Gordon Campbell (1241953)

Word Count: 2,331

LW391
Table of Contents
Background............................................................................................................................................3

Foundation............................................................................................................................................4

Work to Date.....................................................................................................................................5

i. The Consolidation of the Companies Acts 1963.....................................................................5

ii. Enforcement of their statutory role.......................................................................................5

iii. Consideration of EU Directives..............................................................................................5

iv. Duties of Directors.................................................................................................................6

v. Developing the Private Company (limited by shares) as the main entity...............................6

Work to Date – Conclusion................................................................................................................7

UK Company Law...............................................................................................................................8

The Future of the CLRG......................................................................................................................8

Appendix...........................................................................................................................................9
Background
The Company Law Review Group was established following the publication of the
McDowell Report, 1999i. The McDowell report highlighted many discrepancies and
misappropriations among Irish businesses and institutions. The fraudulent operations at
National Irish Bankii were one of the key drivers in the inception of the Company Law
Review Group (CLRG). The abuse of customers’ accounts through new and underhanded
account charges, which in turn were used to fund off-shore activities and tax evasion, was
seen as an unacceptable act and needed to be rectified. Not only did the public want to see
reform but also accountability placed on those responsible.

The then Tanaiste (and Minister for Trade and Enterprise) Mary Harney called for the
establishment of the role of Director of Corporate Law Enforcement, and subsequently the
Company Law Enforcement Act 2001 (CLEA), came into Irish Law. This Act was
developed to bring Ireland forward as an international business centre through enforcement of
the existing Companies Act 1963 and to focus on monitoring those companies operating on
the island. Furthermore, by developing a strong, transparent and internationally comparable
company law system, the CLEA would strengthen Irelands’ position as a sound base for
Foreign Direct Investment.

During the 1990’s and toward the year 2000, the level of compliance among Irish businesses
in filing returns to the Companies Registration Office, was floating around the mid teens.
This level of non compliance was sending the wrong message to possible new enterprises
considering Ireland but also showcasing vulnerability in the national system. Without sterner
regulation and a more closely monitored system, failures in the system would inevitably
occur. As with the collapse of The Lehmen Brothers in the United States in 2008, the
similarities in Irelands’ lack of regulation are akin to the system of “light-touch regulation” iii
championed by the head of the Federal Reserve during the collapse, Alan Greenspan. The
idea that these organisations and institutions could manage themselves and be in the best
position to monitor performance led to catastrophic ends. As in Ireland, the lack of a
professional statutory body with real judicial power to monitor businesses and protect
stakeholders, the creation of the CLRG was a timely and necessary step.

Foundation
In accordance with the Company Law Enforcement Act 2001, Section 7, 68.-(1) the CLRG is
charged with two main functions.
  The implementation, amendment and consolidation of the Companies Act and the
introduction of new legislation and in staying abreast of developments in Common
Law, EU Directives and with similar international bodies to develop ideas relevant to
Irish company law
 The second of these functions is to promote enterprise through ease of incorporation,
coupled with standards and infrastructure.

Established in February 2000, the main aims of the CLRG were to simplify the Companies
Acts 1963, encourage ease of incorporation and to protect both shareholders and creditors.

Their main aims include, but are not limited to:

i. The consolidation of the 13 Acts of the Companies Act 1963

ii. Enforcement of their statutory role
iii. Consideration of EU directives
iv. Duties of Directors
v. Developing the Private Company (limited by shares) as the model company

The mission statement of the CLRG is as relevant now as it was at its inception. The need
now to maintain investment and enforce regulation has been more immediate as the country
wades out of the recession. With a focus on small to medium enterprises, the CLRG is also
an advisory body, not just a regulatory body. By consolidation of the Companies Acts, the
CLRG has worked to make incorporation of a business more manageable and transparent.
On the other end of the scale, the winding down of businesses has also been closely
monitored by the CLRG and they have also furthered their powers of appointment of
examiners.

“The goal of the Company Law Review Group is that Ireland should have an efficient world-
class company law infrastructure. To that end, the Review Group seeks to promote
enterprise, facilitate commerce and encourage commercial probity.” Mission Statement,
www.clrg.ie (accessed 24/01/11)

Work to Date

Focusing on the aims listed above, the progress of the CLRG to date appears to be constantly
moving forward although can be limited to approval and restraints.

i. The Consolidation of the Companies Acts 1963.

The development of the Companies Acts 1963 to date, or Principal Act, has achieved
continual momentum. From the first published report of the CLRG, 195 recommendations
were put forward. This volume of amendments, although showing real deficiencies in the
Acts, demonstrates that the time frame for making such amendments would always be a
constraint. To this end, it would appear that the right minds are working on the consolidation
process, in that they have found as many amendments as they have, but that the time to pass
and implement changes will provide a massive hurdle. As in the creation of the Companies
Act of 1963, a committee had been set up 12 years previous in 1951 with the similar task of
consolidating the Companies Act 1908. The 12 years to reach approval at the Oireachtas is
similar in time to what the new Consolidated Acts are looking like taking, with Autumn 2011
being a current target for the committee.

ii. Enforcement of their statutory role

In looking forward to the Companies Consolidation and Reform Bill, the CLRG must
maintain focus on current issues and developments. Criticism from the Institute of Chartered
Accountants in Ireland (ICAI) has been levelled at the CLRG (or possibly the Government)
in the delay in bringing some issues along faster. Aidan Lambe, Director of Representation
and Technical Policy at the ICAI, has stated that many of the items under consideration could
be brought before the Oireachtas as separate pieces of legislation.
“Many of the important recommendations in the latest CLRG report [2009] do not need to
wait for this process and would lend themselves quite neatly to a smaller piece of amending
legislation.” Aidan Lambe (accountancyireland.ie)

iii. Consideration of EU Directives

With the publication of the Second Report by the CLRG (March 2004), European issues
began to take focus. Issues from the EU brought to the Irish commission included Corporate
Governanceiv, Capital Maintenancev and new forms of Incorporation. The response to these
initial areas did gain theoretical approval but criticism was placed in the unrealistic time
frame, in passing eight pieces of legislation in six years. One of the main achievements at
this time was the introduction and passing of the International Accounting Standards
Regulation which came into operation from January 1st 2005. This regulation would see the
accounting processes standardised, remove previous variances in practices and create more
transparent and streamlined accountancy.

The Market Abuse Directive is another key EU based development to be worked through by
the CLRG.
“Market Abuse Directive (MAD) which provides for the prevention, detection,
investigation and sanctioning of insider dealing and market manipulation”
(www.clrg.org Work Programme 2004-05)
The introduction of MAD has seen new authority granted to the Financial Regulator in
overseeing this area and being a watchdog for ‘market manipulation’, a new offence under
Irish Law.

iv. Duties of Directors

From the First Report of the CLRG, the statutory duties and the fiduciary duties of both
directors and company secretaries have been examined. Within these reports, reference to
company law outside of Ireland was made in the use of The Jenkins Report 1962 vi and the
Joint English and Scottish Law Commission Report 1999vii. From these reports, the CLRG
was able to compound its view that the fiduciary duties of directors is as significant as the
statutory duties. The second report was successful in firmly stating that the fiduciary duties
were now incorporated in the companies code, (stated in general terms and not exhaustive).
Non-executive directors, from the publication of the second report, are also now to be
regarded as fully responsible for company actions and face the same repercussions as full
time directors.

“The 2001 Act has expressly raised the standard of behaviour expected on the part of
directors, as well as imposing an obligation on directors and the secretary to comply with the
Companies Acts.” (www.clrg.org First Report)

However, the first attempt to introduce the Directors Compliance Statement (DCS) proved a
non runner. With objections from many of Irelands leading business figures, including the
Irish Business and Employers Confederation (IBEC), the DCS was looking like it would be
too costly to implementviii. The lack of clarity on certain issues and the associated costs
meant that the CLRG had to shelve the DCS at this stage (second report), and take on board
the criticism and develop a more coherent and easier to adopt system.

v. Developing the Private Company (limited by shares) as the main entity

One of the main workings of the CLRG has been in developing the consolidation toward the
Private Company, limited by shares. As Irelands’ majority type of company, the main points
of the focus of the new Acts will be referred to as Pillar A, for the Private Limited Company.
The idea behind this separation is that anything outside of Pillar A, i.e. Pillar B, will not be of
concern. In previous Acts, like of 1963, companies would have to look through areas of the
Act which were not relevant to their operating business model. Following the consolidated
Acts, this will no longer occur. Companies outside of the first pillar will have their
specificities outlined in pillar B. With more focus on the majority, company set up and life
cycle should be more manageable – underpinning the basis of the CLRG, ease of
incorporation, day to day operations and eventually winding up.
Further measures to be taken will be the replacement of the articles of association and the
memorandum with the new consolidation act. Also the abolition of the doctrine of ultra-vires
will “allow for greater protection for persons entering into business transactions with
companies.” (www.dilloneustace.ie “The Private Company – No longer a legislative
afterthought but the New Model for Irish Company Law”)
Also, the private company will be considered to have the legal capacity of a natural person,
The case of Salomon v Salomon & Co Ltd. (1897)ix still forms the cornerstone of common
law in this area.

Work to Date – Conclusion

The massive work load of the Company Law Review Group has been key indicator to the
level of overhaul that was required with the Company Law system. Despite being a statutory
body for ten years, the main body of work is yet to be passed. Smaller legislation has been
approved as others undergo further consideration. To critically asses their role to date is
better done on input than output. It is clear that the members of the CLRG committee are
dedicated professionals seeking to push Ireland towards the precipice of global standards for
Company Law. Therefore the time involved would be assumed to be lengthy and should not
level criticism. Constructive criticism that has been received has been acknowledged and
considered for further attention – as in the case of the DCS. The CLRG understands that to
legislate and consolidate is to prepare and be certain. Further work is still needed and
looking at international bodies, comparatively, may garner knowledge and insight into further
healthy developments within the field.

UK Company Law

The UK Companies Act of 2006 has been brought through all the necessary channels and is
now part of UK Law. The changes to their system mirror many of the changes being
considered and promoted in the Consolidated Companies Act in Ireland. The CLRG has
already highlighted areas from the UK Act which are worth considering and possibly
adopting. Mainly sections 116 and 117.
Section 116: Rights to Inspect and Require Copies
Section 117: Register of members: response to request for inspection or copy
These particular sections were considered following a request from Bank of Ireland following
improper use of its members details for telemarketing. (www.clrg.ie 2009 Report, pg10,
sect.9)
Other areas worth consideration here could include lowering the age of a company director.
In Ireland it stands at 18 years, the UK is only 16 years. As mentioned above, the CLRG has
already looked to outside influences (The Jenkins Report 1962 and the Joint English and
Scottish Law Commission Report 1999) and should continue to do so if the aim is to
modernise and learn from other functioning systems.

The Future of the CLRG

As the passing of the Consolidated Companies Act moves closer, the CLRG will no longer be
in the position of a reviewing body, as such. Once the bills are passed, the CLRG will be
possibly based more on the monitoring side with one eye on European developments and
judicial decisions at common law level. At present there is still outstanding issues which
need addressing. The issue of Limited Liability Partnerships (LLP’s) seems to be widely
approved yet not fully conclusive in the CLRG’s reports to date. In tandem with this is the
lengthy passages of time which will continue to dog the CLRG, both in consideration of
issues and for the passing in Law of approved amendments.
As a professional body, with resources at hand (including extra staffing), it does feel as
though the CLRG could be quicker in reaching its markers. The time frame of three months
following the year end before reporting to the minister seems lengthy. Add to this another
two months for the minister to pass the report to the Oireachtas and a half of a year has
passed. There is scope to compile, present and move reports more expediently.
Also, having looked at the nearest comparison, the UK Companies Acts 2006, there is more
that the CLRG website can offer. The poorly built website of the CLRG is ironic in that the
aim of the consolidation is to make things clearer and easier to understand. The website
contains very heavy reports and legal texts and would still bamboozle the lay person. In
contrast, the UK site has clear, easy to understand explanations of the amendments and how
they would affect business owners and employees alike.

Appendix
i
The commissioning of the McDowell report (published June 1999) stemmed from the sheer lack of compliance by Irish
businesses to complete their returns on time. The statistics showed that only 13% of companies in 1997 complied
with their obligations that year.
ii
RTE journalists Charlie Bird and George Lee uncovered a massive scandal at National Irish Bank in 1998. In true
‘Watergate’ fashion, the two journalists discovered that the bank had been overcharging customers and encouraging
tax evasion for more than ten years. Operating off-shore accounts led to the Exchequer not collecting taxes due and
the bank eventually had to repay the monies owed. To date, many of the officials of the bank have been disqualified
from taking directorships, through the ODCE. These include Frank Brennan, Nigel D'Arcy, Barry Seymour, Michael
Keane and former CEO Jim Lacey.
iii
‘Light Touch Regulation’ was the model approved by the Chairman of the Federal Reserve in the run up to the Global
Economic Crisis. Chairman Alan Greenspan believed that in having a very heavily regulated system in the banking and
lending sector, loan approval would become too difficult and lengthy and discourage people from borrowing/ lending.
The relaxation of this process led to the notorious ‘sub-prime’ mortgage market and ultimately to disaster. The story
of this is best explained in the BBC series ‘The Love of Money’ at http://www.tradeitdontdateit.com/bbc-the-love-of-
money-episode-2-the-age-of-risk/
iv
From (www.businessdictionary.com). Traditionally defined as the ways in which a firm safeguards the interests of its
financiers (investors, lenders, and creditors). The modern definition calls it the framework of rules and practices by
which a board of directors ensures accountability, fairness, and transparency in the firm's relationship with its all
stakeholders (financiers, customers, management, employees, government, and the community). This framework
consists of (1) explicit and implicit contracts between the firm and the stakeholders for distribution of responsibilities,
rights, and rewards, (2) procedures for reconciling the sometimes conflicting interests of stakeholders in accordance
with their duties, privileges, and roles, and (3) procedures for proper supervision, control, and information-flows to
serve as a system of checks-and-balances.
v
Physical capital maintenance acknowledges that a profit is earned only if the physical capacity (or operating capacity)
of the entity (or resources or funds needed to achieve that capacity) at the end of the period is greater than that at
the start of the period, after deducting distributions to or contributions from the owners.
http://www.cpaireland.ie/UserFiles/File/students/Articles/TheRegulatoryFramework.pdf
vi
Jenkins Report 1962
The Jenkins Committee, which reported on the UK Companies Act 1948, recommended that the Act should provide
that: "a director of a company should observe the utmost good faith towards the company in any transaction with it
or on its behalf and should act honestly in the exercise of his powers and the discharge of the duties of his office; a
director of a company should not make use of any money or other property of the company or of any information
acquired by virtue of his position as a director or officer of the company to gain directly or indirectly an improper
advantage for himself at the expense of the company;
a director who commits a breach of these provisions should be liable to the company for any profit made by him and
for any damage suffered by the company as a result of the breach; these provisions should be in addition to and not in
derogation of any other enactment or rule of law relating to the duties or liabilities of directors of a company."
(www.clrg.org)
vii
Joint English and Scottish Law Commission Report 1999
More recently, in 1999, the joint report of the English Law Commission and the Scottish Law Commission has
recommended that there should be a statutory statement of a director’s main fiduciary duties and his duties of
care and skill, signed by the director. The statement should be in broad language and should not be exhaustive. The
duties to be stated are organised under the headings of
(i) Loyalty
(ii) Obedience
(iii) No secret profits
(iv) Independence
(v) Conflict of interest
(vi) Care, skill and diligence
(vii) Interests of employees etc.
(viii) Fairness
The law stating the duties of directors is not affected by the statement, which is intended to be nonexhaustive.
By signing this document, a director acknowledges that he has read the statement, but not necessarily that he
understands it. (www.clrg.org)
viii
Referral of this provision was prompted by numerous representations against the DCS by IBEC, the funds industry,
and others. Opposition to the DCS was founded on the perceived additional costs which it was expected to impose on
the business community, on the degree of prescription required to complete the DCS, and on the potential adverse
effects on competitiveness, investment and job creation in Ireland, particularly in terms of foreign direct investment.
(http://www.clrg.org/cuuploads/editor/file/CLRG%20Report%202004-5%20web%20ENGLISH.pdf )
ix
The case of Salomon v Salomon & co. established that a company, once incorporated becomes a separate entity than
those running it. In effect it is a natural person, although the courts can overrule this in ‘lifting the corporate veil’.
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