The Implications of the Enactment of the Companies (Corporate Enforcement Authority) Act 2021

Introduction

The enactment of the Companies (Corporate Enforcement Authority) Act 2021 is a welcome development for the prosecution of white-collar crime in Ireland. While the focus of the Act is the replacement and expansion of the corporate enforcement body in Ireland, it also makes several changes to the Companies Act 2014.

Corporate Enforcement Authority

Responsibility for enforcement and adherence to the Companies Act 2014 currently lies with the Office of the Director of Corporate Enforcement. Under the 2021 Act, its role will be replaced by a regulatory body, the Corporate Enforcement Authority (“CEA”). The new CEA will also be given increased manpower with the current Director’s role being replaced by three full-time commissioners with 14 further civilian positions being created along with 9 additional Gardaí roles.

The CEA has also been given new powers in the areas of; investigation of non-compliances with the 2014 Act, the prosecution of summary offences and the ability to refer more serious offences to the DPP. It will also have the power to impose sanctions on directors that it finds to be in breach of their duties by prohibiting certain conduct or imposing a monetary fine. Notably, the 2021 Act provides for the first-time accountability measures for the CEA. It will be accountable to the Committee of Public Accounts, and they can be called before any committee of the Oireachtas or the Seanad for questioning.

Missing Powers

There has been much focus on the new powers of the CEA, with the Tánaiste calling its introduction “an Irish FBI…for white collar crime”. However, the CEA do not have unlimited powers. There are two recommendations from the Hamilton Review Group’s Report on Economic Crime that are missing from the 2021 Act. The first was to grant the CEA additional powers to search for electronic evidence that is stored off-site. Its exclusion is not surprising given that it would likely require further legislation to allow the Gardaí to obtain such information.

The second recommended power that was not included would allow the Court to consider admitting written submissions that would normally fall under the hearsay rule into evidence. The justification for its non-inclusion in the 2021 Act is unclear given that such precedent for this already exists within the Competition Act 2002. Both recommendation’s omission will hopefully be subsequently rectified by their inclusion in future legislation.

Amendments to the Company’s Act 2014

Shares

A company can now use is its share premium for writing off preliminary company expenses and for the commission paid on the issue of shares or debentures. The Act also removes the requirement for the re-organisation of a company’s capital in three-party share-for-undertaking transaction. A company can now enter such a transaction where its distributable reserves are at least equal to the value of the assets that are being transferred or disposed of from its reserves. Furthermore, definition of a treasury share has been updated to include shares acquired during a merger or acquisition.

Registration of Share Transfers

Under the Companies Act 2014, the directors of a private company have the power to decline to register a transfer of shares in their absolute discretion without having to give any reason (unless the Constitution of the Company provides otherwise). However, this right of refusal did not apply to the transfer of securities in Public Limited Companies (“PLC”). Under the 2021 Act, directors of a PLC can now decline to register the transfer of shares in certain circumstances, including where they do not approve of the transferee, they are of the opinion that the transfer would “imperil or prejudicially affect the status of the company or the transfer may have tax implications for the company or its members.

Director PPS Numbers

Directors will now be required to provide their PPS numbers when filing an application to form a new company, an Annual Return or a notice of change in director.

Summary

The establishment of the CEA and its increased capability for investigating and enforcing sanctions relating to breaches of the Company’s Act 2014 is most welcome. It is also hoped that the two missing recommendations form the Hamilton Report will be included in subsequent legislation to further enhance the new Authority’s powers.

How we can help

If you have any queries or concerns, or would like to discuss the above in further detail, please feel free to contact Jennifer Watters (01 440 8300 / jwatters@bhsm.ie).

This article is for general information purposes.  Legal advice must be obtained for individual circumstances.  Whilst every effort has been made to ensure the accuracy of this article, no liability is accepted by the author for any inaccuracies.