Companies Registration Office: Discussion

I welcome members who will participate in today's meeting in line with the current exceptional measures that we must take during the pandemic. Members and all in attendance are asked to exercise personal responsibility in protecting themselves and others in order to reduce the risks of contracting Covid-19. All of the members who are participating will participate in this meeting remotely and from within the Leinster House complex. The only people in the committee room are myself and the secretariat staff. I hope that everybody is keeping well and safe. Members are required to participate remotely from within the Leinster House complex. No apologies have been received today as of yet.

This meeting will consider the role, functions and operations of the Companies Registration Office. Earlier this year the joint committee wrote to the Department of Enterprise, Trade and Employment to seek its reaction to the reports that there were indications of a lack of bona fides in terms of many companies being registered in the State. These reports raised questions about the role of the Companies Registration Office. The Department responded to the committee's inquiry and recently provided an up to date development on the Companies Registration Office. The Companies Registration Office implemented a new approach to assessing risks in this regard on which we would like more clarity. More generally, the Department pointed to the broader provisions and reforms in the area of company legislation.

To provide further insight into these and other issues that relate to the Companies Registration Office I am pleased to welcome Mr. John Newham, Assistant Secretary, and Mr. John Shine, principal officer, Department of Enterprise, Trade and Employment. I also welcome Mr. David McFadden, legal adviser, Companies Registration Office. The Secretary General has written to the committee to point out that the Registrar of Companies is unable to attend today's meeting.

Before we start, I wish to explain some limitations to parliamentary privilege in the practice of the Houses as regards references witnesses may make to other persons in their evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected, pursuant to both the Constitution and statute, by absolute privilege. However, witnesses are giving their evidence remotely from a place outside the parliamentary precincts and, as such, may not benefit from the same level of immunity from legal proceedings as a witness physically present. The witnesses have already been advised that they may think it is appropriate to take legal advice on this.

Witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction.

The opening statements from the Department of Enterprise, Trade and Employment have been circulated to all members. To commence consideration of our matter today, I invite Mr. Newham to make his opening remarks on behalf of the Department.

Mr. John Newham

I am pleased to have the opportunity to appear before the committee this morning on behalf of the Department of Enterprise, Trade and Employment in connection with the Companies Registration Office, CRO. I am accompanied by my colleague, Mr. John Shine, Head of the company registration and regulation policy unit in the Department. Bearing in mind that the topic of this discussion is the role, functions and operations of the CRO, I would expect the discussion to touch on matters beyond my area of expertise that can best be answered by the CRO directly. Unfortunately, the Registrar of Companies cannot attend today so we will try to contribute as best we can. Thankfully, Mr. David McFadden, legal adviser to the CRO is also present to assist.

At the outset it might be helpful to briefly set out some background information on the work being undertaken by the Department to modernise and enhance the wider corporate law regime in Ireland as it pertains across a number of different areas. Of particular relevance at this point is the Companies (Corporate Enforcement Authority) Bill, which is currently finalising its passage through the Seanad. As Members are aware, this legislation is a milestone in the area of corporate enforcement and will transform the Office of the Director of Corporate Enforcement, ODCE, into a statutory and independent agency with additional resources to investigate and prosecute breaches of the Companies Act. The Bill also contains provisions that require directors to provide personal public service numbers, PPSNs, to the CRO at the time of incorporation of a company, in the annual returns, and if details concerning a director or secretary change. This is a significant support to the CRO in verifying the authenticity of directors.

Another key element of the Department's reform agenda is the development of legislation in terms of co-operatives. The Department is close to finalising the general scheme of a co-operative societies Bill, which sets out proposals for the most far-reaching reform of the legislation in almost 130 years. The legislation will allow co-operatives to operate under a modern, fit-for-purpose legal framework, and provide an attractive alternative to the company model for those entities who subscribe to the co-operative ethos.

A further important legislative reform initiative relates to limited partnerships. Work on the preparation of the general scheme of a new limited partnership Bill is being extended to consider issues arising from the recent publication of material relating to the Pandora Papers.

I will now turn to matters that specifically relate to the CRO. The office is a statutory office under the remit of the Department and the Registrar of Companies is administratively independent in the exercise of its functions. The CRO maintains a central repository of public information, required under statute, on Irish companies and business names. The main function of the CRO is to maintain the register of companies. This involves the incorporation of companies; the registration of company post-incorporation documentation; the enforcement, prosecution and striking-off of companies from the register of companies; and the provision of information to the public.

These registers exist to provide transparency on key aspects of entities throughout their lifecycle. They are examined by a wide range of stakeholders, including those who have a commercial interest such as potential investors, professional advisers, financial institutions and suppliers. Other interested stakeholders include civil litigants and regulatory or enforcement authorities.

I wish to make an important point. The register records the details of companies and, in itself, is an exercise in transparency so that stakeholders can inform themselves, to a certain extent, of the status of a company before they undertake dealings with it. Other requirements under Irish law provide additional assurance. For example, in the context of anti-money laundering requirements, all new companies are legally obliged to register beneficial ownership details within five months of registration. Companies that have not registered with the Register of Beneficial Ownership, RBO, are liable to enforcement action. Such companies will also be unable to open bank accounts in the State as financial institutions are obliged, under the Criminal Justice Act, to consult the RBO as part of their due diligence when onboarding a new customer.

Company law is primarily concerned with providing the legislative framework for the structure and operation of companies incorporated in Ireland. At the end of 2020, there were over 250,000 companies on the Register of Companies and 600,000 business names on the Register of Business Names. This resulted in over 431,000 filings being made to the CRO last year. In the region of 90% of filings are made online. So far in 2021, there has been over 525,000 filings with the CRO. Bearing in mind such numbers, it is no surprise that the long-standing policy in terms of company incorporation has been for the CRO to accept the bona fides of those filing documentation and process applications received so that the register is updated in a timely manner and made available to stakeholders. However, completeness checks are undertaken to ensure that all necessary documents have been provided, and have been appropriately completed and signed. This is in a context where the provision of false information to the CRO is a criminal offence under the Companies Act 2014 and subject to prosecution by the Director of Corporate Enforcement.

The CRO is keen to ensure that appropriate and proportionate checks are conducted and has developed a risk-based integrity checking process for applications for incorporation and notifications of appointment of directors. The CRO actively follows up on issues arising and makes referrals, where appropriate, to the Director of Corporate Enforcement. The Department wrote to the Chairman of this committee on 22 November updating him on these matters. Arising from the issues identified so far by the CRO and addressing those that came to light elsewhere, as of last month the CRO had made eight referrals to the Director of Corporate Enforcement with further referrals being prepared. In total this covered some 39 companies already on the register and a further 47 cases where incorporation had been refused by the CRO. I ask the Chair to note that the figures contained in the original draft of the statement submitted to the committee have been updated. The committee will understand that we cannot go into any great detail concerning particular cases.

Ireland has a reputation for being a well-regulated and business-friendly country to establish and operate businesses, and the Department is keen to ensure that this is maintained and even enhanced. Corporate law is kept under review on an ongoing basis and is updated and modernised as required, as evidenced by the legislative initiatives I have mentioned. This is in a context where we seek to maintain an appropriate balance where business can set up and operate without unnecessary or costly burdens but within an effective, proportionate and robust regulatory framework. This is particularly important in an Irish context where around 95% of entries on the companies register are classified as SMEs. While we would want to ensure a straightforward process, the register must have high levels of integrity. It is not in the interests of our companies that the system be undermined in any way. On the specific issue of the abuse of the companies register, both the Department and the CRO take such matters very seriously, are keeping matters under review and will carefully consider further legislative and administrative change to ensure the appropriate regulatory balance. I thank members for their attention. I am happy to take any questions that the committee may have.

I thank Mr. Newman. I invite members to participate. The first contributor on the roster is Deputy O'Reilly, who has 14 minutes.

I thank the witnesses for coming in today and for the evidence they have given us. I have three questions. The first relates to the reform in the shape of the legislation on worker co-operatives. I have a question about why it has taken so long. The reason I am asking this is because we know that right across Europe, the co-operative model has been found not only to be productive, but to be competitive and highly resilient, which I think is extremely important. Countries such as Scotland, France, Italy and Spain have demonstrated this. We know that worker co-operatives are very good at keeping community-generated wealth local. We know that they are good for local business and local jobs. We know that they build really strong, resilient local enterprises. We also know that they are very resistant and resilient in terms of bouncing back post the recession. A study from the Democracy at Work Institute found that worker co-operatives in the US survived through their first six to ten years at a rate that is 7% higher than traditional small businesses. Therefore, all of the evidence is that these are good things and we should be moving quickly on them. I must ask the witnesses why this legislation is taking so long. What is the delay? The reforms are very much needed, but we should be prioritising that.

Mr. John Newham

I thank the Deputy for her question. I might refer to my colleague, Mr. Shine, shortly, because he is dealing with that piece of legislation. I do not disagree with any of the points the Deputy has raised on the model. Frankly, it is a goal for us to place a co-operative model on a similar basis, in terms of the attention it is given, as companies, for all the reasons set out by the Deputy. The short answer to the Deputy's question is that it is a big piece of legislation. It is going to be quite considerable. We are nearly there with the general scheme. I hope to go to Government at some point in February 2022 with a general scheme with a view to going through pre-legislative scrutiny with the committee. On the content of the legislation, without giving too much away at this stage because we have not proposed it to our Minister, we will perhaps touch on some of the items that the Deputy might expect to see in the general scheme of the legislation. I refer to my colleague, Mr. Shine.

Mr. John Shine

As Mr. Newham has said, it is a very complex piece of legislation. It is seeking to update some legislation which dates back to the 1890s and a whole series of amendments that have been made since then. It is a very fragmented legislative space. Work has been going on intensively in this area for over two years and we are very close to having a general scheme finalised, which will update and modernise the legislative provisions and introduce a whole range of modernisation initiatives. In some areas what we are proposing to do is to cross-reference provisions with the Companies Act, being mindful of the fact that co-operatives are very different in ways to companies. There is a lot of good stuff in the Companies Act and we certainly do not want to reinvent the wheel. There is a certain amount of cross-application that is intended and that requires very careful consideration of the Companies Act to ensure that that cross-application is appropriate. In other areas, we are basing provisions on the Companies Act but making amendments to reflect the specifics of co-operatives. We are also introducing some new provisions.

We are looking at a whole range of initiatives in relation to corporate governance, directors' duties, shares and audit exemptions. I know that that is something, in particular, that has been raised in the past. It is certainly something that we are intending to provide. In short, a lot of work has gone in, but it is a very complex piece of legislation. Even allowing for the cross-application with the Companies Act, we are looking at in the region of around 300 heads. We are quite close to having it finalised. As Mr. Newham said, the intention is to bring that general scheme to Government as early as possible in 2022.

I thank the witnesses. That is very encouraging. I honestly believe that this cannot come quick enough. I appreciate the need to get it right and I understand 100% that it is complex. I sincerely hope that when we see it, it does not fall into the trap of trying to make co-operatives companies, because they are not. While issues relating to responsibility and governance are important, co-operatives are not the same as companies. We will be resisting any move to try and make them all the same. We need to recognise and celebrate their difference.

In the Department's submission, it is mentioned that Ireland has a reputation for being a "well-regulated and business-friendly place to establish and operate businesses and the Department is keen to ensure that this is maintained and even enhanced". In a recent interview conducted by Aaron Rogan in The Business Post, William Fitzgerald, who used to work for Google's policy unit, said that all they needed to do was drop one sentence into The Financial Times that Ireland was not a good place to do business, and that would "put the fear of God into the Fine Gael press room". I think it is quite a sad state of affairs to hear that. In the witnesses' own experience in the Department of Enterprise, Trade and Employment, would an accusation that Ireland is not a friendly place to do business cause the kind of chaos that was reported in the The Business Post?

Is the Department a bit tougher than the Fine Gael press office then?

Mr. John Newham

We look at companies from many different sources. Some are important stakeholders and employers and we take any comments seriously but there is always a balance to be struck and that is what we are trying to achieve. The short answer is “No” in my experience.

That is good to know. I want to briefly touch on the area of bogus and fake companies. Mr. Newham will be aware that my colleague, the Chair of the committee, an Teachta Quinlivan, has written to the Department about the CRO’s response to this. It is an area that I know the Chair has done quite an amount of work on. I ask Mr. Newham to outline what the Department has done since reports by the Irish Independent and other media have stated that legitimate businesses like the HSE unit have had their addresses used to set up these fake and bogus firms. These firms can be used to perpetuate a huge amount of fraud around the world. They might have an address here but, as we know, the fraud they are engaged in does not recognise any borders. We are talking about victims that could potentially be scammed out of millions of euro. I would like an update from the Department on the work the CRO is doing on this.

Mr. John Newham

I will turn to my colleague from the CRO shortly but I will begin by working backwards. The Deputy is quite right that such activity knows no borders. Once a company is incorporated, by its nature it is no longer bogus but I take the point the Deputy is making. Having the use of those bogus companies, especially in an international context, is the matter we are most concerned about. We are not so concerned about the activity taking place within Ireland or the EU because there are systemic protections in place, not just in company law but in other legislation, and we have mentioned those in the submission. Bloom House was used as an address and we have pointed out that the building is complex as there is a firm of solicitors and there are residential addresses within Bloom House as well. Having said all that, those checks have been increased to ensure that Bloom House and other notable addresses will not be used in future. My colleague, Dr. McFadden, will set out the levels of checks that are in place and the programme of activities under way.

Dr. David McFadden

It has been interesting dealing with these queries in recent months. We have noticed an uptick in activities that have been a cause for concern and we have reacted by putting together an integrity checking group within the office. That has involved bringing together staff from across the office who are involved in different aspects of the work the CRO does. This includes staff who are experienced in company incorporation, the issuing of certificates and the checking of when a company has been set up, together with staff who are involved in enforcement of various aspects of filing for companies, with me as legal adviser. A group has been put together and we are daily carrying out checks on aspects of what we have seen occur. As mentioned, there has been a noticeable uptick. It might not have been as big an uptick as might have been seen at first but a problem has been noticed.

We looked at some of the cases that were highlighted. Having delved into those cases, we spotted certain markers which pointed us towards certain types of activity that could be ongoing. I will be careful about the information I give on what we are doing but the markers we have spotted indicated certain types of activity. We used that information, moved out from that and we noticed problems in a number of areas. For example, there had been an attempt to set up a number of companies which we put on hold before those companies got incorporated. Using the information we had garnered we were able to check, for example, that certain information that had been presented to us may not have been accurate and correct. For example, the directors needed to be resident and we discovered those points the Deputy mentioned about the addresses being provided.

Unfortunately we also discovered that a number of companies had already been formed where certain questionable issues had arisen. For example, once a company has been incorporated and a certificate of incorporation has been issued, that is conclusive evidence in law and it cannot be challenged that all that should have been done was done and that company is now a separate legal person. Once that company is set up, if we now discover issues after the event, such as people’s identities being used as directors when they did not give consent, we have taken steps proactively to address those problems. We have contacted the individuals concerned and received evidence from them confirming that they did not give their prior consent to act as directors for these companies. In those circumstances we have been able to remove those directors from the companies in question. That has meant that in certain circumstances these companies have no longer had the required one director resident within the European Economic Area and that has allowed us to take the next step of striking them off and removing them from the register. We have also referred files to the Director of Corporate Enforcement.

The evidence we are seeing is evidence of serious crimes. The registrar has some enforcement function in a limited number of areas, including District Court prosecutions for filing type offences. There are also serious offences which involve, for example, giving misinformation to the registrar, which amounts to impersonation and using people’s identities. These are serious offences that are indictable under the Act and they are enforceable by the Director of Public Prosecutions, DPP, and the ODCE, or both. The ODCE has a Garda unit and it is appropriate that we send those files to it. In his opening remarks Mr. Newman mentioned that we had sent eight separate pieces of correspondence to the ODCE and there is more in the pipeline. We have been taking proactive steps to address the problems that have been raised. It is possible that there may have been issues in the past but we are certain that there has recently been a slight uptick in this. We have reacted quickly and put together a team that is working on this on a daily basis.

I thank our guests for joining us and for their detailed presentation. Some 95% of the companies that are registering are SMEs so it is a delicate tipping point to ensure integrity and not create more red tape, which nobody wants but which SMEs especially do not want. SMEs do not have the resources or expertise to wade through such administrative burdens. It takes too long and they do not have the resources. It is also troubling that there seems to be no verification of basic details such as directors’ addresses. It is welcome that the Companies (Corporate Enforcement Authority) Bill 2021 will require directors to provide PPSNs. Can the witnesses advise how the PPSNs will be verified? Will there be some sort of automatic check with a different Department or will company addresses continue to be accepted on a good faith basis?

Mr. John Newham

To the best of my recollection the PPSNs will be checked directly with the Department of Social Protection. It is not that the CRO will hold those PPSNs and put them out there. It will check that the individual directors have the PPSNs they provide.

Has Dr. McFadden anything further to add?

Dr. David McFadden

I cannot really add much more than what has been said. Mr. Newham was correct in saying we must be very careful in the use of PPS numbers for general data protection regulation, GDPR, purposes. Also it would defeat the purpose if we were to retain those numbers and make them in some way available. It would make name personation so much easier. It is proposed that at the point where information is being uploaded onto the system, a person's PPS number would be submitted and verified via a portal through the Department of Social Protection. We would get the all-clear that that person’s details match or a flag will be raised at which point a query may have to be addressed. It is certainly not in anyone’s interest that we would be in a position where we would be holding that information and making it public. That would be counterproductive. I do not know if there is much more I can add to that. It will certainly be a positive addition to ensuring integrity of information and, hopefully, avoiding some of the conduct I described to Deputy O’Reilly where people’s identity had been personated. If people's PPS numbers are being used to verify their identity in first instance, it will help to greatly reduce the personation we have noticed in recent times.

Those responses are welcome. I note it was pointed out in the opening statement that it is a criminal offence to provide false information to the CRO. Obviously, as with any law, that is only a deterrent when it is being enforced. I appreciate the CRO has made a number of referrals to the Director of Corporate Enforcement in recent months since this issue gained attention. Can one of the witnesses clarify the number of referrals that were made prior to the recent period? It would be helpful to have clarify on the number of referrals that were made in 2019 and 2020.

Dr. David McFadden

I will respond to that question. It is safe to say our referral of cases involving the potential provision of false information to the registrar is a new development in our office and a recent one. I am almost seven years in the office and I am not aware of any referrals having been made in my time or in the period prior to that. I am not aware such cases have been referred to any parties for a number of years. However, certainly, in recent times, as of this year, we have made referrals where have seen evidence of this. We cannot investigate if we do not have those powers nor can we enforce. Because it is a serious offence it is dealt with by the Garda or the ODCE or both. We have been making those referrals this year and it is a recent development.

Dr. McFadden is advising us this was not happening in 2019 or 2020.

Dr. David McFadden

We did not have cause to make those referrals at that time. I am not aware they were made in the years immediately prior to my joining the office. It is something we have been doing recently under the Act. When we were examining the problems brought to our attention related to the establishment of companies where there was abuse of directors’ identities or addresses have been questionable, we started looking at how this might be addressed, what offences might have been committed and among those, one of the serious ones is the provision of false information to the Registrar of Companies. Under that heading, there are two potential offences in respect of which we have made referrals to the ODCE.

Mr. John Newham

If I may add a further point, once upon a time in Ireland, it was easy to check an address.

You would note from the address that there was a factory there and you could see the business activity whereas in today’s economy, much business activity takes place within residential addresses. It is not unusual for multiple companies to be registered at a single address. It is not unusual for business activity to be registered at a residential address. What is unusual, and this is what the reports have brought to light, is for multiple companies to be registered at a residential address. That is what is novel in these circumstances and what has prompted the investigations by the CRO and the onward referrals to the ODCE.

I thank the witnesses. I will it at that for now.

The Senator's time is up in any event. Before I call the members in the next speaking slot, I record apologies have been received from Senator Sherlock, who could not make it to the meeting. Fine Gael has the next speaking slot. Deputies Bruton and Stanton are sharing the 14-minute time slot and Deputy Bruton is the first speaker.

I will let Deputy Stanton speak first as I spoke first the last time.

I thank Deputy Bruton. I will not take too long.

I welcome our guests and thank them for the presentation. This time two years ago we were getting emails from people who were concerned about the upgrade of the Department's new software. It had caused a certain number of glitches at the time. I wanted to give the witnesses some positive feedback. As they were coming before the committee today, I make inquiries of some people who had complained at that time and the feedback I got was extremely positive. Well done, everybody on the work that has been done. Those people have said the system is highly efficient and they are very pleased with it. It is important to give positive feedback where it is warranted.

An issue raised with me was the requirement to have an audit in year two and year three for small microbusinesses that have missed a filing deadline. I have been advised it is very onerous on those companies. It has been suggested that an increase in the filing period for those years would be more appropriate because often micro-companies are the main sufferers. One of the witnesses might comment on that.

It was mentioned that quite a number of stakeholders carry out searches to get information on companies that want to be business with them. Could one of the witnesses indicate the number of such many searches that are carried out? I know a fee is charged for them. What was the income derived from those in the past year?

I am quite interested in the co-operative societies Bill . I would like it to be advanced and I agree that it is long overdue.

Mr. Newham mentioned companies that are not registered with the Register of Beneficial Ownership are liable to enforcement action. Could he comment further on that? How many such actions have taken place in the last period? That is linked with money laundering, about which I would be interested in learning.

It may not be directly linked with the CRO but I note the casual and occasional trading licence legislation was to be updated in 2018. That was put off time and again and there is still no sign of it. It affects microbusinesses. Mr. Newham may not have that information to hand today and he might come back to us on that and let us know what is happening on that. I note in 2018 and 2019 I had some information indicating it would be updated but nothing has happened.

I am very pleased Ireland has a reputation for being a well regulated and business-friendly country in which to establish and operate a business. I advise my colleague, Deputy O'Reilly, that the Fine Gael press office works very hard to ensure that we have a good reputation abroad. I detect some disappointment on her part that we have a good reputation abroad. We want to work to ensure we maintain that.

Mr. John Newham

I thank the Deputy for that feedback. He has made us blush. The system improvements have worked well. I can advise that, as late as last week with the extended filing date, no problems were reported and people where in a waiting queue for only a few minutes. Thankfully, that is working well.

In terms of the audit exemption for micro-companies, the Deputy is right. We are aware companies, particularly micro-companies, may have missed a filing deadline perhaps through no fault of their own, and I have some sympathy for them. One reason for the recent extension of the filing date was to recognise staff in some small accountancy firms were suffering from ill health and were not able to physically complete the work involved to make their client’s filings. However, it is the company that pays the price in such circumstances. The legislation is not nuanced to deal with exceptional circumstances but the balance must be kept and we spoke of the bogus companies earlier.

If they missed their filing deadlines, we would like to see details of those audits because those would be micro companies as well. It is something we are bearing in mind as part of the ongoing review of company law.

I will refer to my colleague with regard to searches and fees as I do not have that information to hand. He might not have it to hand either so we can refer back to the committee.

I will refer back to the committee regarding the casual trading. I will have to search my mind a little. The Deputy will be aware that on the consumer side of my division we are dealing with the competition Bill and the consumer Bill as well as other legislation. They had to be prioritised ahead of the others. I will respond more formally to the Deputy on that. Deputy O'Reilly asked earlier why the co-operatives legislation is taking so long. I did not want to use this, but we have had three legislative measures in about 18 months in the company law area as a result of Covid, the small company administrative rescue process, SCARP, and whatnot. That tends to displace resources at any moment in time.

I will hand over to Mr. McFadden who might be able to comment on the searches and fees.

Dr. David McFadden

With regard to the searches, the Deputy might be surprised to hear that the volume of hits or searches on our systems is vast. We get millions of hits. There are some companies that have a system set up where they scrape our information many millions of time a day to constantly update. The reason is that if a company is involved in a major corporate transaction, it must constantly update its information during the day when a transaction is about to happen, for example, whether a director is still there or whether something has happened to filings relating to a company. Parties that are interested in ensuring they have up-to-date information relating to other companies constantly look for that updated information. One finds that some lending institutions and due diligence companies hit our systems constantly. Other companies have licence agreements with us whereby they buy the data in bulk from us, both in information and images, and they get an uploaded dump of information from us daily. They in turn sell it on, repackaged and sliced, in a package that is of use to those persons to whom they sell information for various reasons, be it legal or lending institutions or people interested in making investments in companies who need up-to-date information. The volume of searches on our systems is absolutely vast.

I am not sure if that answers the question specifically, but it would be very difficult to give accurate numbers. They are huge. I have heard it said that ours is the second most busy website or system in the State after the Revenue Commissioners. That may not be the case but the volume of traffic on our systems is absolutely huge.

With regard to fees, I am not sure I understood the question. I was trying to write down the information relating to the searches. However, the fees are set in the fees order. There are various fees orders. They are set in legislation and are set at a rate that simply covers the cost. We cannot be seen to make a profit from searches that are made on the system. Does that address the question? I am not entirely sure I got it right.

Yes, and I thank Dr. McFadden. It shone a light on what is happening in the corporate world when he said there were vast numbers of searches happening. Dr. McFadden can correct me if I am wrong, but I understand that there are fees for searches and I am just curious about the income that is generated. He said there is no profit and they just cover the cost, which is fair enough. However, he also said, if I understood him correctly, that there are companies that get packages of information and then sell it on, presumably at a profit for them. We know that data is the new gold or oil, and this is proof of that again. The data the CRO has is extremely valuable to many companies. It is interesting, and Dr. McFadden has answered my question.

I have a final question for either or both of the witnesses. They mentioned the number of companies that have filed and registered with the office. Can they say whether there has been a reduction or an increase in the number of companies year on year and how many companies have failed and deregistered because of that?

Dr. David McFadden

Our information to date is that the number of companies has risen year on year and we are now at the highest level of companies registered on the register. Over the pandemic in the last year and a half we suspended discretionary strike-off of companies, which was a major part of our enforcement function. When the registrar decided to give extensions to allow companies to file, that was part of an overall package to ensure that companies had an opportunity to try to comply in very difficult circumstances. That included not only giving additional time to file but also suspending discretionary enforcement activity. Where companies had fallen into difficulties in the past they went into a strike-off regime whereby they went through a process which ultimately leads to them being struck off the register. That was all placed on hold during the height of the pandemic, so the number of companies being struck off fell away very dramatically. There may well be an uptick in due course with regard to liquidations and so forth, but that will wash through in time. At present, however, we have the highest number of companies on the register.

I thank the witnesses.

I call Deputy Bruton.

How many minutes are left or will I wait for my turn?

Just over three minutes, but you can come back in again.

I will come back in and get seven minutes.

Okay. The next member is Deputy Shanahan.

I thank our guests. Like other members of the committee, I welcome the efforts of the office over the past two difficult years. I note the reforms of the ODCE and the separate resourcing, which is a positive arrangement, and the announcement that the co-operatives Bill will come forward in the new year, which is also helpful. The witnesses might expand briefly on the further limited partnership work they referred to in terms of the Pandora Papers. I would have thought this was a very small number of companies. I have a sensitivity to the SME sector at times. The misdeeds of a very small and elite number tend to colour the sector publicly and I wonder about the direction the office is taking on that. In addition, the witnesses said that 95% of companies registered with the office are SMEs. Do they have a breakdown of what percentage of those the office classes as micro or small SMEs employing fewer than five people?

It is a pity the registrar is unable to attend today, but perhaps somebody can take up these questions. One relates to the inflexibility of the year-end date for companies. I have lobbied the Minister continuoally on this. We have seen it extended at the last minute in recent weeks but accountants were working around the clock trying to get information, particularly during the Covid pandemic, and complete inflexibility was demonstrated by the registrar. There is too much emphasis on compliance at times and inflexibility to small businesses. Deputy Stanton mentioned this. I was a small business owner some years ago. My paperwork did not get into the CRO because of the breakdown of a courier and I incurred two years of auditing fees for a very small business. That is most unhelpful and unwelcome. There was no ability, other than to go to the courts, to seek an appeal on that. That is still the case and it must be examined and addressed. Some of the measures the registrar has implemented are punitive, particularly for the small business sector.

The witnesses mentioned the new identity requirements. What exercises is the office planning in terms of not making that too onerous for people who are trying to start small, not large, businesses? My final question relates to defence against cyberattack. The witnesses spoke about the amount of information the office has on its site and the amount of activity coming from abroad where people are evaluating it. How is the office protecting the data it has there? Similar to the banks, if there was a cyberattack within the office, that could damage many businesses.

Perhaps the witnesses would deal with those issues.

Who wants to come in here?

Mr. John Newham

I may have missed some of the Deputy's questions because I had to log in again, but I certainly heard the last three. To deal with flexibility, I touched on this matter earlier. We take the point regarding flexibility in respect of filing dates. I am not sure, but I think the CRO showed considerable flexibility throughout the Covid-19 pandemic regarding extending the filing dates. The most recent issue was that we were hearing mixed messages from stakeholders. While accountants, on one hand, did not want an express system and did not want the filing date extended generally, they did want the CRO to deal with problems on a case-by-case basis. For example, where a small firm was undergoing difficulties due to the health of staff, it was desired that the CRO would take that into account and perhaps just extend deadlines for the group of files being dealt with by that specific firm. The legislation, however, does not provide for that type of flexibility. That is why it had to be a case of extending the filing date for everybody or for nobody. That was the context of what was going on. The CRO undertook consultations with stakeholders and that is what resulted in the extension.

Turning to the details, I take the point made about not introducing overly burdensome requirements regarding the additional details required. I suspect that much of the additionality requirement can be achieved through system checking, rather than by requiring additional details to be provided by companies. The PPSNs will take care of much of that, so we will very much bear that aspect in mind. I will hand over to Dr. McFadden to deal with the question concerning GDPR protections, etc.

Dr. David McFadden

I think the last question concerned cyberware attacks. We are all very cognisant of this issue, to say the least. We spent the last several years upgrading our systems. We have introduced a whole new platform on which companies' information is present. It is an issue that we are mindful of. It must be borne in mind, of course, that most of the information we have is intended for public use anyway. The idea is that people dealing with companies, be they consumers, other businesses, such as lending institutions, lawyers, accountants and people doing due diligence, need to have this information on the companies and those involved in running the companies. Therefore, the data we have is almost entirely information that is available to the public in any event.

This is, however, a valid point. We have had to take great care to ensure that a cyberattack would not take our systems down or take them out, because that would have a detrimental effect on business. We have backup systems whereby at the end of each day our systems are backed up. There is also a fallback system up and running, where we can go back to the information we had as of the previous day. That contingency would not mean that we would not be affected by a cyberattack, but it would ensure that we have backup systems in place. We must also take great care when planning the future use of PPSN numbers. That is a little bit ahead, but a great deal of planning is required to ensure we are taking great care to ascertain that the information is protected. It will be done through a system that will involve the Department of Social Protection, but we are cognisant of the inherent dangers if that information were not protected.

Therefore, I am not going to say that everything is absolutely guaranteed in this respect, but we are very cognisant that we must take great care to ensure that our systems can withstand attacks, that we have backups if they are attacked and that we try to do what we can to ensure the security of the information. Regarding the query about the specifics concerning PPSNs, that information will be given to us at a future point. I am not sure if I have answered the question.

That is fair enough. Returning to the point made about the legislation not allowing for individual flexibility on the extension of deadlines, is there some provision in the legislation to allow for an appeal in respect of additional fines and penalties, and an extension in that regard, without having to go back to draft new legislation? This is a problem for small businesses and it is a continuing problem. To me and many others in the SME space, it seems that small businesses are the organisations that really lose out in respect of the missing deadlines.

The Deputy's time is up. Would the witnesses like to respond briefly to that question?

Mr. John Newham

I do not think there is flexibility in the legislation in respect of what the Deputy referred to. We take the point, however, and this issue was raised by colleagues earlier, that this binary approach of it being a case of everything or nothing may require nuancing and we will be looking at that aspect. I am conscious, because my colleagues told me, that I did not answer the question about the Pandora papers. Perhaps we can address it later, if there is time. I just wanted to flag that point.

No problem at all. I thank Mr. Newham. Deputy Conway-Walsh has indicated to speak next.

I have a specific question concerning the financial reporting obligations of community employment schemes and the sponsoring organisations in that context. It is my understanding that small community employment schemes, given the size and the nature of these organisations, were not heretofore required to provide full and audited accounts. My information has come from a community employment scheme in my constituency of Mayo. The witnesses will be aware that such schemes are funded through Intreo and the Department of Social Protection. They have no other sources of income. The organisation in question has been contacted by the CRO, which stated that it is necessary for the scheme to provide full and audited accounts. This is the first time, however, that the organisation has been asked for such information.

The letter from the CRO refers to circular 13/2014 from the Department of Public Expenditure and Reform. The circular itself, however, states in a footnote "that small community and voluntary groups will only have basic financial statements and receipts available as a basis for reporting". I am sure the witnesses can appreciate the administrative and financial burdens borne by community employment schemes in this context. The concern is that this reporting requirement will force some of these schemes to close. Therefore, I would appreciate it if the witnesses could bring clarity to this matter regarding the reporting obligations of these community employment schemes. It goes without saying, of course, that there must be full accountability where public money is allocated. Having said that, is there any flexibility possible in this regard concerning the reporting requirements to be followed by community employment schemes?

Who would like to take that question?

Dr. David McFadden

I will take that question.

Did Dr. McFadden get all of my question?

Dr. David McFadden

Yes. It just cut out at the very end, but I think I got it.

Dr. McFadden got the thrust of my message anyway.

Dr. David McFadden

I would be happy if the Deputy would liaise directly with me on this matter. If she will send me the correspondence related to the query, I will look into the situation myself. I do not have the information or the answer to hand, and I would prefer, if I could, to see precisely what it is that is being raised and to see why it is the case that full audited accounts, as the Deputy said, are being required in this situation. It strikes me as being a bit odd, so if the Deputy will please send the information on to me, I will deal with it and respond to her.

I will indeed, and I thank Dr. McFadden. I am asking about this development because it seems to be contradictory in this context. The community employment schemes have enough to try to deal with now. I appreciate Dr. McFadden's offer. That is my only question.

Dr. David McFadden

If it transpires that there is a requirement, for whatever reason, I will explain why that is the case. If that is not the case, and if there has been some sort of mix-up, I will also clarify that aspect.

That is perfect. I thank Dr. McFadden very much.

I thank Deputy Conway-Walsh and Dr. McFadden. He can come back to me, as the Chair, with that information or to the Deputy directly. I call Deputy Bruton.

I thank our witnesses. I congratulate the Department. The overhaul of company law, the corporate enforcement regime and the small company rescue process has involved a significant body of legislation. It will improve levels of compliance and the ease with which the registration and enforcement system is navigated by companies.

It is important to stress that limited liability, which this confers, is an important privilege. It is very important that we have compliance, ease of use and flexibility in the way it is used. Does the Department track any international indicators of factors such as compliance rates? Does it have a network through which information on emerging abuses of corporate structures we should be alert to is shared? On the other side, does the Department track indicators of the cost of establishing small start-ups compared with the cost in other countries or the ease of doing business? Do we have reasonable indicators? How do we stand in that respect? Allied to that, can we expect any significant reforms from either the registrar or the Department that we will need to consider?

The second topic I would like to raise is the experience of the past two years in respect of new businesses starting up and businesses getting into trouble or difficulties or even being taken off the register. Does the Department have any indication of what the impact of Covid has been on the starting up and death of companies? I know there is a bit of an abeyance as a result of the Government supports that are in place but are we likely to see a significant impact on the survival rate of companies when those supports start to be withdrawn?

Mr. John Newham

I thank the Deputy. In terms of international comparators, especially with regard to the ease of doing business, there are different comparators that drill into different details. I might hand over to my colleague, Mr. Shine, on that matter. The World Bank and the World Economic Forum carry out international comparisons. Comparisons are also carried out at EU level. We score fairly highly in respect of the ease of doing business. I would have to look into the issue of compliance rates because different countries have different systems. I would need to look into that further.

The Deputy had a query on the networks. There are certainly international networks, especially at EU level, related to enforcement and so on. Even in a national context, different features come into play. For example, there are cross-departmental groups on money laundering that feed in information. That may be relevant to the work of this office in respect of corporate enforcement. There are such networks.

With regard to ongoing reform, high on my agenda is reform of the Limited Partnerships Act 1907, which goes back 100 years. It is limited. This may be relevant to Deputy Shanahan's earlier question. With regard to the Pandora papers, the focus in an Irish context was on the use of limited partnerships. That is an area of reform we would like to progress. Things also bubble up in the work of the Company Law Review Group. Matters arise at that level. That group reports in to the Department.

On the question regarding the impact on companies, it is still early days. There is a time lag. We see insolvencies being notified to the Companies Registration Office but that takes place some time after the impact is felt on the street. The Department is carrying out analysis in that area through another division, formerly Forfás, so there is analysis. It is fair to say that, as the Deputy has pointed out, the Government supports do appear to have stalled increased closures but we expect to see an increase in the number of insolvencies, especially in the sectors most affected by Covid. That is one of the reasons the small companies administrative rescue process was progressed over such a short space of time. That will provide breathing space for small companies in those situations. The figures so far are lower than might ordinarily be expected. Does that sufficiently answer the Deputy's questions?

Yes. I thank Mr. Newham very much. Perhaps he could, at some point, provide some of those data on those international comparisons regarding compliance and some of the other features. He might also pass on my thanks, and I would say the thanks of the committee, for the work of the Company Law Review Group. It works tirelessly in the background and has provided us with a very good source of information and advice over the years.

Mr. John Newham

We will do that.

Has the Deputy finished his contribution?

Yes, that is grand. I would just like to get those data at some point. It would be interesting to have a look at how we stack up internationally.

I will make a few comments myself before we move on to the second round. They relate to the Companies Registration Office, CRO, and its referrals to the Office of the Director of Corporate Enforcement. Did Mr. Newham say there were six such referrals this year or six since the issue was raised publicly? He might come back with the correct number of referrals.

My main question is on setting up the new corporate enforcement authority. How do the witnesses see the CRO working with that agency? What plans does the Department have? Have there been discussions on that? Will the Department have somebody located in the authority? Will there be regular meetings? How is it anticipated that will work? Will there just be engagement on a case-by-case basis? If it is to be on a case-by-case basis, will engagement be initiated by the CRO or by the corporate enforcement authority? I do not expect the witnesses to know 100% how they will work with the new entity but what is their vision in that regard? I would appreciate it if Mr. McFadden could come in on that point.

Mr. John Newham

I will come in on that, if that is okay. With regard to the referrals, as of today, eight referrals have been made to the Director of Corporate Enforcement. More will be made as time goes on, as Mr. McFadden has pointed out.

On how the Office of the Director of Corporate Enforcement, ODCE, and the CRO will work together, I have just explained how they currently work together. This will not change radically. Both organisations are members of the Company Law Review Group, where topics are presented and discussed. Both organisations raise issues with each other directly where matters are at the interface between organisations. They also refer matters to ourselves in the Department in respect of issues at a policy level. For example, if the ODCE felt a particular area of law in respect of enforcement functions was ineffective, it might raise that with ourselves. We might then refer to the Company Law Review Group or deal with the matter ourselves by amending the legislation. It is the same case with the CRO. There are a number of bridges between the organisations and that will continue. Does that answer the Chairman's question?

Yes, but I wonder whether there will be a new emphasis or new relationship as it goes forward. We all support the corporate enforcement authority and the devolvement of new powers to it. We just want to make sure the issue raised with us during the summer with regard to fake companies is addressed. I appreciate the work the Department does in this regard, but the number of fake companies is bonkers. We have seen some of the individual cases. I obviously do not expect the witnesses to comment on any individual case but can we get some sort of assurance we will be more proactive on this issue in the future? I still do not understand who will initiate action on an issue. Will the corporate enforcement authority be waiting for the Department or the CRO to come to it? How will action be initiated? Mr. Newham has said eight cases will be done by the end of this year. Are we just to go on as we are or will there be more co-ordinated integration of the CRO and the new corporate enforcement authority?

Fake companies can be very disruptive and damaging for consumers and so on, but they are a very small number of the companies operating in Ireland. It is important that we say that. The Department does a good job in registering the significant number of companies that it has to do. We have no problem with that whatsoever. The concern we have relates to the ones that have slipped through things. Is there any plan for members of the new CEA and the CRO to sit down and look at that issue? That is the concern I have.

Mr. John Newham

Hopefully, I can give that assurance, certainly in respect of the Department's oversight. We provide a bridge between both bodies, which is something that is high on our agenda. In terms of business as usual, a programme of activities and reforms around planning is under way in the CRO regarding the matters we discussed. That is a matter for the CRO. The cases that have been referred to the ODCE are for it to investigate. Depending on the outcome of those investigations, if tweaks are needed in the CRO's operations, or even the legislation, that would be reported both to the Department and the CRO. I confirm that there is constant ongoing engagement between the two bodies, but also in a more formalised setting through the Company Law Review Group, CLRG. Indeed, the Department has liaison meetings on a quarterly basis. We do not wait for those liaison meetings - we raise issues. When the CRO raises issues that have an impact on corporate enforcement, we relay that. Those mechanisms are in place. To answer the Chairman's fundamental question, no, this cannot be business as usual. We do not want that. We want this thing sorted out.

I thank Mr. Newham. That answers my question. We will move to round 2. Deputy Stanton has seven minutes.

I probably will not need seven minutes. I have just done some quick searches on websites and it seems that Ireland is doing well in respect of being a place to do, and start, business and so on. We are in the top ten or 12 and, in some cases, the top three so well done on that. We probably need to maintain that and improve on it where we can.

I will ask a question in respect of small micro-companies missing the filing date. It may have been covered already, but is there any possibility of an amnesty for such companies? It has been acknowledged that a lot of hardship has been caused by companies having to be audited twice in the coming years. Will the officials give us an idea of the extent of that? How many companies have now missed the filing date, particularly small companies? This is just to give us an idea of what it is like.

Mr. John Newham

The numbers are very low. Certainly, there have been more filings this year than previous years. I will have to get back to the Deputy with the actual data on small companies. We will have to look at that data. We will come back through the Chairman on that.

On the point regarding an amnesty, we cannot deal with every situation. We are mindful, and Covid has reminded us of this, that there can be situations where the company has done everything it could, but did not meet the requirements through no fault of its own. Perhaps its accountant was not able to file, for whatever reason. We know that the company then has to pay for that. In larger accountancy firms, accountants may say to the company "we will look after the audit for the next two years, sorry about that and we will deal with it", but not all accountancy firms offer an auditing function. We are mindful of it. That is something we will try to tease out and reflect upon in the context of future reforms. Dr. McFadden will address the issue of additional times.

Dr. David McFadden

I will make one small additional point. We are absolutely mindful. We obviously have to follow what the statute states and carry out our function in that context. Recently, additional time has been provided in law for companies to file. Once year end comes at 31 December, for example, companies normally get nine months to commit a file, plus 28 days. That has now been extended to 56 days. In effect, if a company's year ends on 31 December, it has until the following late November, or almost 11 months, in which to file. The system has been simplified in that what was a somewhat cumbersome two-step process - filing a return and sending in a signature page subsequently to complete it - is now all done in one stage and uploaded onto a system. That additional time is given.

I am not suggesting that it solves the problems, but it was introduced to try to simplify the system to make it a bit more straightforward for accountants when dealing with smaller companies, in particular, in order that they do not have to go back and forward as much. They are able to address the matter, take those actions in one step and have additional time compared with what was there previously. Some mitigations have already been introduced in law, which have helped, or should begin to be seen to be helping, over the coming time.

I am not sure whether an amnesty, as such, is possible under the legislation as it stands for companies like that.

Mr. John Newham

No, not an amnesty.

I thank the Chairman for giving me the opportunity to come back in. I will refer to a newspaper article that referenced companies that have been in receipt of pandemic subsidies and have subsequently paid out dividends. One company in particular - it is named in the article so I will name it here - O'Flaherty Holdings, which made operating profits of €10 million in 2020 through MML Holdings, paid the dividend to a company registered in the Isle of Man. This was the exact same amount, coincidentally, the company states, as the subsidies that it was paid. It appears that this is only a breach of the spirit of the intention of the scheme and not an actual breach. Although the Minister may have indicated initially that he believed it might be a breach, when he checked it apparently was not.

Do the officials have a view on companies that are doing this? By all accounts, I am pretty sure that the company referenced is not alone in doing this. If the State is paying subsidies, do the witnesses have a view on what the company's obligation should be? In this specific case, the amount of the pandemic subsidy directly matches the amount paid in dividends to a holding company in the Isle of Man, which to me is a clear breach, certainly of the spirit of the scheme. It is regrettable if it is not a breach of the law. Do the officials have a view on that practice?

Before I allow the officials to answer, I ask them not to respond to that specific case, but on whether that situation has happened again. It would be useful.

Mr. John Newham

I am afraid I am simply not aware of the issue. Forgive me, but I have not read that article. I will need to look into it. I may have a view, but I would be reaching at this point. If it is okay with the Deputy, we will put that on our list of items to come back to the committee on. I take it the Deputy is referring to the generality of the issue.

I mentioned the specific name because it is mentioned in the article, but I would be very grateful for a reply. I also have a view about this practice. I am sure my view is shared by the vast majority of people, perhaps not those in the Isle of Man, but certainly those who are paying their taxes here. I will leave it at that.

Mr. Newham stated that his Department sent eight referrals to the ODCE and he indicated that the number will rise. I am sure he well remembers Celtic tiger times when a large number of companies, especially in the services and construction sectors, were falling over, were reimagined and were back in business within a week or two.

We are in similar circumstances with booming construction, albeit restricted at present. There is no doubt that there is a construction boom, and I want to ask about guarding against what happened in the past. How can people who were previously directors of companies come back into new companies following bankruptcy or a very quick liquidation? I ask the witnesses to address that.

I refer to the reference to the amount of data held on individuals and company directors. There is a significant amount of expertise across the SME sector, in particular at director level and among owners and proprietors. Would the witnesses give any thought to inviting directors, if they wish, to list their expertise and ensure it is available online? People can list such information on LinkedIn, etc. Where people are prepared to engage, they could use the portal to try to drill down and find specific expertise small businesses might be looking for and which may be on offer to them.

Mr. John Newham

I thank the Deputy. The database references a lot of people with a lot of knowledge. I understand the point that it would be useful to exploit that in terms of a wider benefit. I would need to consider that carefully. The register is in place for a specific purpose under the Companies Act and it might be appropriate for those with that expertise, where they so wish, to offer their expertise in other areas to use another system or feature. I understand the point the Deputy has made.

On the broader question on liquidation and whatnot, the balance in the formation and reformation of different companies is always at play and of concern. Each company has a distinct legal personality, but there are obligations under the Companies Act especially when a company closes in an insolvency situation in terms of its duties to creditors, including employees. The CLRG is due to submit a report shortly on companies in insolvency situations where, prior to the insolvency, they have sold on their assets. This issue was noteworthy last year following the closure of a number of notable retailers. We await that report. I know it is not quite what the Deputy referred to; it is a broader issue. All we can say is that we constantly keep that balance under review.

It is to be hoped that the SCARP legislation will be enacted early in the new year and will allow small businesses to seek an administration solution without having to go to the High Court or into liquidation. How is the CRO linking in with that legislation? How close is it to the legislation and how aware is that of how the SCARP process will operate? Where it is unsuccessful, when will the CRO step in?

Mr. John Newham

SCARP has been in operation since 7 December. As part of that the various forms which have to be lodged with the CRO are now available. They are all set out on the websites of the Department and the CRO. It is up and running.

Mr. John Newham

How closely linked will the CRO be to developing SCARP as the process evolves? I am sure the CRO will be aware of companies that are in distress and people who have registered to go through the process. Is the CRO linked in to that? Will there be a review by company administrators or whatever? I am interested in hearing what happens when the SCARP process is unsuccessful after a certain period. Where does the CRO step in if there is a dispute ongoing between company proprietors and creditors?

Mr. John Newham

In terms of the SCARP process, there is a process adviser under the legislation which essentially steps into the role of the examiner in the examinership process. If he or she comes to an agreement in the SCARP process, the various forms and whatnot will be lodged with the CRO as they would be in the case of examinership. It is where an agreement is not reached that the courts might become involved. In terms of the outcome of that, if the company becomes insolvent the various forms would be lodged with the CRO. The CRO is more of a repository of the information and about the outcome rather than the process itself.

I thank Mr. Newham.

Nobody else has indicated to speak. I thank the representatives from the Department of Enterprise, Trade and Employment for coming before the committee today. I thank Mr. Newham, Mr. Shine and Mr. McFadden. Mr. McFadden said he would come back to Deputy Conway-Walsh on issues relating to section 39 companies and CE schemes. The Department was to come back on some other issues raised by members. I again thank everybody for helping us in our consideration of this matter today.

The joint committee went into private session at 10.57 a.m. and adjourned at 11.07 a.m. sine die.