Transcript Document

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
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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
–
–
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–
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 reproved
– 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 phoenixtype 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