The Government announced on 31 March 2009 that it was to introduce new legislation with the aim of (i) clarifying the rights of access and of search and seizure of the Office of the Director of Corporate Enforcement (ODCE) and (ii) removing provisions that currently allow banks to avail of a different disclosure regime to non-banking companies with regard to transactions with directors and to ensure that accounts of banks are more transparent. The Government have today published this Bill to address these issues. A summary of the main provisions are as follows:
- Right of the Director of Corporate Enforcement (the Director) to access information regarding directors' interests in a company - A director of a company is under a duty to declare any interest that he may have in contracts or proposed contracts with the company and the company is required to record all such declarations of interest in a book kept for that purpose (section 194 of Companies Act 1963). The Bill amends this section to give the Director a specific right to access this information.
- Production of books and records relating to an investigation of a company from a third party - The Bill 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 (section 19 Companies Act 1990 (the 1990 Act). 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. The Bill clarifies that any directions previously made under this section will not be affected.
- Increased powers of search and seizure - The Director's powers of search and seizure have been considerably strengthened by the introduction of an extended power of seizure. Where it is not immediately clear to an officer of the ODCE conducting a search if certain material or electronic information is relevant to the investigation, the officer has the power to remove such material or electronic information from the premises for an off-site examination. 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.
Before implementing this extended power of seizure, the officer must make arrangements for the appropriate storage and safeguarding of such seized information, must allow reasonable access to the assets by the owner and must provide for confidentiality to be maintained unless the officer believes that such actions would result in the concealment, falsification, destruction or other wise of the material information.
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. This change gives the potential for protracted periods during which a search warrant can run.
- Documents covered by legal professional privilege - Section 23 of the 1990 Act 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. The Bill also provides that a court can appoint an independent person with a legal qualification to assist in determining whether or not privilege attaches to the seized information.
- Penalties for breaches of Section 31 - Section 40 of the 1990 Act sets out the criminal penalties for breaches of section 31 of the 1990 Act (prohibition on making of loans etc. by a company to its directors). This section previously required an element of wilful default on the part of an officer who authorised or permitted a transaction in contravention of section 31 in order for that officer to be guilty of an offence. The Bill has amended this section by removing the wilful default element and now imposes liability on every officer of the company who is in default where the company breaches section 31.
- Disclosure of directors' transactions with licensed banks in annual accounts - The obligations set out in the Companies Acts on directors of licensed banks to disclose details of transactions between them and their bank have been extended. Prior to March of this year, banks could avail of a different disclosure regime to non-banking companies. Non-banking companies were required to set out in their annual accounts particulars of certain transactions, arrangements and agreements with or for directors, or persons connected with them, which subsisted at any time during the relevant financial year. Banks on the other hand were largely exempted from the obligation to disclose such particulars. Instead they were required only to disclose aggregate amounts outstanding at the end of the financial year under any such transactions, arrangements and agreements with directors (and, in certain cases, persons connected) and the number of persons concerned. In March, the Financial Regulator introduced new rules which obliged Irish banks and buildings societies to disclose in their annual accounts information regarding loans to each director and person connected. The measures introduced by this new Bill are slightly different but presumably have the same aim of increasing the level of disclosure required around arrangements with directors in credit institutions. 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 the aggregate amounts, putting banks on a more equal footing with non-banking companies. However, in relation to persons connected, it is still only the aggregated information which is required.
The Bill makes clarifies that these provisions are in addition to any other rules, for example those rules issued in March by the Financial Regulator, so a relatively complicated regime of disclosure obligations will now exist around arrangements between credit institutions and their directors.
The Bill also makes it clear that where a company (banking or non-banking) is in default of any obligations regarding disclosure of directors' arrangements, the company and every director will be guilty of an offence. This places an onus on all directors to ensure that a company is compliant, which could be quite onerous.
- Section 44 register - Certain changes are made to the obligation on banks to keep a register containing copies of certain transactions, arrangements and agreements with or for directors, and persons connected with them, for the current financial year and for each of the 10 preceding financial years. In particular, the Director of Corporate Enforcement now has powers to inspect this register and take copies.
- Requirement for an Irish company to have a director resident in Ireland - Section 43 of Companies (Amendment) (No.2) Act 1999 provides that, subject to certain exemptions, every company must have a director that is resident in the State. The Bill amends this 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. This amendment has been proposed to meet the concerns of the European Commission that certain elements of the current provisions are not compatible with the EC Treaty.