I move: "That the Bill be now read a Second Time."
I am pleased to bring this Bill before the House. It might be helpful if I were to outline briefly the background to the introduction of this Bill. The main provisions of the Company Law Enforcement Bill, 2000, flow directly from recommendations in the report of the Working Group on Company Law Compliance and Enforcement, which was published in March 1999. Mr. Michael McDowell, Senior Counsel and now Attorney General, chaired the working group and its report is commonly referred to as the McDowell report.
The mandate of the working group was to advise on how best to improve compliance with the provisions and the enforcement of company law in Ireland. Ireland's reputation as a safe and well-regulated place in which to do business has in recent times been seriously damaged by the emergence of strong indications of widespread abuse of company law. The work of the tribunals of inquiry established by the Oireachtas and the reports prepared on foot of company investigations carried out at my behest did much to uncover and throw light on these abuses. It is fair to say that these revelations have led to widespread public disquiet.
The extent to which the integrity of the system of company regulation was being undermined needed to be investigated urgently and the working group's efforts were directed at this task. It is well known that the McDowell report confirmed many of the worst fears as to the state of corporate governance in Ireland. In short, it concluded that company law was greatly underenforced and that those who sought to deliberately subvert the system of company regulation had little reason to fear that they might be apprehended and punished. In regard to companies' statutory obligations to file returns with the Companies Registration Office, the low level of compliance suggested a culture of widespread non-compliance and disregard for the law.
To address the serious deficiencies in the enforcement regime for company law, the work ing group made a number of recommendations, which were accepted by the Government. The central recommendation of the group was the establishment of an independent statutory officer, to be known as the Director of Corporate Enforcement, who would have general responsibility for the enforcement of company law in Ireland.
To discharge this responsibility effectively, the group recommended that the director have at his disposal sufficient legal, accountancy, investigative and administrative expertise to investigate fully and enforce the provisions of the Companies Acts. The group was strongly of the view that the establishment of the Office of Director of Corporate Enforcement with the necessary powers and resources was the best way to ensure the enforcement of company law on a consistent and independent basis.
The Company Law Enforcement Bill provides a range of powers for the Director of Corporate Enforcement to support the performance of the functions assigned to him under the Bill. These can be categorised into four main areas – investigation, prosecution, injunction and prevention.
The director will have the general function of investigating suspected offences under the Companies Acts. Specifically, the director will take over the functions which I, as Minister for Enterprise, Trade and Employment, currently exercise regarding company investigations under Part II of the Companies Act, 1990.
The provisions of Part II allow for the investigation of a company's affairs by the High Court on the application of the Minister, and for the direct investigation by the Minister of company and share ownership and the examination of company books and documents. These powers will, henceforth, be exercised by the Director of Corporate Enforcement. The Director will also have available to him the general investigative powers and experience of An Garda Síochána.
The director will have the power to prosecute offences under the Companies Acts by summary proceedings and, where appropriate, to refer cases for prosecution on indictment to the Director of Public Prosecutions. With the allocation to the director of sufficient resources to properly and effectively investigate suspected offences under the Companies Acts, I expect that this power of prosecution will result in a far greater number of offences under the Acts coming before the courts and in many more convictions being secured.
The director will have the power to apply to the High Court for injunctions restraining companies or their officers from continuing to breach the Companies Acts. This will allow the director to take immediate action to prevent ongoing breaches of company law and, by so doing, to protect the interests of creditors and others whose rights may be affected by such breaches. The director will have the power to apply to the High Court for orders to restrict or disqualify company directors and other officers where the conduct of the persons concerned in the management of the affairs of the companies warrants such action. This will prevent or restrict the ability of unscrupulous persons from continuing to use the vehicle of limited liability companies for reckless or illegal purposes to the detriment of their creditors and others.
The Registrar of Companies has an important role to play in the ongoing supervision of companies' compliance with their statutory filing obligations under the Companies Acts. In recent years the registrar has made great strides in the enforcement of filing obligations through an enhanced regime of striking from the register those companies which fail to make the necessary returns. However, this work is hampered by the absence of a satisfactory and enforceable system for determining the precise date in each year when a company is required to file its annual return.
The Bill provides a remedy for this problem through the introduction of the concept of an annual return date specific to each company, which will be used to calculate the exact date by which a company must file its annual return. This measure will introduce a far more transparent and enforceable regime for the filing of annual returns.
In addition to its recommendations in the area of ongoing company law enforcement, the working group recommended the establishment of a statutory company law review group. The purpose of the review group is to advise me, as Minister, on all matters relating to the implementation, amendment and consolidation of company law in Ireland. Such a group will prove very important in ensuring that the Companies Acts are kept under continual review with a view to ensuring that Ireland has a first class system of company law. This will facilitate the operation of companies already established in the State and serve to attract international companies to locate here.
The Company Law Enforcement Bill provides for the establishment of a company law review group on a statutory basis. In anticipation of the legislation and in order to allow the review group to commence its work as quickly as possible, I established the group on a non-statutory basis in February of this year under the chairmanship of Mr. Tom Courtney, solicitor and company law author, one of the country's most eminent experts in company law. The remaining membership of the group combines company law experts and members of representative bodies to provide the best possible advice on the ongoing refinement of the Companies Acts.
I wish to present a brief overview of the main provisions and to highlight those of particular significance. Part 1 contains standard general provisions necessary to the interpretation, commencement and operation of the Bill. Definitions of certain important terms are provided for in section 3. Part 2 provides for the establishment of the Office of the Director of Corporate Enforce ment, his appointment, his terms and conditions of service and the arrangements for reporting by him to both the Minister and the Oireachtas.
Section 7 establishes the separate legal identity of the director as a corporation sole with perpetual succession. This will allow for continuity in the operation of the office of director notwithstanding changes in the holder of the office. The section also provides that the director shall be appointed following the holding of a competition by the Civil Service Commission. In this regard, the Civil Service Commission has selected a person for appointment as director designate on the understanding that the person concerned will be appointed as director of corporate enforcement following enactment of the Bill. This will ensure that once the legislation is enacted there will be no delay in getting the office up and running. I am pleased to inform the House that Mr. Paul Appleby of my Department has been selected for appointment. Mr. Appleby has extensive experience of the company law area and has been closely involved with company investigations that I have ordered pursuant to the provisions of the Companies Act, 1990.
Section 8 provides that the term of appointment of the director shall be for a period of not more than five years and that appointments shall be renewable at the discretion of the Minister. This will facilitate regular review of the performance in office of a serving director of corporate enforcement. Section 10 provides for the removal from office of the director by the Minister for stated reasons. The general functions of the director are set out in section 12 and include enforcing and encouraging compliance with the Companies Acts and investigating suspected offences under the Acts. The director is also given a general supervisory role in respect of liquidators and receivers. The section expressly provides that the director will be independent in the performance of his functions.
Section 14 provides for the transfer to the director of certain functions of the Minister under the Companies Acts. The functions concerned include those relating to the investigation and prosecution of offences under the Acts. Section 16 sets out the director's reporting requirements. The director will be required to produce an annual report of his activities as well as being required to appear before an appropriate committee of the Oireachtas to account for the overall performance of his functions, subject, of course, to the general independence of his office and the confidentiality obligations attendant thereon.
Part 3 of the Bill relates to the function of the director of corporate enforcement of investigating suspected offences under the Companies Acts. The powers of company investigation that I exercise, as Minister, pursuant to Part II of the Companies Act, 1990, are transferred to the director in this Part. This will allow the director to seek to have the High Court investigate com panies pursuant to section 8 of the Companies Act, 1990, or to inquire directly himself into company ownership under section 14 of that Act. The director will in future exercise the power to examine books and documents of companies under section 19 of the 1990 Act. Members will be aware that this is the provision under which I have directed examinations of books and documents in a number of high profile cases. In addition to transferring the function of company investigations to the director, this Part also amends a number of provisions of Part II of the 1990 Act to enable their more effective application, having regard to the practical experience of operating these provisions in recent years.
Section 29 gives the director the right to seek a search warrant from the District Court where the director considers that there may be held on any premises information, books or documents relating to offences under the Companies Acts. This will be a key tool of the director in investigating such offences.
Section 32 provides for the exercise by the director of any of his powers on behalf of company law enforcement agencies from other jurisdictions. In view of the international nature of modern business, this will allow the director to facilitate the inquiries of such agencies where those inquiries require to be pursued in Ireland. It will give the director a firm basis for seeking reciprocal assistance with his own inquiries from agencies outside the State.
Part 4 of the Bill relates to the power of the court to order the restriction or disqualification of persons from acting as company directors or other officers or being involved in any way in the promotion, formation or management of companies. The powers to restrict and disqualify persons are central to maintaining the integrity of the system of company regulation. Sections 38 and 39 empower the director of corporate enforcement to seek to have persons restricted and disqualified by the High Court. In addition, the restrictions imposed by section 150 of the Companies Act, 1990, and the grounds for disqualification under section 160 of that Act are both extended by these sections.
Part 5 of the Bill contains provisions relating to the winding up of companies and, in particular, those companies that are wound up insolvent. The provisions of this Part are aimed at addressing the so-called phoenix syndrome whereby companies go out of business leaving debts unpaid and their members or directors immediately start up new companies without having to account for their previous failures and debts. They also provide for action against companies and their officers where the resources of the company have been so depleted that there are insufficient assets for the company to be wound up. Such actions greatly undermine confidence in the system of company law.
The director is given a range of powers in this Part of the Bill to intervene in company liquidations or, where the company is not liquidated because of the insufficiency of its assets, to ensure that persons responsible through recklessness or otherwise for company failures are brought before the courts to account for their actions. The director may seek to have such persons made liable for the debts of their companies or that they be ordered to return assets wrongly transferred from those companies.
Sections 50, 54 and 55 give the director powers to perform the function assigned to him under section 12 of exercising a supervisory role over liquidators and receivers. These people play a key role in ensuring that the provisions of the Companies Acts are properly applied in company liquidations and receiverships and the director will be in a position to ensure they meet their statutory obligations in this regard.
Section 53 provides for reporting by liquidators to the director of corporate enforcement on the conduct of directors of insolvent companies in relation to the management of those companies. This will be a key source of information to the director and will form the basis for decisions by the director as to whether the High Court should be asked to apply restriction orders to such directors under section 150 of the Companies Act, 1990.
Part 6 of the Bill provides for the improvement of the existing system for monitoring and enforcing the statutory filing requirements of companies. Section 57 provides for the introduction of the concept of an annual return date which will be used to calculate the exact date in each year on which a company is due to file its annual return. This will greatly facilitate the enforcement by the Registrar of Companies of the annual return filing requirement.
Section 62 provides for the imposition of on-the-spot fines by the registrar in respect of failure to file returns within the time allowed. This will form part of a suite of measures available to the registrar, including late filing penalties, on-the-spot fines and prosecutions, in his attempt to improve filing rates.
Part 7 of the Bill provides for the establishment, terms of reference and membership of the company law review group. It is proposed that the review group will operate on a bi-annual work programme and that a reforming companies amendment Bill will be brought forward every two years based on the relevant report of the review group. In this way the group will serve to facilitate the ongoing review, reform and updating of the Companies Acts.
Part 8 of the Bill deals with company accounts and auditors. The House will be aware that since the Bill was published the report of the review group on auditing has been completed and made available for public comment. Final submissions on the report are awaited. I will shortly bring proposals to Government on this matter. It is likely that significant further changes will be made to company law in a separate Bill next year flowing from the recommendations of the audit review group.
I regard the report of the auditing review group as a distinct set of measures, the drafting of which will require careful consideration separate from this Bill. That said, there are a small number of measures dealing with auditing and enforcement which are included in this Part of the Bill. These provisions, which derive from the recommendations contained in the McDowell report, will allow the director of corporate enforcement to ensure that auditors comply with their statutory obligations under the Companies Acts.
Section 69 of the Bill introduces revised arrangements to facilitate prosecutorial action by the director of corporate enforcement in respect of offences in the auditing area. Sections 70 and 71 impose on auditors and on the recognised accountancy bodies obligations to report to the director where they believe that certain breaches of the Companies Acts may have occurred.
Part 9 of the Bill deals with financial transactions between companies and their directors and persons connected with those directors. Provisions governing such transactions are contained in Part III of the Companies Act, 1990, and this Part of the Bill is concerned with amending those provisions. The need for these amendments arises from difficulties in the implementation of the existing provisions that have, in certain cases, restricted bona fide commercial transactions between companies and their directors, including the provision of loans and credit guarantees. These provisions are not related to the work of the director of corporate enforcement.
Part 10 contains a number of miscellaneous provisions relating to this Bill, the Companies Acts generally and other enactments. Section 89 amends section 371 of the Companies Act, 1963, and provides an important power to the director of corporate enforcement. Under this section, the director will be given the power to seek orders of the High Court restraining companies or their officers from persisting with ongoing breaches of the Companies Acts. This injunctive power will be a key weapon of the director in his efforts to ensure compliance with the Companies Acts.
Section 92 redefines the term "officer in default" for the purposes of its interpretation in the Companies Acts. The revised definition will make it clear that it is the duty of company directors to ensure that the company complies with the requirements of the Companies Acts.
Sections 93 and 94 provide for the amendment of provisions of the Companies Acts relating to the purchase of shares and share options in a company by its directors or other persons connected with the company. The amendments are required to ensure that there is no conflict between the provisions in question and provisions of the Tax Acts permitting company directors and employees to participate in Revenue approved savings-related share option schemes. These provisions are not related to the work of the director of corporate enforcement.
Section 95 amends section 240 of the Companies Act, 1990, which deals with the penalties that may be imposed in respect of convictions for offences under the Companies Acts. The amendment has the effect of increasing the maximum fine in respect of a summary conviction under the Acts to £1,500 from the current figure of £1,000. The maximum prison sentence in respect of a conviction on indictment is increased from three to five years. These measures are intended to strengthen the sanction available to the courts in respect of company law offences.
Section 98 provides a mechanism whereby the director of corporate enforcement may impose on-the-spot fines in lieu of the institution of proceedings in respect of offences under the Companies Acts. The director will use this power in appropriate cases to impose penalties in respect of such offences, short of criminal prosecution, thereby obviating the need to take up court time. Persons accused of offences will, of course, have the option of going to court but in so doing they will risk incurring a conviction.
Section 99 provides that the Freedom of Information Act, 1997, will not apply to the director of corporate enforcement, other than to a record concerning the general administration of the director's office. This provision is required in view of the sensitive and confidential nature of the information that will be held in the director's office. A similar exemption applies in respect of the Director of Public Prosecutions.
The measures contained in the Company Law Enforcement Bill, 2000, represent the most radical action taken by any Irish Government to reform the enforcement regime in operation in respect of the Companies Acts. The establishment of the office of director of corporate enforcement signals a clear intention on the part of the Government to seriously address corporate crime and malpractice in Ireland. The director will lead a dedicated team of accountants, lawyers, civil servants and gardaí in a concerted effort to bring to book those who flout our company laws and damage our international reputation. Never before have such resources been applied to this task.
I thank the House for its co-operation in arranging this debate and I look forward to hearing the contributions of Deputies. I commend the Bill to the House.