Dear [Subscriber],

Welcome to the November 03 issue of K-Zine, Kilroys Solicitors e-briefings for business™ from an Irish and European perspective.

In this issue we look at the new law governing direct marketing using electronic communications (automated dialing machines, fax, SMS, telephone or e-mail) which came into force on the 6th November 2003.

We look at the corporate compliance implications of the Companies (Auditing and Accounting) Bill, 2003 that could become law as early as December next.

We look at the requirement to register with the Office of the Data Protection Commissioner in respect of all processing of personal data relating to living persons since the coming into force on the 1st July 2003 of the Data Protection (Amendment) Act, 2003.

We outline the implications for company directors of the decision of the High Court in the case USIT Ireland Ltd. (in liquidation) that has established a precedent in the context of Section 150 applications (application to restrict a director of an insolvent company).

Kind regards,
Kevin O'Brien

 
E-Business
 EU Directive on privacy and electronic communications comes into force with significant implications for direct marketing.
Company law
The Companies (Auditing and Accounting) Bill, 2003 - adding to the existing Corporate Compliance Regime.
Data Protection
 Is your company appropriately registered with the Data Protection Commissioner?
Company law
 Section 150 Applications - a recent High Court decision establishes an important precedent with significant implications for directors of insolvent companies that go into liquidation.




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EU Directive on privacy and electronic communications comes into force with significant implications for direct marketing.

On the 6th November 2003 the EU Directive on Privacy and electronic communications (Directive 2002/58/EC) was transposed into Irish law1 .

There are now significant legal rules governing the use of fixed or mobile telephone numbers or e-mail addresses to send unsolicited direct marketing material and this article highlights some of the provisions of the Directive that are relevant to such activities.

Use of unsolicited communications

Businesses engaged in direct marketing to individuals can no longer use automated calling machines, faxes, SMS messaging or e-mail to send such material unless the recipient has given his/her prior explicit consent to receive such communications (opt-in).

Automated calling machines, faxes or e-mail cannot be used to send unsolicited direct marketing material to business recipients if the business recipient has notified the sender that it does not wish to receive such communications or the relevant information is recorded in the National Directory Database (opt-out).

The use of false identities or false return addresses or numbers when sending unsolicited communications for direct marketing purposes is prohibited.

Businesses can send unsolicited direct marketing material by e-mail to existing customers to offer "similar products or services" but only by the same company. Each such message must allow the customer to opt-out from receiving future direct marketing e-mails.

When a customer's details are being gathered he/she must be told in a clear and unambiguous manner if their personal data will be used for direct marketing purposes. They must be given the opportunity to object to such use at that point in time or at any time in the future. Each message sent must allow the recipient to opt-out from receiving future direct marketing material.

Direct marketers contemplating person-to-person telephone contact should first consult the National Directory Database to establish if the intended recipient of the telephone call has registered his/her wish not to be so contacted.

The breach of these rules constitutes an offence and the sending of each unsolicited communication constitutes a separate offence. On summary conviction a person will be liable to a fine not exceeding €3,000 for each offence.

Public Directories

 Undertakings who collect personal data for inclusion in a public directory must inform the individual subscriber of the purpose(s) for which their personal data will be included.

In the case of electronic versions of such directories any use of search functions within the software (such as reverse searching) that would enable users of the directory to link an individual's name and address to a telephone number must be disclosed to the subscriber.

If the subscriber's personal data may be transferred to one or more third parties he/she must be informed of this and the third party recipient or category of third party recipient must be identified.

The transfer of such personal data thereafter must be restricted to the purpose for which it was first collected. Renewed consent will be necessary for any other purpose.

Cookies

For the use of "cookies" to be legitimate (for direct marketing purposes or otherwise) the recipient must be clearly and precisely informed of the proposed use in advance and must be given the opportunity to refuse to accept such cookies.

Access to specific content on the website can be made conditional on the acceptance of a cookie provided sufficient information is given beforehand.

Similarly the use of so-called spy ware, web bugs or other such hidden identifiers that can enter a user's computer unknown to them is unlawful unless prior consent is obtained.
For further information contact:
Patrick Ryan at
Email : pryan@kilroys.ie

© Kilroys Solicitors 2003

1S.I. No. 535 of 2003:European Communities (Electronic Communications Networks and Services)(Data Protection and Privacy) Regulations 2003.

The Companies (Auditing and Accounting) Bill, 2003 - Adding to the Existing Corporate Compliance Regime.

The Companies (Auditing and Accounting) Bill, 2003 ("the Bill") provides for the establishment of the Irish Auditing and Accounting Supervisory Authority ("IAASA") whose function is the supervision of the regulatory functions of the recognised accountancy bodies and other prescribed accountancy bodies.

The Bill proposes to amend company law to transfer to the IAASA the existing functions of the Minister for Enterprise Trade and Employment ("the Minister") relating to the recognition of accountancy bodies. Amendments are also proposed to existing company law provisions in relation to auditing, accounting and other matters.

The Bill is before the Dail and could become law as early as December of this year.

The IAASA

The stated objects of the IAASA are as follows: -
  • Supervise how the prescribed accountancy bodies regulate and monitor their members;
  • To promote adherence to high professional standards in the auditing and accountancy profession;
  • To monitor whether the accounts of companies comply with the Companies Acts; and
  • To act as a specialist source of advice to the Minister on auditing and accounting matters.
In addition, the IAASA is to be conferred with a wide range of functions including granting recognition to accountancy bodies, approving and prescribing the standards of professional conduct for their members, undertaking investigations into possible breaches of standards and imposing sanctions where appropriate.

In effect, therefore, the IAASA is to be conferred with broad investigatory and enforcement powers over accountancy bodies removing, at least in part, such bodies from the accountancy profession's own standards and codes of conduct historically derived from self-regulation.

The IAASA would, under the legislation as proposed, have the power to intervene in the disciplinary process of prescribed accountancy bodies and, where the IAASA is not satisfied that the body in question has complied with the investigation and disciplinary procedures already approved, it has the power to: -
  • Annul all or part of a decision of such body;
  • Direct that body to conduct further investigation or a fresh investigation, or
  • Fine the body in question for not complying with the approved standards and procedures.
There is a right of appeal to the High Court.

Company Accounts

The IAASA will also have power to examine the accounts of all public companies and private companies whose balance sheet total exceeds €25 million and whose turnover exceeds €50 million, to establish whether they are in compliance with the Companies Acts.

If it appears to the IAASA that there is an issue relating to compliance, it will have the power to send a notice to the directors of the relevant company specifying the relevant compliance issue. Such notice will stipulate a period within which the company must provide an explanation or prepare revised accounts.

Where a company fails to comply with such request, it is proposed that the IAASA can apply to the High Court for a declaration of non-compliance and an order for the appropriate remedy. The Registrar of Companies is entitled to receive a copy of any such order.

Directors should be aware that, in circumstances where any such order is made by the High Court, the order might also include an order for costs of the IAASA against the directors of the relevant company.

Further, every director of the company at the time of the approval of the accounts will be considered to have been a party to their approval unless a director can show he/she took all reasonable steps to prevent such approval.

Directors' Compliance Statement

One of the key proposals of the Bill is a proposed amendment to the Companies Act 1990, which will impose a new obligation on company directors to prepare a compliance statement as soon as possible after the relevant provisions of the legislation comes into force.

It is proposed that the compliance statement will contain the following information: -
  • Policies regarding compliance by the company with "relevant obligations" namely the Companies Acts, the Tax Acts and any other "relevant legislation" which provides a legal framework within which the company operates and which may affect its financial statements;
  • Internal financial and other procedures for ensuring compliance by the company with its obligations; and
  • Arrangements for implementing and reviewing the effectiveness of the policies and procedures in place.
It is proposed that the Board of Directors will be required to approve the content of the compliance statement and that such compliance statements will have to be reviewed and amended, where necessary, at least once every three years.

In addition, it is proposed that a statement will need to be inserted in the Directors Report acknowledging the directors responsibility for ensuring: -
  • The company's compliance with its relevant legal obligations and confirming that procedures are in place to ensure compliance;
  • That the directors have reviewed the effectiveness of their procedures; and
  • That all reasonable endeavours have been undertaken to secure compliance with its relevant obligations for the financial year.
Where a company does not have in place a procedure to ensure compliance, or has not conducted the required review, the directors will be obliged to give reasons for the omission in their report.

The auditors to the company will be obliged to review the contents of the compliance statement and to form an opinion that the contents are fair and reasonable.

Where directors fail to prepare a compliance statement in accordance with the legislation, details of the breach must be reported to the Office of the Director of Corporate Enforcement.

It is envisioned that the obligation to prepare a compliance statement applies to all companies except those that can avail of the audit exemption.

Conclusion

The Bill gives further statutory impetus to the enforcement of compliance with company law by increasing the accountability of directors and officers for internal compliance policies and procedures.

Directors will be obliged to include a statement of opinion in their report that "all reasonable endeavours" have been made by the directors to secure compliance by the company with its relevant obligations and, if they are not of that opinion, to specify the reasons.

Interestingly, a director's failure to include the required statement of opinion is not expressed to be an offence whereas the failure to prepare a compliance statement is an offence.

In practice, it can be anticipated that the greatest difficulty which will arise for company directors will be deciding the scope of the company's "relevant obligations". The Bill specifically mentions the Companies Acts and the Tax Acts including customs and excise duties, capital gains tax, VAT, capital acquisitions tax and stamp duty but it will be a matter for the directors of companies to determine the other "relevant" enactments. In many cases, these would include: -
  • Employment law;
  • Health and safety legislation;
  • Data Protection; and
  • Planning and Environmental law.
In addition, there will be specific legislation, which is sector specific such as financial services law, which will have to be covered as appropriate.

The key issue for directors will be to correctly identify any other legislation, which might materially affect the company's financial statements.

The auditors duties have been magnified by the obligation to report to the Director of Corporate Enforcement if the director's compliance statement and the statement of opinion in the directors report have not been prepared in accordance with the provisions of the Bill once enacted into law.

Directors should be aware that it is an offence for a director of a company "willfully" to make a false statement in any company return or report or "knowingly or recklessly" to make a statement to an auditor of the company, which is "misleading, false or deceptive in a material particular". Therefore, if the compliance statement or the statement of opinion is materially false or misleading then arguably the director is guilty of an indictable offence under the Companies Acts.

The maximum penalty for making such a statement is up to €1,904.00 on summary conviction or up to €12,697.00 and mandatory disqualification if convicted on indictment.

If the underlying information relates to the commission of an offence under another enactment, then the Director of Corporate Enforcement may disclose this information to any member of An Garda Siochana and/or may be obliged to cooperate with other statutory bodies such as the Competition Authority.


For further information contact:
Joanne Griffin at
Email : jgriffin@kilroys.ie

© Kilroys Solicitors 2003
Data Protection - is your company appropriately registered with the Data Protection Commissioner?
The Data Protection Amendment Act 2003 came into force on the 1st July 2003.

One of the most significant implications for all entities processing "Personal Data" (information capable of identifying living persons) whether on computer or on structured manual files is the obligation to register annually with the Office of the Data Protection Commissioner.

It is an offence to collect, process or transfer such Personal Data unless registered. Furthermore it is an offence to process such Personal Data in a manner that is inconsistent with the details contained in the Register maintained by the Office of the Data Protection Commissioner.

Quite apart from the risk of prosecution, businesses should be aware that under the legislation the Data Protection Commissioner has extensive powers of investigation and enforcement.

He has the power to instruct, "Authorised Officers" to enter upon premises to inspect in connection with suspected breaches of the law. He also has the power to order the deletion of databases in circumstances where there is non-compliance.

In his 2002 Annual Report the Data Protection Commissioner clearly signaled his intention to commence the process of proactively "auditing" the state of compliance of businesses as and from July 2004.

Every business of any size has information about individuals that is governed by this legislation - be they persons with whom they transact business, or would wish to transact business or their own employees.

Businesses may wish to retain the services of direct marketing consultants, or to outsource essential functions such as Payroll or to transfer Personal Data across a group of companies, all if which are governed by this legislation.

Often the effort and investment that goes into collating databases for commercial use is significant and such databases are valuable business assets but this underlying value can only be fully protected if the business is complying with the legislation.

Quite apart from the potential issues that might arise in the day-to-day use of such data for normal commercial interaction with clients, customers and employees you should also keep in mind the potential difficulties that might arise if your business is to be sold and substantive questions arise as to the state of compliance of your business with this legislation that cannot be satisfactorily answered
For further information contact:
Patrick Ryan at
Email : pryan@kilroys.ie

© Kilroys Solicitors 2003
Section 150 Applications - a recent High Court decision establishes an important precedent with significant implications for directors of insolvent companies that go into liquidation.
Company directors should be aware of the important precedent established in the High Court decision of USIT Ireland Limited and others (in liquidation) on the 30th July last.

Section 150 of the Companies Act, 1990 provides for the restriction of directors. Where the High Court has made an Order for such restriction, the relevant individual may not act as a director or secretary of a company unless the allotted share capital is €317,000.00 in the case of a public company and €63,500.00 in the case of a private company.

As a result of the Company Law Enforcement Act, 2001 liquidators of insolvent companies have an obligation to make an application for the restriction of the directors of that company unless the Director of Corporate Enforcement relieves the liquidator of the obligation to make such an application.

In the case of Usit Ireland Limited and others (in liquidation) the liquidator issued proceedings under Section 150 seeking declarations of restrictions in respect of certain people who were directors of the company within one year of the commencement of the winding up.

One of the directors contended that there was no obligation on the liquidator to bring a Section 150 application against him.

In finding that the liquidator was under an obligation to bring a Section 150 application in respect of the director in question, it was stated that, at a minimum, the obligation of the liquidator under the 2001 Act was to bring an application in respect of persons who were directors of the company at the date of the commencement of the winding up or within twelve months prior to that date.

Clearly therefore, any person who has been a director of an insolvent company at the date of the winding up or within twelve months prior to that date will be the subject of a Section 150 application unless the Director of Corporate Enforcement waives the obligation of the liquidator to bring such an application.

A director who may be concerned about the solvency of the company cannot avoid a restriction application by resigning within a period of twelve months before the resolution to wind up is passed or a High Court Order appointing a liquidator to an insolvent company has been made.
For further information contact:
Joanne Griffin at
Email : jgriffin@kilroys.ie

© Kilroys Solicitors 2003
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