I move that the Bill be now read a Second Time. Its purpose is to amend and extend in certain respects the law relating to companies contained in the Companies Acts 1908-1924. Since this is the first piece of company legislation to be introduced here in the Dáil with the exception of the 1924 Act which was needed to deal only with a passing difficulty and effected no permanent change in the law, it may be useful if I give the House a brief outline of the origin and development of our present system of company law.
For historical reasons, of which Deputies will be aware, the course of development of company law in this country is very similar to that of British company law, since the various enactments passed from time to time in Britain on this subject were customarily extended, with occasional minor adaptations, to this country. Here, as in Britain, the forerunner of the ordinary commercial company as we know it to-day was the joint stock company which originated in the seventeenth century, when the advantages of participation by a large number of people in a commercial undertaking first became obvious. These joint stock companies were usually founded on a deed of settlement which set out the rights and obligations of the members, and divided the capital into shares of fixed amounts freely transferable by the holders. They were, in fact, little more than large partnerships and there were always legal difficulties associated with them. Commercial interests were in ensuing years continually pressing for their recognition as companies with separate corporate existence.
In 1844, the first Joint Stock Companies Act was passed. This Act required all companies subsequently formed, with certain exceptions, to be registered under it, and companies thus registered were given the privilege of incorporation. Incorporation may be described as a device whereby a company is given a legal existence quite distinct from that of the individuals who go to make it up. An incorporated company is endowed with faculties, privileges and powers not enjoyed by an unincorporated body, for example, power to hold land, to sue and be sued in its own name, and so forth.
Companies incorporated under the Act of 1844 still lacked the very important privilege accorded to companies incorporated by special Act of Parliament or by Charter, namely, the immunity of the individual members from liability for the debts of the company or, as we call it to-day, limited liability. About a decade later, however, the registration of joint stock companies with limited liability for the members became possible under an Act of 1855. Several amending Acts were passed about this time conferring additional rights or imposing additional obligations on companies, but the law remained unsatisfactory in a number of respects and, by reason of the multiplicity of Acts, it remained somewhat confusing, until the whole system was eventually overhauled and remodelled in the first major Companies Act—the Companies Act, 1862.
This was a milestone in commercial legislation and indeed the Act is often referred to as the charter of modern co-operative enterprise. It proved its value in Britain where it facilitated to a remarkable extent the enormous expansion of trade and commerce which occurred in the second half of the last century. Its value to this country was naturally limited by the political and social conditions prevailing here at the time. Nevertheless, such industrial and commercial expansion as did occur was facilitated by the provisions of the Act. Though amended and supplemented on many subsequent occasions, a large number of its provisions have remained unaltered to the present day. The main object of this Act was to make available to all, by a simple and inexpensive system of registration, the privilege of carrying on business with limited liability. All that was required was to submit for registration a document known as a memorandum of association signed by the requisite number of persons and to procure in return a certificate of incorporation.
The years between 1862 and 1908 witnessed no fewer than 18 Acts to amend and extend the Companies Act of 1862. The existence of all these enactments caused considerable inconvenience and confusion, and for many years there was a strong demand for a consolidating measure. Eventually all the legislation was brought together under the Companies (Consolidation) Act, 1908, which, with some minor amendments made in 1913 and 1917, is the principal statute relating to companies in this country. During the War of Independence the records held by the Registrar of Companies at the Custom House were destroyed by fire, and the Companies (Reconstitution of Records) Act, 1924, was passed to deal with the problems thereby created. Since that time, no further company legislation has been enacted.
The question has sometimes been asked whether we should not think in terms of a more comprehensive change in our system of company law than is now in prospect. There have been suggestions that there might be advantages in adopting an alternative system, either one based on continental law or one which might be designed to change even more fundamentally the character and responsibilities of companies. Whatever theoretical case might be made for a fundamental change, the practical difficulties of attempting it and the unpredictable effects which would follow on it, would make it a very formidable and perhaps dangerous enterprise on which to embark.
The whole commercial organisation of the State has been built up on the basis of the present law, and while that law has its flaws and weaknesses, the practical advantages of adhering to it seem to outweigh the very problematic advantages of a comprehensive change. There is probably no perfect system in any case. The defects in the existing law which have been shown to exist will be, in large measure, remedied by this and the subsequent measure and while it would be unwise to suggest that the third Consolidation Act, when passed, would be liable to amendment, that possibility would exist in the event of the emergence of a serious need to change it.
The main concepts on which company law here is founded are that individuals may come together and form themselves into a body known as a company having a separate corporate existence of its own distinct from that of its members, thus ensuring the continuity of the concern notwithstanding the death or bankruptcy of the members and these members may, and generally do, declare that their liability is limited so that in the event of the company being brought to an end they will stand to lose only whatever capital they have put into the venture, together with any amounts remaining unpaid on their shares or guarantees. The members are free to transfer their shares either to other members or to outsiders. Lastly, as a convenient and workable arrangement, the day-to-day management of the company can be vested in a board of directors elected by the shareholders.
This is, of course, only the barest outline of the fundamentals of company law; the Acts deal with these and a host of other matters in great detail. There are, for example, provisions dealing with the internal regulations of the company known as its articles of association, the raising of capital from the public, its financial accounts, the reduction of share capital, the appointment of directors and numerous matters of management and administration. In addition there is a large number of provisions dealing with winding up, the object of which is to ensure that when a company is being brought to an end, its assets will be disposed of, and its creditors satisfied in due order of priority. The procedure varies according to whether the winding up is compulsory, by order of the court, is under the supervision of the court, or is voluntary.
The need for comprehensive changes in company law has long been recognised, but it has been difficult to find an opportunity to bring about these changes because of the magnitude and complexity of the task. A committee was set up however in 1951 to report on the reform of company law and it submitted its report in February last. As will be evident from the report, the committee undertook a particularly arduous task involving a detailed examination of an unusually complicated subject, and I would like to take this opportunity of expressing the appreciation of the Government of the valuable services rendered by the committee.
Its report, which contains numerous proposals for the amendment of existing legislation, is under examination at present, but it is clear that owing to the complexity of the problems involved, some period of time must elapse before all the committee's recommendations can be fully examined. Accordingly, some time ago I announced that, as an interim measure, legislation would be introduced to give effect to some of the more urgent reforms requiring attention, and these amendments are dealt with in the Bill which is now before the House. A second and much more complex Bill will have to be introduced later to deal with the remaining amendments requiring to be made in company law. Finally, it is my intention to introduce a consolidating Bill which will gather together in one measure all the law on this subject.
The actual matters arising out of the need to change the law and the report of the Committee on Company Law Reform that this Bill deals with are these. The Bill will authorise a company limited by shares to issue redeemable preference shares. That is dealt with in paragraph 58 of the report. Under the existing law, the share capital of a company cannot be reduced without the sanction of the courts. A company cannot, therefore, issue preference shares on the basis that they are redeemable, because to do so would involve an assumption that the courts would sanction the reduction of capital—in fact, they might not. It is sometimes difficult to raise capital on satisfactory terms by the issue of ordinary shares. The issue of preference shares may be an unsatisfactory alternative, since preference shares do not nowadays find the same support as they did in former years.
One reason for that is that, over a number of years, there has been a tendency for their market value to fall, with the result that prospective purchasers are often deterred from buying them for fear of suffering a capital loss. As assurance of redemption at par within a fixed time would go a long way towards removing this disadvantage and would reduce the difficulty which a number of Irish firms have experienced in procuring capital for development purposes. I am satisfied that, provided adequate safeguards are adopted, the issue of redeemable preference shares would be advantageous.
The next matter with which this Bill deals is dealt with at paragraphs 73-75 of the committee's report. At present, a company may not purchase its own shares, as this would constitute a reduction of its share capital. It is possible for a company to circumvent this prohibition by providing financial assistance to other persons to enable them to purchase its shares. Such a practice is objectionable as it could seriously weaken the security enjoyed by the company's creditors and I propose, therefore, to prohibit it. I am providing, however, an exemption which will permit a company to provide funds for the purchase of shares for the benefit of the employees. Profit sharing schemes for the benefit of employees are desirable, and I do not wish that the new legislation should interfere with any such arrangements. As a corollary to prohibiting companies from dealing in their own shares, I propose to prohibit a subsidiary company from purchasing shares in its holding company.
The next matter dealt with in the Bill is discussed in paragraph 96 of the committee's report. Schemes for the amalgamation of companies may, in certain circumstances, prove impracticable under the law as it stands. It sometimes happens that a majority of the shareholders of a company whose shares another company wishes to acquire are willing to sell, but that for one reason or another a small minority are not prepared to do so. It is sometimes not an attractive proposition for the purchasing company to take less than 100 per cent. of the share capital of the other company—leaving a small minority interest behind—and amalgamation schemes which are, perhaps, desirable in themselves may fall through for this reason. It is important to provide a remedy for this difficulty, and the Bill contains a provision that if an amalgamation scheme has been approved by the holders of at least 80 per cent. of the shares the transfer of which is involved, the company which is acquiring the shares will have power to purchase compulsorily the shares held by the dissenting minority. The position of minority groups is being safeguarded, however, by providing for a right of appeal to the courts.
Other sections of the Bill deal with matters discussed in paragraphs 127 and 128 of the committee's report.
Under the law as it stands, certain resolutions, such as resolutions in connection with a change of name of a company or a change in its objects or articles, are effective only if they are passed at two successive meetings; at the first the resolution must be passed by a majority of three-fourths of the members present, and at the second it has to be confirmed by a simple majority of the members present. These resolutions are known as special resolutions. In practice, the second meeting is almost invariably a formality and serves no useful purpose. There is, therefore, no point in putting companies to the expense of calling a second meeting, and I propose to dispense companies from the obligation to hold it. I propose also to make a change in the law as regards the computation of votes at a meeting. As the law stands, members who are present at a meeting but do not vote on a resolution are regarded as voting against it. This is obviously unsatisfactory and I propose to amend the law to provide that, in future, the requisite majority will be computed by reference to votes actually cast.
Every company is required to send each year to the Registrar of Companies a complete list of its shareholders showing their names, addresses and occupations and also details of their shareholdings. The preparation of this list involves a good deal of labour in the case of companies with a large number of members, and I feel the obligation could be eased without weakening the real effectiveness of the Act in this respect. I propose, therefore, to relax the requirement somewhat so as to provide that in future a complete list of shareholders need be filed in every fifth year only, a list of additions to, and deletions from, the full list to be filed in the intervening years. In order to facilitate the examination of the lists at the companies office, companies will have to provide a suitable index if the list is not in alphabetical order.
The name of a company must be set out in the memorandum of association which is registered in the companies office, but this name may be changed subsequently in accordance with a procedure prescribed by the Act which involves ministerial approval. A number of companies which have been registered under the Companies Acts have had their name prescribed in a separate Act, and as a result they are unable to change their name without an amendment of the latter Act. A case which illustrated their difficulty in a practical way came under my notice some time ago. I would have been perfectly willing to convey my assent to the proposed change of name, but I was advised that the procedure under the Companies Acts could not be utilised and that amending legislation would be necessary. The effect of the amendment which I am now proposing is that the provision under the Companies Acts will be made available in the type of case I have mentioned.
I am taking this opportunity of repealing the Companies (Foreign Interests) Act, 1917. This Act, which was passed during the First World War to control the interests of aliens in British and Irish companies, is now an anachronism. It has long ceased to serve a useful purpose, and it is proposed to repeal it.
This Bill is, as I have explained, an interim measure intended to deal with a number of matters which are of special urgency. Many of the other matters arising from the committee's report are of a complicated and perhaps controversial nature and they will require detailed study before it will be possible to reach conclusions in regard to them. The examination of all these matters is proceeding, and legislative proposals will be put forward in due course. In the meantime I hope that the present interim Bill will make a useful contribution to the task of bringing the law up to date on some aspects of company law.
