ODCE Review of Goal 1 Encouraging Improved Compliance

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1 ODCE Review of 2002 Goal 1 Encouraging Improved Compliance Because many individuals associated with companies have an inadequate understanding of the obligations and opportunities for redress presented by company law, the ODCE invested considerable time and resources in 2002 in encouraging compliance with key company law requirements and warning of the consequences of non-compliance. This work was targeted at companies, company directors, auditors, liquidators and professional and other representative bodies in particular. Perhaps the most significant initiative in this area was the publication in November of ODCE Decision Notice D/2002/1. This was issued in the form of seven Information Books and sets out in clear, non-technical language the principal duties, powers and rights of the main participants in the corporate arena, namely: Companies; Company Directors; Company Secretaries; Members & Shareholders; Auditors; Creditors; Liquidators, Receivers & Examiners. ODCE is undertaking a dissemination programme of this material to company directors/secretaries, accountants and auditors, legal practitioners, Government Departments and State Agencies as well as making the guidance available free of charge to members of the public. As part of the Office s information campaign, staff in the Office made in excess of fifty Information Presentations on aspects of the Office s work to a combined audience of about 5,000 persons, including company directors, company secretaries, accountants and lawyers. Typically, these presentations sought to inform audiences on the role of the ODCE, the duties of company directors, auditors and liquidators under the law, the penalties for non-compliance with the Companies Acts and related matters. In addition, the ODCE provided a number of articles for inclusion in various professional publications. To help advance the general compliance agenda, the ODCE began work in 2002 on developing formal Co-operation Arrangements with other bodies, including the Central Bank, the Revenue Commissioners and the Irish Stock Exchange. ODCE staff also contributed to future Legislative Change through participation in the Company Law Review Group and by commenting on the draft Bills which will set up the Irish Financial Services Regulatory Authority and the Irish Auditing and Accountancy Supervisory Authority.

2 Goal 2 Undertaking Effective Investigations Where incidents of possible non-compliance with the Companies Acts arise, it is important that they be brought to the attention of the ODCE in a timely fashion, in order to allow for early and effective investigation. In 2002, the ODCE continued to facilitate the communication to the Office, via its Complaint Form facility, of Public Concerns relating to alleged company law breaches. The concerned parties often included shareholders, creditors or officers of a company. About 200 public complaints were received last year. An initiative in 2002 was the development of detailed guidance on the auditor s obligation to furnish Indictable Reports to the ODCE dealing with suspected indictable offences under the Companies Acts. The guidance was published in July 2002 as Decision Notice D/2002/2 The Duty of Auditors to Report to the Director of Corporate Enforcement. This document was drawn up in conjunction with the Auditing Practices Board (APB) and the Consultative Committee of Accountancy Bodies - Ireland (CCAB-I) and issued separately as an APB Audit Bulletin. The issue of this guidance has directly resulted in the receipt by the ODCE last year of 395 Indictable Reports on the conduct of companies, company directors and other persons. The Complaints and Reports received have disclosed a number of particular issues. About 50% have covered a wide range of matters, including: the failure to maintain proper books of account, the failure to hold annual general meetings, various insolvency matters, directors loans being in excess of 10% of net company assets and the failure by directors to disclose their interests in other companies. Many of the remainder related to filing issues and have accordingly been referred to the Companies Registration Office for attention. A preliminary summary of Investigation Throughput is contained in the following table: Investigation Cases on hands at 1 January New Investigation Cases of which Indictable Reports 395 Cases Concluded at Investigation Stage 415 Cases for Further Consideration by the ODCE 76 Investigation Cases on hands at 31 December With respect to formal Company Investigations, the Office successfully contributed to the publication of the Inspectors Report on Ansbacher (Cayman) Ltd. in July 2002, and the Director is involved in a number of proceedings arising out of the Report s publication. The Director also remains in litigation over the continuation of examinations of the books and documents of Dunnes Stores Ireland Company and Dunnes Stores (ILAC Centre) Ltd.

3 Goal 3 Prosecuting Detected Breaches Where prima facie breaches of the Companies Acts are detected, the ODCE considers what options are available to secure compliance or to sanction non-compliance, bearing in mind the nature and circumstances of each case. Options include: the initiation of criminal proceedings on a summary basis before the District Court in respect of the offence; the initiation of court proceedings with a view to securing an order remedying a default in complying with the Companies Acts; in more serious cases, the referral of the case to the DPP for a decision to prosecute on indictment; initiating other proceedings to sanction corporate misbehaviour, e.g., applying for the restriction or disqualification of directors. In 2002, the ODCE secured 20 Convictions for the following company law offences (number of convictions by type): failure to keep proper books of account (eight); failure to produce on demand various company registers (eight); acting as auditor while not qualified (three); failure to comply with a direction to change a company name (one). The Director also secured, by way of Case Stated, a High Court judgement to the effect that a District Court was wrong to dismiss prosecutions against a firm of auditors for acting while not qualified to do so under the law. In addition to those cases determined by the Courts, a significant number of the Concluded Cases were closed, because of insufficient evidence that offences had been committed and/or because the matters in question were statute-barred. A preliminary summary of Enforcement Throughput is contained in the following table: Enforcement Cases on hands at 1 January New Enforcement Cases 59 Enforcement Cases Concluded 115 Enforcement Cases on hands at 31 December Enforcement Proceedings are before the Courts in three cases at the end of 2002, while decisions to prosecute have been made in a further ten cases. Proceedings are being considered in the balance of cases. Many of these relate to the suspected failure by companies and company directors to keep proper books of account.

4 Goal 4 Exercising our Insolvency Remit The Director has particular duties under the 2001 Act to examine the conduct of the directors of insolvent companies and related parties, because of the financial losses suffered by creditors and shareholders of the failed entities. These powers were conferred with effect from 1 June last. The consequence of this commencement was that most liquidators were required to report to the Office on the conduct of the directors of insolvent companies by 30 November last. Unless relieved by the Director, the liquidator is subsequently required to apply to the High Court for the restriction of the directors under section 150 of the 1990 Act. The principal purpose of these provisions is to ensure that the directors behaviour is scrutinised, with a view to ensuring that appropriate sanctions are applied to dishonest or irresponsible conduct. Most of the ODCE s work in the insolvency area in 2002 was taken up with preparing for the conferral of the new powers. Following a period of consultation early in the year, the Office finalized the format of the Liquidator s Report Form and the associated guidance notes by 1 June, and these were subsequently issued to all liquidators from whom section 56 reports were due. This material subsequently came to be incorporated in two extensive Decision Notices which were published on 28 November last. These outline in detail the arrangements and procedures which will operate in the following specific areas: Decision Notice D/2002/3 The Liquidation-Related Functions of the Director of Corporate Enforcement; Decision Notice D/2002/4 Unliquidated Insolvent Companies. Specifically, the Director has undertaken to decide on whether or not relief will be granted to every liquidator within four months of receipt of their report. The Office also launched a Public Notice Procedure in November 2002 under which details were placed on the ODCE website of the reporting liquidators and the insolvent companies subject to a report. This information will be updated regularly. The purpose of this initiative is to enable interested parties to bring any matters of concern in relation to the insolvent company to the attention of the liquidator and the Office, so that these can be taken into account in determining whether or not an application for restriction of the company s directors should be made to the High Court. A preliminary summary of Insolvency Throughput is contained in the following table: Insolvency Cases on hands at 1 January New Insolvency Cases of which Liquidator Reports received 293 Insolvency Cases Concluded 97 Insolvency Cases on hands at 31 December Priority was given in 2002 to identifying the companies in liquidation which are the subject of a reporting obligation and ensuring that the required reports were received on time. The number of Liquidator Reports due for receipt in 2002 was 309, of which 293

5 were received shortly before the year-end, covering the conduct of 770 company directors. Four decisions were given in 2002 to grant relief to the liquidator from applying to restrict the directors of the insolvent company in question. In all, almost 95% of the reports due were received indicating a very satisfactory implementation of the new provisions. In relation to non-compliant liquidators, the Office formally warned each one before the end of the year that they faced High Court action if their report was not received shortly. In respect of the Cases Concluded, this covers companies in liquidation which, we are now satisfied, do not attract a reporting obligation at present. In addition to those liquidator reports which were scheduled to be received in 2002, the Cases on hands include a significant number of companies in liquidation which are expected to be the subject of liquidator reports in The indicated figure also deals with unliquidated insolvent companies and related matters. Goal 5 Providing Quality Customer Services The Office has a duty to provide quality customer services to both its internal customers (in the form of its own staff) and its external customers, whether they are professional persons or firms, public or other bodies or the general public. Following the assignment of various staff throughout 2002, the ODCE had largely achieved its planned recruitment of staff by year-end. The ODCE now comprises a multi-disciplined team of some thirty-seven persons, comprising accountants, administrators, lawyers and members of the Garda Síochána. Structures are in place to ensure that all relevant expertise is brought to bear in a timely fashion in advancing the considerable caseload within the Office. During 2002, staff participated in relevant inhouse and out-sourced training programmes, in order to enhance overall staff knowledge and competencies. For most of the year 2002, the Office rented serviced accommodation at Regus House, Harcourt Road, Dublin 2. On 11 November 2002, the Office moved to a permanent location at 16 Parnell Square, Dublin 1. These premises were provided and fitted-out by the Office of Public Works (OPW). During the year, ODCE staff were heavily committed to preparing for this move in discussions with OPW and its suppliers. The new accommodation has integrated all staff in one building and now provides adequate facilities for the discharge of the Office s functions for the foreseeable future. The ODCE website ( was further developed in 2002, and it attracted favourable comment during the year for the range and quality of its content. It is also clear that ODCE publications, including in particular the Decision Notices launched last year, are attracting considerable interest from visitors. The average number of hits on the website was approximately 5,000 per day. Office of the Director of Corporate Enforcement 4 January 2002