The purpose of the Bill is to amend the law relating to companies, a great deal of which is now very much out of date. In 1958 the report of the Company Law Reform Committee which had been appointed by the Attorney General to examine our system of company law, was published, and copies were circulated to members of both Houses of the Oireachtas. As a first step in the process of revision, a limited number of important changes recommended by the Committee were dealt with in a special Bill which was enacted as the Companies Act, 1959. At that time I explained that the preparation of a second Bill to carry through the remaining changes in the law which were deemed to be necessary would be a formidable task and that some time would be needed to prepare a comprehensive and carefully thought out measure. The preparation of this second Bill, which is the one now before the Seanad, took rather longer than I expected, but this was due to a large extent to circumstances beyond my control. The principal problem was that while the preparation of the Bill was in progress, further investigations into company law were commenced, in the Six Counties and in Britain. In the field of company law, as in other matters, we cannot ignore any changes which may be contemplated in the Six Counties or Britain, with each of which we have such close commercial ties. It was necessary, therefore, to have regard to developments in those countries and this led to substantial revisions of the legislative proposals from time to time.
The Bill is, of course, a consolidating as well as an amending measure and contains many provisions which simply repeat existing requirements with little or no change. This has contributed very substantially to its bulk. The Bill is, in fact, so big that it is rather difficult to give a satisfactory summary of its contents. It was introduced in the Dáil in July, 1962, and was subsequently examined in detail by a Special Committee.
Arising out of the deliberations of the Committee a large number of amendments were made, many of these being of a minor nature but others of considerable substance. I should like to record once again my appreciation of the work of my colleagues from all sides on that Committee, and I am quite satisfied that the Bill which ultimately emerged from the Committee is a most suitable one for our conditions.
An explanatory memorandum giving some brief information about the principal provisions was published with the first print of the Bill, and for the convenience of Senators I have had this amplified and amended to take account of the many changes made in the Bill by the Special Committee. I hope that they will find it useful in considering the measure; if any further information of a more detailed nature is required I will be glad to provide it during the Committee Stage.
In what follows I propose to mention only the major provisions in the Bill. First of all, I would like to refer to the provisions relating to accounts, which are set out in Sections 147-159 of the Bill. The existing requirements in regard to accounts are scanty in the extreme, and there has for a long time been a demand that more comprehensive information should be statutorily required. The better-run companies have, of course, even in the absence of statutory requirements, made a practice of preparing informative accounts which are useful both to their own shareholders and to persons having business dealings with them. There have, unfortunately, also been others, who have persisted in the preparation of accounts designed more to conceal the true position rather than to provide an accurate indication of the state of their finances. It is now proposed to place a specific obligation on every company to keep proper books of account and to prepare each year a profit and loss account and balance sheet which, apart from giving a true and fair view, must also comply with the detailed requirements of the Sixth Schedule.
In the case of holding companies, there will in future be an obligation to prepare group accounts, the effect of which will be to give a concise picture of the financial position of the holding company and its subsidiaries considered as a single undertaking. The Company Law Reform Committee recommended that this onerous obligation regarding group accounts should not apply to private companies. As Senators will see from Section 154, private holding companies are being given the option of preparing group accounts or, alternatively, sending the accounts of the individual subsidiaries to members who ask for them.
Any directors who do not adequately attend to their duties in regard to the keeping of books of account and the preparation of the profit and loss account and balance sheet, will render themselves liable to the very severe penalties set out in Sections 147 to 150 of the Bill. The directors of every company will be required not merely to lay the detailed accounts before each annual general meeting, but also, in compliance with Section 159, to send them to shareholders and debenture-holders three weeks beforehand. In order to ensure that the interests of creditors and other persons are safeguarded, Section 128 imposes on every public company the obligation to file these accounts with the annual return which is sent to the registrar of companies each year and which is available for public inspection.
The obligation to file accounts for public inspection will not apply to private companies. This exemption does no more than continue a privilege which private companies have enjoyed for very many years, and is in conformity with the recommendations of the Company Law Reform Committee. I do not think it necessary to set out in detail here the various arguments for and against the continuation of this privilege, and I think I can do no better than to refer Senators to paragraphs 110 to 120 inclusive of the report of the Company Law Reform Committee, which I think deals adequately with the point.
Senators are probably aware that this privilege was partially withdrawn in Britain in 1948 and that its total withdrawal has now been recommended; the situation in the Six Counties is, of course, the same as that which obtains here. I should like to emphasise that conditions as regards company organisation in Britain differ considerably from those prevailing here in Ireland, and the arguments which might be put forward for the publication of the accounts of private companies in Britain would not necessarily apply here. The vast majority of private companies established here are family concerns essentially of a private nature in which outside interests play little or no part and this, I think, is the principal reason why we should not impose on them the altogether new requirement that they should file their accounts.
In regard to publication of accounts it will be noted that the effect of Sections 126 and 128 is that in future companies limited by guarantee and not having a share capital will have to file their accounts with the registrar; in the past such companies did not have to make any annual return and their financial affairs were, therefore, secret. Included in this group of companies, there are many charitable organisations which ought not be obliged to disclose information about their finances, and as Senators will see from Section 128 suitable exemption provisions have been inserted in respect of such companies.
Since I am on the subject of accounts, I think it no harm to refer to the fact that the Sixth Schedule and related provisions of the Bill were carefully vetted by the Institute of Chartered Accountants and other reputable organisations, and in their present form they take account of the views expressed by these experts. I think it can be said, therefore, that those best in a position to know are satisfied that these requirements are suited to the conditions of our commercial life.
Some important changes are also being made in regard to the winding up of companies. It is well known that the law in relation to voluntary winding up in particular has been most unsatisfactory for many years, especially in the case of insolvent companies. As the law stands at present, the members of a company which is being wound up voluntarily have control over the liquidation; this may be locigal enough in the case of a company which is in a position to meet all its financial obligations but it is quite inappropriate in cases where some creditors are likely to be left unpaid. In order to implement some recommendations on this point by the Company Law Reform Committee, it is proposed, therefore, to provide that, in future, voluntary winding up will be divided into two classes, namely, members' voluntary winding up and creditors' voluntary winding up. If the directors of a company wish to have the liquidation carried out as a members' voluntary winding up, they must prepare a declaration that the company will be able to meet its debts in full within a period not exceeding one year. Where directors are not in a position to make this declaration, i.e., where the company is insolvent, then the liquidation must proceed as a creditors' voluntary winding up, and in that event substantial control of the proceedings passes to the creditors whose interests are to a large extent given precedence over those of the members of the company.
Section 285 of the Bill is designed to effect some changes in the law relating to the payment of debts in a winding up. The position in regard to the priority afforded to State debts is explained in the memorandum which has been circulated with the Bill, and may be summarised by saying that until recently, after claims secured by fixed charges have been met, most State debts had first call on the assets of a company which is being wound up. Both the Bankruptcy Committee which reported in 1930 and the more recent Company Law Reform Committee were in favour of a diminution of preference in respect of State debts, on the grounds that it is most unfair to give priority to the State, which can carry on without difficulty if its claims are not met, over a small trader who may be placed in a very serious predicament by failure to secure payment for his debts. I took this matter up with my colleague, the Minister for Finance, and he agreed that an alteration in the law was called for. He included in the Finance Bill, 1963, a provision to abolish the preference for State debts set out in Section 38 of the Finance Act, 1924, and, as Senators are aware, that provision is now law. Section 285 of this Bill continues the preference enjoyed by the State in relation to twelve months' assessment of taxes. The Company Law Reform Committee (but not the Bankruptcy Committee) were in favour of the abolition of the twelve months' tax preference also, but I think there is a good case for retaining this, and that was also the view of most members of the Special Committee of the Dáil.
As will be seen from the explanatory memorandum. Section 285 also introduces a number of important changes to protect the interests of employees in a winding up. In so far as arrears of pay are concerned all clerks, servants and workmen will in future be entitled to preference in respect of services for the period of four months preceding the winding up, while the existing ceilings of £50 for clerks and servants and £25 for workmen are being raised to £300 all round. These employees will also be entitled to preference for all accrued holiday pay. The existing provisions relating to preferences for workmen's compensation payments are also being amended to strengthen the position of any injured workers to whom a company may have obligations. There is also an entirely new provision giving preference to amounts due from a company in respect of its liability to employees for accidents, other than liability under the Workmen's Compensation Acts.
It is in the course of winding up a company that most offences by fraudulent directors and promoters come to light. The existing provisions for the prosecution and punishment of such persons are unsatisfactory and this situation is now being rectified. In order to provide further safeguards for both the shareholders and creditors of companies, suitable changes in the law are being introduced in Sections 245, 286, 288, 289, 293, 295, 296, 297 and 299. These provisions should not cause any difficulty for upright directors and promoters, but I hope that they will be an effective deterrent to fraudulent activities by unscrupulous persons.
About 95 per cent of the companies registered in this country are private. Because of the nature of their constitution, and the way in which their internal affairs are regulated, it is sometimes possible for the majority of the shareholders in such companies to act unfairly towards the minority. The Company Law Reform Committee referred to practices of this kind in paragraphs 123 and 124 of their report, and as the existing remedies are not effective, they recommended the enactment of special provisions designed to protect minorities from ill-treatment of this kind. Rather elaborate provisions to this end are set out in Section 205 of the Bill. There are a number of other provisions also in the Bill designed to protect minority shareholders. Section 166 enables the Minister for Industry and Commerce to appoint an inspector to carry out an investigation into the affairs of a company if he is satisfied that any of the shareholders are being oppressed, and Section 170 empowers him to petition the Court either for a winding-up order or an oppression order if the report of the inspector indicates that the suspicions were well founded. In Section 213 it is provided that a company may be wound up compulsorily if the court is satisfied that there is oppression. A further provision of the Bill which is of interest in this connection is Section 78, the purpose of which is to protect shareholders against any unfair variation in their rights. Under this section also the court is given the widest powers to deal with whatever situation may be presented to it. Any variation of rights which the court feels is unfairly prejudicial to the interests of any shareholders may be set aside.
Prospectuses inviting members of the public to subscribe for securities are not commonly issued in this country, for the reason that only public companies, of which there are comparatively few registered here, may finance their activities in this way. It has been considered desirable, nevertheless, to review the law relating to prospectuses and similar documents, and a number of changes having as their object the protection of the public have been provided for in Sections 43 to 58 inclusive. In drawing up these provisions I have had to ensure first of all that adequate protection for prospective investors was provided, but care was also taken not to impose any unreasonable burdens on companies which might hamper them in their lawful activity of seeking finance from the public. It would be possible to introduce all sorts of onerous requirements in connection with the contents of prospectuses, but I feel sure that in this Bill we have gone far enough. We must be careful in this connection not to do anything which might restrict the spread of share ownership over as wide a field as possible.
Strangely enough, there are at present no provisions in the Companies Acts insofar as prospectuses of foreign companies are concerned. This omission is now being rectified by Part XII of the Bill which deals with the prospectuses of such companies whether or nor they have established places of business in this State. The requirements in relation to such prospectuses are much the same as those which are applicable to the prospectuses of Irish companies. There is an exemption clause in favour of prospectuses which comply with the law of foreign countries recognised by Order.
Every company is owned by its shareholders and the directors merely act as stewards of the business on their behalf. It has, therefore, been the practice for very many years to include in the Companies Acts various provisions designed to facilitate the coming together of the general body of proprietors for the purpose of reviewing the company's affairs. Insofar as the present Bill is concerned the relevant provisions are set out in Sections 131 to 146 inclusive, and these represent a considerable elaboration and improvement on the existing law. One of the principal changes which is being made is in regard to the length of notice which must be given for calling meetings, which is dealt with by Section 133; the object of the new requirements is to ensure that any member who might wish to attend a meeting or to appoint a proxy will have reasonable notice thereof and will, therefore, be in a better position to make the necessary arrangements. Important changes are also being made in Section 136, in regard to the appointment of proxies, and, generally, that section implements the recommendations of the Company Law Reform Committee. A further change which is being made is that the existing provisions in relation to extraordinary resolutions are being discontinued. In future there will be only two types of resolution, ordinary and special. Senators will also be glad to note that Section 141 clarifies the legal position in relation to written resolutions; this should be of interest particularly to the smaller type of company in cases where it is not considered necessary to have formal meetings.
Further changes designed to protect shareholders and other persons have been made in Sections 165 to 173 which relate to the appointment of inspectors to investigate the affairs of companies. I have already made a reference to some of these changes in my earlier remarks about the protection of minorities. The appointment of an inspector to investigate the affairs of a company is of its very nature something which can hardly be kept a secret and as soon as it becomes public knowledge some damage is inevitably done to the commercial reputation of the company in question, even if it is subsequently found that there was nothing amiss. In the past it has always been the practice in considering applications for the appointment of inspectors to bear this point particularly in mind; I expect that that policy will be maintained in the future, and that these powers will be used sparingly.
In the Companies Act, 1959, provisions were for the first time introduced in our law to enable companies to issue redeemable preference shares. The suggestion was put forward that companies should also be given the right to attach redeemable rights to shares which had been issued as irredeemable preference shares. I undertook to give some thought to this idea, and if it were found practicable to devise a workable formula, to introduce a suitable provision in the Bill which is now before the House. This matter has been given the most careful consideration. and I think that Section 65 of the Bill can be regarded as meeting all reasonable requirements in this respect. It would be rather dangerous to give unduly wide powers to convert shares in this manner to all companies, and it is for that reason that the section is hedged about by a number of safeguards designed to prevent abuses. It will be noted particularly that it is provided that nothing in Section 65 will oblige any shareholder to accept redemption of his shares. It may well be, of course, that the terms on which a shareholder accepted his shares oblige him to be bound by the decision of a certain majority of his fellow shareholders and any provisions of that kind will continue to operate. I understand that there may well be cases where the redemption of preference shares under the provisions of this section would be a happy release for the shareholders concerned provided the transaction can be arranged on acceptable terms, and for that reason I feel sure that its enactment will be generally welcome.
The interests of shareholders may be adversely affected by unreasonable or reckless actions on the part of a company's officers in connection with the transfer of shares. A number of provisions are being introduced in Part III to provide additional protection for shareholders in this field. Examples of such provisions are Section 84 which obliges a company to give notice of refusal to register a transfer within two months after lodgment, and Section 85 which imposes certain obligations on a company in connection with the certification of transfers. I might also refer to Section 86 which requires a company to complete and have ready for delivery the certificates of securities within two months after lodgment of the transfer documents; under the existing law the period of two months runs from the date of registration of the transfer, which might not, of course, be effected for a considerable time after lodgment. On this subject of the registration of shares I would like also to refer to Section 80 which discharges companies in certain circumstances, from the obligation to number shares. I feel sure that this concession, which was recommended by the Company Law Reform Committee, will be very welcome to the commercial community. A general dispensation as regards numbering cannot, however, be given as the interests of shareholders demand that shares should be readily distinguishable from one another in cases where they are not fully paid up or do not rankpari passu for all purposes.
Quite a number of new provisions are being introduced in the Bill in connection with directors. There is, at present, no obligation on any company to have directors and this is now being rectified by Section 174, which requires that every company must have at least two; it is desirable that a specific obligation of this kind should be imposed since the directors of a company are charged with numerous responsibilities under the Bill. For that reason also it is desirable that the directors of a company should be physical persons, and Section 176 provides, therefore, that a body corporate may not in future be a director.
A number of provisions are also included in the Bill with the object of bringing the activities of directors more closely under the control of the shareholders; for example. Section 181 requires that the appointment of directors must be voted on individually, while Section 182 will make it easier in future for shareholders to dispense with the services of any director with whom they are not satisfied before the expiry of his period of office. Sections 186, 187 and 188 contain provisions requiring shareholders' consent for payment to directors for loss of office in connection with the take-over of the shares or business of a company. There is also in Section 185 a prohibition on tax-free payments to directors, while Sections 181 and 192 require that particulars of directors' salaries, loans, and other payments, must be shown in the annual accounts. I think it is desirable to enact provisions designed to bring to the light of day dealings by directors in the shares of their companies, and also their interests in contracts with their companies; suitable provisions to this end are included in Sections 190 and 194. Since a director is, as a general rule, appointed by the shareholders, it is desirable that the assignment by him of his office to another person should be subject to control, and Section 181 deals with this matter. Section 200 is designed to ensure that directors and other officers of a company will be answerable to shareholders for neglect of their duties and cannot disclaim responsibility by virtue of unreasonable escape clauses contained in articles of association or other documents. Two further provisions of interest under the heading of directors are Sections 183 and 184; the former contains a prohibition on undischarged bankrupts acting as directors, while the latter enables the court to restrain persons convicted of certain offences from acting as directors.
In the Companies Act, 1959, a provision was introduced with the object of facilitating mergers approved by the vast majority of the shareholders concerned. Although I have had no complaints about the manner in which this section has worked in practice, it has been found on re-examination that it could, perhaps, be drafted in more precise terms. The more elaborate provisions are now contained in Section 204 of this Bill and I feel sure that this will meet all reasonable requirements, providing as it does suitable facilities for the acquisition of the shares of dissentients and at the same time giving those persons adequate protection against abuses.
In Part VII of the Bill a number of new provisions are being introduced in connection with receivers. The object of these is to protect the members of the company in respect of which a receiver is appointed, and to safeguard the interests of its creditors and other persons doing business with it. A number of clauses to assist receivers in dealing with certain difficulties which may arise for them are also included.
Part IV of the Bill continues, in improved form, the provisions of the existing law relating to the registration of charges. The law is being relaxed to the extent that it will not be necessary, in future, to submit the actual instrument creating the charge; certified particulars will suffice. The object of these requirements as to registration is to ensure that persons doing business with a company will have a readily available means of ascertaining how far its assets have been charged as security for debts. Apart from the additional obligations now being imposed on Irish companies in this respect, foreign companies having places of business here are now, for the first time, being bound by these requirements as to registration of charges.
Now that we are imposing rather comprehensive obligations on companies in the matter of accounts, it is important to ensure that the law in regard to auditing is satisfactory. I am satisfied that it would not be sensible to enact all these detailed requirements about the contents of accounts and at the same time to allow any person, no matter how much or how little he knows about accountancy, to act as auditor. In Section 162 of the Bill it is proposed, therefore, to provide that, subject to certain exceptions, only persons having recognised professional qualifications can audit the accounts of companies.
Other provisions of the Bill to which I would like to make some reference are Section 8 (modification ofultra vires rule), Section 10 (altering the objects of a company), Section 37 (pre-incorporation contracts), Section 62 (share premiums), Section 63 (issue of shares at a discount) and Section 91 (Register of debenture holders). It is not necessary for me to go into any detail about these matters but I would draw the attention of Senators to the relevant notes in the explanatory memorandum.
There would, of course, be little point in imposing obligations on companies and their officers unless suitable provision were made for the prosecution of offenders. A good deal of attention has been given to this matter and a number of new provisions designed to facilitate prosecutions are included in Part XV. I should like to refer in particular to Section 385 which will remove certain difficulties which have arisen in the past in connection with summary proceedings; it is not always possible to bring proceedings within six months after the commission of an offence as the law at present requires and for that reason a period of three years is now being provided for. Section 386 provides for a minimum fine for second or subsequent offences, and its principal purpose is to deal with persons who have been in persistent default of their obligations under the Companies Acts. There is also a very useful provision in Section 384 which will make it easier for the police to procure evidence of offences from the books of a company where suspicions have been aroused. Section 382 is also of some interest; the existing law does not contain any suitable provision for the prosecution of companies on indictment and this omission is now being rectified. Apart from these special provisions under the heading of "Offences", I should like to point out that particular attention was paid to the insertion of suitable penalty clauses in the appropriate sections throughout this Bill. Entirely new penalties were provided for where none existed up to this, while in other cases the penalties by way of fine or imprisonment set out in the existing Acts were substantially increased wherever the nature of the offence seemed to require it. On this question of offences, I should like to advert to the recommendations of the Company Law Reform Committee that the enforcement of the requirements of the Companies Acts should be regarded as a matter of major importance. As the Committee pointed out, incorporation under the Companies Acts is a privilege, and the terms on which it is granted should be observed. I should like to take this opportunity to make it clear that I accept the Committee's recommendation unreservedly, and that, to the extent which our resources permit, steps will be taken to ensure that the requirements of the law are complied with, and that offenders are punished.
I should like to assure the Seanad that all the provisions of the Bill, both new and old, have been the subject of the most careful consideration, by my own and other Departments, and, of course, particularly by the Special Committee who put a great deal of work into their examination of this measure. In framing the Bill regard was had to the reports of numerous committees of inquiry which have reported on this subject in this State, in the Six-Counties, in Britain and in other countries; the legislation prevailing in these countries was of course also taken into account, as were the views of recognised experts, both at home and abroad. I do not think there is very much more we can do to perfect it. I am anxious, for the sake of the commercial community and also the public at large, to have it on the Statute Book as soon as possible as it has long been recognised that our company law is seriously in need of revision. I would accordingly ask for your co-operation in passing it quickly through the Seanad.