OPINION: Wayward directors watch out! From early this year, the new director of corporate enforcement (DCE), Mr Paul Appleby, will be given full powers under the Company Law Enforcement Act 2001. Expect him to act with vigour against directors who are in breach of the companies acts.
He already has more than 100 cases on hand - many inherited from the Department of Enterprise, Trade and Employment. Interestingly, around 50 per cent of these are companies where the auditors have stated that proper books of accounts had not been kept; the others range from dissolved companies that have continued to trade as limited companies, to auditors not being qualified.
The penalties can be severe. They depend on how serious the offence is, but a custodial penalty for failure to keep proper books varied between one and three years in prison under the old acts - the new act has upped this to five years.
However, the least serious offences are likely to be given the option of paying a fine instead of facing prosecution. That is a sensible option, as it would free up the system to concentrate on the more serious offences.
Mr Appleby is, in effect, the corporate prosecutor. Not having a corporate policeman in the past has been a glaring omission by politicians.
"In the past, enforcement of company law has been patchy and very reactive," as Mr Appleby sees it - and how right he is. The Department of Enterprise, Trade and Employment has, in the recent past, been doing a good job, with the use of inspectors. But now, with the formation of the Office of the Director of Corporate Enforcement (ODCE), Mr Appleby is independent and at a remove from political interference - which must augur well for the future. Politically sensitive issues need to be treated on strict corporate law terms.
What is disconcerting is the statement by the chief executive of the Institute of Chartered Accountants in Ireland, Mr Brian Walsh, that he believed the majority of company directors were not aware of the provisions of the act. It is obviously essential that directors have a good grasp of their obligations - many are onerous - under company legislation. The relevant information, and the act, can be seen at ODCE's informative website at www.odce.ie.
Mr Appleby has been assuming powers in tranches. Under the powers assumed last November, those suspected of serious breaches of company law can be arrested by his staff, brought to a Garda station and questioned for up to 12 hours. The relevant breaches could be insider or fraudulent trading. This hands-on approach should make directors contemplating such breaches think again.
The last tranche is expected to be bestowed on him by Easter. This will consist of a number of important powers. The DCE will have powers to restrict or disqualify directors, powers to restrict phoenix-type companies - where directors run a company to the wall, pocket the assets and then start a similar company - and powers to aid creditors who do not feel it worthwhile to pursue companies because of the paucity of funds. A company could for example be so insolvent that there are no funds to pay a liquidator, but now the DCE can move and bring the directors to account - a very welcome move.
Another welcome development is the power given to the DCE to examine liquidators' books. This can be done on his own initiative or following a complaint by a creditor. While this is, in effect, a form of supervision of liquidators, it does not put a timescale on liquidators' work. Regrettably, the unscrupulous liquidator has the opportunity to swing the lead and enhance his fees to the detriment of creditors, though most try to finish the job as quickly as possible.
The DCE is appointed for a five-year term that can be extended for a further five years. But his office has a relatively small annual budget of €3.7 million (£2.9 million). While Mr Appleby may feel this is adequate for the moment, a couple of big cases necessitating the employment of senior accounting and legal people could gobble that up in no time.
There is bound to be pressure on the DCE to enumerate as many prosecutions as possible, for two reasons.
Firstly, he is obliged to publish a report of his activities to the Minister for Enterprise, Trade and Employment three months after his year end. That report has then to be laid before the Dáil within the subsequent two months.
Secondly, he could be asked by an Oireachtas committee why there aren't more prosecutions. Section 16 of the act says: "When so requested, the director shall account to an appropriately established committee of either house of the Oireachtas for the performance of his or her functions, but in discharging his or her duties under this subsection, the director shall not be required to furnish any information or answer any questions the furnishing or answering of which would, in the opinion of the director, be likely to prejudice the performance by him or her of any of his or her functions."
While the formation of the ODCE and the appointment of its director are important - and indeed essential for the proper governance of corporations - ultra-zealousness, like that sometimes adopted by the Serious Fraud Office in Britain, could lead to unfortunate and avoidable consequences.
Let us not imitate that UK phobia.
bmurdoch@irish-times.ie
