Print
Interviews
<< Back
Keeping good company
03 March 2010
.jpg)
Conor O'Mahony of the Office of the Director of Corporate Enforcement (ODCE), talks to Claire Hartnett about the spiralling levels of liquidation, and how the ODCE is adapting.
To say that Conor O'Mahony is busy is an understatement.
He heads an 8-strong team in the ODCE's insolvency unit, and with the office recording a threefold increase in liquidation in 2009 compared to 2007, they're flat out at the moment.
Established in 2001, the ODCE has extensive powers of investigation and is charged with uncovering suspected breaches of company law. But it also supervises liquidations and assesses directors' conduct in insolvent liquidation situations, which has made it a hectic couple of years.
"In a two-year period, our work has more than trebled so there's an extremely heavy strain on our resources and we have to work extremely hard to keep on top of it. We've definitely had to stretch ourselves to try and deal with it," he says.
His unit has had to look closely at how they can carry out the extra work more efficiently. To lighten the administrative load caused by the surge in activity, the ODCE last year dropped the requirement on liquidators to produce final reports – summary documents which are sent to the office following a liquidation decision.
The ODCE is also looking at simplifying the liquidation process for smaller companies.
"It's very early days but it's something we've given thought to. The process is fairly fraught and relatively expensive and presents a lot of obstacles for small companies and we want to see if we can simplify it for them," he explains.
But according to O'Mahony, the volume of liquidations is beginning to throw up problems in other areas too: "We've found that there's a little bit of an issue in terms of some of the quality of the reports we've received from liquidators. Because of the pressures of the market, more and more people are becoming involved in liquidations and they might not have a lot of experience in the area, so there's a certain element of hand-holding that's going on at the moment and new players need to be educated quickly."
He also suggests that some insolvency practitioners may be taking on too much work.
"What's also beginning to emerge, which we're a little concerned about, is that some of the practitioners are overstretched and taking shortcuts. It's not a major issue but it's something that we'd be concerned about and we'd be anxious to ensure that the mutual understanding that exists now between our office and practitioners doesn't suffer if the volume of work taken on by some is too extreme. Practitioners really need to be a little careful that they're not over-stretching themselves and letting their professional accountancy standards drop."
O'Mahony's unit is also charged with assessing the conduct of directors of insolvent companies and says that the most common problem is directors not facing up to problems within their company until it's too late.
"In a lot of cases we see the ostrich syndrome where directors are faced with difficulties and, instead of taking action, they bury their heads in the sand and are eventually overwhelmed. There's a certain element of human nature in that but the problems don't just go away."
His advice is to take action early: "The earlier you address your problems the better, if there's no scope to address the problems and turn the company around, then directors need to make the early decision to liquidate the company."
Companies trading while insolvent, and directors running up credit that they don't expect to pay, are also big issues for the ODCE. Directors who have little knowledge of the actual financial situation of their company is another all-too-common problem for the office.
"You'd be surprised by how little awareness some directors have about the state of affairs in their company. Some directors have no books, no cash-flow forecast and are just living day-to-day, they keep going and they don't know how to fix it. There's a failure to understand the true state of affairs and they continue trading which we frown upon."
His unit also deals with more serious issues, such as directors stripping assets from one company and transferring them to a new business. "It's something that we scrutinise very closely," he says, as is the question of whether directors of insolvent companies are unfairly preferring certain creditors. "A director might start a new business and pay off his trade creditors to keep on their good side and other creditors, usually Revenue, are left high and dry. We take a very dim view of people abandoning companies and leaving creditors high and dry but it's a very tricky area – just because a director has failed in a business doesn't mean he can't start again."
In spite of the huge increase in the amount of liquidation reports the ODCE has seen – jumping from 270 reports in 2007 to over 900 in 2009 – O'Mahony doesn't believe that this will lead to a surge in restriction proceedings against directors.
"My gut instinct is that [the increase] won't have a material impact on the proportion of directors facing restriction proceedings. Firstly, people are more circumspect – our existence is a bit of a bogeyman for directors and it acts as a constraint on their behalf. In terms of the recent ballooning in insolvencies, it's too early to tell if the volume has had an impact on the detection of bad business management. We're probably seeing a combination of extremely difficult market conditions and not unexpected business failures which can't be attributed to directors – they're just genuine business failures. There's no indication that it's a greater problem in an adverse market than normal but it's early days. So far our view would be that there's no particular increase in proportional terms."
The big question in all of this, he argues, is how directors of struggling companies react – do they face up to their responsibilities or bury their head in the sand?
"Yes, we're seeing a much higher percentage of directors facing into insolvency. There are lots of people in difficulty but the key thing is to face up to things early. They've got to be honest and have an honest appraisal of their business, they have to deal with their debts and make responsible decisions as to how they will react if they find themselves facing a liquidation," he says.
<< Back
