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Dáil Éireann debate -
Wednesday, 24 Apr 1991

Vol. 407 No. 4

Ceisteanna—Questions. Oral Answers. - Commission on Company Law.

Peter Barry


9 Mr. Barry asked the Minister for Industry and Commerce if he will establish a special commission to review the fundamentals on Irish company law; and if he will make a statement on the matter.

I am aware of certain recent public statements which have suggested that a commission should be established "to review the fundamentals of Irish company law", and I assume this is what the Deputy has in mind in framing the question. These statements were made in the context of suggestions that Irish law in this field is too complex, particularly in so far as the burden of compliance for smaller companies is concerned.

Overall, of course, there is no denying that our companies' legislation is complex, but the simple fact is that the subject matter itself is complex. We are not alone in this, since the same applies in most other jurisdictions with which we share a common legal background, the most notable of which, of course, is the United Kingdom.

As for reviewing the fundamentals, the most fundamental question of all is whether to continue affording people the privilege of limited liability, particularly given the nature and extent of the abuse of the privilege, and this basic question, among many others, was addressed in the preparation of the Companies Act, 1990. It was decided, quite sensibly I think, that Irish corporate life could not survive any undue tampering with this most basic principle of law, although it was equally recognised that there was, and continues to be, a price to be paid for being allowed the luxury of personal protection from one's creditors.

That price, essentially, is abiding by a body of rules designed to put in place a series of checks and balances, to ensure that the basic protection is not abused. The 1990 Act simply adjusted this balance, which had, by common consent, swung too far the other way.

Of course, the limited liability issue was not the only fundamental aspect of company law addressed by the two recent Acts. For many years, an insolvent company faced essentially two options — receivership or liquidation. Now, however, as the Deputy knows, companies in temporary difficulties have the dramatic new alternative of protection by the courts, while their future is worked out. This is clearly a radical and fundamental change of philosophy as far as company law is concerned, and has been widely welcomed.

Another fundamental reform which was put in place by the "main" 1990 Act relates to the ability of a company to purchase its own shares. This reform modifies one of the basic principles on which our company law is based, namely the absolute sanctity of a company's capital as a protection for its creditors.

There are many other reforms in the Companies Act, 1990, in addition to these. I merely wish to demonstrate to the Deputy how fundamentally we have reformed the law relating to companies recently.

As far as "lightening the burden" on smaller companies is concerned. I hope to be implementing this year, among others, two EC directives which will have this effect. The first will allow the incorporation of single member companies, and the second will considerably lighten the accounting disclosure requirements for small companies.

The last external review of Irish company law was the Cox report, which led eventually to the Companies Act, 1963. I have to say, however, that the Cox committee sat for seven years and that, following their report, it took another five years to get the 1963 Act onto the Statute Book, nothwithstanding that the 1963 Act was based heavily on the United Kingdom Companies Act, 1948. I would not like to repeat such an exercise at this stage.

Coming so soon after the enactment of the Companies Act, 1990, and the Companies (Amendment) Act, 1990, which, taken together, amounted to the biggest reforming measure in the entire commercial area in the last 30 years or so, I do not consider that it would be appropriate at this stage to establish the type of special commission suggested.

The Deputy may rest assured, however, that I and my Department will keep the law as it relates to companies continuously under review and, if I feel it needs to be changed, I will not hesitate to propose this.

The comments which gave rise to the question which the Minister has referred to in his reply were in fact made by a High Court judge after the Companies Act went through this House and had been passed into law, so that did not affect the reforming nature. The High Court judge suggested that a special commission should be established to review the fundamentals of Irish company law because this country, for its size, is over-regulated and small businesses find it extremely difficult to set up and remain in business because of the number of regulations that have to be complied with. That will be added to by the Competition Bill which will be passed next week and which has no floor as to the size of business to be subject to that law. Would the Minister not agree that if that is so — and perhaps everybody would not share his view that all the laws he has referred to are reforming laws — the very quantity of laws passed by this House in relation to business should be looked at by some independent commission to see if they could be boiled down to a much more fundamental law which would affect all business and take the onus away from business of trying to avoid——

I want to assist Deputy Barry to elicit information but he may not embark upon a speech.

I am sorry, Sir, you are quite right. Would the Minister not agree with me when I suggest that there may be a connection between the 19.4 per cent unemployment in this country and the difficulties in getting into and remaining in business in this country?

I do not accept, Sir, that company law contributes to that. I think maybe other matters contribute to it but I really do not think company law does. Perhaps laws generally do, mainly on the fiscal side in regard to PRSI, VAT and those various other reforms. However, the question relates only to company law. I have given examples of the changes that have been made and that are about to be made that distinguish between smaller and larger companies and make things easier for smaller companies. I am sure the Deputy will agree that it is commendable that this same feeling which he is expressing now is also felt widely throughout the European Community and that as a result a number of the directives which this country is waiting to adopt — there are seven at the moment, plus the nine that are under discussion in Brussels — have in part at least some of the objectives he mentions and which I share.

Is the Minister not aware that under the Companies Act, passed by this House last year, in the section relating to directors, the smaller companies, — even publicly quoted companies of a smaller size — are now finding it extremely difficult to get people to act as directors on their boards as a result of that and those are the companies who badly need the type of advice they would get from such directors.

That was debated at length on Committee Stage. I think that the committee and this House generally were satisfied that we achieved the right balance in terms of the duties that one has to put on directors for the overall public good, while at the same time encouraging people to act as directors and in particular to act as non-executive directors. The fact that the office of director has been so frequently abused over the years and was the subject of so much criticism meant that certain things had to be done to tighten up the exercise of that office. At the same time we avoided a situation whereby there is undue onus on people that would frighten them away from acting on companies that are well and properly run.

The Minister obviously did not hear or did not choose to hear what I am saying. I am telling him that at the moment such small companies cannot get people who are qualified as directors to sit on their boards because of the Companies Act passed last year. My understanding is that what happened in committee was that the points I am now making were very strongly put by both Deputy Barrett and Deputy Bruton — they were both on the committee, and I was not — and were resisted by virtually every other party, including The Workers' Party, the Labour Party, the Progressive Democrats and Fianna Fáil on the committee even though they took no part in the discussions.

And quite rightly so.

We are now having repetition.

I am quite satisfied, Sir, that after lengthy discussion the committee took the right decisions. If there is a reluctance on the part of some people to act on the boards of some companies at present it may well be due to the slightly scaremongering commentaries that have been made by some people, perhaps for their own purposes, on some aspects of that Act. It has only been law for a few months. When things settle down and people realise that the effect of the Act, so far as directors are concerned, is not anything as onerous as some people in public are suggesting, then this difficulty will not arise. I make no apology for clipping the wings of people who have abused their directorships and have abused the privilege of limited liability over a long period to the detriment of large numbers of ordinary people in this country.

Let us now proceed to No. 10.

I fully agree with the Minister on that.