Companies (Amendment) Bill, 1985: Committee Stage (Resumed).

SECTION 2.
Debate resumed on amendment No. 2:
In page 4, lines 26 and 27, and in page 5, lines 1 to 14, to delete subsection (2).
—(Tomás Mac Giolla).

Amendments Nos. 2 and 3 are being taken together for the purposes of debate.

I want to confirm, finally, the question about the banks, insurance companies and the financial institutions. There seems to be a notion abroad that they are somehow being excluded from the terms of this Bill, but that is not the case. I wish the Minister to put the record straight that they have to publish accounts but that there will be separate directives to deal with their particular circumstances at a later date. They have to comply with a certain amount of publishing and provision of accounts. Would the Minister clarify that?

Separate directives are under discussion within the EC in relation to these institutions. It is quite clear, and I know the Deputy is well aware of it, that in relation to the insurance companies they are already under stringent surveillance and make returns annually to what we all know as the blue book. The private and public financial institutions will have to publish accounts and file them with the Registrar of Companies. All that they are being excluded from is the exact format as in this directive which is more normal to the commercial companies to which the directive is relevant and to which this Bill is relevant.

I thank the Minister for clarifying that the formats of this legislation are not designed for application to the banks and financial institutions. It is fair to say that the banks voluntarily have not taken the advantage available to them in Part III of the Schedule of the 1963 Act which they could have if they wished. Since the late seventies they have been publishing quite extensive figures so far as their operations are concerned. Would the Minister be kind enough to indicate the difference he has in subsection (2) which states that sections 3 to 6, 8 to 12, 7 to 19 and 23 do not apply in relation to certain banks with licences under the Central Bank Act and other named institutions?

There seems to be a difference so far as the non-life insurers and life assurance companies are concerned in that the Minister omits section 7 so far as the regulations attached to the banks and the named institutions are concerned but includes it in so far as the life insurance companies and assurance companies are concerned. While section 7 deals with the documents to be annexed to the annual returns, it would seem natural to believe that all these sections would apply equally to the banking and financial institutions as well as to life insurance companies and assurance companies as named under the European Communities regulations. Perhaps the Minister might explain the reason for the variation in the matter.

It is merely a technical matter. It is one where they file their accounts via the Insurance Acts rather than via the Companies Act directly. It is merely technical and it does not give them any more freedom not to file accounts. As the Deputy knows, their accounts are well published. I should add also for the clarification of Deputies that we are strengthening the position in relation to private limited companies involved in the financial sector. They will now have to file accounts where they did not have to before. The only thing we are doing is we are not requiring them to do so in accordance with the Schedules to this Bill.

Part III of the Schedule to the 1963 Act is the one which excludes banking or discount companies from being obliged to comply with certain aspects. One would have thought, seeing that we are talking about disclosure in one form or another, that the whole question of disclosure and the documents that would be annexed to the returns would apply equally to both. If the Minister feels it is necessary to amend it on Report Stage perhaps he might consider the matter.

I do not think it is of any significance in the context of the Bill.

I do not accept Deputy Flynn's argument about banks being very generous in relation to information. They have taken full advantage of the 1963 Act in relation to the disclosure of information. I believe the reason for that is that because of public pressure over the years to disclose more information they recognised that public opinion would have forced new legislation on them to force them to disclose information. That is the only reason they disclosed more information than they were required to under the 1963 Act. In fact, the position is that the disclosure of information by banks in this country is far less than in the UK, much less than in the USA and certainly much less than in western European countries. Therefore, ample information is not given. There are plenty of analyses, reports and all sorts of things given by the banks, but information regarding their own accounts and their investments are certainly not given. Who would have known, but for Gallaghers going bust, the amount of investment by the banks in a property development company? On the whole question of reserves and so on, there is a total lack of information disclosed in the accounts.

I was a bit late getting into the House. I was not clear whether the Minister had indicated whether, if my amendments are not successful in removing this exemption, he expected it would be likely that legislation would be introduced in regard to banks and financial institutions on similar lines. If he is not including them in this Bill I understand that similar legislation will be required by way of a separate Bill.

It is very difficult to give a time scale with regard to the draft directives under discussion. I understand that the one in relation to banks and financial institutions is fairly well advanced. I am afraid I cannot give a precise indication; it may be a year, two years or three years. It is that kind of a time scale.

Possibly five years?

I honestly do not know. Getting directives through the Council is a slow process. I cannot give the Deputy an honest, simple answer I can stand over; possibly one year, possibly three years.

Is the Minister saying that such legislation will not be brought into the House unless a directive is passed by the EC?

Primarily we would be awaiting a directive from the EC. That is on the concept of harmonisation of legislation and practice throughout the EC.

So we cannot take the initiative ourselves?

We would prefer to await the directives which would apply to all other European countries within the EC. Then we would translate those directives, as we are obliged to do, into national law, as we are doing here in regard to commercial companies.

If everybody did that we would never get anywhere.

Is Deputy Mac Giolla pressing amendments Nos. 2 and 3?

Amendment put and declared lost.

I move amendment No. 3:

In page 5, lines 15 to 19, to delete subsection (3).

Amendment put and declared lost.
Question proposed: "That section 2, as amended, stand part of the Bill."

Subsection (2) (d) says:

a company engaged in the business of accepting deposits or other repayable funds or granting credit for its own account,

To what kinds of companies does that refer, as a matter of interest?

It is a technical phrase taken from a directive on credit institutions already in existence. There are no companies in Ireland at present to which this would be applicable. It is a phrase used in credit institution directives already in existence. But we do not have companies in existence to which this would be applicable.

What kinds of companies are there in Europe that engage in this type of business? What kind of business are they involved in? I cannot envisage the way in which the provision would operate.

We have banks and we have hire purchase companies that are quite well defined. If you like it is a catch-all phrase that will cover any companies that in effect become financial institutions. It is a phrase in existence in credit institution directives.

I can envisage a company that might be engaged in the business of selling cars. I was thinking of a motoring company that might set up a hire purchase section under a separate umbrella or company. But, in thinking of that. I decided that such a company would be caught under the provisions of paragraph (c). It is a catch-all phrase that may catch future companies coming in here under some guise.

The provisions of paragraph (d) will encompass any company that is established that would become a bank or similar financial institution that is not already in existence.

Whatever might be the scope of this legislation it is rendered useless unless the Companies Registration Office is updated to meet the requirements of the many new files that will have to be opened there in specific format to accommodate the provisions of this legislation. I regret that Deputy Mac Giolla had to press the point in so far as the publication of information dealing with financial institutions is concerned. It would be fair to say that the voluntary arrangements made by many of these institutions far outpace those which exist in other jurisdictions. Indeed some of the banking institutions must be complimented for having taken on board voluntarily the decision to publish their accounts in very great detail on a regular basis in the public press, not just leaving them in the filing office at the Companies Registration Office for those sufficiently interested to find out at their own expense.

They would not get away with that and the Deputy knows that.

They have given a great breakdown of their business interests and the general public have been given that information in a decipherable way which is more than can be said of some other countries where institutions of that kind operate. It is only right that we should place on record that the general public recognise that that has been done voluntarily and that the provisions of this Bill will in no way prevent the public from getting any information they might require with regard to those institutions.

I have no doubt at all that the new directive dealing with insurance companies, banks and financial institutions will take quite some time before being introduced in this House. The Minister was being generous when he said perhaps a year, perhaps three years. It may take a lot longer. But let it be put on record that it will not be held up because of ambivalence in this House. Perhaps Deputy Mac Giolla would direct his remarks to the members of parliament in some other jurisdictions who have not yet implemented into their national legislation this Fourth Directive with which we are now complying.

While I do not disregard the fact that we had to go before the European Court in the matter, that we were threatened on more than one occasion by various bodies for not having done so earlier, it must be put on the record that there are other countries in the EC, more developed administrations than ours, that have not yet seen fit to incorporate and implement this directive in their Legislatures. Indeed some of them with Socialist Governments have sought ways out of implementing some of the terms of the Fourth Directive. The Federal Republic of Germany—not satisfied because this legislation was a catch-all as far as their companies were concerned — are seeking special arrangements for their limited partnerships and corporations. They are having devised a special directive to accommodate the type of company with the largest number of subsidiary companies registered with them in their jurisdiction, so that they will not be involved in the publication and presentation of provisions outlined in this Bill. We should not be berating ourselves for not complying with the wishes of our European partners. We are certainly doing as good a job as they are. I am not taking the Minister's role in protecting the Government.

Irrespective of whether or not a company has to file accounts, it will be ineffective if the Companies Registration Office are not given the necessary support, back-up and computerised systems to deal with the matter. If you do not file an account at present in the Companies Registration Office, nothing happens. Nobody bothers about whether or not you file it. We may be making a lot of noise that will mean nothing. The Minister will be hard pressed by me to indicate exactly what arrangements he proposes to make in that office. At present very often files are not available when you require them, particularly controversial ones. Irrespective of the scope of the legislation and the companies that might be caught in the net in which this legislation sets out to catch them, it will be ineffective unless the Companies Registration Office are given the back-up, the personnel, the money and the sophisticated computerisation necessary to deal with the filing of the necessary documents.

I am pleased with the progress which has already been made in the Companies Registration Office in relation to computerisation, cleaning up the records and getting rid of all the dead companies. I would like to congratulate the registrar on his efforts in modernising and computerising. To put it in perspective the directive which we are translating into national law was passed in Europe in 1978. At present Germany has not implemented the directive. It has however enacted legislation. I understand that it will become compulsory after 31 December 1986. In December 1984 the Commission referred Germany, Ireland and Italy to the Court of Justice for nonimplementation of the Fourth Directive. We have not yet implemented it. Neither has Italy nor indeed Greece. We are in the process of passing a law and the Commission are anxious that we should do this.

We are very anxious to be good Europeans.

We are not the first. The directive has been transposed into national legislation in Belgium, Denmark, France, Luxembourg, The Netherlands and the UK. We are not in the vanguard. We have our obligations and we are fulfilling them.

The only reason that some of the countries passed legislation is that the Fourth Directive was not materially out of line with their existing company law.

I do not wish to comment on that. We are carrying out our obligations.

We have been trying to be very good boys in the outfit while the other countries will dodge and duck when it suits them. We have to take into account the welfare of our country and, above all, the welfare of our people. Our companies and our employees are all inter-linked in this. The last time I spoke on this matter I dealt at some length with the insurance companies and the banks. I will not go back over that ground now. I want to make it clear that both of them, especially the banks, give very detailed information to the public. The shareholders are demanding very comprehensive information in regard to accounts. The insurance companies are a matter for the Department of Industry and Commerce. They have very farreaching powers and they keep a close watch on the insurance companies.

I would like to deal briefly with the Companies Registration Office. I have been told by many people that there has been a falling-down in that area, that registration of new companies is rather slow and that there is a back-log. If you are looking for detailed information, you are rather slow to get it. I presume the necessary personnel is not available to keep the accounts up to date. It has also been brought to my notice that some companies who are not trading are still on the books. It is only after some years that they realise what the position is. The Minister mentioned that he intends to computerise the office. If that is so, it will be very welcome. I would like to know when that will take place. Will it be in the immediate future or is it some years away? Even if computerisation comes about in the near future, we will still need the back-up and personnel to deal quickly with the situation where a new company is being formed. Three weeks would be a reasonable time but I am led to believe it takes much longer, due to a shortage of personnel.

I do not wish to get into a discussion on the computerisation of the CRO. It is not relevant to this section. I am not aware that there are any difficulties in registering companies with the Companies Registration Office. I understand that the computerisation programme is well under way and that quite an amount of information has already been put on the computer. I understand the registrar is chasing up the old and defunct companies and also chasing returns and intends to prosecute where necessary. Excellent progress has been made.

Section 2 outlines what the scope of this Bill will be. As I said before, this Bill is the result of a directive of the EC. We are obliged to bring in this Companies (Amendment) Bill in order to comply with that directive. We are complying with our obligations under European law. The scope of this Bill is far too wide and the effect will be that every limited company, from the smallest to the biggest, will now have to publish some form of accounts or balance sheet in the Companies Registration Office. There are certain exemptions in regard to subsidiary companies but in general the supposedly 70,000 limited companies in Ireland will have to publish some kind of information. The ramifications of this are not fully understood by many people in the community. This type of Bill, to have in the Companies Registration Office the accounts and other information of limited companies, is a grand notion in principle. It is useful in that people setting up a limited company enjoy limited liability and have self protection in the law. Their accounts should be open to examination by the public. It is a socialist principle that we should all see everybody else's affairs. I do not agree with that. The scope of this Bill is not in tune with Irish conditions.

On Second Stage, one Deputy pointed out that there is only a small number of large public companies in Ireland and another small number of large companies which are not publicly quoted on the stock exchange. The majority of the 70,000 limited companies are very small. They may be, for instance, a company of a husband and wife running a small shop down the country having been advised years ago to set up a limited company, as that would be the best possible way to do it, or they are a few guys who got together, either blocklayers or bricklayers to do general building work. I am quiteau fait with people in that situation. Theoretically, these are classed as company directors and pay tax, etc. In speeches in the House these are supposed to be the people who are self-employed, making fortunes and evading their tax. Nothing could be further from the truth. They probably have smaller incomes than most of the people who are giving out about them. They are doing their very best to do something.

Let us take a small limited company which has been set up, say, in the Minister's constituency where there are many small businesses which are, in effect, limited companies. Their turnover might be very small in a particular year. The assets and liabilities of the company may be very small yet these people will have to file their private financial information in the Companies Registration Office. They will qualify for the small companies relief but they will still have to provide a balance sheet. The assets and liabilities of the smallest limited company anywhere in Ireland will have to be detailed. Some consideration should be given by the Government not to have that kind of limited liability company included in this legislation. There is an amendment in the name of Deputy Mac Giolla which effectively reduces the exemption limits to classify what are now going to be termed small and medium sized companies. There is a class of company that would not come near the turnover or gross asset limits in the Bill. I do not know what the figure would be but there must be thousands of these companies at present operating which are small companies. There has been talk about the turnover of a small company being £1.25 million. I am talking about a husband and wife operation whose turnover might be £100,000 per year or less. They are going to be caught under this legislation.

I have every sympathy with the Minister but I do not think this Bill is right for Irish circumstances. The financial information of these people should not be there for public inspection in the Companies Registration Office. We have to enact laws in this House which will do something for the Irish economy. For instance, a few lads, they are probably unemployed at present, have an idea and want to start a small company. I can tell the Minister that in the last year people have been encouraged to come off the dole and form limited companies. The best advice available to them is to keep the company separate from their own financial affairs in case anything goes wrong. These are not multi-millionaires or anything like that. They are going to end up having their detailed financial information filed in the Companies Registration Office. That is a load of codology in that those people will be caught under the scope of this Bill.

I would like to see an amendment to this Bill as soon as possible to classify — we have small, medium and large — that type of company so that they will not have to do that. When explaining to those people that in the future their accounts are going to be published in the Companies Registration Office where any Tom, Dick or Harry can come in off the street and inspect them, they will be frightened off. Furthermore, it is going to frighten off many more people who are thinking of going into business in a small way, employing themselves for a start, with one of their family, or a few others. This is where economic growth is going to come from. We are not going to have economic growth by having multinational firms. It is the small operation which employs two or three people which we must look to for economic growth in the future.

We are still on section 2.

I would like the Minister on Report Stage, within the ambit of the Fourth Directive, to bring in that type of exemption. The Minister being a man who spent most of his life in ordinary business before he came into the House well appreciates the kind of person and company I am talking about. I would like to see that being done as the scope of this Bill is not applicable to Irish circumstances. There are certain Irish companies that should be made to do this. With the level of our economic and industrial development I am not against this for many reasons. We will come to sections where we will be able to point out, particularly later in the Bill, how things will be itemised. These are going to provide much detailed information and people do not want that. This may be classed as a "right wingism" or "free enterpriseism" but whatever it is, it is right. We keep putting obstacles in the way of development of business. Yes, we will all be equal. We will all be equal at nought, that is a certainty. We have to decide what we are going to do.

The purpose of section 2 (3) is to avoid having the scope of the Bill apply to companies who are the holders of authorisation licences under the European Communities' non-life insurance regulations. The way it is phrased here means that most sections will not apply to those companies. Sections 3 to 12 will not apply. Section 19 and section 23 do not apply. What sections of this Bill will apply to these type of companies?

The scope of this Bill is far too wide. How does anyone think this will be policed? The Companies Registration Office have at least done something about computerisation but, during the past few years, they have been up to their ears in work. They have to look after company registrations, changes of names, file directors forms and everything else and they are unable to keep up with the work. How can they also police this legislation? How can they ensure that companies get in their accounts when this will involve a whole lot of new form filling and so on? This section brings in all limited companies and by definition brings in companies which have been dormant for a number of years, companies who have stopped trading but who still have a file in the Companies Registration Office although they have no intention of trading again. Some of these companies have not traded for ten or 12 years but have not been followed up and been struck off the Companies Register as people might consider that they might use a company again to trade in certain business. We are putting these people to the expense of producing an account. There is nothing in the balance sheet and they will have to go through all this rigmarole. Another section should be inserted to get dormant companies out of the field. At the moment the Companies Registration Office cannot follow up companies which have ceased trading.

In the past when one went to the Companies Registration Office to get a file, one paid 5p or 10p, perhaps the file had not been taken out for the previous six years. Before it was put back in its place the staff would have a look at it to see were the annual returns up to date, and they would then write to the secretary of the company to do something about it. That is the system that operated until quite recently. If no one came to look at the file companies, for which there were no annual returns, could be in existence for ten or 12 years. Now we will have a system which will produce more work, when the Companies Registration Office cannot handle the old system.

I hope computerisation will help but if we cannot have proper policing this legislation will be of no benefit. The efficient companies, the public companies and the larger companies generally get their accounts done on time and they will comply with the legislation but the majority of companies will not do anything about it at all. Before Report Stage I would like the Minister to limit the scope of this Bill to eliminate companies about which I have spoken, the very small private limited companies and dormant companies.

While Deputy McCreevy was speaking I was reminded of a recommendation I made to the Minister on Second Stage when I asked him to consider a new form of incorporation for small firms, particularly proprietary companies of the type Deputy McCreevy talked about, the family owned concern, the sweet shop or the newsagency on the corner. It is ridiculous that they should have to comply with a legislative structure which applies to a company such as the Smurfit organisation.

They do not.

I ask the Minister to consider my suggestion. Our aim was to get all companies registered in the Companies Registration Office. A new form of incorporation for shareholder managed companies might be considered appropriate to our circumstances. It would reduce the burden on existing companies in that bracket. While registration would convey limited liability status on them, one always had the penalty that if they did not register their proprietary company, limited liability status could be withdrawn. That status confers very great advantages on business, so one could be sure that they would comply. It is much easier to comply with a limited form of registration in that way to accommodate a very small turnover and asset base, than to have companies dodging it by not filing their accounts or even registering, or making an initial registration and then carrying on without complying with the regulations. I felt at that time that all that was needed at the end of the year was a simple auditors certificate saying that the company was solvent for the accounting period about which they were concerned, without providing all this paraphernalia of figures which a small business has not got the time or the administrative skill or the money to assemble.

The Minister referred in his Second Stage response to the suggestions I made and took note of the fact that I paid some attention to the UK study of some years ago where this was recommended while the Fourth Directive legislation was making its way through the House of Commons. The Minister said it seemed to have died for lack of interest there. In support of Deputy McCreevy I would point out that the similarities between our business scene and the UK business scene are few. While there are hundreds of thousands of medium and large concerns in the UK, of the 67,000 companies we have registered here, the vast majority would be in the small and tiny bracket. While tiny might not be the proper terminology to use in so far as the Fourth Directive does not allow one to think in those terms, it is interesting to note that before we introduced the implementing legislation to bring the Fourth Directive into our national legislation——

This sounds like a Second Reading speech.

This relates to the scope of the section and it is very important.

The Deputy seems to be making a speech.

Once the scope has been disposed of everything else in the legislation has to apply to particular sized companies, so this opportunity will not be available to me again. That was very effectively done, a Cheann Comhairle. You have somewhat dislodged my thoughts, but never mind.

I understood from the Deputy that he had made the same comments in his Second Reading speech.

I want to refer to the reasons why the Minister in his reply on Second Stage felt that it might not be worth while at this time. He drew a comparison with the situation in the UK, and I recognise that there was a very great difference. He said that a balance must be struck in these matters and that the reason he said that a balance had to be struck was that he did not want to make the classification of companies, in so far as registration was concerned, so simple that interlopers and cowboys would abuse such provisions. Interlopers and cowboys, as he called them, can operate only when the law of the land is not being applied. It is not for us here but for another day and a different Minister to decide how to go about that. However, we may take the decision here to allow this type of simple classification and simple company registration to be put in place and afterwards give the proper policy directions to the registrar and then it is up to somebody else to see to it that that is complied with.

I was making the point that in the 1983 Companies (Amendment) Act before we allowed this legislation into the House we took the opportunity of bringing about a situation where you could convert from limited liability status to unlimited status, thereby allowing the really big operators to get out from under the net that this legislation involves. We made very sure to do that in advance of this legislation so that the big operators — they might not be many but they are obviously very influential — were accommodated. They have had time to change their status, to have their incorporations put in unlimited status or to make themselves branches or whatever. They have the opportunities available to them. It is a pity that just in accommodating the very large concerns we did not introduce a Bill before this one saying that we were creating a new form of incorporation for small, tiny companies, the proprietary companies I have referred to, and then we could have excluded them from the scope of section 2. I would have regarded that as much more satisfactory and more in keeping with the size, classification and type of business we have. Even at this late stage the Minister of State might convey to his Minister that he give an indication that before the implementation date of this legislation arrives — it is to be hoped in 18 months — he might introduce another limited Bill to allow the type of company I am talking about to be exempt from the scope of section 2.

I am grateful to Deputy McCreevy and Deputy Flynn for their thoughts on the scope of the Bill. I thought theirs were somewhat Second Stage speeches rather than Committee Stage. When we entered the EC on 1 January 1973 there was already in existence the Council's First Directive on Company Law and we were quite well aware at that stage that we were going to have to bring into our national legislation the publication of accounts. That directive has been superseded now by this directive which we are transposing into national law. We have brought in what I consider a very balanced Bill in respect of small companies, medium companies and large companies and especially in relation to small limited companies and the minimum of requirements from them in respect of the information which they will have to file with the Companies Registration Office. I believe that we have achieved a fair balance. When you register to be a limited company you take on obligations and when you are trading you are obliged to trade and to make any returns, etc., and traders are entitled to know the state of the company. That is what we are achieving in this Bill.

In relation to a request from Deputy McCreevy and Deputy Flynn that we should have some new form of small company or whatever, I am afraid it is not possible. The directive is quite specific and ties my hands in relation to what I can or cannot do regarding limited companies. Deputy Flynn referred to the fact that in the 1983 Act a limited company could become an unlimited company and thereby escape this directive. That option is open to all limited companies, of course, so we have not been prejudiced in favour of a special few as he seemed to indicate in his speech. All limited companies can become unlimited companies but, of course, there is an amazing difference. When you are unlimited it means that your liability is unlimited and creditors can come after you in law to a far greater extent than they can if you are a limited company. Therefore, we were not favouring the elite or the few by allowing limited companies to become unlimited. All companies can become unlimited.

Here we are talking about limited companies. We have divided them into small, medium and large. In relation to small companies, the amount of information required to be filed is small but it is necessary if we are to abide by the directive. I cannot escape enforcing the directive and I am transposing that directive into national law.

The small family businesses of which the Deputy spoke do not have to form limited companies to trade. They may trade as single traders, as partnership traders or as unlimited companies and they will not be affected by the Bill before the House. Therefore I cannot hold out any hope for an amendment on Report Stage in relation to these small companies or family businesses. They have obligations under company law and in respect of filing; they have obligations already in existence under the 1963 Act. These new obligations are a direct result of the company law directive which we are transposing into national law, and my hands are, in effect, tied.

I understand the Minister's hands being tied in that he has to introduce the Bill as a result of the Fourth Directive, but would it be possible that — maybe not under this Bill — under the new Companies Bill, which was to be introduced by successive Governments over the last five or six years, legislation of the type that Deputy Flynn and I have been talking about will be introduced? I can appreciate that to restructure the 1963 Act must be an enormous undertaking, but perhaps in this long heralded new Companies Bill, which presumably will come before the House at some stage maybe in the lifetime of this Government or the next, a Minister could see his way to introduce legislation regarding limited liability of the type we have been talking about. I am referring to the tiny family limited company.

Let me point out some anomalies that will occur as a result of the legislation before us. Take a very small sweet shop down the country that has limited liability. The reasons for making it a limited liability company are not relevant. That company will have to publish their financial information and have it filed in the Companies Registration Office. On the other hand, take a large co-operative, Cork Marts Ltd., for instance. They will not have to publish any information at all in the Companies Registration Office regarding their costs. Whether they publish their accounts is up to them. A large co-operative owned just by farmers do not have to publish anything in the Companies Registration Office regarding their financial information and their turnover may be millions of pounds. The reason is that co-operatives are covered under different legislation and they have to furnish their accounts to the Registrar of Friendly Societies, etc. but the general public will not have the opportunity of studying their accounts in the same detail as they will have of studying those of a very small family company operating maybe for years.

Building societies have to furnish their accounts etc. to the Minister for Industry and Commerce with details. Here again, however, the public will not be able to go to the office to extrapolate the information they require on how the company is doing. It is up to each credit union whether they publish information and people cannot find out what information is there. On the one hand, the small family owned company will come within the scope of section 2, having to publish everything, and the co-operatives and businesses with multi-million pound turnovers will not be subject to the same scrutiny by the general public. Some of them publish information for their own shareholders which may be published in the press but they are not obliged by law to do what the very small limited liability companies will have to do under this Bill. That is an imbalanced situation. I appreciate that under the EC directive the Minister may not be able to exempt the limited companies about which we are talking, but I urge upon him, that in the formation of the new Companies Bill, that type of company which is peculiar to Irish circumstances should be recognised.

I want to say something on section 2. I have a worry about pension funds. We know that the position regarding pension funds is giving rise to concern. Even under existing circumstances, without this excluding section, it is difficult enough to get information about the money in many of these companies' pension funds. Some of these are managed through excluded companies which are referred to in the section.

Is the Deputy relating this to section 2 of the Bill?

Of course, a Ceann Comhairle. I am talking about companies that perhaps will have a subsidiary set up to run their pension fund and thereby escape the necessity to disclose their accounts through the Companies Registration Office or, alternatively, some financial companies, the saving banks or other such, might be used to run these pension funds for firms. Many workers are finding, even under the present conditions, that they are paying money into pension funds, in many cases involuntarily having the money withdrawn from their wages, and are losing their contributions. These are going astray and when the time comes for the need of a pension, the money is not there. In those circumstances it is essential that there be the fullest possible disclosure so that workers whose money is paid into these pension funds would have the fullest information that it is being invested for them and that it will be there when they come to use it.

Could the Minister clarify that in this section giving additional exclusions from the necessity to submit accounts to the Companies Registration Office we are not going to make things worse in this regard. Large numbers of workers have found themselves in the tragic situation of losing the money paid in by them over many years. Over the years, many have made attempts to find out what is being done with the money, where it is invested and how much is there and they cannot get that information. Is this going to be an additional blanket on top of that? Should we not have a special provision increasing the disclosing liabilities of any firms that take these funds, to ensure that it is a fully open book and that we are not giving any further get-out to people in that category?

Will it not appear in the section?

In reply to Deputy McCreevy, I cannot hold out prospects in this legislation for special treatment of small companies. I repeat that if one forms a small company one is forming a limited company with limited liability and it brings upon that person certain legal responsibilities. I cannot change that situation in the context of the directive. In doing so, I would be going outside the scope of the directive.

Deputy Taylor is worried about pension funds and I understand his concern. It is always a problem when a company is in difficulties, closes down and the pension fund is found to be wanting. This Bill does not deal with pension fundsper se; it is not intended to do so. Other legislation is probably more appropriate for what the Deputy intends. In relation to companies set up specifically in the manner that Deputy Taylor suggests, to avoid disclosure, that is not possible under this Bill. Every company, whether private or public, must make returns to the Companies Registration Office. They must have notes attaching to these accounts. I cannot quite understand Deputy Taylor's problem here. All companies which are not excepted as outlined in section 22 must make returns to the companies office. The only exceptions I have specified relate to the format of the returns. I would draw the Deputy's attention to section 36 (5) in Information Required by way of Notes to Accounts:

The following information shall also be given:

(a) the nature of every pension scheme operated by or on behalf of the company including information as to whether or not each scheme is a defined benefit scheme or a defined contribution scheme,

(b) whether each such scheme is externally funded or internally financed,

(c) whether any pension costs and liabilities are assessed in accordance with the advice of a professionally qualified actuary and, if so, the date of the most recent relevant actuarial valuation,

(d) whether and, if so, where any such actuarial valuation is available for public inspection.

The Minister could include my amendment No. 33 which would give it real effect. However, that is a little premature.

Trade unions representing employees should also take great care in their discussions with employers to ensure that the pension fund is secure and take whatever steps are necessary to safeguard their members' rights. There is a trade union-employer relationship which is ongoing and, by and large, employers are anxious to protect the pension fund. This can be done through ordinary negotiations. This matter is referred to in the Bill and the mechanism suggested by Deputy Taylor of havingsub rosa companies would not remove the need to file returns under this Bill in the companies office.

We would be grateful on this side if some help could be given to the 67,000 small companies throughout the country. It is hard enough for them in existing economic circumstances without having to submit themselves to all these paraphernalia. I am talking about small family concerns who employ between five and 20 people. Under existing company law they have to put up not only themselves but their wives and children as guarantees to the financial institutions. Everything has to be signed on the dotted line.

I do not think that is true.

I have experience of it and no one will tell me anything different. I am not talking theoretically. Those financial institutions will ensure that they have everything tied up and packaged well. The danger is that such small firms will shy away from development, and employment will be lost. I suggest that we should ask them for only the minimum amount of information. Further reams of paper work will only worry them. I know that is not the Minister's intention, but this should be made clear while we are debating this complex Bill.

Section 2 simply excludes a number of companies. The Deputy is not making it any more simple. Section 3 deals with accounts.

It deals with companies not trading for profit. I do not want to get into difficulty with you, but I ask the Minister to meet us in regard to small companies so that under section 3 things will be made easier for them. We have a great interest in this for the good of the people.

Question put and agreed to.
SECTION 3.

I move amendment No. 4:

In page 6, subsection (1), to delete lines 6 to 10 and substitute the following:

"and, accordingly, in the Companies Acts, 1963 to 1982, and the Companies (Amendment) Act, 1983, in relation to a company to which this Act applies——

(i) references to the said section 149 shall be construed as references to subsection (5) and, in so far as it relates to the said subsection (5), subsection (7) of the said section 149 and to the provisions of this Act corresponding to the other provisions of the said section 149, and

(ii) references to the said Sixth Schedule shall be construed as references to the corresponding provisions of this Act.".

This amendment is purely a technical drafting change which the draftsman has advised is necessary. The purpose of lines 6 and 10 on page 6 of the Bill in section 3 is to ensure that references in earlier Companies Acts to section 149 and the Sixth Schedule — the accounts requirements — will now, in so far as limited companies covered by this Bill are concerned, be construed as references to the corresponding provisions of this Bill. However, lines 6 to 10 as drafted neglected the fact that subsections (5) and (7) of section 149 still apply to limited companies covered by this Bill by virtue of an oversight.

The Minister said his amendment simply ties up the references to the Sixth Schedule of the 1963 Act and to section 149 of that Act. I suggest that it is much more important than that. It is a fundamental part of this legislation because this section is a substitute for the Sixth Schedule in regard to detailed accounting requirements. Section 149 of the Act dealt with the treatment of accounts. It is obvious from the Minister's statement that he wishes to maintain the effect of the Sixth Schedule and have it incorporated in this legislation. The only difference is that it will be done in a new way, the way of the Fourth Directive.

The major changes in this legislation fundamentally alter the thrust of the Sixth Schedule but I do not see why the Minister could not have drafted and inserted here a completely new schedule. That would have been the wise thing to have done and it would have made reference more easy and obviated the necessity for cross-referring to the Sixth Schedule in regard to annual accounts, balance sheets, profit and loss accounts and so forth. The primacy of the principle of the true and fair view is incorporated in both. We welcome that. The annual accounts of all these companies must give a true and fair view of the companies' assets and liabilities, their financial position and profit and loss accounts, but where the new format does not comply to the true and fair view, it is open to companies to depart. I would like the Minister to explain in what way companies can depart from the principle of the true and fair view which was an essential ingredient of the Sixth Schedule. Perhaps he would indicate where companies can do their filing without taking cognisance of the true and fair view. This would give us an indication of what he has in mind by this cross-reference.

We have a new Schedule and any references to the Sixth Schedule of the earlier Act shall be construed to mean the Schedule in this legislation. As I said, we are ensuring in the amendment that references in the earlier Companies Act, section 149 and the Sixth Schedule, will, so far as limited companies covered by this Bill are concerned, be construed as references to the corresponding provisions in this Bill. This is a technical amendment, nothing else.

In the Minister's amendment paragraph (ii) refers to "the said Sixth Schedule", but the words "Sixth Schedule" do not appear before this. Normally when one says "the said Sixth Schedule" it means that these words have appeared previously, but I do not see them. In those circumstances, why use the words "the said Sixth Schedule"? I think this is a drafting point.

The Deputy may be right. This is a drafting point. If he gives me a little time I will have this checked out.

Could it be dealt with on Report Stage?

I think this section should be scrubbed and rewritten.

With permission, we will deal with this on Report Stage. It is merely a drafting point.

Are we referring to the Sixth Schedule in the 1963 Act?

Reading section 3 it is obvious that the true and fair view principle must always be applied but if one wishes to move away from that principle——

The Deputy is dealing with the section but we must first get rid of the amendment. Is the amendment agreed?

Subject to a tidying up on Report Stage.

If necessary.

Amendment agreed to.
Question proposed: "That section 3, as amended, stand part of the Bill."

The true and fair view principle is the central point here, and that principle has to be adhered to so far as the profit and loss of any company for any particular financial year is concerned. If the balance sheet and the profit and loss account cannot adhere to the true and fair view principle, then additional information has to be given and provided in the notes to the account. Subsection (i) (d) reads "...the directors of the company shall depart from the requirements of the Schedule to this Act in preparing those accounts in so far as is necessary in order to comply with that paragraph". I take it that the relationship in paragraph (a) refers to sections 4 and 5 of this legislation. That appears to be double-talk and requires clarification.

Under paragraph (e) where the directors of a company depart from the true and fair view principle they will have to attach a note to the accounts of the company giving details of the effects of those departures on the accounts. How will they be in a position to give credit to that requirement in advance of the outturn from the changes? The Minister might clarify the relationship between the last part of paragraph (d) and paragraph (a). Are they in conflict? It seems to me that they might be.

This is allowed by Article 2.5 of the directive which is—

That could not be.

Article 2, paragraph 5 of the directive reads:

Where in exceptional cases the application of a provision of this Directive is incompatible with the obligation laid down in paragraph 3, that provision must be departed from in order to give a true and fair view within the meaning of paragraph 3. Any such departure must be disclosed in the notes on the accounts together with an explanation of the reasons for it and a statement of its effects on the assets, liabilities, financial position and profit and loss. The member states may define exceptional cases in question and lay down the relevant special rules.

That is done under paragraph (d) in this legislation. It must be clearly indicated why a departure came about but it does not obviate the company from the necessity to comply with section 3 to give a fair and true view of the company.

This section — together with sections 4 and 5 — is the nub of this legislation.

We are dealing with section 3.

This section substitutes the accounting requirements laid out in the Sixth Schedule of the 1963 Act, subject to the overriding principle of the true and fair view. The effect of section 3 is not alone to ensure that sections 4 and 5 are brought into play but that a fixed format will have to be filed not alone in the companies office with the annual returns but it will have to be the format of the accounts laid before the annual general meeting of the company. Section 3 (1) says "Subject to subsection (2) ... every balance sheet and profit and loss account of a company, laid before the annual general meeting of the company, pursuant to section 148 of the Principal Act...". It is a good idea to have the same format of accounts laid before the annual general meeting of the company and filed in the companies office.

Section 3 introduces the idea of a fixed format. The Schedule to the Bill gives the kind of format that may be adopted regarding the balance sheet, profit and loss account etc. I am not saying it is a good idea or a bad idea but, for the first time ever, there will be fixed formats which will have to be applied regarding the preparation of accounts. This is a major amendment to the 1963 Act which had its own way how things had to be reported on, the general preamble as to what was to be included in the Sixth Schedule regarding the accounts of a limited company and the kind of things which had to be stated in them. This section changes the whole game altogether so now there will be fixed formats for the balance sheet, the profit and loss account etc. It is a major change in companies legislation. The positive advantage is that, in the preparation of accounts in the future, there will be a fixed way in which things will have to be done and laid out. It should make it simpler for anybody trying to interpret accounts. On the other hand, there will be disadvantages. It is tying the hands of the accountants regarding the way things have to be done.

As a result of the Bill one would nearly have to go back to study accountancy again and learn all the angles to it. This is a very important section which lays down the general provisions relating to the accounts. Every balance sheet and profit and loss account will have to comply with sections 4 and 5 as a result of section 3 which sets out the general rules as to what will have to be done. The section makes it quite clear that the over-riding principle of the true and fair view is the one which dominates. Even though there are fixed formats for certain statements it is the old accountancy principle: do the accounts give a true and fair view? Under the 1963 Act the auditors report is the main thing which says or does not say if the accounts give a true and fair view. Even though there are a lot of rules in this section and in subsequent sections, I am glad to note that this Bill is dominated by the idea that accounts must give a true and fair view. That is very important to recognise.

Subsection 1 (d) says where, owing to special circumstances, the preparation of accounts of a company in compliance with previous paragraphs would deviate from the true and fair view idea and where the strict format might possibly not give the idea of the true and fair view, they are bound to put it into the notes of the accounts or some other part of the balance sheet in order to really copperfasten the idea of the true and fair view. It makes a major change in the 1963 Act in that it really sets down in a very strict formula now the format of the presentation of a profit and loss account and a balance sheet and the way they must be presented to the annual general meeting of the company and the shareholders. The exact same type of format must also be filed in the Companies Registration Office. I am neither for nor against it having said what I did on section 2. It should be emphasised that the over-riding principle of the true and fair view holds over everything else regarding formats. That is still the major principle in the preparation of the accounts and has been there since the 1963 Act.

The Deputy is correct. In this Bill we have tried to set down in section 3 the philosophy of the Bill in relation to the returns to the Companies Registration Office. The central core of it is that a true and fair picture of the state of affairs of the company is the criteria which are central to everything that is done subsequently in the Bill. That is as it should be. We are trying to ensure that we get a true and fair picture of the company's profits and loss account and balance sheet and that the balance sheet of small companies is lodged in the Companies Registration Office and that the profit and loss account balance sheet and notes etc. are lodged in the office. We are doing that in order to make the companies more transparent to their traders and creditors to enable them to see that they are dealing with companies which are upright and trustworthy. We have seen too often many creditors hurt when companies go under. We are trying to make our companies more transparent, more open, in their dealings. In producing this Bill we have done so in a very balanced way which will ensure that the people who work under this companies law which gives them limited liability are obliged to make certain returns to the Companies Registration Office. I believe we are doing a very equitable and fair thing by producing this.

As an ordinary layman I am rather baffled by paragraphs (a) and (b) of subsection (1). I am not a legally minded person but I am a bit afraid that the legal people, with all due respect, could have a field day in teasing out those paragraphs in relation to what should be taken out and put into the accounts. I am getting very technical on this because we know that all Bills going through the House are being very severely scrutinised by the legal profession.

Paragraph (e) is rather vague in relation to what one can put in and take out. This paragraph states:

where the directors of a company depart from the requirements of this section, they shall attach a note to the accounts of the company giving details of the particular departures made, the reasons therefore and the effect of those departures on the accounts.

That seems to me to be in conflict with paragraph (a). It is a departure from the 1963 Act in that regard. I would like to have spelled out in more detail what is meant by "departures made". I accept that departures can be made with an addendum and so on. I am afraid that the legal people would make a major legal attack on this. If it needs to be tidied up or some alternations made, it should be done in the House, not in the Supreme Court, although I am not saying that that will happen. I have reservations in regard to paragraphs (a), (d) and (e), especially (e) and the way in which it is drafted. I should like to get the Minister's views because I do not understand it sufficiently. It was brought to my notice outside the House by other interested parties. There could be a severe scrutiny carried out as to what is right and what is wrong in the preparation of accounts. In my opinion paragraph (e) leaves much room for manoeuvre.

I have to disagree with the Deputy. I have not had any representations made to me or my Department that subsection (1) (d) or (e) are causing any difficulties abroad. Indeed, similar type wording has been used in the United Kingdom legislation for many years and has not caused any problems there. Where there is a departure from——

Traditional accounting.

Under subsection 3 (1) (a), which is subsequently covered by sections 4 and 5, the departures are in order to give a true and fair picture of the company's affairs. Subsection (1) (d) requires the directors of a company to depart from the accounting rules and format in the Bill if, in the special circumstances, it is necessary to do so to comply with the basic requirement set out in subsection (1) (b), so that the accounts give a true and fair picture. Subsection (1) (e) provides that where the directors of a company have decided to depart from the requirements of the Bill and the Schedule thereto, in order to provide a true and fair view of the company's affairs in the accounts, they shall attach a note to the accounts giving details of the departures involved, the reasons for them and their effects on the economics of the company. The departures are to allow a company to give a true and fair picture which is what is required under the provisions of subsection (1) (a) and (b). They are not departures to subvert the Bill, they are departures to strengthen the Bill and they must be fully explained by the directors in the notes to the accounts. It is quite clear.

I understand quite well what the Minister is trying to achieve here. There is only one question that occurs to me about it. Companies will prepare their annual accounts, they will have a balance sheet, profit and loss account and notes. That is all right. This balance sheet and the profit and loss account will be in the prescribed format and will also comply with the accounting principles specified in section 5, with which we will deal when we come to it. It will be done under those two headings. Both of those will have to comply with the provisions of subsection (1) (b) in so far as a true and fair view is concerned.

I quite understand that if the true and fair view is not inherent in what they have done, then they must provide extra information and a note must be put on the accounts to that effect. That is fair enough under paragraph (c). But it is (d) that causes most concern. Its provisions are quite explicit in that it says that where, owing to special circumstances, in the preparation of accounts of a company in compliance with the new format and under the accounting principles, they could not comply with the true and fair view, the directors are entitled to depart from the requirements of the Schedule to the Bill. In other words, they do not have to make out their accounts in either of the formats or options available under the Schedule. They do not have to comply with the accounting principles as specified in section 5. Then it says, "in preparing those accounts, insofar as is necessary in order to comply, with the paragraph, ..." With what paragraph? Is it paragraph (a), (b) or (c), because all three are mentioned in the subsection?

If they are allowed to change their format entirely, because it will not comply, is it because it will not comply with the true and fair view? If it is, fair enough but it should so state, that they are entitled to move away from the formats in the Schedule only if they cannot within those formats comply with the true and fair view. It is very important that that be clarified. If the paragraph is not to be inserted at the end of subsection (d) to which the Minister referred, then it makes no sense. It is then definitely somewhat convoluted and, as Deputy Connolly said, could cause quite a bit of hassle over the reasons why one was allowed to move away and, when one did move away, with what was one complying? Is the overall principle the true and fair view or is it that the formats take precedence on occasion? Paragraph (e) follows, that they must attach notes to the accounts. That is reasonable.

If one were to take this Bill as a whole and read through it, as I have done, one will find there are more things that will have to be referred to in the notes. What a set of notes one will have if all the things referred to can be complied with through the notes. It means there will be very limited information given in certain of the formats. One will be referred back to the notes, where one will discover a whole book of explanations as to why certain things were done. I understand it is important that, if one moves away from the provisions of any section, one should at least indicate to the reader that one had and the reason for doing so.

I am concerned about paragraph (d), that it would be clearly indicated that when the formats or the principles cannot be complied with, or when the true and fair view cannot be complied with, one can adopt another format to suit oneself, insert a note at the back and comply with nothing.

That is what we call a suitability clause.

The concept and principle of a true and fair view of the state of affairs of a company is maintained in subsection (1) (d), where the words used:

... the directors of the company shall depart from the requirements of the Schedule to this Act in preparing those accounts in so far as is necessary in order to comply with that paragraph,

—which is paragraph (b). It must be that paragraph and that is the paragraph that states that one must give a true and fair view of the state of affairs of the company. That is the central concept in this Bill and does not move away from it. It allows a different presentation——

A different format.

——a different format if in the opinion of the directors that is necessary in order to give a true and fair view of the state of affairs of the company but in those circumstances only.

But it is at the discretion of the directors and they could abandon the new formats.

But they cannot circumscribe the need to give a true and fair view of the state of affairs of the company. Certainly they cannot circumscribe the accounting principles laid down.

We are talking about auditors. They will have to certify the affairs of the company as well. We are not departing from the principles of this Bill in subsection (1) (d).

I have always taken the view that in these matters simplicity is a great merit. There is tremendous complexity written into this Bill and into this section.

That is a true and fair view.

It is more complex than it need be. These sections could be worked out in a more simplified way. If we look at the Minister's amendment which is now part of the section it would take a fair bit of working out and many lawyers would have a job with working it out. For example: References to the said section 149 shall be construed as references to subsection (5). It does not say subsection (5) of what — and in so far as it relates to the same subsection (5), subsection (7) of the said section 149 and to the provisions of this Act corresponding to the other provisions of the said section 149. Most people would regard that as meaningless gibberish. It certainly could be a good deal simpler. It seems as though the draftsman was in a bit of a contradiction with himself. He did not succeed in clearing his mind on what he wanted. He took two thrusts, not necessarily opposing — one is the true and fair view and the other is the format. He is trying to say that you have to comply with the format but on the other hand there must be the true and fair view. He says this one is overriding and the other is subjected to that one. One could go to the Supreme Court many times over on which is over-riding.

I take a simplistic approach, maybe over simplistic, to these things. Sections 4 and 5 and the Schedule referred to set out formats for balance sheets and for profit and loss accounts and give all the things that must be specified in the valuation of a company's property. The directors of the company know the company's affairs and have the benefit of the guidance and advice of the company's auditors. I cannot understand why the company's accounts and documents, the balance sheet, profit and loss account, and all the details that have to be given cannot be so prepared that they give a fair and true view of the state of affairs of that company. I do not see that that should be entirely impossible, perhaps with the aid of a few explanatory notes.

It could be difficult to put a true and fair valuation on a particular piece of property. It could be a matter of opinion and depend on the state of the market which changes day by day. Nonetheless, between the directors, the valuers and the auditors, they should be able to give a true and fair view of their valuation. I do not see why the directors should be given a let out from complying with the format by saying: "We are not complying with the format because to do so might mean that it would not give a true and fair view of the state of affairs of the company. In this section we are told that to give a true and fair view of the state of the company is paramount. Therefore, we are licensed to depart from the format because we are told that the over-riding factor is that it has to be a true and fair view". Let them follow the format as it is. Is there any reason why that should not give a true and fair view? On what basis can anybody suggest that they should be entitled to put forward a format that does not give a true and fair view? That is giving them an opportunity for a cop out and why should they have that escape clause? They should be obliged to give all the information — and it is minimal enough — under sections 4 and 5 and in the Schedule in such a way that it represents a true and fair view.

As stated by Deputy Flynn, when going through the layout of this Bill there will be so many notes to accounts that it will be hard to know what accounts are. Until 15 years ago in public companies you got your accounts and they were in the newspapers. In the seventies notes to the accounts were required. In the accounts of some companies there are pages and pages of notes. All accountancy firms know they should give cryptic messages and explain thingsad nauseam. The notes now are far greater than the accounts. I agree with Deputy Taylor in regard to the true and fair view.

The person drafting the Bill was caught between two stools. He wanted to have an exact format in which accounts would be presented at the annual general meeting and field in the Companies Registration Office. Extreme detail has been gone into in the Schedule of this Bill, which has not happened before, as to how things are to be categorised. That was not included in the 1963 Act. It was left to the over-riding principle of the true and fair view. This Bill is an attempt to put things into boxes and categories. I never thought I would see an accountancy-type Bill in the House with a list of things that must be included such as turnover and many other headings in ferocious detail Part of the Schedule tells you how these things will have to be valued, broken down and calculated.

And noted.

Sections 4 and 5 define the accounting principles which the accountancy bodies have had for years about going concerns, prudence and so on. We have the person trying to bring in a Bill to satisfy the Fourth Directive saying: "We must have a particular format of accounts." Somebody else said: "We will have to define what must be under each heading in the balance sheet and define how these figures should be arrived at." It was agreed that the over-riding principle of the presentation of accounts must be the true and fair view. That principle was included in the 1963 Act. Accounts of a limited company should do nothing other than present a true and fair view of the state of affairs of the company and of its profits or losses in the preceding year. In trying to emphasise the idea of the true and fair view, the draftsman has gone to extreme lengths to keep inserting it. Section 3 (1) (c) states:

where a balance sheet or profit and loss account drawn up in accordance with paragraph (a) of this subsection would not provide sufficient information to comply with paragraph (b) ...

——which is about the true and fair view:

... any necessary additional information shall be provided in that balance sheet or profit and loss account or in a note to the accounts.

Furthermore, paragraph (b) goes into further detail to ensure that if the directors do not give the fair and true view they must put a note in the accounts. Paragraphs (a) and (b) refer to sections 4 and 5 of this Bill which are about the format of accounts and accounting principles. Section 3 gives power to do that. In order to make sure that a true and fair view over-rides everything else, subsection (4) has the effect of saying that subsection (1) (b) of this section over-rides the requirements of sections 4 and 5.

Subsection (1) (b) states that every such balance sheet of a company shall give a true and fair view of the state of affairs of the company. Therefore, in order to re-emphasise that the true and fair view is the big factor in all this the section may have gone overboard. It may negative the whole idea of having regularised formats. When accounts are being prepared by the majority of companies the true and fair view would be the over-riding principle. Even if the Minister did not mention the accounting principles in section 5, they would be the ones that would be taken into account anyway. There have been for a number of years that SSAPs, statements of standards of accounting practice issued by the institute. This Bill is bringing in for the first time those accountancy concepts. The Bill incorporates too much information because if you take the 1963 Act with its fair and true view over-riding everything, it is up to an accountant to take that as his over-riding principle and he will also be guided by the SSAPs of the institute. The reason they are there is to help the accountants to arrive at a true and fair view. Therefore, there was none of this detail in the 1963 Act.

What has happened since the 1963 Act is that in the preparation of accounts more and more private companies have many notes, without having any legislation, because it has become good accountancy practice. This Bill is trying to formalise in a legal way what has been good accountancy practice for a long number of years. A danger I would see is that by putting it into legal language the Minister may make himself a hostage to fortune because some director will say: "This is what it says in the Act. This is all we have to do and this is the way to get around it". I recognise what the Minister has been trying to do in this section but I fear that by trying to copperfasten the true and fair view, he might have given an out. It is not relevant as most accountants would prepare accounts in a proper way. In trying to copperfasten the idea under subsection (4) it may have given a way out and you will not have to comply with the format.

If Deputies read section 1 of the general provisions of the directive, Article 2, they would see that is the basis upon which we base this Bill. There was no conflict in our minds in doing so. We have established the central principle of true and fair concept which runs through section 3. The only reason for any departure would be to restrengthen the concept. We are satisfied that 99.9 per cent of companies, advised as they will be by their auditors, will conform to the Schedule in the Bill and conform to sections 4 and 5 and will cause no difficulty. I do not look upon this as a let-out or a let-off. Auditors will advise the directors very straightforwardly about what is right and what is wrong. The format of accounts in section 4 and the accounting principles in particular will direct auditors to advise directors as to their position.

I would point out, briefly, in relation to a possible example which Deputy Mac Giolla gave that under the statements and standards of accounting practice, SSAP 19 in particular, certain investment properties are not required to be depreciated. Under the ordinary handling by auditors of property it should be depreciated over the life of the building. In order to give a true and fair picture these investment properties will have to be presented in a different manner in the accounts. That is a brief example where there might be a reason for a departure from the Schedule.

I would also like to point out that section 3 (1) (d) is covered also by (e) where it is quite clearly stated that "where the directors of a company depart from the requirements of this section, they shall attach a note to the accounts of the company giving details of the particular departures made, the reasons therefore and the effect of those departures on the accounts." There is nothing in section 3 which reduces in value the requirement to follow the accounting principles in section 5. There is nothing in section 3 to undermine the elements and principles involved in section 5.

Subsection (2) of section 3 states that subsection (1) of this section shall not apply to the profit and loss account of the company if the company has subsidiaries. That means that subsection (1) is not going to apply to subsidiaries of a company where there is a consolidated profit and loss account. The profit and loss account of a subsidiary will not have to be published or filed in the Companies Registration Office. Does that mean that the balance sheet of a subsidiary will have to be filed in the Companies Registration Office? Take a big building company which has a subsidary company called XY2 Limited to look after a site in Galway and ABC Limited to look after a site in Dublin. In order to be able to quantify at year end what the profits are, the accounts are kept separate for legal business and tax reasons.

I can well appreciate and understand why the profit and loss account of a subsidiary would not be relevant if a consolidated profit and loss account of the group is going to be published. But does that mean that the balance sheet of that subsidiary company has to be published whereas the profit and loss account would not have to be published? Surely the section should say that the profit and loss account and/or balance sheet should not have to be published.

This subsection reenacts section 149 (4) of the Companies Act, 1963. The provisions of this section have long been a feature of company accounting in Ireland and the UK.

Progress reported; Committee to sit again.