12 Jul 2017 | 08.28 am
ODCE’s Roll Call Of Director Misbehaviour
Annual report sets out examples of enforcement actions
12 Jul 2017 | 08.28 am
The Office of the Director of Corporate Enforcement (ODCE) sent five files to the DPP’s office in 2016, the agency has reported, with recommendations for prosecutions under both company law and the Criminal Justice (Theft and Fraud Offences) Act.
The agency’s annual report for 2016 states that it also obtained 93 restriction undertakings from directors of insolvent companies, thereby avoiding the necessity for the underlying matters to be litigated before the High Court.
The ODCE got involved in pushing directors to repay directors’ loans amounting to €17m – this issue is usually brought to the agency’s attention by company auditors. The agency, led by Ian Drennan (pictured) issued 108 directions to companies and their directors requiring compliance with a range of obligations under company law.
Set out below are examples cited in the annual report of director misbehaviour considered by the High Court in making Disqualification Orders or to which regard was had by the ODCE in offering Disqualification Undertakings. The orders/undertakings were on foot of liquidators’ section 682 reports.
• A company involved in operating a nursing home had its registration cancelled by the local District Court on the application of the Health Information & Quality Authority. Following the withdrawal of the registration, the directors left the state and took no further role in the affairs of the company. They failed to place the company in liquidation, allowing it to be struck off for not filing statutory returns.
• An uncontested Employment Appeals Tribunal hearing awarded former employees in the region of €181,000 and one of the former employees eventually had to petition for the winding up of the company in order for payment of the award to be made. The directors failed to cooperate with the liquidation, failed to provide any books and records to the liquidator, failed to provide a sworn Statement of Affairs and failed to respond to the questionnaire issued by the liquidator (High Court Disqualification).
• A director of a contract cleaning company had failed to declare in excess of €600,000 in tax liabilities in respect of PAYE/PRSI, VAT and Corporation Tax, which were identified by the Revenue Commissioners through an audit. The majority of the PAYE/PRSI liability arose from the transfer of a personal asset (office premises) as consideration for a director’s loan balance with no independent valuation carried out at the time (High Court disqualification).
• The Revenue Commissioners petitioned the High Court for the winding up of a company that was engaged in the provision of security services. The petition was in response to estimated accumulated tax liabilities in excess of €300,000. The liquidator reported that the directors made excessive wage payments to themselves and to individuals believed to be related parties and, moreover, withdrew cash from the company’s bank account for wages in an amount that was substantially in excess of employees’ wages. The directors also failed to account for all sales made by the company (High Court Disqualification).
• The longest disqualification in the history of company law was handed down by the High Court against a director of a collapsed investment firm who was found to have misappropriated approximately €66.5m in client funds. Two other directors were also given lengthy disqualifications from acting as company directors. The firm’s failure to maintain proper accounting records rendered it difficult, and in some cases impossible, to determine where misappropriated client funds had been diverted to. The company was liquidated in 2011 after a High Court-appointed investigation by two Central Bank inspectors found “systemic and deliberate misuse” of clients’ money, the majority of which represented transfers to syndicated property investments. Sums of more than €2.3m were diverted for the benefit of two of the directors and the company’s books and records were kept in such a manner as to conceal the improper transfer of those funds (High Court Disqualification).
• A company that operated a self-service online event registration website was placed in liquidation when clients experienced difficulties in collecting receipts from the company. The company allowed customers to use the site to create their own web pages to advertise and sell tickets for events. It subsequently emerged that the main director was siphoning off significant amounts of funds from the company. The software developed for the company should have been intended and designed to direct payments to a trust account or the actual account of the event organiser. A total of €967,276 had been siphoned off by this director to a PayPal account controlled exclusively by him (High Court Disqualification).
• The directors of a company involved in operating a public house engaged in systematic and deliberate under-declaration and under-payment of VAT for a period of at least two years, resulting in undeclared debts to the Revenue Commissioners of in excess of €200,000. The directors continued to trade while insolvent during these two years. The liquidator reported concerns over the maintenance of proper accounting records and had serious concerns that cash was being withdrawn from the business in an improper manner (Disqualification Undertaking).
• A company involved in the construction industry failed to discharge tax liabilities of in excess of €700,000. Moreover, bank liabilities may have been discharged from property sale proceeds in preference to tax liabilities and following the issuing of payment demand proceedings by the Revenue Commissioners (Disqualification Undertaking).
• The directors of a company involved in selling overseas properties sold a number of properties in both Turkey and Bulgaria on behalf of clients but, instead of forwarding the net proceeds to the owners of the properties, used those proceeds to pay amounts to other clients and to discharge company salary costs. The Revenue Commissioners petitioned for the winding up of the company following a Revenue Attachment Order being placed on the company’s bank account. The liquidator reported that limited tax payments were made during the lifetime of the company. The sworn Statement of Affairs indicated tax liabilities of approximately €102,000 at liquidation and approximately €715,000 in unsecured creditors, much of which related to property owner funds not repaid. The company had also been prosecuted for various breaches of the Property Services Regulations for carrying on unlicensed property service activities (Disqualification Undertaking).
• In a further unrelated case, directors of a construction company failed to discharge the VAT arising on the sale of houses by the company in circumstances where the VAT liability was, or ought to have been, known at the time of sale of each of the houses (the amounts that should have been remitted to the Revenue Commissioners instead being used to discharge loan liabilities). The directors also transferred two houses each for their own benefit or for the benefit of their families (Disqualification Undertaking).
• A company involved in operating two retail outlets failed to record cash receipts for one retail outlet for nearly 12 months and for the second outlet for some three months prior to the cessation of trading (or, at a minimum, failed to make any such records available to the liquidator). The absence of proper books and records meant that the liquidator was unable to determine the correct amount of tax liabilities owed by the company or to otherwise review tax compliance by the company. The liquidator indicated that tax returns had been filed on the basis of guesses of the amount of tax due, which he considered reckless. The liquidator also confirmed that he was unable to satisfy himself that cash payments to the directors or staff were properly recorded. This left open the possibility that PAYE/PRSI returns made were false (Disqualification Undertaking).
• A company engaged in the provision of financial advisory and accounting services failed to discharge a VAT liability of close to €160,000, which was raised following a Revenue audit. A substantial distribution of company assets — in excess of €212,000 — was made to a connected company despite the commencement of the audit. Notwithstanding that a body corporate is not permitted to perform audit services, the company in question issued a number of audit reports that it was not eligible to do and a principal director of the company may have forged client signatures in various accounts filed with CRO. The liquidator also believed that the company acted as its own auditor in breach of company law (High Court Disqualification).
• A company involved in operating a public house engaged in a practice whereby recorded cash takings were used to fund an abnormally high level of cash payments for goods and services throughout the lifetime of the company. Company stock was routinely transferred from the company to the principal director’s new venture and product for this new venture was paid for from company cash assets. Cash wage payments were made to staff and remittances in respect of PAYE and other payroll taxes were made irregularly and tax returns were not made for some periods. The liquidator estimated that the undischarged liability for PAYE and other payroll taxes was €186,814. The undischarged VAT liability was €84,512. During the 12 months prior to liquidation, payments totalling €42,428 were made for the principal director’s personal benefit and for his associated businesses (Disqualification Undertaking).