asked the Minister for Industry and Commerce the reason it is proposed that, under the recently announced IDA proposals, board membership of grant aided companies may be a feature; the way in which this will operate in practice; if it will involve the IDA in additional financial liabilities; if such decisions are made by these companies; and if he will outline the thinking behind such a step.
Ceisteanna — Questions Oral Answers. - Board Membership of Grant-Aided Companies.
4.
I presume that the Deputy is referring to the greater emphasis on repayable forms of State aid and equity as part of the revised national industrial incentives announced on 7 April 1988. The new emphasis is designed to achieve better value for State funding for industrial development and to offer a measure of direct return on the State's investment.
The operational details of the new arrangements have been set out in a recent IDA publication entitled "Your Partners in Development — Services and Incentives" and fall within the day-to-day administration of the State industrial promotion agencies.
I understand that in accordance with standard business practice, the IDA normally will seek an option to nominate a director to the board of a company in cases where it negotiates an equity stake. The negotiation of equity stakes in projects or the nomination of a director should not result in any additional financial liabilities for the IDA.
When the IDA appoint one of their own members to the board of a company, surely that person as a director must take on the normal liabilities which any director would have. Where is the demarcation between being an employee of the IDA and also a director of a company?
The policy of seeking equity stakes should not result in any additional financial responsibility. Equity will be used as a substitute for grants or be sought free in return for a high level of grant support. These are the two sets of circumstances in which equity would be used. It would be another vehicle. Regarding the appointment of directors, obviously one has to be concerned about that matter and I will be taking a look at it. The possibility that an individual director would find himself in that difficulty is pretty remote. If we balance that remote and marginal danger against the need for the IDA to ensure that their equity is watched, we must come down on the side of the normal business decision of having the equity watched.
The Minister is at pains to say what should not be involved but in reality these difficulties could quite conceivably occur. Where is the division between an individual's responsibilities within the IDA and his responsibility as a director on behalf of the IDA? There are liabilities if things go in a certain direction. The Minister is indicating that he hopes they will not go in that direction. Normal business practice will apply.
There are a lot of dangers in normal business practice. There are many directors of private limited companies, some of whom have been appointed by the State. The Companies (No. 2) Bill, 1987 which is in the Seanad will shortly be coming before the Dáil. I assume that directors of private limited companies will all have the same responsibilities to carry. The companies and the State appointed directors will have to abide by the law.
Is the Minister aware that section 107 of the Bill to which he refers contains a provision that a court may declare a director personally liable without any limitation of liability for any or all of the debts of a particular company if that company has traded in a reckless fashion? In view of that provision which the Minister himself is promoting, can he say how it will apply in the case of directors appointed by the IDA? Will it mean that the individual IDA officer who has acted as a director will be personally liable or will the IDA accept liability? If the latter is the case, how can the Minister say there is no extra exposure for the State? Would he not agree that if the IDA accept the new liabilities for their directors under the legislation the Minister is promoting there is extra exposure for the State?
By extra exposure for the State I mean that the equity will be a substitute for grants or be sought free in return for a high level of support. I did not interpret that question to mean the downstream possible legal situations.
That is part of the picture.
Yes. The IDA have had directors on boards through the years, including the period when Deputy Bruton was Minister.
Not under this new Bill.
It is not law yet and is open to be amended by the Deputy's party in the Seanad or in this House. There is scope for amendment if the Deputy is worried about how the Bill would impact on State companies. There were IDA directors during Deputy Bruton's period of office. There were always potential personal liabilities for individual directors.
Only if there was fraud. Now that is being extended to what is described by the Minister as recklessness. Therefore, he must accept that this has implications for the decision which the same Government announced with regard to the IDA taking more seats on boards.
I see the point the Deputy is making but the situation is being changed not by the IDA's decision to appoint directors to boards but by the Companies Bill. If the Deputy feels that the onus is being laid on directors, he should seek to change the Bill.
Change the IDA policy.
It is being dealt with by the IDA.
Is Deputy Bruton suggesting that the IDA should not put directors on boards?
I am suggesting that the IDA should not take foolish risks.
They will not take any foolish risks.
What is the IDA policy where they have a director and there is a problem with the company?
There has been no change of policy with regard to a director on a State board since the time Deputy Bruton was Minister for Industry and Commerce. What is changing is this new legislation that is coming through. As this Bill progresses I will have to take legal advice as to the position of State board directors under the legislation, and I will certainly take that advice. I will take it in the context of the Bill and the IDA, of course, will take their own legal advice in regard to that.
Has the Minister not done so yet? He should have done so long ago.
I am only asking the Minister what is the policy.
The policy is to appoint directors as was always the policy under the previous Government.
Would the Minister answer the question he was asked?