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

The Role & Functions of the Office of the Director of Corporate Enforcement Presentation at the Dundalk Institute of Technology 2nd May 2002 Ian Drennan Corporate Compliance Manager ODCE

Overview • Company directors’ responsibilities • Background to the Company Law Enforcement Act, 2001 • Role & Powers of the ODCE • New Reporting Obligations • ODCE Services • Sources of Information

Directors’ Responsibilities • A company is a separate legal entity • Members appoint directors to manage the company • Directors’ primary legal duty is to the company • However, directors also owe certain duties to other parties such as the members and creditors of the company • Directors’ responsibilities are grounded in common law and in statute

Directors’ Common Law Duties • Directors must exercise their powers in good faith in the interests of the company as a whole • Directors are required to carry out their duties with due care, skill and diligence • Directors should not make undisclosed profits from their position as directors • Where directors abuse their powers, their actions are voidable (but can subsequently be ratified by members in general meeting)

Directors’ Statutory Duties • Directors’ statutory duties include, inter alia: • Maintenance of Registers • Filing obligations • Operational obligations

Registers etc. Required to be maintained and available for inspection: • Directors and Secretary • Directors’ and Secretary’s interests in the company and related companies • Directors’ service contracts • Members • Debenture holders • Minutes

Filing Obligations • Annual return • Financial statements (abridged or full) • Mortgages and charges • Changes in directors / secretary • Change of registered office • Change in company constitution (articles / memo) • Increase in authorised or issued share capital

Operational Obligations • Maintain proper books and records • Prepare financial statements • Subject to exceptions, have the f/s audited • Hold an AGM as required • Prior to the AGM, circulate every member with a full set of financial statements • Convene EGMs as required

Directors’ Responsibilites to Members These include obligations to: • provide personal information for inclusion in the various registers • disclose interests in contracts with the company, including service contracts • notify members of proposed susbstantial property transactions with the company and seek their approval

Directors’ Responsibilities to Creditors These include the obligations to: • use the proper name of the company on invoices and cheques etc. • make an accurate declaration of solvency where proposing to initiate a members’ voluntary winding up • co-operate with a liquidator, where appointed

Background to the Company Law Enforcement Act, 2001 • Government established a Working Group on Company Law Compliance & Enforcement (1998) • This decision was influenced by the emergence of “strong indications of abuses of company law and the need to allay public concerns” • Group’s recommendations were largely accepted by the Government and enacted through the Company Law Enforcement Act, 2001

Company Law Enforcement Act, 2001 In summary, the CLEA, 2001 provides for: • the enforcement of filing obligations to remain with the Registrar of Companies • the establishment of the Company Law Review Group (CLRG) • the establishment of the ODCE • the introduction of new reporting obligations on certain parties • other measures to streamline enforcement

Office of the Director of Corporate Enforcement • Director: Paul Appleby • 37 staff • Initial budget of €3.7m • Harcourt Road (temporarily) - Parnell Square (permanent)

Role of the ODCE • Under the provisions of the Company Law Enforcement Act, 2001 the Director has two primary roles i.e. • to encourage compliance with the law, and; • to bring to account those who disregard the law

Compliance Role The ODCE fulfils its compliance role through, inter alia: • Delivery of public presentations • Provision of information in both printed and electronic form • Engagement with professional and other bodies • Consultation process

Compliance Information • Website (www.odce.ie) • Legislation • Information Notices (draft) • Consultation Papers • Decision Notices • Guide to the CLEA (in progress) • Company Life Event Guide (planned)

Enforcement Role The Director has extensive powers in relation to: • Investigations • Breaches of the Acts • Restriction & Disqualification • Companies in Liquidation and Unliquidated Insolvent Companies • Supervision of Liquidators and Receivers • Receipt of mandatory reports

Investigations The Director can: • conduct a preliminary examination of a company’s books and records for the purposes of determining whether breaches have taken place • appoint an inspector to establish the beneficial ownership and control of a company’s shares/debentures • apply to the High Court for the appointment of an Inspector to conduct a wide ranging investigation into a company’s affairs

Breaches of the Acts Where breaches of the 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, no prosecution will ensue • Initiate a summary prosecution • Refer the matter to the DPP for a decision

Restriction • Provision for the restriction of directors (and secretaries) was originally introduced by S150, CA 1990 • S150 allowed, but did not require, liquidators of insolvent companies to apply for the restriction of company directors • CLEA 2001 requires the liquidators of insolvent companies to apply for the restriction of the directors unless relieved of the obligation • Director can also apply for restriction orders

Restriction • Saver where a person can demonstrate that they have acted honestly and responsibly • Restriction orders last for 5 years • Companies having a director or secretary who is restricted must satisfy certain criteria: i.e. - minimum fully paid up share capital of €63k (€317 for plcs) - each share must be paid for in cash

Disqualification • Provision for disqualification was originally introduced by S160, CA 1990 • Disqualified persons are precluded from acting as directors, secretaries, auditor, liquidator, receiver or examiner • Disqualification is automatic where a person is convicted on indictment of an offence involving fraud or dishonesty

Disqualification The Director can apply to the Courts for a disqualification order where: • a person is guilty of three or more defaults under CA requirements • a person is guilty of two or more offences of failing to keep proper books (new provision) • a director of an insolvent company fails on request to file all outstanding annual returns and the company is subsequently struck off

Companies in Liquidation • The Director can prosecute certain offences and apply for certain orders or judgements in respect of companies in liquidation: • criminal liability for fraudulent trading • to inspect the company’s books • to have the Court examine directors etc. on oath • order for payment or delivery of property

Companies in Liquidation • an arrest warrant (absconding contributory or officer) • the return of assets improperly transferred to officers of the company • an assessment of damages (against a director, officer etc. in the case of misapplication or retention of company property or misfeasance or breach of duty) • freezing of assets of directors or officers

Unliquidated Insolvent Companies • Under S251 CA, 1990 (as amended by S54 CLEA, 2001) the Director can also apply to the Court for certain orders and judgments in respect of insolvent companies not in liquidation • However in such circumstances the primary onus for pursuing defaulting officers of these companies rests with the creditors (i.e. a civil matter) • Accordingly, the Director will only intervene in insolvent companies not in liquidation in exceptional circumstances (such as the public interest)

Unliquidated Insolvent Companies • Criteria to be considered in such cases might include, inter alia: • the insufficiency of funds available to creditors to initiate proceedings on their own initiative • the size of the suspected deficit • the extent to which the company’s assets are suspected to have been dissipated prior to closure • the track record of the persons involved

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 • May seek an explanations of their conduct • Must be notified as to whether, on completion of a receivership, the company is solvent

Reporting Obligations • The CLEA 2001 introduced a number of new reporting obligations on: • Professional bodies • Auditors • Liquidators

Reporting Obligations • Professional Bodies: • indictable offences by auditors, liquidators and receivers • failure of a liquidator or receiver to maintain appropriate records • Auditors: • indictable offences (Consultation Paper 2) • Liquidators: • report on the conduct of company directors (Consultation Paper 3) • reporting of criminal offences to the Director

Auditors’ Duty to Report under S74, CLEA 2001 • “where in the course of, and by virtue of, their carrying out an audit of the accounts of a company, information comes into the possession of the auditors that leads them to form the opinion that there are reasonable grounds for believing that the company or an officer or an agent of it has committed an indictable offence under the Companies Acts, the auditors shall forthwith after having formed it, notify that opinion to the Director with details of the grounds on which they have formed that opinion”

Auditors’ Duty to Report under S74, CLEA 2001 • “no professional or legal duty to which an auditor is subject by virtue of his appointment as an auditor of a company shall be regarded as contravened by, and no liability to the company, its shareholders, creditors or other interested parties shall attach to, an auditor, by reason of his compliance with an obligation imposed on him by or under this section”

Auditors’ Duty to Report under S74, CLEA 2001 • Indictable offences • Does not apply to accountants’ non-audit work • However, auditors must have regard for matters coming to attention during the course of non-audit work • No requirement to seek out offences (over and above normal audit procedures). However, auditors are expected to react to information coming to their notice • Public interest reporting aspect • SAS 120 and 620 of particular relevance

Liquidators’ Duty to Report under S56, CLEA 2001 • “a liquidator of an insolvent company shall, within 6 months after his or her appointment or the commencement of this section, whichever is later, and at intervals as required by the Director thereafter, provide to the Director a report in the prescribed form” (Section 56(1) CLEA, 2001)

Liquidators’ Duty to Report under S56, CLEA 2001 • “a liquidator of an insolvent company shall, not earlier than 3 months nor later than 5 months (or such later time as the court may allow and advises the Director) after the date on which he or she has provided to the Director a report under subsection (1), apply to the court for the restriction under section 150 of the Act of 1990 of each of the Directors of the company, unless the Director has relieved the liquidator of the obligation to make such an application” (Section 56(2) CLEA, 2001) • “any liquidator who fails to comply with subsection (1) or (2) is guilty of an offence” (Section 56(3) CLEA, 2001)

Liquidators’ Duty to Report under S56, CLEA 2001 • Applies to liquidators of insolvent companies only • Insolvent: unable to meet its debts as they fall due • Applies also to shadow directors • Director can relieve the liquidator in respect of less than the full complement of directors • ODCE will not subsidise legal costs. However, the Court can direct that the restricted person(s) bear the costs of the application(s) • Proposed commencement date – 1 June 2002 • Proposed approach is a phased basis (up to 3 phases)

Liquidators’ Duty to Report under S56, CLEA 2001 • Phase 1 • all liquidators appointed on or after 1 June 2002 • all liquidators appointed on or after 1 July 2001 where the liquidation is ongoing on 1st June 2002 • Phase 2 (provisional) – 1 December 2002 • all liquidators appointed between 1 July 2000 and 30 June 2001 where the liquidation is ongoing at 31 December 2002

Liquidators’ Duty to Report under S56, CLEA 2001 • Phase 3 (possible) – 1 June 2003 • All liquidators appointed between 1 July 1998 and 30 June 2000 where the liquidation is ongoing at 1 June 2003

Liquidator’s details Type of liquidation Date of appointment Company details Directors’ details Liquidator’s opinion as to whether each director acted honestly and responsibly in the conduct of the company’s affairs Statement of affairs Audited financial statements Report to creditors (including of minutes of creditors’ meetings) Whether the liquidator intends to apply for restriction or disqualification Details of any other civil or criminal proceedings in train or anticipated Presence of any criminal offences Information Required in Liquidators’ Reports

ODCE Services • Compliance Information Service (draft Notices) • General Information Service (info@odce.ie) • Complaints Facility (complaint form available at www.odce.ie) • Registration Service (via www.odce.ie) • FOI Service (foi@odce.ie) • Feedback Facility (feedback@odce.ie)

Sources of Information www.odce.ie • decision notices • exemptions granted re applications for restriction • court decisions • prosecutions • company investigations • restrictions • disqualifications

Sources of Information www. cro. ie • information • doing Business with the CRO • CRO Fees • company search facility

Sources of Information www. clrg. org • about the Company Law Review Group • text of the CLRG’s First Report • opportunity to comment on the First Report • CLRG’s Second Work Programme (7 areas) • opportunity to make submissions on the new work programme

Sources of Information www.basis.ie • company law • employment legislation • environmental legislation • health & safety regulations End

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