The ODCE – Setting the standard Presentation to Diploma in Corporate Governance Class

2. The ODCE – Setting the standard Presentation to Diploma in Corporate Governance Class Kevin Prendergast Corporate Compliance Manager, ODCE.

3. Presentation Overview • Background and role of the ODCE • How we receive our information • Civil orders - Restriction and Disqualification • Criminal prosecutions • Breaches and advice

4. Office of the Director of Corporate Enforcement (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

5. Office of the Director of Corporate Enforcement (ODCE) • 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

6. 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,

7. 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,

8. Office of the Director of Corporate Enforcement (ODCE) • Independent • 51 staff • Divided into 5 Units: • Compliance - Enforcement • Assessment - Corporate Services • Insolvency

9. Office of the Director of Corporate Enforcement (ODCE) • Assessment Unit assesses whether there is a prima facie actionable breach of Company law i.e. sieving process • Insolvency Unit considers all insolvent companies including all companies in liquidation • Enforcement Unit receives cases from Assessment & Insolvency Unit, accumulates evidence & takes the appropriate action • Team structure • Member of the Garda Siochana • Accountant • Legal Adviser/Solicitor • Administrative Civil Servant

10. How we receive our information • Auditors are required to report suspected indictable offences • 191 reports in 2010 • Liquidators are required to make a report on every liquidation • 1,312 reports considered/received in 2010 • Will exceed 1,500 in 2011 (270 in 2007)

11. How we receive our information • MOU’s with State authorities • Revenue, Central Bank, ISE, IAASA • Professional Bodies are required to report indictable offences • Public can make complaints • 459 reports in 2010

12. Enforcement Options • 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.

13. ODCE Actions • Seeking voluntary compliance • Company refuses to hold AGM, member complain • ODCE contacts company and directors, explaining legal obligations and powers of Office to require meeting to be held (court order) • In almost all cases, meeting then happens • Minimal cost, timely and appropriate result

14. ODCE Actions • DCC/Fyffes – Appointment of Inspector • DCC sold Fyffes shares for large profit • Fyffes subsequently took civil case for damages against DCC on behalf of shareholders • Supreme Court found in favour of Fyffes, case settled • ODCE applied to High Court for Inspector to be appointed to investigate • Inspector reported 18 months later that CEO Flavin made “error of judgement” but there was no further evidence of misbehaviour

15. ODCE Actions • Anglo Irish Bank - Criminal investigation • Evidence from Financial Regulator and Bank that indicated potential company law issues • Sought and obtained search warrants • Executed warrants at premises of Anglo Irish Bank in March 2009 • Large amount of hard and soft copy documents seized • Necessitated changes in company law • Amended legislation on evidence and third party witnesses • Criminal investigation ongoing

16. Civil Orders - Restriction • Director of an insolvent company • Not able to prove that acted honestly and responsibly • Reverse Burden of proof • 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 €63,487, plc €317,435

17. Civil Orders - Restriction • 156 directors restricted by the courts in 2010 • Liquidator obliged to take action unless relieved by ODCE • ODCE acts as a filter to separate those cases that warrant High Court attention from those that do not • During 2010 in some 95% of cases liquidators were either partially or fully relieved of duty to take proceedings

18. Civil Orders -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 • Undischarged bankrupt acts as director • 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

19. Civil Orders -Disqualification • By court – continued • Persistently in default • 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 • Name will appear on the register of disqualified persons

20. Civil Orders -Disqualification • 1 director disqualified in 2010, some 14 cases before the courts • A number of these related to unliquidated insolvent companies • Also cases relating to NIB are under appeal in the Supreme Court. One yet to be heard in High Court

21. Referral to other agencies • Breaches of provisions relating to directors’ loans • Forwarded to Revenue Commissioners • Breaches of law/good practice by auditors • Referred to professional bodies and IAASA

22. Criminal prosecutions • In general, maximum penalties under the Companies Acts are: • €1,900 and/or 12 months imprisonment on summary conviction, and; • €12,700 and/or 5 years imprisonment on conviction on indictment (any offence for which the maximum sentence is 5 years or more is an arrestable offence).

23. Criminal prosecutions • Significantly higher penalties are available for certain offences e.g. • fraudulent trading: €63,500 and/or 7 years, and; • Market abuse: €10million and/or 10 years.

24. Criminal prosecutions • In 2010 the Office secured 8 criminal convictions, • Unqualified auditors • Failure to keep proper books of account • Number have dropped significantly since Anglo commenced • ODCE prosecutes through District Court • A small number of cases have been referred to the Circuit Court due to declining of jurisdiction by DC

25. Proposed Companies Bill • Replaces the current Acts’ focus of the Public Limited Company (PLC) with the private company limited by shares(Which represents around 90% of Companies on the Register). • Simplicity by regulating all companies under the same legislation • Clear demarcation lines between the different type of companies.

26. Splitting Company Law into two Pillars • Pillar A – is exclusively concerned with the private company limited by shares (CLS), • Legislation focuses on requirements for this entity which is expected to become the norm.

27. Pillar B • Pillar B – provides the variation for other company types, such as:- • Public Limited Company, • Investment Company, • Designated Activity Company, (such as AOMC’s) etc…

28. New dispensations for CLS’s • Constitution rather than memo and Articles • Will have the capacity of a natural person (Doctrine of ultra vires disappears) • May have just one director • More flexible validation of decisions • Companies must “opt in”

29. Companies Bill • In Oireachtas by end 2012 • 6/12 months to pass through Oireachtas • Grace period before commencement (6+ months?)

30. More Common Breaches • On the basis of information coming to ODCE’s attention, the following are some of the more common breaches: • transactions with directors - breaches of directors’ loans provisions • 146 reports to ODCE • auditing deficiencies • 59 reports • failure to hold AGM/EGM • 37 reports • failure to keep proper books of account • 36 reports • unpaid debt issues • 32 reports

31. What to do ODCE advise Directors? • 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

32. Questions for directors to ask • Have your books ever been audited? • When was your last meeting of directors? • When was your last AGM/EGM? • What is your annual return date (ARD)? • Are you large enough to have added responsibilities? • 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? • Are the addresses of directors correct? • What books and records do you have? • Who maintains your accounts, and where?

33. Sources of Information • ODCE Information Books • Guidance for directors, secretaries, shareholders etc. • ODCE website – www.odce.ie • guidance for directors and secretaries etc.; • commentary on corporate governance best practice and access to main reports on the subject; • public notice information e.g. civil enforcement action, prosecutions, insolvency information; • information on ODCE services. • LO - CALL 1890 315 015, info@odce.ie • General advice on company law issues, but get professional advice!

34. Question & Answers Thank You