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Dáil Éireann debate -
Tuesday, 13 May 1986

Vol. 366 No. 4

Private Members' Business. - Companies (Amendment) Bill, 1985: Fifth Stage.

I move: "That the Bill do now pass".

I should like to say a few words on matters which have been raised on Second Stage and particularly on Committee Stage. A number of points arose on Committee Stage which I wanted to look at.

As the Minister may be aware, he is confined to what is in the Bill and not what might have been put into it, or could not have been put into it. He must speak about what is in the Bill only.

It is my intention to deal specifically with the parameters of the Bill and not to go outside them. The first of the points which arose on Committee Stage concerned the amendment in section 2 (1) (a), changing the wording "a company not trading for profit" to "a company not trading for the acquisition of gain by the members". This was a point raised by Deputy Flynn at quite some length.

The purpose of section 2 (1) (a), in either form of words, is to exclude from the detailed accounting requirements of the Bill those companies of a strictly noncommercial character who incorporate as companies merely as a convenient way in which to conduct their operations.

There are many such companies. Very often they apply under section 24 of the 1963 Act for a licence from the Minister to drop the word limited from their names. I gave a few names of such companies when we discussed the Bill. The sort of bodies involved cover associations promoting social, educational, cultural, charitable, religious, and other like objectives. Good examples taken from a list of such companies which I have here and which I am quite happy to give the Deputy, if he so wishes——

I would prefer if the Minister would.

With the permission of the Chair, I shall circulate the list with the Official Report.

This is a practice in the United States, but I do not think we have it here.

On a point of order, I would prefer if the Minister would write it into the record because quite a number of the organisations referred to in the Minister's script have been asking questions about their obligations under the new legislation. If the Minister puts the list on the record he will save many questions later on.

If the Minister wants to put it on the record, he will have to read it into the record.

There are 345 companies. I would be happy privately to give the list to the Deputy.

You could do that, but it would not appear on the record.

Is it possible that the list could be lodged in the Library so that people could have access to it if they so wished?

I would be happy to do that, as requested by the Deputy. It is not my wish to deprive the Deputy or to hold up the proceedings of the House, or to conform with American Standing Orders.

Stick to Irish Standing Orders.

I did not realise that the list would take all night to read. I hope the Minister will spare us that.

I should be quite happy formally to lodge the list in the Library.

That would be in order.

I shall give some examples from the list. They include the Limerick Handicapped Children Committee, Dún Laoghaire Old Folks' Association, Irish Heart Foundation, Catholic Housing Aid Society, Irish Epilepsy Association, Dublin Simon Community, the West Finglas Tenants' Association, Cumann Lucht Capaillíní Chonamara. I could go on.

It is hardly the intention of this House to subject such entities to the rigours of this Bill. However, under the terms of section 2 (1) (a), as previously worded, this could have happened. Such bodies may indeed technically make a profit from, say, fund raising activities, or events run by them, but such profits would be applied by them in aid of their objectives; individual members would not profit. This allows these bodies to make theoretical profits, but the definition which excludes them is that such theoretical profits are not to be to the gain of members. I am sure that the Deputy will agree that that is a more comprehensive definition which would not allow for difficulties.

This gain can accrue through the distribution of dividends, to use the old wording, through capital gain, or through gain in any surplus in the break-up of assets on liquidation. This cannot now happen under the new definition. Some Deputies felt the revised wording would allow for commercial companies to be set up to abuse section 2 (1) (a) to gain exemption. I do not see that happening as I am happy that the wording of the section is flexible enough to defeat such schemes. Certainly, the Registrar of Companies is in no doubt as to the genuine companies who can be allowed to benefit from section 2 (1) (a).

Deputy Flynn asked how many religious companies would be exempted by section 2 (1) (b). The answer is, not more than 60. I phrase it this way because there is a doubt about the precise status of a number of them which could only be settled by a rather time-consuming inspection of their activities. This was not felt warranted since the Deputy only wanted a rough figure. However, when it comes to gaining the benefit of section 2 (1) (b) any such concerns will have to satisfy the Registrar of their status.

Deputy Flynn also raised the question of whether it was necessary in section 7 (1) (a) to refer not only to sections 3, 4 and 5 but also to section 6. I gave as my view that since section 5 is subject to section 6, and expressed to be so in the wording of section 5, it was not necessary to have a special reference to section 6 as sought by Deputy Flynn. The draftsman, who has been consulted, considers my view to be correct.

The Deputy also asked about the procedures for translating foreign documents into English or Irish when filing with the Registrar. I would like to point out that the procedure is set out quite clearly in the Companies (Forms) Order, 1964 (S.I. 45 of 1964) in regulation 6 as follows:

A translation of a charter, statutes or memorandum and articles of association, or other instrument constituting or defining the constitution of a company, or any account or other document to be delivered to the registrar under the Act shall be certified to be a correct translation—

(a) if made outside the State, by an Irish diplomatic or consular officer, or by any person whom any such officer certifies to be known to him as competent to translate it into the Irish or English language,

(b) if made within the State, by a notary public or a solicitor.

In so far as the filing of accounts in Irish is concerned, the Registrar assures me that the facilities are there to enable companies to do so if they wish, without the requirement of transmission into another language.

Finally, Deputy Flynn suggested that there was some room to play around with certain provisions on disclosure of information by leaving this to the directors, and that there was scope in extending the exemptions by devising new corporate structures. Reference was also made to the position in Germany regarding the limited partnership form of company not covered by the German Fourth Directive law, the GMBH & Co. KG type company. The position simply is that there is little scope for the "creativity" suggested. In fact the Commission have acted just recently on 30 April last in proposing an amendment to the Fourth Directive to include limited partnerships, including the GMBH & Company KG. There is a draft proposal, therefore, under discussion which it is supposed will include ordinary partnerships and unlimited companies, a proposal I certainly would not support and I am sure neither could Deputy Flynn. The point is, however, that Brussels is watching what we are doing in relation to limited companies. The GMBH case is perhaps the nearest problem which exists of an entity which is a limited company while not so named.

I have put down a number of amendments which have already been conceded by the House. I have tried to respond to the points made by Deputy Flynn. I am very grateful for his assiduous attention to the Bill and for his most constructive and helpful contributions both on Second Stage and particularly on Committee Stage.

I would like to query some items that the Minister of State has referred to and also to pose him a few further clarifications which, while he may not be in a position to deal with this evening, he might very well take the opportunity of doing so in the Seanad.

First of all, I would like to make reference to page 2 of his script this evening where he refers to profits being made by individual members of a particular company and the fact that there is a wider definition being put forward in so far as the liabilities of a company are concerned. The difficulty with this, I would suggest, is that what the Minister of State's script says has no authority in law. Regrettably, when these matters come to be tested in the courts subsequently, barristers and legal people make reference to statements made by Ministers in this House in support of positions being taken. This has no weight of law and is usually struck out in that the actual wording as laid out in the directive or in the Act of Parliament, as it will be after the President signs it, is the one that carries the weight. While the Minister of State made a distinction and given a wider definition to what is intended under this legislation, which is welcomed by me, regrettably it will not carry any weight outside of this Chamber. Perhaps, the Minister of State might take the opportunity in the Seanad to widen the scope or to amend the section so as to provide for the intention which he has expressed here this evening.

While the Minister of State might wish the Registrar to take a liberal view or take a particular view in any one set of circumstances that, in effect, also has no force of law and it will be for the Registrar to carry out the instructions as they are exactly laid down in the legislation. I would like, if I may——

I missed the last point.

It purely means that the Registrar at this time is not in a position to implement the legislation as it exists at present. I do not think he is going to be able to do it when the new legislation comes in. Certainly, the Minister of State in his speech is giving him a certain flexibility in dealing with certain types of companies who might be claiming exemptions under the new legislation. He is not entitled to that. He will have to take it exactly as he finds it in the legislation which the Minister of State is now promoting. If there is a change to be made and a wider definition to be entertained, then the Minister of State might consider referring to it again in the Seanad by way of an amendment.

I would like to refer the Minister of State back to section 16 of the Bill as published and not the amended Bill after Committee Stage. I would like clarification on that section where a company controls the composition of the board of directors or holds more than half of the equity share capital of another company. Under section 16 of the Bill the holding company must publish details of its shareholding in the subsidiary along with accumulated reserves and the profit and loss account of the subsidiary. What I am anxious about is this. Does this obligation to publish apply where the control is indirect, that is, where the control is through the medium of a number of subsidiaries? Perhaps, the Minister of State might be in a position to clarify that, if not now, then at a later stage.

I would also like to make particular reference to chapter 34, page 39 of the originally published document. I have not cross-checked it against the amended Bill but I will make reference to it at chapter 34, subsections (1) (c) and (d) where details of indebtedness are required. The Fourth Directive, and in particular the UK Act implementing the directive into British law, required details of secured debt and security given by the company whereas the Bill as drafted by the Minister of State requires details of the security from whatever quarter it is given. Thus, the situation could arise where the company which has debts secured by a third party would be required under the Act to give details of that security whereas such details are not required either under the Fourth Directive or under the UK Act.

I am concerned that the Minister of State is disadvantaging companies as against their competitors and counterparts in the UK. We could take a situation where a company have given a mortgage over a property owned by the company to secure a debt and where they have given further security such as a guarantee by the proprietor or by some other third party. Normally one would not have to refer to the third party security in the accounts and such a reference is not required under the UK Act or under the Fourth Directive. In conformity with what the thrust of what the Minister has been attempting to do here, we should not be disadvantaged as against the UK Act. Perhaps it needs clarification or an amendment of chapter 34 when it comes before the Seanad.

I presume the reason the Minister did not refer to the implementation date is that he still has not finalised his attitude on the matter. Strong representations have been made to the Minister not just in the House but also by the accountancy bodies and others. I reiterate that representation in the hope that I could persuade the Minister to consider small companies because they do not have the expertise, the experience and the office plant to deal with what is required under this legislation which is a very detailed breakdown of their business. Whether the companies are small or major they are still required to make quite a lot of disclosures. They have to accommodate themselves to new accounting practices. Even though most accounting practices have been in place for some time, it has to be understood that they are involved in new arrangements.

There is an expense involved which could be minimised by having a gestation period of not less than 18 months. This was originally intended under the directive to allow companies to gear up both financially and administratively in order to deal with the demands of the legislation. It is not unreasonable to give 18 months before the implementation date as we are not the most tardy of the EC countries to take on board international legislation. The Minister did not give any undertaking in that regard either on Second Stage or Committee Stage. I can only deduce from that that he is favourably disposed towards my recommendation on Committee Stage.

Once again I ask the Minister to confirm publicly tonight or at an early date that the publishing requirements of the Act will only apply to accounting periods commencing on or after 1 January 1987. That would be only fair. This year the Minister could compare the accounting practices with those of last year rather than getting people to make a complete reappraisal and re-assessment of their 1986 figures in order to accommodate him. If he now gives the indication that the implementation date is 1 January 1987, they can bring into operation the new arrangements and we weed out all the difficulties and the mistakes. It would be better to have the mistakes teased out now in the gestation period rather than to have the registrar send back the whole file for re-examination on an ongoing basis.

I was rather amused by the Minister's reference to the fact that Brussels is watching us. Brussels is always watching us. We seem to be very concerned about what they think about us in Brussels. We can be over-concerned. Other countries have not been as accommodating to Brussels as we have. The Minister should not go overboard in implementing legislation to accommodate EC directives that come from ideologies and political systems far removed from our traditions. Other countries have adopted a laissez-faire attitude towards the implementation of this legislation. They adopted the rather dubious formula of partial implementation, but we decided to take it on board holus bolus. While the Minister took on board most of the exemptions permissible under the directive, at the same time there were certain areas where he could have been more generous in his attitude. If Brussels thought that we were dis-honouring the spirit or the word of the directive so what? This legislation is only applicable to Irish companies.

As we know thousands of these companies have gone into liquidation or had receivers appointed over the past few years. All the major companies have no difficulty with this. Their accounting practices and machinery are well capable of taking on board this matter it they had to. As the Minister knows, accountancy offices in this town have been burning the midnight oil changing status for all these companies who have the financial wizardry and the financial muscle to accommodate the change. They changed their status so they will not be laden with any difficulty under this legislation, but the small company will be. It will have a debilitating effect on some companies. Regrettably, if it is applied rigidly, as the Minister indicated it will be, then it could result in some job losses in industries where strategic information will be made available through the disclosure measures as outlined in this legislation.

I ask the Minister, as I asked the former Minister, to consider the question of the new style companies of incorporation such as the proprietary companies. While he did not give it the complete bucket of cold water, he certainly gave it a fair douse of it. I know that Minister of State would not be averse to creating a big name for himself in the world of commerce by taking this on board. I will not tease him about it. When the Minister is considering this matter in the Seanad he should have a little concern for the thousands of small Irish companies, the bedrock of Irish commercial society, who could benefit enormously if he created a new form of incorporation that would not involve them in the very wide-ranging disclosures that exist in this legislation. I know the Minister will say that the provisions of this directive are mandatory on us and that they are not negotiable in any way. They are negotiable.

After the next Government come into office I will be making strong representations to them, when the next review comes up under the directive in 1988, to insist on a much wider threshold as far as the exemptions are concerned so that virtually all companies, except the very large private and public companies, can be brought under the small category as outlined in the directive. I know this will have a very big impact on financial reporting. It is very far-reaching in its consequences on business. There is no question that it will require a lot of retraining of administrative staff to evaluate the impact in the first instance and to implement it afterwards.

Information is the most valuable resource a company can have, and to have it laid bare so that it can be poached by industrial creditors or competitors is a serious disadvantage. I have no doubt that many companies will be seeking to invoke the exclusion clause if they discover that disclosure would injure them seriously.

We must do nothing to alarm business or reduce the possibilities of getting companies in there to invest, particularly US companies in the hi-tech industry, particularly in chemicals and pharmaceuticals. I am sure they will be determined that they will be constituted as branches so as not to have to comply with disclosure regulations. If they were to disclose their turnover and analyses of all their business dealings, they would be open to poaching by their competitors. They will look for time and therefore I hope a long gestation period will be given so that if they need to exclude themselves they will be given an adequate opportunity to do so.

This legislation will be seen hereafter as a body blow to Irish commercial development and the Minister now in the House will long be remembered for section 13 of the original Bill as published. That section was an "Open Sesame" for disclosure. I admit that the European Court would have taken some delight in bringing us to heel in that regard, and I wish they would be as active in following up other non-conforming countries.

I ask the Minister seriously to give as much time as possible before implementation so that the business community can adjust and make any changes necessary. This legislation is very far reaching and means a fundamental change in company law and limited liability status and I forecast that one day we will regret passing it. However, we have no alternative to complying with EC law.

I should like to respond to some of the fair points made by Deputy Flynn. I would point out that it is the words in the Bill that will have the force of law, and I am quite satisfied in relation to the meaning of section 2 (1) (a), dealing with companies not trading for the acquisition of gain by members. I am sure it will be interpreted in the courts not as a wish expressed by the Minister speaking here in a debate but as the law as written.

Would the Minister consider amending it to read that any profit made by any company would be interpreted in a certain way? Would he consider that between now and the Bill's introduction in the Seanad?

The words in the Act when it becomes law will be quite clear and will be so interpreted in the courts. I am satisfied that the definition now in the Bill is quite clear and unambiguous. In regard to the registrar, I disagree with the Deputy's suggestion that he will not be in a position to implement the law. He will have to interpret the law as it is presented to him under the various company Acts of which this Bill is about to become part. Those Acts give the registrar the right to interpret and to have recourse to the courts. He would use these rights in a judicial and sensible manner.

Section 16 refers to the holding companies. It goes back to the 1963 Act, section 155 (2), which defines clearly in law the matter raised by the Deputy, in particular in relation to his point about directors of subsidiaries. Subsection (3) of that section defines the position when one company is a subsidiary.

I referred specifically to indirect control.

That is covered in section 155 of the 1963 Act. I understand the Deputy's concern, but my view is that the matter is covered in the 1963 Act.

Will the Minister refer to it in the Seanad?

I will have another look at it. It was not my wish that this Bill would allow evasion of declaration or of finding out the true owner. I admit I do not have all the perceived wisdom in the world and I shall be happy to look at the matter when it is being discussed in the Seanad.

In relation to third party debt, the provisions being made concur with the 1981 United Kingdom Act dealing with companies. This is referred to in Part 3 of the First Schedule, paragraph 48, subparagraph (4) which states that in respect of each item shown in a company's balance sheet there shall be stated the aggregate amount of any debts disputed in respect of which security has been given and an indication of the nature of the security so given.

I am talking about third party security.

My understanding is that this would require that third parties would have to be included in sub-paragraph (4) (b). With regard to the implementation date, it is unfair of the Deputy to say that we are in the vanguard in implementation of this directive. I understand that to date Belgium, Denmark, France, Luxembourg, the Netherlands and the United Kingdom have adopted national legislation implementing the Fourth Directive. That, in addition to the fact that at the moment we are before the court on an indictment for not implementing the directive, indicates that we have been somewhat tardy in implementing it. I cannot agree with the Deputy in what he has said. Apart from Spain and Portugal who have just joined the Community, the other countries concerned are Greece and Italy and the latter have been condemned by the court for failure to implement the Fourth Directive. I cannot agree with the Deputy when he says we are ahead of the posse with regard to implementation of the directive. We are not and we are now before the European Court of Justice for failure to do that.

It is because the unions want us there. They are always looking for transparency in the accounts but it is not proper that they should do so. Industrial relations law should look after that matter.

I understand the Deputy's reservations but I cannot agree with him.

Will the Minister give us the 18 months?

We are under pressure to have an early implementation date but this matter cannot be decided until the Bill goes through the Seanad and is signed by the President. I realise there may be difficulties for companies and auditors in relation to implementation but the Deputy must understand I am under pressure.

Will it give the Minister any comfort to know he would have my support in seeking a derogation? I have some clout in Brussels.

I do not know what clout the Deputy may have in Brussels or at the European Court of Justice. It is a matter I will have to consider carefully when the Bill has been signed by the President.

If I were in the Minister's position I would be giving a commitment tonight to companies in Ireland that they would have 18 months——

The Deputy may not cut in with speeches every now and again.

Reform of the Dáil would allow for this kind of cross chat on Committee Stage.

We are not on Committee Stage.

We are under pressure in the European Court of Justice to implement the directive. It is being transposed into national law in a fair and balanced way and I must disagree with the Deputy in his statement that we are doing damage to industry and that this Bill is unnecessary. What we have done is fair and balanced and it will serve the needs of the community. Ordinary creditors of companies are entitled to know where they stand in their dealings with organisations. Preferred creditors, secured creditors and debenture holders have a special privileged hold on a company's funds but the ordinary creditors may be left out.

They could be accommodated under the law dealing with insolvency introduced this year.

I am satisfied this Bill will go some way towards giving some comfort to ordinary people in their daily dealings with companies. We have used the maximum thresholds allowed and I cannot do more than that. The matter will be up for review very soon. I shall be thinking along the positive lines suggested by the Deputy because I believe there are major questions to be addressed, particularly in relation to the attraction of mobile investments. The Deputy can be assured we will take a responsible line.

The Bill is a balanced measure. We are carrying out our national responsibility to transpose the directive into national law and we have done an excellent job. I agree with some of the points made by the Deputy but not all of them. The Bill serves the needs of the economy and of industry in a positive way.

Question put and agreed to.
The Dáil adjourned at 9.20 p.m. until 10.30 a.m. on Wednesday, 14 May 1986.
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