Bond As Alternative To Resident Irish Director

Section 43 of the Companies (Amendment) (No.2) Act 1999 set a requirement for all Irish registered companies to have at least one Director who is resident in the State. This applied to all new companies registered after April 18th, 2000. Companies formed prior to that, were given until April 18th, 2001 to comply. However, Section 43 (3) offers the alternative of taking up a Bond to the value of IR£20,000, (€25,395) in place of the Resident Irish Director

What is the background to the Bond ?

Sections 42 to 45 were introduced as part of the "package of measures" to inhibit the use of what were known as Irish Non-Resident Companies. (INRC's) These companies achieved tax free status in Ireland by virtue of trading and being controlled and managed outside the State. As they did not conduct any activity here their economic contribution was virtually nil. It was also felt that their existence promoted the Republic of Ireland as an "Offshore" jurisdiction.

The requirement for a resident Director meant that Irish companies would now have somebody in the State accountable for it's actions, even if it did not actually trade here. This presented a number of problems for investors located outside the State, Northern Ireland for example, who wished to register companies and conduct business here.

An exemption was required which would allow investors bringing genuine economic benefit, while at the same time dissuading previous users of INRC's. Accordingly the Bond was introduced.

What is the purpose of the Bond ?

The Bond exempts companies registered in the Republic of Ireland from the requirement to have a Director who is resident in the State (i.e. present in the State for at least 183 days within previous twelve months OR has been present for 280 days in the previous twenty four months (30 of which must be in the previous twelve months) OR the Director has made an "election" under the Taxes Consolidation Act, 1997 to be resident)

How will the Bond be used ?

The Bond will be used to pay:

Who can issue the Bond ?

An Irish Bank, an Irish Building Society, a credit institution holding an authorisation under Council Directive No. 77/780/EEC, and an Insurance Company.

What would an Insurance Company require ?

They would require a Proposal Form to be completed by the applicant company and payment of the insurance premium. The Proposal Form states that the Company understands and accepts it's obligations to both the Revenue Commissioners and the Registrar of Companies. It also contains a statement which sets out the companies agreement to indemnify the insurance company in the event of any claim.

Will one Bond cover a number of Companies ?

No. Each company must apply for a separate Bond.

Is there a minimum period the Bond must be taken out for ?

The Bond must be taken out for a minimum of two years.

Are there penalties for not having a Resident Director or a Bond ?

The Registrar has been given the power to simply have a company struck off for not having a Resident Irish Director/Bond/Certificate.

However, a breach of this regulation on summary conviction can lead to a fine of up to €1,900 and/or up to six months in prison. A conviction on indictment brings a fine of up to €13,000 and/or three years in prison. The Registrar has the power to bring summary proceedings.

How would this come to light ?

Firstly the CRO will review a company's annual returns to make sure the company has either a resident Director or a Section 43 Bond. If it does not, the annual return will be rejected. The company will then have just fourteen days to rectify the situation and re-file the annual return. If the return is not re-filed within fourteen days the CRO will consider it not to have been filed in the first place and will apply the late filing fees OR they may consider striking the company off.

Secondly, non-compliance with Section 43 is one of the 127 "indictable offences" which auditors are compelled to report to the Office of the Director of Corporate Enforcement.

What happens if a company has only one Resident Director, and he/she resigns ?

Under Section 43(9) of the 1999 Act, there is an obligation on the resigning (resident) Director to inform the Registrar of Companies within fourteen days and in writing, that he or she has resigned and that no resident Director remains.

What would happen if the Resident Director fails to inform the Registrar ?

In this case, the resigned Director becomes jointly and severally liable with the company for any fine or penalty imposed on the company under the Companies Acts or the Taxes Consolidation Act.

How long does it take to arrange a Bond ?

A Bond can be usually arranged within five/seven days.

Where is the Bond sent ?

Once issued, the Bond is attached to the incorporation papers, if a new company is being formed or to the Annual Return when filed for an existing company. It must also be attached to a notification filed by resigning resident Directors, when no other resident Directors remain.

Can CFI arrange a Bond ?

Yes. CFI can arrange a bond, subject to the terms and conditions of the proposal form, for a fee of €2,544 plus VAT (where applicable) for the two year period. For further details please contact Karen Corcoran, or Sean Kavanagh