auditor Independence • Directors’ Compliance Statement/Obligations • Establishment of IAASA

28. The New Regime for Company Law Enforcement Implications for Finance Directors Paul Appleby Director of Corporate Enforcement