The Government has moved quickly to amend provisions in the Companies Acts in light of the recent economic crisis in Ireland and in particular the banking crisis. On the 9th April 2009, the Minister for Enterprise Trade & Employment introduced the Companies (Amendment) Bill 2009.
The Bill comes just a few weeks after it was suggested in the High Court that the investigation by the Office of the Director of Corporate Enforcement (“ODCE”), into the affairs of the Anglo Irish Bank, was being hampered by company law legislation that was outdated.
The Bill makes significant changes to rules governing transactions between companies and their Directors and increases the penalties for breaches of Sec 31 Companies Act, 1990. Directors and professional advisors should make careful note of the new amendments.
The Companies (Amendment) Bill should be passed by the Dail & Seanad before they break for the summer.
The Bill seeks to address the following 3 broad issues. It will;
- Improve the transparency of loans made by companies that are banks to their directors and to persons connected with them;
- support the Director of Corporate Enforcement (“The Director”) in his efforts to enforce compliance with company law whether the company being investigated is a bank or not, and
- amend some existing provisions relating to Irish registered non-resident companies to meet EU Commission concerns
New Disclosure Obligations for Banks
Under current Company Law, the disclosure of loans to company directors and connected persons are treated differently to those made by general companies and those by banks. The obligations set out in Section 42 Companies Act, 1990 on directors of licensed banks to disclose details of transactions between them and their bank have been extended. Companies are required under Sec 42 to disclose details of certain transactions, including loans, with directors and connected persons in their annual accounts. Licensed banks are only obliged to disclose aggregated data on such loans where amounts were still outstanding at the end of the financial year and under any such transactions, arrangements and agreements with directors and persons connected.
The Bill now imposes a new statutory obligation on licensed banks to disclose in their annual accounts particulars of certain transactions, arrangements and agreements with each director, and not just aggregate amounts, putting banks on a more equal footing with non-banking companies. For connected persons it is still only the aggregated information that is required to be disclosed. The Bill also clarifies that these disclosure requirements are in addition to any other rules imposed or to due to be imposed by the Financial Regulator.
Penalties for Breach of Sec 31
The Bill provides that where a company (banking or non-banking) is in default of any obligations regarding the disclosure of directors’ arrangements, the company and every director will be guilty of an offence, irrespective of the actions or knowledge of that officer. Sec 40 CA, 1990 currently provides that an officer of a company who authorizes or permits the company to enter into a transaction or arrangement knowing or having reasonable grounds to believe that the company was thereby contravening section 31 shall be guilty of an offence.
The new provisions places an onus on all directors to ensure that a company is compliant with the provisions, which may be quite onerous, and directors will need to take particular attention to the provisions.
Register of Loans & Transactions
The Bill makes amendments to Sec 44 Companies Act, 1990 regarding loans, transactions, arrangements and agreements made by licensed banks and requires the maintenance of a register of loans, transactions, arrangements and agreements with or for directors and connected persons and the preparation of a statement based on the information in the register to the Annual General Meeting. The statement need not be prepared if information is already included in the annual accounts by request by financial regulator or on a voluntary basis. The ODCE now has power to inspect this register and take copies.
Right of ODCE to access information regarding Directors Interests
Section 2 of the Bill amends Section 194 Companies Act 1963 regarding the requirement for disclosure by Directors of any interest that they may have in contracts or proposed contracts with that company. The company is required to record all such declarations in a book kept for this purpose. The new section gives the ODCE a specific right to access to this book.
Production of Books & Records from a Third Party
The Bill amends Section 19 Companies Act 1990 and clarifies the powers of The Director to require the production of books and records from third parties where those books and records relate to a company under investigation. The Director must give a direction to the third party as to which books and documents are required and the time and place at which they are to be produced. Any directions made by the Director before enactment of this section will not be affected.
Power of Search & Seizure
The Director’s powers of search and seizure have been considerably strengthened by the introduction of an extended power of seizure. The Bill will allow an officer of the ODCE to remove information and other materials, paper and electronic information from the site of an investigation pending a determination of whether it is appropriate to seize that material. In determining whether or not it is necessary to remove such material from the premises, regard must be had to the number of persons required to carry out the determination, whether the determination would cause damage to the property, the equipment necessary to carry out the determination and the cost of carrying out the determination on the premises as opposed to an off-site examination.
The Bill also provides that search warrants, which are usually of one-month duration from the date of issue, can be further extended by the District Court upon application by the ODCE.
Legal Professional Privilege
The Bill proposes a significant change to Section 23 Companies Act, 1990 that currently provides that a person shall not be compelled to produce documentation, which would, in the opinion of the court, be protected by legal professional privilege. The Bill contains aggressive changes to these provisions and provides for the seizure by an officer of the ODCE of privileged information on a sealed and confidential basis pending adjudication by a court as to whether or not the information seized is in fact privileged. To assist in reaching a determination, the court will be given power under the Bill, to appoint a suitably qualified independent person to prepare a report with a view to assisting or facilitating the court determining whether or not privilege attaches to the seized information.
Section 43 Companies (Amendment) (No.2) Act 1999 provides that, every company must have a director that is resident in the State. The Bill amends the provision by replacing this requirement with the requirement that at least one director of the company must be resident in a member state of the EEA. The Bill will meet the concerns of the European Commission that the current provision is not compatible with the EC Treaty. This change will remove the requirement to put in place a bond to secure compliance with the Companies Acts.
The Bill also clarifies the methods by which a company can prove that it has a link with economic activity in the State.
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