According to Morning Ireland today, this law does not apply to banks. I don't know if this is true.
I'd have thought not, but found this .... there appears to be an 'out' but I'd still contend that it is not designed to cover the type of incidence we are discussing here. I remain to be convinced it's anything but fraud.
BM
ODCE Briefing: Directors’ Loans
Is Your Company Your Personal Bank?
Introduction
Company directors occasionally use company assets for personal purposes unrelated to the company’s business, e.g., the purchase of family holidays or contributing to the purchase of a home. However, some of these transactions are legally prohibited.
Why?
The purpose is to prevent unscrupulous directors from divesting the company of its assets for their personal benefit. The rules in the Companies Acts are a ‘creditor protection’ mechanism and are designed to ensure that company assets remain within the business to meet its ongoing commitments or are otherwise available for distribution to creditors in the event of its liquidation. By encouraging compliance with these obligations, the Office of the Director of Corporate Enforcement (ODCE) wishes to reduce creditor losses and overall business risks and thereby improve the commercial environment for sound business development.
What is permitted?
While the general rule is that directors are prohibited from using company assets for personal purposes, there are a number of exemptions:
-arrangements not exceeding 10% of ‘relevant assets’ (see the
Illustration below);
-arrangements approved by special resolution and accompanied by a statutory declaration describing the circumstances;
-arrangements between group companies;
-directors’ expenses properly incurred in developing the business;
-
transactions made in the ordinary course of business, e.g., by banks.
Any transaction (whether prohibited or not) must be disclosed in the company’s financial statements by way of a note disclosure.
What are the Consequences of Non-Compliance?
The company auditor is required by law to report non-compliance to the ODCE. No matter how the transaction comes to attention, the Office considers if the circumstances of the offence warrant legal action against the directors and other relevant persons. In some (but not all) cases, the ODCE will be satisfied by evidence that the directors have voluntarily corrected the default.
The principal legal options open to the ODCE include prosecution of the directors and other relevant persons or High Court proceedings to remedy the default. A decision to pursue legal action is likely to be made where the available evidence suggests, among other things, that the directors knowingly breached the law in undertaking any transaction, the aggregate amount of the transactions was large, there was persistent default and/or satisfactory evidence of rectification has not been forthcoming. The ODCE has already prosecuted one director who obtained several €100k from his company, and other similar cases are planned.
If an insolvent company ceases to trade and a transaction remains outstanding, the directors may also face High Court restriction or disqualification proceedings by the company’s creditors, its liquidator or the ODCE.
The ODCE also reserves the right to inform the Revenue Commissioners of selected cases, particularly where the transactions are of a high value, in order to enable Revenue to assess if a tax liability arises.
Illustration: The 10% of ‘Relevant Assets’ Rule and its Effect
Arrangements at or below 10% of ‘relevant assets’ are permitted. This term is defined as:
-the company’s net assets (i.e., its total assets less total liabilities) according to the most recent preceding balance sheet to have been laid before the company’s annual general meeting (AGM), or
-where no preceding balance sheet has been laid before the company’s AGM, the called up share capital.
If a company’s net assets, as defined, are €250,000, this allows arrangements to be made to directors and connected persons (e.g., family members) up to a limit of €25,000 (i.e., €250,000 x 10%). If, however, no relevant balance sheet has been laid before an AGM and the company has only a nominal called up share capital (e.g., €2), the maximum permitted arrangement would only be 20 cent (i.e., €2 x 10%).
The 10% rule applies to the aggregate amount of all loans, ‘quasi-loans’ and credit transactions benefiting directors or connected persons.
Where can I get more Information?
In order to improve compliance by directors with this obligation, the ODCE has produced a booklet on ‘Transactions Involving Directors’ which is available from the ODCE website at
www.odce.ie or on request from the Office at
info@odce.ie, (01) 8585800 or Lo-call 1890 315 015.
Readers wanting advice about their personal situation should consult their professional adviser.
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