Company Law Enforcement Bill, 2000: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Mr. Rabbitte

More amendments to the Companies Acts, 1963 and 1990, are provided for in the Bill than is first apparent. The debate on Second Stage is on the principles of the Bill and we will not go into detail today. There will be a necessity to look more closely on Committee Stage at each of these amendments to the Companies Acts. The Bill is not merely about setting up the office of the director of enforcement, there are a number of changes. Section 71(6) is an example of what I have in mind. Part 8 sets out a good regime for the recognition of auditors, auditor bodies or bodies that qualify auditors and also for the duties and responsibilities of auditors. Section 71(6) intrigues me.

Some Members will recall the battle here a few years ago prior to the enactment of the Finance Bill, introduced by my colleague and party leader, Deputy Quinn, when he sought to require auditors to blow the whistle on wrongdoing in client companies. The mother and father of a resistance was organised by the same auditors. When I read this section, which is generally a good section, I wondered whether it was reintroducing this matter, now that we are more mature, having regard to the water that has gone under the bridge since then and the conduct of auditors that has been revealed since then. In his response I ask the Minister to deal with section 71(6) which reads: "Where the auditors of a company have reasonable grounds to believe that the company is being used or may have been used for a fraudulent purpose, or that a director or directors of the company may have defrauded the company, its creditors or other persons, the auditors shall forthwith notify the Commissioner of An Garda Síochána and the Director" and so on.

I support that but the reason I draw attention to it by way of illustration is because of the focus that will be required on these detailed amendments to the Companies Act. I am curious about the phraseology "the company is being used or may have been used for a fraudulent purpose". That would seem to imply a circumstance where the company has been set up for the purpose or is being exclusively used as a vehicle for that purpose or whatever, in other words, that it is some kind of front company used to launder money or whatever. It does not seem to provide for the situation that I thought initially was being provided for that if an auditor discovers in its normal client company there are breaches of the law or actions being carried out for a fraudulent purpose he may blow the whistle. This seems to relate to a particular kind of company. The phraseology used "the company is being used or may have been used for a fraudulent purpose" is not something I have seen before. This is purely an example. There are more amendments to the Companies Acts than was apparent when I glanced at the Bill, and I welcome that.

In respect of Part 8 which provides for quite a good regime in respect of auditors, the question arises as to why this is not provided for directors and management. Is there any reason we cannot put in place a system of recognition and a similar regime for recognised bodies, whether IBEC, IOD, IMI or whatever? There is such a regime on a non-statutory basis in existence for banking with the Central Bank in the role of supervisor and regulator.

I emphasise a nuance of difference on a point with Deputy Naughten that he welcomes the independent status of the director of enforcement and supports the notion that it should be taken out of the political arena. I question in a philosophical way whether that is always right as it involves the erosion of the position of the Minister and the diminution of accountability. The explanatory memorandum refers to the transfer of the Minister's powers under Part II of the Companies Act, 1990, to the director. It states: "It was judged to be more cost-effective, more efficient and less politicised if the decision on whether to initiate a company law investigation or a criminal investigation in any particular case was centralised with the Director." Perhaps it does. I have an open mind on it.

I have some concerns about the gradual erosion of the position of Ministers in different ministries in recent years where a body, an office, an agency, or a quango takes the power out of this House and causes it to reside in a body where it is not clear how accountable it will be in practice – the National Roads Authority and the ODTR are good examples. I say that in the full knowledge that there are arguments that can be advanced as to why that is the case. It is not entirely clear in tangible terms what the accountability will be in this case. Under the provisions of section 16 the director is required to furnish a report to the Minister which she is required to lay before the Houses of the Oireachtas and so on but I do not know if that amounts to much.

The compellability Act is being amended to put the director on a par with the DPP and to ring-fence him from questioning on certain matters. I can understand why in certain circumstances it might damage the investigation if he were required to answer questions on the specifics. I wonder whether we have to go so far as to amend the compellability Act. I do not think the director is in the same category as the DPP. The DPP is not unamenable to appearing before some committees of the House and his office is accountable to the Committee of Public Accounts through the Accounting Officer. I would have thought the role of the Director of Public Prosecutions is significantly and substantially different from the role envisaged here.

I concur with something that has already been said that we might reasonably have expected the Tánaiste to use the opportunity today to update the House on the various investigations she has under way. She has been coat-trailing these for almost three years. Some, if not all, Members on this side of the House have supported her enthusiastically but she is in danger of undermining her credibility if she does not soon produce results from a number of these inquiries. I am a little surprised she did not take the opportunity today to bring us up to date.

The regulatory and supervisory role in Ireland, such as it is, lies with the Minister and, to some extent, the courts. This Bill envisages the transfer of the powers of the Minister to the new office of the director of enforcement, the extension of these powers and the introduction of what might be called a more proactive element as opposed to the essentially passive philosophy of the present regime. Broadly, I am happy to go along with this except for the apparent weakness of the accountability under section 16 of the Bill. I am concerned that there is an implicit idea that politicians cannot be trusted and, as a corollary, that independent officers always can. That is by no means a swipe at the excellent person who has been appointed director. I acknowledge his calibre and conscientious approach to his job and I wish him well in it. He is an excellent choice. The Minister is also fortunate to be advised on this Bill and other matters of company law by the senior civil servant concerned. I know from experience the calibre and intellectual acuity of that official.

However, I still raise the philosophical question about Ministers being able or required to come to this House and be accountable during major controversies deriving from breaches of company law and matters that develop into significant controversies. Accountability to the House will be diminished as a result of this Bill and we will not have the opportunity to pursue it in the way we would like.

I am anxious that the Minister respond to the question regarding section 28 of the Bill which provides for the repeal of section 19 of the Companies Act and the substitution of a new section 19. Section 19(6) of the 1990 Act remains and reads as follows:

A statement made by a person in compliance with a requirement imposed by virtue of this section may be used in evidence against him.

I wish to put on record part of a submission by a friend of mine who did not authorise me to give her name. She made the submission in the context of the review group on auditing. She says:

Since the 1990 Act was implemented there have been a series of court actions in relation to allegations of corporate malpractice in the National Irish Bank. One of the Supreme Court judgments arose from an action taken by the Minister's inspectors and whilst this was in reference to statements given to the inspectors, it was held that there is a constitutional right not to have involuntary evidence accepted at a criminal trial. ... Subsequent to this judgment it seems most inappropriate to retain the wording of subsection (6). Moreover, including this form of words in the Company Law Enforcement Bill will hardly send encouraging signals to employees that disclosure of malpractice is recognised as being laudable in any respect. A more appropriate signal would be to use the form of words adopted in section 29(6) of the Merchant Shipping (Investigation of Marine Casualties) Act, 2000. This Act was passed in the same month as the Bill was published and the relevant section of the Act reads as follows:

If a person objects to answering a question asked of him or her as a witness at an investigation or inquiry on the grounds that the answer might tend to incriminate the person or make the person liable to a penalty, and the person is informed of his or her obligation to answer the question, the person shall not refuse to answer the question but the answer given on that occasion shall not be admissible as evidence in criminal or other proceedings against the person other than proceedings against him or her in respect of the falsity of the answer or the failure to answer the question.

It should be noted that the investigations that are the subject of the Act I quoted are likely to include death and serious injury which are, by definition, of even greater seriousness than corporate malpractice. I am anxious to hear the Minister address that.

I welcome the Bill. It is significant reforming legislation. I apologise to the Minister that due to another commitment, I cannot remain in the House to hear his reply. I look forward to Committee Stage.

Minister of State at the Department of Enterprise, Trade and Employment (Mr. Treacy)

I thank Deputies for their interesting and valuable contributions. We welcome the support shown for the purpose and intent of this important Bill. Without wishing to down play the many vital Bills that will be introduced by this Government this session, I believe this is one of the most significant to come before the Oireachtas and that it will have a long-term positive effect on our economic and social well being through this millennium.

As the Tánaiste explained earlier, the purpose of the Bill is to introduce a new and effective regime for the enforcement of company law in Ireland. The establishment of the director of corporate enforcement will constitute a sea change in our approach to company regulation. For the first time a dedicated and properly resourced statutory officer, the director of corporate enforcement, is being established to enforce and encourage compliance with the Companies Acts. I endorse Deputy Rabbitte's comments on the quality of the person appointed to this position and of the persons advising us on this Bill. Individually and collectively, the staff of the Department do an outstanding job in one of the country's most important areas of economic activity.

I expect that the existence of the office of director of corporate enforcement, with the necessary resources and statutory powers to perform his functions, will, over time, bring about a real change in the corporate culture from one of general laxity in regard to compliance to one of general and automatic compliance with the law. Public confidence in the fair and consistent application of our company law is essential to the maintenance of our economic success as well as to the maintenance of the social contract which has served us so well over the past decade and a half.

The work of the new director and his staff in bringing to account those who flout our company laws and rooting them out of the corporate landscape will foster and promote confidence in our system of corporate governance, making Ireland an attractive place in which to invest and with which to do business. By encouraging a more compliant attitude in the corporate sector, the director will help protect the interests of creditors and members of companies registered to operate here and all those who are dependent on the well being of our commercial enterprises, including employees and their dependants.

Mr. Naughten

Would it be possible to get a copy of the Minister's speech?

Mr. Treacy

It will be available in the Official Report.

The establishment of the director of corporate enforcement will bring the enforcement of the Companies Acts and the investigation of companies outside the political arena. Deputy Rabbitte said that this might not be a good thing but we must look at this from a detailed, broad and balanced perspective. Ultimately, it is important that people are certain that they are dealing with an independent officer with a well resourced office and quality staff and that there can be no political interference. It will ensure that equity prevails and that closure is always available. No longer will the decision to investigate companies or prosecute offences under the Companies Acts be subject to political judgment and patronage. Decisions in this regard will be, and will be seen to be, above political influence.

Deputies raised a number of issues and I will try to respond to as many as possible. There will, of course, be an opportunity to discuss the details of the Bill on Committee Stage when we will be happy to explain what the various provisions are intended to achieve. We have sought, with the assistance of our officials, to keep the Bill as simple as possible. We have also provided a comprehensive explanatory memorandum not only to explain what is covered by each provision but also to outline in detail its purpose and intent. I hope this helped Deputies to come to grips with the detail of this important legislation.

The Bill seeks to set out a basic structure and modus operandi for the new director, with the basic powers and resources it is envisaged he or she will need.

However, rather than trying to cover every possible angle, what we, together with our officials, have sought to achieve, is a basic functional and operational structure. It is likely that over time the new director will identify the need for additional powers which can be provided by way of an appropriate amendment Bill whenever necessary in future. As seems inevitable with all legislation nowadays, there are a few extraneous provisions included which are not related to the purpose and scope of the Bill but are included to tidy up miscellaneous areas of the Companies Acts. These are not a major source of controversy. However, rather than comment on them now, we will explain their purpose in more detail on Committee Stage.

Deputy Naughten queried the level of resources. I assure the House the resources the Tánaiste and I have indicated will be provided. It would be foolhardy of any Government, taking account of the machinations of investigations in recent years, not to provide sufficient resources for a vitally important new office. The Government, the Taoiseach, the Minister for Finance, the Tánaiste and the Department are absolutely committed to providing these resources. The budget will not be a problem and, if additional resources are required, I have no doubt they will be provided. The director will have power to retain people on contract should this prove necessary.

Deputy Naughten raised the issue of resources within the Competition Authority, the Companies Registration Office and the Government's commitment to resourcing the new office of the Director of Corporate Enforcement. I am happy to advise both the Deputy and the House that in respect of the vacancies for five economists and three legal advisers in the Competition Authority, interviews for the recruitment to the vacant positions are now being held and these posts will be filled shortly. My Department will fill three administrative staff vacancies in the authority in the normal way. Staffing problems have placed major constraints on the authority's capacity to investigate new complaints. I am confident this will change as the newly recruited staff take up their positions. To ensure staffing problems are tackled comprehensively, my Department, together with the authority, is currently involved with outside consultants in a study of the authority's operations with a view to having its future resource requirements assessed. All staffing issues are being dealt with in the study. We are fully committed to ensuring that the authority is adequately resourced to discharge its important statutory functions.

Regarding the Companies Registration Office, the additional resourcing of that office over recent years has been continued by this Administration and the results of that investment in resources is clear for all to see. I am proud that we have a Companies Registration Office which is second to none and equal to the best in the world. With the introduction in the Companies (Amendment) (No. 2) Act, 1999, of the power to strike off companies which have not filed a return in respect of one year, the target for 2000 is now set at getting 100% of companies due to file an annual return for 1999 to do so at the latest by the end of 2000. By the end of July last the percentage of companies filing their 1999 annual returns had increased to an impressive 70%, well on the way to the desired goal of 100% compliance.

Deputy Naughten referred to the reporting arrangements to which the Director of Corporate Enforcement will be subject under section 12. Notwithstanding the operational independence of the director, section 16 of the Bill provides a mechanism for reporting by the director both to the Minister for Enterprise, Trade and Employment and to the Houses of the Oireachtas. The director will be required to make an annual report to the Minister of his or her activities within three months of the end of each year. The Minister will present this report to the Oireachtas within a further two months. In addition, the Minister may require the director to furnish, from time to time, such information about the performance of the director's functions as the Minister or Government of the day may require.

The director will also be subject to scrutiny before committees of the Houses of the Oireachtas as to the performance of his or her functions. This will not extend to providing information relating to particular cases dealt with by the director, which will remain absolutely confidential.

The provisions dealing with reporting by the director reflect that while the director is operationally independent, he or she is still accountable both to the Minister and to the Oireachtas for the general administration of the office and for the discharge of his or her functions. Based on his or her reports, the Oireachtas will have sufficient information to advise as to whether the resources and staff to the director are adequate.

Deputy Naughten raised the issue of progress reports in relation to investigations of companies and examinations of the books and documents of companies undertaken under the provisions of Part II of the Companies Acts, 1990. The Minister must have regard to legal advice in terms of the statements she is in a position to make concerning the detail on investigations undertaken using her powers under the Companies Acts. The Deputy and the House will be aware that many of these investigations are the subject of legal proceedings and the Minister is limited in the information she may disclose.

With regard to the position when the powers under the 1990 Act are transferred to the Director of Corporate Enforcement, it is important to remember that the director will be independent in the performance of his or her functions and it would be entirely inappropriate for the director to report either to the Oireachtas or in any other forum on the conduct of investigations undertaken by his office.

The director will be subject to the general supervision of the Minister as regards the administration of his or her office and the performance of his or her functions. The Bill specifically provides for reporting on these issues. The director will be subject to the constraints which currently constrain the Minister with regard to the publication or disclosure of information obtained using the powers provided for under Part II of the Companies Act, 1999. This will not render the director unaccountable for the manner in which he or she performs his or her functions either to the Oireachtas or the taxpayer.

Deputy Rabbitte referred to the abuse of the privilege of limited liability. I have no doubt that, whatever happened in the past, this will no longer be tolerated in the future. The provisions on restriction and disqualification will severely limit the ability of people to abuse limited liability. In future, in every company that goes into insolvent liquidation, the directors of that company will be subject to restriction actions in the courts.

Deputy Naughten referred to section 57 which replaces the existing section 127 of the Companies Act, 1963, and which specifies the time limit within which a company must complete and file its annual return with the Registrar of Companies. The replacement section 127 provides for the introduction of an annual return date as a basis for calculating the date by which the annual return is due to be filed. Under the existing law, a company is required to complete its annual return within 60 days of the holding of its annual general meeting and forward it to the Registrar of Companies forthwith. The registrar has no way of knowing precisely when a company holds its AGM, therefore, it is not alerted to the fact that a company has missed its deadline for filing its annual return. This makes timely enforcement of the annual return filing requirement impossible.

The introduction of the annual return date will address this problem. The annual return date is to be a definite and specific date in each year to which a company's annual return must be made up. The return must be filed with the Registrar of Companies within 28 days of the annual return date. A method of calculating the annual return date for every company is provided at section 57 of the Company Law Enforcement Bill. By establishing a definite date in each year by which a company must file its annual return, the introduction of the annual return date will allow the registrar to effectively monitor each company's compliance with its filing requirements and observe the pattern of filing returns. The registrar will know to the day precisely when a company has defaulted on its filing requirement. This will facilitate the proposed introduction of a progressively increasing late filing penalty that will act as an ongoing incentive to file notwithstanding the elapse of the permitted period for filing. If a company files its return one month late, it will pay a lower penalty than one that files three months late, and so on. Knowledge of the precise date by which a given company is due to file its annual return is essential to the successful operation of a late filing penalty system along these lines. A particular benefit is that it will allow the registrar to issue advance notices of the requirement to file. This will make the system much more fluid and effective.

Deputy Naughten raised also the question of detail in relation to section 57 of the Bill. I understand the Deputy suggested the current difficulty with the enforcement of the annual return filing requirement could be addressed by requiring companies to inform the Registrar of Companies of the date on which they hold their annual general meetings. I welcome Deputy Naughten's suggestion on this matter but point out that the proposed system would allow the registrar to be much more pro-active in the matter of annual returns. It will allow him to issue companies with notice of when their returns are due and further reminders when they fail to file on time. The Companies Registration Office will operate a new system involving a range of measures, including an increasing late filing penalty, imposition of on-the-spot fines, prosecutions and, if necessary, strike off as a last resort. Over the years the CRO has always been reluctant to strike off companies. It is a last resort and companies are given every opportunity to file but if they do not do so there is no option. That position has obtained over recent years.

Deputy Naughten queried the work programme of the non-statutory company law review group. I agree the review group has a vital role to play. The group, established on an interim non-statutory basis, held its first meeting on 7 February 2000. It will be placed on a statutory footing on enactment of the Bill. The group is chaired by Thomas B. Courtney, solicitor, company law author and head of legal affairs with ICS Building Society and one of Ireland's most eminent experts in company law.

It is proposed that the review group will operate to a bi-annual work programme and that a reforming companies amendment Bill will be brought forward every two years based on the relevant report of the review group. In the first two-yearly work programme assigned to the group I have asked it to examine a number of issues. The group has advertised for submissions to assist that process.

Issues being considered include simplification of company law; review of the law on company directors; consideration of the desirability of a statutory licensing scheme for liquidators, examiners and receivers; review of company law in the light of new technological developments; consideration of the case for dedicated treatment of commercial cases within the courts system; and the duties and regulation of auditors having regard to the report of the review group on auditing.

The work of the review group is proceeding satisfactorily. Eight sub-committees have been set up as the main modus operandi for the consideration of recommendations and drafting of its first report. The sub-committees meet regularly. On completion of its initial two year work programme, the review group will report to the Tánaiste on its conclusions and recommendations.

The project to consolidate company law is also under way. A technical expert has been retained on a part-time basis to assist with this task. A consultative process involving the Bar Council, Law Society and Consultative Committee of Accountancy Bodies, Ireland, is built into the project. In developing the consolidation project regard will be had to the work of the company law review group and vice versa. I have no doubt the group will also examine the need for 300 offences under the Companies Acts.

Deputy Rabbitte referred to the reform of company law. This has been addressed both through increased staffing and through the work of the company law review group. He referred, quite correctly, to the need to have adequate and timely information in the CRO. This is being addressed both by a very proactive role by the registrar and by the new provisions on annual return date. I confirm that the CRO, the Registrar of Friendly Societies and the Competition Authority are all located in the one building in Parnell Square, Dublin, a modern and sophisticated office block.

Both Deputies Rabbitte and Naughten raised the question of the redress that is available to persons whose rights have been infringed or who have suffered losses through the activities of unscrupulous persons using limited liability companies for illicit purposes. The Government shares the righteous concern of the Deputies in this regard and this is one of the main motivating factors in establishing a dedicated enforcement agency whose work will serve to root out such unscrupulous persons from the corporate landscape. The Director of Corporate Enforcement will have powers to seek injunctions or other orders of the High Court preventing people from continuing to breach or flout the Companies Acts. He may seek to have such persons restricted or disqualified under the Acts, thereby limiting greatly the damage they may do. Deputy Rabbitte also referred to section 28, which repeals section 19(6). This will receive detailed consideration on Committee Stage and we will respond to his query then.

Members have raised a number of issues which are not directly related to the purpose and scope of the current Bill. These will be examined by my officials in due course to ascertain whether further changes to our system of company law are required. As Members will be aware, we have a standing expert company law review group and it may be that some issues might be appropriate for consideration by that body before a decision is taken as to whether it is appropriate for their inclusion in the corpus of company law.

I thank the Members who contributed to the debate. Their contributions were both interesting and reasonably positive in most cases. I look forward to the debate on the detail of the Bill on Committee Stage. Finally, I thank Members for their interest in and attention to this important legislation. I am confident that through our collective wisdom and with the assistance of my officials the Oireachtas will put in place one of the most important Bills it has considered in regard to economic and financial matters.

Question put and agreed to.

Dáil Éireann debate - Thursday, 5 Oct 2000