Article by David Lydon, Barry Devereux, David Byers and Paul Heffernan

The Government has proposed important changes to the Companies Acts. When enacted, the changes will expand the powers of the Director of Corporate Enforcement, increase disclosure obligations in respect of certain transactions between a company and any of its directors (including special rules for disclosure by banks) and modify the residency requirement that applies currently to at least one director of many Irish companies. The changes are expected to be fast-tracked into legislation.

On 9 April 2009 the Minister for Enterprise, Trade and Employment introduced the Companies (Amendment) Bill 2009. The Bill proposes to change the Companies Acts in three important respects and the Minister has indicated that the Bill is to be enacted as a priority.

Powers of the Director of Corporate Enforcement

The Bill proposes to expand the powers of the Director of Corporate Enforcement ("DCE") to police compliance with and to investigate suspicions of breaches of the Companies Acts. The changes will:

  • give to the DCE a specifi c right of access to and the power to take copies of books of a company that records a director's declaration of his or her interest in any contract or proposed contract with the company;
  • clarify the DCE's power to require the production of records from third parties where the records relate to the business of a company under investigation;
  • subject to "appropriate safeguards", expand the power for the DCE to enter and search premises (including allowing the court to extend the period of validity of a warrant, and permitting the DCE to seize and remove papers and electronic information for subsequent examination elsewhere); and
  • permit the DCE to seize information (whether hard copy or in electronic form) that is claimed to be legally privileged, and provide for its storage by the DCE – without having been examined by DCE – pending determination by the High Court as to whether any privilege attaches.

Transactions with Directors – Disclosure Obligations

The Bill proposes to increase disclosure obligations in respect of certain transactions between a company and any of its directors, and in that regard to apply special rules for disclosure by "licensed banks". In that context the Bill will recast a breach of the provisions governing loans by a company to any of its directors or connected persons as a criminal offence.

It is proposed that a company's annual accounts should disclose loans (including "transactions, arrangements or agreements") made by a company to its directors and to persons connected with them; prescribe criminal penalties for failure to disclose such loans; and set out defences that may be raised.

In the case of a licensed bank:

  • the new and amended requirements will be without prejudice to any rule or direction of the Financial Regulator;
  • every loan to each individual director will have to be disclosed (as well as the maximum amount outstanding to that director during the period of the accounts); and
  • the aggregate of loans to a person connected with a director, above a minimum threshold of €3,174.35, will have to be disclosed, in respect of each loan that is on more favourable terms than are generally available to customers of the licensed bank.

It is notable that, in some respects, the Financial Regulator currently requires more extensive disclosure than the Bill proposes (such as non-preferential lending to connected persons).

A company that is a licensed bank will have to continue to maintain a register of loans to directors and that register will have to be accessible by the DCE. Such a licensed bank will also have to prepare a statement, based on information in the register, that is made available prior to and at the company's AGM. However, the prescribed information will not have to be provided separately to the AGM if, whether voluntarily by the company or under compulsion by the Financial Regulator, the information is disclosed in the company's accounts.

Breach of the disclosure requirements will be a criminal offence by the company and by every director, although it will be a defence for a director to show that he or she took all reasonable steps for securing the company's compliance.

Directors' Residency Requirements

The Bill will also amend the requirement that has existed since 1999 that at least one director of many Irish companies is resident in the State or that a bond be provided in respect of certain breaches of the Companies Acts and Taxes Acts by that company. It is proposed that, instead, a director that is resident in an EEA Member State will suffice. The Bill will also clarify the circumstances in which a company is to be regarded as having a real and continuous link with one or more economic activities that are being carried on in the State, the existence of which link removes the necessity of having a resident director.

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