The purpose of this Bill is to amend the law relating to companies at present laid down in the Companies Act, 1908-1924. It has long been recognised that our company law is in need of revision to bring it into line with present-day conditions, but it has, up to the present, been difficult to find an opportunity to undertake the task because of its magnitude and complexity.
As Senators are no doubt aware, a committee was set up in 1951 to examine the matter, and their report was published last year. The committee discharged their task in an expert and workmanlike manner, and I have already expressed the Government's appreciation of the valuable services rendered by them. Their report, which contains many proposals for the amendment of the existing legislation, is at present under examination, but some period of time must elapse before the full implications of all the recommendations can be fully examined. For that reason, the Government decided, as an interim measure, that legislation should be introduced to give effect to some of the more urgent reforms requiring attention.
Later on, perhaps before the end of the year, a second and much larger Bill will be introduced to deal with the other amendments. Then, in order to cause as little inconvenience as possible in the legal and commercial fields and to ensure that the law will be as readily comprehensible as possible, it is intended to have all the law on the subject ultimately consolidated in one Act.
The amendments of the legislation contemplated in this Bill are not very numerous. One of them will permit the issue of redeemable preference shares. Under the existing law, the share capital of a company cannot be reduced without the sanction of the Courts. A company cannot, therefore, issue preference shares on the basis that they are redeemable, as this would involve an assumption that the Courts would sanction the reduction of capital. As Senators are aware, it is sometimes difficult to raise capital on satisfactory terms by the issue of ordinary shares. There is, of course, the alternative of issuing preference shares, but this may be an unsatisfactory alternative, since preference shares do not nowadays find the support they commanded in former years. One reason for this is that, over a number of years, there has been a tendency for their market value to fall, with the result that prospective purchasers of preference shares are often deterred from buying them because of the danger of capital loss. It is reasonably certain that an assurance of redemption at par within a fixed time would go a long way towards removing this disadvantage and would prove an attraction for investors. The possibility of issuing shares of this kind would therefore remove to some extent the difficulty which a number of Irish firms have experienced in procuring capital for development purposes.
I am satisfied that, provided adequate safeguards are adopted, the issue of redeemable preference shares would be advantageous. It has been suggested in the course of the debates on the Bill in the Dáil that, in addition to providing for the issue of redeemable shares as such, the Bill should also enable companies to convert existing preference shares to redeemable preference shares. In the case of many companies this would no doubt be a desirable power to have, and I considered carefully the possibility of making a suitable amendment in the Bill. There are, however, obstacles to this course which are rather formidable.
The principal difficulty which arises is that it is not sufficient to secure the assent of the preference shareholders and other members of a company to a scheme for the conversion of irredeemable shares to redeemable ones; the interests of creditors are of paramount importance and must also be safeguarded. It must be borne in mind that creditors enter into commitments with a company on the understanding that its capital cannot be reduced without the sanction of the Courts. A conversion of existing shares to redeemable shares would seriously affect their security, as it could involve a reduction in the liquid assets equivalent to the value of the shares to be redeemed. The creditors must, therefore, be given the right of applying to the Courts to have any such conversion disallowed.
A further difficulty which arises is that it would be unrealistic to assume that all the preference shareholders involved in a conversion scheme would be willing to accept redemption of their shares, and steps would have to be taken to protect their interests. As the law would stand on the passage of this Bill it would be possible to replace existing preference shares with redeemable preference shares by cancelling the existing issue in accordance with the procedure for reduction of capital provided for in the 1908 Act—a procedure which safeguards the interests of creditors and dissenting shareholders—and making in its place a new issue of redeemable shares. Should it be possible to devise a more direct and simpler method which would at the same time provide adequate protection for creditors and dissenting shareholders, I should be prepared to consider incorporating it in the next Companies Bill which as I have indicated, will be coming along later.
At present, a company may not purchase its own shares, as this would constitute a reduction of its share capital. The present Bill closes a loophole in this provision by prohibiting a company from providing financial assistance to other persons to enable them to purchase its shares. I propose to make an exemption to this rule which will permit a company to provide funds for the purchase of shares for the benefit of the employees. Schemes of this kind, which are in fact profit-sharing schemes, are regarded as highly desirable, and I do not wish that there should be any legal difficulties in our way. As a corollary to prohibiting companies from dealing in their own shares, I propose to prohibit a subsidiary company from purchasing shares in its holding company, and so prevent a holding company and its subsidiaries, by purchasing each other's shares, from building up an impressive facade of capital, which might be unsupported by any worthwhile assets.
Schemes for the amalgamation of companies may, in certain circumstances, prove impracticable under the law as it stands. The vast majority of the shareholders of a company whose shares another company wishes to acquire may be quite willing to sell, but for one reason or another a small minority may not be prepared to do so. As sometimes it is not an attractive proposition for the purchasing company to purchase less than 100% of the share capital of the other company, amalgamation schemes which are, perhaps, desirable from many points of view may fall through. In order to provide a remedy for this difficulty, the Bill contains a provision that if an amalgamation scheme has been approved by the holders of at least 80% of the shares involved, the acquiring company may purchase compulsorily the shares held by the dissenting minority. The position of minority groups is being safeguarded, however, by providing for a right of appeal to the Courts.
At present, certain resolutions (such as resolutions in connection with a change of name of a company or a change in its articles) are effective only if they are passed at two successive meetings; these resolutions are known as special resolutions. In practice, the second meeting is usually a complete formality and serves no useful purpose. There is, therefore, little point in putting companies to the expense of calling a second meeting, and I propose to relieve them of this obligation. I propose also to make a change in the law as regards the computation of votes at a meeting. As the law stands, members who are present at a meeting but do not vote on a resolution are regarded as voting against it. This is obviously unsatisfactory, and I propose to amend the law to provide that, in future, in computing the requisite majority, votes not cast will be disregarded.
Every company is required to send each year to the Registrar of Companies a complete list of its shareholders showing their names, addresses and occupations and also giving details of their shareholdings. The preparation of this list involves a good deal of labour in the case of companies with a large number of shareholders and I propose to relax the requirement to some extent without weakening its effectiveness. The Bill includes a provision that in future a complete list of shareholders need be filed in every fifth year only, provided a list of additions to, and deletions from, the full list is filed in each of the intervening years. This provision is permissive, and any company may if it wishes continue to file the complete list each year.
The name of a company must be set out in the Memorandum of Association which is registered in the Companies Office. This name may be changed subsequently by passing a special resolution and procuring my approval. As the House is aware a number of companies have been established under the Companies Acts by Acts of the Oireachtas, which in some cases prescribed the name under which they were to be registered. As a result these companies are unable to change their names under the procedure provided by the Companies Acts. A case which illustrated their difficulty came under my notice sometime ago when I was requested to approve of a change of name for one of these companies. I would have been perfectly willing to convey my assent, but I was advised that the procedure under the Companies Acts could not be utilised and that amending legislation would be necessary. In order to remove the difficulty I am including in this Bill a clause providing that the procedure under the Companies Acts will be available to these companies in future.
I am taking this opportunity of repealing the Companies (Foreign Interests) Act, 1917. That Act, which was passed during the First World War, is now an anachronism. It has long ceased to have any force but it is sometimes the cause of confusion in commercial and legal circles and the best way of dealing with the situation is to remove it from the Statute Book.
As I have already said, this Bill is merely an interim measure which is to be followed shortly by another and much more comprehensive Bill. I would therefore ask Senators not to press for the inclusion in this Bill of any matters which can be allowed to stand over till the second Bill, since to do so would defeat the whole purpose of the present Bill which is to give the force of law to certain desirable reforms without suffering the delay which is inescapable in the preparation of so large and complex a measure as the main Bill will have to be.
I can assure the Seanad that all possible steps are being taken to reduce to a minimum the delay in preparing the main Bill, as I am satisfied that the revision of our company law is long overdue and should not be postponed any further. It will be realised, however, that the drafting of the second Bill will be a very complex and formidable task, and time will be needed to prepare the comprehensive and carefully thought-out measure which will replace our present code of company law.
