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Company Law - Compliance and Enforcement - An update
Company
directors and officers should be aware of the key provisions
contained in the Company Law Enforcement Act, 2001, as well
as the new obligations proposed by the Companies (Audit and
Accountancy) (Amendment) Bill, 2002.
The focus of this most recent legislation and the clear message
of the Office of the Director of Corporate Enforcement ("ODCE")
is that companies must comply with the relevant legislative
provisions.
If company directors and officers are found to be in breach
they risk facing enforcement proceedings.
Recent developments:
There has been significant increase in the number of companies
listed for strike-off. The main reason is a failure to file
annual returns. This brings with it an increase in the number
of applications for the restriction/disqualification of company
directors.
The bulk of Auditors Reports (Section 74 Reports) received
by the ODCE deal with the failure to file annual returns.
The remainder appear to relate to the failure to keep proper
statutory books and breaches of the prohibition on loans to
directors and connected persons.
The first of the reports by Liquidators of insolvent companies
(Section 56 Reports) were due to be received by the ODCE on
or before 30th November 2002. This will inevitably lead to
an increase in the number of court applications to have company
directors disqualified.
A new obligation to prepare a Directors Compliance Statement
as envisaged in the Companies (Audit and Accountancy) (Amendment)
Bill, 2002 will extend beyond the matter of the company's
compliance with company law to include taxation law and other
relevant statutory requirements. The board will have to approve
the Director's Compliance Statement and it will have to be
published in the Annual Report. In addition it is proposed
that the company auditors will have to review the Director's
Compliance Statement and sign off on whether it is fair and
reasonable.
Auditors Obligations
An auditor is required to notify the ODCE of a failure on
the part of a client company to keep proper books of account.
The auditor also has an obligation if the auditor becomes
aware of the fact that an indictable offence may have been
committed under the Companies Acts 1963 - 2001.
The auditor has a statutory duty to report to the ODCE where
the auditor has reasonable grounds for believing that either
the company or any of its officers or agents has committed
an indictable offence.
Any
such report will be examined by the ODCE and clarification
or further information will be sought from the directors,
the auditor or other persons as required. Where action is
appropriate, it appears that the ODCE will respond in a manner
both effective and proportionate to the offence.
In order to assist auditors in terms of their obligations,
the ODCE has issued a Decision Notice, which sets out the
position of the Director in relation to the implementation
of Section 74 in practice.
Where the auditor becomes aware that there has been a failure
to keep proper books of account, the auditor must serve a
notice on the company notifying the company of such failure.
The auditor is obliged to notify the Registrar of Companies
within seven days of serving the notice on the company. If
it can be shown that the company has taken the necessary steps
to correct the matter, there is no obligation on the auditor
to forward a copy of the notice to the Registrar of Companies.
Once the notice is sent to the Registrar of Companies, the
Registrar will pass same on to the ODCE.
The Liquidators Obligations - Restriction and Disqualification
of Directors
The
restriction and disqualification of company directors is one
of the key powers of the ODCE. Liquidators must provide a
report to the ODCE (known as a Section 56 Report), where it
is believed in any individual company director's case that
it is appropriate for the ODCE to consider an application
for disqualification. This Report must be presented within
six months of the appointment of the Liquidator.
All
Liquidators of insolvent companies are required to make an
application for a restriction order under Section 150 of the
Companies Act, 1990. There is a provision whereby the ODCE
is empowered to relieve the Liquidator from this obligation
where the ODCE considers such an obligation to be inappropriate.
It is quite likely however that this discretion will only
be used where there are extenuating circumstances.
The
Section 56 Report must be made to the ODCE within six months
of the date of the Liquidator's appointment.
The
Liquidator is also obliged within a period of 11 months from
the date of his appointment to apply for a Restriction Order,
unless the ODCE has relieved the Liquidator of the obligation
to make such an application;
The
objective of the Section 56 Report is to provide the ODCE
with information on how the company became insolvent and the
extent to which the actions of each of the company directors
led to the insolvency;
- The
ODCE will determine in light of such information whether
or not the Liquidator of the obligation to make an application
to the High Court for a Restriction Order. Unless the
ODCE relieves the Liquidator of this duty, the Liquidator
must make such an application. The Liquidator has no discretion
in this regard; and
- It
appears that the ODCE will only relieve a Liquidator where
the Liquidator makes a clear and unambiguous statement
to the effect that the company directors have behaved
honestly and reasonably.
The
Companies (Audit and Accountancy) (Amendment) Bill, 2002
Company directors and officers should be aware of new
obligations that are proposed under the provisions of the
Companies (Audit and Accountancy) (Amendment) Bill, 2002,
the implications of which are far reaching.
The
proposed legislation imposes an obligation on the directors
of a company to prepare a statement in writing regarding the
company's compliance with company law, taxation law and other
relevant statutory requirements. The Bill as presently drafted
leaves it to the discretion of company directors to determine
what other statutory requirements are relevant to the company;
It
is proposed that the content of the Director's Compliance
Statement will deal with the company's policies and procedures
relating to compliance with all relevant obligations;
It
is proposed that the Board will approve the Director's Compliance
Statement and it is required to be published in the Annual
report of the company. It should be reviewed and if necessary
revised at a minimum every three years.
It
is also proposed that in each year the company directors will
have to include a statement on and an analysis of the operation
of the Compliance Statement in the Annual Report;
There
is also a proposed new obligation on the company's auditor
to undertake an annual review of the Director's Compliance
Statement in order to determine whether, in their opinion,
the statement is fair and reasonable. The auditor must include
in the Auditor's Report a report on and the conclusions of
the review of the Director's Compliance Statement of the company
directors.
The
provision on enactment will apply to all companies, private
and public, with the exception of private companies who have
obtained an audit exemption.
Conclusion
The
role of the ODCE in policing and enforcing compliance with
the requirements of company law is having and will continue
to have a profound impact on all Irish companies. The responsibilities
of company directors and officers as well as auditors and
liquidators will be rigorously scrutinised and enforced.
The scope of the duties of an auditor has been very significantly
extended. An auditor has a mandatory duty to report suspected
indictable offences once those offences come to the auditor's
attention.
Where
an accountant is acting as Liquidator, there are even more
stringent obligations under Section 56 and the matter of applications
for restriction orders.
This
new regime is here to stay. Companies, both large and small
need to identify gaps in their compliance obligations and
should work with their professional advisors to ensure that
they are compliant or that they are addressing those areas
where they are non-compliant.
In
the long run, compliance makes good business sense.
For
further information or general enquires please contact:-
Joanne Griffin
E-mail: jgriffin@kilroys.ie
Telephone: +353-1-4395600
Fax: +353-1-4395601/4395602
© Kilroys Solicitors 2003
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