WHY HAS CORPORATE COMPLIANCE NEVER BEEN MORE IMPORTANT ? - With the Irish economy currently facing uncertain times, there is a continuing need to improve corporate governance standards given the declining financial fortunes of some companies.
- The Office of the Director of Corporate Enforcement (ODCE) in its 2007 Annual Report has acknowledged that much of the focus of its compliance work in that year was directed at the small and medium sized enterprises sector where poorer awareness of their company law responsibilities tends to be more prevalent.
- ODCE enforcement actions in 2007 alone led to 14 Director disqualifications (one for 12 years, the longest period of disqualification secured to date); 28 convictions of companies, directors and others for breaches of company law obligations; 140 restrictions on Directors on the application of the liquidators of insolvent companies and the investigation of some 674 companies for suspected breaches of company law obligations. There were terms of imprisonment imposed.
Given the increasing scrutiny that companies now face and the increased willingness of the ODCE to actively pursue companies in default of their filing obligations, it is prudent to reflect on the primary responsibilities of companies, and company directors under the Companies Acts and under secondary legislation: I Companies’ Responsibilities A Companies’ principal duties are as follows: · To maintain proper books of account; · To prepare annual accounts; · To have an annual audit performed (subject to exceptions); · To maintain certain registers and documents; · To file certain documents with the Registrar of Companies; · To hold general meetings of the company. II Company Directors’ Responsibilities
Company directors' responsibilities are wide and diverse. Their duties arise primarily from two sources: statute (Acts of the Oireachtas and other legislation e.g. EU Regulations) and common law. Directors’ statutory duties are as follows: · Duties as a company officer under the Companies Acts; · Duty to maintain proper books of account; · Duty to prepare annual accounts; · Duty to have an annual audit performed; · Duty to maintain certain registers and other documents; · Duty to file certain documents with the registrar of companies; · Duty of disclosure of certain personal information; · Duty to convene general meetings of the company; · Duties regarding transactions with the company; III Penalties Under the Companies Acts Penalties for Criminal Offences (i) Court Imposed Penalties In general the maximum penalty on conviction: • of a summary offence under the Companies Acts is €1,900 and/or 12 months imprisonment, and; • of an indictable offence under the Companies Acts is €12,700 and/or 5 years imprisonment. However, the Companies Acts also provide for considerably higher sanctions in respect of certain offences e.g. fraudulent trading (€63,000 and/or 7 years imprisonment on conviction on indictment) and insider dealing (€254,000 and/or 10 years imprisonment on conviction on indictment). (ii) Administrative Fines Under the provisions of the Company Law Enforcement Act, 2001, theDirector of Corporate Enforcement also has the discretion to impose an administrative fine rather than initiating a summary prosecution. Where theDirector chooses this course of action, provided that the fine is paid and thedefault in question is remedied within 21 days, no prosecution will ensue. Civil Penalties (i) Disqualification In addition to fines and penalties, there are also provisions for other sanctionsunder the Acts. Persons convicted on indictment of an indictable offence relating to a company or involving fraud or dishonesty are automatically disqualified from acting as company directors/officers. The Director of Corporate Enforcement can also apply to the Courts seeking thedisqualification of any person: · guilty of two or more offences of failing to maintain proper books ofaccount, or; - • guilty of three or more defaults under the Companies Acts.
(ii) Restriction The provisions relating to the restriction of company directors apply to insolventcompanies i.e. companies that are unable to pay their debts as they falldue. Where a company which goes into liquidation or receivership is insolvent, a director of the company who fails to satisfy the High Court that he or she has acted honestly and responsibly will be restricted for a period of up to fiveyears. - ODCE DECISION NOTICE D/2002/1 INFORMATION BOOK 2 - COMPANY DIRECTORS
(iii) (iii) Strike Off Where a company defaults in performing certain of its legal obligations e.g. fails to file an annual return with the Registrar of Companies, the Registrar can strike the company off the register of companies. If struck off the register, ownership of a company’s assets automatically transfersto the State. Ownership will remain with the State until such time as the company is restored to the register. While struck off, the liability of every director, officer and member of the company continues and may be enforced as though the company had not been dissolved. EXAMPLES OF RECENT CASES INVOLVING THE ODCE The Director of Corporate Enforcement v. Donal Harrington Offence - The defendant was charged with contravention of Section 161(1) of the Companies Act 1990 in acting as a director while subject to a 2.5 year disqualification order made by the High Court pursuant to Section 160 of the same Act. Outcome - The defendant was convicted and the court imposed a 6-month term of imprisonment. The defendent was also fined €1,500 and ordered to pay prosecution costs of €228. Donal Harrington was disqualified from being appointed as a director or other officer for a period of five years. The Director of Corporate Enforcement AND Michelle O’Keeffe AND William Fitzsimons AND Liam O’Keeffe Offence - Under section 160(2)(h) of the Companies Act 1990 (as amended by section 42(b) of the Company Law Enforcement Act 2001), the Director may seek the disqualification of the directors of a company, which has been involuntarily struck off the Register of Companies pursuant to Section 12 of the Companies (Amendment) Act 1982. Outcome - William Fitzsimon was disqualified for six years, Michelle O’Keeffe was disqualified for five years and Liam O’Keeffe was disqualified for four years. The Court ordered that the each of the respondents should pay €1,500 inclusive of VAT towards the costs of the Director of Corporate Enforcement. The Director of Public Prosecutions v Stuart Fogarty Offence - The defendant was charged on 13 separate counts of having, as a Director of Aubrey Fogarty Limited, authorised or permitted that company to lend sums of money to himself (then being a Director of that company) knowing or having reasonable cause to believe that the company was thereby contravening Section 31 of the Companies Act, 1990. These are indictable offences under Section 40 (1) of the Companies Act, 1990. Outcome - convicted on all 13 counts and imposed fines totalling €34,000. The Court imposed a 2 year custodial term, The Director of Corporate Enforcement v Papswood Limited Offence - The defendant was charged with two offences under Section 202 of the Companies Acts 1990, which requires the keeping of proper books of account. The charges related to separate financial periods ending 31/12/01 and 31/12/02. Outcome - The Court convicted the defendant on both counts of an offence under Section 202 of the Companies Act, 1990, imposed fines totaling €1,000 and directed the defendant to pay prosecution costs of €228. Any queries in respect of corporate governance or compliance should be directed to
This e-mail address is being protected from spambots, you need JavaScript enabled to view it
|
