In District Court 54 last week directors of companies that had previously been struck off the register and restored but failed to submit their annual return for last year by March 1st, 2001, lined up to tell District Judge McNulty that they assumed their accountant was dealing with their affairs and, in general, that it was all somebody else's fault.

However, the judge was having none of it. He imposed average fines of £400 (#508) per director, or 10 days imprisonment in default, and firmly told them that directors who avail of the benefits and privileges of a limited liability company must also carry the burden if they failed to comply with the companies acts.

This is the problem. The new Company Law Enforcement Act 2001, which was signed on July 9th, now brings to 10 the number of individual companies acts that all directors and company secretaries must have knowledge of and comply with all their intricate provisions. It's an impossible read for most directors and that is why they generally have very little knowledge about the rules and regulations governing their companies. This was the first round of prosecutions against directors personally this year. Previously, the registrar of companies enforced company law by simply striking companies off the register if they failed to file their statutory annual return within 12 months. More than 60,000 companies were dissolved from the Irish register over the past 2 1/2 years.

A company that is struck off the register immediately loses its legal identity and the directors forfeit the benefits of limited liability if they continue to trade while the company remains dissolved. Any property or assets held by the company automatically vests with the State in the name of the minister for finance and, accordingly, it is necessary to have such a company properly restored before the company can ever sell any such assets in the future.

However, the registrar of companies has recently indicated that he will no longer strike companies off the register but instead bring more frequent personal prosecutions against individual directors. The new Companies Act increases the maximum penalty to £1,500 and, as the registrar can only prosecute for two years, directors are looking at a worst-case scenario of £3,000 per head in the District Court.

It is inevitable that hundreds of "innocent" company directors, who are unaware of the many provisions of the companies acts, will receive a visit from a Garda seeking payment of fines of £6,000 from the typical Irish husband-and-wife company who have simply failed to file their statutory annual return within the new reduced deadline of 28 days from the date of the annual return date. Directors will face jail if they do not pay these fines and the old ways of striking you off the register will look mild compared to this new regime.

This new Company Law Enforcement Act 2001 will be a great wake-up call for company directors. It is hugely significant and will affect every single corporate body over the next few months when fully commenced. It is perhaps the most important new Companies Act in more than 40 years. It will close off loopholes in the system and will end the Phoenix syndrome, whereby directors of insolvent companies will no longer be able to recommence business under the guise of a new company. Thousands of individual directors will be compelled to appear before the High Court to explain in great detail how their company failed and to explain to the court their role in managing the company.

It will now be a mandatory requirement that liquidators of all such insolvent companies will be required to ensure that this investigative-type application be properly brought before the High Court within 11 months of the winding up of the company in nearly all cases. Directors will be required to prove to the court that they acted honestly and responsibly in the management of the company and basically that no blame attaches to them for the demise of the company. The court must declare a director a restricted director if they fail to satisfy the court. A restricted director cannot be a director of any company whatsoever unless it has a minimum paid-up share capital of £50,000.

This is a serious black mark against a director and their personal assets might be at serious risk should a liquidator or creditor seek to bring proceedings against them for personal liability on account of reckless trading or improper conduct. The floodgates will open in this area and, based on the statistics in Britain, the restricted register will expand rapidly from the present number of 118 directors to thousands over the next few years.

The new Act establishes the new post of director of corporate enforcement. The director of corporate enforcement, Mr Paul Appleby, was appointed on October 5th and he will lead a dedicated unit of nearly 40 persons with specific responsibility for the investigation and enforcement of the companies acts.

Liquidators of insolvent companies will be required to specifically report to the director of corporate enforcement within six months of the winding up of the company and to ensure that proceedings are initiated in the High Court seeking restriction orders against such directors unless they are specifically relieved by the director of corporate enforcement.

The new director will have very extensive and wide-ranging powers to bring various applications before the courts against directors and companies for alleged breaches of the companies acts. In particular, these provisions will apply in respect of all new companies that are wound up and are insolvent after the commencement date of this new legislation.

Brian Walker is a barrister, based in The Law Library, at the Four Courts in Dublin