Dáil Éireann debate -
Wednesday, 19 Feb 1986

Vol. 363 No. 14

Companies (Amendment) Bill, 1985: Committee Stage.

Question proposed: "That section 1 stand part of the Bill."

Mr. Flynn

I thought that we might perhaps have had the pleasure of welcoming the new Minister to his portfolio but in the absence of Deputy Noonan, perhaps the Minister of State would convey to him our good wishes for a happy, if not a long sojourn in his new office.

We need to reawaken the interest of all concerned in this Bill which is still of the same importance as when we spoke about it on the last occasion. It will involve us in very considerable change in the whole area of company law. We will certainly need, in our consideration on Committee Stage, to gauge our contributions so as to provide the proper balance between the users of accounts and the need to avoid any very severe burdens on small industry, in particular. We hear much talk, from interested parties and in the House also as to the importance of small industries to the country.

An accumulation of paperwork scares off small businessmen and entrepreneurs, and it might be fair to say it has served as a disincentive to small enterprises in the past. We must be careful that by our actions here we will not put further workloads on small companies who do not have the administrative organisation, the trained personnel or office plant necessary to deal with the accumulation of data being sought from them by this legislation.

We must be careful that we will not increase the demands made on companies, but at the same time we must protect creditors, as we made clear on Second Stage. Creditors find it necessary to obtain information. We must remember that many creditors are small companies themselves and in the past they have found it difficult to get information on the status and the financing of companies. We must have a proper balance between the amount of information to be disclosed by companies and the need of creditors for information. We must also stress the need for secrecy and confidentiality. That has always been the hallmark of company law and we must do everything to protect it in future.

Mr. McCreevy

This is a very complex Bill. It would have been better to have a Bill like this referred to a select committee where it could be dealt with across the table than to try to debate it in Committee here. I understand from section 1 that all companies will be included, with certain exemptions and exceptions. That would mean that dormant companies would be subject to the sections of the Bill. A company could be set up, trade for a few years and then the directors might decide to phase it down or out, though maintaining the status of a limited company. They would be caught under this Bill. There must be thousands of such companies on file in the Companies Registration Office which were not required to prepare accounts but under this Bill they will have to submit accounts.

Before going very far in this section one would need to have a copy of the 1963 Companies Act. I understand that companies limited by guarantee are included in the Bill, but that unlimited companies are not. What is the reason for that anomaly? Perhaps the Minister would tell us also what is the position in regard to dormant companies?

Minister of State at the Department of Industry and Commerce (Mr. E. Collins)

This Bill will apply to all companies. Dormant companies will have to make returns annually and the prescribed penalties in the Bill will apply to them. The registrar can strike off dead companies, so to speak. The Bill applies to all companies.

Question put and agreed to.

SECTION 2.

Mr. E. Collins

I move amendment No. 1:

In page 4, subsection (1), line 21, to delete paragraph (a) and substitute the following:

"(a) a company not trading for the acquisition of gain by the members,".

This is necessary in order to secure the exclusion of companies which, while not engaged in trading for profit in the formal sense, might generate a surplus or profit through fund raising activities, etc., aimed at furthering the company's work. Under the amendment, the essential criterion for qualification for the exemption will be that the members of the company could not gain from the company's activities.

Mr. Flynn

We will have to question the Minister of State very closely on this. The Minister stated that the Bill would not apply to a company not trading for profit. Can the Minister tell us the reason for this rather strange collection of words in the first amendment? It says the section will not now apply to companies "not trading for the acquisition of gain by the members." Perhaps he is seeking exemption for genuine charitable companies who do not distribute money to their members and might not wish to do so. The amendment seeks to substitute a strange form of wording for a version which appeared to be straightforward, which referred simply to companies that were not trading for profit. I may have a suspicious mind in such matters, and I ask the Minister if he is leaving the way open for a different interpretation from what one would apply to the original wording. Is the Minister trying to confine the provision to certain types of companies? If so, he might indicate what they are.

Does this apply to interest income from companies which would not be trading but might be utilising investments in another way? We would like to know the reason why the Minister is attempting to alter the wording of the section in this way. Is he genuinely trying to narrow the field of companies that will not be covered by the Bill? If that is the case, he should say so now. Another subsection in the Bill covers companies engaged in work for charitable purposes only. We must be very careful when we are dealing with this type of section, which is a very important one. We must remember that information is a very valuable company resource and it should be protected except in unusual circumstances which should be clearly defined in law.

We must not allow a situation to develop where all information is disclosed, because that could be detrimental to employment prospects and further business development. We all know there are predators around in all areas of life but business predators are certainly not uncommon and they must not be facilitated by anything we do here. I would go for minimum disclosures and the maximum exemptions of the Fourth Directive to be put into law here. That is the best way to serve the business community in the long term, considering the fact that we are an open economy entirely dependent upon foreign investment for our larger job creation opportunities.

It is suggested that we might give the breakdown of individual markets and classes of business. This is very serious and deep information which was not heretofore available to the general public and to all and sundry. Whatever, about the general public finding use for this kind of information, I am sure that business predators will be very anxious to get their hands on this kind of classified information and we must be careful to do everything that is in the best long term interests of our business community and our economy. The kind of information being sought in the scope of this Bill will be of interest to more than the general public. It will be of great interest to business competitors both internally and internationally. Nobody will thank us for enacting something here if it results in loss of employment.

An Leas-Cheann Comhairle

Are you still on section 2, Deputy?

Mr. Flynn

Yes, the scope of the Bill. We will not be thanked if anything we do here results in loss of employment or in the liquidation of certain companies. We must be careful that any disclosures that are made as a result of this Bill will not give a wrong impression of solvency to people who might be doing business with some of our enterprises.

Would the Minister give us an indication as to why he finds it necessary to alter the wording of his originally published Bill? Perhaps he would give us a definitive answer as to what he sees as the scope of that section of the Bill.

Mr. E. Collins

I do not wish to get into contention with the Deputy. We are not on section 2. We are on amendment No.1. I do not wish to enter into a wider discussion on the question of confidentiality, on the question of divulging information either nationally or internationally. Amendment No. 1 is a clarifying amendment. It clarifies the original section 2 (1) (a). We want to make it quite clear that the essential criterion for qualification for exemption will be the fact that the members of the company cannot gain from the company's activity. That is the central reason for a grant of exemption. This provision excludes companies not trading for profit from the scope of this Bill. Such companies are specifically excluded from Chapter 2, Article 58 of the Treaty of Rome which forms the basis of the EC's harmonisation efforts in the area of company law and are not, therefore, within the scope of Article 54 (3) G of the Treaty upon which the Fourth Directive is based. The decision to exclude such companies from the scope of the Bill reflects a recognition of the special nature of non-profit making companies and the fact that the role of such bodies does not justify their being subjected to the stringent accounting requirements being applied to public and private limited companies generally.

I should say for the information of Deputies that the vast majority of non-profit making companies covered by the provisions of this subsection are public limited companies. Therefore, they are already obliged to file their accounts. This position will not change under this Bill. All that will happen is that such concerns need not follow the detailed accounting and other rules being laid down here for ordinary commercial concerns. I wish to assure Deputy Flynn that there is nothing sinister in the amendment. It is merely a clarifying amendment which I think should be welcomed by the House.

Tomás Mac Giolla

I would not share Deputy Flynn's fears that disclosure would lead to unemployment. I think it is the lack of disclosure that is already leading to closures and unemployment on a vast scale. I wish to raise a question in regard to the word "trading". Does this amendment not confine this to trading companies rather than including investing companies or companies involved in services? What is the legal meaning of the word "trading". If companies are "acquiring gain by the members" but are not trading companies are they not covered?

Mr. E. Collins

The companies we are exempting are not trading in the commercial sense. They are not trading either goods or services. We are talking here, for instance, about Alcoholics Anonymous, Chambers of Commerce, the Dublin Grand Opera Society. These are three types of companies which will be entitled to exemption. They are not trading companies in the sense of commercial trading. These are special exemptions.

Tomás Mac Giolla

That is precisely the point I am making. When we pass legislation here it is subject to the courts after that, and they can make hay of every word. I am just questioning the word "trading". Would a word like "operating" or "conducting their business" not be better? Once the word "trading" is mentioned you are confining yourself to trading companies.

Mr. E. Collins

I accept what Deputy Mac Giolla says. Every word here is subject to being passed by the Houses of the Oireachtas and subject to being challenged in the courts. I think the words "not trading" are sufficient in law and would stand up to a challenge in court in the context in which it is meant and defined in the Bill.

Mr. McCreevy

The purpose of this section is to exclude certain companies. I do not see the purpose of the Minister's amendment. Perhaps it is to cover some loophole that might turn up. Is it intended to exempt credit unions, co-operatives, building societies?

Mr. E. Collins

We are dealing here with companies incorporated under company law, not under the Acts governing friendly societies or co-operatives. They are mutual companies that are covered by different Acts. They are not the subject of this directive or the Bill before us. I should like to tell Deputy Mac Giolla that I am trying to improve the definition of the exempted companies. The words, "a company not trading for the acquisition of gain by the members", are quite clear and suitable. The company structures mentioned by Deputy McCreevy are not included in the Companies Acts and, therefore, the Fourth Directive, and the Bill before us, do not apply to them.

Mr. McCreevy

It is a flaw in the Bill that some of those bodies are not subjected to some form of registration here. I accept that the Minister said that the type of companies that will be covered by the amendment will be chambers of commerce, societies and groups like Alcoholics Anonymous, but I am not clear as to the purpose of the amendment. The phrase, "a company not trading for profit", I presume was in the original Bill while the Minister's amendment refers to a company not trading for the acquisition of gain by the members. In setting up a limited company it would not be impossible to draw up its objectives in the memorandum and articles of association in such a way that the company would not be trading for the acquisition of gain by the members of the company. The company could be trading but for the gain of others who might not necessarily be members of the company. In my view there are loopholes in the new definition that did not exist in the original legislation. I do not understand why the phrase, "a company not trading for the acquisition of gain by the members", is included or what it is supposed to mean I accept what the Minister said it was intended to do but I wonder if it will achieve that aim.

Mr. Flynn

The Minister said this went back to Article 54 of the Treaty of Rome.

Mr. E. Collins

Chapter 2 of Article 58.

Mr. Flynn

Will the Minister indicate which article in the directive specified the scope of the legislation? Is there any reference in the Fourth Directive to the scope of the legislation? The Minister mentioned that the company should not be trading in goods or services but I should like to point out that a company may be trading in money. Would the Minister regard money as "goods" or "services"? If I had a private family company and I was not trading in goods or services but making investments and so on with cash and gaining income from that would it be necessary for such a company to disclose its activities or will it be exempt as long as it satisfies the criteria of section 8?

It seems that the Minister intends changing the whole thrust and meaning of the section. Changing the word "profit" to "gain" has a significance. Some companies may have a gain but not necessarily a profit in the generally understood meaning of that word. The Minister proposes to change what was a comparatively easily understood sentence to a convoluted phrase about the acquisition of gain. The new phrase will change the tone of the section. I do not think it is necessary to include the words "by the members" except if the Minister is trying to restrict the scope for exemption that might otherwise exist in the Bill. Will the Minister explain this provision further?

Mr. E. Collins

The Deputy is somewhat confused. Article 58 of the Treaty of Rome grants such exclusions and, therefore, there is no need for specific reference to such exemptions in the directive. Article 1 of the directive specifies the companies to which the directive shall apply. The amendment rather than being restrictive is clarifying. I should like to bring to the attention of the Deputy the fact that the words used in company law here, in particular in the Companies Act, 1963, sections 24 and 377, are somewhat similar.

With regard to the Deputy's query about a family company I should like to point out that most dealings are done in cash. Charities operate on the basis of cash. We are not going back to a barter society. The Deputy is trying to convey that the family company he has in mind in one way or another, whether in dealing in goods or services, investments with cash or cash flow, is for the benefit of the members of the company. We are clarifying the exemptions by using terminology used in the 1963 Act. This is being done to avoid any difficulty that might arise at a later date.

Mr. Flynn

It appears from the Fourth Directive that we are concerned with Article 54 (3) (g) of the Treaty of Rome. Article 1 dealt with the scope and, as far as Ireland is concerned, it is stated that it will concern itself with public companies limited by shares or by guarantee and private companies limited by shares or guarantee. This section expands on that and because of that we must know precisely the companies that are or are not covered. The companies that are more important than any others are those that will have exemptions granted to them. They are the ones that accountancy firms and others involved in the preparation of accounts will have difficulty with unless the provision before us is made crystal clear. The original wording seemed to be adequate in that it conveyed that companies not trading for profit, whether goods or services, would be exempt. The Minister now finds it necessary to restrict that further by including the phrase "a company not trading for the acquisition of gain by the members". I find it difficult to understand why the parliamentary draftsman went to the trouble of altering what seemed to be a reasonably simple definition of scope and came up with a rather strange collection of words that is somewhat convoluted in its content.

Finally I should like to ask the Minister if we may take it that companies, private or otherwise and irrespective of size or makeup, not trading in goods or services or in money transactions or whatever, will be exempt from the scope of this legislation so long as they satisfy the criteria?

Mr. E. Collins

The Deputy is correct since he has included those last few words. Bartering is now a substantial element of international trade and can involve substantial profits. Exemption is based on Article 58 which is the general governing article for Chapter 2 while Article 54 to which the Deputy refers is the source of this directive.

The original wording was "a company not trading for profit". It might very well be that a company not trading for profit could make a profit which would not be distributed to the members. We are being precise in allowing the exemption and in using the phrase, "a company not trading for the acquisition of gain by the members". That phrase has much greater authority than the original and is definitive in terms which will satisfy the Treaty of Rome and which will be suitable for the operation of this Bill.

Mr. Flynn

Would the Minister say that this is a more generous interpretation of the original wording?

Mr. E. Collins

It is neither generous nor mean in interpretation. I regard it as having more clarity.

Tomás Mac Giolla

We have spent a lot of time on this and I cannot understand Deputy Flynn's problem. Surely he knows that though a company may not be making a profit, that they may be making a loss, the members could be acquiring gains continuously, particularly during a time of recession. The Deputy must be aware of companies that are operating in this way. The current wording is much clearer than the phrase "trading for profit" and makes it obvious to everyone as to what is meant.

Mr. Taylor

I am at a loss to understand the Minister's amendment. I am wondering whether it may be possibly a loophole that would enable companies to escape the liabilities intended for them, restricted as they are within the terms of the Bill. This amendment excludes a company "not trading for the acquisition of gain by the members" but no company set out to acquire gain in the first instance, at least not for their members. They acquire gains for the company. There may be a company who decide to put their gains into reserves or there may be companies who have not paid dividends for a very long time, perhaps not at any time during up to 40 years in existence. Such a company might argue that they did not have to make the disclosure because they were not trading for the acquisition of gain by the members. The primary purpose of a trading company is to acquire gain for the company and the disposition of those companies might be not to distribute the gain to the members. In a very major trading company there could be a clause in their constitution to the effect that the profits would have to be reinvested or accumulated for an indefinite period. Such a company might escape the liabilities under this Bill. May we be informed as to what exactly is behind the amendment and what categories it is intended to exclude from the original wording?

Mr. E. Collins

I fail to recognise the thrust of Deputy Taylor's argument. A company is formed by members for the purpose of gain by those members. Whether in pursuit of that objective the company accumulates and retains the profits until the next generation or the generation after that is irrelevant. The exemptions I am seeking are defined clearly in the amendment, that is, that the company is not trading for the acquisition of gain by members. Therefore, I am being precise in what I say.

Tomás Mac Giolla

Would we not be solving a lot of problems by using the words, "not trading for profit or the acquisition of gains"?

Mr. Flynn

We should not leave profit out of it anyway.

Mr. E. Collins

The words, "surplus" or "profit" are regarded as gain in any accounts certified by an accountant. I cannot escape some form of wording to denote profit. The wording we are using is specific in that none of the members of the company can gain from the moneys generated by the company so far as the exemption is concerned. Deputy Taylor was not here when I gave as examples such organisations as chambers of commerce, the DGOS, the Wexford Grand Opera Society, Alcoholics Anonymous and so on.

Mr. Taylor

Perhaps I might highlight the point by putting my problem to the Minister in the form of a question. What would be the position in the case of a company who included in their memorandum of association a clause prohibiting them from making a distribution from their profits to their members? This would be by way of a straight prohibition in the memorandum of association in such wording as, "this company may not make a distribution of their profits to the members". In that sort of situation the company would say they were excluded, that they were obviously not trading for the acquisition of gain by the members because the memorandum of association prohibits the redistribution of any profit to the members. Can the Minister say whether such a company would be excluded from the provisions of this Bill?

Mr. E. Collins

The answer is that a company as defined by Deputy Taylor would not be exempted from the provisions of the Bill. This is because, irrespective of the prohibition on profits to members, in the event of the liquidation of a company, for instance, there would be a gain to the members on the distribution of the assets of the company. In the period of life of the company the accumulative profits or surpluses would mean that the shares would be worth more on an ongoing basis so there would be gain for members both on an ongoing basis and on the basis of a liquidation.

Mr. McCreevy

It would not be beyond the ability of a good solicitor or barrister to set up a company in a way which would ensure that in its objectives and articles it would not be trading for the acquisition of profits by the members. As the Minister would know, in the setting up of a company the memorandum of association sets out the broad objectives of that company. It would not be beyond the minds of many people to so devise the memorandum of a company as to exclude the possibility of the profits or gains ever being distributed to the members.

I follow the Minister's point that in the event of a company acquiring a gain and then going into liquidation the gain would accrue to the members and that in that way the provisions of the Bill would apply to them, but if the company are successful that will not happen. The use of the phrase, "a company not trading for the acquisition of gain by the members" is a very narrow definition. We could argue about this all night. Deputy Mervyn Taylor backs my point that it would be possible to define the memorandum and objectives of the company in such a way that there would not be a gain by the members. They may be able to get directors fees etc., but it could be worded in such a way that it would not be possible to get exemption under this Bill. The new wording is looser than the old wording and I do not see the point of this amendment. That wording would be open to interpretation by the courts in the long term but what I have described might be the case.

Mr. E. Collins

The members can make a gain even though the company are not making a profit over a period. There may be an increase in the value of the assets. I do not accept what the Deputy says. It is up to the registrar of companies to decide whether a company is a bona fide exempted company. Most of these companies are public companies who must publish their accounts and if the registrar of companies feels that the activities of the company are not exempted activities he may take action at law to have the matter determined.

Mr. Taylor

I take the point being made by the Minister. It is a debateable point. One could argue that a court, if it came to deciding whether a company that had a prohibition such as I have described would be looked upon as trading for the benefit of members for the possibility of a liquidation at some far distant point, may hold one way or the other on that. Likewise, so far as the value of the shares is concerned. I doubt but it is arguable, whether the Minister's amendment would encompass the suggestion where he would gain by an increase or reduction in the value of the shares. That need not necessarily be clearly defined. In formulating this Bill why can we not have it beyond doubt? We do not have to engage in argument or debates as we are making the law, so why not make it so clear as to be beyond doubt rather than leaving it to lawyers and accountants to debate it later, at considerable cost? Now is the time to make it clear. It should not be beyond our wit to find a suitable wording to put the matter beyond doubt.

Mr. E. Collins

I am satisfied that the words are clear. After all, the company about which we are talking must——

Mr. Taylor

Many Ministers said that on points in a Bill and the Bill ended up in the Supreme Court.

Mr. E. Collins

That does not absolve me from coming into the House and putting down a Bill in a format which I have been advised is the correct format for the Bill. Every company will have a memorandum and articles of association and it should be clearly defined in them that, they will not be trading for the acquisition of gain for members no matter what wording is used. It is on the basis of that, that a company will operate and that a company will be exempted. It will also be on the basis of the reading of the memorandum and articles that the registrar of companies will ultimately allow a company to be exempted or will challenge an exemption in court.

Mr. Flynn

The Minister should not be cross with us. We are not trying to be negative. When a Minister seeks to alter what he has originally published and makes it more difficult to understand, it is natural for Members to seek to find the basic reason for the alteration. As originally drafted, everybody understood "trading" simply to mean doing business for profit and it was easy to interpret it. A company not trading for the acquisition of gain, even if it had "for the members" would intimate that the gain was being made by the trading company for the benefit of its members. If one were to take a literal view of the words it could mean a company not trading by the members. It is very rare that the members would be actually carrying out the trading for the company. The company would be carrying out business on behalf of its members. The actual wording of the text is open to different interpretations depending on where one lays the emphasis. My original objection stands good. This is an unusual collection of words framed in a peculiar way. The word "by" as against "for" definitely has a distinct difference of interpretation when one places the emphasis on "by the members" or "for the members". "By the members" signifies that business is being carried on by the individuals, the members of the company, but in normal understanding of trading it is always understood that a company carries on business for the purpose of making profits and gain for the benefit of the members. It is certainly for the members, if the articles of association permit that when they are being drawn up. At least, this amendment has confused the original interpretation that could have been put on the published text. With that in mind, it is worth the Minister giving us a commitment to refer this back to the draftsman to see if the understanding we have put on it could be applied to it, which would end up in very serious expensive litigation on behalf of individuals hereafter. We will not be thanked by the business community if we leave them in that difficulty.

Mr. McCreevy

I greatly appreciate what the Minister intends to do. However, this definition is particularly loose and it should be made clear here rather than having it contested in the courts at a later date. We know what the Minister intends. Perhaps the draftsman could come up with a better definition. However, this definition is open to different interpretations. The Minister's amendment says "for the acquisition of gain by the members". I can conceive of a situation where it might not be the members of the company who would benefit. The members of the company are the shareholders but they are not necessarily the directors of the company. There are various schemes where the members of a company might not benefit as they might not be intended to benefit. A devious man could draw up a limited company, have certain members such as myself and perhaps Deputy Flynn and Deputy Taylor who are all the time pumping money into this company and it would not be the members who would be gaining and the company might not necessarily trade either. One could think of a whole lot of situations which would prove this definition to be particularly loose. It is a very narrow definition. Will the parliamentary draftsman look at the wording again for Report Stage? We all know what the Minister intends to do and we accept that without any equivocation but perhaps it could be tightened up. If it cannot I will accept the advice available to the Minister.

Mr. E. Collins

I will have another look at the matter. I am satisfied that as drafted the amendment clarifies matters. I should like to draw the attention of Members to section 24 of the Companies Act, 1963, which refers to limited company formed for promoting commerce, art, science, religion, charity or any other useful object and that intends to apply its profits, if any, or other income, in promoting its objectives. Under the original wording in section 2 (1) (a) such a company could not be exempt even though that is our wish. It is to clarify the means of exempting the company that, on advice, I have changed the wording to, "a company not trading for the acquisition of gain by the members". It strengthens the point, not weakens it. However, in view of what has been said by speakers I will look at the matter again.

Mr. Flynn

I do not think section 24 of the 1963 Act referred to that matter. It dealt with licences granted so far as charitable and other companies of that kind were concerned. The Minister might very well hit on the proper wording by joining his amendment to the original text. I suggest something on the lines of, "a company not trading for profit or gain for or by the members". That might cover both aspects.

Mr. Taylor

What would be the position if a company stated it was not trading but was investing? Is there not a distinction between a trading and an investment company?

Mr. Flynn

We discussed that matter before the Deputy came into the House. However, the response was unsatisfactory.

Mr. Taylor

The point I am making is that an investment company would be excluded and I do not see why that should happen.

Mr. E. Collins

Why should an investment company be exempt? If in the memorandum and articles of association it is defined as being established to trade in investments for the benefits of its members, automatically it is not exempt.

Mr. Taylor

If the memorandum confines the company to investment and prohibits it from trading, it is clear that it would be exempt. There is a distinction between an investment company and a trading company. We have to think in advance of all the schemes the accountants and tax lawyers will get up to to avoid what we are trying to do here. An investment company is formed with the memorandum and articles of association restricting it to investing and prohibiting it from trading. The question arises; what does it invest in? It invests in a subsidiary, in a trading company, and thereby the company gains the benefits of exclusion from the provisions of this Bill. Should we not take cognisance of this fact?

Mr. McCreevy

It could be an investment holding company that might not necessarily trade in investments. There are plenty of such companies.

Mr. E. Collins

The word "trading" is used in its generic form. If the articles of association and the memorandum define the company as trading, whether it be in goods, services, barter, investment, dealing in land or whatever, it is trading for the benefit and profit of its members. Investing is trading.

Mr. Flynn

Not necessarily so.

Mr. E. Collins

In a general commercial sense it is trading and I think that would be upheld in law. I will be glad to look at the matter again but I am quite convinced that the definition in the articles of association and the memorandum of a company will define clearly whether it can or cannot be exempt.

Mr. Flynn

While there may not be as many Deputies in the House to discuss this matter as we would wish, nevertheless this legislation is being viewed very carefully outside the House because it affects business transactions and economic life.

Mr. Taylor

The Deputy thinks it goes too far and we think it does not go far enough.

Mr. Flynn

Of course. I put down that marker at the start so that nobody would be in any doubt where I stood. I want the minimum disclosure and the maximum confidentiality in all these matters and as long as we understand the ground rules of where each of us stands we will not have any difficulty. I take it that the companies concerned will be those referred to in section 128(4)(c) of the 1963 Act? That is covered by Article 44 of the Constitution. Can the Minister say how many of these companies not having share capital are registered in the Companies Registration Office?

Mr. Taylor

Is the Deputy talking about guaranteed companies?

Mr. Flynn

I am talking about religious organisations as covered by Article 44 of the Constitution.

Mr. E. Collins

I do not have information with regard to the number of companies. I understand there are not many, but I will have inquiries made and will give the Deputy the information on the next occasion.

Mr. Flynn

Perhaps the Minister would include also the number and names of those excluded?

Mr. E. Collins

I would be slow to give names.

Mr. Flynn

I should be glad of the information if it does not cause the Minister any disquiet. Perhaps he will also include those dealt with under section 128 (5) of the original Act. I take it that deals with the Commissioners of Charitable Donations and Bequests. I should like to know how many there are.

Mr. E. Collins

There are 22.

Mr. Flynn

Is that an increasing number, or is it on the decrease because of the commissioners not renewing the licences?

Mr. E. Collins

That is correct.

Mr. Flynn

Does the Minister envisage eliminating that subsection entirely in the foreseeable future?

Mr. E. Collins

I will not do away with it in the foreseeable future. I gather the licences may not be renewed over a period.

Mr. Flynn

If they are not renewed the companies will have to be registered in the normal way. Will the Minister tell us what type of company is envisaged, trading or otherwise?

Mr. E. Collins

I could not say.

Mr. Flynn

If the Minister is not prepared to renew the licences——

Mr. E. Collins

It is not I who renews the licences. It is the Commissioners of Charitable Donations and Bequests.

Mr. Flynn

This is important because on Second Stage the Minister stated that the number of licences granted by the commissioners was on the decline. On behalf of people who have had the advantage of the exemption under the 1963 Act, I suggest that at least they might be told under what heading or company name they might now be eligible to apply.

Mr. E. Collins

If a licences is given by the commissioners, a company of whatever type is allowed to operate under the Companies Act. The licence is one given by the commissioners stating that it is a charitable company. If they refuse to give it, the company is an ordinary company and must comply with the companies Act.

Mr. Flynn

There will be no restriction once they are satisfied that it is for charitable purposes. There are a certain number of entities under the old 1963 Act which have carried on business for many years for charitable purposes, although they have no share capital. The distinct impression is being given that this is to be terminated or reduced in scope. There has to be a reason. Is it suggested that perhaps these companies are not now carrying on business for the purpose for which they were originally granted the order, namely, for charitable purposes? That would have a great bearing on the standing of these charities and would also imping on the question under Article 44 of the Constitution which guaranteed them exemption in these matters as long as they carried on their business in accordance with the laws and canons of their religion. This is a reference in the Minister's Second Stage speech which needs to be clarified.

Mr. E. Collins

The simple answer is that if the company does not qualify under section 2 (1) (c), it may qualify under section 2 (1) (a) or section 2 (1) (b).

Mr. Connolly

"May" is not good enough. The wording is wrong. It must be positive.

Mr. Flynn

Certainly it could not qualify under section 2 (1) (b). I would be very concerned if the Minister were suggesting that if an order allowing religious organisations to carry on business were being terminated they would be asked to re-register as trading companies. If they were forced into that bracket there would be a very serious conflict of interest as far as they are concerned.

Mr. E. Collins

There is no intention of asking these companies, if the commissioners do not give them a licence, to register as trading companies. That is not my intention.

Mr. Flynn

They are not necessarily bound to do it.

Mr. E. Collins

No.

Mr. Flynn

How can they continue to get their exemption?

Mr. E. Collins

If they are not trading for the acquisition of gain by the members, would not that qualify them?

Mr. Taylor

What is so special about hire purchase companies that they should be excluded from the provisions of this Bill?

An Leas-Cheann Comhairle

Is that relevant to the Minister's amendment?

Mr. Taylor

I understand we are on the section.

An Leas-Cheann Comhairle

No, we are on amendment No. 1 in the name of the Minister.

Mr. Flynn

The Minister gave an undertaking that he would ask the draftsman to have a look at the wording and he might take on board the wording suggested by me.

An Leas-Cheann Comhairle

We are dealing with the amendment, not the section.

Mr. E. Collins

I have given an undertaking to have a look at it.

Amendment agreed to.

An Leas-Cheann Comhairle

Amendments Nos. 2 and 3 in the names of Deputies Mac Giolla and De Rossa are related and can be taken together by agreement.

Tomás Mac Giolla

I move amendment No. 2:

In page 4, lines 26 and 27, and in page 5, lines 1 to 14, to delete subsection (2).

The terms of this Bill exclude almost all financial institutions such as banks, trustee savings banks, hire purchase companies etc. These financial institutions form a major part of our companies and account for a major part of our workforce. The top 30 financial companies employ 34,000 people. That is a very sizeable amount of the workforce and they form a sizeable part of our economy. The only reason for their exclusion is that they are not included in the EC directive. The Minister has taken the attitude that we cannot do anything on our own initiative but only what we are directed to do by the EC. This directive is years old and we should have adhered to it at least five years ago.

The only reason the financial institutions were not included in the directive was that a separate directive was being formulated for financial institutions since they are such an important part of economic life. Even more information would be required from them than from ordinary trading companies. They are in fact the very institutions which hold a grip on the economy and decide the future of other companies as well. During the past few years they have been pulling the carpet from under other companies. Last year 440 companies went to the wall, mostly because they were in the grip of financial institutions who pulled the ground from under them and their workforce. There should be even more restrictions on these companies in regard to the furnishing of relevant information. Everyone is afraid to touch the banks——

Mr. Flynn

Except the Government. They robbed them twice last year.

Tomás Mac Giolla

They might be a bit prejudiced but certainly as far as AIB were concerned the Government bailed them out on the ICI deal and then allowed them to make the biggest profit of all time — a profit of £84 million, £30 million ahead of the Bank of Ireland, in the year when they had their greatest disaster.

Mr. Taylor

Their shares are shooting up.

Tomás Mac Giolla

What we are talking about here is the disclosure of information. The Minister's attitude is that since he is not being forced by the EC to do something, he should not do it. I do not accept that. A number of banks have gone bust during the past decase, as have a number of hire purchase companies. The ICI is a major company which only last year would have gone to the wall but for Government intervention with AIB. Deputies, the public and the workforce, the people entitled to information, still do not know what happened.

The PMPA and the PMPS are other examples. The people who had invested money in the PMPS still do not have information as to what happened to their money. People want full information in regard to their accounts. It is their money and does not belong to the banks or the directors or the people at the top, yet they are not entitled to information as to what is being done with it, the companies in which it is invested or whether it has been thrown away. The people employed in these companies and the investors, all the people involved, are entitled to the fullest disclosure of information. At least they should be entitled to the minimum amount of information which this Bill is asking any company to produce.

This amendment seeks the deletion of the first exemption but, as I pointed out on Second Stage, when all the exemptions are taken into account we will be left with only about 100 companies who will be affected out of a total of perhaps 75,000 companies. Deputy Flynn does not have to worry in the slightest or hold up the passage of this Bill because it will be totally ineffective if it is passed in the form in which it has been presented to us. This is the first exemption I am asking the House to delete from the Bill. This is the exemption in relation to financial institutions. They are excluded without giving any adequate reason. The Bill states:

(a) a company that is the holder of a licence under the Central Bank Act, 1971,

(b) a company that is a trustee savings bank certified under the Trustee Savings Banks Acts, 1863 to 1965,

(c) a company engaged solely in the making of hire-purchase agreements ...and credit-sale agreements...

Surely everybody wants to know what is happening in relation to hire purchase? Every home in the country is glued to the ground with all sorts of hire purchase agreements and credit sale agreements. The section further states:

(d) a company engaged in the business of accepting deposits or other repayable funds or granting credit for its own account.

There is no explanation why all these are excluded. As I understand it, the only reason they are excluded is that the Minister is not forced to include them but he is not forced to exclude them. I ask him to look again at this wide exemption and, unless he has particular reasons for exempting particular areas, whether banks or hire purchase companies, apart from those not being excluded in the EC directive, I consider that subsection (2) should be deleted.

Mr. Taylor

There used to be a theory years ago that financial institutions such as banks, insurance companies and so on were the blue chips of the stock market world, that they were sacroscant and were comparable almost with investing in Government stocks, that they were absolutely safe and nothing ever went wrong with the financial institutions and the insurance companies. That was the historical context in which these financial institutions, banks and so on, got this specialised treatment they have had over the years so far as disclosure was concerned. Perhaps that applied in Victorian times, because I do not believe banks went broke then. The hard fact is that they do now, and they have been causing trouble not only to their investors, their shareholders and depositors, but also to casual members of the public who have been unfortunate enough to have to deal with them.

We have seen cases where it is the unfortunate taxpayer at the end of the day who gets caught now and has to carry the tab, as Deputy Mac Giolla has pointed out. We have seen what has happened in relation to the ICI, the PMPA, the PMPS and so on. The old historical reason for giving this special exclusion from disclosure to most of these institutions has gone through experience. I believe we should recognise the fact that there has been substantial change. For the life of me, to exclude hire purchase companies is something I cannot understand. What is so special that a hire purchase company has to be excluded from the disclosure provisions that apply to every other trading company? Many of them are not of the highest standards. Hire purchase transactions can involve all sorts of things. They can involve relatively small household durables or they can involve very substantial transactions in complex machinery. Some hire purchase transactions could run to a cost of £50,000 and £100,000 in relation to a machine.

When a person, a firm, or a trading company who are giving employment do a deal with a hire purchase company they are entitled to know who they are dealing with and what is the financial strength of that hire purchase company. If anything goes wrong, or if it turns out that the goods, the machine or whatever they have bought are defective, or if the hire purchase company go broke those people will be left in an appalling situation and abandoned without any remedy or comeback. The answer normally given to somebody who finds himself in that situation is that it is his own fault for dealing with a dubious company of that nature, that he did not check it out properly to find out the strength of the firm he was proposing to deal with. When the exclusion is given here the Minister is prohibiting him and denying him the possibility of finding out that information which normal business prudence requires him to do, to check out what is the strength of that firm or financial institution he proposes to do his business with. He is entitled to know the strength of the particular business institution. It is potentially dangerous and potentially serious for employment in many of these companies if they cannot find out who they are proposing to do their business with. It is a serious matter so far as the taxpayer is concerned because the experience seems to be, in many cases if not all, that when these financial institutions go it sends reverberations through the financial system of the country and at the end of it all the taxpayer has to pick up the tab.

The same is the case in relation to deposit institutions where people put their savings on deposit. We know what happened to the many unfortunate people such as the small savers who put all their money into the PMPS. Are savers henceforth in financial institutions to be denied the possibility of finding out if they will have to suffer what those unfortunate people suffered with the PMPS? Those things should be open.

I take the point that small savers would not have the knowledge or expertise to go along and examine the accounts anyway to advise themselves on the strength of where they were going to deposit their hard earned savings. Nevertheless, there are financial media, newspapers and people who do those things for them, examine those situations and write about them in newspapers, periodicals and so on so that intending savers can have the benefit of an examination of their accounts. It would be a great mistake if we got caught on the old historical base that just because there was this traditional aura about banks and the insurance companies being something very special and exempted them. To say that that situation has gone on unchanged over the decades is not correct. There have been very real and very serious changes in those institutions as the years have gone by to the cost of all taxpayers, not to talk about the cost to people investing there, or people involved in trading with those institutions.

We have a new position now. We had unfortunate experiences in the recent past. We should learn from that and not get carried along on the old historical base. We should take cognisance of the new position which applies and bring in our legislation to take cognisance of that. Whatever one says about banks, hire purchase companies and companies dealing with credit sales that require no licensing and no checking out of any special nature, as I understand it, and give them an exemption, I cannot see what there is about them which warrants that kind of special treatment.

Mr. McCreevy

I agree generally with what Deputy Mac Giolla and Deputy Taylor have been saying in relation to banks and the aura in relation to them which we should get away from. From my reading of the section and of the amendment put forward by Deputy Mac Giolla I believe we are talking at cross-purposes. As I understand it, Deputy Mac Giolla's amendment proposes to delete sections 2 and 3 of the Bill. Section 2 does not exempt banking companies, hire purchase companies or any other such companies from publishing information under this Bill. All that section 2 does is to provide that they do not have technical accounting requirements. I think we have been at cross-purposes for the past while, but I understand that the effect of section 2 will be only the non-application of a number of sections. Sections 3 to 6, 8 to 12, 17 to 19 and 23 of this Bill will not apply to banks, trustee savings banks, hire purchase companies etc., but all other provisions in this Bill will apply to these types of companies. Therefore, for the first time ever private banking companies will have to publish their accounts. I understand exactly what Deputy Mac Giolla and Deputy Taylor have said, but this section will have an effect opposite to what is not there at present. At present private banking companies etc. do not have to publish their accounts. They will have to do so now, and the effect of this section is to exempt them from certain technical accounting measures which would not necessarily apply in the case of banks etc.

Tomás Mac Giolla

Why not?

Mr. McCreevy

In certain ways normal banking accounts and certain insurance companies' accounts are not done in the same format as that of a fellow running a factory down in County Kildare. They are laid out in a certain format provided for under various Acts, but section 2 will provide that private banking companies will have to publish their accounts for the first time ever. They have not had to do so up to now.

I have certain things to say about the section in general, but Deputy Mac Giolla's amendment would make it impossible in accountancy to do certain things. I understand that in any event there will be a future directive regarding the format of banks' and insurance companies' accounts. The section is only exempting these companies from particular accounting requirements which would not apply to them in any event. I do not think that the amendment should be accepted in that regard.

Mr. Flynn

While we can all understand Deputy Mac Giolla's anxiety, it is typical of him. He has these ideological hang-ups which he trots out here at every available opportunity is so far as banks and so on are concerned. I do not know why he has such a grudge against the banks and financial institutions. I like to think that they have served the community well over the years. The banks never took on board the limitation of disclosure that was available to them under the 1963 Act; in fact, they discarded that very substantially over the years and in the last five years they published the most exhaustive detailed accounts for the general public. I cannot see what Deputy Mac Giolla is getting all steamed up about.

I would like to take the opportunity of asking the Minister whether he can clarify once and for all that these institutions, banks and insurance companies are liable to publish their accounts and that separate directives will emanate from the EC which will cover these institutions in particular and that before too long we will all be back in here with very extended, detailed legislation covering these institutions on their own? If that is the case it should be put quite clearly. As I understand it, over a number of years we have been treated twice a year to the most detailed summaries of the banking position in the public press. They have been very generous in the amount of information they have given to the public at large about their investments and deposits. I ask the Minister if the formats are designed for application to company disclosure as outlined in the Schedule to this Bill? Would they be suitable to the information on such entities as financial institutions? I suggest that they are not and that this should be stated clearly.

This perhaps is one reason why separate directives will be necessary to deal with banks and institutions. I am not seeking to do the Minister's job for him, but I understand that under existing company law and in particular under the principal Act of 1963, these institutions file accounts with the Companies Registration Office, but it would be very difficult for them to follow the formats as laid down in this directive. They are not obliged to follow specific technical accountancy practices and presentation measures which are being applied to other companies under this legislation. I have no difficulty in accepting that the time will come in the near future when the matter will be dealt with in so far as these other institutions are concerned. I cannot support Deputy Mac Giolla's amendment.

Mr. Connolly

I want to clear up a few points in regard to insurance companies. I spent most of my young days with a very eminent insurance company. Under the present law and regulations the Minister has very far reaching powers in regard to these. They must produce audited accounts. The Minister can investigate them or order an investigation under the present Act.

Far be it from me to defend any bank because I would be on a loser if I tried to do so anyway, but we must get the thing right and put it into proper perspective. What would the position have been if the AIB had not taken control of the Insurance Corporation of Ireland in 1983? They had only a small share at that time and they could easily have walked away, and maybe it would have been left to another group of individuals. What then would have been the position of the Government of the day? We all know what the position would have been. You might have sung then that the blue book would be brought into operation in the insurance companies in a most detailed form. We would have found ourselves in some opposition then.

We and the taxpayers have been fortunate so far — I must say that — that the AIB were in a position to pump millions of pounds to rescue that corporation and put them on a proper footing. We must point out very clearly that insurance companies, all of them, operating in this country under licence now, can be investigated periodically or whenever the Department of Industry and Commerce feel that that should be done. It is their job to monitor and to see that accounts are brought up-to-date. After a long debate here some time ago in regard to the ICI we on this side of the House spelled out that more personnel should be brought into the Department to monitor insurance companies to see that their accounts and so on are in order.

I want to deal with the subject of the hire purchase companies which was brought up by Deputy Mac Giolla. We must remember that new tractors, cars and machinery which are purchased are under warranty. This is necessary under the Trading Act. Everybody knows also the credentials of the hire purchase companies operating here. They are very choosy as to who they take as customers. They take no duds, but the cream. Let there be no doubt about that. They also produce accounts.

In the final analysis, our banks give very detailed information. We are very glad of that because they hold the money of the people and the people are entitled to know about them. I am glad that we are now getting that information. I want to clear a few matters with regard to the insurance market in which I worked for, a great number of years. If there was laxity — and I say if — it was probably because the companies were not monitored more closely and the supervisory authorities in the Department were not in a position to examine the matter fully. It was in the underwriting departments that these companies fell down. I am telling the facts.

Mr. E. Collins

That is not on the Bill.

Mr. Connolly

I was in this business and knew it like the back of my hand.

An Leas-Cheann Comhairle

Would the Deputy keep to the matter before the House?

Mr. Connolly

I presume that in a further Bill some amendments will be brought in with regard to banks, insurance companies and other institutions.

Mr. E. Collins

I would be quite happy to have a discussion on that, but it is not on the Bill. I am sure the Deputy is an expert in this field.

An Leas-Cheann Comhairle

The Minister to respond.

Mr. E. Collins

The proposed amendments amount to the deletion of subsections (2) and (3) of section 2. They provide basically that the detailed accounting roles in the Bill will not apply to banks, certain financial institutions and insurers. There are good reasons for these exclusions. The rules in the Bill are not designed for application to banks and insurers. Separate directives are being discussed at Council level dealing with the accounts of these institutions which are designed specifically to be applied to such bodies. I am opposing the proposed amendments for these reasons. I should add quite specifically for the information of the House that Article 2 of the directive specifies:

Pending subsequent co-ordination, the Member States need not apply the provisions of this Directive to banks and other financial institutions or to insurance companies.

Let me first deal with insurance companies. Those companies which hold authorisations, whether in the non-life or life sectors, are subject to severe scrutiny by my Department. They are obliged to submit annual returns to my Department and these are subsequently published in the blue book. Without getting into an argument on the question of supervision——

An Leas-Cheann Comhairle

That is not relevant to this section.

Mr. E. Collins

—— the question of the filing of information in respect of life and non-life insurance companies is quite comprehensive and quite specific. In relation to other financial institutions, in particular section 7 of this Bill will require the publication of accounts through filing with the Companies Registration Office but in the case of banks and other financial institutions it simply provides that the accounts in question shall be those required under the Companies Act, 1963, as supplemented by certain provisions of this Bill.

The other provisions are in section 13 which calls for a review of business and specific data to be given in the directive's report; section 14 which calls for the disclosure of particulars of acquisitions by a company of its own shares; section 15 which calls for an auditor's statement of a consistency between the directors' report and the company's account; and section 16 which requires the disclosure of particulars of holdings in subsidiary and associated companies.

In relation to public financial institutions, that is, financial companies which are public limited companies, these must comply with the Companies Acts as of now. What has happened is that the private companies which deal in the financial sector are now being brought within the scope of the Companies Act. They must file an annual return to the banks under the Companies Act, 1963. So we are making progress in this matter. I reject the arguments of Deputy Mac Giolla. The measures in the Bill are reasonable. They provide for substantial information to be supplied in the Companies Office. As I have said, the directive specifies that this matter should be further considered in the context of co-ordination.

Tomás Mac Giolla

I am not surprised at Deputy Flynn's opposition to this amendment which he says is due to some ideological hang-up which I have. I am very clear on my ideological position. Deputy Flynn made his ideological position very clear on Second Stage and in his opening remarks on section 1 of this Bill. He made his own ideological hangups very clear. They are in direct opposition on a companies Bill which is specifically designed, from the EC's point of view, in particular, for the workers in these companies. The whole purpose and idea of this directive is to obtain the disclosure of information for the benefit of workers in the companies.

Mr. Flynn

That is not so.

Tomás Mac Giolla

We went through the various arguments on this on Second Stage and we are now dealing with specifics. The ideological position was quite clear from the start. One position is for the bosses and the other is for the workers.

Mr. Flynn

That is a scandal. Will the Minister not make his position clear on this?

Tomás Mac Giolla

That is why Deputy Flynn has made his position very clear. In this section, as the Minister said, he is allowed under the directive to exempt these institutions.

Mr. Flynn

I will defend the Minister's position, if he does not want to do so. Deputy Mac Giolla is talking to the gallery.

Tomás Mac Giolla

Therefore he exempts them and that is the only reason for his doing so. But for the fact that the directive is there, he would not have brought in this Bill at all.

Mr. Flynn

The Deputy may be sure of that. I am sorry that he has brought it in. It came from a socialist background and should have stayed there.

Tomás Mac Giolla

Exactly, one may be sure of that. The ideological position is so strong here that such an idea would not even enter the heads of the two major parties here, either Fianna Fáil or Fine Gael.

An Leas-Cheann Comhairle

The Deputy must not make a speech.

Mr. Flynn

Does Deputy Mac Giolla want to run the money?

Tomás Mac Giolla

It is only because of the pushing of the EC directive that we are forced to bring in this Bill. I am asking in this amendment that the Minister use his initiative and allow these financial institutions to be covered under all the directives of this Bill and to amend the sections where necessary in regard to the technical aspects.

Mr. E. Collins

May I just inform the Deputy that we are not talking about the Vredeling directive here?

Mr. Flynn

That is correct.

Mr. E. Collins

We are talking about a different directive.

Mr. Flynn

Directive Four.

Mr. E. Collins

Please, Deputy, I did not interrupt you.

Mr. Flynn

It came from the same stable as the one Deputy Mac Giolla was thinking about and it should be sent back there.

Mr. E. Collins

The directive to which the Deputy refers does not come under our Department. It is a completely different matter, to be dealt with at a different time and by a different Minister.

Mr. Flynn

Deputy Mac Giolla has a false understanding of what this directive is about.

Progress reported; Committee to sit again.