It took almost three years, but the Companies (Corporate Enforcement Authority) Bill 2021 (the Bill) was finally published earlier this month. There are no real surprises in the Bill, which broadly mirrors the General Scheme published in December 2018. The main purpose of the Bill is to replace the Office of the Director of Corporate Enforcement (ODCE) with a new, independent, statutory agency to be called the Corporate Enforcement Authority (CEA).
Much of the Bill is taken up with setting out the organisation, structure and powers of the CEA and this has dominated coverage of the Bill. However, the Bill also includes a miscellany of amendments to the Companies Act 2014 (the 2014 Act), which will be welcomed by company law practitioners. These are therefore also addressed in some detail in this article.
The Corporate Enforcement Authority
Currently the ODCE operates as an Office within the Department of Enterprise, Trade and Employment (DETE). The CEA will instead be a standalone body, similar to the Competition and Consumer Protection Commission.
The current functions of the ODCE will be transferred to the CEA with no substantial changes. These functions include encouraging compliance with the 2014 Act, investigating suspected offences and non-compliance, prosecution of summary offences and supervision of liquidators and receivers discharging their duties under the 2014 Act.
In place of the single Director of Corporate Enforcement, the Bill provides that the CEA will have no more than three full-time 'members'. Where there is more than one full-time member, the Minister for Enterprise, Trade and Employment will appoint one of them as chairperson.
The person who is Director immediately before the establishment day of the CEA shall also be a member of the CEA. This is likely to be Ian Drennan, the current Director, which will ensure continuity in moving from the old structure to the new.
In its Report on pre-legislative scrutiny, the Joint Committee on Enterprise, Trade and Employment recommended that the minimum number of members be increased to two and the maximum to five. The Tánaiste and Minister, Leo Varadkar, expressed himself open to this, so it's possible that this will be revisited during the Bill's passage through the Oireachtas.
While the number of members is fixed by legislation, the Bill enables the CEA to hire additional staff with the skills and expertise that it deems necessary (subject to Ministerial consent). Like the ODCE under the current legislation, the Bill provides for the secondment of Gardaí to the CEA. Speaking in August, the Tánaiste stated that the DETE has sanctioned 14 additional staff to be assigned to the CEA and the permanent cohort of members from An Garda Síochána will increase from seven to 16. If carried through, this will represent an almost 50% increase in staffing levels.
The CEA will be accountable to the Oireachtas to an extent that its predecessor was not. The chairperson will be specifically accountable to the Dáil Committee of Public Accounts and any member of the CEA (including the chairperson) must attend before any Oireachtas Committee (excluding the Public Accounts and Members' Interests Committees) "to give account for the general administration of the Authority". These provisions take inspiration from the Competition and Consumer Protection Act 2012. Similar powers of compellability are also granted to Oireachtas committees under the 2014 Act in relation to the Irish Auditing and Accounting Supervisory Authority (IAASA).
In discharging their duties to the Oireachtas committees, the chairperson and members of the CEA must also take care not to "question or express an opinion on the merits of any policy of the Government or a Minister of the Government or on the merits of the objectives of such a policy".
There are certain safeguards for CEA members in such circumstances, including a right of appeal to the High Court in circumstances where a member refuses to give account in relation to any matter which has been, is, or may be the subject of court or tribunal proceedings.
Reporting to the Minister
The Bill carries over the obligation for the CEA to prepare and submit an annual report to the Minister for Enterprise, Trade and Employment. The Bill also imposes new obligations on the CEA to prepare a strategy statement and work programme. The strategy statement will be forward-looking over a three-year period and will specify the key objectives, outputs and related strategies, including use of resources, of the CEA. At least one month before the commencement of each financial year, the CEA will also be obliged to prepare and submit to the Minister a work programme relating to the discharge of its functions for the coming year. The annual report and strategy statement must be laid before the Houses of the Oireachtas by the Minister and published on the CEA's website.
"An Irish version of the FBI"
Much has been made of what the CEA will mean for corporate crime in Ireland. Back in November 2018, during Leaders' Questions in the Dáil, then-Taoiseach Leo Varadkar memorably pledged to establish "a stand-alone agency, a sort of national white-collar crime bureau or an Irish version of the FBI when it comes to white-collar crime". The Bill has more recently been heralded as a "watershed moment" and a "milestone in the area of corporate enforcement in Ireland".
The Government's commitment to greater staffing and resourcing may make the CEA more effective than its predecessor, but the Bill serves largely to reconstitute the ODCE as the CEA without granting it any additional powers.
Indeed, it is notable that the Bill does not carry over two key provisions from the General Scheme, which would have increased the CEA's scope:
- A proposal to give the CEA enhanced powers to search electronic evidence stored off-site.
- A proposal to allow the Court to consider admitting written statements, which might otherwise be excluded by the rule against hearsay, into evidence in certain circumstances.
The removal of the proposal regarding access to electronic evidence is not so surprising given that it was the subject of debate during pre-legislative scrutiny back in January. At the time, the Tánaiste informed the Joint Committee that a police powers bill was being discussed across Government to give additional powers around access to electronic information and the cloud and this was preferable to the introduction of "piecemeal legislation for different bodies". However, such powers have not been included in the recently published Garda Síochána (Functions and Operational Areas) Bill 2021. The current entry and search powers of the ODCE to access electronic devices while they are on the premises to which the search warrant pertains will, therefore, be carried over to the CEA.
The reasoning behind the removal of the proposed statutory exception to the rule against hearsay is unclear. It was welcomed by Ian Drennan, but was not otherwise discussed during pre-legislative scrutiny. There is already precedent for a statutory exception to the rule against hearsay in section 13 of the Competition Act 2002.
In addition, the Bill does not address a number of recommendations of the Hamilton Review on Economic Crime and Corruption, which would assist the CEA, for example, in respect of surveillance powers, search warrants, compelling the provision of passwords and allowing non-Garda personnel to attend at suspect interviews. These matters are to be addressed separately under the Hamilton Review Group's Implementation Plan, which was published by the Department of Justice in April 2021.
The Government’s approach appears to be to get the CEA up and running in the first instance, with an enhanced suite of powers to follow at a later date. This may have merit because some elements of the Implementation Plan may take some time to work through, not least given the impact of some of the proposed measures on suspects’ rights. But this staggered approach runs the risk that certain of the aspirations may not materialise and that the promised reform of the ODCE could end up being less ambitious than hoped and largely confined to resourcing matters.
The current Government appears to be bringing greater impetus to the fight against white-collar crime and has ambitions for the part that the CEA will play. It is hoped that this will lead to more substantive changes and a "well-stocked toolbox" for the CEA in the future.
Miscellaneous Amendments to the 2014 Act
The Bill proposes a number of miscellaneous amendments to the 2014 Act, many of which will fix anomalies in, or restore old company law provisions to, the 2014 Act. Among the amendments of note are the following:
- A company will once again be able to use its share premium account for, among other things, the writing off of the company’s preliminary expenses, or the expenses of, or commission paid on, any issue of shares or debentures by the company (e.g. in an initial public offering).
- Three-party share-for-undertaking transactions will be able to proceed even if there is no reorganisation on the company’s capital. The Bill also adds a new condition where such transactions can occur where a company has distributable reserves at least equivalent to the value of the transferred or disposed assets and deducts an amount, equivalent to the value of those assets, from its reserves.
- The definition of treasury shares will be amended to include shares acquired by a company pursuant to a merger or division. This will clarify post-merger treatment of merging/dividing companies’ shares acquired by a successor company.
- A new provision will permit directors (save where the constitution provides otherwise) to decline to register the transfer of a share in a range of circumstances, including to a person of whom they do not approve; or where the share is one on which the company has a lien; or where the transfer of a share would, in their opinion, "imperil or prejudicially affect the status of the company".
- Welcome confirmation that ULCs and PUCs are not required to purchase or redeem shares out of distributable profits.
- Commissions in respect of underwriting or sub-underwriting are routinely paid to investors on a share issue by PLCs. An amendment of the 2014 Act will permit payment of commissions to persons other than intermediaries.
- Directors will be required to provide their PPSNs (or other information if they do not have PPSNs) when incorporating a new company (CRO Form A1), filing an annual return (CRO Form B1) or notifying a change of director (CRO Form B10). This is a safeguarding measure designed to mitigate the possibility of (deliberate and inadvertent) breaches of company law where a director has used different versions of their name on company documentation.
- Removal of the Minister's power to grant exemptions to companies from the requirement to show the names of directors on business letters of company (current exemptions will not be affected).
- Clarification that members of a company limited by guarantee (CLG) will not be entitled to appoint proxies to attend and vote at meetings where the constitution of the CLG does not permit it.
- Restoration of the obligation to register resolutions in a creditors’ winding-up with the Registrar (an unintentional omission in the 2014 Act).
- The CEA will have the power to request evidence from a person that they are qualified to act as liquidator. Failure to comply will be an offence.
- Liquidators may be required to make more frequent reports to the CRO where this is required by the Registrar.
- Introduction of new grounds for a restriction order to be made by the High Court against a director who has failed to meet certain procedural requirements in the course of a company becoming insolvent: failure by a director to convene a general meeting of shareholders for the purpose of nominating a named liquidator; failure to table a notice to nominate such liquidator; and failure to provide the required notice to employees of the company in the winding up of the company.
Minister of State, Robert Troy, introduced the Bill in the Dáil last week and it is expected to complete its passage through the Oireachtas before Christmas. He has indicated that the CEA will be operational by 1 January 2022, which is an ambitious timeline. We will continue to monitor these developments.