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Title: PowerPoint Presentation Author: Denis Hosford Created Date: 8/31/2001 3:46:26 PM Document presentation format: On-screen Show Company: DETE Other titles – PowerPoint PPT presentation

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Title: IAFA/ACCA Seminar

  • University College Dublin
  • 22 November 2003

Initial Experiences in Company Law Investigations
and Enforcement
  • Paul Appleby
  • Director of Corporate Enforcement

Outline of Presentation
  • Brief Introduction to the ODCE
  • Reporting Obligations of Auditors
  • Public Complaints and Other Information Sources
  • Reporting Obligations of Liquidators
  • Approaches Taken to Investigations
  • Quality of Financial Reporting
  • Concluding Comment

Introduction (1)
  • What is the Office of the Director of Corporate
  • Remit is focused on the Companies Acts 1963-2001
  • Multi-disciplinary agency comprising 35-40
    administrative, legal, accounting and Garda staff
  • Budget of 3.8 million in 2003

Introduction (2)
  • The ODCEs Goals
  • Encourage Compliance with Company Law
  • Uncover Suspected Breaches
  • Prosecute Detected Breaches
  • Sanction Improper Conduct in Insolvent Companies
  • Deliver Quality Customer Services

Auditors Reporting Obligations (1)
  • Where, in the course of, and by virtue of,
    their carrying out an audit of the accounts of
    the company, information comes into the
    possession of the auditors of a company that
    leads them to form the opinion that there are
    reasonable grounds for believing that the company
    or an officer or agent of it has committed an
    indictable offence under the Companies Acts, the
    auditors shall, forthwith after having formed it,
    notify that opinion to the Director and provide
    the Director with details of the grounds on which
    they have formed that opinion.
  • S.74(e), Company Law Enforcement Act 2001

Auditors Reporting Obligations (2)
  • Start Date of Obligation was 28 November 2001
  • Scope covers about 128 indictable offences
  • ODCE Consultation Paper issued in February 2002
  • First Auditor Reports received in March 2002
  • Joint Guidance published in July 2002 by ODCE,
    CCAB-I and APB
  • Copy available at www.odce.ie/publications

Auditors Reporting Obligations (3)
  • Reports 400 in 2002 1,357 in 2003 so far
  • Issues 79 relate to Filing/Directors Residence
  • 14 are about Directors Loans
  • 5 deal with Failing to hold EGMs
  • 2 relate to Inadequate Books
  • lt0.01 concern Unqualified Auditors/ AGM
    Problems/Disclosure Defaults/Fraud
  • Actions Filing Offences referred to the CRO
  • Most of the rest are under investigation

Auditors Reporting Obligations (4)
  • Features of Reporting to date
  • Only 9 of 128 possible offences reported to date
  • Most reports relate to matters disclosable
  • Filing Defaults/Directors Residence (on the
    CROs record)
  • Directors Loans (in Notes to Financial
  • Failure to hold EGM (Obligation to do so stated
    in Auditors Report)
  • Failure to keep proper books (in Auditors Report)

Auditors Reporting Obligations (5)
  • Performances/Interpretations by Auditors
  • Reporting improvement after ODCE contacts
  • Differences in approach on non-filing offences,
    e.g., wilful knowledge offences
  • One firms reports account for gt80 of all
    reports of one offence
  • Quality of information supplied is variable

Auditors Reporting Obligations (6)
  • Overall Views
  • Good Awareness by Auditors of Obligations
  • Uniform Interpretation of Obligations not yet
  • Reporting of Few Offence Types is disappointing
  • Filing Defaults should not be reported to ODCE at
  • Culture Change in Auditor/Client Relations
  • Positive Impact on Auditor Independence
  • Positive Impact in reinforcing Compliance Message

Public and Other Complaints (1)
  • Public Complaints
  • Reports 200 in 2002 270 so far in 2003
  • Issues 35 disclose no Company Law Issues
  • 21 relate to Civil Matters/Debt Issues
  • 15 are filing defaults
  • 29 cover a range of issues (e.g., AGMs)
  • Actions Many closed, others being assessed

Public and Other Complaints (2)
  • Matters of Public Record
  • Tribunal of Inquiry/Inspector Reports
  • Media Disclosures
  • CRO Database
  • Inter-Agency Co-operation
  • Garda Siochana
  • MOUs planned with Revenue, IFSRA, etc.

Public and Other Complaints (3)
  • Overall Views
  • Many Public Complaints are resource-intensive
  • Relevant Complaints disclose real concerns
  • Information-sharing yet to be fully exploited

Liquidators Reporting Obligations (1)
  • (1) A liquidator of an insolvent company shall,
    within 6 months after his or her appointment or
    the commencement of this section, whichever is
    the later, and at intervals as required by the
    Director thereafter, provide to the Director a
    report in the prescribed form.
  • (2) A liquidator of an insolvent company shall,
    not earlier than 3 months nor later than 5 months
    (or such later time as the court may allow and
    advises the Director) after the date on which he
    or she has provided to the Director a report
    under subsection (1), apply to the court for the
    restriction under section 150 of the Act of 1990
    of each of the directors of the company, unless
    the Director has relieved the liquidator of the
    obligation to make such an application.
  • - S.56(1) and (2), Company Law Enforcement Act

Liquidators Reporting Obligations (2)
  • What gives rise to restriction?
  • Where the High Court is not satisfied that a
    director has acted honestly and responsibly in
    conducting the companys affairs.
  • What is the effect of restriction?
  • A person may not act, directly or indirectly, as
    a director, etc., unless the company is
    adequately capitalised. For a private company,
    the minimum paid-up share capital sum is 63,487.
    The equivalent figure for a public company is
    317,435. Both must be fully paid for in cash.
  • What is the effect of disqualification?
  • Disqualification involves an absolute ban for
    five years or more.

Liquidators Reporting Obligations (3)
  • Phased Commencement
  • 1 June 2002 insolvent companies to which a
    liquidator was newly appointed or was appointed
    on or after 1 July 2001
  • 1 June 2003 insolvent companies to which a
    liquidator was appointed on or after 1 January

Liquidators Reporting Obligations (4)
  • Volumes 2002 2003 so far
  • Liquidator Reports 300 430
  • Cases Determined 4 533
  • Full Relief 4 285 (53)
  • Partial Relief - 24 (4.5)
  • Relief at this time - 31 (5.8)
  • No Relief - 187 (35)

Liquidators Reporting Obligations (5)
  • Character of Liquidator Reports (Sample of 300)
  • 130-150 recommended restriction. Examples
  • Continued trading, where there was no reasonable
    prospect of the companys survival
  • Failure to keep proper books of account
  • Excessive directors loans
  • About 50 of these also suggested serious
    misconduct, e.g
  • Fraudulent trading/fraudulent preference
  • Removal of property, etc.

Liquidators Reporting Obligations (6)
  • Initial Impact of Regime
  • Several hundred directors are currently facing
    restriction proceedings by the liquidator
  • Up to 30 are acquiescing in the restriction
  • A majority of those who defend the proceedings
    are convincing the Court that they should not be

Liquidators Reporting Obligations (7)
  • Overall Views
  • Different Character to Liquidators Reports/Few
    S.299 Reports
  • Creditors report success directors investing
    funds to avoid the restriction process
  • Some evidence also of directors seeking to evade
  • ODCE countering this trend with planned actions
    against the directors of unliquidated insolvent
    and struck-off companies
  • High Court decisions laying more emphasis on
    dishonesty than irresponsibility of directors

Investigation Approaches (1)
  • Approaches to Investigation
  • Correspondence/Discussions
  • Seeking Original Documents
  • Taking of Statements
  • Non-Legal Outcomes to Investigations
  • File Closure
  • Referral to Other Authorities
  • Warning Letter

Investigation Approaches (2)
  • Warning Letters re Failure to Hold EGMs
  • 700 will issue next week to the directors,
    auditors and company secretaries of 95 companies
  • Variable Approach planned on Directors Loans
  • Last main area for concerted attention
  • Some Individual Issues absorb Time/Resources

Investigation Approaches (3)
  • Legal Powers Used 2002 2003 so far
  • Search Warrants 5 10
  • Bankers Books 7 13
  • Arrests - 7
  • Detentions - 4

Investigation Approaches (4)
  • Civil Enforcement 2002 2003 so far
  • Compliance Orders - 10
  • Disqualifications - 1
  • Property Seizures - 1
  • Seeking Information 2 -
  • Judicial Review 1 1

Investigation Approaches (5)
  • Criminal Enforcement 2002 2003 so far
  • Convictions 20 40
  • Offences Failing to Keep Proper Books
  • Falsification of Documents
  • Undischarged Bankrupts
  • Directors Loans
  • Unqualified Auditor

Investigation Approaches (6)
  • Pipeline Cases (by type)
  • Directors Loans
  • Inadequate Books
  • Falsification of Documents
  • Disqualified Auditors
  • Undischarged Bankrupts
  • Restricted Directors
  • Trading while Dissolved
  • External Companies

Quality of Financial Reporting (1)
  • ODCE Role
  • We enforce the obligations in company law
  • Overall legal standard is a true and fair view
  • We depend on company auditors to identify
  • We rely on auditors to help prosecute those
  • We do not police compliance with
    accounting/auditing standards, but we have met
    occasional problems

Quality of Financial Reporting (2)
  • Accounts that should be qualified and arent
  • Basis of Opinion
  • the evidence available to us was limited
    because the companys turnover comprises cash
    sales over which there was no system of control
    on which we could rely for the purposes of our
    audit. There were no other satisfactory audit
    procedures that we could adopt to confirm cash
    sales were properly recorded.
  • Opinion
  • In our opinion proper books of account have
    been kept by the company

Quality of Financial Reporting (3)
  • Non-Standard Opinion
  • In our opinion the financial statements give
    as true and fair view of the state of the
    Companys affairs as at 31st March 2002 as was
    possible with the books that we received (There
    followed a statement of the problem issues and
    the representations made by the directors.)
  • Subject to the above being accurate, we have
    obtained all the information and explanations
    that we consider necessary for the purposes of
    our audit. In our opinion, there wasnt proper
    books of account kept by the Company. However,
    the financial statements are in agreement with
    the books of account at present within reason,
    there are items such as creditors and cash that
    cannot be pinpointed down, as well as stock

Quality of Financial Reporting (4)
  • Inadequate Audit Reports
  • Cases where the failure to ascertain the
    companys title to substantial investments
    attracted a qualified audit opinion one year and
    no qualification the next
  • Case of insolvent company with no opinion
    expressed on its going concern prospects,
    notwithstanding a substantial continuing deficit

Quality of Financial Reporting (5)
  • Fundamental Uncertainty/Going Concern Issue
  • Case where a company made a trading loss in 1999
    and 2000, had cumulative losses and where its
    current liabilities exceeded its current assets
    in each year by over 800K and 1 million. Two
    months before the company went into liquidation,
    the auditor reported as follows
  • The financial statements have been prepared on
    a going concern basis, the validity of which
    depends upon future funding being available. The
    financial statements do not include any
    adjustments that would result from a failure to
    obtain funding. Our opinion is not qualified in
    this respect.

Quality of Financial Reporting (6)
  • Overall Views
  • Audit is a valuable discipline and assurance
  • Satisfied as to the integrity of most
  • Our work has identified some lapses
  • Many examples given now subject to investigation
  • Have/Will relay issues to accountancy bodies
  • Any audit exemption change should be measured
  • ODCE/IAASA co-operation desirable in the future

Concluding Comment (1)
  • Active Compliance Agenda/Enhanced Profile
  • Concluded about 75 of Reports/Complaints
  • About 100 ODCE Cases heading for Court
  • New Insolvency Regime successfully launched
  • Positive Feedback on Customer Services

Concluding Comment (2)
  • Further information on the ODCE and its work is
    available from www.odce.ie
  • Thank You
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