It is understood that there is agreement to proceed with the Report Stage of the Companies (No. 2) Bill, 1987. That being so, we shall resume on amendment No. a68a in the name of Deputy Sean Barrett. Are Members fully appraised of this procedure?
Companies (No. 2) Bill, 1987: Report Stage (Resumed).
Yes. We got through our business much more quickly than anticipated this morning. Rather than delay the passage of this important legislation, we have agreed to proceed as far as possible but I would urge the Minister to be as generous as possible with questions we may put because, as it was understood that only amendments to Part IV were being taken today, some of the amendments I would have liked to have included are not available at present. In addition, I had an opportunity during the break to read some of the Committee Stage Report. There were aspects of that report which indicated that the Minister would be prepared on Report Stage to consider some amendments but these do not appear on any of the lists I have received to date. Perhaps the Minister would indicate if it will be possible at some later date to introduce further amendments on Report Stage to this legislation. It may be that he did not have the opportunity either to have the amendments prepared.
For the information of the Deputies in the House, I would say that the great majority of the amendments I have put down are in response to points made on Committee Stage. Obviously, we have not taken every single one of them on board because not all of them were appropriate but anything we considered appropriate or even reasonably appropriate appears in the amendments before us. So far as the giving of explanations and so on is concerned from Part V onwards I will be happy to do so as fully as I can and as fully as Deputies require in the circumstances.
I am grateful to Deputies opposite for agreeing to continue with this Bill. It is in accordance with the order—it is not by special agreement—but we had not anticipated getting beyond Part V so I can understand that Members may not be fully prepared. For that reason, I am particularly appreciative of what is now being done and I think it is in everyone's interest that we get as far as we can on the Bill today because it is generally agreed that it is extremely important that it be passed at the earliest possible date.
I now ask Deputy Seán Barrett to move his amendment.
I move amendment No. a68a:
In page 87, to delete lines 19 and 20.
I tabled this amendment to try to extract from the Minister some further information in relation to the whole area of shadow directors. He may have had the opportunity of reading an article in the business page of yesterday's Irish Independent under the heading “Bill Will Hit Risk Capital Investment”. In that article fears had been expressed by the Confederation of Irish Industry in relation to the whole area of shadow directors and how the present definition may affect venture capital companies. Until this whole issue is cleared up I would ask the Minister to have this amendment included. When replying perhaps he would refer to the article I have quoted from because, if what it contains is correct, the effects on venture capital investments in the future could be serious and none of us would want that.
Fears were expressed also in the same article that some professional advisors could be regarded as shadow directors. I have tabled this amendment to enable the Minister to respond to the newspaper article I have referred to and to get some assurances from him that the fears expressed are unfounded. Reference was made also to the involvement of the IDA through their various programmes. Some of the people administering those programmes could be regarded as shadow directors. In themselves, Irish venture capital companies are a very good thing for Irish industry and Irish businesses, particularly small businesses, who would be seeking to obtain venture capital to assist companies both in the promotion of what they are doing and also in terms of the employment opportunities that would arise from it.
I take the point the Minister made, that we did not have much time to study any of the amendments which have just been circulated. I am not clear on what the amendment before the House would achieve. I would have thought that by deleting the subsection in question we would weaken the overall effect of the section and maybe provide an opportunity for individuals to hide behind the so-called shadow director. I am not convinced at this stage that deleting the subsection would be of benefit to anybody.
So far as the effect of the amendment is concerned, what Deputy Bell has said would represent my views also. We are dealing here with the prohibition of insider dealing, and trying to cope with the consequences of it. One rarely gets a director who has access to insider information actually dealing directly himself. Sometimes he is a nominee for somebody else and it is the somebody else who comes within the definition of a shadow director in section 26. He is the person about whose activities one would be apprehensive and with which this section and this Part seek to deal. Therefore, to exclude shadow directors would be to exclude the more significant people in the operation — the string pullers rather than the puppets. For that reason Deputy Barrett's amendment would not be acceptable.
The Deputy asked how venture capital companies are affected. In that respect I would refer him to one of the amendments — unfortunately, I do not know the number because the numbering system has broken down. Not alone are there letters after the numbers but there are letters before them. For some curious reason, once an amendment is numbered it can never be renumbered. I do not know why this is so. It is causing much confusion today.
It is the amendment in Part VII which will insert the new section 148. I do not know the nominal title it comes under in this list but that will be the effect of it.
Will the Minister repeat that?
Amendment No. 68s in Part VII will insert the new section 148. The composite definition of a shadow director in the 1963 Act comes from a combination of the definition in section 293 (4) and section 2 (2) and it is read in conjunction with the definition in section 26 of the Bill. The effect of the new section 148 in Part VII — we can discuss this in more detail when we come to Part VII — would be to exempt the genuine representatives of venture capital companies from what might otherwise be the consequences of their being appointed to the board of a company that got into certain types of difficulties in relation to reckless trading and so on. Of course, Part VII relates to the question of disqualification and restriction of ability to act as a director.
I appreciate that.
This relates to insider dealing. It is a somewhat different matter but, regardless of who one represents on the board of a company — a bank, the IDA, a venture capital company, the State, a Minister or whoever — one is still not entitled to engage in insider dealing. The question of exempting representatives of special categories is valid under part VII but it is never a valid suggestion that they be exempted from the prohibition on insider dealing. This is why it is necessary to retain the definition of a shadow director within the definition of a director for the purposes of this Part.
The Deputy referred to the IDA's possible concern. The IDA consulted my Department before they gave an interview for the article to which the Deputy referred and I think appeared in yesterday's Irish Independent. The IDA have expressed themselves as satisfied with the provision proposed in the new section 148. Of course, the IDA do not see any difficulty in relation to the definition in section 106 because they accept that even their own nominees obviously cannot engage in insider dealing in any way and everybody will have to be subject to the same law in regard to that.
If the Deputy needs more information, or perhaps more reassurances, in regard to the disqualification or restrictive aspects of shadow directors I can give it to him when we come to deal with Part VII. The position on insider dealing is that in a sense the last people we should exempt would be the shadow directors, who are far more potentially insidious than the nominal directors.
I accept totally what the Minister has said. It was not my intention when tabling this amendment to find a loophole for anybody to engage in insider trading. I have to admit that his amendment was tabled solely from the point of view of enabling the Minister to put on the record of the House his reply to the article in question. I accept totally that it would be wrong to tolerate any situation where a shadow director or anybody else would be excluded from the general provisions in relation to insider trading.
I hope the House will accept that the reason I tabled this amendment in a hurry at lunchtime was solely to get the Minister to put on the record his views on the article which appeared in the Irish Independent and to allay any fears which may exist in relation to the definition of a shadow director. I was using parliamentary tactics to enable the Minister to put his views on the record. I accept totally that when we are dealing with insider trading we should not provide any loopholes so that one category can escape the punishment which will apply to others as defined in the Act. I look forward to a further discussion on shadow directors on amendment No. 68s.
Amendment, by leave, withdrawn.
It might be appropriate here if I endeavour to explain the apparent confusion. As the House knows, we have what I will call official amendments on the green paper. If subsequent to that there is an arrangement or understanding that we should accommodate additional amendments, and we take it that all amendments must be taken seriatim, there is no other way known to us whereby we can accommodate them without giving them a prefix which will have them introduced before or after those amendments which appear on the official list. Agreed.
As the slogan says, there must be a better way.
There is no other way.
I would put numbers on them.
How could you put a number between 68 and 69 if it was not 68a, b, or c?
I would number them 69, 70 and so on. However, as long as we do not get lost——
At least this methodology guarantees a consistency in confusion that we would not have——
That is about all it guarantees.
Think about it and see what chaos would exist if we did not do it in the fashion which has been proven over the years as the best in all the circumstances. It would not occur at all if there was no question of amendments being tabled later than that which is prescribed for.
I know about the futility of inconsistency.
Now that that has been explained and is understood by everybody, we move to amendment No. 68a in the name of An tAire.
Is it on the white list of amendments?
No, the green list.
Where will amendment No. 68la come in relation to amendment No. 68a?
After amendment No. 681.
I presume the letters "la" mean "late a".
They do not mean Los Angeles. We will cross that bridge when we come to it.
I hope the school children following this debate will be greatly educated as a result.
I move amendment No. 68a.:
In page 88, line 2, after "body" to insert "or".
The definition of a relevant authority of a Stock Exchange for the purposes of Part V was originally contained in what is now section 114. It was clearly provided there that the committee of management of the exchange concerned, as well as its permanent manager, taken separately, was such a relevant authority. When this definition was moved by way of a Committee Stage amendment to what is now section 106 the wording was changed to read as follows: "relevant authority in relation to a recognised Stock Exchange means (i) its board of directors, committee of management or other management body, (ii) its management, however described". However, as I said at the outset, I want to be certain that either of these parties can act independent of and without the necessity to get the agreement of the other but I am not certain that the present wording achieves this. The amendment is, therefore, simply a clarificatory one to make this clear and it inserts the word "or" between subparagraphs (i) and (ii) to make it clear that they are alternative and not cumulative.
Amendment agreed to.
Amendment No. 68b. Amendment No. 68c is cognate and they may be taken together, by agreement.
I move amendment No. 68b:
In page 89, between lines 38 and 39, to insert the following:
"(10) This section does not preclude a person from dealing in securities if, while not otherwise taking advantage of his possession of information referred to in subsection (1)——
(a) he gives at least 21 days' notice to a relevant authority of the relevant Stock Exchange of his intention to deal, within the period referred to in paragraph (b), in the securities of the company concerned, and
(b) the dealing takes place within a period beginning 7 days after the publication of the company's interim or final results, as the case may be and ending 14 days after such publication, and
(c) the notice referred to in paragraph (a) is published by the exchange concerned immediately on its receipt.".
These two amendments address an issue which was raised in the Special Committee, namely, the problems which might face directors and certain key executives of quoted companies who held shares in the company, either directly or through some form of employee share ownership scheme. It was argued at that time that, under the system proposed in Part V of the Bill, at least some of the people concerned would find themselves "locked in" to the shares they held, on the basis that they would always have some information which would fall within the definition of inside information in section 107. The solution to this, it was suggested, would be to have some sort of "window period" in which it would be "safe" to deal in the shares.
While I certainly see that some key executives in a quoted company might be in possession of inside information to such a frequent degree that they would find it difficult to deal at any time in the company's shares, I do wonder how widespread this difficulty is likely to be in practice — particularly having regard to the actual wording of the prohibition in section 107. On the other hand, if we are serious in our intention to tackle the abuse of insider dealing the provisions we devise will simply have to be as tight as we can possibly make them.
What I am proposing, therefore, is the introduction of two tightly framed exceptions to the general prohibition. Under the first of these, in other words, amendment No. 68b, we would provide that the general prohibition will not apply where the following conditions are fulfilled: first, the person concerned must not take advantage of inside information to deal; second, he must give the Stock Exchange at least 21 days' notice of his intention to deal — this notice would be disclosed by the exchange; and, finally, the dealing would have to take place within a limited period after the publication of the company's interim or final financial results.
The most important of these conditions is the requirement that the person's intention to deal would be disclosed to the market. Since one of the main distinguishing features of insider dealing is secrecy, and inequality of information, the fact that a person who might be in a key position would have to declare his intention in advance would significantly reduce this element of secrecy.
Overall, the amendment is designed to give a means whereby directors and senior executives can deal in the shares of their company — something which, under the existing provisions of the Bill, they might only be able to do at the risk of being accused of insider dealing. While it will give them a certain degree of comfort, it will not at the same time give them carte blanche to deal — indeed, it will still be difficult. One way or the other, what we wish to avoid at all costs is the opening up of an avenue of abuse here.
The second amendment I am proposing here is related, although the reason for it is somewhat technical. Deputies Barrett and Bruton raised, in the Special Committee, the question as to the effect the provisions in Part V would have on employee profit-sharing schemes.
The position under the Bill as it stands is that the very acquisition of shares under an employee profit-sharing scheme could be regarded as insider dealing by virtue of the definition of "dealing" in section 106. This would be an unfortunate thing to happen, since the general body of a company's employees really have no control over such acquisitions, which are rather automatic in nature. Therefore, while I am determined to leave no loopholes here, I am conscious of the value which these schemes have, and I do not wish to prevent them operating for what may be a technical reason.
Amendment No. 68c is designed, therefore, to enable employee profit-sharing schemes, approved by the Revenue Commissioners and by the shareholders of the company, to operate and be availed of, even by persons who might under the present text of the Bill be prohibited from benefiting from such a scheme, provided the conditions set out in the amendment are met.
I should emphasise that the exemption I am proposing is limited to the acquisition of shares under an employee profit-sharing scheme, and does not extend to any subsequent dealing in the shares.
I commend both of these amendments to the House.
Amendment agreed to.
I move amendment No. 68c:
In page 91, between lines 3 and 4, to insert the following:
"(b) acquiring securities in a company pursuant to an employee profit sharing scheme—
(i) approved by the Revenue Commissioners for the purposes of the Finance Acts, and
(ii) the terms of which were approved by the company in general meeting, and
(iii) under which all permanent employees of the company are offered the opportunity to participate on equal terms relative to specified objective criteria;".
While amendment No. 68c does not preclude employees from acquiring shares, what is the position in relation to the sale of those shares?
It does not cover the sale. I have said that the exemption is limited to the acquisition of shares under an employee profit-sharing scheme and does not extend to any subsequent dealing in the shares. If he acquires under amendment No. 68c he will have to dispose under amendment No. 68b. The fact that he had a certain limited exemption to acquire because he was an employee in an approved scheme does not automatically give him the right to dispose or to deal if he has insider information. If he is a junior employee who has 500 shares or the like he does not have inside information and can deal whenever he likes. If he is a senior person who has information he will have to deal in the window period as defined in amendment No. 68b.
Amendment agreed to.
I move amendment No. 68d:
In page 91, line 32, after "writing" to insert ", to the parties to the transaction,".
This amendment arises from comments made in the Special Committee on section 111 of the Bill and is intended to provide a measure of certainty in a case to which subsection (2) applies. The background to the problem is this.
Section 111, subsection (1), provides that, where a person has been convicted of an insider dealing offence, he is prohibited from dealing for a period of 12 months. However, where such a person was, say, half-way through a particular transaction at the time of his conviction, subsection (2) allows that transaction to be completed, provided the Stock Exchange has indicated, in writing, its satisfaction about a number of things. The question raised in the Special Committee was to whom the Stock Exchange's "satisfaction" should be conveyed.
I agree that it would be desirable to specify to whom this should be done and, having reflected on the matter, I think that the parties to the transaction itself seem to be the obvious candidates to whom the "clearance" should be conveyed. The amendment before the House provides accordingly.
Amendment agreed to.
Amendment No. 68e. Amendment No. 68f is consequential and the two amendments may be discussed together, by agreement.
I move amendment No. 68e:
In page 93, line 3, to delete "request", and substitute "direct".
These two amendments arise from a suggestion by Deputy Bell in the Special Committee, which I said I would accept in the interests of strengthening the Minister's hands vis-à-vis the Stock Exchange, should he feel the exchange is dragging its heels in investigating any particular case.
Amendment agreed to.
I move amendment No. 68f:
In page 93, line 7, to delete "makes a request", and substitute "gives a direction".
Amendment agreed to.
I move amendment No. 68g:
In page 94, between lines 2 and 3, to insert the following:
"(2) Where an alleged offence under this Part is investigated by an authorised person, the relevant authorities of the recognised Stock Exchange concerned shall be under a general duty to ensure that potential conflicts of interest are avoided, as far as possible, on the part of any such authorised person."
This amendment has been prepared in response to an amendment tabled in the Special Committee by Deputies Barrett and Bruton, the intention of which was to prohibit completely the appointment of a member of a recognised stock exchange—in other words a stockbroker —as a person authorised to investigate suspected offences under Part V. At the time, I pointed out that such persons could, in most instances, actually be the best qualified to conduct inquiries, but I did agree that where, for example, a potential breach of section 112 —"Duty of agent not to deal"— was involved, it might be inappropriate to have one stockbroker investigating another one, and this amendment is designed to ensure that such potential conflicts are avoided.
In looking at this problem, however, it seemed to me that potential conflicts of interest need not necessarily be confined to the investigation of the activities of stockbrokers as agents under section 112 alone but could arise in other situations too. It could arise in other circumstances also. In those circumstances the amendment has been framed fairly widely and the responsibility for avoiding conflicts of interest is firmly placed on the relevant authorities of the recognised Stock Exchange.
I thank the Minister for having taken on board the point made on Committee Stage. This means the subsection will now read:
(2) Where an alleged offence under this Part is investigated by an authorised person, the relevant authorities of the recognised Stock Exchange concerned shall be under a general duty to ensure that potential conflicts of interest are avoided, as far as possible, on the part of any such authorised person.
What exactly has the Minister in mind by the use of the phrase, "on the part of any such authorised person"?
An authorised person is someone who is appointed by the committee of a recognised Stock Exchange to investigate a suspected insider dealing or a suspected infringement of Part V, or complaints generally, not just confined to Part V alone but generally, about conflicts of interest and matters of that kind. As the Deputy will recall, the point that he and Deputy John Bruton made was that it might not be good to have a stockbroker investigating another stockbroker. On the one hand I thought there was validity in that. But, on the other hand, on the basis of "aithníonn ciaróg ciaróg eile" it might be as well perhaps not to exclude them because, in some respects, they might be best fitted to really trawl fully or deeply and ascertain precisely what is going on.
I also recognise that it was not necessarily in respect of stockbrokers alone that this could arise. I endeavoured to cast it as widely as possible in this amendment — I admit it is rather widely or generally expressed — but it very clearly makes the point that it is the duty of the Stock Exchange concerned to ensure that, when they are appointing somebody, it shall be their duty to avoid appointing somebody where a conflict of interest would arise as between him and the investigated party.
But who would it apply to?
The committee of the stock exchange.
Because of the tranquility of our discussions people appear to have forgotten that the Minister can intervene a second time only. Do I take it that Deputies Durkan and Bell have a question they wish to put?
I have a question, Sir, if I may.
The Minister's amendment imposes this duty to avoid, where possible, conflicts of interest. I understand the point made. What happens in circumstances in which it is considered that that duty — to avoid a potential conflict of interest — has failed; in other words, where there is suspected to be a conflict of interest? What powers of sanction has the authority of the Stock Exchange in those circumstances?
I hope Deputy Rabbitte will be patient while we hear the second question.
My question is absolutely related. It relates to the phrase "...duty to ensure that potential conflicts of interest are avoided,"; then, "as far as possible". Perhaps the words "as far as possible" weaken the import or perhaps it is necessary to have them included. When replying further the Minister might comment on that aspect. It is directly related to what Deputy Rabbitte said. Where does the possibility end. Or how does it become impossible to avoid a conflict of interest?
If there were, say, quite a large number of stockbrokers where there could be a conflict of interests, what one would have to do is simply go further and get one where there was not such a conflict of interest. If the committee thought that the appointment of any stockbroker could give rise to a possible conflict of interest then their duty would be to appoint somebody other than a stockbroker.
How would the rest of us know?
The duty laid on them is only to ensure that potential conflicts of interest are avoided as far as possible. It may be that there would be some extreme circumstances in which it is impossible; if it is impossible, they do not commit an offence.
In reply to Deputy Rabbitte's query, the positon is that if they did consciously allow a conflict of interest to arise the Stock Exchange would be in breach of their statutory duty and could be prosecuted for so doing.
In so far as individuals are concerned it is envisaged, under section 116 (1), that the Minister for Industry and Commerce would approve of a panel of investigators, or authorised persons as they are called in this section. It relates to the earlier subsection of this section. In other words, he would pick out — presumably on the nomination of the Stock Exchange — half a dozen people who are regarded as——
——fairly straight.
——as they say in equity, "with clean hands".
Amendment agreed to.
I move amendment No. 68h:
In page 95, to delete lines 19 to 30, and substitute the following:
119.—(1) An annual report shall be presented to the Minister on behalf of every recognised Stock Exchange on the exercise of the functions of the relevant authorities of the exchange concerned under this Part and, in particular, the report shall include—
(a) the number of written complaints received concerning possible contraventions of this Part,
(b) the number of reports made to the Director of Public Prosecutions under this Part,
(c) the number of instances in which, following the exercise of powers by authorised persons under this Part, reports were not made to the Director of Public Prosecutions, and
(d) such other information as may be prescribed.
(2) A copy of the report referred to in subsection (1) shall, subject to subsection (3), be laid before each House of the Oireachtas.
(3) If the Minister, after consultation with a relevant authority of the recognised stock exchange concerned, is of the opinion that the disclosure of any information contained in the report referred to in subsection (1) would materially injure or unfairly prejudice the legitimate interests of any person, or that otherwise there is good reason for not divulging any part of such a report, he may lay the report under subsection (2) with that information or that part omitted.”.
This amendment is a response yet again to one tabled at the Special Committee by Deputies Seán Barrett and John Bruton, whose intention was to require the Minister to publish the annual report he gets from the Stock Exchange under this section. While I indicated my acceptance in principle of the Deputies' amendment, I felt the Minister ought be able to exercise some discretion as to what details of the Stock Exchange report he might or might not publish, for example, to take into account the existence of confidential or damaging information.
This kind of provision is already to be found in Part II dealing with company investigations and in the Companies (Amendment) Act, 1990, dealing with companies under the protection of the court. The general formula used in those provisions has been adapted for this amendment.
Amendment agreed to.
I move amendment No. 68i:
In page 95, to delete lines 31 to 42 and in page 96, to delete lines 1 to 3, and substitute the following:
120.—(1) If, in any respect, any difficulty arises in bringing any provision of this Part into operation or in relation to the operation of any such provision, the Minister may by regulations do anything which appears to him to be necessary or expedient for removing that difficulty, for bringing the provision into operation, or for securing or facilitating its operation, and any such regulations may modify any provision of this Part so far as may be necessary or expedient for carrying such provision into effect for the purposes aforesaid.
(2) Without prejudice to the generality of subsection (1), where the Minister considers it necessary or expedient to do so for the proper and effective administration of sections 114 and 116, he may make such regulations as he thinks appropriate in relation to—
(a) the powers of authorised persons, or
(b) the matters in respect of which, or the persons from whom, authorised persons may require information under this Part.
(3) Every regulation made by the Minister under this section shall be laid before each House of the Oireachtas as soon as may be after it is made and, if a resolution annulling the regulation is passed by either House within the next 21 days on which that House has sat after the regulation is laid before it, the regulation shall be annulled accordingly, but without prejudice to the validity of anything previously done thereunder.
This amendment arises from the Special Committee debates although the only new matter is subsection (1) and the first line of subsection (2). At present section 120 (1) of the Bill would allow the Minister to make regulations to overcome any difficulties that arise in the implementation of the provisions of sections 98 and 99. However, given the novel nature of so much of this Part, and the fact that the effective implementation of the Part will be dependent on outside agencies, that is the Stock Exchange, I consider that the Minister's powers to overcome difficulties with the administration of the entire Part should be capable of being dealt with by regulation. That is what this amendment is designed to achieve.
At the same time I propose to retain the specific powers in subsection (1) of the present text of the Bill, which is contained in subsection (2) of the proposed amendment. A similar amendment has already been accepted by the House in Part II of the Bill. Indeed, something similar exists already in section 227 of the Bill which deals with company auditors.
I note that subparagraph (3) of the amendment talks about laying regulations before the Houses of the Oireachtas within 21 days. As I understand it the way this is done normally is that it is dealt with on the Order of Business, that it is noted for the information of Members and a copy thereof is left in the Library, but the wording of subparagraph (3) would indicate to me that we should receive a copy of any such regulation. In order to overcome that would it be possible for the Minister's Department to arrange that, when such an order is made, the order, as such, is circulated to each Member of the House, or certainly the spokespersons of the Opposition parties, so that we would be aware of and have a copy of the relevant regulations? Would that present any problem?
I do not think we could, as it were, write that into the Bill.
I am not asking the Minister to do that.
It is a general principle that really would need to be agreed with Government or with all Ministers. If it is of any assistance to the Deputy, I could undertake, as an administrative arrangement for, say, the 12 months following on the passage of this Bill, when a lot of these regulations will be made because once 12 months have passed, there will not be very many of them, to send the spokespersons in the Opposition parties copies of the regulations as they are made.
That is fair enough.
That is only three copies. That is feasible. If my Department had to send them to 166 Deputies and 60 Senators it would create more difficulties. That is only a personal and administrative arrangement I will undertake to do for 12 months.
There will be quite a number of regulations.
There will, but they will run out after the 12 months.
This amendment, which I accept totally, follows on amendment No. 68h, which refers to the annual report of a recognised Stock Exchange. In this Part of the Bill we as a legislative assembly are empowering an outside body to regulate something which is vitally important to the common good, that is, how to deal with insider dealing. Deputy Bruton and I are anxious that a copy of the annual report be made available to both Houses of the Oireachtas to monitor how that power being passed to the Stock Exchange was being handled. Therefore, it was important that we got information as to the number of written complaints received concerning possible contraventions of this Part of the Bill, the number of reports made to the Director of Public Prosecutions under this Part, the number of instances in which, following the exercise of powers by authorised persons under this Part, reports were not made to the Director of Public Prosecutions, and such other information as may be prescribed. Therefore, the initial workings of this Part of the Bill are quite important and I suggest the first 12 months will not tell us very much.
The annual report will, according to the tradition of other annual reports, probably be issued about eight to nine months after the year ends, if we are lucky, so it will be up to two years after this Part of the Bill is implemented before we will have some indication as to how it is working. Of course I am pleased that the Minister is taking powers to make regulations if things are not working in accordance with the intentions as prescribed in the Bill, but it is important for this House to avail of the opportunity, if necessary, to see how the overall performance of the Stock Exchange as the monitoring authority is working out.
Both these amendments are interlinked. One is for the Minister to have powers to change things as a Minister. The other part of this whole exercise is that the Houses of the Oireachtas should also have the opportunity of seeing how it works. Therefore, it is important, in a situation like this, when the Minister is making regulations to make various changes, to ensure that those who are responsible for policing this Part of the Bill are doing their job in accordance with what we all anticipate will happen. It is vital that we get the opportunity of being able to debate, if necessary, the proposed changes the Minister intends making, based on the information supplied to us through the annual report that will be laid before both Houses of the Oireachtas.
We on this side of the House, the Fine Gael side, expressed some concern on Committee Stage about the role of the Stock Exchange solely in the whole monitoring process of this Part of the Bill. We retained some reservations, although I have nothing but the height of regard and respect for the manner in which the Irish Stock Exchange is controlled and managed; but that is in the work it is doing at present and will be doing in future, this is a new role for the Stock Exchange, a role one could argue should be carried out by some other body on behalf of the State. The Minister for his own good reasons has chosen that the Stock Exchange be the monitoring authority. Therefore, I think the Stock Exchange also would welcome the opportunity of putting its cards on the table and showing it is acting independently and doing its job as anticipated.
Like Deputy Bell, I think it is important that any changes by way of ministerial order be brought to the attention of the House. I do not want to bore everybody by repeating what I said this morning. I still believe that, while those who many years ago thought up that method of annulling a regulation, within 21 days, may have done so with all good intentions, it was used at a time when today's volume of legislation was not passing through this House and things were entirely different from what they are now. The sooner the better we get out of the habit of using this convenient method of making provision for an order to be annulled within 21 days.
The new leader of our party has been to the forefront in looking for Dáil reform and we on this side of the House and in the Minister's own party have campaigned in that regard. It is quite absurd that we do not have some mechanism, some committee, some representative group, that could look at regulations and such matters, not necessarily having them debated in this Chamber. We have committee rooms all over the place — not enough but we have some — and we could do our business that way. Simply because this was put into legislation some 30 or 40 years ago we continue to do it today, and it has become a convenient way of handling a situation where the Minister is taking powers by way of regulation. It is an abuse of democracy. We all know we cannot really get time to annul a regulation and as long as that is allowed to continue there will be these continuous complaints. The more a legislative body pass on power to some outside group to monitor things done within the structures of the Civil Service or appointments made by the Minister in the past, and pass out that regulatory authority to various bodies such as the Stock Exchange, the more we need to ensure things are being done in accordance with the way we expect them to be done as we deal with the legislation that is going through today.
I say to the Minister, Deputy Desmond O'Malley, that none of us will be here for all time. There will be somebody different at some time sitting in the seat the Minister is at present occupying. I do not doubt for one minute the present Minister's integrity when he states in this House that he intends certain things to happen but Ministers change, Governments change, and it does not always follow that the good intentions of Deputy Desmond O'Malley will be pursued by others occupying that august position. It is in everybody's interest that we find a way, and the Minister, as leader of the Progressive Democrats and a Minister of the Government, has a say at the Cabinet table to ensure that the Government initiate changes which allow the House, where necessary and called for, to debate a regulation properly.
Deputy Barrett appreciates he has travelled rather wide. The Deputy will agree that the extent to which he is advocating reforms that will not be made under this legislation is not entirely relevant to Report Stage.
It is important, but I have made my point and I will finish at that. It is necessary to devise some mechanism to allow for proper debate.
Amendment agreed to.
I move amendment No. 68j:
In page 96, to delete lines 7 to 10, and substitute the following:
121.—(1) Section 99 of the Principal Act is hereby amended—
(a) in subsection (2), by the substitution for paragraph (h) of the following paragraph—
"(h) a charge on a ship or aircraft or any share in a ship or aircraft;", and
(b) by the insertion of the following subsections—
"(2A) The Minister may by regulations amend subsection (2) so as to add any description of charge to, or remove any description of charge from, the charges requiring registration under this section.
(2B) The power of the Minister under subsection (2A) shall include a power to amend by regulations the description of any charge referred to in subsection (2).
(2C) Every regulation made by the Minister under this section shall be laid before each House of the Oireachtas as soon as may be after it is made and, if a resolution annulling the regulation is passed by either House within the next 21 days on which that House has sat after the regulation is laid before it, the regulation shall be annulled accordingly, but without prejudice to the validity of anything previously done thereunder.".
This amendment arises from the Special Committee debate on what is now section 121, in which it was suggested that the list of charges in section 99 of the 1963 Act which required legislation in the Companies Registration Office should be further amended specifically to cover charges on forms of transport other than ships or aircraft. Minister of State Harney responded, however, that the best solution might be to give the Minister the power by regulations to add to, subtract from or otherwise amend the list of charges in section 99 of the 1963 Act which require registration. That is the approach I have adopted in this amendment.
Amendment agreed to.
I move amendment No. 68k:
In page 96, between lines 15 and 16, to insert the following:
123.—Section 231 of the Principal Act is hereby amended by the insertion after subsection (1) of the following subsection—
"(1A) (a) The liquidator of a company shall not sell by private contract a non-cash asset of the requisite value to a person who is, or who, within three years prior to the date of commencement of the winding-up, has been, an officer of the company unless the liquidator has given at least 14 days' notice of his intention to do so to all creditors of the company who are known to him or who have been intimated to him.
(b) In this subsection—
(i) "non-cash asset" and "requisite value" have the meanings assigned to them by section 28 of the Companies Act, 1990, and
(ii) "director" includes a person connected, within the meaning of section 25 of the Companies Act, 1990, with a director, and a shadow director.".
This amendment arises from a debate in the Special Committee on an amendment tabled by Deputies Barrett and Bruton. What the Deputies were suggesting was that a liquidator should not be able to sell company property to the former directors of the company without the approval of the court. In the course of a long debate on the matter the Minister of State initially rejected the amendment as being unnecessary in some cases in the light of section 231 (3) of the 1963 Act and, indeed, could be counterproductive in other cases. He went on to indicate that he would reflect on the possibility of an amendment on the lines of what is now section 168 (1) of the Bill, but following further discussion in committee he indicated that a lot more thought would be required before an amendment could be prepared for Report Stage.
In the event, the amendment I am putting forward today is based on a compromise suggestion made, I believe, by Deputy Roche in the course of the Committee Stage debate. That suggestion was that rather than prohibit a liquidator selling assets to a former director the situation should be that where a liquidator proposes to sell assets in this way he should be required to notify the creditors of the company of his intention to do so, thereby bringing the matter out into the open. It would of course then be open to the creditors to object to the liquidator's proposal under section 231 (3) in the case of a court winding up or section 280 (1) in a voluntary winding up.
I will be proposing at a later stage a similar amendment under Part VIII in the case of receivers who propose to sell company assets to former directors of the company.
This is probably one of the most important amendments that has been brought in. Those of us who have dealt with liquidation and receivership, have seen, at first hand, virtually 48 hours after the liquidation or receivership, the liquidator and former owner of the business doing business all over again. Within a week or two weeks of the notice of liquidation the employer is down the road in another building and in the process shifted the machinery and plant he left behind him.
This amendment will give the creditors and employees an option. I would like to have seen in that amendment a stipulation that the creditors should be notified that it was proposed to dispose of part of the assets, plant or machinery of the company to any person who was formerly involved. Former employees would have an interest in the company's affairs because the sale of the assets of the company may have an overall effect on the end result and on outstanding payments due on behalf of workers to the Department of Social Welfare, the Revenue Commissioners and so on.
I welcome this very much. I hope that under that section the Minister can introduce a regulation setting down how this notification to the creditors should be dealt with. For example, in many cases creditors are located outside the country. Will the Minister comment on that?
A Leas-Cheann Comhairle, this is an area that has been abused in the past. The amendment goes some way to putting in safeguards that workers and, I suspect, all creditors would welcome, particularly in the case of voluntary winding up or voluntary liquidation. The liquidator is frequently the auditor and there is often a close relationship between the liquidator and the principal of the firm or directors of the firm. The directors of the firm, or the chief executive, would have built up a relationship over a number of years with the auditor.
In a voluntary liquidation, the situation is capable of being abused in so much as that insider track can be used to flog off assets, giving first option to the directors without any knowledge on the part of the creditors or on the part of the employees. As Deputy Bell has intimated, that can sometimes make a difference as to whether or not that company is capable of being put back on the road again. There have been quite deliberate windings up of what could otherwise be productive enterprises because it happened to suit the corporate strategy of the directors. The sale of essential machinery or whatever can present the directors with the possibility of arguing a plausible case to the workers that the company concerned was no longer viable. Like Deputy Bell I would like to have seen employees included. They may come under the amendment inasmuch as they too are creditors and would be given notice but I would have preferred to have seen them enshrined in their own right. The amendment is an improvement and will be welcomed by the trade union movement.
This arises from an amendment tabled by Deputy Bruton and me at the Special Committee. I have a copy of the debates from that meeting on 6 February 1990. We have proposed an amendment to section 231 (2) (a) of the Principal Act to add the following words at the end of the subsection, "Save that he shall not have the power without the consent of the court to sell any real or personal property or other interests belonging to the company to a former director of the company or to any person connected with the former director of the company within the terms of section 25 of the Companies Act, 1990".
As the Minister said, there was a long debate about this and we ended up with a tied vote of six all at the end of the day. We argued at that time, and continue to argue, that this goes to the kernel of dealing with the rogue director. Numerous complaints have been made about companies suddenly folding up and starting up again with the former directors and shareholders vying with each other for the assets of the company that went into liquidation leaving the creditors high and dry. I appreciate that the Minister has gone some of the way towards meeting the requirement in this amendment but what he is saying is: "The liquidator of a company shall not sell by private contract a non-cash asset of the requisite value to a person who is, or who, within three years prior to the date of commencement of the winding up, has been, an officer of the company unless the liquidator has given at least 14 days' notice of his intention to do so to all creditors of the company who are known to him or who have been intimated to him." The liquidator is now obliged to give 14 days' notice that he proposes to do something but the provision does not go on to say that he must get the consent of the court to do so. While this goes some way towards dealing with the problem, I am not at all happy that this practice will not continue. It is grand to give 14 days' notice but the liquidator will still have the power to sell those assets to a former director.
What we were proposing and what we were anxious to establish is that the consent of the court would be necessary before these assets would be sold to a director. We are here to protect the interest of creditors in this instance. There may be the case where a company will fold up and it will be in the interests of the creditors that the property be sold to a previous director, but that will not always be the case, nor has it been the case in the past. Of all the matters in this Part of the Bill about which I have received complaints from various people, particularly small businessmen, this practice is the main one. I am not happy that this amendment goes far enough towards meeting the problem, and I would ask the Minister to reconsider the wording of the amendment. Of course the liquidator should give notice that he is going to do something like this but he should also get the approval of the court before he does so. Suppose it happens that the creditors object to this procedure, they will have no guarantees so far as this amendment is concerned that the liquidator will not go ahead and sell the assets anyway after the 15th day.
That is not what we wanted or what the committee, in the long debate of 6 February, were saying. On that occasion the matter eventually went to a vote, which resulted in six all. There was a belief among the members of the committee that strong action should be taken in this regard. The Minister was represented on that occasion by the Minister of State, Deputy Leyden, who did not deal with the matter to our satisfaction. This is one of the amendments in relation to this Part of the Bill that we took extremely seriously, I would appeal to the Minister to reconsider this aspect of the legislation to prevent once and for all these rogue directors behaving in the way they have done in the past. Some people are absolutely disgusted when debts owing to them are written off. Somebody they gave credit to closes his business one day and sets up the following week in the same premises under a different name and with the same equipment. The stock is sold to him by the appointed liquidator and the unfortunate creditor goes without his money. That is no way to do business.
There are various provisions in this Bill, with which we all agree, to stop abuses such as insider trading. More responsibility is given to directors in the way they go about their business and people in business, on some occasions people who are genuinely performing properly on a day-to-day basis, are now being asked to do a lot more than they have been doing. For example, there is an obligation to disclose interest in shares. The one thing we should do in this Bill, and which the public have been demanding for a long time, is put a stop to the practices that have been going on in this country. We should say, "halt". We should say we are not going to tolerate any more cases where rogue directors get away scot free while leaving genuine small businessmen high and dry, people who perhaps have to go into liquidation as a result of the irresponsibility of others.
I am disappointed that the Minister's amendment simply requires the liquidator to give 14 days' notice. I had intended drafting a new amendment for Report Stage but my understanding was that we would deal with up to Part IV today. The Minister has pointed out that the Order of Business is worded in such a way that it allows us to continue beyond Part IV. In good faith I agreed that we would complete up to Part IV. We have no facilities or back-up services and this is difficult legislation to follow. As can be seen, the numbers of sections on Committee Stage are entirely different from the numbers in the Bill when it finished Committee Stage. It is impossible to follow this legislation. I had intended going into detail on this section but I did not get the opportunity between the time we broke for lunch and the time we came back. I understood we would not be dealing with this part of the Bill today.
I believe it is within the Minister's powers to act on what was said on Committee Stage and to what is being said here this afternoon and to make certain that the wording of this amendment does not leave any loopholes for the future. We will not get an opportunity again to deal with this sort of situation. This is the opportunity that many people have been waiting for. I would be failing in my duty if I did not fight as hard as possible this afternoon to see to it that there is no loophole in regard to it. We are not asking that a draconian measure be included in legislation. This is a matter which has caused enormous problems to many people and it has lead to a great deal of disgust in the minds of many to see a company folding up one day and starting up the next day with the same machinery and in the same premises, with the unfortunate creditors left high and dry without their money.
To ask the liquidator to give 14 days' notice before he sells back to the director is not sufficient. The wording of our amendment was that he would have to go to the court for permission to do so. There are other aspects of this legislation where people would be in and out of court like yo-yos, and I fail to see why we cannot make such a provision in this instance because it would not be a very onerous task. I fail to see why our amendment was not accepted on Committee Stage but a democratic vote was taken which resulted in six all. Some people on that committee who voted against our amendment were uncomfortable in doing so. They did so, I would suggest, in loyalty to the Government of the day but they were not happy in their own minds. If you read the report you will see the contributions that were made and the concerns expressed by people on all sides of the House.
This is Report Stage and I can speak only once. I am asking the Minister to seriously reconsider the wording of this amendment, to make it stronger so that we can be assured that the practices that have gone on in the past will not continue in the future. Referring the matter back to court may not be the answer from the Minister's point of view but a stronger provision than the liquidator just giving 14 days' notice of his intention to do something is needed. I would urge all Members on this side of the House who are present to support my request that we do something genuine in this regard.
I wish to reinforce the points made by my colleague, Deputy Barrett. No other part of the Companies Act causes as much aggravation as that in relation to either voluntary liquidation or companies put into liquidation by creditors. We all know of instances where the finger has been raised at the fact that assets were disposed of at concessionary rates in rather dubious circumstances to people who had a connection, in some cases a rather tenuous connection, with the company or a competitor of the company. The fact that 14 days' notice has to be given before a sale takes place is a warning to everyone concerned but I am not sure that it prohibits the sale from taking place. There are other amendments which might take that into account. We had a long and animated discussion on this section on Committee Stage. I ask the Minister to devise some method whereby in the event of a liquidation there is fair play for all concerned. Not only are the employees and creditors of the firm put at risk but in some cases individual directors will have a grievance on the basis that certain sales took place in a certain fashion, even within their own company, by virtue of the alleged activities of other directors and so on. This is an area which received considerable attention on Committee Stage, and the points made by Deputy Barrett are valid.
I listened to what Deputy Barrett said in the course of the debate on this amendment. I would remind him that the amendment was put down in response to some of the points he and Deputy Bruton urged on Committee Stage. The reaction of the Minister of State who was dealing with it at the time was that it was not necessary but, on reflection, he said we would think about it and see if we could work something out for Report Stage. That has now been done. It is not just a question of giving 14 days' notice. The principle behind giving notice to all the creditors that are known means that it is no longer a secret or private arrangement. It becomes publicly known to many people. Under two provisions in the 1963 Act the creditors can go to the court if they wish.
Deputy Barrett said I should go further and make it obligatory to go to court but if there is a fault with the legislation it is that there are too many references to the court, at how many thousands of guineas a go. I think we overdo the court provision at times when we consider how impecunious some of these people are and how difficult it is for them to cope with High Court costs. We should not force people to resort to the court unless there is no other option.
Under section 231 (3) of the 1963 Act the exercise by the liquidator in a winding up by the court of the powers conferred by this section shall be subject to the control of the court. That applies to this new section. Any creditor or contributor may apply to the court in relation to any exercise or proposed exercise of any of the powers. In the past creditors or contributors very often did not get an opportunity to make such an application because they did not know the liquidator had sold off the business quietly on the side to the former directors or owners but now they will all know. That power is now of real value to them. It should be that they can go to court if they feel there is an abuse they want to stop and it should not be that before a liquidator can sell, for example, a bicycle he has to go to court. That is the case where it is a compulsory winding up but where it is a voluntary member's winding up, section 280 of the 1963 Act applies and the provision is exactly the same. We have gone a long way but we have not gone so far as to impose unnecessary costs on the individuals concerned.
Is he obliged to say how much he is selling it for?
I would think so.
It does not say that.
I do not think he has to say it in the notice but he must give notice that he is selling it. They could then inquire about the price. If it is for auction he does not have to give the notice.
That information could be very hard to get.
We have strained a point to go this far. It would make it impossibly costly on liquidators and creditors if they had to go to court every time.
Deputy Rabbitte said there were often instances where the existing auditor became the liquidator and knew the lads and as a result of this close relationship——
The Minister is going to tell me about section 144.
In section 144 of this Bill there is a prohibition on an auditor of a company becoming the liquidator. That will prevent that abuse arising in the future.
Would the Minister not include a provision that it would be necessary to indicate the price at which the goods would be sold if it is by private treaty?
There is a printing error in the amendment which I ask the indulgence of the Chair to allow me to correct. The word "director" in amendment 68 (k) at subsection (1A) (b) (ii) where it first appears should read "officer".
That change will be most carefully noted.
"Officer" includes a person connected.
"Officer" is the word used in subsection (1A) (a) above it.
Would the Minister not include the cost?
It would be too difficult to do that. There will be no problem. Once they are told it is being sold they will make it their business to find out. It might push the price up otherwise.
It may not always be possible to get the information for one reason or another.
They will have a much better chance of getting it now than they would have had where it was sold behind their backs before.
Suppose the notice arrives on the 13th day——
If they feel there is an abuse and the liquidator is doing a deal behind their backs with the former directors in the sense that he will not tell them the price, they should then go to court under section 231 (3) of the 1963 Act.
The problem is that if the notice arrives on the 13th day, the liquidator has complied with the provisions of the Bill but the recipient will not have time to investigate it properly.
The post may not be great but it does not take 13 days for a letter to arrive at its destination.
Anything can happen.
He must give 14 days' notice. Fourteen days is 14 days.
It does not necessarily follow. It could be on the 13th day.
He must give 14 days' notice.
Amendment agreed to.
I move amendment No. 681:
In page 96, line 32, to delete "mortgage or charge", and substitute "mortgage, charge or pledge".
Happy days are here again.
It is nice to be back. This drafting amendment is consequential on the amendments tabled in the Special Committee by Deputies Barrett and John Bruton and was accepted by me. At this stage, I should extend my best wishes to Deputy John Bruton on his elevation to another level of politics. The amendment I accepted was to add the words "or pledge" in page 96, line 27. However, I indicated that a consequential amendment would be required in line 32 of the same section. That is the sole reason for this amendment.
Amendment agreed to.
I observe that amendments Nos. 68la, 68lb, 68lc and 68ld are related and I suggest that they be discussed together, Is that agreed? Agreed.
I move amendment No. 681a:
In page 104, to delete lines 37 to 42, and substitute the following:
"297.—(1) If any person is knowingly a party to the carrying on of the business of a company with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, that person shall be guilty of an offence.".
I apologise for the late submission of these four amendments and I confess that I did not think we would make such rapid progress this morning.
Neither did we.
This group of amendments is strictly technical in nature and does not add anything of substance to the law under the Companies Acts. However, they remove some areas of overlap between sections 135 and 136 and sections 33 and 34 of the Companies (Amendment) Act, 1990. Both sets of provisions essentially tackle the same issue, reckless trading and fraudulent trading, but in two different contexts and, therefore, it is necessary to do something about it. The first of these amendments replaces the current subsection (1) of section 135 of the Bill by the version of the same idea which appears in section 34 (1) of the 1990 Act. The wording in the 1990 Act is better because it applies to fraudulent trading provisions, whereas section 135 of the Bill could only be used up to now where a company was being wound up.
The other three amendments in this group are designed to do the same thing, in other words, to bring to this Bill a better wording of an idea passed into law by the 1990 Act. Of course this group of amendments is only half the story since, at a later stage, I will have to circulate amendments to make certain corresponding adjustments to the 1990 Act. I had hoped to be able to table all the technical amendments concerned at the same time but, unfortunately, this has not proved possible. I repeat that the amendments we are currently discussing are solely for the technical reasons I described, to remove overlaps between similar provisions in the Bill and the 1990 Act.
I seek clarification from the Minister. I did not get a chance to study this amendment because I only got it when I came into the House. How does this affect a situation where an examiner has been appointed to a company and, as a result of examining the company's affairs, the examiner reports to the court in relation to what he has found? The only course of action he is recommending is that the company be wound up. How does this new section in the Bill fit into that? I ask because legislation has also been passed in relation to the examiner, that fraudulent acts and so on will be dealt with by the examiner. I tabled an amendment this morning which tried to give power to the Minister to investigate a company where an examiner had been appointed if the Minister felt that there had been fraudulent acts. We are deleting subsection (1) at the moment. Is that correct?
Yes.
Section 135 (1) states: "If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, any person who was knowingly a party to the carrying on of the business in the manner aforesaid, shall be guilty of an offence". Is all that being deleted?
Yes.
The Minister is substituting: "If any person is knowingly a party to the carrying on of the business of a company with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, that person shall be guilty of an offence". The Minister is deleting: "If in the course of the winding up of a company it appears..." Is that correct?
That is correct.
What is the reason for that?
We are transferring it from the 1990 Act to this Bill.
I do not understand the Minister. As I said, we did not get a chance to study these amendments. The Minister appears to be deleting any reference to the winding up of a company in this new section. The 1963 Act refers to the winding up of a company and this Bill refers to the winding up of a company but the amendment excludes any reference to the winding up of a company.
I appreciate that the amendments were circulated very late and that Deputies did not have an opportunity to assess the situation. The wording is extremely good, so we intend to take it from the 1990 Act and put it in the new Bill in section 135. We are taking out the existing section 135 and replacing it with the wording of section 34 of the 1990 Act. We are doing so because the wording is far more satisfactory and explanatory.
I am still not clear on this point because the amendment is saying that "If any person is knowingly a party to the carrying on of the business of a company with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, that person shall be guilty of an offence." I do not understand it. I thought we were dealing with the winding up of a company. How will this operate? The wording here is: "If, in the course of the winding up of a company it appears ..." The Minister has deleted that.
That is correct and we are replacing it with section 34 of the 1990 Act.
It does not say that. It says:
In page 104, to delete lines 37 to 42 and substitute the following:
It does not refer to amendment No. 68lb.
To confirm it again, what we are doing is putting in the wording of section 34 of the 1990 Act exactly as it is. We are deleting section 135 of the Bill and replacing it with section 34 of the 1990 Act.
That is transferring section 34 of the 1990 Act into the new Bill?
That is it exactly.
Amendment agreed to.
Amendment No. 68lb in the name of the Minister was discussed with amendment No. 68la.
I move amendment No. 68lb:
In page 105, after "company", to insert "or in the course of proceedings under the Companies (Amendment) Act, 1990,".
Amendment agreed to.
I move amendment No. 68lc.
In page 105, line 14, after "receiver,", to insert "examiner,".
Amendment agreed to.
I move amendment No. 68ld:
In page 106, between lines 30 and 31, to insert the following:
(8) Subsection (1) (a) shall not apply in relation to the carrying on of the business of a company during a period when the company is under the protection of the court.
Amendment agreed to.
I move amendment No. 68m:
In page 109, to delete lines 37 to 40.
In the course of the Special Committee debate on section 139 I mentioned the possibility of coming back on Report Stage in the light of a potential problem with subsection (6). The problem is that the subsection enables an application to be made at the same time or at any time after the presentation of a winding up petition in respect of any of the companies involved. This implies that the section can only be activated where at least one of the companies is being wound up by the court, which seems on the face of it an unnecessary restriction on the scope and usefulness of the section. For example, there does not appear to be any reason why access to the section should not also be available where the companies concerned are in voluntary liquidation. Subsection (6) was not drafted with this limiting effect in mind but with a view to applying a set of mechanics to the section's operation. Having sought advice in the meantime, the best thing to do in the circumstances is to delete subsection (6) altogether since it does not really add anything to the section. In any event, this is the type of procedural provision which would be best left to the rules of the court. The amendment will delete subsection (6) from section 139 since it serves no useful purpose and might be misleading.
Amendment agreed to.
Amendments Nos. 68n and 68o can be discussed together. Is that satisfactory? Agreed.
I move amendment No. 68n:
In page 110, line 4, to delete "director, manager, liquidator, or receiver, or any officer", and substitute "officer, liquidator, receiver or examiner".
These two amendments arose from comments made in the Special Committee on three aspects of section 140. Deputy O'Dea noticed that while the reference in subsection (1) was to a past or present director, the reference to "officer" was simply to a serving officer. The Deputy correctly implied that the effect was to exclude any previous company secretary who is defined as an officer under the 1963 Act. The first of these amendments would rectify this anomoly.
Deputy Barrett saw no reason why examiners should not be covered by the section, particularly since liquidators and receivers were covered. On reflection, I agreed, and the two amendments would now include examiners within the scope of the section.
The present text of the section specifically mentions managers as a category of people who would be covered by the section. This led to a substantial debate in the Special Committee. Having reflected on the matter in the meantime, I accept that references to managers do not add anything to the section and the two amendments now before the House will delete the reference concerned.
I thank the Minister for taking on board the Committee suggestions made to him.
Amendment agreed to.
I move amendment No. 68o:
In page 110, line 11, to delete "director, manager, liquidator, receiver, or officer", and substitute "officer, liquidator, receiver or examiner".
Amendment agreed to.
I move amendment No. 68p:
In page 112, to delete lines 14 to 39, and substitute the following:
145.—The Principal Act is hereby amended by the insertion after section 301 of the following section—
‘301A.—(1) Where, at a meeting of creditors, a resolution is proposed for the appointment of a liquidator, any creditor who has a connection with the proposed liquidator shall, before the resolution is put, make such connection known to the chairman of the meeting who shall disclose that fact to the meeting, together with details thereof.
(2) Subsection (1) shall also apply to any person at the meeting, being a representative of a creditor and entitled to vote on the resolution on his behalf.
(3) Where the chairman of a meeting of creditors has any such connection as is mentioned in subsection (1), he shall disclose that fact to the meeting, together with details thereof.
(4) For the purposes of this section, a person has a connection with a proposed liquidator if he is—
(a) a parent, spouse, brother, sister or child of, or
(b) employed by, or a partner of, the proposed liquidator.
(5) A person who fails to comply with this section shall be liable to a fine not exceeding £1,000.
(6) In exercising its jurisdiction under section 267 (2) or 272 (2) (which relate to the appointment or removal of a liquidator) the court may have regard to any failure to comply with this section.'.".
I concur with Deputy Barrett. Very useful contributions were made and suggestions adopted when we reflected on the Committee Stage debate.
Section 145 of the Bill was the subject of a long discussion in the Special Committee, perhaps partly due to a misunderstanding as to the intention underlying it but also because some Deputies felt that the provision did not go far enough. The section as it stands is modest and sets out to tackle the situation in which someone goes along to a creditors' meeting representing a creditor and then engineers the appointment as liquidator of someone from his own firm, without the other creditors being aware of the fact. The Special Committee thought that this did not go far enough and that any connection between the creditor and the proposed liquidator should also be disclosed. On reflection I could see merit in the points made in the Special Committee debate and accordingly I have prepared an amendment to deal with the problem as a general one of disclosure rather than one of curtailing a possible abuse by a creditor's nominee. Thus, the amendment provides that all parties attending a creditors' meeting will, if they are connected to the proposed liquidator, have to disclose that fact. Once this disclosure is made there will be no restrictions on who a person can vote for to act as liquidator, unlike under the present wording of section 145. It will also be noted that the same onus to disclose a connection will be imposed by subsection (3) of the amendment on the chairman of the creditors' meeting. This would normally be a director of the company to be liquidated in accordance with section 266 of the principal Act.
We thank the Minister for taking on board suggestions made on Committee Stage. The new wording makes it obligatory to disclose any connection between the person being proposed as the liquidator and any of the creditors. Subsection (4) says:
For the purposes of this section, a person has a connection with a proposed liquidator if he is—
(a) a parent, spouse, brother, sister or child of, or
(b) employed by, or partner of,
I thought we had got away from this brother, sister, spouse relationship. We could list a lot of other relationships that would have the same effect and would come within the definition of a connection. A spouse is a connected person but a person living with someone is not a connected person. I understand from an earlier amendment that the geniuses in the Department of Industry and Commerce had found a way out of this and that we have moved away from specifying relationships. I can think of relationships that are far more likely to cause a problem than a parent or a child relationship. I can think of all sorts of combinations. Could we not have a reasonable wording for this? If at a creditors' meeting a liquidator is being appointed, and a creditor has a close relationship that could be regarded as affecting the performance of the duty of the person to be appointed, then that creditor should have an obligation to disclose that. I should not be given a way out by being cute enough to say the liquidator is not a parent, spouse, brother, sister, child or a partner of mine. The section should take into account that the person to be appointed may have a close influence on me or may not be in a position to do the job in a professional way because of the relationship between us. There should be an onus on me to disclose that information just as there is an onus on public representatives at council meetings to declare a particular interest in or close association with a particular proposal being discussed at that meeting. They are not allowed to get out of it by stating that they are not a parent, spouse and so on. The rule states that if a person has a vested interest they should declare it, and we should do the same here. The amendment states "for the purpose of this section, a person has a connection with a proposed liquidator if he is..." and then goes on to specify the categories of people covered. One could get around it if the person concerned is not specified. I do not think this is right.
I agree entirely with Deputy Barrett on this matter. I have tried to come up with a wording which would cover all eventualities. I first thought the words "connected to or a relative of" would be much broader-based but then wondered if "connected to" could be interpreted to mean a personal or lifelong friend and if such a wording would stand up in court if it became a point of law. I am also not clear what the definition of "connected to" is. It would be very difficult, if not impossible, to spell out what "connected to" or "relative of" would mean. I presume "a relative of" would be interpreted to mean the various categories listed in the amendment at subsections (4) (a) and (b). The definition of "connected to" is dealt with in subsection 4 (b), which reads "employed by or a partner of".
A much broader definition should be given as this matter of liquidation is an old pals game. Recently, a well known company in my own county was put into liquidation and a well known friend of the owner of the business was appointed. Within two weeeks the person who closed down the place, owing massive debts including a debt of well in excess of £500,000 to the State, opened up down the road in another building using some of the plant and machinery from his former business.
However, I do not know how one could broaden the section to cover all eventualities. Does the Minister intend to introduce regulations under this section which would spell out in greater detail what is meant by the words "employed by, or a partner of"? I support the amendment.
I welcomed section 124 which put an end to the practice of an auditor of a particular company being eligible for appointment as liquidator, as I found out on a number of occasions that that was open to abuse. I agree with the arguments made by both Deputy Barrett and Deputy Bell on this amendment because the least effective way of stamping out this abuse would be to address it on the basis of a family relationship. The question of a family relationship is rarely an issue and usually only arises in cases where someone has appointed, say, his wife as a director, but with regard to the kind of abuse we are seeking to tackle here the old boys network is really what is at stake.
It is not sufficient to make it a requirement that one declare one's interest in terms of some kind of filial relationship to the liquidator or the proposed liquidator before one can be appointed. The country is small enough and regard must be had to the scale of abuse in this area, which facilitates rogue directors, the phoenix syndrome and the closing down of companies which might have considerable potential in terms of being renovated and set up again, all of which can be snuffed out through collusion between the liquidator and the directors or between the liquidator and the chief executive officer. I do not think this section goes far enough because there are wheels within wheels in this country, more so than in any other, and for this reason the Minister should have come up with some kind of alternative construction. As Deputy Bell said, it is difficult to know exactly what is best but reference has been made, for example, to the obligation on members of local authorities, when confronted with major questions such as the rezoning of land, to declare whether they have a vested interest. A great many of us would like to see a similar provision enshrined in the regulations of this House in respect of Deputies. If there was a general duty on a creditor to declare a vested interest it might be more effective than merely imposing a requirement in the manner it is enshrined here, that is, either a filial relationship or a partnership with the proposed liquidator. I do not think it goes far enough given that it is an area where there is — I was going to say widespread but let us not exaggerate — abuse which most of us have encountered and I am not so sure this will stamp it out.
I support Deputy Barrett and other speakers. It would be virtually impossible to eliminate all potential abuse, and I use that word advisedly, simply by specifying a parent, spouse, brother, sister, child or person employed by or a partner of the proposed liquidator. A person could operate under various guises in such circumstances and well within the confines of this section and the law. An attempt should be made to tighten the wording up and we would not need to use a great deal of imagination to devise a means whereby a particular person could be represented at such meetings in such capacity as would afford preferential treatment to him or her. It would have been preferable to omit the provision regarding disclosing family relationships etc. and find some other form of words to take on board any possible clash or conflict of interest that might arise in such instances. The points made by the previous speakers are valid. Perhaps the Minister would comment.
The Minister's reply concludes debate on amendment No. 68p?
We gave much thought to this matter on Committee Stage. The points that have been advanced now were put forward at that time. We have examined all possible aspects with a view to being more specific, if possible, but, after careful thought, reflection and study of any other relevant legislation, we have decided that this is the only form of words that can be used in relation to the recognised specific relationships that exist. Like other Deputies, I could list numerous scenarios of contacts, relationships, cumann or branch membership and so on. Where does it end? Does it extend to friendships in golf clubs? Does it extend to close friendships in a pub? The list is endless. We have been scrupulous and conscientious in looking at this situation. I do not think anybody on the other side of the House has put forward a list here today that would be suitable.
We did not get a chance.
At the Special Committee we discussed this matter in great detail and my officials in the Department have studied this very carefully.
The Minister is being paid for that. The officials advise him.
Deputies must bear in mind that section 144 sets out the position regarding the disqualification for appointment as a liquidator. Before the person even comes to the starting line he or she has to comply with section 144.
That is even worse.
At that stage we move into the new area of the disclousure of interests by creditors' representatives at a creditors meeting. Though the points put forward by the Deputies are very interesting debating points, I am satisfied that I could not extend the list beyond what I have prepared here. It would be endless; we could go on and on, and we are a small country.
There should be a general obligation to disclose a vested interest.
Of course, but that is implied in the Bill; it is a general principle. The point is that we could not go beyond sepcifying "a parent, spouse, brother, sister or child of..." they are the close relationships.
What about agents?
Where do we go beyond that? Are we to include half-brothers, common law wives, separated husbands, flat mates etc?
We are not talking about them. There should be a generalisation.
It is not legally possible to put in a general provision.
It is legally possible for a public representative to do it. Why is it not possible for everyone else to do it?
I and the Department have gone as far as we can in this area. I am sorry I cannot satisfy the Deputies opposite but that is the position.
Amendment put.
The Dáil divided: Tá, 72; Níl, 45.
Tá
- Ahern, Dermot.
- Ahern, Michael.
- Aylward, Liam.
- Barrett, Michael.
- Brady, Vincent.
- Brennan, Mattie.
- Brennan, Séamus.
- Briscoe, Ben.
- Browne, John (Wexford).
- Burke, Raphael P.
- Calleary, Seán.
- Callely, Ivor.
- Clohessy, Peadar.
- Connolly, Ger.
- Coughlan, Mary Theresa.
- Cowen, Brian.
- Cullimore, Séamus.
- Daly, Brendan.
- Davern, Noel.
- Dempsey, Noel.
- Dennehy, John.
- de Valera, Síle.
- Ellis, John.
- Fahey, Frank.
- Fahey, Jackie.
- Fitzgerald, Liam Joseph.
- Fitzpatrick, Dermot.
- Flood, Chris.
- Flynn, Pádraig.
- Gallagher, Pat the Cope.
- Geoghegan-Quinn, Máire.
- Hillery, Brian.
- Hilliard, Colm.
- Hyland, Liam.
- Jacob, Joe.
- Kavanagh, Liam.
- Kenneally, Brendan.
- Kirk, Séamus.
- Kitt, Michael P.
- Kitt, Tom.
- Lawlor, Liam.
- Leonard, Jimmy.
- Leyden, Terry.
- Martin, Micheál.
- McCreevy, Charlie.
- McDaid, Jim.
- McEllistrim, Tom.
- Molloy, Robert.
- Morley, P.J.
- Nolan, M.J.
- Noonan, Michael J. (Limerick West).
- O'Dea, Willie.
- O'Donoghue, John.
- O'Hanlon, Rory.
- O'Keeffe, Ned.
- O'Kennedy, Michael.
- O'Leary, John.
- O'Malley, Desmond J.
- O'Toole, Martin Joe.
- Power, Seán.
- Quill, Máirín.
- Reynolds, Albert.
- Roche, Dick.
- Stafford, John.
- Treacy, Noel.
- Tunney, Jim.
- Wallace, Dan.
- Wallace, Mary.
- Walsh, Joe.
- Wilson, John P.
- Woods, Michael.
- Wyse, Pearse.
Níl
- Ahearn, Therese.
- Barrett, Seán.
- Belton, Louis J.
- Boylan, Andrew.
- Carey, Donal.
- Connaughton, Paul.
- Connor, John.
- Cosgrave, Michael Joe.
- Cotter, Bill.
- Creed, Michael.
- Currie, Austin.
- D'Arcy, Michael.
- Deasy, Austin.
- Deenihan, Jimmy.
- Doyle, Joe.
- Durkan, Bernard.
- Enright, Thomas W.
- Farrelly, John V.
- Fennell, Nuala.
- Finucane, Michael.
- Flaherty, Mary.
- Flanagan, Charles.
- Harte, Paddy.
- Bradford, Paul.
- Browne, John (Carlow-Kilkenny).
- Bruton, John.
- Bruton, Richard.
- Higgins, Jim.
- Hogan, Philip.
- Kenny, Enda.
- McCormack, Pádraic.
- McGahon, Brendan.
- McGinley, Dinny.
- McGrath, Paul.
- Mitchell, Gay.
- Mitchell, Jim.
- Nealon, Ted.
- Noonan, Michael. (Limerick East).
- O'Brien, Fergus.
- O'Keeffe, Jim.
- Owen, Nora.
- Reynolds, Gerry.
- Taylor-Quinn, Madeleine.
- Timmins, Godfrey.
- Yates, Ivan.
Tellers: Tá, Deputies V. Brady and Clohessy; Níl, Deputies J. Higgins and Boylan.
Amendment declared carried.
I move amendment No. 68q:
In page 112, to delete line 42.
This amendment arises from a query raised in the Special Committee by Deputy O'Dea who wondered why the scope of the section was confined to cases where the subsidiary being wound up was insolvent. The Deputy felt — and on reflection I agree — that the section should apply whether or not the subsidiary concerned was insolvent. The amendment so provides by deleting paragraph (a) of subsection (1).
Amendment agreed to.
Amendment No. 68r. Amendments Nos. 68s and 68t are related and may be taken together for discussion, by agreement.
I move amendment No. 68r:
In page 113, to delete lines 36 to 42.
This is an important group of amendments and I hope the House will bear with me, since I would like to introduce them in a comprehensive way.
The version of section 148 which currently appears in the Bill was introduced by an amendment on Committe Stage, and represented a substantial change of emphasis compared to the version which existed prior to that. What we did on Committe Stage was to remove the automatic application of the section in every case where a company went into liquidation and were unable to pay their debts. The version of section 148 which currently appears in the Bill, therefore, provides that where a company are insolvent on their liquidation the court will declare that their directors will be subject to the restrictions in Chapter I of Part VII, unless the court is satisfied as to any of the matters specified in section 148. Therefore, it is now clearer than ever that directors who acted honestly and responsibly in the company concerned will have nothing to fear from the provision.
When these changes were made on Committee Stage, however, a number of difficulties emerged, and I think the best way to address these is to replace section 148 of the Bill entirely, rather than attempt a number of piecemeal amendments to address the individual points involved.
The first change I propose is to add a final clause to subsection (1), which essentially clarifies that where, in subsequent sections of this Chapter, a reference is made to "a person to whom section 148 applies", this means a person in respect of whom the court has made a declaration under this subsection.
The next change I am proposing is in subsection (2) and imports the substance of three amendments tabled in the Special Committee by Deputies Barrett and Bruton and which I said I would accept in principle. One of the amendment was actually accepted by the Special Committee on the day, and comprises the proviso in subsection (2) (b) which appears in the latest text of the Bill.
The substance of the other two Committee Stage amendments tabled by the Deputies had to do with the scope of subsections (2) (b) and (5) (c) respectively.
In the amendment which I tabled in Committee, subsection (2) (b) provided that if a "financial institution" had put a director on a company board in certain circumstances the subsequent insolvency of that company would not of itself restrict that director from being involved in another company. These circumstances were that the institution concerned had either lent money to, or invested in the shares of, the company concerned and had put the director on the board as a kind of quid pro quo.
However, what I really had in mind here were two distinct cases — firstly, where a bank or other moneylender had lent money to the company, or, secondly, where a venture capital company had invested in their shares. Deputy Bruton objected, rightly, I think, to the two categories being lumped together — for example, where a bank, as opposed to a venture capital company, had invested in a company's shares, the bank's nominee director should not really enjoy the same treatment as it would if he had been nominated because the bank had lent the company money.
Deputy Bruton's third Committee Stage amendment would have deleted subsection (5) (c) of the present text, which he claimed was far too openended.
To get over these difficulties, I propose splitting the present subsection (2) (b) into two — in other words, subsections (2) (b) and (2) (c) in the proposed amendment. Subsection (2) (c) would now specifically mention a venture capital company, and subsection (5) would give a limited definition of the term.
In subsection (3) of the amendment I propose to amend paragraph (b) in order to rectify a problem identified by Deputy Barrett, who correctly pointed out that under subsections (3) (b) and (c) all of the company's allotted share capital would have to be fully paid-up, in cash, whereas the real intention is that the "paid-up, in cash" requirement should apply only in respect of the minimum amounts set out in subsection (3) (a).
In other words, if a plc has an allotted share capital of £5,000,000, say, we are requiring only that at least £100,000 of this should be fully paid-up in cash — to provide otherwise would, I agree, be totally unrealistic.
Subsection (4) represents part of my proposals to address a fundamental issue which Deputies Barrett and Bruton pursued in the Special Committee in relation to this entire Chapter, in other words, the question of restricted directors being put on what they called a black-list where their only crime may be that their company, through no fault of their own, went into insolvent liquidation. As I mentioned at the outset, however, the fact is that under section 148 as we now have it the court will have examined the matter, including whether the person concerned acted "honestly and responsibly", and it will have declared, in appropriate cases, that the person concerned should be subject to the restrictions involved. In these circumstances, no one will find himself automatically on a black-list solely because he happened to be a director of an insolvent company.
I think that the appropriate person to notify the Registrar of Companies of a restriction should be an officer of the court which imposes it, rather than the liquidator, as in section 149 (1) at present, and that is what the revised subsection (4) will now provide. This means that section 149 (1) can be deleted, and that is what amendment No. 68t does. It also means that the definition of "relevant date" in section 147 (4) can be deleted, and this is the effect of amendment No. 68r.
Because I propose removing subsection (1) from section 149, this gives rise to a further consequential amendment to subsection (4) of section 149. That further amendment would be to remove the words "(1) or" from page 115, line 20. If the House will agree, that further amendment might now be made.
The Minister appears to have taken on board the various points made on Committee Stage. We were endeavouring to see to it that the future career of a person would not be damaged simply because he happened to be the director of a company which went into liquidation, provided he had acted in good faith. The Minister has amended the section so that only those people who have behaved improperly will be penalised by recording the fact that they were directors of a company and behaved improperly. They would then appear on the famous list. I welcome the fact also that it will be an officer of the court who will have the job of furnishing the information to the Registrar of Companies that somebody was a director of a particular company and behaved improperly.
I am pleased to learn that the Minister also agrees with the proposal we put forward on Committee Stage that we should not discourage venture capital companies from participating in the activities of companies in which they are investing by way of directorship and that, as a result, we are not in any way preventing mutual investment in companies by venture capital companies because of the fear that if something went wrong the nominee director in effect could find himself or herself in severe trouble. From the point of view of the layman what Deputy John Bruton and I were endeavouring to do was ensure that normal business would proceed in this country; that people would be encouraged to invest, to help small companies to participate by way of equity, to take a place on the board of directors; that the company is run properly and that investment in that company is protected so that we progress in such a manner as will create jobs and encourage additional investment. At no time do we want to see circumstances arise in which, simply because one may be a nominee of a bank or venture capital company, if one behaves improperly one should be excluded from the provisions of the Bill in relation to the bad behaviour of directors, their incompetence or engaging in any fraudulent activities.
Perhaps the Minister would assure me that what I have said is accurate. I have listened to him very carefully and I note that he has taken on board the general principle of the points we made at the Special Committee. Indeed, that demonstrates that all of the hard work put in at that Special Committee over many months has not gone straight out the window. We are appreciative of that fact.
Any further contribution of mine beyond that point would be nothing short of waffle because I had not had an opportunity of examining these amendments until I arrived in the Chamber. I take the Minister's word that what he is endeavouring to do is in accordance with what we on this side of the House wish to have included in this Bill in relation to the future of business here, the encouragement of people to participate in business and to ensure that those who behave improperly will be dealt with severely; indeed, to answer that the few who do behave improperly will not in any way damage genuine people who wish to get on, creating jobs through their efforts, and will in no way discourage investment from any source in the future, so badly needed by many of our companies.
I can give the Deputy the assurance he sought. What he has said substantially represents the position as contained in these amendments.
Amendment agreed to.
I move amendment No. 68s:
In page 114, to delete lines 3 to 45, and substitute the following.
148.—(1) The court shall, unless it is satisfied as to any of the matters specified in subsection (2) declare that a person to whom this Chapter applies shall not, for a period of five years, be appointed or act in any way, whether directly or indirectly, as a director or secretary or be concerned or take part in the promotion or formation of any company unless it meets the requirements set out in subsection (3); and, in subsequent provisions of this Part, the expression "a person to whom section 148 applies" shall be construed as a reference to a person in respect of whom such a declaration has been made.
(2) The matters referred to in subsection (1) are—
(a) that the person concerned has acted honestly and responsibly in relation to the conduct of the affairs of the company and that there is no other reason why it would be just and equitable that he should be subject to the restrictions imposed by this section, or
(b) subject to paragraph (a), that the person concerned was a director of the company solely by reason of his nomination as such by a financial institution in connection with the giving of credit facilities to the company by such institution, provided that the institution in question has not obtained from any director of the company a personal or individual guarantee of repayment to it of the loans or other forms of credit advanced to the company, or
(c) subject to paragraph (a), that the person concerned was a director of the company solely by reason of his nomination as such by a venture capital company in connection with the purchase of, or subscription for, shares by it in the first-mentioned company.
(3) The requirements specified in subsection (1) are that—
(a) the nominal value of the allotted share capital of the company shall—
(i) in the case of a public limited company, be at least £100,000,
(ii) in the case of any other company, be at least £20,000,
(b) each allotted share to an aggregate amount not less than the amount referred to in subparagraph (i) or (ii) of paragraph (a), as the case may be, shall be fully paid up, including the whole of any premium thereon, and
(c) each such allotted share and the whole of any premium thereon shall be paid for in cash.
(4) Where a court makes a declaration under subsection (1), a prescribed officer of the court shall cause the registrar of companies to be furnished with prescribed particulars of the declaration in such form and manner as may be prescribed.
(5) In this section—
"financial institution" means—
(a) a licensed bank, within the meaning of section 24, or
(b) a company the ordinary business of which includes the making of loans or the giving of guarantees in connection with loans, and
"venture capital company" means a company prescribed by the Minister the principal ordinary business of which is the making of share investments.".
Amendment agreed to.
I move amendment No. 68t.
In page 115, to delete lines 1 to 8.
Amendment agreed to.
I move amendment No. 68u.
In page 115, line 15, to delete "this chapter", and substitute "section 148".
This is a consequential amendment arising from the overhaul of section 148 on Committee Stage. The correct reference, in section 149 (3), is to "a person to whom section 148 applies..." rather than "a person to whom this Chapter applies". The amendment will correct the reference.
Amendment agreed to.
May I refer the Minister to a comment he made when we were discussing amendment No. 68r and he indicated across the floor of the House his intention to delete "(1) or" in page 115, line 20?
Yes, subsection (4) would then read:
Any liquidator who contravenes subsection (2) shall be guilty of an offence...
Amendment agreed to.
I move amendment No. 68v:
In page 115, to delete lines 28 to 42, and substitute the following:
150.—(1) A person to whom section 148 applies may, within not more than one year after a declaration has been made in respect of him under that section, apply to the court for relief, either in whole or in part, from the restrictions referred to in that section or from any order made in relation to him under section 149 and the court may, if it deems it just and equitable to do so, grant such relief on whatever terms and conditions it sees fit.
(2) Where it is intended to make an application for relief under subsection (1) the applicant shall give not less than 14 days' notice of his intention to the liquidator (if any) of the company the insolvency of which caused him to be subject to this Chapter.
(3) On receipt of a notice under subsection (2), the liquidator shall forthwith notify such creditors and contributories of the company as have been notified to him or become known to him, that he has received such notice.
(4) On the hearing of an application under this section the liquidator or any creditor or contributory of the company, the insolvency of which caused the applicant to be subject to this Chapter, may appear and give evidence.
(5) Any liquidator who contravenes subsection (3) shall be guilty of an offence and liable to a fine.".
This amendment arises from an amendment tabled at the Special Committee by Deputies Seán Barrett and John Bruton. The Deputies' amendment, which I accepted on the floor of the Committee, removed a requirement that an applicant for relief under section 150 should give public notice — in other words, in the newspapers, of his intention to apply for such relief under section 150. However, in accepting the amendment, I felt that the creditors should not thereby be kept in the dark, that, accordingly, the liquidator should be obliged to inform them that an application for relief was to be made. Obviously, the creditors could not exercise their rights under subsection (3) of the section if they did not know an application was going to be made. In revising the section, I am proposing five changes. First, I have substituted the words "section 148" for the words "this Chapter" in the first line of subsection (1) for the same reason as applied in amendment No. 68u. Second, I have made a minor change in deleting the words "of this Act" from subsection (1). Third, if the liquidator will now have to advise creditors that someone is going to apply for relief it would seem desirable to extend the period of notice in subsection (2) from ten days to 14 days. Fourth, the new subsection (3) will require the liquidator to pass on notice of intention to apply for relief, not just to creditors but to contributors as well since the latter also have locus standi under subsection (4). Finally, the new subsection (5) will make it an offence for a liquidator to contravene the provisions of the new subsection (3).
In regard to the words "if any" which appear in brackets in subsection (2), I am not too clear what exactly is meant by their inclusion.
I am advised that it is to cover the possibility of a casual vacancy in the office.
I am sure it is harmless but it does not appear to be appropriate there.
Amendment agreed to.
Amendment No. 68w. Amendments Nos. 70 and 70a are related. Therefore, with the agreement of the House, we will take amendment Nos. 68w. 70 and 70a together. Is that agreed? Agreed.
I move amendment No. 68w.
In page 115, between lines 42 and 43, to insert the following:
"151.—(1) The registrar shall, subject to the provisions of this section, keep a register of the particulars which have been notified to him under section 148, and the following provisions of this section shall apply to the keeping of such a register.
(2) Where the court grants partial relief to a person under section 150, a prescribed officer of the court shall cause the registrar to be furnished with prescribed particulars of the relief, and the registrar shall, as soon as may be, enter the particulars on the register referred to in subsection (1).
(3) Where the court grants full relief to a person under section 150 a prescribed officer of the court shall cause the registrar to be so notified, and the registrar shall, as soon as may be, remove the particulars of any such person from the registrar referred to in subsection (1).
(4) The registrar shall also remove from the register any particulars in relation to a person on the expiry of five years from the date of the declaration to which the original notification under section 148 relates.
(5) Nothing in this section shall prevent the registrar from keeping the register required by this section as part of any other system of classification, whether pursuant to section 270 or otherwise.".
For the guidance of Deputies, I should say that what was numbered heretofore amendment No. 68a (d) is now numbered 70a. Armed with this useful knowledge, we will proceed.
There was a long debate in the Special Committee arising from section 149 (1) (b) in Chapter 1 of Part VII, with some Members of the Committee expressing strong objections to the keeping by the Registrar of Companies of what they claimed would be a "black list" of persons who had not been convicted of anything, and whose only "crime" was that they happened to have been directors of companies which went into insolvent liquidation.
While the pros and cons of this were argued at some length, the Minister of State agreed unltimately to think carefully on the whole area before Report Stage to make sure, for example, that people did not stay on this list when their restriction period was finished or if they got relief from the court. Similar arguments were made in the context of section 164, which deals with disqualified directors, under Chapter 2 of Part VII.
I have given this whole issue very careful thought since Committee Stage. Taking first the category of people restricted under Chapter 1, my conclusion is that, rather than remove a requirement on the registrar to keep a list of these people, or indeed remain silent on the matter in the Bill, we should tackle this matter head-on, by positively requiring the registrar to keep such a list, since, on reflection, the people concerned will have been the subject of a court declaration following a thorough review of the case by the court.
Thus, under the revised section 148, no one will find himself automatically subject to the restrictions in Chapter 1, and, therefore, on any list of such people, solely because he happened to be a director of an insolvent company, but rather because the court declared that he should be on such a list.
Getting back to the proposed new section 151, this will require the registrar to keep a register of people in respect of whom declarations have been made by the court under section 148. The new section will, however, also enable such people to get off the list in certain circumstances, for example where they get full relief under section 150, or where their period of restriction expires.
Amendment No. 70a proposes the insertion of a similar section in Chapter 2 of Part VII, to require the registrar to keep a similar register of disqualified directors.
I feel strongly that these registers should be kept by the registrar, so that people who have dealings with companies will be able to find out where they stand. As regards the register dealing with people restricted under Chapter 1, the fact is that people will not now have their names entered on it simply because they were directors of insolvent companies, since section 148 now clearly provides that a person will not be restricted unless the court declares that he should be, having thoroughly examined his actions while a director of the company concerned.
The two amendments I have tabled here more than adequately meet the point of amendment No. 70, in the name of Deputy Rabbitte which, I think, would now be unnecessary.
I therefore commend these two amendments, Nos. 68w and 70a to the House.
Is amendment No. 68w agreed?
I am seeking some clarification. Subsection (3) of amendment No. 68w provides that where the court grants full relief to a person under section 150, a prescribed officer of the court shall cause the registrar to be so notified, and the registrar shall, as soon as may be, remove the particulars of any such person from the register referred to in subsection (1).
When we were discussing this matter on Committee Stage there was a general fear that people's names would go on a list without added protection or adequate guarantees that (a) they should not be on the list in the first place, (b) that there was a proper mechanism for them to go on the list, and (c) if they were to come off the list they would definitely come off the list. Human beings are human beings and mistakes will be made. Are there any requirements on the registrar, having deleted somebody's name, to confirm to that person in writing that the name had been deleted? We all can find ourselves in a position where our name is on the list, or an instruction goes from one office to another that the name should no longer be on that list or a mistake can be made and the name appears on the list. Surely there is a need to have some form of confirmation that, as a result of a request made by an officer of the court, the name has been deleted from the list and that the person in question knows his name has been so deleted. If subsequently the person found that his name still appeared it could do serious damage to his reputation. Can we give some guarantee that there will be a mechanism whereby confirmation will be sent to that person that his name has been deleted from the list?
We are getting into fairly complex amendments. I understood the Minister to say that the court would decide on the people whose names would go on the list. We are talking about a two year period. If that be so, if for any reason a person wishes his name to be taken off the list within that two year period is there a mechanism for dealing with that or does the name automatically stay on the list as ordered by the court? I am somewhat confused about that.
It is important that this information be available and complied in the manner suggested here. I prefer to accept that what the Minister has said effectively incorporates my amendment No. 70. I take it that subsection (4) of the Minister's amendment means that in any event after the expiry of five years a name comes off that register. My amendment suggested a period of ten years because of experiences we have had of business people who were involved in shady trading, sometimes at great cost to members of the public or to people directly employed by them, and who could with impunity start up again. However, on mature reflection, perhaps five years is adequate.
He does come off the list after five years. In relation to Deputy Barrett's point, if somebody applies for and gets full relief under section 150 it is not that he gets some sort of card in the post telling him he is now off the list that is important, but that he is off the list. If I were restricted or disqualified and I applied to the court under section 150 successfully and got full relief under section 150, one can be quite sure that within a matter of two or three days I would take myself to Dublin Castle to ensure that the registrar had so registered my coming off the list. That would be the prudent thing to do. I would not feel that all would be well if I got a letter or card telling me I was off the list. Things may be different now, but the normal thing, as I recall it, was that if one lodged documents with the registrar he sent a notice back to the applicant or the lodging party to the effect that he had received the documents and/or the registration was now completed. It is a little different here because he will get the notification from the court registrar.
I suppose in the normal way he would send it back to the court registrar to confirm that he had done it. He would not normally send it then to the party who was affected. The party who was affected would, I have no doubt, if he had gone to the trouble of applying to the court under section 150, equally go to the very minor trouble and no expense of going down three or four days later to look at the file to see that his name was removed from it. I do not think it is any extra benefit to him, certainly so far as the public are concerned, which is really what matters to him. The fact that he got a letter saying that he was off it would not be much good to him. It is getting off it that counts, and that, clearly, will be done.
In regard to this digital and alphabetical elucidation, was there any displacement of any other amendment there? In regard to the ones we have dealt with, we have married the two, the green and the white, and they are perfectly in accordance with what is there. We have now concluded debate on amendment No. 68w.
Amendment agreed to.
We will move on to amendment 68x. Amendment No. 68y is related and can be discussed with it.
I move amendment No. 68x:
In page 116, to delete lines 1 to 12, and substitute the following:
"152.—(1) This section applies to any company in relation to which a person who is the subject of a declaration under section 148 is appointed or acts in any way, whether directly or indirectly, as a director or secretary or is concerned in or takes part in the promotion or formation of that company.".
These two related amendments arise as a result of the changes to section 148 which were made in the special committee and to which I referred earlier. In the Bill at present both paragraphs of section 152 (1) are expressed to apply from what is called the relevant date, which, under the current text of the Bill, is defined in section 147 (4) as the date on which it is proved to the court that the company are insolvent.
However, because of the recasting of section 148 on Committee Stage the operative date for the provisions here should really be the date on which the court makes a declaration under section 148. The first of these two amendments rectifies this problem.
Turning to the second amendment, which is 68y, the existing subsection (5) in section 152 is no longer necessary because the new subsection (1) provides that the section will apply to any company to which a restricted director is appointed or acts in any way and subsection (5) can accordingly now be omitted.
In regard to the existing subsection (6) a change to the wording is required again to reflect the fact that the process of restriction will now be a court based one and that is what the new subsection (5) will do.
Amendment agreed to.
I move amendment No. 68y:
In page 116, to delete lines 30 to 40, and substitute the following:
"(5) From the date of a declaration under section 148a a person in respect of whom the declaration was made shall not accept appointment to a position or act in any manner mentioned in subsection (1) of this section in relation to a company unless he has, within the 14 days immediately preceding such appointment or so acting, sent to the registered office of the company a notification that he is a person to whom section 148 applies.".
Amendment agreed to.
I move amendment No. 68z:
In page 117, lines 43 and 44, to delete "make different provision for different cases", and substitute "specify different amounts in relation to companies of different classes or descriptions".
This amendment arises from the long debate in the Special Committee on objections by Deputies Barrett and Bruton that the Minister's order-making power under this section could be abused, for example, by the Minister singling out particular companies or individuals for higher or lower figures by quintupling the amounts shortly after the enactment of the Bill or, indeed, any time, and so on. While I rejected these claims at the time, I undertook to replace the word "cases" in paragraph (c) by the word "classes". Following further thought, I have, in framing the amendment, drawn on the wording of what is now section 169 (2) of the Bill, which is a somewhat analagous case.
I move amendment No. 68aa:
In page 119, line 7, after "officer,", to insert "auditor,".
This is a consequential drafting amendment which we overlooked making on Committee Stage. While we inserted a reference to an auditor in the first line of subsection (2) (b), we overlooked the fact that the consequential amendment was necessary in the third line.
Amendment agreed to.
I move amendment No. 68ab:
In page 119, lines 24 and 25, to delete "or may require him to carry liability for any outstanding debts to any new company".
The particular part of subsection (2) which I am proposing to delete through this amendment was inserted in this section on Committee Stage by an amendment tabled by Deputy Rabbitte. The Minister of State who represented me on that occasion argued strongly against acceptance of the amendment and I must say I agree with the arguments she made.
I see a number of problems both in principle and in practice in leaving this option available to the court. Section 157 is designed to deal with the question of disqualification of directors and subsection (2) sets down particular circumstances in which the court, of its own motion, or on the application of a specified person, can make a disqualification order.
In principle, I do not wish to introduce sanctions into this section which the court could apply. If the reason the court felt that a person should carry liability for the debts of a company to a new company arose from some fraud, for example, there are already many other sections in existing legislation and in the Bill where such sanctions can be imposed. On the other hand, if a person is only guilty of a minor breach of duty, for instance, or has not made returns to the Registrar of Companies, I would see the carrying forward of liabilities in such circumstances as far too heavy a potential penalty.
A further difficulty with this provision is that in practice the court would not know what the outstanding debts or ultimate deficiencies of the company concerned actually are until the end of the liquidation. This could be years later and the director's position in the meantime would, contrary to any principles of natural justice or fair play, be completely uncertain.
Finally, I think it is not appropriate simply to transfer one company's contracted debts to another company which may not even exist. Even if it does already exist, or when it comes to exist, or when the person in question comes to be involved with it, it would be totally inequitable vis-à-vis the creditors of the new company to have their position worsened in this way.
Amendment No. 68ab accordingly proposes the deletion of the words inserted by Deputy Rabbitte's Committee Stage amendment and the return to the original wording of the section. I would ask the House to accept that the disqualification provisions in Part VII of the Bill are strong enough by any standards and that to leave these extra words in section 157 (1) would be both impractical and inequitable.
This is certainly unusual, a Leas-Cheann Comhairle, in my experience. Here we have a situation of an amendment that was actually carried on Committee Stage and now the Minister has had a look at it, does not like it and says that, notwithstanding the decision on Committee Stage, it will have to be excised now. Deputy Barrett earlier made fair play out of an amendment on which the committee divided equally. He adduced that as evidence of how strongly people felt about the amendment to that section, and I take his point. Having regard to the manner in which the committee did their business, that was a very reasonable deduction. We argued this matter ad nauseam on Committee Stage and the committee voted to incorporate the amendment into the section.
It seems strange, to put it at its mildest, that the Minister now seeks to excise it. It is not as if it compels the court to make an order to require the person to carry the liability for outstanding debts with him to a new company; it is only in the case of the court considering it proper that it should do so. The court may of its own motion make such a decision. Presumably, if the facts are such that it would be unfair, prejudicial or punitive in terms of the circumstances of the case, the court would not make such a decision. It seems that where an officer of the company has been guilty under the section and goes on to set up a new company it is perfectly fair in certain circumstances that he should take the mess with him. All this amendment seeks to do is to allow the court the freedom to make such a decision in that circumstance.
The arguments were thrashed out at great length on Committee Stage. It was decided by a majority to enshrine that section in the Bill and I am very disappointed that the Minister now seeks to have it excised. That was the wish of the select committee who had a great deal more time to study the implications of the matter than we have at our disposal this evening.
I share Deputy Rabbitte's fears in this regard. Section 157 (2) (f) refers to a person who has been persistently in default in relation to relevant requirements. It indicates the powers the court would have in such a case. I would much prefer to see that provision left in. It strengthens the Bill and gives the court the necessary teeth. The Minister indicated that the court has this power under another section, but, nevertheless, it is very clear and specific in the section under discussion. I assume it would not interfere with the section referred to by the Minister and, therefore, I see no logical reason why it cannot be left in.
To return to the person who simply walks away from his responsibility, I dealt with a case where a person left £250,000 in debts behind him. Within one week he bought the machinery, exported it and then set up another company down the road. I do not see why the liabilities of such a person should not be carried to the new company. The Minister said it is possible to do that under another section. The provision is very clear, simple and specific and I appeal to the Minister to retain it.
I have listened carefully to what Deputies Rabbitte and Bell have said. Deputy Rabbitte, in particular, based his argument more on what he feels is the impropriety or inadvisability of over-ruling a Committee Stage amendment that was carried in a special committee on 3 April. It was not a high scoring game, the result was only 5 to 3, and we all know why. Deputy Rabbitte, in particular, makes no rebuttal of the reasons I set out here as to why the amendment agreed on Committee Stage was not just undesirable but highly impractical and inequitable. I will have to ask the House, on reflection, to realise that the amendment that was carried in the special committee clearly was one that was strongly opposed by myself before lunch and by the Minister of State after lunch on that day. The arguments against it, a summary of which I repeated today, are still reasonable.
There are a lot of other provisions in this Bill which will get at the kind of person referred to by Deputy Bell such as the provisions about reckless trading, fraudulent trading, the restrictions on directors under Chapter 1 of this Part, disqualification of directors and so on. I do not think that in trying to get at these people — there is nobody more anxious to do so than me — we should go to the extent that this provision which I seek to exercise would do, because it is patently inequitable. For example, a director may join somebody in a new company two years later, join with people who know nothing about his previous record, and they would suddenly find that because that person is now a director of their company they are landed with £50,000 worth of debt from a different company that went into liquidation two years earlier. That would be terribly unfair on the contributaries in the new company. We really could not defend that case.
We are referring simply to the person in question and not to the new company.
Surely this is an alternative to disqualification.
The person would carry the liability for outstanding debts to any new company. It is not just his personal liability we are talking about; it is the company's liability. The instance I gave in my earlier remarks is of the effect it would have on contributories, members, shareholders, or other directors, who may have taken in that person in all innocence. What about the creditors of another company who did not know the position? Let us say the new company owe people who are trading with them £100,000, and that is just about the limit of what they can carry, and the people are concerned, are watching their debt but suddenly, out of the blue and for no reason connected with the trading activities of the new company, a further £50,000 is landed on them. The directors may meet and say they knew nothing about this, they are now gone beyond the point of no return, are insolvent and have to go into liquidation. The existing trade creditors of the new company, who would have been able to recover their debts in the normal course of business, would suddenly find the company have gone into liquidation and they will either get nothing or some small dividend. I am sure Deputy Rabbitte will agree, on reflection, that that would be very inequitable and it would be better that such a provision was not included in the Bill.
I can see the difficulties which could face a company of which such a director might from part in the future. I do not know how difficult it would be for a judge to make an order which was provisional in relation to somebody who started up a company and was the sole shareholder. Should the judge have flexibility and, instead of disqualifying him, say that it was better for the creditors that the person could carry the liability and pay it back eventually? I do not know if that would be feasible or possible in terms of company law but I can see the principle of Deputy Rabbitte's Committee Stage amendment on which there was a fair amount of discussion. As lay people, we tend to believe that somebody can serve a period of disqualification which may not be that onerous in financial terms——
I am anxious to assist the Deputy but, technically speaking, the Minister in his reply just now was concluding the debate on this amendment. Perhaps the Deputy has a pertinent question; otherwise we would be reverting to a Committee Stage procedure, which would not be in order.
I did not get an opportunity to speak on this matter. Will the Minister agree that if a judge were given flexibility in the matter of a disqualification order against the person, the person in the course of evidence could say that if he was permitted to start a business where he was the sole shareholder he would be prepared to carry the liability because he wanted to clean the slate in relation to his debts? Can the Minister see a situation where the judge would agree that, in those circumstances, he would permit it rather than disqualifying the person, because, from the point of view of the creditors, they would be far better off? I think that is what Deputy Rabbitte was getting at and the committee were anxious to find a way around this. It is a new concept but perhaps it should be applied to 1990. Rather than shooting down what was agreed by the committee, maybe the Minister will concede those points?
May I ask a question?
Certainly.
My question relates to the statement about which the Minister made so much play, that this could mean the difference between a solvent company trading, albeit with difficulty, and taking on board a new director together with all his baggage, indebtedness, from the past. As a result, the company could go under. Does the Minister agree that, in the event of this being enshrined in law, no company who were prudent about the management of their affairs would take a new director on board without clarifying whether he had such a liability in the past? As Deputy Barrett said, it is a new concept and if it becomes part of company law no company that have their wits about them will take on somebody who walks in the back door, make him a director and find that they have an additional indebtedness of £50,000. That would be cleared in advance and all that is being sought here is an alternative to disqualification. The judge may consider, in all the circumstances, that it is a more reasonable method of handling this than disqualifying the person for whatever the stated period would be in that case. For example, the indebtedness might be relatively small and the nature of the wind-up might be such that the particular person might be delighted to be allowed to start up again taking some encumbrances from the past. It might suit the particular circumstances.
Deputy Durkan rose.
I am concerned that we are departing from the procedures which should apply on Report Stage. However, the Chair has been very liberal, as Members will observe, and I will permit Deputy Durkan to ask a question.
I understand what Deputy Rabbitte was saying but, provided that all the other restrictions and conditions imposed would be sufficient to protect the company to whom the erring director would go, it is the only way to protect the innocent victims, in this case a company, who are unaware of the misdemeanours. It would work if the other conditions in the Bill are sufficient to protect the innocent party. Having listened to Deputy Rabbitte and our own submissions on Committee Stage, the possibility of unscrupulous directors moving to new ground and bringing with them some liabilities which could have serious consequences for the company might be difficulty to insure against.
I will reply to these points which have just been raised by way of questions. I am glad that Deputy Durkan agrees with me. Deputy Rabbitte and, in a slightly different way, Deputy Sean Barrett made the point that perhaps this liability should be carried in so far as it applies to the director or an individual shareholder. That is fair enough but, as this stands under the Committee Stage amendment, it is not a personal liability of the former director, it is a new corporate liability of the new company imposed on them, quite possibly without their knowledge. I could fully sympathise with what Deputy Rabbitte said if it were only a personal liability he was carrying forward but I should like to remind him and Deputy Sean Barrett that one of the cases where a disqualification order can be made, because of the provisions of, inter alia, subsection 2 (c), of this section, is where a declaration has been granted under section 297a of the principal Act (inserted by section 137 of this Act) that is, that the former director has personal liability, so the point is met there. It is enough for all of us that he should have personal liability and it is inequitable that others, unconnected with his misdemeanour, should have to pay for it. Therefore, I ask the House to accept this amendment.
Amendment agreed to.
I move amendment No. 69:
In page 119, between lines 25 and 26, to insert the following:
"(3) A person having been an officer of a company, declared insolvent or wound-up without fully discharging its debts during the previous ten years, shall be required to make application to the court for a certificate of fitness prior to becoming an officer of any other company. The applicant must satisfy the court that his conduct as a company officer previously does not make him unfit to be concerned in the management of this different company.".
It is now nearly 7 p.m. I understand there is an informal arrangement that further considerations of the Bill be adjourned at 7 p.m.
Debate adjourned.