TCD School of Law

Conference on Recent Developments in Regulation and Compliance

Trinity College, Dublin

6 May 2006

Corporate Enforcement – The Last Two Years

Paul Appleby

Director of Corporate Enforcement

Outline of Presentation

• Compliance Work

• Detected Non-Compliance

• Insolvent Companies

• Enforcement Activity

• Concluding Comments

Compliance Work

• Guidance on Directors’ Compliance Statements prepared• New Draft Guidance on Audit Committees now published• Revised Guidance on Auditor Reporting well advanced• More attention focused on SMEs, e.g., ‘health-check’• Continuing Interest in ODCE Publications• Regular Contributions to Policy Discussions

Compliance Work

• ‘Below-Cost Selling’ and ‘Off-Invoice Discounts’• Based on section 202 (1990), we expressed concern about

the practice “whereby certain invoices are drawn up on a basis which suggests that a different form of transaction is recorded to that which actually occurs in practice”

• We recommended the removal of any inducements which could lead companies to keep their primary books “on any form of artificial basis”

Detected Non-Compliance

• Approach to reporting is to ensure that:– those required to report indictable offences to us do so

– those permitted to report to us exercise that discretion

• 1,965 new Auditor Reports in 2005 (+25% on 2004)• High incidence of excessive directors’ loans disappointing• Some 400 Complaints and Other Reports in 2005 (+10%)• ODCE detection effort underway in relation to restricted

and disqualified persons continuing to act as directors

Detected Non-Compliance• Graduated Approach to Rectification/Enforcement• Closed > 2,000 cases in 2005 (or 73% of those on hands)• Examples

– Will usually decline to act in inter-party civil disputes– Will leave single annual return defaults to the CRO– May accept/encourage voluntary rectification– May warn of sanctions in the event of further default– May seek High Court Order to remedy ongoing default– Will intervene/take enforcement action in priority cases

Detected Non-Compliance

• Company claimed it had few direct employees, but its filed group accounts showed over 1,000 employees

• Discrepancy due to numbers of seconded workers• We explained the requirements of the Group Accounts

Regulations and the ‘true and fair’ test• We have urged the company to identify separately its

seconded employees and supply relevant details in future

Insolvent Companies

• ODCE assessment of liquidator reports/determining relief• About one in four directors face restriction in High Court• And about three in four of those have restrictions imposed• 145 new persons restricted in 2005• Register listed 600 names at end-2005 (54 at end-2002)• Trend since 2001 is for more solvent liquidations (+47%)

offset somewhat by drop in insolvent liquidations (-21%)

Insolvent Companies

• High Court has held that director disqualification merited in case of insolvent ‘struck-off’ companies

• High Court acceptance of ODCE participation in hearing relief applications by restricted directors

• Satisfactory ECJ judgement on the interpretation of the EU Insolvency Regulation this week vis-à-vis centre of main interests/start of liquidation, etc.

Enforcement Activity

• Headline Results for 2005– 49 ODCE convictions– some €35,700 in fines imposed– 21 ODCE disqualifications – a new focus last year– one compliance order– 145 more directors restricted (by liquidators)

Enforcement Activity

• Recent Cases (2005)– six restricted persons convicted for acting as directors– one given six months sentence suspended for two years– these convictions carry disqualifications of five years– Court has accepted that a restricted person cannot act

as a director of a company limited by guarantee

Enforcement Activity

• Recent Case (2006)– director disqualified abroad must declare his/her status

in the CRO on appointment as a director here– if s/he does not, s/he is deemed to be disqualified– conviction of a former managing director of a UK PLC

who was jailed for fraud, disqualified for seven years and has since acted as a director of two Irish companies without having declared his status on appointment

Enforcement Activity• Recent Case (2005)

– two building company directors disqualified for 5 years– Court heard expert professional evidence of their:

• failing to keep proper books of account • operating a company account outside of its books • use of company funds for personal purposes• failing to file timely tax returns• trading while insolvent over an extended period

Enforcement Activity

• Recent Cases (2005/2006)– NIB: first use of Inspectors’ Report for disqualification– actions initiated against nine former senior managers– one consented and 10 year disqualification imposed– Court mitigated 12 year term given his cooperation, etc– other eight cases awaiting definitive hearing– Ansbacher: 9 year disqualification imposed

Enforcement Activity

• Recent Case (2005/06)– first conviction under section 243 of the 1990 Act

• use by director of falsified audited financial statements with company application for renewal of a bank credit application

Enforcement Activity

• Other ODCE Cases in 2005/2006– failing to keep proper books of account– acting as director while an undischarged bankrupt– excessive directors’ transactions– acting as auditor while unqualified– acting as auditor while disqualified– provision of false information to the CRO

Enforcement Activity

• Effect of Section 160(1) of the 1990 Act:– disqualification for five years* is deemed to apply “where a

person is convicted on indictment of any indictable offence in relation to a company, or involving fraud or dishonesty”

– with the cooperation of the Courts Service and CRO, the Disqualified Persons Register rose from 10 names at end-2004 to over 1,000 at end-2005 as ‘deemed disqualifications’ captured

* (or such other period as the court, on the application of the prosecutor, may order in the case circumstances)

Concluding Comments

• New Millward Brown IMS Market Research:– 80% of directors/auditors/liquidators say that company

law compliance has improved in the last five years– 75% rate the ODCE as an effective organisation– BUT the public perceives that only 50% of companies

are good at fulfilling their company law obligations– the equivalent figure for employment law is 49%

Concluding Comments

• ODCE website is regularly updated

• It continues to attract favourable comment

• Visits increased to 178,900 in 2005 from 116,700 and 75,600 in 2004 and 2003 respectively

• Technical improvements will be made in 2006

Concluding Comments

• Closed 2,500 of 4,000 cases (excl. filing) on hands

• Continuing to get 1,000 reports, etc. per year

• Growing backlog

• Anxious to take on more large cases

• Need extra staffing resources to make that impact

• Staffing Submission with Ministers at present

Concluding Comments

• Focus is assisting people to assert their rights

• Encourage/require compliance with law

• Curb abuse/alleviate individual market risk factors

• Sanction misconduct/deter future non-compliance

• Allow the market to operate as intended in the law

Thank You

Further Information is available from

www. odce. ie