MSc in Executive Leadership

Irish Times Training

17 September 2008

The ODCE –Encouraging Compliance

Enforcing the Law

Kevin Prendergast

Corporate Compliance Manager, ODCE

Outline of Presentation • Introduction• Statutory Role• Office Strategy• Achievements

• Graduated approach to cases

• Disqualification and restriction

• Some Practical Information• Concluding Comments

Our Statutory Role 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,

Our Statutory Role 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

Our Strategy• To improve public understanding of

company law

• To confront unlawful corporate behaviour

• To provide quality services to our internal and external customers

Achievements - Compliance

• Recent Market Research Results – Sample of 440 directors, accountants and liquidators– 68% of directors found company law compliance easy – 89% of all respondents reported better compliance in

the last five years– 81% also considered the ODCE to be effective– Public Poll: 52% thought companies were good at

complying with company law (v. 50% in 2005)

Achievements - Compliance

• Recent guidance documents on– Audit Committees– Apartment Management Companies (Draft)– E-communications Regulations– BES Schemes (in preparation)

Reported Cases – a Graduated Approach

• The Office received 673 reports in 2007 – auditor reports fell by 32% to 203, while

– public complaints/other reports grew by 16% to 470

• Over 500 cases were closed/resolved administratively– Complainants’ issues resolved by correspondence

– Those suspected to be in breach corrected their activities

– Where necessary awareness and education supplied to improve understanding

Reported Cases – a Graduated Approach

• Some 110 cases referred for possible enforcement action

• Subject to case work by professional teams consisting of accountants, legal advisors, Gardai, etc.

• Two most significant movements on an issue basis were:– a 146% rise in property management company complaints and

– a 43% drop in reported excessive directors’ transactions

– However his has not shown any further decline in 2008

Achievements - Enforcement

• 28 companies/directors, etc. convicted in 2007:– persons acting as auditors while unqualified – restricted directors ignoring capitalisation criteria– companies/directors for not keeping proper books

• Overall, 53 criminal charges determined in 9 cases

• 2 orders secured in compliance proceedings taken against liquidators

Achievements - Enforcement

• 14 disqualifications secured in 2007– 10 were former directors of insolvent struck-off companies– 3 persons had been criticised in High Court Inspectors’ Reports– 1 was a convicted restricted director – a deemed disqualification

• 10 disqualifications so far in 2008– 3 NIB directors/executives– 7 directors of insolvent struck-off companies

• Appointment of Inspectors to DCC re Fyffes• Ongoing legal process re Bovale Developments

Disqualification

• During 2006/7 action was taken against a company auditor– Arising from Ansbacher inquiry

– Conduct made them unfit to act as an officer (including auditor)

– Judge held that although facts proven, in this case level of transgression did not justify disqualification

– Judge did not reject the notion of disqualifying a non-director

– Significantly extends the parties potentially exposed to disqualification proceedings (those involved in promotion, formation and management)

Disqualification

• During 2008 actions were finalised in respect of senior management (not directors) of NIB– Persons had held management positions where they had

power and responsibility– They had knowledge of serious issues and were

involved in discussions in relation to those issues– They did not take any concrete action to resolve those

issues– Two such persons have been disqualified for 4 years

and 3 years respectively

Disqualification

• Struck off companies with debts owing– Attempt to avoid liquidation process– In some cases multiple companies have been

struck off in this way– ODCE has rolled out cases across the State

based on CRO data– 10 persons disqualified in 2007 (one for 12

years)

Disqualification• Process has been more complex than

originally envisaged– Inspectors’ reports have to be effectively re-

proved– Much of law is untested– Number of Supreme Court reviews– Judgements appealed to Supreme Court

Achievements - Insolvency

• ODCE receives reports on every liquidation– Historic low of 273 in 2007

– Rose to 30 a month in Q4

– Up to 37 in February 2008 alone

• Insolvent struck-off companies received our continuing attention in 2007 with one director getting a 12 year disqualification, the highest yet imposed in an ODCE case

Insolvency and the restriction process

• 120 directors were restricted arising from actions taken by liquidators in 2007

• For a period of 5 years any company of which they are a director must be adequately capitalised– Private company €63,487, plc €317,435

Insolvency and the restriction process

• Liquidator must take restriction proceedings (Section 150 CA1990) unless relieved by ODCE

• Liquidator can choose not to seek relief

• Liquidator can choose to pursue disqualification action

Achievements - Insolvency

• Some key highlights of ODCE’s administration of the restriction regime in recent years– we relieve liquidators in respect of 3 out of every 4

directors– of the 1 in 4 who go to Court, 80% are restricted or

disqualified– in 2006, the Court restricted in 66 of the 80 cases heard

(83%)– in 2007, this may have risen to 96% of cases heard

(provisional)

Achievements - Insolvency

• ODCE decisions v. liquidator recommendations– since 2003, ODCE has accepted recommendations to

grant relief in 94% of cases (now closer to 98%)– in the 6% of cases where we refused relief when

sought, the High Court restricted in 60% of these cases– we have therefore made the right call most of the time– since 2003, we have also granted relief in another 2%

of cases where the liquidator did not seek relief

Outlook - Enforcement

• Anxious to take on larger/more complex cases

• A number are in the pipeline, some using our available formal company investigation powers

• Are progressing a small number of these in 2008

• Will continue to treat falsification, accounting and auditing breaches seriously

ODCE’s Customer Services Work

• Expenditure of €4.37 million in 2007– 30% rise mainly caused by increased

legal/professional costs

• Additional staff allocated in the last 12 months to assist our compliance, enforcement and phoenix-type work

• Customer service targets are being set

Some Practical Information

• On the basis of information coming to ODCE attention, the following are some of the more common breaches:– transactions with directors - breaches of directors’ loans provisions

• 138 reports to ODCE – E-communication issues

• 86 reports to ODCE– reckless/fraudulent/insolvent trading

• 52 reports to ODCE – Shareholder rights

• 65 reports – failure to keep proper books of account

• 40 reports

Some Practical Information

• Where insolvencies occur:– Mostly due to undercapitalisation

• Where restrictions occur– Evidence of continuing to trade where little

hope of survival– Large debts, e.g. Revenue– Want of information indicating proper role of

directors

Some Practical Information

• Disqualification– Company struck off for failure to file returns

with debts owing:• Mandatory disqualification if facts proven

– Conduct makes a person unfit to be a director• Not restricted to directors

• Includes other officers (auditors) and senior management

Concluding Comments

• Future Direction– Reach out to company stakeholders and SME directors – Deal with minor offences administratively– Concentrate more enforcement resources on complex

cases or areas of major non-compliance – Extra staffing resources are critical to extending impact

Concluding Comments

• Future Direction – want to help the majority who want to comply– want to discourage those who may be tempted not to– direct more attention at those who actively ignore or

breach company law requirements

• Continuing aim is to improve the reliability of the environment for enterprise development

Thank You

Further Information is available from

www. odce. ie