Cliff Taylor: High stakes for corporate watchdog in INM case

A lot has been written about what is at stake for Independent News & Media (INM) in the battle over whether the High Court should appoint an inspector to examine a range of serious allegations. But a lot is at stake, too, for the other party to the proceedings, the Office of the Director of Corporate Enforcement (ODCE).

The collapse of the trial of former Anglo Irish Bank boss Seán FitzPatrick in May last year came amid heavy criticism of the ODCE and led to renewed questioning of the office. It could police day-to-day corporate activities, but was it able to deal with the bigger issues? Indeed Denis O’Brien specifically referred to the FitzPatrick trial in a letter to the director of corporate enforcement, Ian Drennan, read out in court this week.

The year-long INM inquiry, which started with a protected disclosure by that organisation’s former chief executive, Robert Pitt, has culminated in the application to the High Court to take the unusual step of appointing inspectors. INM has sought a judicial review to try to stop the application.

Vital case

It is a vital case for the ODCE, coming after the FitzPatrick trial collapse and the strong criticism of it by the judge in that case.

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Were the application to appoint inspectors to be unsuccessful, either via the judicial review application or, if that fails, the subsequent hearing, it would be seen as yet further evidence that the office was not up to the job of policing the corporate big guns.

It’s all very well – and important work – to ensure that companies file on time and to assess the reports of company liquidators – the normal work of the office – but if the ODCE cannot successfully tackle the big cases its credibility would be open to serious question.

The ODCE was set up by then tánaiste Mary Harney in 2001, following a number of episodes of corporate wrongdoing, notably the Ansbacher offshore accounts used for widespread tax evasion.

It was against the backdrop of widespread disregard for basic company law by businesses, with typically more than 80 per cent of companies late in filing their accounts each year. There was also widespread evidence of the “Phoenix syndrome”, where directors put a company into liquidation, burned their creditors and then started again under a new name.

Paul Appleby was appointed as the first director of corporate enforcement and immediately started a compliance drive. In the years since, huge progress has been made in these areas, and compliance with ordinary rules and regulations is now the norm. The ODCE is actively involved in agreeing restriction of directors, policing the thorny issue of directors’ loans, overseeing company liquidation reports and issuing directions to companies requiring compliance with company law in various areas.

But the bigger inquiries have proved more testing. The inquiry into Anglo Irish Bank took 3½ years and was not completed until the middle of 2012, after repeated trips back to the High Court to seek an extension.

There have been repeated questions of the resources available to the ODCE, but serious mistakes were made, too. It emerged during the FitzPatrick trial that a solicitor without experience of criminal inquiries headed the ODCE investigation in this case; that at one stage documents were shredded which could have been relevant to the trial; and, most importantly, there were widespread failings in the way evidence was taken from two auditors at EY who were key witnesses.

The trial judge ordered that FitzPatrick be acquitted of the charges, which related to hiding loans from the bank, and issued a stinging criticism of the ODCE’s conduct of the case. The ODCE accepted that it had made major mistakes and submitted a review of its handling of the case to the Department of Business, Enterprise and Innovation. Subsequently the Government announced a restructuring plan, due to become law by mid-2019, which would see the ODCE transformed into an independent agency, as opposed to an office of the department. So the future of the organisation is, to an extent, already in play.

‘Diminution of confidence’

The ODCE, in its response to the Government move, accepted in relation to the FitzPatrick case that “the seriousness, and the high-profile nature, of those failings have given rise to an understandable diminution of confidence in the ODCE”.

It went on to detail a reform programme undertaken by the new director, Ian Drennan, who took over from Appleby in mid-2012 following the conclusion of the Anglo inquiry. Since then the office has been restructured, new expertise hired in areas such as forensic accountancy and digital forensics and, we are told, greater resources are being put into more serious and complex cases.

The INM inquiry is clearly both serious and complex and pits the ODCE against the State’s biggest media company and its largest shareholder, Denis O’Brien. In a letter to Drennan read out in court, O’Brien accused him of leaking information about him to the media and specifically referred back to the office’s FitzPatrick investigation.

In reply, Drennan denied leaking anything to the media and pointed out that the ODCE had conducted a year-long investigation and that information had leaked only when it went to INM ahead of the court case.

If the judicial review fails, then legislation and precedent indicate that the court will decide whether to appoint an inspector on the basis of the seriousness of the information provided, the likelihood of further information being uncovered by an inspector and on whether the appointment is appropriate, commensurate and in the public interest. O’Brien’s letter has clearly underlined just how much is at stake here for both sides.