I wish to share time with Deputy Chris Andrews.
Companies (Amendment) Bill 2009 [Seanad]: Second Stage (Resumed).
Is that agreed? Agreed.
I wish to register my support for the Bill. At a time when public confidence in various different arms of the State and particularly in regulatory authorities is at an all-time low, it is imperative to take strong action to try to restore that confidence and restore people's faith in the bodies that, in effect, mind their money. They need to be sure that if for any reason an individual or group with responsibility for administering funds on behalf of people does not fulfil that responsibility or jeopardises the trust and faith people put in it, there are strong enforceable deterrents and penalties. This Bill arises from the context in which the country finds itself at present.
In recent years all banks have changed the way in which they do their business. Through the use of Internet and telephone banking, banks have endeavoured to remove the customer from face-to-face contact with people working in the branches. They have made it harder for people to do their business on a face-to-face basis. The way some banks have done their business is open to abuse despite several years of strengthening and modernising the regulatory framework here. I welcome that this Bill goes a long way towards dealing with some of the issues in our system.
In my experience in this House, we have always endeavoured to keep pace particularly with the requirements arising from EU directives. We have always adhered to and used best international practice. We have also tried to deal with the ever-changing and fast-changing technology in the financial area. It has been obvious to many people that the frameworks that have been put in place over time have become more complicated and stronger. In some way what has happened internationally and domestically in the past eight to 12 months is unprecedented. We now find ourselves in a position where we need to adjust our regulatory framework and laws to take account of what has happened and this legislation is a good example in that regard.
As my learned friend, the previous speaker, a practitioner in the area of law, will be aware, company and corporate law is a very technical complicated and intricate branch of our legal system. As he also mentioned, it is greatly open to interpretation. This legislation is an example of putting down a clear concise line, which is not subject to any great interpretation, but will ensure that it is fit for purpose and does what it is supposed to do. Laws exist primarily to protect citizens. Company and corporate laws exist to protect citizens doing business here. They exist to remove the risk of falling foul of unscrupulous traders who trade outside the law. They exist to protect those people who want to stay within the law and just want to get on with their business.
The Bill goes a long way towards closing some of the loopholes which have obviously developed over time, particularly in corporate law. It empowers the Director of Corporate Enforcement to take the appropriate actions to prevent such abuses of the law. The fact that it is being introduced with agreement from all sides of the House is a clear indication that it is needed, welcomed and will work into the future. As I said at the outset, at a time when the public confidence in how we do our business and protect people doing business as well as ordinary savers mortgage holders is at an all-time low, it is imperative that the Government and the House ensure that we do everything possible to restore confidence in the system we have.
I was very interested to hear the former Prime Minister of Iceland speaking on the radio this morning. He said that his country had attempted to keep up with changes in international law, corporate law and regulatory law. Ireland is an example of a small peripheral country on the edge of Europe but none the less playing a major part in Europe. We have that added protection here. We have always complied with our requirements under EU legislation and will continue to do so. In this area of the law, it is imperative that we take firm concise clear action. When we come across a problem, the laws need to make it clear to everybody what will happen. It is a point Deputy Penrose, who is Chairman of the Oireachtas Joint Committee on Enterprise, Trade and Employment, made previously. We need to ensure that the thrust of the legislation is to protect those who are most vulnerable and not senior management or the guys at the top. We need to protect the people who are entrusting their money, whether that be their life savings, deposits or mortgages, to others to administer on their behalf. I very much welcome the legislation and wish it a speedy passage through the House.
I welcome the opportunity to speak on the Bill. As the previous speaker said, how we are perceived is important. We need to ensure that Ireland is perceived as a safe place to do business. That was not the case. This Bill will help in many ways to repair the recent damage done to the reputation of the financial sector. Its main purpose is to ensure that directors' financial dealings will be fully represented on companies' balance sheets which has to be good.
It also provides welcome additional powers for the Director of Corporate Enforcement to access information held by companies or third parties that may be relevant to an investigation of corporate malpractice. In addition to these measures, it increases the penalties for company officers whose companies provide loans to directors in prohibited circumstances and gives greater search powers to the authorities in cases of suspected corporate malpractice.
The Bill follows the recent controversy in which directors of financial institutions received large loans, yet did not have to disclose them to shareholders in the company accounts. We were all shocked, disappointed and angry at the disclosures last December that the chairman of Anglo Irish Bank had, over eight years to 2007, temporarily transferred loans from Anglo Irish Bank to the Irish Nationwide Building Society prior to the group's year end. These loans amounted to over €87 million and the bank's shareholders were not aware of them. Total loans to directors at that institution were in the region of €179 million and while this may not have been illegal at the time it was, in the words of the former chairman, "inappropriate and unacceptable from a transparency point of view". That is putting it mildly because the damage that it has done and the anger it has created have undermined the economic and political foundations of the State. That cannot be allowed to go unchallenged. People must be dealt with in the most severe manner.
Investigations into some of these matters are going on and I have every confidence that the right course of action will follow from them. The public is angry about what went on in many of these institutions and that is as it should be. I do not wish to pre-empt any of these investigations but anyone who is found to have abused his or her position must be held accountable. In order to rebuild confidence in the economic and political foundations of the State, people must be held accountable. I cannot emphasise that point strongly enough.
Questions remain too about the behaviour of the former Financial Regulator who allowed these practices to happen. I cannot fathom why he did nothing to prevent them. It is hard to understand what was going through his mind at the time. To some extent we all live in bubbles, but he must have been living on a different planet. People who hold positions of authority, such as chairmen and chief executives, have a responsibility to behave openly and honestly to serve best the interests of the people they have been appointed to serve. Unfortunately, as the lessons of recent months have shown, people cannot always be trusted not to abuse the faith placed in them. There are people in every walk of life who betray the trust placed in them. We must put in place legislation and systems to ensure that people comply with regulations and standards.
While it is regrettable that those measures were not introduced previously, this Bill will ensure that the stakeholders will be protected from the practices that became known last year. It sends out the message loud and clear that Ireland is deeply committed to holding companies and their directors to account. It ensures that disclosure in company accounts of loans to directors of companies that are licensed banks will be treated in the same way as those in non-banking companies. All loans above the minimum threshold to each individual named director must be disclosed separately in the annual accounts as opposed to an aggregate format. The maximum sum outstanding during the year will be disclosed, not simply the sum outstanding at the end of the financial year. It will also be an offence for companies, including banks, and their directors, not to comply with the disclosure provisions in the Companies Acts regarding loans to directors and connected persons and regarding the material interests of directors in company contracts.
I also warmly welcome the increased powers afforded to the Director of Corporate Enforcement, including the greater powers to enter premises and seize documents. In respect of the operations of Anglo Irish Bank, I am concerned that action must be taken as soon as the alarm bells ring. The enforcement officers must act straight away. There should be no time lag. There is concern that there was a gap between the ringing of the alarm bells and the entry into the property. The power to seize documents will enhance and assist in the investigation of malpractice.
I commend the Minister and her staff on their work on this Bill which will go a long way to restoring Ireland's reputation and reassure people not just here, but internationally that Ireland is a safe and trustworthy place to do business.
I thank Deputies Leo Varadkar, Willie Penrose, Cyprian Brady and Chris Andrews for their contributions to this Bill.
Deputy Varadkar need not have sleepless nights over the weekend about the staffing of the Office of the Director of Corporate Enforcement, ODCE, because eight additional staff were appointed in 2007-8 and six more last March. I hope this will help the Director of Corporate Enforcement in his investigations and ongoing monitoring.
Deputies raised interesting points. I believe that the primary role of this Assembly is to legislate and the decisions and opinions of Deputies on all sides should be taken into account in bringing forward legislation to ensure that when it goes onto the Statute Book it has the broad support of the Oireachtas. We tried to do that in the Seanad and accommodate as much as we could, but we have to accept legal advice from the Attorney General and the Parliamentary Counsel.
We can have a broader debate on the Bill next Thursday. I thank Deputy Penrose, Chairman of the Oireachtas Select Committee on Enterprise, Trade and Employment for agreeing to take Committee Stage of the Bill next week.
In response to Deputy Varadkar's point that the ODCE should monitor the activities of the building societies and credit unions, we have examined this several times and are of the view, as are most of our advisers, that those sectors should fall under the remit of the Financial Regulator. We can give the Deputy broader reasons for that on Committee Stage. The issue has been raised a couple of times but that is my opinion, that of the Minister, the Department and others from whom we have sought advice on this issue.
Deputy Leo Varadkar also expressed concern about the offence provisions in this Bill fearing that well-intentioned and responsible directors or officers of a company could be held liable for the acts of less scrupulous or non-compliant colleagues. One of the offences mentioned in the Bill, under section 7, is that officers will be held to be guilty of an offence if the company contravenes the existing statutory provisions restricting a company's ability to give loans to its directors. This offence is being expressed in accordance with comparable provisions elsewhere in the Companies Acts.
Section 383 of the Companies Act 1963 already provides a defence for officers in default. Specifically, this provides that an officer shall be presumed to have permitted a default by his or her company unless the officer can establish that he or she took all reasonable steps to prevent the occurrence of the event in question, or that by reason or circumstances beyond his or her control, was unable to do so. This defence will also apply to any offence under section 7 of this Bill.
The other offences in this Bill are in section 8. They provide that a director of a company shall be guilty of an offence if he or she fails to comply with the disclosure provisions about loans, directors and connected persons. In each of the two offences, specific defences are provided in the following subsections. In all three offences, the fact that the officer or director took all reasonable steps to ensure compliance with his or her obligations will be a key determinant in informing the court's attitude in any cases brought before it.
Deputy Penrose spoke about appropriate safeguards. Amendments to section 20 and 23 of the 1990 Act, outlined in section 5 of this Bill, contain the appropriate balances and mechanisms identifying the appropriate material spelled out in the existing section 19 of the Companies Act 1990. I could go through that in detail, but I might defer it to Committee Stage. People opposite me have much more experience debating the law, but it is important to refer back to the other Companies Acts. Most of the major changes and provisions are still in the Companies Act 1990. We should not look at this Bill in isolation. We will be more than willing to provide information to Deputies on the Acts before Committee Stage. I urge anybody who wishes to table amendments on Committee Stage to have a glance at The Companies Acts 1963-2006, which is edited by Lyndon McCann and Thomas B. Courtney. It is great reading.
Will there be a signed copy?
Section 5(2J) on regulation making powers will only be used on supplementation and consequential and incidental matters. Deputy Penrose raised this issue. It states that the Minister shall make regulations providing for supplementary, consequential and incidental matters, or in respect of subsections 2A or 2F as he considers necessary or expedient. If there is to be any major changes, it would have to be done in primary legislation as well. We can go through that in further detail on Committee Stage.
While interesting comparisons have been made between the company law definition of a connected person and that used in ethics in public office legislation, I am satisfied that the current definition in company law that applies to all companies is appropriate. The relevant provision defines a connected person as the director's spouse, parents, brothers, sisters or children, a person acting in his capacity as a trustee of any trust, the principal beneficiaries of which are the director, his spouse or any of his children, or any body corporate which he controls, or in partnership with that director under the meaning of section 1(1) of the Partnership Act 1890. There is a full detail on the definition of connected persons.
Deputy Penrose made an interesting suggestion that the ODCE include information on the use of the extended power of seizure it in the annual report. We will have a look at this and we will get back to the Deputy on Committee Stage.
Deputy Brady spoke about the financial regulatory matters that fall within the remit of the Minister for Finance. Many Deputies probably used this opportunity to raise the broader issues of corporate governance and confidence in the governance of our financial institutions. This is in an integral part of our economy. The financial services industry alone employs about 25,000 people in the IFSC, and then we have the broader lending and banking institutions. It is very important that there is confidence in corporate governance in those sectors. It is of critical national interest to make sure that there is confidence in governance, because that feeds into the markets and our ability to sell financial services abroad and to encourage companies to locate in Ireland. Equally, it is important to state that we are one of the best countries in the world in the context of corporate governance.
While some Deputies outlined some difficulties, I would not like to comment on them because investigations are ongoing and I would not want to jeopardise anything in that area. The general idea that Ireland has a strong body of legislation to ensure good corporate governance is there. I believe there is a genuinely positive ethic in corporate governance across Ireland. The Minister for Finance will be bringing forward proposals for financial regulation. We will also be bringing forward the companies (consolidation) Bill in the new year. If we are around for that, it will take up a lot of the committee's time.
When we are dealing with these broad issues, it is important that there is a consensus across the House. Deputy Penrose referred to an interesting issue. There was a time when all Second Stage speeches in this House were sent down to the courts so that the judges and the barristers could read and interpret the intention of the House, as opposed to the literal interpretation of legislation. I am not sure if that still happens, but I was once critical of certain aspects of the interpretation of mandatory sentencing of ten years for people convicted of drug dealing. The interpretation elsewhere was not what was intended in this House. I am glad to see that there has been a change to that view. We now have a situation where mandatory sentencing is becoming the norm for people convicted of very serious drug offences. That is another issue, but it is important that the intention of the legislation as passed in this House is taken into account when people are adjudicating, obviously respecting the independence of everybody else named in the Constitution.
We will have a broad ranging discussion about the Bill on Committee Stage. We must make sure that the Bill is very focused. It is primarily a technical Bill, and the broader issue of company legislation will be dealt with in the companies (consolidation) Bill. Hopefully the Bill will have a speedy passage through Committee Stage, even though we do not want to rush it either. If I can accommodate people in any way possible, I will try to do that. I thank the officials in my Department for their hours of work on this particular issue, and everybody else involved in the House.