The General Scheme of the Companies (Corporate Enforcement Authority) Bill, 2018

The General Scheme of the Companies (Corporate Enforcement Authority) Bill, (the Scheme) has been published. The full text of the Scheme can be found here. This initiative is part of a broader Government programme to adopt a package of measures to enhance Ireland's corporate and economic framework which was announced last year. One measure includes a proposal to re-establish the Office of Director of Corporate Enforcement (the ODCE) as an agency, in the form of a commission, which will be known as the Corporate Enforcement Authority (CEA). The Government has set a deadline of end Q2 of 2019 for the enactment of this legislation.  

Under the Scheme the structure of the CEA will be similar to that of the Competition and Consumer Protection Commission. Currently, the ODCE functions as an Office within the Department of Business, Enterprise and Innovation (DBEI). The purpose of this change in structure is to provide the CEA with more flexibility and independence than the ODCE, as well as to provide greater autonomy over its resources, to deal with increasingly complex breaches of company law and investigations into such breaches. For example, it will have the ability to bring in specific expertise as required by particular work streams and needs. Much of the Scheme deals with the organisation, structure and powers of the CEA. 

Parts 3, 4, 5, and 6 of the Scheme propose a number of amendments to the Companies Act 2014. Some of the amendments are of a technical nature, although a number will be of practical importance to companies and their directors. These amendments are, in the main, prompted by some of the recommendations of the Company Law Review Group in its 2017 Report Relating to Shares and Share Capital in the Companies Act 2014, and on the Protection of Employees and Unsecured Creditors, and by submissions made to the DBEI by the Law Society of Ireland.

For example, there is a proposed amendment to the Companies Act 2014 relating to restriction of directors. The Scheme provides for a new ground for a restriction order to be made by the High Court against a director who has failed to meet certain procedural requirements relating to the convening of a general meeting to appoint a liquidator, or provide the required notice to employees, where a company is being wound up. 

Some of the proposed reforms will, if enacted, also restore a number of provisions that were originally contained in the now-repealed Companies Acts 1963-2013, and which ought to have been continued in the 2014 Act. These will include a useful provision to once again enable a company to use sums standing to the credit of its share premium account for various purposes, such as the writing off of the company’s preliminary expenses, or the expenses of, or commission on, any issue of shares, e.g. in an initial public offering. The absence of such a provision since June 2015 has caused some difficulties for companies involved in such share issues. 

Other proposed practical amendments include a new obligation on directors who have a personal public service number (PPSN) to include it in any application to the Companies Registration Office (CRO) to incorporate a company, file an Annual Return, or make any change to the directors or secretaries of the company or in their particulars. Where the director does not have a PPSN, he or she must instead submit a copy of the photo page of a valid passport. The Scheme states that this reform is proposed "to support the accuracy of the Register and to address the possibility of duplication." In the Regulatory Impact Analysis on the Scheme, produced by the DBEI, it was noted in this regard that individuals may use different forms of their name when submitting forms, such as Annual Returns, to the CRO, and that while this practice is legal, it could be used to hide possible breaches of company law provisions, such as the prohibition on a person being a director of more than 25 companies in breach of section 142 of the Companies Act 2014.

On the enforcement side, the CEA will effectively take over many of the existing functions of the ODCE meaning that it will effectively step into its predecessor's shoes. This will include an obligation to submit an annual report to the Minister describing its activities and the preparation of a strategic plan every three years. The CEA will be given the power to appoint its own staff and where appropriate, members of An Garda Síochana may be seconded to the CEA.

While the transfer of obligations to the CEA will render its operations broadly similar to the ODCE, the proposed legislation also seeks to give the CEA enhanced powers in two significant ways. 

Firstly, the legislation will expressly allow a Court to consider admitting written statements (which might otherwise be excluded) into evidence in certain circumstances and will create a statutory exception to the rule against hearsay. This provision is modelled on s.13 of the Competition Act 2002 which allows for special rules in relation to the admissibility of statements contained in certain documents in relation to the making of agreements or decisions to engage in concerted anti-competitive practices or doing acts which constitute abuse of a dominant position in the market.  

Secondly, there is an enhanced power in respect of searching electronically held evidence. Traditionally, evidence has been in one or two forms – a physical item, like a document, or testimony from a person who has witnessed an event. Technological advancements today mean that a great deal of evidence is now in digital format. This new legislation purports to authorise the CEA to access data under the control of an entity or individual, regardless of where that data is stored and to access it using any means necessary (by which is meant using any electronic device deemed necessary and at any location deemed necessary) to ensure best compliance with evidence rules and digital forensics principles.

We will be closely monitoring the passage of the Bill to implement these reforms, and will provide further updates as appropriate.

For more information please contact a member of the Corporate and M&A team.

Date published: 11 December 2018