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Dáil Éireann debate -
Tuesday, 18 May 1982

Vol. 334 No. 7

Companies (Amendment) Bill, 1981: Second Stage.

I move: "That the Bill be now read a Second Time."

As Deputies will be aware, the Companies Acts, 1963 to 1977, are the basic statutes governing the operations of different classes of companies in Ireland. As such they have a particular importance in that they provide the framework within which a very substantial part of the economic activity of the country is conducted.

The Companies Act, 1963 has, on the whole, stood the test of time and has served us well. The period since its introduction, however, has seen considerable expansion in our economy and it has been marked by a rapid increase in industrialisation and, of course, our entry into the European Economic Community. Apart from the 1977 Act, which dealt with the method of transferring securities on the Stock Exchange, the only amendment of any substance in the meantime was made by regulation in 1973 to give effect to the First EEC Directive on Company Law. This dealt with the publication of documents and information on companies generally. It is inevitable that substantive revision of the Act should now be necessary to keep pace with the changes stemming from various developments in the interim. The present Bill is a first instalment of an extensive legislative programme which will update our code of company law to suit the circumstances obtaining in the latter part of the 20th century and which will enable us to fulfil our obligations as a member of the EEC.

This Bill deals with only a small number of matters each, perhaps, important in itself, but it is not a major reform of company law nor is it intended as such. Its basic purpose is to cater for a limited number of particular situations where the need for revision of the relevant provisions is obvious at present and where, as some would perhaps say, revision is long overdue. This is not, of course, to say that other provisions of the Act do not require urgent attention; our EEC obligations alone will give rise to a number of extensive measures in the future.

I would hope, therefore, that Deputies in their consideration of the Bill, will bear these circumstances in mind and that they will not be unduly disappointed at the fact that this first Companies (Amendment) Bill is not a more substantial and comprehensive measure.

While I will only touch on them in general terms here it may be useful to summarise the provisions in the present Bill. They comprise the following:

—a number of minor adjustments to facilitate the more efficient operation of the companies registration office,

—an amendment to the provisions in relation to persons who may act as company auditors and public auditors,

—the amendment of a particular provision rendered unconstitutional by a Supreme Court decisions,

—improving, in the interest of employees, the provision about preferential payments in the winding-up of companies,

—the removal of the restriction on the number of partners in the professions of accountant and solicitor to enable them to broaden the scope of their services,

—increasing fines to take account of inflation and revising the provisions in relation to certain legal proceedings in the interests of more effective implementation of the Companies Acts,

—the repeal of sections 29 and 30 of the Industrial Research and Standards Act, 1961, to enable service, as opposed to industrial, companies to use the word "standard" in their names.

Employees will no doubt welcome the changes I propose in section 285 of the 1963 Act which deals with preferential payments in a winding-up. I accept the representations that the list of priority debts in that section is somewhat deficient and accordingly I am extending that list to include pension fund payments owing by a company whether in respect of their own contribution or of contributions deducted from their employees. I am also improving the preferential provisions in so far as they relate to sick pay accruing to employees. In addition, in line with the change in money values since the coming into operation of the present Act, I am increasing from £300 to £1,500 the sum to which priority is given by the same section for employees' salaries or wages in respect of services rendered during the four months prior to winding-up. This too is an issue on which there have been representations down the years.

The provisions dealing with the Companies Registration Office will speed up some of the processes used in that office in the carrying out of the registrar's functions and will strengthen his powers in enforcing the law. It is also necessary to tighten up some of the procedures to ensure that maximum information under the relevant heads is available to the public at the earliest possible date. I would refer, for instance, to the new procedures governing the striking off of companies no longer trading and companies which fail to furnish annual returns for three consecutive years. This provision should help to update considerably the records of the Companies Registration Office and it should be welcomed by practitioners and the business community in general. The same, I hope, will apply in regard to the availability, prior to incorporation of information as to the directors, secretary and registered office of a company. The volume of work involved for the Companies Registration Office in securing lodgment of returns by defaulting companies will be reduced to some extent by virtue of these new procedures.

The Bill contains features which should be welcomed, in particular, by the accountancy and legal professions. I am removing the limitation imposed by section 376 of the 1963 Act which prevents the formation of partnerships consisting of more than 20 persons. I accept the argument that firms of accountants and solicitors may wish to expand so as to identify and concentrate on appropriate areas of specialisation with a view to improving and extending the range of services to their clients. I recognise, too, that these firms may wish to provide organisational structures which will encourage and provide advancement opportunities for their more outstanding practitioners. As the same arguments may also be valid for other professions I propose to introduce, on Committee Stage, an amendment enabling the Minister to allow other professions relief from the limitation of section 376.

Accountants will be especially interested in changes proposed in section 6 which substitutes a new section for section 162 of the Companies Act, 1963. The new provision has two main objectives. The first is to end, six months after the commencement of the Bill, the arrangement under the existing provision where the Minister may authorise a person for appointment as auditor of a company on the basis of having obtained adequate knowledge and experience in employment by a member of a recognised body or as having practised in the State as an accountant, in either case prior to the operative date of the 1963 Act. It will be generally accepted that persons satisfying those provisions have had long enough to establish that fact and in any event it is unrealistic to attempt to operate them with any degree of certainty in 1982. I would draw attention to the fact that the provision whereby authorisations may be granted on the basis of similar qualifications otherwise than from a recognised body still stands. This is an arrangement which enables us to grant recognition, in appropriate circumstances, to accountants from abroad and by so doing to enable, in some cases, Irish people who qualify abroad to return home.

The second objective of the provision is section 6 of the Bill is to give statutory force to what has been the practice, since 1967 of making appointments of public auditors by reference to the same criteria as those for auditors of companies. The phasing out of the criteria which I have just mentioned will also apply to appointments of public auditors. In addition, there is the ending of the present administrative arrangement under which public auditors must apply on a continuing basis for reappointment. Authorisation of all public auditors will, in future, be on a permanent basis and members of recognised bodies will be automatically entitled to act as public auditors just as they are now entitled to act as company auditors. I should explain that public auditors are those who audit the accounts of industrial and provident societies and of friendly societies and they have, up to now, been appointed on an individual basis under the provisions of very old legislation relating to such societies.

A general measure which strikes at all aspects of the Companies Act, 1963 and which, it has to be admitted, is overdue, is the provision in section 15 of the Bill to increase all fines. There are the penalties for failure to comply with all the requirements of the 1963 Act including matters such as the filing of documents, returns and statements, holding meetings and providing other information to the Registrar of Companies.

The increases reflect the fall in the value of money in the time which has elapsed since the fines were fixed and the desirability of enhancing the deterrent effect of these penalties. This is another measure which, it is envisaged, would effect some saving in the resources of the Companies Registration Office which are taken up in the pursuit of companies failing in their obligations.

Because of a Supreme Court decision of some years standing it is necessary, for constitutional reasons, to amend section 168(3) of the Companies Act relating to obligations on officers or agents of a company to make statements and produce books or documents to any inspector investigating the affairs of that company. As I am including this provision on the advice of the Attorney General I trust that it will be generally acceptable.

In concluding I would emphasise again that I recognise that this Bill is a relatively small measure — a first step — in a series of amendments of company law. These will reflect the need for change arising from developments in commercial activity generally and, more immediately from the necessity to translate into Irish law the provisions of EEC Directives already adopted. A draft scheme of the next amending Bill which will give effect to the Second Directive, about the formation of public limited companies and the maintenance and alteration of their capital, was approved by the Government last September. The Bill has now been drafted and is having final scrutiny in my Department. I expect to introduce it later on in this session. Work is proceeding on the measures necessary to give effect to the Third and Fourth Directives and proposals on these will be made as soon as possible.

This is the general background against which I present this Bill. I consider that the amendments it proposes are worth while and accordingly, I recommend the Bill for the approval of the House.

I am acting ad hoc as spokesman on this measure and on the following measure. My party have no objection to this Bill which is entirely uncontroversial. The only thing that could be said about it, as a former Chief Justice used put it in an ancestral adage, is é an locht an fhad. The only fault one has to find with it is that there is not more of it. As the Minister fairly admitted— he is being advised by the same people who advised me and, I presume, advised him on the last occasion he was in charge of that Department — the resources of the Department he presides over are fully stretched at the level of experience which is leaned on mostly and is necessary in the work of drafting and piloting legislation of this technical type through the Dáil. The Minister referred to the fact that this is only the first in the series of enactments which will cumulatively update the code of company legislation we have. It is fair to him and to the Department to emphasise that from this side of the House. To try to minimise the anxieties which have been expressed to all political interests here by the professions or other interests keen to have this updating done as soon as possible, I am aware that is being done quickly. From, my own experience I know that the people who are advising the Minister are not dragging their heels in the matter. I join with him, although he has not said so in many words, in asking those outside interests and professions to have patience. No matter who is in charge of the Dáil, or which party is in Government, I expect that the remaining stages of this reforming code will be along reasonably quickly.

I should like to deal with a number of points in the Minister's speech. The Minister foreshadowed the necessary amendment of other provisions of the Act or company law code as a whole. He foreshadowed that our EEC obligations alone will give rise to a number of extensive measures in the future. I am not sure whether in using that phrase he has in mind Directives which are already in existence or Directives which may hereafter come into existence. If it is the latter I should like to state that the proposed Directive, if it is adopted, will oblige us to legislate in such a way as to force multinational companies setting up here to disclose the entire dimension of their operations outside the State, as well as inside, to their employees. Although I can see the industrial relations reasons for that — I do not despise them — it is something that will be very deleterious to our industrial investment programme. While I have not heard this matter being thrashed out by my party I would not be surprised if the view we will take of it will be that whatever industrial relations reasons there may be — I accept their validity and I do not make little of them — they must be outweighed by the importance of ensuring that our company legislation, or similar legislation, does not have a disincentive effect on people on whom we heavily depend, rightly or wrongly, for better or worse, for the provision of jobs here in the future just as we have depended on them in the last 30 years. What kind of country would this have been had there not been an IDA and successive Governments of whatever political colour to support it?

It is all very well to draw a conventional caricature or cartoon figure of a wicked multinational who is only interested in making money and is indifferent to the fate of his workers and to imply that we should be well able to supply jobs for our own people without bothering about investment of this kind. Unfortunately, experience in the twenties, thirties and forties showed that native expertise, contacts, marketing and know-how was not adequate to provide new employment at anything like the rate at which agricultural employment was declining. Therefore, anything which operates as a disincentive, whether resulting from our EEC obligations or not, will have to be scrutinised here with the utmost care.

I often hear people from the left, and the far left in particular, speaking about the private sector having fallen down in its obligations, about businessmen having neglected their social duty and being only out to make money for themselves and not contributing anything to the social benefit of the State. I should like to put forward the point of view that businessmen are not there as businessmen to discharge social obligations. As human beings of course they have human and social obligations and as citizens they have civic and social obligations but as businessmen they must not be expected to feel a larger sense of social responsibility than anybody else in the context of their own employment. We should try to attract businessmen here and keep them happy while maintaining an acceptable level of wages, working conditions and industrial relations. I am not at all in favour of — I never would advocate — allowing the workforce to be exploited or treated any worse than workforces are anywhere else, quite the opposite. If we can attract them here and if the by-product of their coming here — it is not their main object and I admit that their main object is to make money — is to enhance employment and generate new jobs which in turn will have a ripple effect, then we should welcome them. Bees have a strong social sense but they do not set about their operations in the summer in order to provide the people who own them with honey. They are coaxed along with sugar, heat and well-built watertight hives by their owners to the end that they will go about their business going from clover to clover, the by-product of which will be that the owner will scoop large numbers of cones of honey out of their hives at the end of the season. It does not do the bees any harm. No doubt they feel perfectly fulfilled and they are answering the demands of their own nature. On top of that they are leaving something over for others.

I hope that is not regarded as an unflattering comparison for the business community. If I were a businessman I would be flattered to be looked at in that light. The business people must not be expected by the Labour Party, socialists or any other type of ideologue to experience a deeper or more urgent sense of social obligation than anybody else experiences in the context of his own profession. They cannot be expected to be missionaries in the cause of other people's employment. That is not what they are there for. They are there to make money. I do not think that is particularly lovable but equally it is not a sin or a crime. Our laws permit it and people who are not in business make money also. The useful by-product is employment, investment and all the things which we are desperately short of.

If I have anything to do with it, my party will not go along with legislation, however understandable its inspiration, which will have the effect of rapidly deterring further industrial investment, of being yet another weight thrown into the scales against us along with our inflation, bad infrastructure or poor industrial relations, when foreign industrialists are making up their minds whether to locate here or somewhere else which is kinder to them.

All that is not to be interpreted as a declaration of love of businessmen or of multinationals. I have no business interests. I have no connection with and I am not employed by, seconded by, lobbied by or suborned by multinationals or even national firms, except to the extent that every Deputy tends to get representations from people about matters which interest them. The business community take a lot of ideological stick from people who are expecting something of them which they expect from nobody else and they blame the private sector generally for a failure to achieve targets which it is not the business of the private sector to set. Those targets are set by governments and politicians and they are targets which others may be induced as a by-product of their own purpose in life to accomplish. I would not put it any higher than that and we do not have to apologise for taking a modest view of the role played by the private sector in our economy.

The Minister referred to the dimension of this Bill which would have the effect of relieving accountants and solicitors of the present limitations in regard to the number of partners and I am glad he will be introducing an amendment. I would have no difficulty about taking it today but I do not know how other Deputies feel about it or whether the Minister has his amendment ready. I welcome his intention to extend the benefit of this section to other professions as well. There was no sinister intention to exclude them. It was simply the case that the solicitors' profession was first envisaged and then the accountants came galloping up and more or less got in just under the tape before the "off" in the draftsman's office. Had the others been a little earlier they might have been envisaged in the terms which the Minister now envisages at an earlier stage and not merely by way of an amendment.

There is a section in the Bill which will remove the power to qualify people on the basis of experience alone for appointment as auditors of companies. Section 6 is a long section but I notice that the provisions regarding qualifications for appointment as auditor do not apply to the Comptroller and Auditor General. I must admit I did not notice this when reading it under a different hat and I probably would have inquired as to the purpose had I noticed it then. I should like to know why the Comptroller and Auditor General is excluded. Is it envisaged that we might one day have a Comptroller and Auditor General who would not be qualified under the criteria envisaged in the section for auditors of companies?

I cannot see much sense in perpetuating the very delicate graduated tariff of penalties which are now being increased to keep pace with inflation and which are listed in the First Schedule. I have no quarrel with increasing these penalties to reflect the fall in the value of money but I have to marvel at the fine callipers, the fine legislative tweezers, which was set to work in 1963 on these various offences and which prescribed such delicately differentiated penalties as that which separates £25 from £20. Who is the Solomon whose sense of moral obliquity is so acute that he was able to insert in the draft of the 1963 Bill provisions which subject one kind of trivial offence under the Companies Act to a fine of £20 but thought that there was a troy ounce of extra evil in another offence for which the appropriate fine would be £25? The same might be said to apply with only slightly diminished force to the other fines of £5 or £1 or upwards to fines of £50 or even £100. Most of these are minor offences, although I do not think it has ever been litigated in terms of money sums. The question of what is a minor offence has often been litigated but I do not think we have reached a firm view as to the uppermost limit at which a money fine can be imposed on a summary hearing. I would not be surprised if most of these, if not all of them, would qualify as minor offences. What is the point in this elaborate structure or scale of penalties? There are eight different categories of penalties here varying from £5,000 to £5, like brightly coloured piles of monopoly money notes.

I suspect that if we were to track the historical reason for this it would be the usual good old reason that English legislation has or had originally a scale of varying penalties somewhat like this, that the niggling exactitude, the dandruffy pettifogging of some Victorian draftsman was originally responsible for these finely graduated fines. They survive into our legislation in 1982. It is too small a point to justify mucking up the whole Bill or the 1963 legislation but the next time the Minister's advisers get a chance they might see if there is some neater way of expressing the public loathing and condemnation of the criminal behaviour which can be committed by people under the Companies Act in such a way as to do away with the pretence that they can measure the seriousness of these offences according to such a fine scale.

The party I represent otherwise welcome the Bill.

It had not been my intention in the course of the discussion on the development of company law envisaged in this Bill to make reference to the general questions of business development and the important connected questions of unemployment, but as those matters were touched upon by Deputy Kelly I would agree with him to the extent that our technical legislation on matters of company law should do everything possible to encourage the creation of employment. He makes the point that nothing should be done to further discourage the private sector from creating productive employment. Would that the private sector would create the employment that the country needs. I wish that they did carry out that function to an extent which would make some inroads on the high and increasing degrees of unemployment. I wish that all we required were some improvements in our company legislation to bring about increases in the amount of employment available. The hard truth is that the private sector have failed to meet the needs of the country in the provision of employment. They are open to criticism on that account. The private sector have fallen down and for that reason the Labour Party have always advocated that in the circumstances the State has the obligation to take up that shortfall and by its own involvement in production or the provision of employment to take whatever steps it can to ensure that it will meet the shortfall in employment. The private sector have not come up with or even tended to refer to that line of country. However that is a bit beyond the scope of this Bill.

Generally speaking, the ad hoc amendments proposed in the Bill are acceptable in so far as they are improvements of the existing situation, but the Bill leaves undealt with at this stage a number of key critical matters on the question of company law and the time has come for us to have a look at and consider them. The first I want to refer to is the whole nature and basis of the concept of what a company is all about, namely the concept of limited liability itself. That whole concept came into general practice around the turn of the century. It was formalised in the Companies Act, 1908, and it has developed through the years both in the UK and in this country, culminating in the comprehensive legislation of 1963, but, as with any other legal concept, it is a mistake to think that it must be accepted as hard and fast and that, once that concept has been in operation for a number of years, it must remain so on a permanent basis. Recent business developments and the state of development we are at now call for a hard look at the universality of the concept of limited liability. We must examine the question in certain specified cases—I will enumerate just a few and there may be more that would be appropriate—where it would have been reasonable, just and appropriate that a restriction should be applied on that concept of limited liability.

The concept of limited liability means that it is open to people by using the device of a company to go into the marketplace, incur debts and responsibilities to members of the public, and in the event of the liquidation of that company to be able to avoid, either in whole or in part, the debts and responsibilities that they have incurred in that manner. Members of the public are all too well aware of the relatively common circumstances whereby from time to time a major company goes into liquidation, where the directors or shareholders of that company will be well known in the public eye to be people of substance, very wealthy members of the community, possibly even millionaires, and the liquidation of a company in which they would be involved would result in very serious and substantial losses right across all sections of the community involving everything perhaps from financial institutions down to the ordinary man in the street who might have contracted to buy a house or something of that sort from the company. The members of the public will have the prospect, after many of them have suffered serious blows financially, perhaps body blows involving the loss of their savings—they might have paid a deposit on a new house, for example, which they might lose—three, six or nine months later, of the directors, the public figures of that company, again operating in the realm of high finance through assets of theirs which they would have applied or invested in some other company or in some other way. It would be reasonable, in order to protect vulnerable people who have entered into dealings with companies, that the privilege of limited liability should be restrained to assist those people in special cases. I will enumerate a number of the examples that I have in mind.

The first concerns a member of the public having paid a deposit to purchase a new house from a builder or developer company or having made stage payments as the building of that house would proceed, and that company before the completion of the house would go into liquidation. Such a course might well involve the loss of the entire of that deposit or those stage payments that the person would have made or of a substantial part thereof. Such a loss to a person in that category could very well mean the end of the person's prospects of ever being in a position to buy a house for himself. As I said, that person would be presented with the spectacle very likely at a later date—not that far distant—of the directors of that building firm operating once again in the realm of high finance. It would be wrong that the persons who were directors of that firm after that deposit was made should escape entirely through the company device liability for the payment of that deposit to that person, the member of the public who made it.

The building and developing companies who build these houses operate according to their own rules, which they lay down. One does not have the free bargaining of the marketplace so beloved by Deputy Kelly, if he will excuse me for saying so. They operate their own rules. In the ordinary case of the purchase and sale of a house when a deposit is paid the deposit is held by the vendor's solicitor as stake-holder and in the event of anything going wrong the deposit is thereby usually secured and the purchaser would be in a position to get it back. The building companies will not accept that. You cannot buy a house from a building company with their agreement that the deposit will be held by their solicitor as stake-holder. No, they insist that the deposit moneys and stage payment moneys must be paid over into their hands. That gives rise to a great potential danger of loss to the purchaser of a new house, normally a young couple in a most weak and vulnerable position. There is no give or take or bargaining here. I have been in the position many times of having requested that a builder's solicitor would hold the deposit as stake-holder and that request has always been turned down. That is one of the categories that I would regard as a special case where the ultimate privilege of complete limited liability should be restrained.

The second also concerns the question of building and developer companies. When the local authorities give a mortgage on a new house, and building societies likewise, they require that the building company give a guarantee on the new house, guaranteeing it against defects for a specified period, sometimes one year, sometimes two years. That defects indemnity is given by the building company. If the building company go into liquidation the value of that sealed defects indemnity by the building company becomes worthless for practical purposes. It would be entirely wrong and unjust that the persons who were directors of the company at the time when guarantees of that nature were given should be in the position in their personal capacity to escape all liability on foot of that defects indemnity because they would know, or should know, the financial position of the company at that time; and if that danger was there they should note and know, if the law so provided, that they would be taking upon themselves the risk of personal responsibility in the event of that company liquidating.

Likewise, building and development companies with gay abandon issue guarantees, as they have to do, that they will maintain the road and services servicing that new house until they are taken over by the local authority. Every new house has to get such a sealed guarantee by the building company. In the event of that company going into liquidation before those roads and services are taken in charge by the local authority the unfortunate purchaser of the new house would find himself saddled with a very substantial debt to the local authority for which the building company were liable under the gurantee but which would be worthless in the event of a liquidation. In that situation also, I think it would be appropriate, just and reasonable that the directors of the company at the time such a guarantee or indemnity was given should carry a personal responsibility for that guarantee and its terms.

A final category I wish to consider refers to companies in the business of manufacturing and selling new goods to consumers. In the case of a company who give a guarantee on new goods to a consumer that they accept responsibility for those goods for a fixed period — be it one year or two years — and who go into liquidation during the currency of the guarantee, I think it would be reasonable, because of the special situation which our law recognises for consumers embodied in recent consumer legislation, that the persons who were directors of the company that gave the guarantee in the event of its going into liquidation during the currency of the guarantee would carry a responsibility for it and would be personally liable.

I have set out some examples we should think about as a basis of cutting back on the overall concept of liability that has become axiomatic in our law since the concept of companies legislation was practised on a wide scale at the turn of the century. I do not suggest that the list of the cases I have given is exhaustive; many others might be appropriate. However, they occured to the Labour Party as special key examples that, having regard to the times in which we live, would be appropriate for treatment of that nature at this stage. The case of building and development companies has been highlighted by the recent liquidation or receivership of a major building company and the possibility that there may be others to follow in this area. I am aware that many purchasers of houses and persons involved in buying houses with connections of that company are extremely concerned and perturbed about deposits they have paid and stage payments they have made. They are in a state of uncertainty as to whether they will get their money back or get their houses and are concerned about the general outcome of that situation.

Members of the public do not have an adequate knowledge and do not have adequate protection available to them when they come to deal with a company where a debenture exists. Persons about to have dealings with a company where a debenture exists clearly are not aware of the serious hazards that face them in dealing with a company in that situation. The person concerned could be about to buy a house from a builder. The existing legislation provides that the existence of a debenture has to be registered in the Companies Office and it is open to any person about to have a dealing with a company to go to that office and ascertain if a debenture exists on that company. That is true but it is not a factor that would occur to very many people about to have dealings with a company.

The law provides that companies are obliged in all their documentation — letterheads, receipt books, invoices and application forms — to specify certain limited particulars affecting the company. These include the location of the registered office, the registered number of the company and perhaps the names of the directors. I suggest that there should be added to that list in the case of a company where a debenture exists a statement to the effect that a debenture has issued and that consequently in the event of a receiver being appointed a person having dealings with that company might suffer. The wording could be worked out. Where a debenture exists there should be an obligation on the company that that fact be noted on all papers, letters, and documentation of the company. I do not say that what would be a complete answer to the concern I have for persons having dealings with the company in that situation but it would be of some help and it would be a reasonable thing to do. I suppose it amounts to the same kind of situation as the law that requires a statement on packets of cigarettes to the effect that smoking may damage one's health. There should be some wording to the effect that where a debenture exists having dealings with such a company may end up damaging one's pocket.

It will be our intention to table amendments on Committee Stage to cover the headings of the matters I referred to and we will discuss them further on Committee Stage.

I am sure the Minister will wish to conclude the Second Stage debate this evening and I will facilitate him. Most of us are familiar with the 1963 Act but it is a matter of very considerable regret that 20 years later we have only had minor amendments to company law, in 1973 and 1977.

In the very short time I was in Government and before, I felt considerable dissatisfaction with the progress being made on the reform of company law. Every concerned Deputy must be preoccupied with the fact that, despite our entry into the EEC many years ago, we have made singularly little progress towards implementing a number of basic EEC directives on company law. I had hoped this Bill would be much more elaborate and that the major developments in those directives would be enshrined in this Bill or in other Bills which would be introduced almost immediately. I am afraid that, apart from the relatively minor amendments in this Bill, we will see very few changes made in company law within the next 18 months or two years. It is amazing how quickly time slips by.

While I welcome the development towards implementing the Second EEC Directive, it must be pointed out that progress was made only when the Irish Government were taken before the European Court of Justice for non-implementation of the directive. We are very tardy when it comes to implementing directives dealing with company law. It is important to point out that at this moment the Irish Government are in breach of our obligations under two other EEC directives on company law.

Everybody interested in the European Community company legislation is familiar with the Fourth Directive which contains very important provisions relating to the disclosure of information. We are in breach of that directive too. If it had been fully enshrined in our company legislation, some of the horrendous stories we hear about limited companies would never have come about. If that information had been disclosed, people would have been forewarned and they would not have suffered losses which amounted to tens of millions of pounds. The Fourth Directive should have come into operation in July 1980. On Committee Stage, Deputy Taylor and I intend to table a number of amendments.

I am very disappointed that it has been decided to raise the general limit in section 10 from £300 to only £1,500. That is a derisory amount. It is scandalous in this day and age that the ceiling for payment of an employee's outstanding claim in the event of the company's insolvency should be raised from £300 to only £1,500. What is £1,500 in the context of 1982? It is precisely ten weeks average earnings of an industrial worker, who earns £142 to £145 per week. For many years a worker slaves for a company, or at least gives an honest day's work. Under this proposed amendment the ceiling for payment of such a person will be £1,500. That is completely unrealistic. The Minister should have a serious look at this.

Let us take the £300 mentioned in the 1963 Act. Adjusting it for basic inflation, the limit should have been raised to £3,500. I do not know what people do in the inner sanctum of the law section in the Department or what Deputies do when they become Ministers and influence their parliamentary draftsmen and the secretary and assistant secretaries of their Department, but if I had been involved I would have said that £300 in 1963 is now worth £3,500 taking inflation into account. On Committee Stage I will propose that the figure be at least £4,000, or roughly six months' wages.

Consideration should be given to the introduction of some form of indexation. We are proposing to increase this figure to £1,500 and in five or six years' time we will probably be debating raising this figure to £3,000, but in the meantime the employees will suffer.

I have great personal regard for my colleague, Deputy Kelly, but in terms of company law I can only regard some of his views as quaintly Victorian.

They knew a thing or two about development, all the same.

While one might expound the virtues of the freedom of commercial companies and they deserve to be expounded, it is good to hear them in this House——

They were willing to create wealth but they were not so willing to distribute it, I quite agree, and that balance has been evened up since.

Let us take the example of a person who forms a limited company, borrows money from a bank, gets a grant or loan from the IDA, gets a site from the local authority to build a plant and then accepts the responsibility of taking on workers, telling them they would be employed at a certain wage and accepting the responsibility of making returns to the Revenue Commissioners — PAYE returns, VAT returns, PRSI returns and so on. If in the heel of the hunt one gets a return on capital employed of anything from zero to 30 per cent or more one is doing well. In some cases it could be vastly more but most would be doing well to get 14 or 15 per cent on capital employed if one accepts that responsibility and the concmitant social responsibilities in the eighties. I do not claim to know very much about American company law but one of my relations has a small private company in America and he explained to me the rigours of Californian company law that he has to meet. Even when in hospital he still has to make tax and company returns and he is visited by the American enforcement agencies relating to company law with a rigour which makes him regard company law in Ireland as a joke. He is a Dublin man who went out and made his money as a tradesman and then set up a private company there. In America the rigours imposed on people who engage in enterprise to discharge their social obligations are very considerable. With that slight divergence from the unique exposition we had from Deputy Kelly on the virtues of business enterprise I shall conclude by saying to the Minister that we intend to table a number of amendments, particularly to section 10 of the Bill. We shall urge him, perhaps between now and Committee Stage, to have a sharp look at that income limit. I think he could do that and it would be very welcome. I am sure the Minister wishes to conclude.

I am grateful to the three Deputies who have spoken and to Deputy Desmond for giving me the opportunity to conclude this evening so that we may have the Committee Stage ordered for next week, as I should like to get the Bill through as soon as possible. I should like to deal briefly with a number of the points that have been made and in the case of those that I do not have the opportunity to deal with tonight we could perhaps deal with them on Committee Stage, which I hope we will have next week.

Deputy Taylor complains with some justification about the abuses of limited liability. He instanced cases where perhaps it is particularly blatant and unfair to those who suffer as a result of the default of a liquidated company and who then have their losses added to by their anger at seeing the principals in that company going back into the same type of business six or 12 months later. That is very annoying and is clearly an abuse of limited liability. However, there is provision in the 1963 Act — I think in section 184 — which allows the court to stop such persons engaging in business again as far as a company are concerned, being a director of a company or managing a company. But they can only do that if fraud or dishonesty can be proved and it is very hard to prove fraud or dishonesty. I hope that in the next Bill of this kind which will deal with the domestic side of company law, as opposed to the EEC side of it, we can include a provision to meet that sort of point and prevent people like that going back into business other than as sole traders on their own account. I suppose you cannot stop them if they have not been declared bankrupt.

I know of one businessman in this city who is now in his fourth company, the previous three having failed to pay their creditors and been liquidated. He was in the same line of business on each occasion. I do not know why members of the public deal with him but I suppose most of them would not know that he was in business three times before and defaulted three times before and abused limited liability three times before. Deputy Taylor gave instances of this happening in building companies where it can be pretty blatant. It happens in other spheres also. Certainly, there are amendments I would wish to make on the lines he has indicated. At present we have the very unsatisfactory situation that the section under which the Minister puts in inspectors to hold inquiries has not been as enforceable as it should be. People who are very properly the subject of inquiry by inspectors under that section now apparently feel themselves free to engage in business again.

Deputy Taylor made the point about debentures and said, I think, that the existence of the debentures should appear on the notepaper of a company. The position with debentures is rather more satisfactory from a creditor's point of view than it is in many other aspects of a company nowadays because the debenture, as I understand it, is not valid and binding on the company unless it is registered in the company's office and information about it and the size of it is accessible there to any creditor who might be concerned about the financial health of a company with which he is doing business.

Deputy Kelly was concerned about whether the further Bills to which I referred were Bills which would relate to existing Directives or whether they would relate perhaps to Directives that have not yet come into effect. All the Bills I mention relate to Directives which are in effect in Europe already. Unfortunately, there are four or five and as Deputies have said we are in default. It is only fair to say that the Bill implementing the Second Directive in respect of which we were recently before the European Court was prepared long before there was any question of our being prosecuted or otherwise dealt with by the court. Even though the subject of that Bill is not a very lively topic Deputies will see when they get the Bill the amount of care that had to go into the preparation of it.

Deputy Desmond complained about tardiness in this respect and I suppose on the surface he might well do so but I should like to explain that this country has to do as much in relation to company law as the United Kingdom. We have four or five civil servants who are designated to deal with this kind of legislation. At the same time they also have to service all the committees in Europe which are sitting literally every week. We have no additional officials that we could put on the European side while reserving some officials here full time for the legislative side. A very small number have to service it at both ends and also have to deal with day-to-day company matters that arise in any case domestically without reference to the EEC. We have to do exactly as much in relation to legislation as the UK. We have five people, I think, dealing with it at this level. The British may have up to 100 and the Germans many more. It is one of the disadvantages of a small country to have to produce as much work as another whose resources may be 50 times greater. Some allowance must be made for that. When we were summoned, prosecuted, or whatever the word is, in relation to the Second Directive, we were in good company. Five other member states were up as well, some with 20 times or more our population.

Perhaps Deputy Desmond may misunderstand the point about the £1,500 wages in section 10. I think he feels that an employee is confined to a total of £1,500, but that figure relates only to wages. As he said, it would relate to about 11 weeks and if any employee were owed his wages for 11 weeks by a company, he would have long since gone from that company. Eleven weeks is more than adequate in the circumstances.

The other points on detail raised I could usefully leave until Committee Stage. I ask that Second Stage be passed now and that Committee Stage be fixed for next week.

Question put and agreed to.
Committee Stage ordered for Wednesday, 26 May 1982.
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