There are some amendments to be circulated now and we will have a pause to enable that to be done.
Companies (Amendment) Bill, 1982: Committee Stage.
Section 1 agreed to.
SECTION 2.
Question proposed: "That section 2 stand part of the Bill."
This section deals with definitions. One definition, of the word "officer", is not defined in this interpretation section. It is referred to in a number of places, in particular in section 6 (7):
... the company and any officer of the company who is in default shall be guilty of an offence...
The word "officer" is defined to some extent in the 1963 Act, but its definition in that Act is rather limited. It is stated there that: an officer in relation to a body corporate includes a director or a secretary. I suggest that the Minister might consider a slightly wider definition of the word "officer" for the purposes of this Bill and consider the following:
that an officer would also include a person in accordance with whose directions the directors have been accustomed to act.
Might I explain that point briefly?
As there is no amendment of this section, perhaps it might be better to raise the Deputy's question on the section where the word "officer" appears and suggest then that an amendment could be brought into the definition section on Report Stage.
Certainly. The point that I am making is one of definition and as this is the definition section, I thought that this would have been the appropriate place in which to mention it, if there was going to be any amendment. If the Chair thinks it more appropriate to do it under the other section, I am agreeable to that.
The Deputy could give notice that he intended to raise this matter on the other section when we come to it.
Perhaps it would have been taken that this is the appropriate place to raise the matter, as this is the interpretation section, since it is a matter of interpretation.
Perhaps the Deputy is correct. The Deputy is suggesting that this section be amended to include a definition of the word "officer".
To amplify very briefly, a very frequent situation arises, particularly in the case of a subsidiary company, where a board of directors will take their instructions from elsewhere, perhaps from the parent company or superior company. They might only be nominee directors. If an offence is to be committed by an officer, that person who is giving the orders would be the appropriate person who should be made amenable yet that person, as the section stands at present would not be an officer of that company. The purport of what I am suggesting for the Minister's consideration would be that the definition be widened to include a person in accordance with whose directions directors have been accustomed to act.
I take the Deputy's point. This has been discussed in the Department but because of the urgency of this legislation — as the Deputy knows, from earlier explanations we have already been before the European Court and been found in breach of our obligations — it was considered that the wider definition, somewhat wider even than the Deputy's suggestion, would be included in the No. 3 Companies Act which would be coming before the House later this year.
Question put and agreed to.
Sections 3 and 4 agreed to.
SECTION 5.
Amendment 1 is in the name of the Minister. Amendments 2, 3, 5, 7, 10, 21, 22, 23 and 27 are related. Amendments 1, 2, 3, 5, 7, 10, 21, 22, 23 and 27 to be taken together and discussed together, by agreement. If there is to be a vote on them, the votes will be taken separately.
I move amendment No. 1:
In page 9, subsection (4), lines 9 and 10, to delete "sufficient evidence until the contrary is shown" and substitute "conclusive evidence".
These are ten identical amendments which have been requested by the Parliamentary Draftsman. Section 5 (4) provides that a certification of incorporation given under section 18 of the Principal Act in respect of a public limited company is sufficient evidence, until the contrary is shown, of the company's status and its compliance with the requirements of the Company's Act and that it has been duly registered.
In including that provision the Parliamentary Draftsman departed from the long standing position in the Principal Act, and indeed earlier company legislation, that the certificate of incorporation is conclusive evidence of the matters mentioned therein. For example, under section 19 of the Principal Act, following expressions of concern by legal and other professional interests that the drafting of section 5(4) had the effect that the certificate of incorporation would in future be prima facie evidence only and would leave the very existence, status and validity of any company open to challenge, the Parliamentary Draftsman was required to reconsider this. He concluded that it was appropriate and necessary, in the interests of certainty, to provide that a certificate of incorporation referred to in section 5 (4) should be conclusive evidence of the matters mentioned in that subsection.
The effect of this amendment, therefore, is that all who deal with a company will know that they are dealing with a legal entity whose actual existence or status can never be challenged. The same issue arises in the case of certificates of incorporation issued under section 9 (9), section 11 (3) (b), section 14 (5), section 43 (11), section 53 (5) and paragraph 20 (b) of the First Schedule and in the case of certificates issued under section 6 (6), identical amendments are proposed in amendments Nos. 2, 3, 5, 7, 10, 21 to 23, inclusive, and 27.
As the House will have seen from the foregoing, this is purely a technical amendment which has been put in at the request of the parliamentary draftsman.
There is one point. What would be the position if the certificate had been obtained by fraud, by the company putting in some fraudulent information? Would the fact that the section says that would be conclusive evidence present difficulties?
No. If a certificate was obtained by fraudulent means it would not become legitimate by anything which is stated in the Act.
Would the fact that you were using the words "conclusive evidence" debar the company from being challenged?
Conclusive evidence would take it that the legitimate facts were produced that would allow you to arrive at conclusive evidence.
Amendment agreed to.
Section 5, as amended, agreed to.
SECTION 6.
I move amendment No. 2:
In page 10, subsection (6), line 8, to delete "sufficient evidence until the contrary is shown" and substitute "conclusive evidence".
Amendment agreed to.
Question proposed: "That section 6, as amended, stand part of the Bill."
Subsection (1) states:
A company registered as a public limited company on its original incorporation shall not do business or exercise any borrowing powers unless the registrar of companies has issued it with a certificate under this section or the company is re-registered as another form of company.
There are two points I wish to make on that. "Evidence of doing business" would be capable of perhaps a wide variety of interpretations, buying and selling and so on. The question could arise of whether borrowing money, for example, was doing business or making investments was doing business. Perhaps that word should be looked at in somewhat more detail.
Also, what would be the position if a public liability company which was registered but had not yet its certificate under the section authorising it to do business formed a private company which would not require any such certificate and had that as a wholly owned subsidiary and then set up a private company under it? Would that be a way of getting around this section? I am not sure on that point. Would the Minister have any comment on that point of concern and on the point of the definition of the word "business".
The definition is brought forward from the 1963 Act. There is no change in that regard. I do not foresee arising the sort of situation that has been described by the Deputy but should it arise there is provision for a penalty in subsection (7) which reads:
If a public limited company does business or exercises borrowing powers in contravention of this section, the company and any officer of the company who is in default shall be guilty of an offence and shall be liable on summary conviction to a fine not exceeding £500.
Question put and agreed to.
Section 7 agreed to.
SECTION 8.
Question proposed: "That section 8 stand part of the Bill."
This is the section which relates to the striking off the register of a company who do not follow through their original application for registration. Does the Minister envisage a number of companies being affected by this or are we talking about a new measure dealing with registration? Does this provision apply to other companies also?
This is a new provision but it is only in the light of experience gained from its operation that one would know its effect.
If the Minister is proposing to apply this provision in public limited company situations, is he contemplating applying it also to the company to which Deputy Taylor referred with a view to reducing the 69,000 eventually to more manageable terms?
I would not like to answer that off the top of my head. I shall discuss it first with the Department.
Is there a considerable advantage to be gained by people holding companies but not trading?
I understand that section 8 refers to original registered companies.
I expect there would be only two or three of those.
There would not be very many.
Question put and agreed to.
SECTION 9.
I move amendment No. 3:
In page 12, subsection (9), line 31, to delete "sufficient evidence until the contrary is shown" and substitute "conclusive evidence".
Amendment agreed to.
Section 9, as amended, agreed to.
SECTION 10.
Amendments Nos. 4, 15 and 16 are cognate and may be taken together.
I move amendment No. 4:
In page 13, subsection (1) (b), line 29, to delete "one-quarter" and substitute "one-third".
I raised some points on the section during my Second Stage contribution but I did not hear the Minister refer to our contention that the requirement to have only one-quarter of the nominal value of the company shares paid up is too low. We are proposing that the proportion be one-third but that is probably too small also. However, I am asking the Minister to seriously consider accepting the amendment.
I understand the point the Deputy is making but in the circumstances I consider myself justified in rejecting these amendments. In adopting the minimum requirement of the directive — that 25 per cent of allotted shares be paid up on incorporation or before commencement of business by a public limited company — I would draw the Deputy's attention to the fact that this represents a considerable increase on the requirements of the Principal Act which provides for only 5 per cent minimum subscription. I should explain also that the rate of 25 per cent represents the average of the national rate which applies in other EEC member states before the directive was passed. In addition, it should be borne in mind that the Bill provides for almost a doubling of the amount required by the directive. The figure will be £30,000. The minimum amount to be paid up on the alloted shares is, therefore, higher than that envisaged in the directive. In those circumstances, the present provision is adequate.
Question: "That the words proposed to be deleted stand" put and declared carried.
Amendment declared lost.
Section 10 agreed to.
SECTION 11.
I move amendment No. 5:
In page 14, subsection (3) (b), line 38 and 39, to delete "sufficient evidence until the contrary is shown" and substitute "conclusive evidence".
Amendment agreed to.
Section 11, as amended, agreed to.
SECTION 12.
Question proposed: "That section 12 stand part of the Bill."
What are the words "or another" in line 22 supposed to mean or is that a misprint?
Or another person.
Who would the other person be? We are talking here about a part consideration for the allotment of shares. I can understand the inclusion of the word "another" in line 21 but I do not understand its inclusion in the following line.
It means another person.
Question put and agreed to.
SECTION 13.
Amendments Nos. 6, 8, 9, 17, 18, 20 and 25 are related and may be taken together.
I move amendment No. 6:
In page 17, subsection (2), lines 3 and 4, to delete ", but not exceeding £500 in total".
I would simply make the point here that there is no provision in the section for prison sentences. The proposal to eliminate the maximum on the accumulative fine would be to the benefit of those who are simply in breach of the rules on a technical basis but the elimination of the upper limit would fall most heavily on those who break the regulations persistently. We could have proposed that the base fine be increased across the board, though perhaps that would be unfair to those who because of oversight would be in breach of the rules. However, £500 is a negligible sum so far as most large companies are concerned and would not do anything to encourage them to observe the regulations.
As I said on Second Stage, I understand what the Deputy is getting at. Indeed, I have some sympathy with his approach to this matter but as I explained then, in the case of summary conviction, only a certain level of fine can be imposed in the District Court; otherwise the matter must go to the High Court. The question of fines which become outdated in a relatively short time cannot be viewed in isolation in one Bill because it must be related to other legislation and must be considered in consultation with the Attorney General. As I said when replying to Second Stage, this is a matter which the Government should consider so that fines can be updated and represent a true deterrent without the need to introduce legislation. It is sometimes very difficult to get legislative time to deal with such matters. I will bring the matter before the Government, not just in the context of this Bill but in relation to fines under other legislation which do not at present represent a deterrent because of the limitations imposed. I understand the Deputy's point and I have given the reasons for not accepting this amendment.
Perhaps the Minister would clarify a point on the section dealing with an old company which does not re-register. It provides that a company, if it carries on after a 15-month period, is in default and commits an offence. It then goes on to refer to any officer of the company who is in default. I am wondering how it is envisaged that an individual officer would be in default because an officer or a director cannot by himself effect a registration. A majority of the board of directors might deliberately not take the steps or neglect to do it but there might be one director who would be more than willing to do so. Would he be in default and liable to be prosecuted, due to a matter outside his control? How would an individual officer be in default under that section and liable to be prosecuted?
They are all liable for that act.
Is it the case that an individual director who might have been quite willing to take the steps necessary to re-register would be guilty of an offence, even though the matter was outside his control?
The directors, other than this director, would be guilty.
It would depend on how the voting went at the meeting. Can the Minister assure us that an individual director who was willing to comply but did not have the voting power to bring about the re-registration would not be guilty under the section?
That is right. It is not the principle of collective responsibility.
I accept that the Minister is tied to some degree in relation to the level of fines which can be imposed in the District Court. Can he assure us that the system of increasing fines automatically will be introduced in line with the introduction of other Bills in the company law area?
While I will honour the commitment I have given the House in bringing this matter to the attention of the Government, it may not be practicable to do this in the way I have suggested. As far as company law is concerned, I have already told the officials within my Department that in any future legislation I want the maximum fines possible to be introduced.
In case my silence on the hypothetical case put by Deputy De Rossa goes unnoticed or is taken to mean that I have given my assent, I would put down a marker that the matter of changing monetary penalties and having them updated on a month-by-month or year-by-year basis related to the CPI has inherent difficulties and dangers. It is not to be expected that assent would be given to the promotion of such an idea without very careful consideration.
The Deputy is entitled to take that view. It is extremely important that the level of fines imposed is a genuine deterrent to people who habitually break the law. There are people who make a very calculated judgment and consider that even if they are caught it is worth paying the fine because they are making so much money from breaches of the law. The level of fines should be a genuine deterrent.
While I accept that the maximum penalties for indictable offences are as outlined here, perhaps we should consider it from another point of view. The jurisdictions of the various courts could be reviewed to establish the limits that should apply. I am quite sure that the Minister would utilise the maximum available to him. Perhaps the judicial system could be altered to gear up the maximum penalties to be imposed under their jurisdictions.
I am sure the intention of this provision is to bring all the old public limited companies into line and a nominal fine is called for in order to remind them. It is not a punitive fine, and I hope the Minister is not suggesting that we should have prohibitive fines, which is what The Workers' Party are suggesting, in every aspect of business. This would make it difficult for companies to continue in business. This is a very ordinary section dealing with the failure of a public limited company to re-register. I gather from the amendments tabled by The Workers' Party that they would have such prohibitive fines that it would be impossible to go into business at all. I would not subscribe to large fines in this area. I agree with the Minister that there should be serious fines in the case of habitual major breaches of the law, but not in this instance or in similar instances mentioned by Deputy De Rossa.
I have to agree with Deputy Skelly on this point. One might even have sympathy with a company who, having traded for many years and given good employment, find themselves having to go through a whole new procedure to re-register, which they never envisaged when they started their company, and possibly having to go out of business. These are not appropriate circumstances for a punitive measure.
I made the point to the Minister that we were not seeking to have the base fine increased, that we were seeking to take away the limit of £500 in the case of a cumulative fine of £25 per day. In other words, if a company having been found guilty of an offence and fined the maximum of £250 continues with that offence and continues to ignore the regulations we suggest that there should not be an upper limit on the fines they could accumulate if they persist in breaches of the regulations.
I made the point also that in our view the base fine was adequate for those in technical breach of the regulations, that only where companies persist in a breach of the regulations over a long period that the fine would accumulate. I do not suggest that fines on individuals should be treated in the same way as fines on companies that are in the business of making money. Clearly the capacity of an individual to pay will decide if a fine is punitive. Obviously a person earning £13,000 or £14,000, as we do, can pay a fine of £50 without any great dent in his pocket but a person on £25 a week — as is the case with many people — would find it very difficult to pay such a fine. I would not like to see fines treated in the same way across the board but I hope that a system of fines adequate to the situation would be applied in company law.
Is that not covered in section 8 which deals with the power of the registrar to strike a public limited company off the register? He has power to do that by sending a letter. I do not think an ongoing cumulative fine is necessary, given the complications of running a business.
Is the amendment withdrawn?
No.
Question: "That the words and figures proposed to be deleted stand" put and declared carried.
Amendment declared lost.
Section 13 agreed to.
SECTION 14.
Amendment No. 7 has been discussed already.
I move amendment No. 7:
In page 17, subsection (5), line 46, to delete "sufficient evidence until the contrary is shown" and substitute "conclusive evidence".
Amendment agreed to.
Section 14, as amended, agreed to.
SECTION 15.
I move amendment No. 8:
In page 19, subsection (10), lines 23 and 24, to delete ", but not exceeding £500 in total".
Question: "That the words and figures proposed to be deleted stand" put and declared carried.
Amendment declared lost.
Question proposed: "That section 15 stand part of the Bill."
In this section shareholders of various categories are given power to apply to the court for cancellation of a resolution re-registering, and the members of the company are provided for also. The workers of the company will also have an interest and the Minister might consider adding in a provision that no fewer than five of the employees of the company would have a right to apply for cancellation. Subsection (6) states that the court shall make an order either cancelling or confirming the resolution but guidelines are not given to the court as to the basis on which the court would decide whether a resolution could be cancelled or confirmed. I could visualise a judge having an application before him under the subsection and wondering the basis on which he was to decide whether it would be appropriate for him to cancel or confirm the resolution. Perhaps there should be some provision giving guidelines to the court on considering an application under that subsection.
With regard to the considerations to be taken into account by the court, I have no doubt that the justice hearing the case will get every assistance from the legal profession regarding what aspects should be taken into account. I do not foresee any difficulty in that respect. What was the other query raised by the Deputy?
I asked if it would be appropriate for a small group of employees to be in a position to make an application to the court to rescind? There are three categories of members who can apply to rescind the re-registering.
As I pointed out when introducing the Bill, the effect on employees will be minimal and future legislation, which I have described in some detail, would be the appropriate vehicle for the type of proposal the Deputy is making. It would come either under the aegis of the Fourth Directive or under the Bill dealing with domestic company law which I have outlined already.
Question put and agreed to.
SECTION 16.
Amendment No. 9 has already been discussed with amendment No. 6. Is the amendment withdrawn?
No. I move amendment No. 9:
In page 19, subsection (2), lines 41 and 42, to delete ", but not exceeding £500 in total".
Question: "That the words and figures proposed to be deleted stand" put and declared carried.
Amendment declared lost.
Sections 16 and 17 agreed to.
SECTION 18.
I move amendment No. 10:
In page 21, subsection (6), lines 30 and 31, to delete "sufficient evidence until the contrary is shown" and substitute "conclusive evidence".
Amendment agreed to.
Section 18, as amended, agreed to.
SECTION 19.
Amendments Nos. 11 and 12 are related.
I move amendment No. 11:
In page 22, subsection (1), line 4, to delete "£30,000" and substitute "£50,000".
I have already dealt with this point. I ask the Minister to reconsider his stated position that he does not see that the amount can be increased. In his reply on Second Stage, he stated that 20 per cent of companies were under £20,000 and that 25 per cent were under £30,000. Has he figures with regard to companies between £30,000 and £50,000?
I am sorry I have not that information. The figures I have relate to companies of £30,000, not £50,000. I can only say to the Deputy that I think the amount of £30,000 is appropriate at this stage but that I will keep the matter under review. There are provisions in the Bill where the amount can be increased by order if it is thought desirable to do this.
Amendment, by leave, withdrawn.
Amendment No. 12 not moved.
Section 19 agreed to.
SECTION 20.
I move amendment No. 13:
In page 23, subsection (8), line 24, to delete "effect" and substitute "affect".
Amendment agreed to.
Section 20, as amended, agreed to.
SECTION 21.
I move amendment No. 14:
In page 24, subsection (4), line 11, to delete "£500" and substitute "£5,000".
This is much the same case as was made with regard to fines.
Amendment, by leave, withdrawn.
Section 21 agreed to.
Sections 22 to 27, inclusive, agreed to.
SECTION 28.
Amendments Nos. 15 and 16 have already been discussed with amendment No. 4. Are the amendments withdrawn?
No. I move amendment No. 15:
In page 30, subsection (1), line 16, to delete "one-quarter" and substitute "one-third".
Question: "That the word proposed to be deleted stand" put and declared carried.
Amendment declared lost.
I move amendment No. 16:
In page 30, subsection (2), line 19, to delete "one-quarter" and substitute "one-third".
Question: "That the words proposed to be deleted stand" put and declared carried.
Amendment declared lost.
Section 28 agreed to.
Sections 29 to 32, inclusive, agreed to.
SECTION 33.
Amendment No. 17 was dealt with already in conjunction with amendment No. 6. Is the amendment withdrawn?
No. I move amendment No. 17.
In page 36, subsection (2), lines 48 and 49, to delete ", but not exceeding £500 in total".
Question: "That the words proposed to be deleted stand" put and declared carried.
Amendment declared lost.
Section 33 agreed to.
Sections 34 to 38, inclusive, agreed to.
SECTION 39.
Amendment No. 18 has already been discussed with amendment No. 6. Is the amendment withdrawn?
No. I move amendment No. 18.
In page 41, subsection (5), line 44, to delete ", but not exceeding £500 in total".
Question: "That the words proposed to be deleted stand" put and declared carried.
Amendment declared lost.
SECTION 40.
I move amendment No. 19:
In page 41, to delete lines 46 to 51, and in page 42, to delete lines 1 and 2, and substitute the following subsection:
"(1) Subject to subsection (4), where the net assets of a company are three-quarters or less of the amount of the company's called-up share capital, the directors of the company shall, not later than 28 days from the earliest day on which that fact is known to a director of that company:
(a) notify all employees of the company and their trade unions,
(b) duly convene an extraordinary general meeting of the company for a date not later than 56 days from that day for the purpose of considering whether any, and if so what, measures should be taken to deal with the situation.".
I feel that the Bill is defective in not making it obligatory on the company to inform the employees and their representatives of the condition of the company when it reaches a point when the assets are as low as indicated in the Bill. The Bill should at least do that in relation to the efforts which workers put into a company. It must be accepted, by and large, without the work force, a company would virtually not make any money whatsoever. The very significant part which workers play in any company should be recognised by the shareholders and the management of that company. As Deputy Barnes indicated the work force are, by and large, the last to know that a company are closing down. In some cases they are told on the Thursday or the Friday, when they collect their wage packets, they need not come in the following Monday. I appeal to the Minister to accept the amendment.
I recognise that the position outlined by Deputy De Rossa is a legitimate concern. However, it is important when we are dealing with legislation that we deal with it in the appropriate way. As I outlined at the beginning and have repeated a number of times during the passage of the Bill, this is not the appropriate Bill for that type of legislation. These provisions, particularly the one about the 50 per cent, were the subject matter of considerable discussion by the Joint Committee on Secondary Legislation of the European Communities. They thought it was important that it would be as in the directive, of 50 per cent, and that that would not be changed. I agree with them.
With regard to the question of disclosure of information to employees this is a major issue and I fully accept the concern that has been expressed. It is particularly important that it goes into appropriate legislation and is dealt with in an appropriate manner. The provisions under this directive are such that corrective action can be taken before a company get into too much financial difficulty and that a warning bell is sounded. This has to be done in such a way that the warning bell is not in fact the doomsday bell. If wider provisions were to be made under the provisions of this Bill you would precipitate the closure of a company which need not necessarily close. One has to take that into consideration and strike a balance between what people are legitimately entitled to know and be aware of and the dangers of extending it, particularly in a Bill which is not designed for that purpose, as would be the one under the Fourth Directive where disclosures of information would be the subject matter of that directive. While understanding what motivated the tabling of this amendment I feel not only would it be inappropriate to this particular Bill but if it were to be included under the provisions of this Bill it could be counter-productive and, in some cases, if it were to be accepted and implemented, it could precipitate the closing of a company which otherwise may not necessarily have to close. On that basis, I ask Deputy De Rossa to reconsider this.
I fully recognise the dangers which the Minister has outlined. However, I counter his argument on two points. First of all, the point at which these consultations are required to be held is when the net assets are at such a low level that it seems to me the dogs on the street would know that the company were in trouble without necessarily having formal notice of this fact being given to the employees and the shareholders. I am sure the Minister, from his experience, is quite well aware that employees from a very early stage of a company getting into trouble know precisely that something is wrong. They do not know necessarily what is wrong but they know something is wrong. Rumours fly and the morale of the work force falls to a very drastic level. This affects production and in some cases results in demands that the company make the staff redundant. The unsettling affect of rumours also gets the work force thinking in terms of getting out of the company as much as they can. That is not confined to the work force. Shareholders are also inclined to do that.
In the best interests of the company, in view of the very low figures which are incorporated in the Bill the work force should be brought in at the same time as the shareholders. It cannot be argued that the shareholders and the management operate in a vacuum and are completely isolated from the work force. If events are moving towards a situation where a company are in trouble the work force should know about this and they should be asked for their support in order to help the company instead of allowing the situation to deteriorate and the work force to be kept in the dark.
Deputy De Rossa's suggested solution would be akin to crying "wolf" at a very early stage. Increasing the figures would not help at all. Given that we are dealing with companies and extraordinary general meetings it would alert the officers of the company and the situation would become known outside the company. Rumour-mongering and calling in workers and trade unions at an unnecessarily early stage could destabilise an otherwise healthy company. For those reasons the section should not be altered.
This section is the least effective in the whole Bill. It has quite a few ambiguities. While I am not opposing this——
We are on amendment No. 19, is that right?
Yes, section 40. I have already stated my reservations concerning some aspects of this provision, but on close scrutiny it would appear that here is an attempt to provide a format of early warning——
Perhaps the Deputy would direct his attention to the amendment and when that is disposed of, one way or the other, we will come to the section.
I appreciate that. While the Minister is trying to envisage an early warning system whereby companies could deal with problems that could arise by way of financial collapse, at the same time one must see the wording. It is very difficult to know who the person would be who would assess when the net assets of the company would be less than half the called up share capital. Section 40(1) of the Bill refers to "the directors of the company after 28 days from the earliest day on which that would come to their notice". Who is to determine what the earliest day would be if the directors decide to leave it in abeyance until it suited them to convene the meeting? The subsection also states "the earliest day on which that fact is known to a director". One director could pass the buck to the other and effectively bring about a situation where they would not discharge their responsibilities against that section. I have already stated my reservations about the time scale involved. It seems peculiar that a director, presumably after consulting with his directors about the imminent colapse of a company, would have to wait 28 days, that he would be given such latitude before it would become incumbent upon him to call a general meeting. An extraordinarily long period of 56 further days could elapse. Is that so or do I take the Minister as saying on Second Stage in his response that 56 days would incorporate day one, or is it an addition——
No, from day one. The total is 56.
Is that absolutely clear in the wording as outlined in the section? It says "an extraordinary general meeting of the company for a date not later than 56 days from that day". From which day? Is it from the last day on which he might take the option to call the meeting? That would be after 28 days had elapsed if he so wished.
From the earliest day.
From the earliest day. I want to be absolutely clear on this. Even at 56 days I suggest that eight weeks is a pretty long time if it has suddenly been discovered by a director that the net assets have slipped and are half the called-up share capital. It is not a good way of providing an alternative whereby the directors could get together speedily to provide an alternative to the closure of the company. The thrust of that section as I understand it is to provide an option whereby directors can come together quickly and deal effectively with the company before it goes out of business. Further to that, while written in in a number of the other sections are the monetary penalties that might or might not be applied, section 40(2) (b) states that those who do not comply with the calling of these meetings to deal with the imminent difficulties of the company shall be guilty of an offence. There is no determination of what might be the extent of that offence or what penalties might be applied, monetary or otherwise, in regard to the offence. It is the weakest section of the Bill. The Minister might indicate to us a direct insertion in accordance with the directive, or is it a peculiar section of his own Department?
The Chair gets the impression that Deputies are dealing with the section. If that is so, the Chair would wish to dispose of the amendment now. Is the amendment pressed?
It is.
Does any Deputy wish to address himself to the amendment?
Deputy De Rossa rose.
I was on my feet.
I asked if any Deputy wished to address himself to the amendment.
We are dealing with the Companies (Amendment) Bill and auditors are bound to operate the Bill when it becomes law. Will they also be bound to apply the letter of the Act? That would be a control over the alerting of the company to this section.
Excuse me, I think the Deputy is dealing with the section. I want to dispose of an amendment——
That is the amendment.
——in the name of Deputy De Rossa and Deputy Mac Giolla.
That is the amendment. The amendment is dealing directly with that. That is the substance of the amendment we are talking about to which Deputy Flynn referred.
As the Chair sees it, the amendment proposes to strengthen the section, to enlarge on the section. It substitutes "three-quarters" for "50 per cent". That is how the Chair sees it.
And they wanted to reduce the time from 68 days to 28 days.
No.
I ask Deputies to bear with the Chair. The amendment must be taken before the section. The amendment changes the section by making it more severe. If Deputies wish to discuss that the Chair will hear them indefinitely on it but if not the Chair would wish to dispose of the amendment and then come to the section.
To finalise what I have to say about the amendment, I stress that it is important that the employees of a firm be treated at least on the same level as directors who may not even be living in the State. Such employees are at least entitled to know what is happening to the company where they earn their livelihood. I urge the Minister to reconsider his opposition to the amendment. I recognise that there are wider implications in this area and that he will be dealing with them in a more substantial Bill later in the year, but this Bill should not pass through the House without the contribution which the work force makes to a company being recognised to even this small extent, that they be at least notified that a company is in trouble at the same time as the shareholders and directors are notified.
As I explained, the principle which inspired the amendment is not one that I disagree with. I believe strongly in the right of workers in a particular concern to have access to legitimate information. I have explained that it is inappropriate to include that type of matter in this Bill. At the outset when introducing the Bill on Second Stage I said that it was one of a series of Bills and that this one had very little of the employee aspect in its content. The amendment which is proposed by Deputy De Rossa is not appropriate to this Bill. In the context of this Bill, I believe it could be counter-productive and could work directly against the interests of employees in a particular company. It is easy to envisage situations where a company could find themselves in financial difficulties but, if they take the appropriate action which they are required to do under this Bill, they may not be terminal. Under section 57 there are penalties imposed of £2,500 and two years' imprisonment for not complying with this provision. If we were to comply with the Deputy's amendment, it could precipitate the closure of a firm where without this provision, it might be able to weather a temporary storm. If we were to use the wrong vehicle to enshrine it in legislation which in principle I agree with, we could be doing a disservice not only to the legislation but to the people I accept the Deputy is trying to assist.
I did not intend to imply that the Minister did not agree with the principle of the amendment.
I accept that.
However, I am not convinced by his argument. The amendment seeks to raise the threshold at which notification would go out and, therefore, the company would not be in as bad a position as it might otherwise be if the Bill goes through as it stands. I still firmly believe that a company which brings the work force into their confidence in the early stages of financial trouble have a better chance of survival. For that reason, I wish to press the amendment.
Question: "That the words proposed to be deleted stand" put and declared carried.
Amendment declared lost.
Question proposed: "That section 40 stand part of the Bill."
I welcome this provision. I was tempted to speak on Deputy De Rossa's amendment because he was trying to do something in which we are all interested in doing but I feel he was not going the right way about it. The big problem is not just the relationship between the net assets of a company and the called-up share capital of a company but rather the application of this provision once it becomes law. What possible means has the Minister to police the system to ensure that directors abide by the provisions of the law? We are all aware of companies who find from time to time, that their debts exceed their assets.
The directors of most companies are responsible people who are concerned about the work force, the future of the company, the creditors and the goodwill of the company and act properly. However, there is no doubt that we also have companies that trade on a basis that is completely and utterly unacceptable. Although I welcome this provision, it does not go far enough because it does not provide teeth to anyone, other than creating an offence, which is too late because the damage will have been done at that stage. Perhaps the Minister could consider an amendment to the Bill on Report Stage to deal with this problem. I should like to give an example. A particular group of companies went into liquidation last October. The liquidator of the group of companies involved, Kerrigans, reported a short while later to the creditors who consisted of small public investors and not of business people who would be conscious of the dangers involved. The companies went into liquidation in October; in November the liquidator, Mr. John McStay, announced the appalling news to the creditors that the net assets of the company amounted to no more than £250,000 and that the liabilities of the company amounted to £1.25 million, showing an overall deficit of £1 million. The directors and proprietors of that company were clearly trading in a situation where one would certainly at the very least ask some very pertinent questions about the propriety of their so doing. If this law had been there in 1982 when this situation was developing in that group of companies, would this provision have stopped the carnage that was about to take place? I regret to say that this will not do that. What steps is the Minister taking to ensure that directors who do not abide by the laws of the land do not trade while they are insolvent? I admire the provision as it stands but is there any way the Minister can ensure that there will be some system of policing it?
There is a provision that people who trade without regard to calling the extraordinary general meeting that section 40 calls for, will be guilty of committing an offence. When is the person likely to be prosecuted? Is it going to be months and months after the company has collapsed? Is that of any use at all? There may be some point in sending someone to prison who has flouted the law but that is going to be of no benefit to creditors. Can someone who has been found guilty of such an offence start in business again and run the risk of doing the same thing? There is no provision in the section to prohibit a director who has been found guilty of such an offence from starting up another company, carrying on business and putting the public at the same risk as they were in the first enterprise. I have already mentioned the Kerrigan group of companies which are notorious because of the enormous deficiency of assets. I wish to express my grave concern at the fact that the two proprietors of that company——
Perhaps I should have drawn the Deputy's attention to this earlier but I do not think the Deputy should discuss a named company in depth.
I would take your point in ordinary circumstances but the newspapers are full of this at present.
The Chair is not responsible for what is in the newspapers but he is responsible for what is said in this House.
I will not name the company again. Inevitably we have to make statements in this House about companies, businesses, farmers or taxpayers. The vast majority of people are decent, law abiding citizens but if I must, in making a submission on a very important section of the Bill, confine myself to referring to companies or groups of companies without identifying a particular group that has been referred to in television programmes and newspaper articles I run the risk of giving the impression that every company director is liable to commit offences or does not behave himself in a responsible way. It is for that reason and not with any intention to cause difficulties, that I referred to the group of companies.
There is a general principle here that we do not attack named individuals who have not got an opportunity to defend themselves.
I accept that. The direction of my attack is not at any company or group of companies. It is at our regime, our company law and our bankruptcy law which allow situations like this to develop. I have made my point in relation to the company. The proprietors of a certain company which went into liquidation last October and showed a deficit of £1 million in their assets in the report of the liquidator the following month, have now actually started in business again at a time when the liquidator has not even determined——
I do not want to interrupt the Deputy. I know he feels strongly about this. This section is an advance warning section. I am sure the Deputy will be able to relate his argument to the section. He must do that.
It seems to me that the purpose of the section is to avoid collapses like the one to which I have referred, to protect creditors and to protect members of the work force of a company. I offer my comments on the Minister's aims and principles in that regard. In view of what I have said, and in view of the fact that there are many instances — and the one I have mentioned in particular — where somebody restarts in business before investigations are completed, would the Minister consider including in section 40 some prohibition on a person who has committed such an offence actually starting in business again? That is one point.
The second point is the one I made first. I want to come back to it because it is a most important point. How will the Minister police the system to ensure that directors abide by the law? The problem does not arise with regard to your average director, or anywhere near your average director. The problem arises with people who are unscrupulous and uncaring about the damage they may do to their work force or their creditors. We must remember that, while a lot of business is done with big business people who understand the risks involved, and who can take precautions and advice, there are also companies that trade with people who are innocent of the wiles of some businessmen and who do not understand the pitfalls and dangers they are facing. Those people require attention and protection.
It seems to me that this section, good as it is, does not go far enough. I urge the Minister to take steps to ensure that directors will, by some regime outside the mere obligation on them, take some steps voluntarily. We should have some system within the Companies Office, or in some Department, that will actually ensure that there is some task force or emergency force which can go to a company where suspicions or doubts have been raised and bring to heel directors who are already ignoring the provisions of the law.
In my speech on the Second Stage of this Bill I referred to some of the matters raised by Deputy Molony. I also said I wished the section had gone considerably further. In fairness to the section it must be said that very substantial penalties are provided in it for its breach. Presumably the intention of the section is that, after the passage of the Bill, a director will know that he is committing a serious offence involving a very substantial fine and a term of imprisonment and will be constrained to take the steps required by the Bill which he was not required to take hitherto. That may be the explanation of the case raised by Deputy Molony. The section is an innovation in that respect and it may be a sobering thought for any directors of companies.
I want to suggest two very slight amendments to the section which I ask the Minister to consider very seriously. Even though they are slight alterations they would make an appreciable improvement to the section. In section 40 (1) I would ask the Minister to add to the words "the earliest day on which that fact is known" the words "or ought to have been known". There are many directors who regard themselves as having the privilege of sitting on a board of directors and taking no interest in the company, being above it all except for the collection of the directors' fees as the cheques come in every six months or every year. They feel they have no obligation other than to be sleeping partners, just sitting there and collecting their directors' fees. If they are directors they have a responsibility to look into the affairs of the company. It should not be a let-out to a director, I submit to the Minister for his earnest consideration, to say: "I was a sleeping partner. I did not bother very much with the company. I did not know". The offence should be committed if his duties as a director required that he ought to have known. I urge the Minister to consider agreeing to the inclusion of the words "or ought to have been known".
I also suggest to the Minister that the words "known to a director" should be amended to read "known to a director or the secretary". The fact that the knowledge was with the secretary should bring this section into play as well. In many cases the secretary plays a key role in the administration of the affairs of a company. In section 6 responsibility is placed on the secretary as well as on the director where the word "officer" is used. A director or the secretary can bring about the commission of an offence under section 6. There seems to be no logical reason for excluding the secretary from this section. I ask the Minister to consider seriously those two alterations so that the section would read "the earliest day on which that fact is known or ought to have been known to a director or the secretary of the company".
Deputy Molony said the Bill was not comprehensive enough to deal with certain types of malpractice under company law. I accept that fully. I stated it quite emphatically when I was introducing the Bill. When I was replying to the debate on Second Stage earlier this afternoon I said the Bill enables us to comply with the Second Directive from the EEC and in that respect it is quite limited. I made it quite clear that I am determined to stamp out the type of practice to which the Deputy referred. It cannot be done under this Bill. It is more appropriate to legislation under the Fourth Directive, or domestic law in this area which is in the process of preparation in my Department and is at a fairly advanced stage. There is wide public concern about this area and I have already expressed my total determination to cut out that type of practice by people who could be described properly as legitimised confidence men.
Deputy Taylor raised the question of whether a director knew or did not know, and how we would police the legislation. In the balance sheet the auditor must draw attention to the fact that the companies are in financial difficulties and the extent of the financial difficulties and, when they have reached the limit provided under the Act, he must draw this specifically to their attention. I accept that there are people who draw their directors; fees only and do not have any other responsibility or interest.
Progress reported; Committee to sit again.