Companies (Miscellaneous Provisions) Bill 2013 [Seanad]: Report and Final Stages

I move amendment No. 1:

In page 5, between lines 11 and 12, to insert the following:

“(3) The Companies (Amendment) Act 1990 is further amended—

(a) in section 29 by amending subsection (4) to read:

“(4) The functions of an examiner should be performed with the maximum use of the services of the staff and facilities of the company to which he has been appointed to assist him in the performance of his functions, save for exceptional circumstances where the assistance of persons appointed or employed by him for that purpose may be used.”,

(b) in section 29(5) by adding the following sentence:

“, to the proviso to subsection (6), to the Court before which the proceedings is brought, to the value of the work done for the company, its employees, secured creditors and unsecured creditors.”,

(c) in section 29 by adding the following subsection (6) after subsection (5):

“(6) A nominated examiner must provide an estimate of the remuneration, costs and expenses of the examiner to the Court when presenting the petition.”.”.

I compliment the Minister on choosing to fast-track this element of the overall companies consolidation legislation, which is overdue and needed. I appreciate the urgency the Minister has afforded to this Bill.

I have consulted very widely with the SME sector and particularly with the small number of companies that carry out examinership. We have a very small pool of people with the expertise, and as the Minister knows, it is an extremely costly process. Part of the purpose of the legislation is to try to reduce cost, reduce the jurisdiction, and afford the opportunity to smaller companies to move from the assumed and normal practice of applying for examinership in the High Court and moving it into the Circuit Court. I do not dispute that the likelihood is that by moving the jurisdiction, legal fees can be reduced and can be contained to some extent. The difficulty is that the vast bulk of the cost of examinership is not the legal fees involved but rather the examinership fees themselves. This is proving very off-putting to all companies, especially small and medium-sized companies, in applying for examinership.

The Minister will be well aware of another problem. The majority of small accountancy firms do not have the skillset to carry out examinership which is why such a small pool of people are involved. To highlight the importance of this to the real economy and the Minister's agenda of job creation, 60% of those employed in this country are employed in the indigenous SME sector.

Only 10% are employed by foreign direct investment, FDI, companies. Many people are not aware of that. There is a perception that most employment is generated by the large multinationals. The Minister knows as well as I do that is not the case.

Small businesses are struggling. They face enormous challenges. A RED C survey by the Department of Finance on SME credit gives a very good picture of the challenges facing SMEs: credit demand from SMEs has declined to 36% and 80% of that 36% were granted the credit; and half of SMEs now agree that banks are lending, which is up from 39% this time last year and is a positive sign. There is a sense of confidence emerging. There is a big opportunity for small businesses, particularly those focused on exports and which are trying to expand. The difficulty is that many small businesses are still in financial distress. I recently met with the examiner who deals with 50% of all examinerships in the country. He told me that in his experience 99% of companies in distress do not opt for restructuring through examinership because they do not have the resources. When they meet the examiners, the upfront costs seem too onerous and the expertise does not necessarily exist around the country to help them.

My amendment is very simple and straightforward. It could drive transparency and oblige professional examiners and accountants to set out to the court upon petition the estimated costs of the examinership process. They would be obliged to give an estimated figure for which they would then have to account before the court in the later stages of examinership. It is a very simple amendment, one that I am sure the Minister will be minded to accept because it does not alter the nature of the legislation. It would make it far more effective and user-friendly and would oblige examiners to introduce a much greater degree of transparency in terms of how costs are arrived at and present a much clearer picture of what is involved and how much the examinership process will cost them to companies availing of this process, as is the Minister's intention

The other crucial aspect of the amendment is that it obliges the examiners, other than in exceptional circumstances, to use the professional expertise within the company itself. These are small companies with between 20 and 40 employees, many of which have in-house legal and accounting expertise upon which the examiner can draw. Depending on the examiner and the practices of a particular company it can be but it is not always the case that the examiners already use the professional expertise within a company. My amendment would oblige the examiner to avail of that in-house expertise to avoid bringing in very expensive outside expertise in the form of accountants and so on. This would help to minimise the cost of the examinership process. My amendment provides for an obligation on the examiner to explain to the court, if and when he or she chooses not to use in-house expertise, why he or she has gone outside the company and brought in external, expensive practitioners. This is a very simple and practical change which would improve and enhance the legislation and would certainly keep the costs down for the companies involved which are in distress and ensure that fees and the cost of the overall examinership process are contained, which I think is the Minister's objective and it is certainly mine.

I am very pleased to say that I have been in touch with several of the concerned agencies which represent employers and the companies that are in distress. I have secured the endorsement of retail excellence Ireland, REI, the Irish Small and Medium Enterprises Association, ISME, the Small Firms Association, SFA, and the Restaurants Association of Ireland, all of whom in the past 24 hours have said that they are happy to publicly endorse the amendment I have tabled here today. They see it as a practical way to make this legislation more user-friendly and affordable and to help it achieve its objective, to ensure that companies in financial distress which require restructuring do not wind up or go into liquidation or bankruptcy. Those companies can stay in operation, continue trading and provide jobs.

Earlier this week in an appeal to the Supreme Court a company in Limerick was saved from going bust and because of a successful examinership application, the 33 employees in that company will have their jobs this Christmas and they and their families will not have to go through the distress and trauma of being made redundant two weeks before Christmas. That is a fantastic outcome. I want to see more companies, employees and families protected by the examinership process. That is what this legislation is intended to do and by accepting the amendments that I have laid before the House the Minister can help to enhance the legislation and ensure that it has a better chance of fulfilling that objective.

I support Deputy Creighton’s amendment. I tabled similar amendments on Committee Stage. This Bill is welcome. Its proposals are excellent but if we do not put some sort of framework on the cost element, its benefits will be severely diminished as are the prospects of many companies availing of its provisions and it will not save businesses and employment. I expressed concerns on Second and Committee Stages about the Circuit Court and the need to ramp up the skill set there. This is a practical amendment that tries to prevent people making a lot of money through fees on the back of small companies in this process.

I thank Deputy Creighton for her amendment and comments. We are united in the desire to see companies avail of examinership, which has been successful, albeit only for large companies. Of the 80 or so examinerships each year, 75% are successful. It is an instrument that we need to make accessible to small companies and that is what this legislation sets out to do. By making it accessible to more companies, we will develop the capabilities of the accountancy profession to provide skilled and effective examinerships.

I agree that we need a framework to manage the costs but I do not accept the Deputy’s proposals as representing an improvement on what we already provide here. Section 29 of the Companies (Amendment) Act 1990 prescribes that "an examiner shall, insofar as is reasonably possible, make use of the services of the staff and facilities of the company to which he has been appointed to assist him in the performance of his functions".

What the Deputy is proposing is to replace the phrase "insofar as is reasonably possible" with the phrase "with the maximum use of". My view is there is greater legal clarity in the use of "insofar as is reasonably possible" than in the use of terms such as "maximum" or in "exceptional circumstances". We have looked at this but the view is that this is subjective rather than objective, and that the current text is more objective and is one to which the court must have particular regard. In that sense, it is a better and more robust approach.

The other issue the amendment provides for is that a "nominated examiner must provide an estimate of the remuneration, costs and expenses of the examiner to the Court when presenting the petition." As of now, it is not the examiner who presents the petition; it is the company or the creditor who presents it and nominates the examiner, while the court appoints. Clearly, it is for the company to seek to work out with the examiner the approach that will be taken. The company is in a better position to do that with a nominated examiner than presenting in advance some fee schedule.

The other point the Deputy makes is on the need to ensure costs are contained. The rules of the court set out the procedure for an application of an examiner under section 29 of the Act for "payment of the remuneration and costs of, and reasonable expenses properly incurred by, an examiner." The examiner in looking for those costs must in an affidavit "set forth a full account of the work carried out by him to the date of the application and a full account of the costs and expenses incurred by him and shall vouch same and of the basis for the proposed remuneration which he is seeking to be paid." This will be against the backdrop of the examiner having to show he or she "shall, insofar as is reasonably possible, make use of the services of the staff and facilities of the company" to the most reasonable extent he or she can. In addition, "[t]he Court may, where it thinks fit, order that notice of the application be given to all such persons as the Court may direct, and may give directions as to the service of the said notice". The court will vigilantly scrutinise the examiner's application for payment and disallow items, or allow a lower charge-out rate than the examiner has claimed. In that regard, the court will seek to ensure that the examiner and his staff are only remunerated for work properly falling within the powers of the examiner.

We have inserted a framework, to use Deputy Calleary's word, that seeks to minimise costs, and the allocation of the responsibilities and how the process works is sensible. On the wider issue that one would seek to insist that only company resources be used, the difficulty, which I believe Deputy Creighton acknowledges in her comments, is that the expertise is not generally within the companies to manage the whole of the examinership, which is why the skills in this area are being brought to bear. The proposed amendment would seek to restrict severely the ability of the examiner to employ expertise external to the company to assist him or her in the performance of his or her functions. The appointing of an examiner to a company does not usurp the functions of the board of directors, which will continue to manage the affairs of the company during the period under the protection of the court. Hence, the staff of the company are not answerable to the examiner. Further, in the case of small private companies in particular, the company may not have the staff with the necessary skills to assist in the formulation of proposals for a compromise or scheme of arrangements. There is, in addition, the potential for conflicts of interest, for example, under section 22 of the Companies Act the examiner's proposals for a scheme of arrangement may, if the examiner considers it desirable to do so to facilitate the survival of the company, specify whatever changes should be made to the management or direction of the company. There could also be potential conflicts of interest between the interests of the staff in the company and other creditors.

For all of those reasons, while I understand the motivation of Deputy Creighton's amendment, and it is a motivation I share, I believe the framework here is balanced and proportionate and is designed to achieve the outcome. With regard to using the phrase "insofar as is reasonably possible", given the understanding that the examiner is intended to bring new expertise and may have to take a view of the future of the company that is at odds with the view of those who are directing the company, we need to have the flexibility within the framework that is now provided for in the way we have set in the text of the Bill as it stands. That is why I cannot accept the amendment.

On the wider issue the Deputy raises, I am acutely conscious of the challenges for SMEs. The RED C survey was, as they say, a mixed bag. It showed a declining demand for credit but it also showed a falling refusal rate. At 20%, that refusal rate is still too high and would put us in the top third of European figures, but I must acknowledge it was a 30% refusal rate when those surveys started and has come down to 20%. We are working hard with the Credit Review Office. We have extended its remit to loans of €3 million and are trying to drive more cases to its office to try to reduce further that rate.

It is worth recording here, because people do not get the message often enough, that the Credit Review Office is a very valuable tool in the hands of people who have been turned down for credit. Its head, Mr. John Trethowan, is at present turning over nearly 60% of those cases that are appealed to him, so it is not that the bank's refusal should be regarded as the end of the road. The Credit Review Office is very successful at turning over decisions. We would like to see more decisions coming Mr. Trethowan's way, and that is why, during the course of the budget, the Minister announced the raising of the threshold from €500,000 to €3 million.

I know the Deputies encourage people to use these services, which are a way of improving access to credit. In addition, €2.5 billion has been provided from non-bank sources that are put out into the marketplace for SMEs across the whole suite of Government-backed lending measures. While those have still to prove their value and are in their various stages of development, looking back at the history of the seed and venture capital fund, which also started small, it is now a very established and strong element of the SME funding environment. We certainly hope that the development finance, microfinance loan guarantee and the various equity and lending funds from the NPRF will similarly build to become an important part of the non-bank finance infrastructure. We will have to develop a much stronger element of non-bank sources against a background of more constrained rules of credit from bank sources, even if the banks are fully healthy.

I appreciate that, at this point, it is difficult for the Minister to accept amendments to legislation. The practice in this House is to be not all that interested in accepting amendments from the Opposition or from backbenchers, which is unfortunate. We are all essentially trying to paddle in the same direction. Some of the Minister's logic for declining to entertain this amendment is a little thin, to say the least.

The bottom line is that 99% of companies which find themselves in financial difficulty end up going bust. That is a far higher percentage than in other EU member states. If one compares it to the US, it is pretty incomparable. What we are essentially saying is that we want entrepreneurship, innovation and companies to establish but when they find themselves in difficulty, we are not really prepared to help them to restructure, become more fit for purpose, survive, stay in business and keep people in employment, which is the crucial point in all of this. That is really unfortunate.

The Minister's statistics are correct. A total of 75% of examinerships are successful but it is a minute number of companies. When it comes to small companies, the number is even more minute. We are talking about dozens of companies every year rather than the thousands that should be going through the examinership process. The sad thing is that from speaking to business owners and the people who conduct examinerships in this country, we know that this is not likely to change substantially with this legislation, which is a missed opportunity. To give the Minister a flavour of it, I was surprised to learn that the small handful of companies that carry out all of the examinerships in the country were not consulted by the Department in framing this legislation. I asked all of them and none of them had been consulted. That in itself is quite extraordinary but when I spoke to them, what was very interesting was that the one examiner which conducts over 50% of examinerships for small companies in this country estimated the cost of examinership at about €50,000. He pre-negotiates fees with the legal profession, accountants etc., and estimates that all in, the amount is about €50,000. When I spoke to the other companies which specialise far more in examinerships involving big companies rather than SMEs, although they do some SME examinerships, they estimated the cost at €100,000 as a minimum so there is a big distinction even in the approach of examiners coming from the big firms and small firms.

The Minister may have misinterpreted my point about SMEs and their capacity to provide skills internally. I was not saying that small companies do not contain professional skills. Many of them do have these skills and what my amendment would do is simply oblige the examiner from the outset to use all of those professional skills within those companies before turning to junior associates in the big companies. That is what is happening at the moment and that is why those fees are estimated up-front at €100,000, which is off-putting for a small company with a small turnover. The idea that these are onerous obligations on an examiner that would not somehow fit the process is mistaken.

Another element of my amendment is to oblige the examiner to take into account the jurisdiction of the court. There is no obligation in the legislation for the examiner to take into account the jurisdiction of the Circuit Court vis-à-vis the High Court. That is something that the Minister, unfortunately, does not seem willing to accept, which is very disappointing.

I support the amendment put forward by Deputy Creighton. While the Minister gave a very plausible explanation as to why he would not accept it, I disagree with him. We continually extol the virtues of SMEs in this country yet there is a perception, much of it based on experience, that much effort is put into facilitating foreign direct investment and other industries but SMEs are not facilitated in their operations. I know the Minister in the past couple of days made an announcement about data analysis research and the investment into it but at the same time, a company in north Wicklow had to take on various arms of the State and met frustration at every hand's corner. Fortunately, it worked out for the company but telling it that the State is assisting SMEs certainly would not wash. I encountered an individual in recent days who had a very successful company. Three-quarters of the company was very profitable and one-quarter brought it down. He did not have the opportunity to save the three-quarters and felt he did not have the money to take on the authorities to try to hold on to that section of his company that was profitable.

Deputy Creighton's amendment tries to facilitate SMEs in meeting the intention in this Bill. I certainly welcome this Bill. The intention behind it and the Minister's motivation for it are very welcome. However, I believe there is a weakness in it that Deputy Creighton's amendment seeks to address. She said she realises it is difficult for Ministers to take on amendments but I do not believe that should be the case. It is not difficult for a Minister to take on an amendment. Surely the case put forward and the fact that the stakeholders are supportive of it should make the Minister at least reflect on it.

The Minister mentioned the Credit Review Office and the 60% turnover, if I heard him correctly. While that is welcome, does it not tell us something about the banks that they are turning down so many cases in the first instance? How many small companies or individuals do not have the wherewithal or are basically afraid to approach the Credit Review Office? We must look again at banks being more amenable. Yes, there must be responsible lending and correct business plans but a 60% turnover shows a clear breakdown in policy between what the Government wants and what banks are actually doing.

I also support Deputy Creighton's amendment which I think is sensible and rational. This is a difficult country for a small business. The turnover must be very dramatic in terms of businesses starting up and closing down every year. I would like to see comparisons with Europe. Not long ago, just short of 20% of restaurants in Dublin were closing down each year although, obviously, new ones were starting up as well. That is a dramatic figure. The State needs to consider facilitating small businesses more and helping them stay in business in a more proactive way.

The Minister made two points with regard to allowing companies to provide some of the expertise. He said that many of them do not have it and that if they were directors, they would obviously be biased regarding how the process would proceed. There is merit in those two points, particularly the second. Some companies employing between 20 and 100 people do not have the expertise but more of them do. Some of the companies that do not have expertise have access to it. A company using its own auditor for ten or 15 years will have built a relationship with him. That professional would very likely be keen for the company to survive because there is business in it for him. I am sure he would be prepared to work for a smaller fee than some stranger the examiner might bring in. Giving the company in trouble an opportunity to supply some expertise, be it inhouse or through an independent professional with whom it has a relationship, would be a very helpful addition to the Bill.

Most of us agree with Deputy Timmins that we are better at helping larger companies than smaller ones, as has been borne out in recent years. I ask the Minister to take Deputy Creighton's amendment on board.

To address Deputy Timmins, it is beside the point that we are favouring foreign direct investment, FDI, over small to medium-sized enterprises, SMEs. Virtually all of the initiatives in the Action Plan for Jobs are aimed at SMEs, for example, micro-finance, the loan guarantee, the reform of the wage settlement mechanisms, the establishment of local enterprise offices, LEOs, the creation of funds worth €2.5 billion for SMEs, the establishment and extension of the Credit Review Office, CRO, and the simplification of company registration. These initiatives are aimed at making it easier to start and manage a business. Contrary to Deputy Wallace's comments, we are in the top ten easiest countries in which to start a business.

We are also diminished.

Leaving aside Forbes magazine, we are one of the best countries in the world for start-ups thanks to the strong business and tax environment that we have created. Through Enterprise Ireland, we have support mechanisms that SMEs in many European countries would give their right arms to have. They do not have substantial state agencies that invest in hundreds of companies at the seed and emerging phases. We have a good network for supporting SMEs and cannot let it go. The figures support this. Of the 58,000 extra people at work in the past 12 months, 6,500 come from FDI whereas the other 51,500 come from Irish-owned sectors, which are dominated by SMEs. It is not true to say that there is some sort of a bias towards FDI.

The purpose of this provision is to bring examinership within reach. Under the Bill, an examiner shall, as far as is reasonably possible, make use of the services of the staff and facilities of the company to which he or she has been appointed to assist him or her in the performance of his or her functions. We are providing that the examiner must use those facilities. It would only be sensible for him or her to do so, as an examiner has knowledge of the business, trends, how a company is doing, what its customer base is and who its creditors are. However, the purpose of appointing an examiner is to bring additional expertise to bear. We are not going to insert legislative provisions that would seek to minimise the necessary use of such resources, but an examiner must justify those costs to a scrutineer at the end of the process.

Reverting to Deputy Calleary's point, the framework seeks to minimise the costs. While I agree with the motivation behind Deputy Creighton's amendment, for the reasons I have outlined it does not add to the Bill. However, I accept that we need to do more in this space. Bringing the process to the Circuit Court is a first move. The Company Law Review Group, CLRG, has indicated the need to examine the possibility of less formal processes to bring companies out of difficulty. We will do so, but the CLRG recommended that we make this provision straightaway, which we are doing.

There has been wide consultation. This formed part of the large Companies Bill, in respect of which there was tremendous opportunity for consultation. Business organisations, some of which have been mentioned, are keen that we proceed. We have not failed to consult widely. There has been-----

None of the examiners has been consulted.

They certainly had the opportunity. We asked the CLRG, which involves business organisations as well as congress, trade unions and people in the legal profession, to consider this specific matter and revert to us with proposals. An effort was made to ensure that everyone with relevant expertise got an opportunity to be involved.

We have not been inundated by complaints about the structure that is being put in place. There is broad support. We all want this to be a cheaper and more effective resource. While I do not criticise the motivation behind the amendment, the route we are taking is sensible, reasonable and proportionate and will improve the environment, given the reasons that I outlined. However, it is not the end of the challenge that we face in this regard.

I might be pushing my luck, but I wish to make two points. First, all of the examiners with whom I spoke stated that they had not been consulted, although I am sure the stakeholders were.

Second, if I am interpreting the Minister correctly, he stated that the idea of an estimate of upfront fees would almost exclude the company from entering into a negotiating process and close collaboration with the examiner. However, this is precisely how receiverships and liquidations work, in that an estimate must be laid before the court at the beginning of the process. I cannot understand why examinerships should be different. It makes no sense. I am not referring to a prescriptive fee estimate, but it would be an estimate none the less that would guide the court at a later point in determining whether the fees ultimately presented to it were reasonable. This sensible and logical proposal is already the standard practice in receiverships.

Amendment put and declared lost.

I move amendment No. 2:

In page 13, between lines 26 and 27, to insert the following:

"(3) Every regulation under this section shall be laid before each House of the Oireachtas as soon as may be after it is made and, if a resolution annulling the regulation is passed by either such House within the next 21 days on which that House has sat after the regulation is laid before it, the regulation shall be annulled accordingly, but without prejudice to the validity of anything done previously thereunder.".

This amendment provides that the regulation that the Minister is empowered to make under section 8(2) will be laid before the Houses of the Oireachtas. I am tabling this amendment in response to an amendment proposed by Senator Barrett on Report Stage in the Seanad that could not be facilitated then. It is appropriate to include this amendment, which will allow for the laying of regulations made under this section before the Houses.

Amendment agreed to.
Bill, as amended, received for final consideration.
Question proposed: "That the Bill do now pass."

I wish to take this opportunity to thank Deputies for their support in passing this legislation quickly. It was justifiable to remove this element from the much larger Bill that we are considering.

Question put and agreed to.

The Bill which is considered to be a Bill initiated in Dáil Éireann in accordance with Article 20.2.2° of the Constitution will be sent to the Seanad.