Roles & Responsibilities of Company Directors

Roles and Responsibilities of Company Directors Presentation to New Frontiers Kevin Prendergast Head of Enforcement, ODCE.

Presentation Overview • Background and role of the ODCE • Company law, Why should you care? • Principles of Corporate Governance • Corporate Healthcheck • General Common Law Duties • Common Breaches • Sources of Information

Office of the Director of Corporate Enforcement (ODCE) • Established in 2001 • Company Law Review Group established to modernise company law regime at the same time • Other measuresintroduced to streamline enforcement • CRO powers to strike off companies enhanced

Office of the Director of Corporate Enforcement (ODCE) • Functions of the Director • to enforce the Companies Acts, including by the prosecution of offences by way of summary proceedings, • to encourage compliance with the Companies Acts, • to investigate instances of suspected offences under the Companies Acts,

Office of the Director of Corporate Enforcement (ODCE) • Functions of the Director cont’d • at his or her discretion, to refer cases to the Director of Public Prosecutions where the Director of Corporate Enforcement has reasonable grounds for believing that an indictable offence under the Companies Acts has been committed, • to exercise, insofar as the Director feels it necessary or appropriate, a supervisory role over the activity of liquidators and receivers in the discharge of their functions under the Companies Acts,

Office of the Director of Corporate Enforcement (ODCE) • Independent • 40 staff • Divided into 5 Units: • Enforcement ■ Special projects • Advocacy ■ Corporate Services • Insolvency

Office of the Director of Corporate Enforcement (ODCE) • Enforcement Unit deals with all mandatory and voluntary reports and resolves case through either administrative or judicial response • Insolvency Unit considers all insolvent companies including all companies in liquidation • Multi-disciplinary office • Members of Garda Siochana Fraud Bureau • Accountants • Legal Advisers/Solicitors • Civil Servants

Company Law, Why should you care? • ODCE has a number of enforcement options open to it depending on circumstances. These include: • seeking voluntary compliance • initiation of investigations (directly or via the Courts) • civil remedies e.g. injunctions, applications for restriction, disqualification, imposition of personal liability etc. • criminal prosecution (summary or on indictment) • referral to other enforcement agencies.

Company Law, Why should you care? • Administrative remedies • Asked to attend office • Explain how breach will be resolved • Undertake to accept occurrence of breach and not to reoffend • Typically used for directors loans, unqualified auditors

Company Law, Why should you care? Criminal Prosecutions • In general, maximum penalties under the Companies Acts are: • €5,000 and/or 12 months imprisonment on summary conviction, and; • €50,000 and/or 5 years imprisonment on conviction on indictment (per offence)

Company Law, Why should you care? Criminal Prosecutions • Significantly higher penalties are available for certain offences e.g. • fraudulent trading/insolvency offences: €500,000 and/or 10 years, and; • Market abuse: €10million and/or 10 years. • Daily penalties for continued breaches

Company Law, Why should you care? Civil remedies Court orders • service of notice to comply with obligations (injunctions) • Section 797, Companies Act • seek restriction • seek disqualification • seek the imposition of unlimited liability for debts and liabilities of a company in insolvency. • order for restraint of assets • Section 798, Companies Act

Disqualification • Automatic disqualification • Breach of restriction order • Conviction on indictment of an offence involving fraud or dishonesty or any offence in relation to a company as prescribed • Disqualified abroad and not disclosed here • By court • Guilty of fraud or breach of duty as director • Conduct makes them unfit to act as a director • Director of company struck off the Companies Register with debts owing • For a period of five years or other such period as the courts direct: • Cannot act as a director (or other officer or auditor or receiver or liquidator or examiner) • Cannot take part in the formation, promotion or management of a company

Company Law and Directors’ Duties • Company is a separate legal entity • Can sue and be sued in its own name • Holds assets and incurs liabilities separate from its members/shareholders • Confers limited liability on members/shareholders

Company Law and Directors’ Duties • Company is managed on behalf of members by Director/Board of Directors • Duty under law to the company • Board has collective responsibility for all actions (and omissions) by the company • Company law focuses on directors as holders of power

Company Law and Directors’ Duties • Specific rules contained in Companies Act Parts 4 and 5 and Constitution • Composition of Board • Appointment/retirement • Quorum, etc.

Roles and responsibilities of boards • Primary responsibilities set out in company law • Additional duties set out in Constitution • These can be amended by members by special resolution • Also general duties of loyalty and fidelity (which apply to all staff)

DIRECTORS DUTIESCOMMON LAW FIDUCIARY DUTIES Section 228, Companies Act • Act in good faith and in company’s interest • Act honestly and responsibly in conduct of company affairs • Act in accordance with company’s constitution

DIRECTORS DUTIESCOMMON LAW FIDUCIARY DUTIES • Not use company property/information/opportunity for personal/third party gain without shareholder approval/constitutional support • Not fetter judgement unless in company interests/shareholder approval • Avoid conflicts of interest

DIRECTORS DUTIESCOMMON LAW FIDUCIARY DUTIES • Act with due care, skill and diligence • Have regard to interests of employees/members • Have regard to particular interest of member with entitlement to appoint director

Breach of duties • Not a criminal matter • No ODCE involvement • Actionable by the company in the High Court • Expensive, time consuming • Defence has right to seek discovery, can damage all sides

Shadow Directors • Section 221 Companies Act • “a person in accordance with whose directions or instructions the directors of a company are accustomed to act” • “shall be treated…as a director of the company” • Other than advice given in a professional capacity

De Facto directors • Section 222 Companies Act • Person carrying out the role of a director even if not validly appointed

Shadow Directors/De facto directors • Companies Acts apply • Company Law offences and sanctions apply • However • Practical difficulty in using powers • Difficult to defend actions

Corporate Healthcheck • The basics • Applies to all companies • 11 groups of questions • Litmus test of Corporate Governance • Mixture of legislative provisions, common law and common sense • Breaches of Company Law coming to the attention of the ODCE

I - Registered Office • Where is the registered office of the company? • Failure to notify CRO of change of Registered Office within 14 days is an offence • “Brass plate” at the address • Must be printed on Business Letters (and emails and website) • Not served with any company notices, Company dissolved?

II – E-communication • Are your website and emails compliant? • Website must contain company information on home page or page immediately accessible from home page (“prominent and easily accessible”) • Emails (letters in any form) must also disclose information • Could also include SMS’s and any other forms of communication • Company Name, number and legal form • Place of registration (Ireland) • Address of registered office

III – Directors • Are you a properly appointed director? • May not have a capacity to act • Must notify CRO within 14 days of appointment of the director & subsequent amendments • Must disclose home address (unless Gardai say otherwise) • Resident Director (at least one in EEA) • Number of Directorships (25 with exclusions)

IV- Books & Records • What books and records do you have? • Where are they kept? • Registers etc must be kept in the registered office • Register of Directors and Secretary • Register of Directors’ and Secretary’s interests (in the company and related companies) • Register of Members • Register of Debenture holders & copies of the debentures • Directors’ service contracts • Minutes of general meetings, the board & board sub-committees.

V – Accounting Records • Who maintains your accounts, and where? • Accountancy knowledge required if placing reliance on another • Required to be kept at the registered office or such other place as the directors think fit • Detailed accounting records which • correctly record and explain the company’s transactions; • at any time, enable the financial position of the company to be determined with accuracy; • enable the directors to ensure that the financial statements comply with Companies Acts requirements; • allow the financial statements to be readily and properly audited.

V – Accounting Records • Details of all day to day receipts & expenditure • Details of assets and liabilities • Detailed records of goods purchased/sold & invoices therefor • Statements of stock – stocktaking • Detailed records of services provided and invoices therefor

VI - Audits • Have your books ever been audited? • When were the books last audited? • Companies are obliged to appoint auditors to audit their accounting records • Audit exemption available for private companies • Turnover does not exceed €8.8m • Not more than 50 employees • Balance Sheet total does not exceed €4.4m • Annual returns have to be up to date • Board meeting must pass resolution & must be noted

VI - Audits • Auditors are obliged to report indictable offences • Section 393, Companies Act • 101 reports to the ODCE in 2015

VII – Board Meetings • When was your last meeting of directors? • No prescribed timing of board meetings • Suggested 2-6 times p.a. • Failure of the board to maintain control over the affairs of the company is a primary cause of company insolvency & failure • Must maintain minutes of meetings • Normally prior to AGM/EGM, provide members with required notice of meetings and, prior to AGM, furnish members with a copy of the financial statements.

VIII – General Meetings • When was your last AGM/EGM? • Not necessary for LTD’s if all shareholders agree • each calendar year • not more than 15 months since the last AGM • generally within the State

VIII – General Meetings • Ensure that sufficient notice is given • Required to • Review accounts • Review directors report • Appoint officers • Appoint auditors • Pass resolutions/special resolutions • 17 reports to ODCE in 2015

IX – Annual Returns • What is your annual return date (ARD)? • When did you last submit your annual return (AR)? • Every company has an ARD and must submit an Annual Return to be filed within 28 days of the ARD • Can apply to District Court to move ARD • Failure to file an annual return is an offence, dealt with by CRO • Furnishing False Information • Penalties to file annual return • Dissolution of the Company • Application to CRO/High Court • Personal liability of officers if continue to trade • Improper use of the word “Limited” is an offence

X - Prohibited Transactions with Directors • Are you taking advantage of your power as a director? • Substantial Property Transactions • Where a director of a company (or a person connected with that director): • purchases an asset from, or sells an asset to, the company, and; • the value of that asset exceeds lesser of €65,000 or 10% of the company’s ‘relevant assets’ (normally its net assets), • the transaction must be approved in advance by the shareholders in a general meeting of the company.

X - Prohibited Transactions with Directors • Prohibition on Loans etc. • In general, a company is prohibited from making a loan or quasi-loan to a director (or person connected to that director), or from entering into a credit transaction as creditor for a director, entering into a guarantee on behalf of a director (or person connected to the director) or from providing security in respect of a loan or quasi-loan etc. to a director. • Except if in total within 10% of relevant assets (excluding guarantee/security) • Main exception, Use Summary Approvals Procedure • Special resolution/Statutory declaration • Risk of personal liability for all debts of company • 85 auditors reports to the ODCE in 2015 • Ordinarily seek repayment/regularisation

XI - Insolvency • Are you in financial trouble? • Criminal Offences • Pre liquidation offences reportable by the liquidator • Post Liquidation Offences • Fraudulent Trading • Failure to keep proper books & records leading to the insolvency of the company • Civil actions • Restriction • Personal liability • Reckless trading

Restriction • Director of an insolvent company • Not able to prove that acted honestly and responsibly • Must cooperate with liquidator • Company need not be in liquidation • Applies to Shadow Directors (Those in accordance with whose wishes directors ordinarily act) • Must have minimum capitalisation of Company • Private company €100,000, plc €500,000 • Directors can also be disqualified • Through High Court or by undertaking with ODCE

More Common Breaches • On the basis of information coming to ODCE attention, the following are some of the more common breaches (provisional 2015): • transactions with directors - breaches of directors’ loans provisions • 85 reports to ODCE • bankrupts as directors - 46 reports • auditing deficiencies - 35 reports • failure to keep proper books of account - 21 reports • failure to hold AGM/EGM - 17 reports • directors conduct - 17 reports • reckless/fraudulent/insolvent trading - 62 reports

What to do? • Advice to Directors • Ask questions • Don’t assume anything • Books & Records - where are they • Discuss issues don’t avoid them • Seek professional advice • Consult your company secretary/auditors/legal advisors • Possibility of insurance

Companies Act • Commenced 1 June 2015 • Primarily aimed at helping SME’s • Main changes for LTDs • Single director, separate secretary • Elimination of memo and articles • Meetings by paper record • Need to opt in for advantages • See www.cro.ie

Sources of Information • ODCE publications • Information Books and Quick Guides; • Specific guidance on new law. • ODCE website – www.odce.ie • All publications; • Corporate governance best practice and access to main reports • public notice information e.g. civil enforcement action, prosecutions, insolvency information; • access to full complement of company law statutes etc.; • information on ODCE services. • LO - CALL 1890 315 015, email info@odce.ie, Facebook, Twitter

Question & Answers Thank You Follow ODCE on

When was your last meeting of directors? • When was your last AGM/EGM? • What is your annual return date (ARD)? • Are you taking advantage of your power as a director? • Are you in financial trouble? • Where is the registered office of the company? • Are your website and emails compliant? • Are you a properly appointed director? • What books and records do you have? • Who maintains your accounts, and where? • Have your books ever been audited?

Roles & Responsibilities of Company Directors