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Companies (Amendment) Act 2009

The Companies (Amendment) Act 2009 (the 2009 Act) was signed into law on the 12th July 2009. The new Act is aimed at increasing transparency of loans made by companies that are banks to their directors and persons connected with them, enhance the powers of the Director of Corporate Enforcement (DCE) and amend existing provisions relating to Irish registered non-resident companies.

The key provisions of the 2009 Act are set out below:

1. Specific right of DCE of access to information and production of books and records relating to the investigation of a company

A director has a duty under section 194 of the Companies Acts 1963 to declare any interest that he may have in contracts or proposed contracts with the company and the company is required to record all such information. The 2009 Act gives the DCE specific right of access and a power to take copies of books that record a director’s interest that he may have in contracts or proposed contracts with the company.

2. Changes regarding the DCE power of search and seizure

The 2009 Act expands the power of the DCE to enter and search premises and seize information whether in hard copy or electronic form. This power includes the seizure of information that is claimed to be legally privileged while the question of privilege is being determined by the Courts. This is in contrast to section 23 of the Companies Act 1990 that provides that a person shall not be compelled to produce documentation which would, in the Courts opinion, be protected by legal professional privilege.

The DCE has the power to remove material or electronic information from the premises for subsequent offsite storage and examination.

3. Disclosure obligations – transactions with directors

All Directors need to be aware of changes regarding loans made between the company and a director. The 2009 Act increases disclosure obligations regarding transactions between a company and its directors and applies special rules of disclosure to licensed banks.

Section 40 of the Companies Act 1990 provides for criminal penalties for breaches of Section 31 of the Companies Act 1990 which prohibits loans by a company to its directors and connected persons. As the DCE is particularly active in reviewing financial statements of companies to ensure that companies are not in breach of section 31, directors should review the company’s financial position to ensure that the company is not in breach and if it is take steps to rectify the situation. The new Act has also removed the requirement of ‘wilful’ or ‘knowing’ default on the part of an officer who authorised or permitted a transaction in contravention of section 31 in order for that officer to be guilty of an offence. The new Act imposes liability on all officers of the company who are in default where the company breaches section 31.

In the past banks were largely exempted from the obligation to disclose particulars of transactions with or for directors or persons connected with them and were only required to disclose aggregate amounts outstanding at the end of the financial year under any such arrangements. New rules were introduced in March 2009 by the Financial Regulator that required banks and building societies to disclose in their accounts particulars of such arrangements with each director. The 2009 Act now requires banks to disclose in their annual accounts the particulars of arrangements with each director and not just aggregated information.

4. Director residency requirements

Prior to the 2009 Act Section 43 of the Companies (Amendment) Act 1999 required that the company have an Irish resident director. This requirement has been amended by the 2009 Act that requires that at least one director of the company must be resident in a member state of the European Economic Area. The Act also clarifies in which circumstances a company is regarded as having a real and continuous link with one or more activities that are carried on in the State, the existence of which removes the necessity of having a resident director.