Companies (Amendment) (No. 2) Bill, 1999: Report Stage.

I move amendment No. 1:

In page 5, line 12, after "REQUIRE" to insert ", SAVE IN CERTAIN CIRCUMSTANCES,".

This amendment is grouped with amendments Nos. 2, 23, 24 and 25.

On a point of order, we did not receive a list of the grouping of amendments.

Amendment No. 2 is related to amendment No. 1, while amendment No. 2 is consequential on the composite proposal in amendments Nos. 23, 24 and 25. Therefore, amendments Nos. 1, 2, 23, 24 and 25 can be discussed together.

Would it be possible to get a copy of the list of grouped amendments? Did Deputy Rabbitte get a copy?

I do not think I have even the right amendments. My copy of amendments Nos. 1 and 2 is totally different.

Amendment No. 2 on my list is my amendment, which is dated 20 October.

That is correct.

The group of amendments may be discussed together.

I am using the list of amendments published on 20 October.

Is the Minister dealing with amendments Nos. 1 and 2?

Amendment No. 1 is the Government amendment and amendments Nos. 2, 23, 24 and 25 are related to it. The legal and procedural advice we have received is that they must be discussed together.

The Minister is moving amendment No. 1 but the other amendments in the group may be discussed with it.

A copy of the grouping of amendments will be provided to the Deputies.

I will deal with amendment No. 1 and Opposition amendments Nos. 2, 23, 24 and 25 as they are related. On Committee Stage, Deputy Owen suggested that the Long Title was misleading to the extent that it did not reflect the fact that it was possible to offer a bond of £20,000 as an alternative to having a director resident in the State. The suggestion was made that a qualification such as "or otherwise" would alert parties to the alternative. Having looked at the matter in the meantime, I propose to insert the words "save in certain circumstances" after the word "require" in line 12. This is necessary as the bond is not the only alternative to the resident director. It is possible to be exempted all together from the requirement pursuant to section 44. I commend my proposal to the House.

The issues arising in amendments Nos. 23, 24 and 25 were discussed at length on Committee Stage. Concerns were expressed that we were allowing for the alternative of a bond at all. The point was made that if it was to be allowed, it should apply only in limited circumstances and that the amount should be increased from £20,000 to £40,000 or even higher. I will explain again why these amendments cannot be supported. First, for European Union Treaty reasons, we must have an alternative to the resident director. This is the legal advice we have received. The alternative chosen was a bond and, again for European Union Treaty reasons, this must be a real alternative and cannot be limited to certain circumstances as proposed in the Deputy's amendment.

Second, regarding the size of the bond which must be put up, we must bear in mind that the provisions of the Bill will apply to all companies registered in Ireland. In pitching the bond at £20,000, we were conscious of the need not to impose an undue burden on reputable business concerns. This will be particularly important in the case of a European Union resident who wishes to set up a company here but does not wish to use the Irish resident director route. If the bond is pitched too high, he or she would more easily be able to argue that it constituted an undue discrimination under the relevant treaty requirements governing freedom of establishment, etc.

Third, in terms of addressing the IRNR problem, it is important to focus on the overall package of measures which have been carefully drawn up in assessing the effectiveness of the individual components of the package. In this regard, it is important to bear in mind that the company law measures are designed to complement the considerable changes already effected in the taxation area and these will constitute a powerful weapon against abuse of Irish company structures for undesirable purposes in the future. In these circumstances I am unable to accept amendments Nos. 23, 24 and 25 tabled by Deputy Owen and I trust the House will understand the position.

I thank the Minister of State for examining the matter further but I am still unsure that his suggestion is sufficiently frank and honest in relation to the legislation. I do not mean honest in a derogatory way but the Short Title of the Bill will mean nothing to somebody reading it. A lawyer will look at the Long Title and the explanation of the contents of the legislation, although there cannot be a long explanation for every section. It is obvious that, in moving to correct the position regarding Irish registered non-resident companies, sections 43 and 44 are extremely important elements of the Bill. For the first time the requirement to have an Irish director of such companies is being brought into law to try to prevent false companies being established.

Allied to the obligation on the company to appoint an Irish director is a cut off that one can lodge a bond. It may be the case, as the Minister of State said, that section 44 is a way of getting around the need to appoint an Irish director or to have a bond. However, when one considers section 44, it is obvious that the certificate from the Registrar of Companies can only be given if he or she is satisfied that the company is carrying on business. In my view, one of the ways a company will satisfy the Registrar of Companies will be to show that an Irish person is involved. When it comes to the assessment of a company which is seeking a certificate as opposed to fulfilling the obligations under the previous section, one of the measures of assessment will be the existence of an Irish director. I am not satisfied that the Minister of State's suggestion of "save in certain circumstances" will be sufficient to flag the fact that many companies will use the bond method rather than the company director route.

It has been brought to my attention that despite the changes in the Finance Act in relation to Irish registered non-resident companies, ingenious and clever people are finding ways around the legislation already. There was a recent article in the monthly magazineFinance Dublin– I am sure the Minister of State has a copy of it – and I would be interested in his comments on the allegations in it. Unfortunately, I did not have time to find the magazine before I came to the House but my recollection is that the article alleged that people are finding ways of appointing agents which overcomes the need to comply with the changes already made in the Finance Act. This will thwart the Minister of State's intentions in this Bill when it is enacted. I am unhappy with his proposal.

I am not asking for much, only for the words "or to lodge a bond" to be included. Perhaps the Minister of State's proposal, "save in certain circumstances", could also be included. It could be a belt and braces exercise. I do not understand why he cannot amend the Long Title to state "a person resident in the State or to lodge a bond" because that is the main choice being offered in this menu of activities for Irish registered non-resident companies. I am satisfied that, although belatedly, he has taken on board the concerns expressed by the Association of Company Registration Agents. I wonder why it came so late to the debate – perhaps the Department was unaware of its existence. The association made the point the Minister of State has now recognised regarding the Treaty of Rome that there may be a constitutional challenge to the legislation. The Minister of State did not use that argument when I questioned the choice of a bond. I believe it should always be an Irish resident director. I am surprised the Minister of State did not allude to the Treaty of Rome. He may have done but if so, I did not hear him because the debate was so complicated. The Irish association of company registration agents is very concerned about a ruling recently handed down by the European Court of Justice in the Centros case, which highlights the inherent risks for a member state in imposing restrictive corporate regulations intended for application on all member states. The association states:

This ruling effectively means that an Irish business could be registered in the UK with a branch being set up in Ireland resulting in much less disclosure and control within the Irish jurisdiction, which is a possibility if we provide a very restricted choice of corporate structure within our State.

It goes on to say that the association chairman has prepared a paper highlighting the effects and inherent risks of sections 42, 43 and 45vis-à-vis the European legislation. I hope the Minister's Department has looked carefully at the Centros case to ensure it does not have implications and that this legislation will not be subject to a constitutional challenge once enacted. As an Opposition Deputy I do not have the wherewithal to examine the implications of that case. I hope the Department has.

Does the Minister of State agree that amend ments Nos. 1 and 2 are justifiable in these circumstances? Perhaps he may show an expansion of mind and accept amendment No. 2.

In response to Deputy Owen's request that the adviser look at the Long Title, the wording we propose will alert the reader to see what is meant by "certain circumstances". We are, therefore, satisfied that the amendment is appropriate.

The Deputy referred to an article published in the August edition of the magazineFinance Dublin, published by the IFSC on a monthly basis. She has tabled a parliamentary question on the matter. As it is basically concerned with taxation we have referred it to the Minister for Finance and he will respond to her in due course.

This is disgraceful. The Minister of State's Department is introducing the legislation dealing with Irish registered non-resident companies.

I do not know why his Department cannot answer questions of that kind. It does not make sense.

If it was our responsibility we would answer them. However, they deal with taxation issues and that is a matter for the Minister for Finance. I cannot presume to answer questions on his behalf.

It is a business matter.

I am obliged to transfer questions on financial matters to the Minister for Finance. The Deputy's question is a taxation matter. She has talked about company formation agents. We know about these for as long as they have been in existence. I dealt with them many years ago. I am sure they are in constant touch with the Department. They sought a meeting with me the day before the Bill was expected to be introduced to the House. I met them then and talked to them at length. I reassured them and they left the meeting happy.

Could the Minister of State reply to the amendment.

I am replying to the Deputy's points on amendment No. 1.

Does the Deputy wish to make another contribution?

I hope the Minister of State will say he is accepting amendment No. 2.

The Minister of State is replying.

I assured the people I met of the situation and they assured me they would co-operate fully – they said they always have – in ensuring that registered companies would be bona fidesde facto companies operating within the law. I was pleased with that.

Deputy Owen referred to the EU treaty and the constitutional position. In all of my responses, on Committee Stage and elsewhere, I said that we must keep on-side with regard to European treaty obligations. The wording I propose to include in the Title conforms with that position. The advice of the Attorney General and the parliamentary draftsman is in tune with that and I am obliged to accept the excellent legal advice available to me. I am advised that the inclusion of the words "save in certain circumstances" is the only way we can conform with the treaty. I have gone as far as I can to assist the Deputy with her request on Committee Stage and, in so far as I can from a legal point of view, I now propose to amend the Title to take account of her points.

The Deputy referred to the decision of the European Court of Justice on the Centros case. The court made its decision last March. Essentially the case involved a Danish couple residing in Denmark who in 1992 purchased a limited liability company, Centros, which was incorporated in England. The Danish couple then used this company to conduct business in Denmark. Under European law it is possible for the activity of a company to be carried on in another member state through a branch. Where this is done certain registration and ongoing funding procedures have to be fulfilled in respect of the branch.

However, the Danish authorities refused to register the branch, primarily because it understood the branch was being used as a device by the Danish nationals to get around the requirement of Danish law whereby if they had established the company in Denmark they would have had to provide a minimum share capital of 200,000 Danish kroners. Essentially the court of justice held that the Danish authorities were not entitled to refuse to register the branch and that under the relevant articles under the Treaty of Rome, the Danish nationals were entitled to use the incorporation process as they had done.

In developing the IRNR proposals, the office of the Attorney General was consulted at all times. This was particularly so to ensure account was taken of Article 52, dealing with the freedom of establishment; Article 53, which prohibits the introduction of new restrictions; Article 56, which permits exemptions on public policy grounds, provided the action is proportional and no other effective remedy is available; Article 48, which deals with free movement of workers; and Article 59, which deals with freedom to provide services.

The package of company law measures, which were designed to complement the taxation measures, were designed with the European Treaty requirements in mind. The requirement that every company must engage in an activity is seen as evidence that the State is taking measures to resolve the problem. The requirement that every company must have an Irish resident director has a number of alternatives, including the availability of a bond for £20,000 or the certificate under section 44, where a company can demonstrate to the Revenue authorities that it has a continuous link with the State. That covers the options set out in the words "save in certain circumstances". By amending the Title we believe we are meeting all our legal and European requirements and are going as far as we can to meet the requirements sought by the Deputy on Committee Stage.

Amendment agreed to.
Amendment No. 2 not moved.

Amendment No. 3 is in the name of the Minister and Deputy Rabbitte.

I move amendment No. 3:

In page 5, to delete lines 23 to 27 and substitute the following:

"(2) The Companies Acts, 1963 to 1986, the Companies (Amendment) Act, 1990, the Companies Act, 1990, the Companies (Amendment) Act, 1999, and this Act (other thansection 40) may be cited together as the Companies Acts, 1963 to 1999.

(3) The enactments referred to insubsection (2) shall be construed together as one.”.

On Committee Stage I introduced a technical amendment to the collective citation of the Companies Acts required by the fact that the Companies (Amendment) (No. 3) Bill, dealing with stabilisation, had been enacted since this Bill was published. In the course of that debate Deputy Rabbitte raised a point regarding the collective citation, pointing out that it did not refer to the Companies (Amendment) Act, 1990. I understand that the lack of a reference in the second Companies Act, 1990, to the earlier one does not present any legal difficulties because of the wording of the collective citation in both Companies Acts enacted in 1990. Nevertheless, I have decided to take this opportunity to regularise the matter and to avoid any confusion in the future. I trust this is to the satisfaction of both Deputy Rabbitte and the House.

I do not wish to labour the point. I know how valuable it is to even get a very minor amendment from the excellent back-up staff the Minister of State has at his disposal. I am grateful.

We are very grateful also.

Amendment agreed to.

Amendment No. 4 is consequential on amendment No. 7; amendment No. 5 is an alternative to amendment No. 4 and amendment No. 6 is related. Amendments Nos. 4 to 7, inclusive, will, therefore, be taken together as agreed.

I move amendment No. 4:

In page 10, line 14, to delete ", not exceeding 10 days,".

First, I will refer to amendments Nos. 4 and 7. Section 9 specifies that interim protection may be provided to a company for a period not exceeding ten days to allow the independent accountant's report to be drawn up. As stated in the new subsection 3A (1), it is intended that interim protection will be available for a limited timeframe in exceptional circumstances solely for this purpose.

I indicated on Committee Stage that when the ten day time limit expires on a Saturday, Sunday or public holiday, I would consider whether the deadline should be extended to the next working day. The two Government amendments to section 9 3A (1) and the insertion of a new subsection 3A (2) would provide for this. I hope Deputy Owen will appreciate that I have gone some way towards meeting her concerns in relation to this section by tabling the two Government amendments. I am not prepared to accept her two amendments to section 9 which have been retabled on this Stage.

In relation to amendment No. 5, I already outlined on Committee Stage that in section 4(2) of the Companies Act, 1990, provision is made to discount a Saturday, Sunday or public holiday only where the period in question is six days or less. I am not aware of any compelling reason why interim examinership should deviate from this general provision in company law. Therefore, I do not propose to accept this amendment.

Deputy Owen's second amendment to section 9 would allow the court discretion to extend the period of interim examinership beyond ten days. Interim examinership is meant to apply in exceptional circumstances and for a limited timeframe. This would clearly no longer be the case if the court could extend the period of interim examinership on a case by case basis. Once the independent accountant's report is presented to the court within the ten day period, the company will be under the protection of the court, even if the court is not in a position to hear the petition for a number of days. I trust this clarifies the position, but I regret I am unable to accept the amendments.

I thank the Minister of State. I went through the report of the Committee Stage debate and marked where the Minister said he would come back to us on Report Stage. This is one area where he said he would keep the law under review and re-examine the section. While he has moved, I still have concerns. He is saying that if the ten day period ends on a Saturday, Sunday or on a bank holiday Monday, he will allow it to be extended to the Tuesday. For many people, Saturdays and Sundays are not working days, but others, such as politicians, work on Sat urdays, Sundays and on bank holidays. I am disappointed the Minister of State could not take that extra step and state the ten days would be ten normal working days. I welcome his comments about what will happen if the tenth day falls on a Saturday, Sunday or public holiday because if the process started on a Wednesday, Thursday or Friday, a Saturday, Sunday and bank holiday might occur in the middle of the ten day period and the tenth day would end in the middle of the following week. In some instances there might be just seven working days and in others there could be ten, but only seven of them might be working days. I am disappointed the Minister of State has not gone further. However, I welcome the fact that he listened to what I said and made some moves in this regard.

The Minister of State said one would be under the protection of the courts. We already discussed the meaning and implication of this for a person looking at a company. The Minister of State said that once the auditor's report is before the court, the company is then under the protection of the court. Will this be the case even if the ten day period has expired?

Is it after that?

Irrespective of whether the ten days have expired or whether the court is in a position to hear the case, once the documents are lodged, the company is under the protection of the court.

Does this mean the ten day period is no longer valid after the report has been lodged? Perhaps the Minister of State could explain this issue because it is quite complicated.

We are talking about a serious crisis where a company is going into examinership. I do not believe it matters whether it is Saturday, Sunday or Monday because if professionals are working to save the company, they will work all the hours God can give them to do the job right. I am sure this is the norm. They will be given ten days to lodge their documentation with the court. The Bill proposes that once the documentation is lodged with the court within the ten day period, a decision is automatically made that a statement has been made that the company needs to be under examination. Under the proposal in the Bill, once the documents have been lodged within the ten days, the company will be under the protection of the court.

Section 9(b) states, ".accordingly, the court is unable to consider the making of an order under that section, the court may make an order under this section placing the company concerned under the protection of the court for such period, not exceeding 10 days, as the court thinks appropriate.". The placing of the order and the company under the protection of the court still seems to be wrapped up in this ten day period, notwithstanding the slight amendment to it. The Minister of State is saying that if the report is lodged but the court is not in a position to make a decision on it, the company is still under the protection of the court even though the order might not be made. Is the court still obliged to make the order within that ten day period?

We have not reached these amendments.

It states that the court may make an order placing the company under the protection of the court. Are they under the protection of the court even if there is not an order?

The company is under the protection of the court from the time the petition is lodged under section 5(1) of the 1990 Act. We are saying that once the independent accountant's report is lodged in the court, that makes a statement that the company must be put under the protection of the court. The proposal in the Bill allows the court to protect that company. The court will then decide when it will hear the case and make an order pertaining to the statement and the documentation lodged. The company is automatically placed under the protection of the court once the documents are lodged.

I remind Members that we are on Report Stage, not Committee Stage.

These are new amendments.

Yes, but they must be dealt with in accordance with the rules of Report Stage. Perhaps the Deputy might wish to recommit them to Committee Stage.

I must point out to Deputy Rabbitte that there is an anomaly because the Minister of State has replied three times. Effectively, I cannot allow the Minister of State to speak again.

I have not yet spoken. Perhaps in those circumstances we should abide by the normal procedure and recommit the amendments to a brief Committee Stage.

Can we do that now?

Yes, if the Minister of State agrees.

I will do that to facilitate Deputies Rabbitte and Owen.

Bill recommitted in respect of amendment No. 4.

There is no point trying to elicit a response from the Minister of State unless he can reply. In addition to what Deputy Owen said, will the Minister of State address discussions he has had with the consultative committee of the accountancy bodies of Ireland? I understand that it put to him or his officials that it would have been better if this amendment specifically provided that a Saturday, Sunday or public holiday falling within that ten day period should be excluded from the calculation. It is a neater formulation and I am curious as to the Minister of State's response. I cannot see why that formulation would be opposed. It appears to be a neater drafting than the amendment.

Will the Minister of State also address the concern raised in respect of what is called in the jargon a section 3 report, the detailed report one receives from the independent accountant which accompanies the petition in circumstances such as those to which we refer? Will he address the specific fear raised that this could have the undesirable impact that, by the time the necessary information is put together, the opportunity for examination may have passed and the company may be beyond having a reasonable prospect of survival?

The last point made by Deputy Rabbitte is appropriate. A reasonable prospect of survival is the purpose of examination. If we allow a long time period for the examination process to commence, the chances for the survival of the company could be less than if there is immediate action. Normally a week is accepted as a reasonable period in which to apply for examinership, produce the reports, appraise the situation and lodge the documentation with the court. We had discussions with the accountancy bodies on this matter and they wanted ten working days but we were not prepared to accept that. We are prepared to allow ten days – seven working days and three other days – in which documentation can be lodged. We deem that fair.

We are talking about a crisis situation which warrants immediate serious action and responses. We have allowed ten days to lodge the documentation with the court. It is still a matter for the court to take a decision and make an order. There are many options available to directors and creditors of companies and others. The longer the period allowed, the more options are available. If people take legal action to protect themselves, for example, it could jeopardise the equality of opportunity available to others who are also victims of the company's crisis. By keeping the timeframe tight, that equality is maintained by ensuring that everyone receives the same treatment within the law and receives the same protection from the court.

The company law review group recommended the changes we are implementing. We are responding to the group's requests and recommendations, we are taking into account all that has been said to us by the various professional bodies and I have taken into account the request made by Deputies Owen and Rabbitte in the amendments to which I am responding. In so far as it is possible, I will accommodate them. We must realise that we are talking about an urgent or crisis situation and the timeframe must be tight to reflect that.

Amendment agreed to.
Amendment reported.
Amendment No. 5 not moved.

I move amendment No. 6:

In page 10, line 16, after "report" to insert "and the court shall have discretion to extend the period where it considers this appropriate having regard to the rights and prospects of interested parties".

In light of the Minister of State's reluctance to accept the recommendations of the consultative body of the accountancy profession, I reluctantly withdraw the amendment.

Amendment, by leave, withdrawn.

I move amendment No. 7:

In page 10, between lines 16 and 17, to insert the following:

"(2) That period shall be a period that expires not later than the 10th day after the date of making of the order concerned or, if the 10th day after that date would fall on a Saturday, Sunday or public holiday, the first following day that is not a Saturday, Sunday or public holiday.".

Amendment agreed to.

I move amendment No. 8:

In page 11, to delete line 3 and substitute the following:

"3B. (1) The court shall not accept a petition presented under section 2 or an order appointing an examiner to a company unless the creditors by a majority of two-thirds have agreed to allow such a petition to be made to the courts.

(2) The court shall not make an order dismissing a petition".

I tabled this amendment on Committee Stage and move it again here. I do not wish to delay matters as the Minister of State responded on the previous occasion. Has he reconsidered the IBEC and accountancy consultative committee suggestion that there should be more power for creditors in the acceptance of a petition by the courts? I recognise that the Bill in section 10 has gone some way towards allowing creditors to be heard, but there is still a concern that the law does not go far enough to give them a chance to have a say. Did the Minister of State reconsider that section?

I reconsidered every request made to me, including reconsidering the Bill with an excellent team of officials who consulted with great diligence with the Attorney General and his team and the parliamentary draftsman to ensure we get right one of the most serious Bills to be enacted pertaining to company law.

I outlined on Committee Stage the reasons I was not prepared to accept this amendment. The new subsection 3B(1) is designed to afford each creditor the right to heard during the hearing concerning the petition for the appointment of an examiner by the court, something which is not provided for in existing legislation. I agree that creditors should have the right to be heard at the petition hearing as their views would assist the court in deciding whether there is a reasonable prospect of survival for the company. This may mean in practice that the court would not grant protection to a company if its creditors are opposed to such a course of action. Therefore, I consider that the reasonable prospect criteria, giving creditors, including small ones, the right to be heard at the hearing for the appointment of an examiner and that ultimately at least one class of creditors will have to approve the scheme of arrangement, are sufficient safeguards to the interests of all creditors. However, a balance needs to be struck between the rights of the creditors and other interested parties. I do not accept that creditors, especially larger ones, should be allowed to frustrate the process from the outset, which is what could result from this amendment. Therefore, I regret I cannot accept it.

Is that a reply?

The Deputy has the right of reply because she moved the motion.

I welcome the fact that, for the first time, creditors can be heard in a court. Our difficulty, and my colleague, Deputy Perry, highlighted this, is that while it affords a hearing for each creditor of a company who has indicated as much to the court, there could be creditors who would not know to indicate to the court their desire to be heard. I recognise that petitioners are obliged to ensure the proposal is placed in newspapers specifying the date on which the hearing is to be held arising out of a report prepared. However, if I am right, those notices appear somewhere on the second last page and on the same page as or the page before the death notices in most newspapers. I do not know many people who automatically turn to that section of a newspaper. The only time I tend to read those notices is if my paper happens to be folded on that page and I pick it up and, out of interest, read the court notices. It is not regular reading. It is not the page most people turn to.

I recognise that, if one is a creditor of a company and one hears a rumour the company is in trouble, one keeps an eye out for these notices. However, sometimes creditors can be small operators. It might be a man supplying bread or some other product to a company which is owed a lot of money. I wonder what the chances are of such a person turning to the relevant page in the newspaper. I hope the Minister will keep the section under review to ensure that the spirit of what he is doing in section 10, namely, to give creditors a chance to have their views heard before a company is wound up or put under the protection of the court, which will perhaps ultimately prevent them getting paid, will be upheld. I do not know whether the Minister is in a position to give me a commitment that he will keep this section under review to ensure it does what is intended.

Is the Deputy withdrawing amendment No. 8?

I will not withdraw it until the Minister assures me that he will keep the section under review. When an Act is being implemented, people often look back over the record to see what was the Minister's intent. I would like the Minister to put on record that he will keep the section under review.

The Deputy may rest assured that we will keep the section under review because we want this to operate successfully. However, we could not get into a situation where all creditors would have to be notified in advance of a decision being made. Obviously, notices will be published in newspapers. At the end of the day, if any creditor is not included in an accounting statement or is not aware of a decision of the court, he or she has every right to go into the court to make the case at any time during the examinership. There is no way people can be excluded. The Deputy can be absolutely certain that we want this to work and will keep it under review.

I thank the Minister.

Amendment, by leave, withdrawn.

Acting Chairman

Amendment No. 10 is an alternative to amendment No. 9 and both may be discussed together, by agreement. Is that agreed? Agreed.

I move amendment No. 9:

In page 15, between lines 42 and 43, to insert the following:

"(2) Section 12 of the Act of 1990 is hereby further amended by the substitution for subsection (4) of the following subsection:

(4) Where a company is, by virtue of section 5, deemed to be under the protection of the court, every invoice, order for goods or business letter issued by or on behalf of the company, being a document on or in which the name of the company appears, shall, immediately after the mention of that name, include the words "in examination (under the Companies (Amendment) Act, 1990)".'.".

Section 12(4) of the 1990 Act requires that the statement "under the protection of the court" is stated on documents issued by the company following the appointment of the examiner. On Committee Stage, Deputy Owen raised the point that the existing wording "under the protection of the court" might be misleading to some creditors of companies in examinership and proposed that the alternative wording "in examination" be used. Following from the Committee Stage discussion and consultation with the draftsman's office, I am now proposing a Government amendment similar to Deputy Owen's proposal. The addition of a reference to the Companies (Amendment) Act, 1990, is intended to make it absolutely clear what type of examination is referred to. I understand that the wording is acceptable to the accountancy bodies which raised this issue in the first instance and I trust it is also to the satisfaction of the House.

I thank the Minister for taking on board my Committee Stage comments. I welcome the amendment of the legislation to ensure greater clarity.

Amendment agreed to.
Amendment No. 10 not moved.

I move amendment No. 11:

In page 16, line 23, after "direct" to insert "that".

This is a drafting amendment to rectify a drafting error.

Amendment agreed to.

I move amendment No. 12:

In page 17, line 19, to delete "or" and substitute "of".

This amendment is intended to correct a typographical error.

Amendment agreed to.

I move amendment No. 13:

In page 19, line 48, to delete "the company or, as the case may be, each company" and substitute "any company".

The House will recall that on Committee Stage, a new subsection 4(a) was inserted into section 24 of the original Act of 1990. This new subsection was designed to ensure that any scheme of arrangement put together by an examiner in a group could not deplete the assets of one company in a group to the detriment of its creditors, to benefit the members or creditors of another related company or the main company. During the discussion on Committee Stage a number of Deputies indicated that the original wording of the new subsection 4(a) was confusing and difficult to understand. I undertook to ask the draftsman to have another look at the text. I am now proposing to delete the term “the company or, as the case may be, each company” and substitute “any company”. I hope this amendment will make it absolutely clear which company is being referred to.

Amendment agreed to.

Acting Chairman

Amendments Nos. 17 and 18 are alternatives to amendment No. 14 and amendments Nos. 15 and 16 are consequential on amendment No. 17. Amendments Nos. 14 to 18, inclusive, may be discussed together, by agreement. Is that agreed? Agreed.

I move amendment No. 14:

In page 22, to delete lines 1 to 48.

I feel very strongly about this matter and greatly regret that the Minister has not seen his way to taking on board the thrust of the Committee Stage debate. He has made the situation worse. This matter is so serious that it threatens the entire concept of examinership. Examinership is a valuable instrument, one which, by and large, we have seen function successfully in a number of cases. Now that the Minister has changed the test to one of a reasonable prospect of survival, it is more likely that examinership could be a very useful instrument for a company which, for exceptional reasons, finds itself in difficulty. If given the protection of the court for a period, such a company could well turn the corner and be restored to prosperity.

My amendment, if accepted, would result in the deletion of lines 1 to 48. The Minister is essentially inserting a special provision for major banking institutions and finance houses, something which has been the subject of intense lobbying by the banks. The Minister is effectively making an exception in the case of the banks. Section 24(4)(c)(ii) of the 1990 Act states that the court shall not confirm any proposals unless it is satisfied that the proposal is not unfairly prejudicial to the interests of any interested party. What is wrong with that provision in the 1990 Act whereby the court is required to be satisfied that the proposal is not unfairly prejudicial to the interests of any interested party, including the banks?

The Minister goes out of his way to say that that section of the 1990 Act does not apply if the proposals contain a provision relating to a lease of, or any hiring agreement in relation to, property other than land and, in the opinion of the court, the value of the property is substantial and the said provision is of like effect to a provision referred to in paragraphs(a) and (b) in subsection 1. He then goes on to effectively delete sub section 3(b). Subsection 3 states that in deciding, for the purposes of subsection 2, whether the value of the property concerned is substantial, the matters to which the court shall have regard “shall include .”. The term “shall include” gave the court guidance in terms of what might be considered to be substantial. That guidance has now been removed so that there is no longer proportionality. “Substantial” will effectively now be in the minds of the banks.

At least previously in subsection 3(b) regard had to be had not just to the length of the unexpired lease, but to the extent to which the owner of the property concerned carries on any business of leasing or hiring property and the proportion, in general terms, which the value of the property concerned bears to the value of the total amount of property which, in the opinion of the court, is likely to be leased or hired by that person at any particular time. So, there was a question of proportionality and that had to be taken into account. Now, one could have a situation where a major plant hire firm engaged in business and, for whatever reason – it would not be without precedent – runs into temporary difficulty and everybody considers it has a reasonable prospect of survival and, in terms of trying to do the workout, the bank comes in at the last minute and says: "That is fine. You can work out your comprise or scheme of arrangement and so on, but we are taking back the plant."

The Acting Chairman will know that nowadays this is down to the provision of computer hardware. I know of several companies where it is by lease arrangement. There are many other reasons for this into which we are not going in terms of tax efficiency or even tax breaks and so on. A major plant hire company could be in exactly the situation I suggest – that the actual machinery which does the work is leased from the bank and that we all agree that plant hire company has a reasonable prospect of surviving for a number of reasons but the bank is not convinced and says: "Yes, that is grand. We will go along with that, but we will take back the machinery in the morning". That means the wherewithal for the company to do its business is gone.

I gave the example on the last occasion that if one had a shipping company and one's vessel, which transports people or cargo, is under a big ticket leasing arrangement, the same thing can happen. Others may be persuaded that it has a reasonable prospect of survival but the bank can intervene and say it is taking back its asset, which is not land but other property. That greatly diminishes the value of examinership.

I will make a point about the invidious discrimination involved here as between categories of creditor. How is it that everybody else by definition almost is expected to take something of a hit? There may be many creditors to that plant hire company or to that shipping company. The shipping company may have a catering contractor supplying goods and services, it may have petrol supplies and so on. It may well be asked, as a result of the workout, to say one must accept 90p in the pound or whatever. The workers may be called in and their union may be told they have to take a £10 per week cut in pay until the company comes out of this difficult period or else they will have to forego the next phase of Partnership 2000 or whatever it is.

Almost by definition, examinership means that creditors are prepared to experience some pain, otherwise the whole exercise would not be feasible. Maybe when things get better, they will more than recoup it in terms of enhanced business. Almost by definition, the assumption is that they may take some grief but not the banks – the financial institutions involved in this big ticket leasing. All they have to decree is that it is substantial. The more substantial, I suggest, the more terminally devastating it will be for the company making application for examinership.

I raised this issue the last day and would like to hear the Minister speak specifically on it. I am advised that constitutionally one may not make this type of invidious discrimination as between categories of creditor. I would like to hear the Minister speak on what is the constitutional basis on which he is assured that this irrational invidious discrimination as between categories of creditor is constitutionally firm. I instanced the Blaskets case purely because it was topical at the time. The net point was that one could not engage in invidious discrimination as between categories of landowner on the Blasket Islands. How is it that we can import a provision here which seems to be at least as irrationally invidious as that because it seems to be for no other purpose than to accede to the special pleading of the banks?

The Minister will plead the origins of this are in the Company Law Review Group report. The Company Law Review Group was made up of eminent persons and if one looks and traces the history of it, its deliberations and the report, there was a very single-minded mission on behalf of certain people to achieve this very purpose. It was perfectly legitimate, and the Minister should not frown at me. They were perfectly legitimate to argue that case. I am not disputing the legitimacy of the advocacy but I know about it because I was subjected to representations on it. I know they had a single-minded purpose to achieve the exemption of the banks above all else.

One could say that the first time we used this instrument was in August 1990 in the Goodman case. One could plausibly argue that Goodman would not have been rescued if this amendment had been law at the time. God knows, my views on Goodman's outfit are well known but I would not and did not vote, notwithstanding the strong feelings I had about many others things in the manner of the conduct of the group of companies, to put the company out of business. Again, it is a balance in terms of the public good. Whatever the company was or was not up to, many people were employed there and they should be maintained in employment. The banks took a hell of a hit there, and the Minister knows that as well as I do and so do his advisers. The banks came out of the Goodman examinership very badly. Goodman came out of it very well and is back in control of the company but at a cost to a large number of banks involved. Subsequent to that, one had the Kents affair. In the Kents case, which ultimately went to the Supreme Court, it can be logically argued that again the banks took a hit. There was a definite motivation for the lobbying which took place and which is now seeing expression in this proposal from the Minister.

I have not intervened unduly in this debate but this issue is so important that it will greatly diminish – not to exaggerate it – the value of examinership because after all, in the future, a major company which is a large employer will face temporary difficulties and examinership may well give it the prospect of real survival and the court could go ahead and sanction the workout. However, if the lessor, the hirer company – the banks, in short – comes in and says it wants its asset back, it can get its asset back under this proposal from the Minister of State. That is a great shame.

Where does the Minister of State stand on the discretion of the court? Does he not think that given the changes he has now made in the law regarding examinership – and I suggest they are improvements – the value of the independent accountant's report and so on, that the court will be seized of the information necessary to make a reasonable, balanced decision on whether the court should sanction the application? I believe the court will have that information and ought to be permitted to use its discretion. I am extremely concerned that other creditors such as small supply companies – some of which, incidentally, will be of no commercial significance in the context of financial institutions – will be expected to take pain, but the financial institution is exempt. That is wrong and it is a capitulation to special pleading.

I know the view in the Minister of State's Department. The reason this legislation has not been brought forward before now is that when I was in his position I could not, in conscience, agree to it. I am not implying any moral judgment on the fact that he has, because he is entitled to make a different judgment, but I believe it is a wrong judgment that greatly circumscribes the effect this law will have in the future. I greatly regret the Minister of State did not take on board any points from our previous debate. What we have now removes the guidance in the originally published Bill regarding what the court is supposed to take into account regarding the definition of "substantial."

I, like Deputy Rabbitte, am very disappointed. The debate on Committee Stage on this section takes up many pages in the Official Report and several Deputies pressed the Minister of State on this matter. On Committee Stage the Minister of State fell back on part 237 of the Company Law Review Group's report in 1994. Let us face it, that is five years old and it behoved the Minister of State in producing this legislation five years later, to take into consideration all that has happened since. In many cases it has been and the Minister of State was open enough to make amendments based on the Company Law Review Group's report; for example, the Minister of State raised the figures in relation to the value of a company that does not have to do audits according to the report's suggestions.

However, on Committee Stage we said that if a company was to be saved and put into a position where it is under the protection of the court and there is a likelihood that the company may be saved, all the creditors may have to take a hit. There should not be preferential treatment for one category of creditor over another. If a man or woman provides a service or sells property to a company under examinership and has to take a hit, then all the assets that are part of what made the company viable or threatens its viability have to be taken into account. If paying rent is part of what is threatening the company, then everybody, including the company which owns the building and receiving the rent, must take the same hit.

As originally framed, the legislation was giving preferential treatment. I agree with Deputy Rabbitte that the Minister of State has now put a belt and braces in on behalf of the banks and the big lease companies by including amendment No. 17, which states:

"(3) Subsection (1) or (2) shall not apply if the lessor or owner of the property concerned has consented in writing to the inclusion of the provision referred to in subsection . in the proposals for the compromise or scheme of arrangement.".

In other words, the Minister of State is giving them a choice and is taking away the discretion of the courts. On Committee Stage I said that my understanding was that a scheme could be formulated by the examiner and be accepted. I thought that would include a reduction in rent to allow the company to have more liquid assets to make it viable. However, the amendment states that no scheme can then allow for a further loss or rent or property value. The reply was that one could not build into the agreement a loss of value further into the future, so the Minister of State has not answered our Committee Stage concerns with these amendments. He said he would consider the matter carefully, but he has not answered our concerns. It appears that the banks can come in and literally take the feet out from under the possible future viability of a company. The asset needed to make a company work may be the building in which the business is being run, as is the case with companies using computers, but if that is not taken into consideration or if the bank says it will not reduce the rent as it can put in another tenant to pay the rent being forgone by the company's difficulties, the examinership process is then utterly futile and has no basis. What can a company do if it has no place in which to operate?

I am very disappointed that the Minister of State has continued to base his own argument on the Company Law Review Group report. The last line states that the lessor shall have the option to repossess the asset if the company cannot meet its obligation after the protection period. That means that almost from the beginning the bank can pull down the shutters and say: "Get lost. We are taking back our asset. We will not enter into any discussion." That is blatantly unfair and sets the whole process at naught. I hope the Minister of State will reconsider this.

Deputies will recall we had a long debate on Committee Stage on this section and I undertook to look at this in advance of Report Stage. It would be useful to outline the purpose of this section and the reason I do not accept Deputy Rabbitte's amendment. In existing legislation, the position of lessors in relation to future payments due after the examination period has come to a close and the scheme of arrangement has been put in place is somewhat unclear. The Company Law Review Group considered it unreasonable to require a lessor of an asset, such as an office block, to be required by an examiner's scheme of arrangement to accept reduced payments for a future period. Section 26 is designed to preclude this situation. It would be useful if I gave an example.

A company in difficulty has a 20 year lease on an office block, paying rent of £10,000 per annum. The company is in the fifth year of the lease but is in arrears with the rent due to difficulties in which it has found itself, owing the landlord £5,000 in rent arrears. An examiner is appointed to the company and draws up a scheme of arrangement for the return of the ailing company to viability. Under the scheme of arrangement drawn up by the examiner and ultimately approved by the court, each creditor will receive 50p for every £1 owed to him. This means the lessor, based on a phased basis, will probably received £2,500 of the back rent owed to him or her. He or she, along with other creditors, will have to write off the remaining amount owed by the company. Essentially, section 26 determines what cannot be included in the scheme of arrangement. In this example it means that subject to what is proposed in amendment No. 17, nothing in the scheme of arrangement can make the landlord accept reduced rents in the future and the company will have to honour the terms of the lease for the remaining 15 years. Otherwise the lessor would be subsidising the operations of the company. This would be unfair both to the lessor and the competitors of the company across the country and across Europe. The company will therefore have to pay £10,000 per annum for the remaining 15 years left to run on the lease. This is the economic rent for the property in question. This is putting lessors on the same footing as other credi tors, none of whom is expected to accept reduced payment for goods supplied after the examinership process has come to an end and once the company has been restored to health.

All creditors, be they banks, landlords or suppliers of goods and services, will have to take the same treatment on pre-petition debts and the courts will adjudicate thereon. There is no exemption from that for anybody – everybody will be treated the same. They will all have to take the same hit on pre-petition debts. We are dealing here with the position post-examinership. We cannot expect a landlord or an investor in a fixed asset which is providing a facility to a company to continue to take a hitad infinitum into the future, subsidising that company in its operations to the detriment of competitors and other companies. This would not stand up in European or Irish law.

Personally I have not received as much as one representation from a bank or institution and have received no telephone call or documentation on this matter. I have asked my officials and they have had no meetings with institutions – banks or otherwise – on this matter. Certainly they have received submissions from a number of institutions, but they have not had any meetings with them. I have not been under any personal pressure on this matter and have no difficulty whatever in relation to it.

Deputy Rabbitte raised the point that this section could mean that a lessor could repossess a substantial asset from a company thereby preventing that company from continuing to trade and preventing a scheme of arrangement being put in place. If a company is not in a position to honour the terms of a lease and pay the pre-agreed rent for a substantial property once the examinership period has come to a close, the lessor cannot be made by the examiner's scheme of arrangement to accept a reduced rent for that asset. This may mean that if the company begins to default on its payments after the examinership has come to an end and benefit is in accordance with the lease, the lessor could repossess the asset. That is normal in any property, leasing or letting transaction.

The basic question is why should a lessor be forced to subsidise the ongoing operation of a company which is unable to pay its debts. Post-examinership, other creditors are not forced to accept reduced payments for their goods or services from a company just because it was once in examinership. Indeed creditors who had to accept a write-down during an examinership in respect of money owed to them might decide not to do business with that company again, as is their right. A lessor does not have the same level of flexibility. He must honour the terms of the lease which could be for 11, 20 or 33 years. He is obliged to honour the lease with the company. All this section is doing is ensuring that post-examinership a company, unless the lessor agrees otherwise – a very important point as we are not taking away the right of the lessor to reach a new agreement with the company – must also do so. I think this is fair and equitable.

Regarding the issue of representations, I do not think very much hinges on it. We all get representations. The Minister has responded as if I was imputing improper motives. I am not doing so at all. I do not know whether the Minister received representations. It is very odd if he did not because when I was Minister I received representations on behalf of the financial institutions on this point. I also received representations concerning the importance of this from persons on the company law review group. Perhaps we have two different styles. However, this is not the central point and I am not making a big issue of it.

The Minister's entire response hinges on his original statement that the position of lessors is unclear as the law stands in respect of the post-examinership position. He then goes on to construct a basis for this entire change in the law on the basis that existing law is unclear. I do not accept for one minute that existing law is unclear. Neither do I accept that post-examinership the necessary consequences to which the Minister referred will happen. During the course of the examinership I would make no apologies for a situation where the lessor would be required to take the same proportionate hit as other creditors.

Acting Chairman

I remind the Deputy of the new arrangements for debate on Report Stage. The mover of an amendment can speak three times, initially, then two minutes and at the end reply to an tAire. The Deputy may be pushing the two minute mark at this stage.

I will be very brief. Existing law does not require any such change in my opinion. The court ought to have discretion to make this judgment and the banks or the lessor – it is usually banks which are behind the lessor irrespective of who he is – ought to be able to make their case to the court and have it considered like anybody else. Let them make their case. I do not accept that if we did not do this the lessor would be caught in a situation of accepting diminished rent for the remaining life of the contract.

I wish to press the amendment.

Question put: "That the words proposed to be deleted stand."
The Dáil divided: Tá, 74; Níl, 59

    Níl

      Tellers: Tá, Deputies S. Brennan and Power; Níl, Deputies Barrett and Stagg.
      Question declared carried.
      Ahern, Dermot.
      Ahern, Michael.
      Ahern, Noel.
      Ardagh, Seán.
      Aylward, Liam.
      Blaney, Harry.
      Brady, Johnny.
      Brady, Martin.
      Brennan, Matt.
      Brennan, Séamus.
      Briscoe, Ben.
      Byrne, Hugh.
      Callely, Ivor.
      Carey, Pat.
      Collins, Michael.
      Cooper-Flynn, Beverley.
      Coughlan, Mary.
      Cowen, Brian.
      Daly, Brendan.
      Davern, Noel.
      de Valera, Síle.
      Dennehy, John.
      Doherty, Seán.
      Ellis, John.
      Fahey, Frank.
      Fleming, Seán.
      Flood, Chris.
      Foley, Denis.
      Fox, Mildred.
      Gildea, Thomas.
      Hanafin, Mary.
      Harney, Mary.
      Haughey, Seán.
      Jacob, Joe.
      Keaveney, Cecilia.
      Kenneally, Brendan.
      Killeen, Tony.
      Kirk, Séamus.
      Kitt, Michael.
      Kitt, Tom.
      Lawlor, Liam.
      Lenihan, Brian.
      Lenihan, Conor.
      McCreevy, Charlie.
      McDaid, James.
      McGennis, Marian.
      McGuinness, John.
      Martin, Micheál.
      Moffatt, Thomas.
      Molloy, Robert.
      Moloney, John.
      Moynihan, Donal.
      Moynihan, Michael.
      Ó Cuív, Éamon.
      O'Dea, Willie.
      O'Donnell, Liz.
      O'Donoghue, John.
      O'Flynn, Noel.
      O'Hanlon, Rory.
      O'Keeffe, Batt.
      O'Keeffe, Ned.
      O'Malley, Desmond.
      O'Rourke, Mary.
      Power, Seán.
      Reynolds, Albert.
      Roche, Dick.
      Ryan, Eoin.
      Smith, Brendan.
      Treacy, Noel.
      Wade, Eddie.
      Wallace, Dan.
      Walsh, Joe.
      Woods, Michael.
      Wright, G. V.
      Allen, Bernard.
      Barrett, Seán.
      Bell, Michael.
      Belton, Louis.
      Boylan, Andrew.
      Bradford, Paul.
      Browne, John(Carlow-Kilkenny).
      Bruton, John.
      Burke, Ulick.
      Carey, Donal.
      Clune, Deirdre.
      Connaughton, Paul.
      Cosgrave, Michael.
      Coveney, Simon.
      Crawford, Seymour.
      Currie, Austin.
      D'Arcy, Michael.
      Deasy, Austin.
      Deenihan, Jimmy.
      Dukes, Alan.
      Farrelly, John.
      Ferris, Michael.
      Finucane, Michael.
      Fitzgerald, Frances.
      Flanagan, Charles.
      Gilmore, Éamon.
      Gregory, Tony.
      Hayes, Brian.
      Higgins, Jim.
      Higgins, Joe.
      Higgins, Michael.
      Hogan, Philip.
      Howlin, Brendan.
      Kenny, Enda.
      McCormack, Pádraic.
      McGahon, Brendan.
      McGinley, Dinny.
      McGrath, Paul.
      McManus, Liz.
      Mitchell, Jim.
      Mitchell, Olivia.
      Moynihan-Cronin, Breeda.
      Naughten, Denis.
      Neville, Dan.
      Noonan, Michael.
      O'Keeffe, Jim.
      O'Shea, Brian.
      O'Sullivan, Jan.
      Owen, Nora.
      Perry, John.
      Rabbitte, Pat.
      Reynolds, Gerard.
      Sargent, Trevor.
      Shatter, Alan.
      Stagg, Emmet.
      Stanton, David.
      Timmins, Billy.
      Wall, Jack.
      Yates, Ivan.
      Amendment declared lost.

      I move amendment No. 15:

      In page 22, line 3, to delete "Proposals" and substitute "Subject to subsection (3), proposals".

      Amendment agreed to.

      I move amendment No. 16:

      In page 22, line 28, to delete "Proposals" and substitute "Subject to subsection (3), proposals".

      Amendment agreed to.

      I move amendment No. 17:

      In page 22, between lines 36 and 37, to insert the following:

      "(3) Subsection (1) or (2) shall not apply if the lessor or owner of the property concerned has consented in writing to the inclusion of the provision referred to in subsection (1) or (2) in the proposals for the compromise or scheme of arrangement.".

      Amendment agreed to.

      I move amendment No. 18:

      In page 22, to delete lines 39 to 48 and substitute "which the court shall have regard shall include the length of the unexpired term of the lease or hiring agreement concerned.'.".

      Amendment agreed to.

      I move amendment No. 19:

      In page 25, line 8, to delete "£1,500,000" and substitute "£2,000,000".

      I moved a similar amendment on Committee Stage because the Minister of State accepted the spirit of another amendment I tabled on the turnover of a company. He indicated his support as long as it did not exceed £100,000, which is in line with a recommendation in the Company Law Review Group's report. The Minister tabled an amendment to raise that amount to £250,000. In view of the raising of the threshold of the turnover of a company, I thought the balance sheet threshold might also be raised from £1.5 million to £2 million. On Committee Stage the Minister of State said that the balance sheet threshold may be amended in line with EU law and under those circumstances I did not press my amendment. Perhaps the Minister of State would tell us whether the increase in the balance sheet threshold of a company under EU law has been decided and indicate the position on raising the balance sheet threshold of a company from £1.5 million to £2 million?

      Section 32 sets out the conditions which companies must meet, if they are to be exempted from the requirement to have their accounts audited. One of the conditions is that the balance sheet total of the company does not exceed £1.5 million. As I outlined on Committee Stage, this is in line with the definition of small companies in section 8 of the 1986 Companies (Amendment) Act. If we increase the balance sheet threshold for small companies it will mean some companies, which are not small within the definition of section 8 of the 1986 Companies (Amendment) Act, could be eligible to avail of the exemption from having accounts audited. This could cause confusion and would be inconsistent and unwise. The appropriate time to review this threshold for the exemption to have accounts audited will be as part of the upcoming review of existing and proposed European Union directives dealing with the thresholds relating to small companies for disclosure purposes.

      An important point about this proposed review is that we should be aware that any increase in the thresholds under section 8 of the 1986 Companies (Amendment) Act would exempt a greater number of companies from disclosing information and all the implications of such a move would need to be carefully considered. On that basis and in view of the fact that these directives have to be considered in the future, I regret I cannot accept the Deputy's amendment, as it would be unwise to do so.

      I thank the Minister of State for his reply. He made it clear on Committee Stage that it is possible that section 8 of the 1986 Act shall be reviewed soon in light of existing and proposed European Union directives. If the Minister is obliged as a result of EU law to change the balance sheet threshold of a company from £1.5 million upwards, I do not understand why if we did that now it would bring some companies that did not qualify for exemption from having their accounts audited into that net. A company must qualify under all the conditions set out in section 32(3) to qualify for exemption. In other words, the conditions mentioned in subsection (1) are that: in respect of the year concerned the company is a company to which the Act of 1986 applies; that the amount of turnover does not exceed £250,000; the balance sheet total of the company does not exceed £1.5 million; and the average number of persons employed by the company does not exceed 50. The Minister of State said that if he raised the balance sheet threshold of a company from £1.5 million to £2 million, it might bring in a plethora of other companies under that rule, but I do not see how it could. He is saying the only one reason they have to carry out an audit, it is that their balance sheet totals are above £1.5 million Is he saying a large number of companies qualify under the Act, their turnovers are £250,000, the average number of persons they employ is under 50 and the only factor stopping them from qualifying under section 32 is that their balance sheet totals are a little more than £1.5 million?

      The average number of persons is fewer than 50 and the only thing stopping them from qualifying under section 32 is that their balance sheet is above £1.5 million. That seems unfair. A company could have fewer than 50 employees and a turnover of £250,000, but their balance sheet might show a higher figure because the value of their product could be greater than another product. This means they would have to carry out an audit. I will not press this amendment to a vote because the Minister of State will come back to it soon, but perhaps he could explain it to me. Some companies do not need to carry out an audit except under subsection (3)(a)(iii).

      It is important to point out that we can also amend under subsection (7). We are trying to maintain consistency between the small companies which are designated under the 1986 Actvis-à-vis the proposals for audit under the 1990 Act and this legislation. That option is available under the European Union directive; it is not mandatory or obligatory. There is a huge difference between a balance sheet of £1.5 million and £2 million as laid down in company law. If we accept this proposal, a large number of companies would be exempt. The vast majority of companies in Ireland are small and medium-sized enterprises. A company which employs 30, 40 or 50 people is in the medium category. A large number of companies employ between two and 50 people. If we lift this exemption, we will open the door and I am not prepared to do that.

      If a company employed 50 people, it would have severe financial problems where its balance sheet showed a figure of £1.5 million. The single biggest investment in a company is manpower, at an average wage of £20,000.

      Is the Deputy talking about turnover?

      That is different.

      The qualifications are that turnover does not exceed £250,000, the balance sheet total of the company does not exceed £1.5 million and the average number of persons employed does not exceed 50. However, if a company has 49 employees, it would be difficult to keep the balance sheet under £1.5 million.

      The balance sheet is not the turnover. There is a difference between the two.

      There is a major difference. If a company has a good accountant, the figures could be manipulated for exemption purposes. Most companies are required by the Revenue Commissioners to carry out an audit of their tax returns, regardless of exemptions. Most accountants will carry out full audits, although they may not be required to do so under legislation. If companies are well advised on the cut-off figure, they can do their homework to get the benefits.

      I re-emphasise that we want to maintain consistency between the Companies (Amendment) Act, 1986, the Companies Act, 1990, and this legislation. Deputy Perry's contribution has shown why we want to do this. A small change could exempt many companies and we cannot allow that to happen. There is a difference between a company law audit and a Revenue audit, although I accept the Revenue Commissioners require more company audits than heretofore. It would be unwise for us to change the difference between the 1986 Act and the 1990 Act as that would not maintain consistency within the law, which we, as legislators, should do. I cannot accept the amendment.

      Amendment, by leave, withdrawn.

      I move amendment No. 20:

      In page 28, between lines 39 and 40, to insert the following:

      40.–Section 297A of the Principal Act (inserted by section 138 of the Companies Act, 1990) is hereby amended by the insertion after subsection (2)(a) of the following—

      (aa) he was responsible for the failure by the company to have adequate employers' liability insurance in respect of any personal injury caused to any or all of its employees and for which the company has been or would have been held liable in damages; or'.”.

      This amendment derives from a case that came to trial some time ago where a mine worker was seriously injured. In taking an action against the company, the company went into liquidation on the day before the trial. The worker then sought relief against the directors of the company but the Supreme Court ultimately decided there was no obligation on the directors to respond to the absence of insurance cover, although it was admitted the worker was seriously injured. As the law stands, the Supreme Court would hold again that there is no duty on directors to provide adequate insurance for their workers.

      Section 297A of the Principal Act refers to reckless trading. The effect of this amendment would be to amend the definition of reckless trading to include failing to provide adequate insurance cover for personal injury to employees. I hope the Minister of State responds positively because I was taken aback by his response on Committee Stage. It is extraordinary that a company is required to provide insurance for its vehicles which travel on public roads, but it is not required to provide insurance for its employees. The best the Minister of State could say the last day when replying was that this was not a matter for company law but for labour law or health and safety regulations.

      This type of thing bedevils legislation in what is a more complex era than before. I know it is necessary to structure Departments on the basis of specialisation. However, it takes a superhuman effort on behalf of the political system to pull these sections together and to get them to co-operate sensibly when legislation is going through the House. It is clear that on the last occasion the Minister of State was given a note from his officials stating that they were busy, they were experts in their area, it was not a matter for them but for Davitt House or health and safety regulations and that it would be improper to include it in this legislation. I find that frustrating. It is difficult to bring different Departments together and to ask them to put their heads together to come up with sensible legislation. I do not say that to criticise the excellent civil servants. However, it seems that legislative time is precious in this House.

      It is an extraordinary approach to deal only with certain sections and not go outside a compartmentalised area. What could be more important than circumstances where a company is treating its workers recklessly in respect of liability insurance? One only has to look at the building industry. It is an open secret that because of the building boom it is taking short cuts and cutting corners. Sometimes, sadly, the casualties are the workers. The number of fatalities in the past year is almost double what was the norm in the industry. It is not confined to the building industry. I instanced the case of Sweeney v. Duggan which was decided in the Supreme Court and involved a mineworker.

      A transport company which owns a large fleet of trucks is required to insure them. However, one is not required to insure workers. The Minister of State, Deputy Kitt, tells me he agrees with me and has great sympathy for my argument but that it is not his job. It is a crazy way to do business. We are introducing relevant legislation and workers ought to be given this minimal protection. If they were, we would not have a problem because 99 per cent of companies would comply. It would be one of those things companies would have to do. If they want to agree terms with their trade unions or workers, it is a matter for them; I am not interested in that. However, it is wrong that a family should be left in the circumstances of that particular worker, who is by no means an isolated case. It is unacceptable that a family should have someone crippled on a building site, in a mine or hurt in a factory and then discover they are pauperised. I hope the Minister has changed his tune since the last occasion.

      I support Deputy Rabbitte's amendment, as I did on Committee Stage. As I said then, it is extraordinary that Part IV of this legislation is entitled "Miscellaneous". When I was Minister for Justice, I called that housekeeping legislation, where one gathered a number of laws which had fallen through the cracks. I instituted a system where miscellaneous criminal justice legislation would be introduced as often as possible, at least every one or two years, to include laws which had been lost in more important legislation. If the word "miscellaneous" means anything, it should be an opportunity for the Minister to deal with issues which have become more topical and relevant than when legislation was passed in the 1980s or early 1990s.

      It is incomprehensible that the Minister could stand over the argument that employer liability is labour law. We are dealing with companies. Auditors will commit an offence if they fail to comply with certain sections. Why are employers not being included in this provision? It is illegal for an employer not to pay PRSI contributions for their employees. Why should it not be an offence for an employer not to pay insurance cover for accidents which occur in a place of work? This has become more relevant since Committee Stage because we now know the statistics for deaths and injuries on building sites are increasing every month. This is not only because of the speed with which buildings are being erected but also because of greater levels of employment. More unskilled people are working on building sites and factory floors. There is not enough time to train them because there is extreme urgency in getting buildings and houses finished for clients.

      This is an opportune time to discuss and improve the law on employers' liability. Perhaps the Minister will tell us again that this is a matter for the Minister of State, Deputy Kitt. I cannot understand why the Minister has not discussed this matter with him. This is an opportunity for the Minister to shine in the area of the Department for which he has responsibility and to accept this amendment. If he will not do so, I want a commitment from him that a similar amendment will be contained in the next legislation introduced by the Minister of State, Deputy Kitt. I do not want the Minister to tell me that the Attorney General will advise him against introducing an amendment such as this under a section headed "Miscellaneous". I do not believe that is true. When Mr. McDowell was a Member of this House he often asked me to introduce amendments to legislation that encompassed sections which might have been better included in other legislation but to use the Bill then under discussion to do this. He will not be able to say to the Minister that this amendment will not be relevant if made under a miscellaneous section in companies legislation. The Minister should not use as a defence the possibility that the Attorney General will not allow him to do this because I do not think he can stand over such advice.

      This is major legislation and I support Deputy Rabbitte's amendment. Given that most businesses, particularly those in the building and services industry, are extremely profitable, most business people are prepared to factor in the huge cost of customer liability. If this amendment is accepted, it will help those employed in high risk jobs, particularly in the construction industry. I agree with Deputy Rabbitte about the loss to families when someone is confined to a wheelchair and left dependent on social welfare because of lack of cover. It is unbelievable. This Bill is making major reforms to company law. The responsibility rests with the Minister to ensure that companies are obliged by law that their staff are covered. The PAYE sector is covered by PRSI but this is totally inadequate as regards life cover and compensation. Many people are benefiting from setting up companies, especially directors who are in no way personally liable. A company is a third person and statutorily directors are not liable for any risk. It is important that a safeguard for employees is built into the profitability structure of companies. They often assume directors are responsible but they are not.

      In response to the genuine concerns expressed by Deputies on Committee Stage regarding the problems arising from companies not having appropriate personal injury insurance for their employees, I have, as promised, looked at this matter again and I have consulted with my colleague, the Minister of State, and officials in the Department. The cost of insurance, as well as being high in Ireland in comparison with competing economies, is particularly prohibitive for small companies. The Deloitte & Touche report on an economic evaluation of insurance costs, published in 1996, indicated that some small companies are paying up to 8 per cent of payroll in employer liability costs. Underwriting losses for liability insurers amounted to nearly £80 million in 1997. Faced with a pattern of increasing losses, the likely reaction of insurers to the provision of compulsory employers' liability insurance would be to increase rates, reduce capacity or opt out of the market altogether – in other words, there would be no cover. Insurers would inevitably have to insure known bad risks with consequent effects on each insurer's risk profile.

      The insurance federation has estimated that less than 5 per cent of firms are uninsured and surveys carried out by Deloitte & Touche would support this figure. In the United Kingdom, where employers' liability has been compulsory for over 30 years, insurers have introduced upper limits on cover because of restrictions on market capacity. The law has had to reflect these changes. The question of moral hazard also arises where firms with poor health and safety records might rely on their compulsory insurance cover rather than investing in health and safety compliance. We have to make sure there is a balance.

      The House will be fully aware that a special working group under the chairmanship of Mr. Dan McCauley is examining alternative or complementary methods for delivering personal injury compensation in a more economic and equitable way. The working group has been examining radical solutions in this regard and exploring systems which rely on a combination of social security, voluntary insurance schemes based on employer-employee agreements, and tort liability. The tort system of compensation for personal injury is wholly dependent on the capacity of the insurance industry to meet claims costs, and this in turn depends on the capacity and willingness of individuals and companies to pay for the increased premium charges. We therefore believe that the question of compulsory employers' liability insurance might best be considered following Government consideration of the McCauley findings and recommendations and, as I already indicated on Committee Stage, in the context of any future partnership agreement.

      In a separate development which I very much welcome, I can confirm that agreement has been drawn up between the Irish Congress of Trade Unions and the Construction Industry Federation to help improve safety on building sites. In an initiative overseen by my colleague, the Minister of State, Deputy Tom Kitt, these two bodies and the Health and Safety Authority are coming together to set up a new body, the construction safety partnership, which will produce a safety plan within three months. I trust that these efforts are to the satisfaction of my colleagues and I commend all involved with them.

      While Deputies have made a very sincere and genuine case, we must ensure that we do not make insurance premia too high, that we do not reduce capacity or force insurers out of the market, and that we allow this committee to report and make its recommendations to Government so that the matter will be dealt with in a future legal framework.

      In the meantime, somebody could be confined to a wheelchair for life.

      I am in disbelief. The Minister of State is like a stuck record. What is he talking about when he mentions reduced capacity? Does he not realise the state of the economy? He has another little record he plays whenever he wants to talk about the fantastic state of the economy, yet he argues that the reason he cannot bring in insurance cover for employees is that it would reduce capacity.

      The reason is to protect employees.

      On the last day the Bill was debated, the Minister of State argued against this amendment on the basis that it had nothing to do with company law, that it was a matter for health and safety and for the labour section of the Department. He has changed his argument today to an economic one concerning the cost of insurance and reduced capacity. Then, just after telling us about the cost of insurance, he goes on to say that only 5 per cent of companies are uninsured. If that is true, why is it a cost consideration? Where does the Minister of State stand on the relative merits of the cost of insurance compared to the cost of human life and serious crippling injury in the rogue companies or companies that are less prudent than they ought to be?

      One of the tremendous assets of civil servants is that they can write English to make it appear plausible, provided the Opposition is kept in ignorance of what is going on. However, it really takes some hard neck to tell me to await the McCauley proposals. I established the McCauley working group in 1996. When I left office, the McCauley recommendations in respect of a stand-alone employment appeals tribunal, where uncontested personal injuries would be resolved outside the strict court framework, were due to be implemented. The Government never implemented them, however. Three years later nothing has happened, yet we can go on whingeing about the cost of insurance. The reason I set up the McCauley working group was because of the cost of insurance which I believed was disproportionate for small companies. Measures were agreed to deal with this, but three years later the Minister of State is falling back on cost as the reason he cannot take on board measures to provide reasonable protection to workers in this situation.

      The Deputy has only two minutes in which to contribute on this occasion, although he may come back again. As the mover of the motion he has another two minutes.

      I did not want to come back again. Who devised these crazy rules?

      The minutes can be added together.

      Acting Chairman

      Are you concluding? If you are concluding that is fine, you can have another—

      No, I will come back again.

      Acting Chairman

      You wish to come back again?

      I have made my statement.

      Acting Chairman

      The Minister of State does not wish to come back again.

      Is the Minister of State not going to say anything? Is he happy to introduce legislation which is creating an offence for auditors who fail to comply? Is he happy to stand over reckless trading by 5 per cent of companies that do not have employer liability insurance cover for their employees? His arguments are bunkum, if he does not mind my saying so. If only 5 per cent of companies are involved, it means 95 per cent—

      Will the Deputy explain the word "bunkum" to me?

      The Minister of State is afraid to accept the amendment because he says it will add costs, might put people out of work and make companies unviable if they have to pay an extra few thousand pounds for annual insurance cover. Yet 95 per cent of companies, according to the Minister of State, are perfectly happy to be covered and it has not put them in jeopardy. We are talking about trying to catch those 5 per cent in the net so that their employees – they could represent 50 or 1,000 people – will have an expectation that somebody will be responsible for their insurance cover if something happens to them on the company's premises.

      The awfully sad fact is that many of those cases end up in court because somebody is left in a wheelchair for life or is brain damaged. Their wives and children are left to live on a pittance – the generosity and charity of the State – when the accident may have occurred on the job, yet they cannot obtain recompense from their employer. Of course, they can get State invalidity pensions and disability payments, but why should the taxpayer pick up the burden of that accident when the employer should pay? If only 5 per cent of companies are involved, this measure will not have a cataclysmic effect at a time of great wealth in the country because, as the Minister of State said, 95 per cent of companies are compliant.

      Certain companies could be categorised as high risk ones, particularly in the construction industry. The risks would obviously not be as great in restaurants or supermarkets. The Minister of State should categorise companies as high risk ones that could build in cover. The insurance contribution rate in the PAYE sector is up to 20 per cent but employees are getting a very bad deal in return for that. There should be a reduction in rates on condition that private cover is provided in high risk companies. In that way the compensation would be far better. As Deputy Owen said, people who are injured and unable to work for life receive levels of compensation from the State which are totally inadequate to deal with their requirements and the maintenance of family life. That is regrettable. The Minister of State may not be able to include every company under the terms of the Bill but high risk sectors, such as the construction industry where the greatest tragedies have occurred in the past year, should guarantee that their employees are adequately covered in the event of an accident.

      I want to make it quite clear that I would not stand over one reckless person in a company, much less one reckless company. There is no doubt about that, but this is a much wider issue. It concerns whether compulsory employers' liability insurance is desirable.

      I am basing my position on the Deloitte & Touche report, the information available to us, the patterns in the United Kingdom and the work of McCauley. I salute Deputy Rabbitte for setting up the McCauley group. I have dealt with it and the various interim reports in terms of the progress that has been made. It would be much better to allow the McCauley team and the professionals involved, who include employers, the unions and others and who are doing tremendous work, and the Minister of State, Deputy Kitt, who is also working on this area, to come forward with recommendations. I should not pre-empt or prejudice a report which will be presented. This report will consider the totality of this area and what is best for the country and commercial business in terms of risk and insurance cover. It is not advisable to do anything else now and I regret I cannot accept the amendment on account of the excellent work which is ongoing.

      I regret the stance the Minister has taken. The amendment is a modest requirement, particularly with regard to the Minister's claim that only 5 per cent of companies would be affected by it. Ireland is no longer a poor economy and nobody is seriously arguing that we cannot support a measure which would make it obligatory that insurance cover be provided for workers in these circumstances. That would not in any way cut across the work of Mr. Dan McCauley's committee which is concerned with the law-abiding companies which are already paying insurance. Its purpose is to consider whether the costs can be reduced. It is similar to the Minister and I paying more for car insurance because of the number of cars on the road which are uninsured. I am asking the Minister, with the support of my colleagues on this side, to bring the aberrant companies into line. This would not cut across anything which the McCauley committee is doing.

      There are many issues to be considered, including the attendant legal costs involved in allowing these types of insurance cases to go to court before they are settled on the steps of the courthouse. Most of the costs have been already incurred at that stage. There is also a need to consider the inadequate health and safety standards tolerated by some companies, which are also a contributing factor. I greatly regret that the McCauley proposals are not yet in practice. It is a great pity but that is another day's discussion.

      I am most disappointed that the Minister appears to have set his face against the amendment without any substantial argument against it. It is a criticism of the way legislation is made that as far as the Minister and his excellent civil servants are concerned, they have a certain limited remit and they will stick to it come hell or high water. They are not interested in proposals from the Opposition. If I had had the foresight to meet Deputy Healy-Rae, explain my case to him and persuade him of its merits, I am sure he could have delivered. However, an Opposition which takes the legislative process seriously cannot deliver. If one does not involve oneself in legislation and one only wants something out of the pork barrel for one's constituency, one finds one self holding the balance of power in the House and the Government will accede to whatever one wants. That is a sad state of affairs.

      Amendment put and declared lost.

      Acting Chairman

      Amendment No. 21 is out of order because it does not arise from Committee Stage proceedings.

      I received a letter explaining that to me. However, the Minister could consider it in any event.

      Amendment No. 21 not moved.

      I move amendment No. 22:

      In page 30, line 47, after "State" to insert "and shall not be an employee of any agent of the company being established".

      The purpose of the amendment is to copperfasten the point that, in the setting up of an Irish registered non-resident company, a secretary, a cleaning lady or a caretaker who is an employee of the agent of the company being established would not have their name put down on the register. The Minister said on Committee Stage that he would take another look at it. Has he reconsidered it? Has he recognised that in tightening up the system of Irish registered non-resident companies we do not want to leave any loopholes that could be exploited? I highlighted an example which was mentioned in the August edition of the Finance Dublin magazine. Has the Minister given this matter further consideration?

      I gave the matter further consideration. As I explained on Committee Stage, having a resident director provision means we must be careful to ensure that we comply with our European Union Treaty requirements such as freedom to provide services and no discrimination on the grounds of nationality. Consequently, we must also allow for maximum flexibility and not exclude any particular category of persons from appointment as a resident director. While some companies may not like appointing a resident director from the category of persons referred to in the Deputy's amendment, they may have no choice if they wish to opt for the resident director as opposed to the alternative of a bond.

      In any event, I am confident the overall package of taxation and company law measures will impose restrictions on people who seek to use Irish companies for undesirable purposes. Irish resident directors appointed from whatever source will be required to discharge their duties in a responsible manner. I hope this explains the reason I cannot accept the Deputy's amendment.

      I assume the Minister is satisfied that people will not exploit the situation by naming somebody as a director of 25 companies. I hope the Bill will prevent such cases. The purpose of the measure is to ensure that the person named as a director has an interest or involvement in the company. I do not believe the general statement that the person will be resident in the State is tight enough to ensure that the provision will not be exploited.

      When the rules regarding the registration of companies were established, I am sure the Minister of the day did not envisage the way in which the law would be exploited by people to set up Irish registered non-resident companies and use them for serious criminal activity. On Committee Stage I outlined some of the cases I came across when I was the Minister for Justice where companies were registered at an address not a million miles away from Leinster House. Up to 70 of those companies turned up in investigations into money laundering. Nobody knew what those companies were doing. Somebody went in and put down names, but the companies were allegedly being used as conduits for money laundering.

      I wish to be sure the Minster of State is satisfied with the provisions of section 43, subsections (1) and (2). Subsection (1) states:

      Subject tosubsection (3) and section 44, one, at least, of the directors for the time being of a company, not being a company referred to in subsection (2), shall, on and from the commencement of this section, be a person who is resident in the State.

      Subsection (2) goes on to provide that at least one of the directors for the time being of a company, being a company the memorandum of which was delivered to the registrar of companies "shall, on and from the date that is 12 months after commencement of this section, be a person who is resident in the State." That could be somebody with some, but very minimal involvement with the company. The person could be named as a director under the umbrella by which the company secures its legality under this legislation. Is the Minister of State satisfied that the very loose description of a person who is resident in the State will prevent the kind of abuse that has happened?

      The definition of residency is covered later. We want to ensure that a person will be resident in the State. I have already said they will be subject to all aspects of company law pertaining to the holder of directorship positions. That is important.

      We have received numerous representations regarding our proposal to put a limit on the number of companies of which a person can be a director. We have been told by professionals, company formation agents and others that it is unfair, unnecessary and discriminatory to confine the number to 25. We have stuck rigidly to a figure of 25. We have consulted State agencies and others and are satisfied this is the correct figure. The important thing is that the person is resident in the State. Once they are resident here they must conform, in the manner of responding and signing documents as a director of a company, to all the exigencies and responsibilities that appointment confers on them.

      On the question of a person resident in the State who is a director of 25 companies, it is important, from the point of view of formation agents establishing companies on behalf of outside investors, that those nominated as directors have a knowledge of the companies with which they are involved. In certain cases to date, people have been appointed directors of companies unawares. The Companies Office should officially notify them of their appointment and responsibilities as director.

      The establishment of a sub-company in Ireland should be done on the basis of being an employee of the company as against merely being a nominee. In certain cases a company director need not be an employee. This is a huge grey area. I envisage that in the future a select number of people will hold directorships of every company. They will not have a notion of where they stand, will not have direct involvement and will not benefit. This area needs further amendment.

      Under section 3 of the Companies Act, 1982, a person who becomes a director of a company must sign a document stating he is prepared to become a director. Under European law we cannot debar anybody from becoming a director of a company. The courts must find a person unfit.

      Are people aware of their responsibilities in this area?

      They must sign the relevant forms.

      The legislation referred to by the Minister of State is in some instances not worth the paper it is written on because we are all aware of cases where secretaries and such like have been appointed directors. For example, the practice has been for secretaries to solicitors and clerks in solicitors' offices to be made company directors. They have no involvement in the operation of the company and are usually required simply to sign documents. The Minister of State does not fool us into believing that the legislation to which he referred provides a good umbrella.

      The introduction of a bond, which is the alternative requirement to having an Irish resident director, entails extensive regulation by which the nominated person will pay the bond or be responsible for it. For example, section 43(6) states:

      The nominated person shall keep all proper and usual accounts, including an income and expenditure account and a balance sheet, . . .

      While a huge onus is placed on the nominated person to guarantee the bond, a similar onus is not placed on the person declared to be resident in the State who becomes a director thereby fulfilling a condition by which a company obtains legitimacy.

      A company can obtain legitimacy in three ways. First, it may secure the appointment of an Irish resident director, second, it may procure a bond or, third, it may obtain a certificate under the auspices of the Companies Registration Office. While the legislation spells out the conditions to be fulfilled in procuring a bond, there are fewer provisions regarding the Irish resident director. Perhaps existing legislation provides for this, but if so, it has not worked very well.

      There is existing legislation and we will introduce further provisions.

      Amendment put and declared lost.
      Amendments Nos. 23 to 25 inclusive, not moved.

      I move amendment No. 26:

      In page 32, between lines 42 and 43, to insert the following:

      "(10) A notification in writing to the registrar of companies of the matter referred to insubsection (9)(b) shall not, of itself, be regarded as constituting defamatory matter.”.

      Section 43(9) obliges the last person who is a director of the company, who is resident in the State and who ceases to be a director to make a notification in writing to the registrar of companies of the fact that he or she has ceased to be a director as well as the fact that there are no other directors of the company who are resident in the State. Subsection (10) then provides that where the last resident director in the State fails to comply with subsection (9), that person shall be jointly or severally liable with the company for any final penalty that may be imposed under section 43(3).

      The purpose of this amendment, which inserts a new subsection (10), is to offer protection to the outgoing resident director of a company who notifies the registrar that to his or her knowledge there is no other director of the company resident in the State. This protection is considered necessary as the information notifying that there is no other director of the company resident in the State may not be 100 per cent accurate. The absence of such protection might act as a deterrent for compliance with the obligation in subsection (9). A similar protection is being provided for in section 47.

      Where did this provision originate? I do not recall discussing it to any great extent. Will this mean that to register as a company a person is named as a director but that after a year the director may resign, leaving the company intact but with no Irish resident director?

      This seems to be a back door way of setting up a company. It allows a director to pull out after a year if he or she is not satisfied. What will happen to the company if there is not an Irish resident director in the country? Does the bond suddenly come into play? What will happen if the company is registered because a director is resident in Ireland and he or she then decides to pull out? The amendment proposes to prevent a person who pulls out from being accused of defamatory action because the act of pulling out could be read as meaning that he or she thinks something crooked is going on in the company and pulled out before getting caught up in it. I believe this is the purpose of the amendment, but the Minister of State gave a different reason for it. I do not want a back door amendment which would allow people escape their duties as directors after a year or two.

      I am puzzled as to the necessity for the amendment. The Minister of State has not given an adequate explanation for this. In addition to what Deputy Owen has said, I do not understand why there would be a presumption in certain circumstances that the director concerned would need to be protected from defamation action. Will the Minister of State give an example of the kind of circumstance where, if it were not for this provision, an ex-director might be open to defamation proceedings? I am not sure I can envisage such circumstances.

      There seems to be an element of escape in this amendment. If a person who is a director of a number of companies wishes to resign from a company after a certain period leaving no Irish director on the company, who will monitor the situation and how will it be identified given the huge growth in the number of companies in recent times? Will a person be appointed to carry out this task or will there be spot checks? This will give comfort to directors who sign up to one of 25 companies. There is a real sign-off element to this amendment because it will not be as difficult to be an Irish director. The same risks will not be attached to it.

      In response to Deputy Owen, this emanated from a review of the Bill, particularly of section 47, to which it is linked. We are trying to protect the State and the systems of enforceability. The Companies Office has certain responsibilities. The proposed new director of corporate enforcement, for which we propose to legislate in the future, will play a key role in this area. We want to put more responsibility on the resident Irish director. A director could write a letter to the secretary of the company stating he or she has resigned from the company. The Companies Office or the director of corporate enforcement may not be aware of this; no one may be aware of it. This might not be discovered for five years and the company could continue trading legally. We are putting the onus on the resident director that if he or she resigns from office, as well as notifying the company secretary, he or she must also notify the Registrar of Companies. If such directors do not do so, they, together with the company of which they were previously a director, will be jointly and separately liable for any fines, penalties or otherwise imposed on the company. As far as we are concerned they, too, will suffer the brunt of the law. This puts the onus on them to ensure they notify the State authorities that they have resigned from office.

      In response to Deputy Rabbitte, if a notification is made under section 43(9) there may be another resident person on the directorship of the company, but the director resigning may not be aware of this. The proposed amendment will help to clarify this matter.

      I question the legality of the amendment, given that one of my amendments was disallowed because it was not raised on Committee Stage. Who made the submission on section 47? He stated, "While a great amount of thought and discussion went into the development of the provision as it stands, some further thoughts on the detailed application of the section and matters that might be added to it making it more workable in practice, have been submitted to us. Time did not permit us to complete our examination." Does this mean those of us who are not familiar with every aspect of a Committee Stage debate can state we are not sure we examined the entire content of a certain section and, therefore, may come back with more amendments? Does this give Members the key to table amendments on Report Stage which they have not specifically identified? This is what the Minister of State did here and it legally allowed him to table an amendment for which we had no notice. Who made the submission on section 47 stating, "more workable in practice.time did not permit us to complete our examination of these issues." What body or person prompted this amendment?

      Acting Chairman

      The Minister of State to conclude unless a Deputy wishes to speak.

      I asked the Minister of State to give an example of where notification as required by this new subsection (10) would constitute defamatory matter. Section 43(9)(b) states, "to his or her knowledge, no other director of the company is resident in the State,". I am still seeking an example of how the act of notifying the registrar could lay the director open to defamation. In certain circumstances, this could be an invitation to canny directors to get out before the going gets hot and they are protected from defamation and so on. I am not sure I can understand this provision. Given that we are running out of time, perhaps we should recommit it to Committee Stage and discuss it because I am not persuaded at this stage.

      I question the limit to which we can raise issues on Report Stage. This is a new amendment tabled under the cloak of the general statement of the Minister of State that he did not have time to examine the section and he might table an amendment. It gave us no forewarning as to the content of the amendment. We had some idea of the contents of every other amendment because he said he would come back on Report Stage. All the Minister of State did was flag the fact that there might be some changes to section 47.

      I was decent.

      I now wonder about Standing Orders and the Minister of State's right to table an amendment with which we are not familiar.

      Acting Chairman

      Can we have clarification?

      The Minister was decent but he was also—

      Acting Chairman

      Is the amendment being recommitted to Committee Stage?

      I can respond and if recommittal is necessary, I will consider that. I hope I can be of assistance and it may not need to be recommitted.

      The Minister of State will not clarify the matter in the time left.

      First, the resident director is obliged to notify, as a result of the proposed change, the Companies Registration Office that he or she is resigning. If he or she does not do so, he or she, as well as the company, is liable to the penalties and fines to which any director of a company is liable.

      It must be understood that there are companies registered in this country which trade legitimately and want to do business here. The Law Society made a detailed submission to us on this issue since Committee Stage and we considered it in detail. If a person wants to resign as a director, he or she notifies the company secretary and the registrar of companies. The latter will then have an opportunity to notify the secretary that the company has no resident director and has a certain period of time in which to comply.

      That is what we have just said it does.

      Of course it is.

      The Minister of State's amendment only deals with clearing them from defamatory statements. The principal Act already has that.

      Debate adjourned.
      Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.