Re National Irish Bank Ltd (No. 4)

• Jurisdiction: Ireland
• Judge: Mr. Justice Kelly
• Judgment Date: 19 April 2005
• Neutral Citation: [2005] IEHC 126
• Docket Number: [1998 Nos. 89 and 132 COS]
• Court: High Court
• Date: 19 April 2005

[2005] IEHC 126

THE HIGH COURT

RECORD No. 89/COS/1998

RECORD No. 132/COS/1998

NATIONAL IRISH BANK FINANCIAL SERVICES LTD. IN RE

IN THE MATTER OF THE COMPANIES ACTS 1963 TO 2003

AND

IN THE MATTER OF THE NATIONAL IRISH BANK LIMITED

AND

IN THE MATTER OF NATIONAL IRISH BANK FINANCIAL SERVICES LIMITED

COMPANIES ACT 1990 S11(3)

COMPANIES ACT 1990 S12

COMPANIES ACT 1990 S13COMPANIES ACT 1990 S160

COMPANIES ACT 1963 145(3A)

COMPANY LAW ENFORCEMENT ACT 2001 S19

COMPANIES ACT 1990 S12(1)(b)

COMPANIES ACT 1990 S11(1)

MAXWELL v DEPARTMENT OF TRADE 1974 1 QB 523

PERGAMON PRESS, RE 1971 1 CH 388

COMPANIES ACT 1990 S22

COMPANY LAW

Investigation

Inspectors - Final report - Disclosure of identity of persons referred to in the report -Improper practices identified - Whether power to make order sought - Whether real and pressing need for order - Whether substantial benefit to be gained from order -Re Ansbacher (Caymen) Ltd [2004] IEHC222, [2004] 3 IR 193 considered - Companies Act 1990 (No 33), ss 12, 22 and 160 -Liberty to identify persons in report refused(1998/89COS & 132COS - Kelly J -19/4/2005) [2005] IEHC 126, [2005] 3 IR 90

In re National Irish Bank Ltd

1 JUDGMENT of Mr. Justice Kelly delivered on the 19th day of April, 2005

THE ORDER SOUGHT

2 The Director of Corporate Enforcement (the Director) seeks an order pursuant to s. 12 of the Companies Act, 1990, granting inspectors who were appointed to investigate the affairs of the two companies named in the title to these proceedings liberty to release details of the identities of certain persons referred to in the report prepared by those inspectors.

3 The application is an unusual one and whilst the inspectors are happy to comply with any direction which the court might give they raise a number of issues which they believe have implications not merely for the inspection carried out by them but for other inspections which might be carried out under the companies legislation.

BACKGROUND

4 The inspectors were appointed to investigate and report on the affairs of National Irish Bank Limited (the bank) on 30th March, 1998. On 15th June, 1998, they were appointed to investigate and report on the affairs of National Irish Bank Financial Services Limited (the company).

5 Following the delivery of a number of interim reports the inspectors delivered their final report dated 9th July, 2004, to me in open court on 12th July, 2004.

6 On that occasion I made an order in accordance with the provisions of s. 11(3) of the Companies Act, 1990 (as amended), that a copy of the report be furnished to the Director. On the same day I made an order that a hearing should take place on 21st July, 2004, with a view to the court giving directions and making orders as envisaged under ss. 11, 12 and 13 of the Companies Act, 1990. I heard that application on 21st July, 2004 and delivered judgment two days later. In the course of that judgment I directed that the inspectors report be published in its entirety on 30th July, 2004. It was so published.

THE REPORT

7 The inspectors report made serious findings in relation to improper practices at both the bank and the company. Those improper practices inter alia had the effect of facilitating tax evasion and the levying of unwarranted fees and interest charges on some customers.

8 The inspectors analysed the knowledge and responsibility of senior officers within both the bank and the company and concluded that certain of them bore responsibility for the improper practices identified.

9 The area of the report which is relevant for consideration on this application is that which dealt with the audit committee of the board of the bank.

10 The inspectors said (at pgs. 168 and 169 of the final report) as follows:-

"The Audit Committee of the Board.

11 General

12 The inspectors have considered the operation of the Board Audit Committee and have concluded that the Committee:

13 • afforded to Internal Audit access to Board level in the Bank, independent of senior management;

14 • ensured that no limitation was placed on the scope of operation of the internal audit function;

15 • met regularly and received presentations from Internal Audit

16 and dealt satisfactorily with matters the subject of the Inspectors' investigation which were raised by Internal Audit, save in relation to DIRT.

DIRT

17 The management summary in the quarterly audit report to the Audit Committee in respect of the quarter ended February, 1995, stated that, in the quarter under review, Internal Audit had completed its first theme audit, which was concerned with DIRT. The audit was rated "unsatisfactory".

18 The report noted three major audit findings in relation to DIRT, each with a 4 star significance rating (i.e. the second most serious rating on a scale of 1 to 5). It was clear from the findings that both in regard to non-resident accounts and Special Savings Accounts there had been a significant failure on the part of the Bank to observe the relevant statutory requirements.

19 The corrective action proposed by Internal Audit and accepted by management did not include any proposal to deal with the issue of the Bank's liability for such arrears of DIRT as might be due in the circumstances. Because of this, the Audit Committee ought not to have accepted the corrective action proposed as being adequate, but should have sought further information as to how management intended to deal with the issue of a potential retrospective liability for DIRT."

20 The above is the totality of the criticisms made by the inspectors in respect of the Audit Committee. It is to be noted that the inspectors did not name the members of the Audit Committee.

THE DIRECTOR

21 The role of the Director is, in general, to encourage compliance with the Companies Acts and to bring to account those who disregard their duties and obligations under those Acts.

22 The Director takes the view that the directors of the bank who constituted its Audit Committee have serious questions to answer as a result of the findings made by the inspectors. He wishes to consider applying to the court for an order under s. 160 of the Companies Act, 1990, in regard to the members of the Audit Committee. He is therefore concerned to identify the persons who were the members of the Audit Committee of the Board of the bank in February, 1995. To that end he contacted the inspectors requesting them to furnish details of the identities of the members of the Audit Committee of the Board. They responded that they had been advised not to add to their report and that they should not furnish details of the identities of the members of the Audit Committee of the Board of the bank to the director without leave of the High Court.

23 The Director also wrote to the solicitors for the bank and the company requesting them to furnish him with the names and addresses of the persons referred to in the inspectors report as the Audit Committee of the Board. The solicitors acting for the bank responded telling the director that the bank had identified three persons as having being members of the Board Audit Committee in 1995. The identities of those persons were disclosed to the director. However, the letter from the bank's solicitors went on to state as follows:-

"Due to the process by which the inspectors conducted their investigation, the bank was not privy to the inspectors' decisions or the opinions in respect of individuals. In the circumstances, it is inappropriate for the bank to express any views as to whether all or any of the three persons named actually were the persons who should be described in the terms of the third paragraph of your letter of 23rd December, 2004."

24 The third paragraph of that letter of 23rd December, 2004, read:-

"My client wishes to consider applying to the High Court for an order pursuant to s. 160 of the Companies Act, 1990, in respect of the unidentified members of the Audit Committee as referred to in the inspectors' report. Having taken legal advice to that end, the director is concerned to identify the persons who were the members of the Audit Committee of the Board in 1995 that considered the corrective action proposed by Internal Audit and accepted by management and who failed to pursue the issue of the banks potential retrospective liability for DIRT."

SUBSEQUENT EVENTS

25 Following the issue of this motion the Director, through an authorised officer, served a notice on the bank pursuant to the provisions of s. 145(3A) of the Companies Acts, 1963, as inserted by s. 19 of the Company Law Enforcement Act, 2001, requiring the bank and its officers to produce for inspection books kept in accordance with s. 145 and to provide facilities for inspecting and taking copies of such books. That notice was complied with by the bank.

26 As a result of that compliance the Director has been furnished with minutes of the relevant meetings of the Audit Committee of the Board.

27 These minutes demonstrate that the Audit Committee met four times in 1995. Those meetings took place on January 26th, April 7th, June 23rd and October 27th, 1995.

28 The criticisms made by the inspectors of the Audit Committee relate to the failure on the part of that committee to consider how the bank would address its potential retrospective liability for DIRT. The Director is satisfied that the criticisms made by the inspectors must relate to the manner in which the Audit Committee of the Board in its meetings in 1995 dealt with that issue. That issue came before that committee by way of a management summary in the quarterly audit report to it in respect of the quarter ended February, 1995.

29 The minutes of the meetings of the Audit Committee show that on 26th January, 1995, there...