Deputy Flynn is in possession. Order for Deputy Flynn, please.
Companies (Amendment) Bill, 1982 [Seanad]: Second Stage (Resumed).
This Bill is, in effect, bringing in regulations to deal with the implementation of the EEC Second Directive on Company Law. This concerns the formation of public limited liability companies and the maintenance and alteration of their capital. I was dealing with the question of the EEC's concern with the total harmonisation of all areas of company law and was a little critical of the Minister that he was not moving a little faster in having some of the directives and the legislation to implement them brought before the House.
There are now eight directives and we are only still at the implementation of the Second Directive. The Minister gave an undertaking to the House that he would be bringing in legislation in the immediate future to deal with some matters of a domestic nature which are causing considerable public disquiet at present in so far as company law is concerned.
This legislation deals with the new style or title of public limited company or PLC, a description which will be borne in the names of all companies of a public nature henceforth. The Minister in his Second Stage speech made some very important references to the Fourth Directive which would be the subject of legislation here before the end of the year. It is to be hoped, on behalf of the business community and all concerned, that the Minister will be able to live up to his commitment of bringing forward this enabling legislation before the end of this year.
While many are concerned about this legislation, they feel, however, that it is merely a part of the overall strategy to deal comprehensively with the reform of our company law. The number of public liability companies is quite small — 340 is the figure. This legislation will have very little real significance for the vast number of companies operating here at present. Legislation dealing with private limited companies, numbering 69,000, would be of much greater significance. At the same time, it is important to get this legislation on the Statute Books to deal with public limited companies and their capital.
Of particular interest and, as the Minister is well aware, anxiously awaited is the legislation to implement the Fourth EEC Directive. This has been referred to by the Minister on Second Stage. This must be regarded as the major directive of the eight existing directives already passed by the EEC. It will involve us in a complete change of direction which will be expected to be incorporated into our company law to comply with our obligations. I would ask the Minister, seeing that we had the unfortunate experience of being brought before the European Court on one previous occasion because of our tardiness in dealing with the EEC Second Directive with regard to which we had to discharge costs of a substantial nature, to ensure that we do not end up in the same predicament as far as the other six EEC directives are concerned.
The Fourth Directive deals with formative company accounts, their presentation and publication and it also embraces both public and private limited companies. The major disquiet here is with the private limited companies. It is absolutely essential that the Minister press on and meet his deadline of the end of this year. That directive will have a considerable impact on existing procedures in so far as company law is concerned. While the Minister should be urged to bring about early implementation, he must also be cautious and bear in mind the considerable impact that certain aspects of that directive will have on Irish traditional procedure and on the enticement here of foreign investment. Of the many options before the Minister, in consideration of that directive I ask the Minister to take the one best suited to Irish company needs.
While improvements are necessary in dealing with a number of limited liability companies, which are in excess of 65,000, it must always be borne in mind that the private limited company here forms the basis of development for commercial enterprises since the foundation of the State. A number of measures will be necessary to provide the proper guarantees and safeguards for the various interests concerned. It will also be remembered that Irish company law has served our community well and provided a sound basis for the attraction of foreign investment, and, indeed, for national and local investment, as well, over the years.
We hear a considerable amount of disquiet expressed about the disadvantages attaching to some of the provisions at present operating in relation to limited liability but there are also many good points which should be fully appreciated and considered when any new arrangements are being contemplated by the Minister. With this in mind it is absolutely essential that we avoid any further appearances at the European Court in so far as our tardiness in the implementation of these directives is concerned. In so far as company law is concerned these directives have formed the major part of legislation within the EEC. Therefore we must explore every avenue open to us. Despite the fact that the Minister says he is short-staffed in that area he must at least get us to the stage of dealing with the fourth directive before the end of this year. He will have the full support of this side of the House in doing so. That is not to say he will have as easy a passage for it as the Companies (Amendment) Bill, 1982. The fourth directive has many options open to it and is a major departure from traditional Irish procedures so far as company law is concerned.
Because this Bill, which by and large is non-contentious and, as the Minister himself said, not negotiatable at this time, I would be anticipating giving it an easy passage on the question of the second directive. The basic objective of this Bill is the protection of the interests of both shareholders and creditors in relation to the formation of public limited liability companies and the maintenance, increase or reduction of their capital. The proper implementation of these procedures will have considerable benefits also for the employees of those companies. The most important parts of the Bill are Parts II, III and IV. Part V deals with the change of status of limited and unlimited companies.
I am pleased to see that there is no alteration in the effect of section 33 of the Principal Act, the Companies Act, 1963, which deals with the position and definition of private companies. The dominance of the private company in the economy and the part it has played in the improvement of the economy generally becomes apparent from the figures outlined, indicating some 69,000 private limited companies on the register last year as against 340 public companies registered with the Companies Registration Office for the same year. As I understand it, we are dealing primarily with the 340 companies in the latter category.
The measures outlined in this Bill deal only with public companies limited by shares and public companies limited by guarantee and having a share capital. Part II deals with the name and registration procedures for the new public limited companies. The old identification of "company limited" is to be replaced by "PLC""public limited company". As I understand it, private limited companies will be able to continue to use "and company limited". Here I should like to refer to section 19, which deals with the specified or authorised minimum capital of £30,000. On the face of it, that would appear small considering the extent of operations of some of the public limited companies. This is a matter the Minister might consider during Committee Stage. I note that there is an amendment down in that regard in the names of Deputies Mac Giolla and De Rossa recommending a substitution of £50,000. My attitude was that, on the face of it, £30,000 looked comparatively small in the circumstances and that perhaps it might have been based on the 1970 figure when this was first initiated. But it is not worth making an issue of it. I note that in subsection (2) the Minister may by order specify what is to be the authorised minimum. Should the Minister feel at any other time that he wishes to increase that amount he has the legal vehicle available to him to do so. Therefore it is not a matter I shall pursue except to say that it is interesting to note that, when the directive itself was promoted by the EEC the figure they had in mind was something in the region of £16,000. The Minister has gone even beyond the dictate of the directive in bringing this to a realistic figure. In the interests of not holding up the Bill I was prepared to accept the Minister's position in the knowledge that it is safeguarded anyway in section 19.
There will be considerable activity with the re-registering of existing public companies, and the fact that many of them do not have the authorised minimum capital of £30,000; I think 30 per cent of them do not accommodate themselves in that way. In respect of those companies who will not be able to meet the requirements within the stated period of grace the Minister, if he has any discretion at all in the matter, should be as flexible as possible. I understand it is 15 months for one section and then three years subsequently in which to deal with the matter. In respect of companies who experience difficulty in accommodating themselves, companies who wish to maintain their status, I hope the Minister will make every effort to have them re-registered in some other form and that his office will be available to advise companies who experience difficulty in this regard. It may be that many public companies will be anxious to re-register as private companies. There should be careful scrutiny of private companies who wish to register as public companies, as also those of the other kind who wish to go in the opposite direction.
Part III relates to the share capital of public limited companies, a most important Part. These requirements extend to payment for share capital, the maintenance of share capital, the rights of existing shareholders on the occasion of the issue of further shares in the company and the variation and registration of class rights attached to the shares. The directors of a company may not — and properly so — allot shares unless authorised to do so by the articles of association of a company at a general meeting. That authority must state the maximum amount of shares to be allocated and the duration of the authority given. This constitutes a further control of the issue of shares which has been requested for some time by people involved in the operations of companies and is to be welcomed. There is also the pre-emption of rights and this provision applies to public and private companies alike. Shares must be offered to existing shareholders in proportion to the nominal value of shares held by them already. This is an additional safeguard that must be welcomed.
The shares of a public limited company must be paid up to at least 25 per cent of their nominal value before they are allotted. Under the Companies Act, 1963 that figure stands at 5 per cent only. Therefore this movement to 25 per cent is considerable and I support the Minister in it. Although there might be an amendment advanced to alter that by another 5 per cent I do not think it is necessary in the interests of the extended amount of share capital which, under section 19, the Minister has power to adjust anyway subsequently should he see fit. They can be taken in conjunction with each other and afford the Minister the necessary control should a defect be found subsequently. This section of the Bill will also encourage the participation of employees in the capital of companies. As I understand it, the 25 per cent limit need not apply to shares issued in connection with the employees' share scheme but the Minister might clarify that matter when replying.
These are not new provisions as we understand the operation of company law here. They focus more attention on a section of the 1963 Act which did not receive as much attention in the past in encouraging employees to hold shares in their companies. In that regard it constitutes one of the biggest innovations in so far as the affairs of companies over the years are concerned, in that quite often employees did not understand the structure, financial gearing or attendant fiscal difficulties attached to their companies. Balance sheets are often devised or couched in language not readily understandable by the general work force. For that reason it is important that employees be encouraged within the terms of that section and that the Minister give as much leeway as possible in respect of the application of the 25 per cent so that this would not have to be applied as rigidly in the case of employee share schemes as in the case of other shares.
The Minister should endeavour also to bring about a situation in which employees would be made aware of the scheme. Very often legislation is enacted here with the best intentions and with a ministerial statement which may not be reflected in the public media but which, as in this case, would be of great assistance to employees in helping them to understand what is being done thereby leaving them with a better knowledge of the gearing of their company. Employees might then be in a position to purchase shares in their company and to understand the difficulties attendant on that. That sort of situation might lead to better industrial relations between management and the work force. Never has there been a better time than now to enact this legislation. It might be worthwhile for the Department to publish a booklet explaining the changes that are being made by way of this Bill. However, I appreciate that the Department are busy in the area of directives but there is a lack of understanding between management and the work force and it is this situation that has caused much of the difficulty in industrial relations.
Too many companies have failed in the recent past. It must be conceded that one of the principle reasons for these failures was that company directors and managers did not take appropriate action when difficulties were first recognised. I am particularly happy about section 40 of the Bill which demands that an extraordinary general meeting of shareholders must be held when serious loss of subscribed capital is recognised. This will help to relieve a situation that has existed for some time in company practice. It is now duly recognised that, if appropriate action had been taken earlier for the proper restructuring of the finances of some companies, they might have survived the recession and saved a considerable number of jobs. Instead of putting down an amendment for Committee Stage I should prefer to dwell a little now on section 40. I do not know whether the Minister is tied absolutely in respect of the number of days allowed. If I thought he was so tied, I would consider the matter to be appropriate to warrant the tabling of an amendment. This relates to the period allowed to directors once it has come to their knowledge that their company have a financial difficulty. They are allowed 28 days after the recognition of the difficulty. As I understand the Bill, a company finding themselves in difficulty would come together and then decide to take 28 days before calling a general meeting or 56 days from the date of considering whether measures should be taken to deal with the situation. A time lag of almost three months in such circumstances would seem to be an inordinate amount of time in dealing with an immediate problem. If, in replying, the Minister tells us that he is confined to this decision by reason of the directive and that he cannot possibly adjust it, I would accept his explanation and would not put down an amendment.
Part IV of the Bill deals with the distribution of profits. So far as the company executive is concerned the making of profits is every bit as important as are the work force. Section 45 provides that the distribution be made only from profits available for that purpose. In the past there has been difficulty as to the interpretation of the word "available" in this context. While some effort is made in section 45 to define the word within the new circumstances, there is a difficulty which is causing much concern outside the House. Perhaps the Minister will clarify that, too, when he is replying.
As I read it, there can be no distribution until accumulated losses have been made good. This is an accepted procedure so far as all the accounting bodies are concerned. I understand that they have given a welcome to that aspect of the Bill on the grounds that it should lead to an improved situation.
There is one point in regard to that section that I should like to bring to the Minister's attention. If a director makes an unlawful distribution of profits, there is no stated liability that would attach to him. There seems to be no penalty outlined either in section 45 or in the section dealing with penalties to deal with such a situation. It is in such circumstances that the word "availability" would seem to be somewhat ambiguous. However, if I am reading the section incorrectly in that regard, I should be grateful for clarification from the Minister.
Part V of the Bill deals with the matter of companies changing from limited to unlimited status. This becomes necessary because many companies will be changing their status either way. The 1963 Act allows an unlimited company to re-register as a limited company but there was no regulation to deal with the opposite situation. This was one of the failures of the Principal Act. Section 52 of this Bill sets out to remedy that situation by reason of the requirement of the assent of all members of a company in the event of a change from limited to unlimited status. This is important because the limited liability status means that the members are responsible for the debts of the company to the full extent of their personal assets. This would enhance the position of creditors and employees but I am sure the Minister would agree that not many companies are likely to change from limited to unlimited status. This is a new procedure in Irish law and it is to be welcomed. The danger is, though, when an unlimited company re-register as a limited company and then go into liquidation to the detriment of the creditors and employees. It is in that area of activity that I am asking the Minister to move as quickly as possible in dealing with the new domestic measures he has in mind, measures that must necessarily be backed up with the Fourth Directive. Failure to implement that directive would leave any domestic legislation without proper structuring internationally.
Part IV of the Bill deals with the provisions for penalties. The maximum penalty for an indictable offence is £500. That is the maximum monetary penalty that can be imposed by a court in a summary jurisdiction. This level of penalty would not seem to reflect in any way the importance that might be attached in present-day circumstances to offences in the area in question. I take it that these indictable offences can be tried summarily but I should like the Minister to clarify whether he is at liberty to increase the penalty maximum or whether he will be bound by the judicial system which debars him from doing so. A £500 maximum in this area would seem ludicrous. I understand that an amendment has been tabled in this matter. I would gladly support that.
I understand that the maximum penalty allowed is £500 and I am quite sure the Minister would wish this amount to be greater if it were possible. This is a matter for another Bill but it is a reform which is long overdue. The Minister should be enabled to increase the penalties substantially. If another Bill were to provide for increased penalties, would the Minister be able to increase this penalty by regulation or would it require amending legislation? I would hope that it would be possible to allow the Minister some flexibility.
In some cases the fine can also be accompanied by a jail sentence.
The maximum is 12 months but such a sentence bears no relation to a fine of £500 in today's terms. There is an anomaly there. The Minister has no alternative but to implement the provisions here.
It can be both.
The Minister will agree that the tendency in Irish judicial practice has always been to go for the monetary penalty as against the jail sentence. It would appear that even people who are trading fraudulently have no fear of monetary penalties. I would be much happier if the jail sentence were six months and the monetary penalty a minimum of £2,000. This would be more appropriate in today's terms.
There has been an amount of comment about certain malpractices in the operation of companies and matters concerned with tax evasion. Some commentaries have said that tighter penalties should be imposed as well as jail sentences in support of bringing about these improvements. If our laws were framed in such a way as to incorporate these new arrangements and the other directives, we would not have to rely on monetary penalties or jail sentences, although there will always be someone who will seek to carry on a fraudulent practice. It is our responsibility as legislators to tighten arrangements so that this is not possible.
It is recognised that there are many loopholes in existing legislation and the current implementation of directives will go a long way to removing the difficulties attached to the proper control of companies. It must be remembered that, while legislation is for the protection of all the various parties involved, it must also take into account the need to protect what must be regarded as a widely based economic environment served by a large number of private companies who, by and large, have been carrying out their business in a competent and professional manner. It is as well to put the Minister on notice that quite a number of private limited companies are not a little scared as to what might happen under the new arrangements. The Minister may retort that they have nothing to fear if they are carrying on their business in a proper fashion. The vast majority of companies have been carrying out their functions properly in as diligent a way as possible and they do not wish in any way to defraud their employees, their shareholders or the Revenue Commissioners. However, reform of company law is necessary to take account of changing circumstances. This can be done in a rational way without unduly upsetting the traditional means of dealing with companies and the attraction of foreign investment to this country.
I welcome the Bill. If the Minister can satisfy me on the points I have made concerning penalties, share capital and the distribution of profits I will be happy to allow the Bill to pass unaltered.
I welcome this Stage of the Bill. The legislation is long overdue and we all agree that it goes only a small part of the way. I do not intend to take up too much of the time of the House, the Minister or the parliamentary draftsmen. The urgency of this matter has been reiterated. We must get the Bill through as quickly as possible and deal with the amending legislation that is still to come, particularly that related to the Fourth Directive. All of us are frustrated to the extent that we know that the legislation before us covers only a very small amount of the ground that needs to be covered.
Because of the way our economy has developed we have 340 public companies which will be dealt with by this legislation but an astonishing 69,000 private companies which still have to be covered by amending legislation. It is within the private limited companies that most abuses would seem to lie. When one considers how quickly the focus of our economy is changing, as well as other economies which have been considered in the EEC directives, it is astonishing that, apart from small amendments twice in 20 years, we still rely on the Companies Act, 1963. The changes have been immense since 1963 when we were at the dawn of an industrial revolution. We would hope that we are now about to strengthen our industrial base. This legislation becomes even more urgent when we consider the new technology which will be introduced during the eighties and nineties and the control that will be necessary.
I welcome the Minister's statement that he hopes to have legislation on the Fourth Directive introduced before the end of the year. I also welcome the constructive approach on the other side of the House towards working positively to get the best legislation possible designed to cover all the different components, complexities and sensitivities of company law. We must ensure that there is justice for everybody involved in industry, particularly the employees and creditors who have not received the same attention as shareholders. By doing this we walk a tightrope because while we must tackle injustices we must also do everything possible to support initiative and enterprise in an effort to bring about full employment.
The Minister in his speech anticipated many of our remarks on the Bill. An alarming amount of freedom appears to be given to private companies. Abuses can be such as to bring the whole image of industry and company law into disrepute. Because of the abuses that can occur under present company law, the real victims are the employees and we have seen a sorry history of this since the recession hit us. Quite rightly it has been mentioned on many occasions that a company can be shielded by being a private limited company. A search of the Companies Office will not disclose the real shareholders — the name of a law clerk or a typist can be used to shield the promoters of a company. We know that companies can liquidate themselves, with the further abuse of not having paid their PRSI and PAYE contributions, and can set up in future and continue with the same kind of exploitation and injustice towards their employees. All Members of this House know of the hardship and distress caused to employees when this happens. We must make sure that this practice is not allowed to continue.
I welcome the provision that £30,000 share capital will be needed for public limited companies. However, the Minister must be aware that huge empires have been set up under a risk capital of £2. In today's context that has a lunatic tinge. With that shaky risk capital empires have tumbled like dominoes and the victims have been the workers and the creditors left to pick up the pieces. In many instances the creditors have gone out of business also.
Traditionally there has been a focus on the rights of shareholders, on enterpreneurship and on private property and not sufficient rights were written in for employees and creditors. We must achieve more by legislating for employees. In future there should be all kinds of positive initiatives and even positive discrimination in legislation to encourage and allow employees to have a share in the industry in which they work. We must not forget that it is the industry and skill of the workers that produces the profit. Only by acknowledging the productivity of the workers and giving them their rightful share can we give a human value to the skills of our people. They must be given a participatory role that will allow them to see if their enterprise is succeeding.
In many instances when industries close down the first intimation the workers have that something is wrong is when they are peremptorily told on the day they are dismissed — sometimes with no redundancy. Frequently the first indication of trouble is found in the share market, not in information given to the workers themselves. We cannot talk about a just society, about justice for workers, about the value of human skills and the work ethic about which we hear so much, if we do not acknowledge completely the right of the worker to share and own part of the enterprise in which he works. I hope that will be the major thrust of future legislation.
There is a provision which allows the Minister to increase the minimum share capital of a public limited company to £30,000. I take the point made by Deputy Flynn regarding certain companies who started below that share capital and who suggested that flexibility be given to them. He made the point that companies should not be driven to the wall because of an inflexible date in legislation. However, in present-day circumstances one could hardly buy a moderately sized house for £30,000. We must ask ourselves if £30,000 should be the minimum amount on which we should allow companies to base themselves. We must not forget that the careers and skills of others are dependent on such companies. I am worried about this point. I am glad to see that section 19 enables the Minister to increase the minimum capital by order. What £15,000 or £30,000 could buy in the mid-1970s bears no relevance to what that amount would buy today. When setting amounts we must remember our soaring prices.
I will continue to make the point that future legislation should not acknowledge overmuch the position of shareholders to the detriment of the other groups concerned. At the same time, we must remember some of the takeovers by large and powerful multinationals. It is important that we safeguard the interests of existing shareholders against a change of control of a company that is almost outside their control. We must look at our legislation from a national point of view. Large groups or multinationals can make an offer that existing shareholders may feel they cannot refuse, but this may be detrimental to the national interest and it may damage our economy. I accept that there may be difficulties with regard to drafting legislation but we will have to do something about this matter. Selfcentred, selfish and competitive multinationals can take over smaller less competitive industries that do not stand a chance of competing with them. We do not know the extent of it, but anything we know is very frightening.
One of the reasons I welcomed our membership of the EEC was that the EEC would be able to guarantee the rights of national companies against the power and control of multinationals. I know the Minister shares with me the hope that the EEC Commission will start to take on the multinationals at some stage, because I do not believe they have been taken on. Their net stretches to areas we do not even know anything about, but they affect the daily lives of many of our people. Those multinationals are based totally on competitive profit-making and exclude the human, just and productive aspect. A group as large as the EEC should at least inform us about how far the tentacles of multinationals stretch.
One of the innovations of the directive, as the Minister said, is that the shares of a public limited company must be paid up to at least 25 per cent of their nominal value and that the whole of any premium on them paid before they are allotted. This is a way of obtaining a secure base. I am glad the Minister in his discretion is taking advantage of the options offered by the Directive whereby the payment on allotment of at least 25 per cent of the nominal shares need not apply to shares issued in connection with the employee share schemes. This goes back to the point I made about the right of workers to share in the profitability, productivity and shareholding of a company. I hope we will go further in future directives. We have witnessed the terrible results of some of the crashes of what we regarded as very safe industries. There is a feeling that if there was an alarm system that could have gone off in time and warned not alone the directors but the workers and the creditors, we might not have had such costly breakdowns.
I welcome section 40 of the Bill because not alone does it oblige the convening of an extraordinary general meeting, which must alert everybody concerned, but it places responsibility on the directors and the shareholders to see that companies and industries are not set up for their profitability alone but that there is responsibility right down the line and when one takes on the employment of people there is a huge responsibility to carry this out in as responsible a way as possible. Section 40 certainly gives an opportunity for the directors of a company, under obligation, to convene this extraordinary general meeting and alert everybody.
A lot of constructive things can happen there. There will not be the tendency to throw good money after bad. Some people might feel that when they have lost such a lot that a last gamble might pay off and there could be a tendency to throw good money after bad. That can have alarming consequences. This will alert everybody that the company are in a dangerous situation but still, hopefully, in a rescue situation. I hope our legislation and the enlightenment of management will actually have us informing the workers in the company so that their participation can be called on in relation to saving the company and treating everybody with the dignity they deserve. This means that if there is a problem in a company it not alone affects the shareholders, the managers and the directors but affects in a much more dangerous way the very workers who would find themselves out of work and perhaps without redundancy money.
I hope section 40 has that kind of constructive approach, that it is not seen as being destructive but a warning system which will mobilise all the efforts and all the rescue structures we have to make sure that the industry concerned does not go to the wall.
I support what Deputy Flynn said about penalties, because with changing prices a penalty not exceeding £500 will raise all kinds of questions. However, I bow to the information given to us by the Minister in relation to that. Is the present Bill sufficient to cover this or is amending legislation needed? We have all seen Bills being introduced here and a lot of lip service paid to them. But unless the provisions of the Bill are followed up and enforced, we not alone waste our time in the House but we bring all legislation, ourselves and our role as legislators into total disrepute. I hope that when this legislation is brought in the structures will be set up to enable us to make sure that it is monitored and enforced.
I would like the Minister to elaborate on this. Will a number of inspectors be needed? I do not mean a group of inspectors going around whipping people into shape and making sure they hit them over the head with penalties. If they break the law penalties should be imposed, but there is something more important. I ask that the legislation not just be introduced but that everybody concerned is fully informed of it and that through the media and information leaflets we make sure that people who will benefit from this legislation will be aware that it is there. If more skilled people are needed to go around in an advisory and constructive capacity, I hope that will be taken into consideration. We should ask ourselves what are the structures we need to enable the legislation to become reality, recognised in the spirit and not disregarded or flouted.
I speak with great enthusiasm about this Bill and I look forward with even greater enthusiasm to the further legislation when we can actually get down to addressing ourselves to the whole area of the private limited company, which places creditors and particularly employees more at risk than anywhere else. We must ensure justice to all who work in this country and that their skills — sometimes their life's work for 30 or 40 years — are not wiped out without perhaps even redundancy payment and without the reward that is fundamental to the satisfaction of working.
Deputies are aware that this legislation came through the Seanad. In my address in the Seanad at that time I referred not to a certain part of the amending legislation of this Bill as such but to what I hoped would be a wider amendment. On page 70 and 71 of the Bill — this has been done in a traditional sense but I am glad that some of our traditions have changed in this House — are examples of shareholders and their names and professions. On page 70 is a list of the names of seven men who are solicitors, engineers, a geologist and an accountant.
I never thought the Deputy was a chauvinist.
They are all highly respected professional men of high standing in our community. On page 71 we find the name of one woman included. I am sure that no priority is suggested in having her name at the bottom of the list but that is where it is. She is a housewife. I am not detracting from the importance of the housewife; in fact we have never acknowledged it properly. However, I would like to draw the attention of the House to the fact that as our legislation needs change, perhaps our examples need it also.
It is only fair to say that the names are in alphabetical order.
In that Department they are not favourable to women.
In the drafting of further legislation I would ask that consideration be given not only to the reality of the legislation we need but also to the reality of the more participatory role women are playing in our community. I hope that in all future examples given in any drafted legislation that will be reflected.
The few words I will say on this Bill will be related mainly to the types of amendment I would like to see incorporated into it. The Bill, as has been stated a number of times, is in order to comply with the Second Directive on Company Law which was passed by the EEC some years ago. I understand that this Bill is two or two-and-a-half years late in being brought before the House; but I welcome it, limited and late as it is. However, as the Bill stands its implementation will have little or no impact even in the limited areas which could have been affected by the legislation. For example, few if any existing Irish public companies would have an authorised capital of less than £30,000 or a paid up share capital of less than £7,500. Thousands of private companies have these types of shareholdings and these are causing most of the problems at present in relation to company formation, re-formation, liquidations and so forth. No doubt the Minister will be bringing in legislation later in the year relating to private companies, and I look forward to that.
Unfortunately, the present Bill will do nothing to improve the situation as it stands in relation to these private companies. Private companies are currently forbidden to offer their shares for sale to the public and if they do that they lose certain privileges such as the freedom from any obligation to publish accounts. Section 21 of the new Bill seeks to introduce additional penalties, presumably because the Fourth Directive of the EEC would eventually oblige most companies to publish some form of accounts. The maximum fine in the Bill as proposed is only £500 and this would hardly be a major deterrent to any substantial private company.
The Bill also imposes an obligation on company directors to call an extraordinary general meeting of shareholders in the event of what is called a serious loss of capital. This is dealt with under section 40. According to the Explanatory Memorandum this will apply to all companies and is considered as a valuable advance because it will enable shareholders and company managers to take early and appropriate action to cope with financial difficulties. I make two points in relation to that. First, serious losses are defined as occurring when a company's net assets fall to half or less of the called open share capital which in turn is defined as 25 per cent of the authorised capital which in its turn must be at least £30,000. In effect the serious situation exists when net assets are less than 12.5 per cent of the authorised capital — in other words, a minimum of £3,750. That would seem to be an extraordinarily low figure and we propose on Committee Stage to increase that figure. These figures are very low, being related to the minimum share capital, which figure is itself very low, and it is debatable if the provision will be valuable if the figures are left as they are.
The second point in relation to section 40 is that it calls for the shareholders to be informed of the serious difficulties but does not propose to involve the employees of the company or their representatives in any way when the company reaches such a low level. We would propose also to have that section amended in order to enable employees and their representatives to be brought in to any consultations that would take place. Probably more important is the fact that section 40 should be amended to include an obligation on company directors to inform workers and their representatives and not leave it simply to their good offices and good will to do so.
I conclude by welcoming the Bill, limited as it is, and I hope that the Minister can see his way to adopting the amendments we will propose on Committee Stage.
I welcome the intention of the Bill in its stated aims of correcting the abuses on the present industrial scene and the Minister's commitment that he will spare no effort in trying to put an end to the activities of fly-by-night operators in various sectors who make a mockery of the privilege of limited liability. This is long overdue and will be significant legislation put through by this Government.
I would like the Minister's assurance that he will also introduce legislation to give effect, following on this, to the EEC Fourth Directive because the two are interlocked. This directive obliges companies to disclose information to their employees on all aspects of their transactions, policy, profits, and so on. This is crucial at present, as highlighted by the recent tragic collapse of Ranks, Telectron and other companies.
The certain collapse of Ferenka was known almost a year in advance by economists who had access to the company's balance sheet but who could not disclose this fact for fear of undermining confidence in the company in the belief that they could get out of their trading difficulties. It is a disgrace that a group of shareholders thousands of miles away who do not even know where Ireland is can decide to close down an enterprise here to which workers have given a lifetime, even generations in the case of some families, and whose standard of living is geared to these companies. In my own city we had the awful spectacle of the closure of Ranks, without any proper consultation, in a meaningful sense, between the company and their workers.
I understand that the multinational companies operating here have strenously opposed the application of the EEC Vredeling Directive on information. If multinationals wish to operate here, they cannot have it both ways. When in Rome they must do as the Romans do. We are a member state of the EEC and the Vredeling Directive obliges companies who have subsidiaries here with over 100 employees to disclose information on all aspects of their activities. I never fail to be amazed at the innocence of the speakers from the Opposition side. I listened to Deputy Flynn urging the Minister to introduce this legislation and I am advised that two members of that party opposed the introduction of that directive here. The then Deputy de Valera sought to have an amendment to the directive which would oblige companies here to employ 2,000 before they would have to disclose this information to their workers. Deputy Seán Flanagan is alleged to have said that if that directive was introduced here it would drive all the foreign companies out. It is surprising that Opposition Deputies do not get political pneumonia from the crocodile tears that fall on their shirts in this House when they express concern for the workers. Now that they have moved into opposition they seem to have the answer to everything and the solution to nothing.
I am very slow to interrupt any Deputy but I wish to remind him that when I temporarily strayed from what would be regarded as the major content of the legislation he was very quick to interrupt to ask what relevance it had. Deputy Prendergast should confine his remarks to the Second Directive. When the time comes for the implementation of the Fourth Directive, I will speak on behalf of Fianna Fáil. He need not worry about that.
As a matter of course I do not interrupt anyone, as I am well versed in procedure. I am merely making the point that the public should be told the facts. When Irish workers were being afforded the protection of the appropriate EEC Directive, it was opposed at the instigation of a very powerful lobby here. More drink was passed from that lobby in Brussels that night than had ever been seen there. I am not saying that the two Deputies I mentioned did that, but their cohorts were there and there were witnesses to it.
There are 65,000 companies in this country but only 339 of them disclose their accounts to workers. In turn, workers are expected to listen to companies when they say they cannot meet wage claims. I have been involved in situations where the company were aghast at the enormity of the claims made by workers until I asked them to disclose their balance sheet and then they all backed away. There is an even more significant aspect to their failure to disclose information. Over 1,000 new chemicals at least are coming on the market from Europe alone onto the industrial scene every year and these are potentially very dangerous to workers' health. The companies refuse to disclose their names. We all know that it can be 30 years before the effect of working with asbestos manifests itself. There is a need for reform in the area of the statute of limitations with regard to compensation for industrial diseases. The companies here are only obliged to pay compensation if a claim is made within three years of the contraction of the disease whereas in the UK it is within three years of the discovery of the disease. A worker in a well-known company in the south contracted cancer through his involvement with one of the basic raw materials. He made a claim which was passed on to the parent company in the UK who paid up promptly. If they had but realised it, under our law they need not have paid that money.
I am asking the Minister, as a logical corollary to what we are talking about, to implement the EEC Fourth Directive. In the monthly newspaper of my union, Liberty, an article in the April edition states that the private sector here is one of the most pampered in the world. It has received every conceivable support from the State at a cost of thousands of millions of pounds of taxpayers' money. Yet the return to the State and to the workers who pay these taxes is minimal. It says that arguably we have one of the most pro-business environments in the world, including the US, where State intervention goes nowhere near the Irish level. It also says we are renowned as a tax haven and even trade unionists have been muted in criticism of the endless growth of incentives in our anxiety for jobs.
I welcome unreservedly foreign enterprises with their skill and know-how and the benefits they confer on this country in the area of industrial relations, because we were primitive before that. However, it should be pointed out that the State is the real risk taker. In the decade up to 1983 the IDA poured £1,132 million of taxpayers' money into mainly private companies and industrial employment has remained static. A recent table in Irish Business Magazine of October 1982, showed that State aid to the private sector totalled £2,555.7 million up to 1982. This was aid to industry and agriculture, and included State expenditure on construction. When you take into account the grants to tourism, fisheries and An Foras Forabrtha, you realise the contribution Irish workers have made.
The Telesis Report estimated that £2,800 million was given in aid to the manufacturing industry in the ten years to 1980, excluding the current cost of supplying the aid. No fewer than 26 State companies are devoted almost wholetime to promoting private sector interests from the IDA and CTT to Fóir Teoranta and Bord Fáilte. These are never called white elephants. The State builds the factories, trains the workers and management, pays for the machines, researches the products and export markets, gives cheap loans and numerous tax allowances and exemptions, and huge hidden subsidies through tax avoidance lending, rescue operations to companies in trouble, and gives large State contracts for the products. In short, the State does everything except take control and profit, although it does pick up the loss.
The State is the entrepreneur, the risk taker, while private enterprise takes the profit. In these circumstances, it should be pointed out that the large amounts of State aid to industry include £60 million from Fóir Teoranta over the past ten years, of which only one-third has been repaid. There are numerous examples of the softly softly approach by the State to the millions of pounds of tax still outstanding.
With all this aid, have we got value for money? What proportion of it is now owned and controlled by the State which puts up so much of the capital? Has there been increased disclosure of financial information to the workers? Do the companies even warn workers of their approach? We suggest, no. In view of all this generosity by the State and the workers to foreign companies, and native companies no less than foreign companies, there is an obligation, in morality if not in law, on these companies to tell their workers what they are doing and to give them adequate warning of what is happening in their industries.
I welcome the intent of this Bill. I commend the Minister. In the past he has made notable contributions to the welfare of workers. I thank him for and congratulate him on his intention to promote this legislation. I welcome the Bill.
It is symptomatic of the situation in which we find ourselves that the Minister has had to tell us this measure is not negotiable at this stage. He said most of the provisions in this Bill are not negotiable. It can be seen from that that we have sold a large measure of our sovereignty. One wonders why the Bill is put before us. Are we just here to debate it? Are we in a position to achieve any substantial worth-while change? Apparently not. We are told: "The Bill is before the House. Pass it, because an authority in Brussels or Strasbourg says it has to be done and it is not negotiable."
It is not that we are not in very urgent need of reform of important aspects of our company law. We certainly are, and that was touched on by all the previous speakers and by the Minister. The key point is that the matters on which reforms are so urgently needed are not in this Bill. They are talked about for some future Bill at some future time. The Minister pointed out that the resources of his Department are limited, and that is perfectly understandable. Is it not regrettable that those limited resources have had to be taken up in the preparation, with great usage of time and man-hours, of a Bill for which there is no pressing need in the present circumstances of Irish company law, and when so many other measures are crying out for the attention of the skilled staff in the Minister's Department? I find that highly regrettable.
The main thrust of the Bill, far from bringing in anything which will help creditors or workers, is to change the designation of public companies into a new format with the object of bringing us into conformity with the EEC. They have a great will there to bring about uniformity in all sorts of matters. The trouble is that the requirements in each of the member states are quite different. What suits uniformity in highly industrialised countries like France, Germany and Holland may be inappropriate to our purposes.
As I have said, the main thrust is to have a new format of company to be known as a public liability company. That change in designation will not bring about any radical alteration for anybody. Perhaps it will generate a highly increased volume of work in the Companies Office and for practitioners who deal with companies.
The Bill goes on to deal with a minimum provision for allotted capital of a company at £30,000. Some of the contributions in the debate so far seem to indicate that Deputies thought that was too low. The Minister suggested that in some case it could cause difficulty for certain of the existing companies and that perhaps as many as 30 per cent could have problems as a result of this new provision.
It is unfortunate that old companies which have been trading for many years, and new ones yet to be formed, have been set to be covered by the same criterion, the same test of £30,000. This is a major shortcoming and has given rise to unease both as to the highness and the lowness of the figure. It may be fair to say that new companies to be formed and put into operation should have a minimum allotted capital of £30,000. That is one thing, and it may be fair enough. I am not sure it is also reasonable to impose that figure, after the event, and after so many years, on many existing companies who have been trading and providing employment. It would be highly regrettable, to say the least, if, as a result of this imposition, old companies which have been trading and providing employment, should have to close their doors at the behest of the EEC.
I know the companies have three years in which to make their arrangements. I also know there is a provision in the Bill for them to re-register as another form of company. I do not think re-registration has very much realism or practicality. The likelihood of any company in that situation being able to re-register in another form of company is doubtful in the extreme. The three-year period of grace will be a help, no doubt, but there will be a fair number of companies at the end of the three-year period, who got by over very many years perhaps with difficulty, and perhaps hand to mouth, but nevertheless continued to trade and provide employment possibly in a small way on borrowed capital, with a good year following a bad year, and so on, who will be forced to close as a result of this measure. Left to our own devices, we would not have brought in such a measure which is brought in for the sake of uniformity at the pressure of an EEC Directive. If that was to happen and those companies, many of them long standing, had to close down, albeit in three years' time, it would be most unfortunate and highly regrettable.
The Bill has a provision which tries to provide an early warning system, the procedure of calling an extraordinary general meeting where it would appear to the directors that the capital had fallen below a certain level. Deputy Flynn spoke with approval of that measure as did some other Members and, no doubt, as far as it goes it is all right but, frankly, it leaves a lot to be desired. I regard it as an inadequate remedy for trying to cope with the type of situation it purports to deal with. If one looks at that part of the Bill one will see that the only obligation on the directors is to call the extraordinary general meeting. When they call the meeting and tell the shareholders about the difficulties and problems they have met their obligations under the Bill. There is no obligation on them to do anything to rectify the situation. Once the meeting has been called and the announcement has been made that is sufficient. They can carry on trading and may run up further debts, cause problems with other companies or for their work force but they will not be breaking the law because they will have complied with the one requirement in the Bill, the calling of the meeting.
If the Bill wanted to tackle the situation which requires urgent attention and which it was directed at, it should have gone on to provide that if having called the meeting nothing was done about the problem certain consequences would follow. Those consequences could include various measures such as putting a personal responsibility on the directors for additional debts that would have been incurred after the date of the meeting, possibly putting a liability on associated or parent companies that would have a controlling or major interest as shareholders in that company. They could require those associated or parent companies to have a responsibility to make up further losses incurred as a result of not taking action following on the meeting. I regard the provision as being weak in the extreme. It may be a first step but in my view it does not go any appreciable way towards dealing with the type of situation for which it was envisaged.
There is another method that might have been adopted in the Bill and I suggest it now for consideration by the Minister. There is a provision in section 6 requiring a company at the point of registration to acquire a certificate from the registrar of companies to authorise it to carry on business, and to enable the company get that certificate it has to meet certain requirements and file certain documents with the registrar of companies. That detail and that certificate of authorisation to carry on business only has to be obtained once, at the beginning. In other words once the company gets under way and gets its certificate that certificate lasts indefinitely. The certificate does not have to be renewed or reviewed at any time. A useful measure that could be brought about by the use of such certificates would be to provide that the company must obtain that certificate not just at the beginning of its incorporation but at fixed intervals. To enable it to obtain the certificate authorising it to continue to carry on business it should have to file in the Companies Office, in addition to the information which every company has to file annually, certain other important requirements which would be of great value to the work force of that company such as perhaps information as to proposed changes in the structure or the staffing of the company.
In other words, the company would have to fill in a questionnaire for the Registrar of Companies at whatever period was thought appropriate. The company could be asked if any changes were intended in the structure of the company during the coming year, what proposals the company had for changing the staffing of the company, the present financial situation, the estimates for turnover, production and sales, the working conditions in the company, if the company had complied with the requirements regarding the protection of workers' health, the employment intentions of the company in the coming year, if the company intended to bring in rationalisation measures, what social protection was provided for the workers, if the PRSI and social security contributions were paid up to date, if it was intended to bring in new technology, if there were proposals to merge the company with another or have it taken over and if the company had any plans which would in any way substantially affect workers' interests. A questionnaire on those lines might serve a useful purpose if companies had to answer it year on year. Could any company reasonably object to having to furnish and have on file in the Companies Office that type of information? As Deputy Prendergast pointed out, in the past we have been all too lax in this type of situation. An examination of the situation in other industrialised countries will show that their requirements are much more stringent than ours.
I would like to have seen those measures in a Companies Bill coming before the House. Having regard to the pressures on staff in the Minister's Department it is regrettable that all we have before us is a Bill dealing with measures which will be of little help to creditors of companies and workers. At this time, having regard to the state of economic development of the country or regression, as appropriate, the need for such a measure is pressing because companies are going into liquidation and receivers being appointed weekly. The time for such requirements is now. If the economic progress of the country was on an upturn the need might not be so great but the need is urgent now. I hope the measures promised by the Minister will be before the House within a short time.
I should like to thank the House for the constructive and stimulating contributions on the Bill. I would particularly like to thank Deputy Flynn for recognising the urgency with which this Bill is needed and facilitating its passage, all Stages, through this House today.
There has been, understandably, some confusion and considerable overspill in relation to this Bill and other aspects of company law. That was best illustrated by Deputy Taylor when he spoke of matters relating to company law but which are not, and cannot, be covered in this aspect of company law. The purpose of this Bill is to give implementation to the Second Directive of the EEC. Deputy Taylor and others may not like Ireland being a member of the EEC and may see certain objections to the operations of the EEC but the fact is that by the express wish of the Irish people, expressed in the ballot box in a referendum, we are members of the EEC and that imposes certain obligations on us and the purpose of this Bill is to give effect to one of those obligations.
It is easy to stray into areas in the field of company law — we all do it — because there are instances of overlapping and one thinks one piece of legislation should be able to deal with another problem. This Bill is the commencement of a major reform of company law. The aspects that have been referred to in this House by many Deputies, and by me, are abuse and malpractice. There are 69,000 companies but the number of companies and people engaged in malpractice is very few. If one looks at the situation one will see that the same people are involved over and over again.
I want to give the House this assurance: as fast as possible I will put an end to the operations of these people, who can only be described as legalised confidence men, operating under the present law. That law will be changed and that will bring an end to the operations in which they have been engaged. These people have left so much misery behind but they got away scot free. I can assure the House that these laws will be changed as speedily as possible both by the proper utilisation of EEC directives where discretion is given to us — to exercise that discretion and to maximise its effects in the context of conditions as they apply in Ireland — and by the introduction of domestic law which will ensure that these practices come to an end.
A number of issues have been raised. Deputy Flynn said all companies should be obliged to prepare full accounts and have them audited. This is the present requirement. Companies are obliged to do this under the 1963 Act and, in addition, public companies are required to file copies of their accounts with the annual returns sent to the Registrar of Companies.
The question of disclosure will be dealt with in the Bill to give effect to the Fourth Directive and I have already said publicly and in this House that we are working on that directive as speedily as possible. I am confident it will be before the House for consideration before the end of the current year. I am also hopeful that domestic legislation dealing with aspects of company law will also be before the House before the end of the current year or, if not, early next year.
Deputy Flynn, Deputy De Rossa and Deputy Barnes raised the question of penalties and fines. I am not satisfied with the monetary penalties that have been imposed, but it is necessary to consult with the Attorney General when imposing monetary penalties because other penalties under other legislation must be taken into account. Because these cases are dealt with summarily in the District Court there is a limit on the monetary penalty that can be imposed. Apart from the £500 maximum fine there is also provision for a jail sentence which may be imposed instead of the monetary penalty or both can be imposed. I believe there is a definite deterrent there. I take the point — and it is one which should be examined not only in relation to this Bill but under a whole range of legislation — that monetary penalties provided for as maximum penalties in a Bill can very quickly bear no relationship to what was intended as a deterrent when the Bill was going through the Oireachtas. They can very quickly become outdated. There should be a review of monetary penalties at Government level and we should try to find some mechanism to update them without introducing new legislation. That would be a very desirable development and one I will be advocating at Government level.
Have them index-linked.
We might even have to go further than that. Deputy Flynn also recommended applying some provisions of the Bill to private as well as public companies. In fact, the Bill does that in some respects. Many of its provisions simply reinforce existing practice desirable for the proper conduct of companies and in the interest of the development of company law generally. I consider it appropriate to apply some of the provisions of Parts III and IV to private companies. I have not however extended the authorised minimum capital requirement of private companies. The Joint Committee of the Oireachtas considered this and advised against it. It is to comply with the observations of the joint committee that that approach has been taken.
Many small companies work very successfully on credit and have very little capital. To impose a minimum capital requirement on them could well damage them and very easily end up in closing them, leading to loss of employment. The amount of capital is not always the determining factor. A recent report has shown that a large number of company failures are due to bad management and that this has been a major contribution in firms going to the wall. Many small companies with very little capital operate successfully and to impose these conditions on them might not be in their best interests and certainly not in the best interests of their employees. One would have to be very conscious of that.
Deputies have mentioned that provisions under Bills and in changes of legislation having an effect on shareholders, creditors and employees are not made known to these people because there is not sufficiently coverage. It is true. There is a great need for a much wider publicising of legislation passing through the Oireachtas which has definite effects on various groups and sections within our community. The people directly affected are not fully aware of the changes which have taken place which affect them to their detriment or benefit. I will be having a very close look at all legislation involving my Department in this regard and Deputies were correct in mentioning it.
A number of other issues were raised. Deputies Flynn, Barnes and De Rossa raised the question of the £30,000 capital. As Deputy Flynn pointed out, under the directive the requirement is approximately £16,000. At this stage it would be wrong to go above the £30,000. Approximately 25 per cent of companies have under £20,000 capital at present and 30 per cent under £30,000. There is also provision in the Bill that the £30,000 may be increased by order if it is thought desirable to do so. It is very important that we do not impose overnight an obligation on companies which may adversely affect their operations and might force them to close, with subsequent loss of business and of jobs. The three year provision which Deputy Flynn mentioned, I can assure him and the House, will be very much used now to give companies who may not be in a position to meet quickly that requirement a three year period to do so. It would be unwise to go higher than the £30,000 without observing its effect. If necessary, after giving it some period of time to operate, one can use a ministerial order, if desirable, to increase the sum. We are starting from no requirement at all and going up to £30,000, which is not a bad start. I am not ruling out that at some future date it may be thought desirable or necessary to increase the amount.
On the question of special meetings, Deputy Flynn spoke about the number of days' notice required. The calculations may have been somewhat confused because the total number of days is 56, within which, under the provision of the Bill, action must be taken. That is reasonable notice because under the rules of companies certain provisions must be observed. There may be requirements to give notice of special meetings and consideration has to be taken of the position of the company and the presentation of its position to the special meeting. That is not an exorbitant amount of time to grant. It may be necessary for a company under its rules to give a considerable amount of notice before the holding of a special meeting. If that was seen to be abused in any way, it could be looked into.
Deputy Barnes mentioned takeovers and mergers, but these are not covered by this Bill. There are provisions under the Mergers and Takeovers Act which give full safeguards in this regard. These matters need not be taken into consideration in dealing with the legislation now before the House. I think I have covered the points raised during the course of the discussion on Second Stage. A number of amendments have been tabled and if I have missed matters which were raised, I can respond to them when dealing with the amendments.
I again thank the Deputies for the constructive way in which they have approached Second Stage and also for facilitating the passage of the Bill at all Stages here today, in order to ensure that we can comply with the obligation upon us, particularly in the light of the fact that we have been already brought before the European Court for not complying with the time allowed for implementation of this directive.
Question put and agreed to.
When is it proposed to take Committee Stage?
Now.