The Companies (Amendment) Act 2009 (the Act) became law in July 2009. This Act was introduced 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) amending provisions that currently allow banks to avail of a different disclosure regime to non-banking companies with regard to transactions with directors and ensuring that accounts of banks are more transparent.
The key provisions of the Act are as follows:
- Right of the ODCE to access information regarding directors' interests in a company - Under Section 194 of Companies Act 1963, a director is under a duty to declare any interest that he may have in contracts or proposed contracts with his company and the company is required to record all such declarations in a book kept for that purpose. The Act amends this section to give the Director of Corporate Enforcement (the Director) a specific right to access this information.
- Production of books and records relating to an investigation of a company - The Act 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 of the Companies Act 1990).
- 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 (while having regard to the costs involved and possible damage to property, among other factors) has the power to remove such material or electronic information from the premises for an off-site examination. Before implementing this extended power of seizure, the officer must make arrangements for the appropriate storage and safeguarding of the information, must allow reasonable access to the assets by the owner and must provide for confidentiality to be maintained, subject to certain considerations.
The Act 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 Companies Act 1990 provides that a person shall not be compelled to produce documentation which would, in the court's opinion, be protected by legal professional privilege. This new Act contains aggressive changes to these provisions and provides for the seizure by the ODCE of privileged information on a sealed and confidential basis pending adjudication by a court as to whether the information is in fact privileged.
- Penalties for breaches of Section 31 - Section 40 of the Companies Act 1990 sets out the criminal penalties for breaches of Section 31 of the Companies Act 1990 which prohibits loans by a company to its directors. An element of wilful default was previously required 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 new Act has amended this by removing the wilful default element and imposing 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 2009, 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, as they were required only to disclose aggregate amounts outstanding at the end of the financial year under any such arrangements with directors (and, in certain cases, persons connected) and the number of persons concerned. In March 2009, the Financial Regulator introduced new rules which obliged Irish banks and buildings societies to disclose in their accounts information regarding loans to each director and person connected. Following on from these rules, the Act now imposes a new statutory provision (similar to, although not exactly on all fours with, the Financial Regulator's rules) which requires licensed banks to disclose in their annual accounts the particulars of arrangements with each director, and not just the aggregate amounts, putting banks on a more equal footing with non-banking companies. In relation to persons connected however, it is still the aggregated information only which is required.
The Act clarifies that these provisions are in addition to any other rules, for example the Financial Regulator's March rules, so a relatively complicated regime of disclosure obligations will now exist around arrangements between credit institutions and their directors. The Act also makes it clear that where a company (banking or non-banking) is in default of any of these obligations, 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 arrangements with or for directors and persons connected with them. In particular, the Director 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. This new Act 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 existing legislation were not compatible with the EC Treaty.