Court Inspectors

Court Investigation

The Office of the Director of Corporate Enforcement (ODCE) may appoint inspectors to investigate the affairs of a company. The Company Law Enforcement Act, 2001 transferred the power from the Minister for Enterprise, Trade and Employment to the Director of Corporate Enforcement.

The court may, on foot of an application, appoint one or more inspectors to investigate the affairs of the company. The application must be based on evidence justifying the investigation.

The application may be made by not less than one-tenth in value of the shareholders or not less than one hundred or on the application of a creditor. In the case of companies not having a share capital, one-fifth of the registered members may apply.

An order for the appointment of an inspector may be made, notwithstanding that the company is being wound up. A liquidator does have a right to apply. However, a liquidator has significant investigatory powers in his own right.

The powers have been used rarely in practice. There have been a number of prominent investigations into matters of public interest. They have concerned dealings in the shares of public companies and allegations of corrupt dealing and tax evasion. There are provisions for an investigation into the ownership of a company, which has been a prominent feature of several such investigations.


Appointment of Inspectors I

The Companies Act, 2014 largely restates the earlier provisions in relation to investigations. The court may on application by

  • the company;
  • not less than 10 members;
  • members holding one-tenth or more of the paid-up capital;
  • a director; or
  • a creditor.

appoint one or more inspectors to investigate the affairs of the company and to inquire into matters specified by the court. The inspector is to report on the matters which the court directs. The power may be exercised notwithstanding that the company is in the course of being wound up.

The inspectors must investigate the affairs of the company in accordance with the order. Their obligation is to ascertain facts. The report does not have any direct legal consequence as such. The court may make such order as it deems fit in relation to matters arising from the report. This may include an order for winding up of the company.


Appointment of Inspectors II

The inspector may report on the affairs of a related company to the extent that it is relevant to the investigation of the company.  A related company in this context includes a body corporate with which the company has a commercial relationship. A commercial relationship exists where goods and services are sold or given by one party to the other.

The court may require the applicant to give security for the costs of the investigation. Prior notice must be given to the ODCE. The Director is entitled to appear and be heard on the matter.

An application may be made to the Circuit Court, in the case of small and medium companies (as defined). The court may give such directions as are necessary or expedient in relation to the matter.


ODCE Applications

On the application of the ODCE, the court may appoint one or more competent investigators to investigate the affairs of a company and report on those matters as it directs.  The power applies if the court is satisfied that there were circumstances suggesting that the affairs of the company

  • have been conducted with the intent to defraud its creditors, its members or others;
  • have been conducted for a fraudulent or unlawful purpose;
  • have been conducted in an unlawful manner;
  • have been conducted in a manner that is unfairly prejudicial to some or all of its members;
  • have been conducted in a manner which is unfairly prejudicial to some or all of its creditors;
  • any actual or proposed act or omission of the company is or would be unfairly prejudicial to some or all of its members or to some or all of its creditors;
  • the company was formed for a fraudulent or unlawful purpose;
  • persons connected with the formation or the management of the company have been found guilty of fraud, misfeasance or other misconduct to the company;
  • the members have not been given all the information relating to the affairs of the company which they might reasonably expect.
The inspectors may be or include officers of the ODCE.

Investigating Ownership

There are specific powers to investigate the ownership of a company. The court may order inspectors to investigate and report on membership, on beneficial ownership, on those with a financial interest in a company and/ or on those who are able to control or materially control its policy.

There must be circumstances to justify the investigation. This may include

  • the public interest;
  • the proper administration of company law; and
  • the discharge of statutory duties of the ODCE.

Most of the powers set out below apply. There is an obligation to perform the investigation in accordance with the principles of constitutional justice. The investigation may extend to the ownership of other related companies, domestic or foreign.

The inspector appointed, may investigate the affairs of another body corporate, that is related to the company under investigation, if it considers it necessary if for the purpose of the investigation, and has first obtained approval of the court.


Investigations

The court may order an inspection by the ODCE of any books or documents in the possession of a company that is in the course of being wound up.  The company, every officer or liquidator shall give the ODCE access to the books or documents as are necessary for the purpose of its investigation.  They may inspect and take copies of the books.  They shall give all assistance to the ODCE as is reasonably necessary in connection with the investigation.

Directors, secretaries, and agents of the company being investigated and of related companies are obliged to produce books and documents within their custody or control. Every person who is an officer or agent of the company must produce to the inspector all books or documents of or which relate to the company or to a related body corporate, that are in his possession or under his control.  Each must attend before the inspector when required and otherwise render the inspector all reasonable assistance which they are in a position to render.

Other persons who hold books, documents and information relating to the company, may be required to produce them. The inspectors may require such persons to attend and be examined on oath. Any person who may be in possession of information relating to the company may be required to assist the inspectors in their investigation.

Where the inspector appointed considers that a person who is not an officer or agent of the company or of a related company, may possess any information concerning the affairs of the company or of a related body corporate, he may require the person to produce to the inspector, all books and documents relating to the company or the related body corporate, in his possession or under his control, attend before the inspector or otherwise give the inspector all reasonable assistance.

The production of a book or record is without prejudice to any lien that may exist over it.


Bank Records

Inspectors can inspect documents relating to the company, including its bank account, where there are reasonable grounds for believing money has been paid in or out in connection with certain types of transactions, particulars of which are not fully disclosed in the accounts. These include contracts with the company or a group company in which a director had a material interest, loans and credit transactions in favour of a director.

The inspectors may inspect the bank account records where they have reasonable grounds for believing that money in an account is connected with acts of omissions constituting misconduct on the part of directors or members. Information may be required from the bank, notwithstanding that it may be in breach of a confidential banker /customer relationship. The power is not limited to accounts of the company or related companies.

If the inspector has reasonable grounds for believing that a director of the company or a related body corporate maintains a bank account of any description, out of which money has been used in financing any transaction, arrangement or agreement,

  • particulars of which are not disclosed in a note to the account (in relation to related party transactions);
  • is not included in the aggregate amounts outstanding in respect of transactions, agreements or arrangements to be disclosed;
  • particulars of which are not included in the required registers of such transactions;
  • money which is in any way connected with an act or omission or a series of acts or omissions that on the part of the director constituted misconduct, or was fraudulent,

then the inspector may require the director to produce all books and records in his possession or under his control relating to the bank account, and the director must comply.


Third Party Records

An inspector may examine an officer or agent of the company or related body corporate and certain other persons who may possess information concerning the affairs of the company, under oath, verbally or in writing.  The court may assist by the granting of orders in default of production of books, documents and records by the above persons and failures to answer particular questions properly put.

Where an officer or agent fails to produce books or records or attend for examination, the inspectors may certify the refusal to the court. The court may enquire into the matter and after hearing witnesses for and against the person concerned may make such order as it sees fit. In particular, the court may require the person to attend to produce the documents, etc.


Fair Procedures

The inspectors do not act judicially. However, their findings may have adverse effects for individuals, which are immune from civil proceedings for defamation. They must, therefore, apply constitutional fair procedures, in common with Tribunals of Inquiry.

The degree of constitutional justice and the formality of proceedings required will depend on the circumstances. An oral hearing will not necessarily be required. A separate investigation and inquiry may be more appropriate.

Cases on tribunals and fair procedures appear to require that persons should be given an opportunity to rebut allegations and proposed adverse findings. They should be given details of the accusations affecting them and given the opportunity to deal with and rebut them.

If an oral inquiry is held, constitutional justice will require that persons whose property or reputation or livelihood may be adversely affected, be given an opportunity to cross-examine witnesses, sufficient time to prepare their case and be allowed legal representation when the matter is sufficiently serious that it is required.


Reports I

The inspectors shall if directed by the court, make interim reports to the court and on the conclusion, they shall make a final report.  They may at any time in their investigation without the necessity for an interim or final report, inform the court of any matters coming to their knowledge as a result of the investigation, which tends to show that a criminal offence has committed.

The court may provide a copy of every inspector’s report to the ODCE.  It may forward it to the registered office. It may provide a copy on request to any of the following:

  • members;
  • a person whose conduct is referred to;
  • the persons who applied for the appointment;
  • other persons whose financial interests appear to be affected;
  • the Central Bank, in the case of a credit institution.

Reports II

The court furnishes the directors with a copy of the report. It may cause the report to be printed and published and to be made available for purchase by members of the company, persons affected, auditors, the applicants, the Central Bank (if appropriate) and/ or other persons with an interest in the company, including its employees and creditors.

The court may order parts of the report to be redacted either as published or as sent to any specified matter. The publication of the report is privileged from civil action for defamation or otherwise.

The ODCE may petition for winding up following consideration of the report.

After considering the report, the court may make such orders as it thinks fit. This may include an order made on its own motion to wind up the body concerned; or an order for remedying any disability suffered by any person whose interests have been adversely affected by the affairs of the company, the subject of the report.  In making such an order, the court shall have regard to the interests of other persons, who may be adversely affected.


Costs and Expenses

The expenses incidental to the investigation by an inspector are to be paid in the first instance by the relevant authority.  The court may direct that a body corporate dealt with in the report or the applicants shall be liable to repay the relevant authority such of the expenses as the court directs.

Where a court enters a conviction or makes an order for civil liability, it may in the same proceedings order the person referred to, to repay the relevant authority or any person fixed with liability, so much of the expenses are incidental to the investigation as the court directs. The cases where it may so do, are

  • where a person is convicted on indictment of an offence in a prosecution instituted as a result of the investigation;
  • the court orders that the person to pay damage or restore the property in proceedings brought as a result of the investigation;
  • the court awards damages or makes an order for restoration of property in proceedings brought as a result of the investigation.

A person who has benefited as a result of the investigation by having damages awarded or property restored, may be ordered to pay costs, provided that in this latter case, it not to exceed one tenth of the award or of the value of the property restored. It is not to take effect until the monies or damages have been paid, or the property has been actually restored.

The court may order an applicant of the company, the subject of the report, to pay costs as it directs, up to a specified maximum. The court may order an applicant to provide security for a sum, up to the maximum.


Disclosure of Information I

Documents, books, and information obtained under the above mandatory powers may not be disclosed, other than to a competent governmental authority, without the consent of the company, subject to exceptions. Competent authorities are the Minister for Finance / Public Expenditure and the Central Bank/

There are exceptions in relation to the disclosures for the following purposes:

  • prosecution of offences under taxes, companies, financial services legislation and for assessing tax;
  • performing the functions of a tribunal of inquiry;
  • facilitating governmental functions;
  • facilitating accountancy and other professional organisations in disciplinary proceedings;
  • facilitating the performance of functions by the Takeover Panel or Stock Exchange;
  • to persons required to be given information, where this is necessary for procedural fairness requirements;
  • the equivalent in respect of companies in respect of which production requirements have been made;
  • with a view to the institution of proceedings by the ODCE;
  • for certain proceedings;
  • for the performance of functions by competent authorities.

It is an offence to obstruct an authorised officer in the exercise of his functions.


Disclosure of Information II

Generally, answers given by a person in the course of the exercise of the powers may not be used against him in the criminal proceedings. This would be contrary to the constitutional protection against self-incrimination.The legislation provides that answers given are not to admissible in criminal proceedings other than for perjury for false answers.

A person may be required to answer a question in the course of an administrative investigation, notwithstanding that his answer may incriminate him and might be used in evidence against him in non-criminal proceedings. The requirement must be proportionate. The court will consider whether the statement is voluntary in the circumstances. Statements and explanations in compliance with a requisition are admissible in civil proceedings only.

A copy of the inspector’s report is admissible in legal proceedings as evidence of the facts in it (without further proof unless the contrary is shown) and of the opinion of the inspector in relation to the matters concerned.


References and Sources

Primary References

Companies Act 2014 S.747-S.762 (Irish Statute Book)

Companies Act 2014: An Annotation (2015) Conroy

Law of Companies 4th Ed.  (2016)  CH.28   Courtney

Keane on Company Law 5th Ed. (2016) Hutchinson

Other Irish Sources

Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury

Introduction to Irish Company Law    4th Ed. (2015) Callanan

Bloomsbury’s Guide to the Companies Act 2015      Courtney & Ors

Company Law in Ireland 2nd Ed. (2015) Thuillier

Pre-2014 Legislation Editions

Modern Irish Company Law   2nd Ed. (2001) Ellis

Cases & Materials Company Law 2nd Ed. (1998) Forde

Company Law 4th Ed. (2008)  Forde & Kennedy

Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy

Companies Acts 1963-2012   (2012)  MacCann & Courtney

Constitutional Rights of Companies   (2007)  O’Neill

Court Applications Under the Companies Act (2013) Samad

Shorter Guides

Company Law – Nutshell 3rd Ed. (2013) McConville

Questions & Answers on Company Law (2008)        McGrath, N & Murphy

Make That Grade Irish Company Law 5th Ed. (2015) Murphy

Company Law BELR Series (2015)   O’Mahony

UK Sources

Companies Act 2006 (UK) (Legilsation.gov.uk)

Statute books Blackstone’s statutes on company law (OUP)

Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington

Company Law in Context 2nd Ed. (2012) D Kershaw

Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam

Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington

 

UK Practitioners Services

Tolley’s Company Law Handbook

Gore Browne on Companies

Palmer’s Company Law