Jordan Publishing Ltd.

Corporate Governance and

Administration Conference

Jurys Ballsbridge Hotel

9 March 2005

Developments in Enforcement Activity and Policy

Paul Appleby

Director of Corporate Enforcement

Outline of Presentation

• Directors’ Compliance Statements • Other Compliance Work• Detected Non-Compliance• Enforcement Activity• Supervision of Insolvent Companies• Other Matters

Directors’ Compliance Statements

• ODCE Consultation Paper/Draft Guidance issued

• 36 Submissions received and considered

• ODCE Submission sent to Ministers on start date and scope of the obligation in November 2004

• ODCE Revised Guidance issued, December 2004

• Support of CCAB-I, IBEC, IFSRA, IoD, Revenue

Directors’ Compliance Statements

Main Issues addressed in Revised Guidance

• Affected Companies

• ‘Relevant Obligations’

• Directors’ Reporting

• Terminology

• Developing Procedures

• Effectiveness Review

• Audit Committee Role

• Offences/Sanctions

• Financial Services Area

Directors’ Compliance Statements

• Issues yet to be determined by Ministers– Form and Date of Commencement (likely to apply

for financial years starting on or after a date in the latter half of 2005)

– Company Exemptions (may include companies in the financial services area)

• Decisions likely shortly

Other Compliance Work

• Some 70 presentations to various interests

• Articles/papers on issues of concern

• Press Statements on ODCE developments

• Large number of public enquiries

• Thousands of ODCE publications distributed

• Further Guidance planned in 2005, e.g., on Audit

Committees and Management Companies

Detected Non-Compliance

• Approach here is to ensure that:– Those required to report indictable offences to us do so– Those permitted to report to us exercise that discretion

• Remind auditors in default of their mandatory duty

• Information-sharing Memoranda of Understanding signed in 2004 with the Irish Stock Exchange and the Revenue Commissioners

Detected Non-Compliance

• About 1,950 new Auditor/Public/Other Reports

• Some 20 offences types came to notice

• Annual return defaults dominated again

• Excessive directors’ transactions also prominent

• New reported defaults relating to the acquisition or disposal of interests in company shares, etc.

Detected Non-Compliance

• Company Investigations– Publication of NIB/NIBFS Inspectors’ Report in 2004– Other investigations completed and ongoing– Legal action under active consideration in a number of

these cases– Scope for expansion of this work in 2005

Enforcement Activity

• Tiered Approach to Enforcement– Will usually decline to enforce civil matters– Will leave single annual return defaults to the CRO– May accept voluntary rectification– May warn of sanctions in the event of further default– May seek High Court Order to remedy ongoing default– Will take enforcement action in priority cases

Enforcement Activity

• General Objectives– Extend the number of prosecuted offences– Continue to focus on cases involving wilful

misconduct and/or adverse market effects– Pursue a balanced mix of resource-intensive and

more routine cases– Continue to secure a high level of Court success

Enforcement Activity• Some 24 ODCE cases were concluded in 2004

– 67 charges resulted in convictions (+54% on 2003)– 36 charges were taken into account, thought proven etc– 3 disqualifications– 2 restrictions– 1 compliance order

• 16 cases were before the Courts at year-end• 1 case awaiting a decision from the DPP

Failing to keep Proper Books

• Purpose is to Protect Creditor, etc. Interests

• 38 Convictions in 15 cases in 2004

• Range of Companies/Directors convicted to date– International and Domestic Businesses

• Auditors’ Evidence Usually Persuasive

• Court unconvinced by Liquidator Evidence

Persons Acting while not Permitted

• Purpose is to Protect Company Stakeholders• Acting as Directors while not permitted in 2004

– Undischarged Bankrupts (1 conviction/disqualification)

– Disqualified Persons (ODCE involved in relief application)

– Restricted Persons (1 conviction/disqualification)

– Restricted Persons (ODCE involved in relief application)

• Acting as Liquidators while not permitted– Company Officer/Related Persons (1 case initiated)

Persons Acting while not Permitted

• Acting as Auditors while not permitted in 2004

• Unqualified Persons (19 Convictions)– Those with little or no accounting qualifications– Those who may be accountants but are not auditors

• Disqualified Persons (Probation Act applied)– Auditors who had acted as directors of the company

Other Enforcement Matters

• Other Cases Concluded in 2004– Provision of false information to the CRO – Failure to file annual returns– Failure by a director to cooperate with a liquidator – Fraudulent trading in an insolvent company– Acting irresponsibly as a director of insolvent company– Failure to file annual returns resulting in its dissolution– Failure by liquidator to report on an insolvent company

Insolvent Companies

• Initial ODCE actions focused on liquidator reports

• Wish to identify suitable cases for disqualification

• New approach includes UICs/dissolved companies sourced from the CRO strike-off list and Revenue– director of UIC restricted based on unpaid judgement– directors of dissolved company disqualified/restricted– further cases in the pipeline

Insolvent Companies

Initial Liquidator Reports 2003 2004

Cases Determined 560 529

Full Relief 52% 67%

No Relief 36% 18%

Relief ‘at this time’ 6% 10%

Partial Relief/Other Decisions 6% 5%

Insolvent Companies

• Restriction of Directors – 270 directors restricted in 2004 – about 500 directors now stand restricted– we are actively identifying directors not complying– all those prosecuted were convicted/disqualified to date

• Liquidators not reporting/seeking restriction– we are actively pursuing these

Insolvent Companies

• EU Cross-Border Insolvency Regulation• Failure of Eurofood IFSC Ltd. (and Parmalat SpA)• Italian and Irish Courts disagree on jurisdiction• Fundamental principle of company law at stake• ODCE participated in High/Supreme Court cases• ODCE has made observations to European Court

Other Matters

• Focus on keeping ODCE website up-to-date

• Continues to attract favourable comment

• Visits increased to 116,000 in 2004 from 75,000 and 42,000 in 2003 and 2002 respectively

• Technical improvements will be made in 2005

Other Matters

• ODCE led international research report on Phoenix Companies

• Positive ODCE Market Research Results in 2004– improved compliance environment– appreciation of ODCE’s educational activity– recognition that enforcement not yet at full potential– will undertake further research in 2005/2006

Conclusion

• Directors, etc. now more accountable

• Auditor’s independent role reinforced

• Errant and unscrupulous Directors face ODCE Inquiry/Court action

• Creditors’ Situation has improved

• Better Information Disclosures to Market

• Reinforcing Good Practice in other areas

Thank You

Questions?

Further Information is available from

www. odce. ie