Companies (Corporate Enforcement Authority) Bill 2021: Report and Final Stages

Amendment No. 1, in the name of Deputy O'Reilly, arises out of committee proceedings.

I move amendment No. 1:

In page 12, line 34, to delete "6 months" and substitute "12 weeks".

This is a resubmission of an amendment I proposed on Committee Stage, with an adjustment to specify 12 weeks instead of eight. Its purpose remains the same, namely, to reduce the duration for which a person can act up as member of the board of the corporate enforcement authority, from six months to 12 weeks. As I said on Committee Stage, as I am sure the Minister of State recalls, six months is a very long time to be acting up in that role. I made a change to the proposed time limit in the light of his expressed reservations and concerns in regard to potential issues around recruitment and how long it might take. The nature of acting up is that it is supposed to be short-term and six months would not be considered short-term by anyone.

The Minister of State said in committee that it would generally take six months to replace someone. However, given the role the corporate enforcement authority will have in tackling serious forms of crime, consideration should be given to streamlining and reducing the length of time for which the board can continue without a permanent member. That would drive the recruitment process. As I said on Committee Stage, there is confusion about how a person will operate while he or she is acting up. It is unclear whether all the relevant authority will be vested in such persons, whether they will be acting up for specific purposes, whether they will receive an acting-up allowance and whether there will have to be an extended period in order for them to get such an allowance.

I am concerned primarily with the idea that we may be putting the six-month period on a legal footing as an accepted definition of short-term acting up. Such a role should not be done for more than a quarter of the year; anything beyond that is straying into the realm of a long-term role. Acting up should only be done in the short term and for emergencies. It is for this reason that I am proposing the amendment.

I thank the Deputy for coming some way towards meeting our concerns. As I explained on Committee Stage, I am supportive of the principle behind this amendment, which is to minimise the time period in which there would be acting members. We also discussed that the principle behind what we are doing here is to ensure, as far as possible, that vacancies at member level are planned and filled seamlessly, without any need for acting members. That is the ultimate goal. However, practically speaking and notwithstanding that the Deputy has increased the proposed timeframe from eight weeks to 12, there is a need to provide in law for unforeseen circumstances, which can arise suddenly to cause a vacancy that must be temporarily filled.

The six-month maximum is a standard provision for authorising an acting member and a realistic timeframe for the appointment process for such a senior post, which involves an open competition. I assure the Deputy again that the acting member will have all the same powers as a permanent member. The Deputy was also concerned about backfilling any post left vacant as a consequence of an internal candidate taking on the role as an acting member. I reiterate that the Government has been focused on ensuring the new authority has the resources and funding it needs to carry out its remit, particularly at senior and specialist level. I understand a number of recruitment campaigns are currently under way.

Additional resilience will enhance the authority's ability to take account of unforeseen circumstances and the backfilling of posts, if needed, will be addressed on a case-by-case basis in normal ways. I will certainly be ensuring any temporary authorisations under this section are for the shortest possible timeframe, pending an open competition, but I cannot accept the amendment to reduce the timeframe to 12 weeks, on practical grounds.

Some of the people who will be filling these positions are very senior and quite often, may have to give two or three months' notice to their existing employment to take up this position. That is after being awarded the new position, not taking account of advertising, shortlisting and interviewing. The 12-week timeframe is too short. I accept where the Deputy is coming from and our intention is not to work towards six months. That is at the very outer limit.

It is hoped in a normal case of events, when people signify they are going through retirement, the process can commence prior to that person's departure and one will not need an acting up period. We are talking about unforeseen circumstances, such as somebody suddenly taking ill or perhaps dying, unfortunately. In cases such as those, 12 weeks is not practical. On that basis, unfortunately, I will not be able to accept the amendment.

I am not a pessimist by nature. I am an optimist who has a bit of experience. I have seen acting up used again and again. I appreciate what the Minister of State said about an instance whereby a person, unfortunately, has to leave suddenly. In this instance, we are saying in the case the person dies, but let us say he or she wins the lottery and goes to the Caribbean and does something nice. However, the person is gone and there is no notice. I urge the Minister of State to keep an eye on when retirements are coming up because acting up should not be used in that instance. That is pretty much flagged on the day one is born. One knows when that birthday is coming up and one will retire. I would not like to see acting up used in that instance. It would be detrimental. I welcome the clarification on the full authority. These are very important jobs. If one is acting up in the role, no matter how senior one is, and is not backfilled in the role in which one had been working, one will be pulled in two directions. One's focus should be on the job into which one is acting up because that is the more senior position. Notwithstanding that, I appreciate what the Minister of State has said about these people having to give months and months, but I urge him to keep a weather eye on this because, once there is a small amount of acting, it can creep in and become the way an organisation is run. We simply could not allow that happen for this organisation.

I will certainly keep an eye on it and undertake to write to the incoming chairman and ensure this is only used in exceptional circumstances. The purpose behind this amendment is unforeseen circumstances and not planned vacancies.

Amendment, by leave, withdrawn.

I move amendment No. 2:

In page 17, between lines 28 and 29, to insert the following:

“(fa) the Central Bank,”.

I withdrew this amendment on Committee Stage and the Minister of State indicated he would consult with the Department of Finance and the Central Bank to ascertain whether it could enhance the authority and the Central Bank's ability to exchange information with the corporate enforcement authority, CEA. Therefore, I have put the amendment here again, primarily to get an update from the Minister of State on the outcome of that engagement. I cannot understand why the Central Bank was not included and I would be interested to get that clarification.

I appreciate the very co-operative manner in which Deputy O'Reilly engaged with the whole process on Committee Stage. I welcomed the amendment at that time and the spirit in which it was made. I have no doubt the Deputy wants to enhance the disclosure of information relating to the commission of offences under the Companies Act 2014 between the Central Bank and the corporate enforcement authority and that is the principal that underpins her amendment.

As I said on Committee Stage, the Office of the Director of Corporate Enforcement, ODCE, and the Central Bank already have a memorandum of understanding which allows each body to refer information to one another where they are satisfied that such information is relevant to their counterparts remit. The grounding legislation in this case is that of the Central Bank. This will continue to be the grounding legislation for the new authority. I undertook to get the views of the Department of Finance and the Central Bank on the Deputy's proposal and to report back. Following consultation with the Department of Finance and the Central Bank, their view and concern was the proposed amendment would have unintended consequences.

Section 33(a)(k) of the Central Bank Act 1942 allows for disclosure of information between the two bodies, but it prohibits certain disclosures as required by EU law. Section 99(4)(q) states that disclosure must take place notwithstanding any other law. This means that if accepted the sections in each Act would contradict one another and cause legal and practical difficulties. Perhaps more importantly, I am assured the current legislative provision already allows for the exchange of information between the two bodies. The amendment would not enhance the current arrangements and would, unfortunately, have unintended consequences. I have no doubt neither the Deputy or I want that. Therefore, I cannot accept the amendment, but am glad to have the opportunity to explore it further and report back to the Deputy on the engagement we had subsequent to her raising it with me on Committee Stage.

I thank the Minister of State for clarifying that. He understands from where my concerns were coming. I did not come in with a bag of unintended consequences. I am sure he can appreciate the rationale for the amendment. On the basis of the clarification received, I am happy to withdraw the amendment.

Amendment, by leave, withdrawn.

I move amendment No. 3:

In page 26, to delete lines 23 to 37.

The Minister of State will be aware I raised this on Committee Stage and during pre-legislative scrutiny. I have strong feelings about this. I do not know why we are anonymising the details of these offenders. I know what the broader benefit is and it is to them. I do not see any benefit beyond that. The idea a person cannot be named because it might jeopardise the stability of financial markets or where it "would cause disproportionate damage to the relevant director", is not the type of immunity afforded to ordinary people. That kind of immunity being afforded people regarding the sort of offences we are considering here gives me grave concern.

I will make a prediction that if this Bill goes through without this amendment, we will not see many names in the public domain and that is regrettable. I do not believe in public shaming or anything like that, but in order for justice to be done, it has to be seen to be done. In this case, affording people the capacity of anonymity is very unwise. We might pause for a moment and reflect on the positive impact on the markets a real step in the direction of openness and transparency might have. This smacks of a bit of secrecy and the publication of the name acts in itself as a deterrent. The openness and transparency that would be there, far outweighs any potential benefit or impact on the markets.

We should not be putting into legislation the capacity for people to avoid having their name in the public domain when they are involved in the type of offences we are discussing. If they have transgressed to the point they will be sanctioned, their names should be made public. I have not heard a good argument against this. We have debated and talked about what the Minister of State sees as the potential detrimental impact. I see a potential positive impact of openness and transparency, but I welcome the Minister of State's views.

I thank Deputy O’Reilly. Again, I will try to give her some reassurance. We will see how that goes. As I explained on Committee Stage, this section is specifically a requirement of EU law. It transposes Article 30(c)(ii) of the EU audit directive, practically word for word. Failure to re-enact these provisions would mean that Ireland would be in breach of its EU obligations. As the Deputy is aware, this section provides for certain circumstances in which administrative sanctions imposed on a company director by the authority may be published anonymously. The administrative sanctions in question in this chapter of the Bill relate to sections where a director is found to have contributed to breaches of EU audit rules only. I want to be clear that these provisions do not extend beyond these breaches into the broader provisions of the Companies Act 2014. I want to also be clear that it is a decision entirely at the discretion of the authority as to whether it decides to publish the sanctions anonymously. However, it is a principle of natural justice that a director who is subject to a sanction can seek to make a case that the publication of that sanction would be disproportionate in some way. Nonetheless, there are many precedents for the publication of directors’ details under the umbrella of the Companies Act 2014, such as in the case of restriction and disqualification of directors. While I cannot pre-empt a decision of the authority, which is independent in its functions, I can say with confidence that the default position in law and in practice should be that sanctions imposed under this chapter of the Bill are published. As a case in point, to date, there have been no sanctions on directors under these sections. However, to provide examples, the Irish Auditing and Accounting Supervisory Authority, IAASA, has published sanctions in full on its website under equivalent EU rules in relation to a statutory auditor and audit firm. Ultimately, as I said, failure to enact these provisions would mean that Ireland would be in breach of its EU obligations. For that reason, I cannot accept the amendment. I hope that I have clarified for the Deputies the purposes of the sections.

It is not lost on me, and will not be lost on others that, following the Zalewski judgment, people who take cases that often involve small amounts of money to the Workplace Relations Commission, WRC, will now have the whole proceedings published. At the time, I expressed concerns about that judgment. I am aware of the root of that and that it comes from a decision by the Supreme Court. However, I expressed a reservation at the time that it might potentially have a chilling effect on workers taking cases to the Workplace Relations Commission. All of workers’ business with the WRC has to be done in the public domain. Yet, there is a facility for anonymity in this section of this Bill.

I appreciate what the Minister of State says about the EU element. Yet, for instance, if I went into Dunnes Stores and stole a packet of biscuits, I would not be able to say to the to the judge that there might be a detrimental impact on my own financial markets if my name were published. That anonymity is not afforded to other people. I accept what the Minister of State is saying about where this has come from. I also hope that it is not lost on the Minister of State that somebody who might be in a small amount of trouble in work will go to the WRC and they will not have the choice of anonymity. They will in all likelihood have their name and all their personal business out in the public domain. I hear what the Minister of State is saying, but I do still have a concern. There is a perception that a certain group of people might be able to use their position to keep their names out of the public domain. I do not think that that a good place for this Bill to start from.

As the Minister of State knows, Sinn Féin has welcomed this legislation. We have tried to work with him constructively to get it through the Houses as quickly as possible. However, I think that this section sets us off on maybe the wrong note.

I thank Deputy O’Reilly. I genuinely acknowledge that she has been extremely constructive from the get-go. However, as I said already, we are not talking about the courts here. We are talking about administrative sanctions that apply only to breaches of statutory audit rules. These rules are derived from the EU law that significantly reformed the regulation of statutory audit across the EU. This was a result of the European Commission assessment of the role of audit in the financial crisis.

IAASA is a competent authority for the purposes of the oversight and supervision of statutory audits in Ireland. One of its functions under the Companies Act 2014 is to undertake reviews at least every three years of audits carried out by statutory auditors and audit firms of public interest entities. Public interest entities are banks, insurance companies and listed companies. They are systemically important to companies in an EU context. If IAASA finds breaches of the audit rules by an auditor or an audit firm it can impose an administrative sanction, including financial sanctions up to €100,000. In the case of a statutory auditor and in the case of an audit firm the figure is €100,000, multiplied by the number of statutory auditors in the firm at that time. As IAASA has no role in respect of the directors of companies, if it suspects that a director has contributed to the breach of the audit rules, it must supply that information to Office of the Director of Corporate Enforcement. Following the enactment of this legislation, the new authority can then undertake an investigation and impose administrative sanctions on directors, similar to what IAASA can do. These administrative sanctions on directors support the framework for the oversight of statutory audit by IAASA. They are required under EU law. Member states are obliged to provide for exceptions to the publication of details and sections. However, it is intended that these are exceptional. I want to emphasise that in the course of an investigation into breaches of audit rules, if the authority finds other serious contraventions by a director to the Companies Act 2014, such as false statements, false financial records or fraudulent trade trading, then those matters can be pursued by the courts. We are therefore talking specifically about audit rules only in this section. It is to keep this legislation mirroring the IAASA legislation. We are not changing anything else.

.

An Leas-Cheann Comhairle: I got distracted. The Minister of State is out of time now.

I am satisfied he Minister of State has heard my concerns. I appreciate his response. I note his reference to how co-operative I have been. He might mention that to the Taoiseach at some stage. The Taoiseach does not often see that side of the Opposition. I appreciate what the Minister of State says about the administrative sanction, etc., as he has outlined it. That being said, I am still deeply uncomfortable with this section.

How stands the amendment?

I will press it.

Amendment put and declared lost.

Tá ceann amháin fágtha. There is one amendment left, again in the name of Deputy O'Reilly.

I move amendment No. 4:

In page 27, to delete lines 5 to 12.

This amendment is similar to the previous amendment. It concerns limitations on imposing monetary sanctions on relevant directors. It states that the authority may not impose on a director a monetary sanction that would make him or her bankrupt. It provides that only one monetary sanction may be imposed where more than two breaches of the same conduct have occurred. I am not suggesting that all sanctions should be to the point of bankruptcy or that that should be the effort, target or aim. However, I want to put on record my concern that this provision could find itself manipulated to deliver undue benefit to those who may have committed a transgression for which they should be sanctioned. Additionally, and this was said by another Member on Second Stage, if someone breaks any one of the State's bylaws on parking or road tolls, they have to pay a fine for each of those. They do not get to say “well, I did not pay my toll twice but I only have to pay once”. I did not raise that issue, it was raised by another Member. It seems somewhat incongruous that this provision is in the same section as the one regarding anonymity. I know the Minister of State addressed some of the concerns on Committee Stage. I have resubmitted this amendment so that we can further tease it out here.

I understand from the Deputy’s questions about this section on Committee Stage that she is concerned with the perception that there is a lack of equity. She has raised that again just now. A director cannot be levied with an administrative financial sanction so high that they could be adjudicated bankrupt. However another person fined by the court for a different breach of law could experience hardship as a result of a fine. As I explained previously, the administrative financial sanctions referred to in this section derive from EU law and statutory audit.

In legal terms, the administrative sanctions in Chapter 3B of the Bill and particularly in this section are financial sanctions. Our aim is to ensure that they are robust and not subject to challenge. This is because it is an administrative body making the decision to impose the sanction. Any person subject to a decision by the administrative body must benefit from fair procedures and proportionality. This is so that the administrative body does not exceed its reach or powers under the Constitution. If I accepted this amendment, ironically, rather than strengthening the framework for imposing administrative sanctions, it would undermine it. It would be vulnerable to challenge on constitutional grounds, resulting in a situation where we are unable to fulfil our EU mandate obligations. The main reason this is the case is the need to ensure fair procedures and proportionality in the process of decision-making by an administrative body. In addition, if a director is adjudicated bankrupt as a result of an administrative financial sanction, this leads to a slew of other consequences such as automatic disqualification. This is a type of double punishment. If a director's behaviour is so bad that disqualification is the appropriate sanction, then it is open to the authority to use the powers that it has in the Companies Act 2014, which include the restriction and disqualification of company directors by way of statutory undertakings and, where appropriate, summary prosecution or referral of matters to the Director of Public Prosecutions.

We all want to ensure that directors who break the law are brought to account. The maximum sanction in this section is €100,000, a considerable sum, along with the reputational damage of receiving such a sanction. We need to ensure that the law is robust and not at risk of challenge. The Companies Act 2014 is a toolbox for enforcement by the authority. Chapter 3B of the Bill contains one set of tools for a particular set of breaches. These must be framed in a certain way in law. I think that this section gets the balance right for necessity and for this reason, I do not propose to accept the amendment.

I am not having much luck with my amendments. I appreciate the points that the Minister of State has made about undermining the framework. That is not the intention of this at all. I think the Minister of State knows that. He referred to making the legislation robust against challenges but no law is immune to challenge. Chances are that there are other sections which we have not even considered that will be challenged at some point. Given the engagement that we had on Committee Stage and the clarification that the Minister of State has provided here, I am content to withdraw this amendment.

Amendment, by leave, withdrawn.

Amendments Nos. 5 to 7, inclusive, have been ruled out of order.

These amendments were ruled out of order. For me, there is a defect in the legislation regarding the regulation of co-operative societies. The absence of proportional exemptions from the obligation to undertake a statutory audit is the main one. This amendment would have provided for limited exemptions.

I have been informed that the Deputy cannot speak to the amendments because they have been ruled out of order.

I will make these points when I speak to the Bill in general.

Amendments Nos. 5 to 7, inclusive, not moved.
Bill received for final consideration.
Question proposed: “That the Bill do now pass.”

Does the Minister of State wish to speak on the Bill?

Deputy O'Reilly could address the amendments that were ruled out of order. I have an answer for her that I think she might welcome.

Does Deputy O'Reilly wish to speak to them?

That would be useful. I will refer to the issue rather than the amendments specifically. I previously raised concerns, as did other Deputies, and amendments were tabled about the limited exemptions from these obligations that are in line with similar reforms introduced to the same legislation, the Industrial and Provident Societies Act 1893, in the North. That legislation was introduced more than 50 years ago. No material injury to the public interest has been identified as a result of the reform. The turnover and asset limits have been raised consistently since 1969 along with the reduction of other administrative requirements. The purpose of this discussion is to say that when we look up the road, we see a system in place that is working. As the Minister of State said, he has an answer for me. I hope that recognises and takes into account the concerns raised not just by me but by other Deputies on the committee.

I acknowledge the Deputies' interest in the industrial and provident societies legislation. I want to share the intention of addressing the shortcomings in the current legislation and inform the House that work is well advanced in my Department to update and modernise the existing legislative framework. We are close to finalising the general scheme of the co-operative societies Bill, which I know the Acting Chairman will welcome, since he has raised it on a number of occasions. It sets out proposals for the most far-reaching reform of legislation relating to co-operatives in almost 130 years. It will consolidate, modernise and strengthen the legislative basis for the sector and enshrine the co-operative model in legislation for the first time. It is our intention to go to public consultation on this in a matter of weeks. I genuinely believe that in that context, we will be able to deal with the amendments tabled by Deputy O'Reilly and by a number of my colleagues in the Green Party.

I thank Deputies, particularly those who are members of the Joint Committee on Enterprise, Trade and Employment, for their constructive engagement on the Bill. I am pleased that the key features of the Bill have been welcomed and supported. This is important legislation and a landmark development in the enforcement of company law in Ireland. The delivery of the new corporate enforcement authority is a key priority for me and the whole of the Government. I strongly believe in this project and I want to get the necessary legislation underpinning it in place to allow for the transformation. In tandem, recruitment is under way to fill senior posts in the new authority. The 50% increase in headcount compared with the office will ensure that the authority will hit the ground running. I look forward to bringing the Bill to the Seanad and to its enactment as soon as possible with a view to establishing the new corporate enforcement authority in January 2022. I thank the Deputies, including Deputy O'Reilly, for their constructive engagement on the Bill.

Question put and agreed to.