CHANGES TO COMPANY LAW – THE COMPANIES (AMENDMENT) BILL 2009
Earlier this year the government published the Companies (Amendment) Bill 2009 (the Bill). The stated aim of the Bill is to bring forward legislation to improve the transparency of certain loans made by banks to their directors and to those connected with directors. However, the scope of the Bill reaches beyond the banking sector and makes important changes that affect all companies regulated by Irish law.
Increased power for the Director of Corporate Enforcement (DOCE):
There is an existing obligation on all directors to declare any interests they may have in contracts or proposed contracts with the company and a corresponding obligation on the company to keep a record of such declarations in a book kept specifically for that purpose. The Bill seeks to give the DOCE a specific right of access to this book. The Bill also clarifies the existing power of the DOCE to require the production of records from third parties where these records relate to the business of a company under investigation.
The Bill allows for the extension of the period of a search warrant obtained by the DOCE for entry and search of a company’s premises. It also provides for the removal of paper and electronic information from a company’s premises to allow that information to be analysed elsewhere. Interestingly the Bill also outlines a mechanism to allow for the seizure of information by the DOCE over which a claim of legal professional privilege is asserted by the company. The information would be placed in a sealed envelope and an application would be made to Court for a determination as to whether privilege properly applies to the information or not.
Transactions involving company directors:
Existing law prohibits certain transactions between companies and their directors. However, this law is difficult to enforce as its current formulation effectively means that it has to be proved that there was a wilful contravention of the prohibition. The amendment proposed simply provides that every Director who is in default of the prohibition will be guilty of an offence. This removes the burden on the prosecution of proving a wilful disregard for the law.
The Bill obliges a licensed bank’s annual accounts to disclose transactions entered into between that bank and its directors or persons connected with them and prescribes criminal penalties for failure to do so. The Bill is specified to be without prejudice to any rule or direction of the Financial Regulator in this regard.
Residency of directors:
The law currently states that at least one director of a company must be resident in the state. This effectively means that one director must be “tax resident” in the state. A company can avoid the obligation be having a bond in the value of €25,394.76 and complying with the relevant administrative requirements. The Bill proposes to change the requirement so that one director need only be resident in a member state of the European Economic Area.
Conclusion:
The Bill is a clear response to high profile flaws in the regulation of the banking sector but its reach goes beyond financial services to affect all companies and their officers. The Bill is currently at the Committee stage but is expected to move through the legislative process quickly. When the Bill comes into law it will change the relationship between the company and the director and will facilitate closer scrutiny of the manner in which business is conducted between those two entities.
We will keep you updated on developments.
Matthew Austin maustin@hayes-solicitors.ie
June 2009