1. MBA Association of Ireland Western Chapter ‘Guest Speaker’ Event 10 November 2005

2. The ODCE’s Role in Reducing Risk and Improving Market Performance Paul Appleby Director of Corporate Enforcement

3. Outline of Presentation The ODCE and its Goals Activity by Goal Initial Impact Concluding Comments

4. What is the ODCE? Remit focused on the Companies Acts 1963-2005 Director must act on an independent basis Multi-disciplinary agency comprising 35-40 administrative, legal, accounting and Garda staff Forecast Expenditure of some €3 million in 2005

5. ODCE Goals Encouraging Improved Compliance Uncovering Suspected Breaches Sanctioning Improper Conduct affecting Insolvent Companies Prosecuting Detected Offences/Misconduct Quality Customer Services

6. ODCE’s Compliance Work Publications –Consultation Papers on Aspects of the ODCE’s Remit –Information Books on Stakeholder Duties, etc. –Specific Guidance, e.g., Directors’ Transactions –Occasional Articles, e.g., Corporate ‘Health Check’ Outreach Work (about 50 presentations per year) Press Statements/Website Updates on Activity

7. Directors’ Compliance Statements New Requirement in Section 45 of the 2003 Act Compliance with Company, Tax and Other Law… Development of Draft/Final Guidance in 2004 Review by Company Law Review Group in 2005 Government Decision Imminent on Future of Provision

8. Other Compliance Work in 2005 Information Note on 2005 Companies Act Information Note on Auditor Reporting Exemption Comment on the 1987 ‘Groceries Order’ Guidance on Audit Committees in preparation

9. ODCE’s Detection Activity Auditors – 800 Reports on Non-Filing Issues in 2005 Liquidators – Minority of Reports identify breaches General Public – 400 Complaints in 2005 Public Bodies, e.g., Revenue, ISE, IFSRA co-operation Public Information, e.g., CRO, Foreign Registers Media, etc.

10. Evaluation of Detected Offences Majority dealt with administratively (300 in 2005) Minority warrant close examination (100 in 2005) A handful become formal company investigations Civil or criminal legal action is taken where justified by available evidence, legal advice, etc.

11. Directors’ Transactions General Prohibition in Part III of the 1990 Act Some Exceptions (e.g., up to 10% of ‘relevant assets’) Aim is to curb personal use of corporate assets Over 700 Reports from Auditors since 2002 Publication of ODCE Guidance in November 2003

12. Directors’ Transactions Standard of Proof is wilful default General ODCE Approach is to: –Encourage voluntary rectification –Seek appropriate evidence of rectification –Warn of sanctions in the event of further default –Seek High Court Order where default continues –Prosecute where wilful default is apparent Enforcement will be inevitable in some cases

13. Insolvent Companies in Liquidation Persistent failure to call the directors of insolvent companies to account in the 1990s S. 56, 2001 Act requires liquidators of insolvent companies to report to the ODCE on their affairs This report addresses the honesty/responsibility of the directors in managing the failed entity These liquidators must also seek to restrict in the High Court all directors, unless relieved by ODCE

14. Insolvent Companies in Liquidation Liquidator Reports 20032004 Cases Determined 560 529 Full Relief 53%67% Partial Relief 4% 4% Relief ‘at this time’ 6%10% No Relief 36%18% Other 1% 1%

15. Insolvent Companies in Liquidation Restriction prevents persons acting as directors unless company is well capitalised in cash (>€63k for non-plcs) Restrictions –153 directors restricted in 2003 via S.56, 2001 Act –198 directors restricted in 2004 via S.56, 2001 Act –>500 directors now restricted; 54 restricted at end-2002 Disqualification not Restriction may be sought Criminal Proceedings option open as well

16. ODCE’s Enforcement Activity Criminal Proceedings –Summary –On indictment (where the DPP will prosecute) Civil Proceedings –Disqualification –Restriction –Order for Compliance

17. Failing to keep Proper Books of Account Purpose is to Protect Creditor, etc. Interests Some 35 Cases taken to date; More in Pipeline 29 Convictions in 2003; 38 in 2004 Range of Companies/Directors Convicted –International and Domestic Businesses Auditors’ Evidence Usually Persuasive

18. Persons Acting while not Permitted Purpose is to Protect Company Stakeholders Acting as Directors while not permitted –Undischarged Bankrupts (Four Convictions) –Disqualified Persons (One relieved; other cases open) –Restricted Persons (Three Convictions) Acting as Liquidators while not permitted –Company Officer/Related Persons (One Case initiated)

19. Persons Acting while not Permitted Acting as Auditors while not permitted Unqualified Persons (29 Convictions) –Those with little or no accounting qualifications –Those who may be Accountants but are not Auditors Disqualified Persons (Six Convictions) –Auditors who had acted as directors of the company

20. Extending the Prosecuted Offences Concluded Cases –Provision of False Information (12 Convictions) –Fraudulent Trading in an Insolvent Company –Excessive Directors’ Loans –Filing Offences Ongoing Cases –Fraudulent Representation of Company Documents

21. Disqualification Actions Some convictions prohibit directors acting for five years: –undischarged bankrupts continuing to act as directors... –persons acting as directors while restricted –persons ‘convicted on indictment of any indictable offence in relation to a company, or involving fraud or dishonesty’ Following ODCE/CRO/Courts Service discussions, the latter are now being identified to the CRO Disqualification Register now holds > 600 names (10 at end-2004)

22. Disqualification Actions ODCE Proceedings against directors of insolvent ‘struck- off’ companies –Nine persons disqualified to date following ‘test’ cases –18 further directors now facing disqualification having failed to satisfy us that the company had no debts or that they were discharged Current proceedings against former NIB managers Other High Court proceedings underway as well

23. Restriction Actions Most restriction applications are now taken by liquidators However, ODCE has restricted the director of an unliquidated insolvent company Restriction also secured against director of an insolvent ‘struck-off’ company ODCE monitoring ‘relief’ applications by those restricted

24. Orders for Compliance Secured against 15 liquidators who failed to report Proceedings initiated against a liquidator who has failed to commence restriction proceedings Proceedings initiated against company/director for failing to convene company general meetings

25. Resource-Intensive Cases Case Types –High Court/Tribunal Inquiries –Various Company Examinations –Other Reported Misconduct Resources Deployed –Internal ODCE Evaluation –Occasional Consultancy Support –Selective Use of Search/Seizure/Arrest Powers

26. Quality Customer Services Increasing popularity of the ODCE website as an information source on company law developments Visits reached 129,000 at end-September 2005 v. 116,000 in 2004 and 75,000 in 2003

27. Initial ODCE Impact Quality Compliance Information Published Over 5,000 Offence Reports from Auditors Over 2,000 Reports from Liquidators Over 1,000 Public Complaints More than 60% of issues determined, many by administrative means

28. Initial ODCE Impact Over 130 Convictions of Companies/Directors etc. 15 Compliance Orders against Liquidators Ten Disqualifications – many more now recorded 11 Types of Offence Prosecuted to date Some 500 Directors restricted, most via liquidator actions More information now available for the market on past misconduct via ODCE website and CRO

29. Initial ODCE Impact Market research undertaken for the ODCE in late 2003/early 2004 indicated that: –95% of accountants/liquidators believed that company law compliance has improved; –97% of directors regard compliance as important We are conducting further research now, and the results will be available in early 2006

30. ODCE Future Focus Continually trying to achieve balance between: –‘Soft’ (educational) v. ‘hard’ (enforcement) activity –Administrative rectification of defaults v. legal action –Civil v. criminal sanctions –Complex and novel cases v. more routine cases –Emerging v. existing areas for attention New Strategy Statement planned to address these

31. Other Regulatory Developments Forthcoming establishment of the Irish Auditing and Accounting Supervisory Authority Work of the enhanced Financial Regulator Restructured Revenue Commissioners Competition Authority with new powers/resources Information-sharing between regulators

32. Concluding Comments ‘Culture of non-compliance’ which was said to prevail is being turned around: –State had failed to regulate effectively –Professional Conduct was not supported –Little Prospect of Sanction for Misconduct –Deficient Accountability Framework in Practice

33. Concluding Comments New Situation –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

34. Concluding Comments Effective and Balanced Regulation protects: –The public from fraud –Employees, traders and suppliers from irresponsible conduct –State revenue and the taxpayer’s interest –Investors and credit institutions from bad debts –Legitimate business from fraud-based competition –Personal, Corporate and State Reputation

35. Thank You for Your Attention Further Information is available from www. odce. ie