This is technically a drafting amendment. It arises because, in the original definition, the unit, in relation to a unit trust scheme, was extended to mean securities. Due to the fact that we have throughout the Bill "securities and any other property", it was necessary to alter the definition of "units" in the interpretation section. It is a drafting amendment designed to make the definition as clear and as descriptive as possible.
Unit Trusts Bill, 1970: Committee Stage.
Government amendment No. 1:
In page 3, subsection (1), lines 8 to 10, to delete the definition of "units" and to substitute the following definition:
"‘units', in relation to a unit trust scheme, means any units (described whether as units or otherwise) into which are divided the beneficial interests in the assets subject to any trust created under the scheme;".
The amendment is acceptable to me, as I understand it. However, I think it would have been necessary to amend it even if the definition of the unit trust scheme had excluded—as I think it ought to exclude—any other property whatsoever. The previous definition was really nonsense, with great respect to the draftsman. "Units" means "securities". It could not. "Units" means a share in, a part of, a unit participating in whatever assets were settled. This was a necessary drafting amendment. As such, I accept it, while reserving myself on the question as to whether or not the definition of "unit trust scheme" should include, as it does, not merely securities but any other property whatsoever.
Amendment agreed to.
Amendments Nos. 2 and 4 are related and the Chair suggests that the House should agree to take them together.
Government amendment No. 2:
In page 3, subsection (1), line 13, to delete "persons" and to substitute "the public".
It was never the intention to catch private trusts by this Bill. The parliamentary draftsman was doubtful if they could be omitted without introducing the danger that large-scale public unit trusts might evade the intentions of the Bill. The draftsman now feels that the word "public" is sufficiently precise to embrace all the unit trust schemes open to participation by the public. It is recognised that the scheme for participation of employees, even in a big company, such as Guinness or CIE, will now be outside the scope of the Bill, in addition to quite a number of what might be described as small family trusts. This is the reason for deleting "persons" in this subsection and replacing it by "the public". In fact, the same operates in connection with amendment No. 4, dealing with section 6 (4) of the Bill.
So far as the amendment goes, it represents a remarkable improvement on what was in the original definition of "unit trust scheme". In relation to the point, we are here, so far as we go, in advance of the British legislation. The parliamentary draftsman's doubt—the doubt of the Minister's advisers—is hardly a doubt. The unit trust scheme would, in fact, include a private trust— according to the best opinion I can find—if you did not make the amendment that is now being made. The Minister has given an illustration of the persons who will now be able to benefit from this which I think raises a question that requires further consideration by him. What constitutes, in fact, the provision of facilities for the public is a matter of such doubt that I would refer the Minister to section 61 of the Companies Act, 1963, to which I have, unfortunately, to make reference from time to time— a section, by the way, which makes some effort to deal with an old thorny question arising with regard to the issue of prospectuses. It is not thought that the solution offered by section 61 is, in fact, a satisfactory one. It is not thought that it eliminates the question as to whether or not you are issuing a document. If you issue a document to the public, certain serious consequences flow to the people who issue that document. Accordingly, the legislature in Britain tried to solve this problem by introducing a section in the 1948 Act. We have its equivalent here. It is just as well perhaps that this debate will go on elsewhere. Let me put this on the record:
Any reference in this Act to offering shares or debentures to the public shall, subject to any provision to the contrary contained therein, be construed as including a reference to offering them to any section of the public——
——any section of the public: employees of Guinness, for example.
——whether selected as members or debenture-holders of the company concerned or as clients of the person issuing the prospectus or in any other manner and references in this Act or in a company's articles to invitations to the public to subscribe for shares and debentures shall, subject as foresaid be similarly construed.
Subsection (2) goes on—and this is where the legal questions arise which I will not bother the House with—
Subsection (1) shall not be taken as requiring any offer or invitation to be treated as such as made to the public if it can properly be regarded in all the circumstances as not being calculated to result directly or indirectly in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation or otherwise as being a domestic concern of the persons making and receiving it——
Here I think might be a valuable phrase: we may require a definition of the "public" to achieve what the Minister is laudably trying to achieve
——shall not be taken as prohibiting the making to members or debenture-holders of an invitation which can properly be regarded as aforesaid...
If a thing is a domestic concern then it is not on offer to the public. If it were on offer to the employees of a particular company, it would not be, I think, anything other than a domestic concern and, therefore, it would not come within the definition of unit trust scheme and have all the consequences of this measure. It might be wise to have that section considered in relation to the amendment which, as far as it goes, I certainly welcome.
I think the effect of Senator FitzGerald's amendment or suggested further alteration would be to narrow still more what the Minister has in mind. The definition of the word "public" appears in many Acts of Parliament. We have it in the Public Dance Halls Act. It is fairly well known. The Companies Act extends the definition instead of reducing it. What the Minister wants to do, as far as I see, is to ensure that a section of the public, such as employees of Guinness and so on, if they were offered unit trusts in the company, if they had a saving scheme for employees, that it need not necessarily come within the definition of the Act. I think that is what the Minister's amendment has in mind. I think it would most effectively bear it out.
In some companies they have savings schemes whereby to encourage workmen to save a man puts by a certain proportion of his overtime. The company, in addition to encouraging to save, add to that and they give him certain benefits, on the basis that the man who is saving is usually a better type of employee than the man who does not save. I think it would be a very great pity if anything were done in this Bill to inhibit something of that nature.
My advice from the parliamentary draftsman on this, in relation to section 61 of the Companies Act, was that this word "public" here was sufficiently precise to embrace all unit trust schemes open to participation by the public. On the other hand, it would exclude the type of private trust, or the trust to which we refer, the sort of trusts or schemes of this nature within firms for the benefit of employees, because of the fact the interpretation of the word "public", as Senator Nash has said, deals specifically with trusts open to participation as such by the general public. The question raised by Senator FitzGerald was looked into in relation to the aspects that he mentioned. I have been assured that the interpretation is the interpretation I had hoped I was getting in relation to this section.
As always, any contribution on such a matter from Senator Nash is helpful and he may very well be right in his reference to section 61 of the Companies Act. Who am I to question the advice the Minister has received, particularly when he tells me that the section has, in fact, been considered? I would suggest that an offer which can be made so extensive as to apply to thousands of people who have a particular relationship to the managers of the fund, or those who are promoting it, might well amount to an offer to the public if this Bill did not contain the exclusion which is contained in subsection (2), where it is expressly stated that, where the matter is a domestic concern, it is not to be regarded as an offer to the public.
We have much more to say on this Bill and I do not think I should delay unduly on this point, particularly when I have a sense that I have done my duty in relation to the point. Having made it I will leave it to the Minister for further consideration.
Amendment agreed to.
Question proposed: "That section 1, as amended, stand part of the Bill."
There are a number of definitions I should have liked to have seen in this section but which are missing from it. First of all, it would be well to get it on the record that there is no doubt, subject to any correction the Minister may administer to me, that in the United Kingdom— after all our economies are interlocked whatever way our politics may be—no unit of trust scheme would now be approved of which permitted investment in immovable property. The Board of Trade would not approve of a scheme which provided for such an investment. There were such schemes in existence and there were difficulties of administration, problems about the rights of the investors which proved difficult to solve; and finally the Board of Trade refused to approve of any further unit trusts which permitted such investments. I agree the definition of the unit trust scheme in the Prevention of Fraud Act, 1958, contains this language, but the Jenkins Report, paragraph 329 (b) says specifically:
We recommend that the definition of the unit trust scheme should in future cover only schemes whose underlying assets consist of securities and cash.
There is a wealth of experience behind that recommendation—the experience of disappointed investors, mistaken policy and much difficulty. The difficulties which occur relate to another definition which I think should be in this section—the definition of value. There is reference in this Bill to value. How do you value a site which is being acquired by a unit trust management? It goes in at cost. Do you add to the half developed site the cost of construction work which is being put on it? What value has a half developed site? How is this to be treated when the unit trust investor wants his money back? Who is to determine in what manner that valuation is to be made? Then, when fully developed, is it still in at cost, or cost plus construction cost or original cost? How is this done? In relation to the operation of the whole scheme of the Bill does the Minister take power? May I say, with respect, that he takes a great deal of power. I would like to see him spell out, if he takes power to prescribe the proportion of the unit trust that is to be invested or permitted to be invested—if this definition of the unit trust scheme is to stand—in any other property whatsoever.
This is for me something that is unsatisfactory. We are not dealing here with an insurance company; we are dealing with a unit trust scheme, the beneficiaries of which must be entitled to get their money back when they want it. There must therefore be a statutory obligation on the executive, on the Minister, to see that the proportion to be invested in immovable property is limited to a particular proportion. However reputable people may be, we cannot rely entirely on reputation; and the Minister is not proposing to rely on reputation because he is taking full powers to prosecute people for offences and taking full powers to cancel unit trust schemes if he finds them unsatisfactory.
I regard this as being particularly important. I am aware, to some degree, of the difficulty of valuing investments even in private companies, on unquoted securities. There ought to be, somewhere in this Bill, such a definition as I take from a unit trust scheme of a rather large nature. I will not burden the House by giving the full definition. I would ask the House to note that this particular scheme is operated under the British code and therefore there is no question of the valuation of immovable property. They recognise, as this Bill recognises, that the unit trust managers may invest in private unquoted securities. I think it is good that I should put it on the records of the House:
Value with reference to an investment at any given time except as herein otherwise specifically provided means the value thereof calculated by reference to either the lowest available market dealing, offered price, or the highest available market dealing bid price (according to the context) at that time quoted on any recognised stock exchange or if not so quoted, as quoted by a competent person, firm or corporation in any part of the world for such amount of the investment in question as the managers may consider in the circumstances to provide a fair criterion or if no such price is available such price as may be certified by an approved broker.
I just throw that out as a specimen definition of value with a strong suggestion that there ought to be consideration given by the Minister to include a definition of value which he would regard as satisfactory in the context of the policy which I invite him to tell us, as Members of this House, he intends to operate with regard to unit trust investments in immovable property.
It may all be provided for in these orders but, to me, this is not satisfactory. We must have a statutory obligation taken on by the Minister with regard to this. The whole question of policy arises with regard to the wisdom of permitting investment in any other property whatsoever.
The consequences of the gentleman's agreement, to which the Minister referred in his Second Reading speech, have, I think, been clearly inflationary in their effect on the property market. It is very regrettable, but this has got to be faced: unit trust managers, pension fund managers, insurance company managers, if they are required to invest in Ireland in the Irish economy—may I say, so that there be no misunderstanding of my position with regard to this, that anything which harnesses Irish savings for Irish investment meets with my full approval and I wholly welcome it as a prime consideration in relation to this or any other legislation—but now we must think in terms of the practical consequences of the proposed legislation with regard to this.
There are three possible alternative investments in Ireland. One is, of course, in Irish Government securities. I imagine the ambition of the Minister's colleague, the Minister for Finance, will be that the effect of this legislation, and of the proportion which he will determine that must be invested in the Irish economy, will be that there will be a support provided in the Stock Exchange for Irish Government securities. I imagine, in so far as we get unit trust schemes as a kind of right, that this is what will happen. There will be some unit trust schemes established based on a high yield performance basis. High yield performance does not necessarily attract everybody, and these are questions which we will deal with more appropriately when we come to section 8.
That is one possible choice. That is a laudable ambition if the Minister can get away with it and effectively haul back savings that have been going out into unit trusts based elsewhere. In regard to my reference to the Minister for Finance's remark concerning information being made available, I know information has been made available and there must be information available with regard to the outflow of savings into UK and other unit trusts. It would be a help to us all if we had this information. I do not know to what extent the information is available. My own suspicion is that a good deal of money has been flowing out to UK unit trusts but my own unfortunate position with regard to that also is that it will be exceedingly difficult to stop it flowing out.
That is one type of investment. The other is in the Irish domestic equity market. I have long been a supporter of any measure which would enlarge the equity market here, but one must recognise facts and the number of people who are buyers in the Dublin market at the moment is small and artificially prompted. This may be another source of artificial prompting. I am not making here a political point. I made the point to the Minister when dealing with the Finance Bill here and I do not think experience has shown me wrong on this. The change in the basis of income taxation of corporations has been a major error, which has excluded many people from the Dublin market and which will reduce the returned profits of Irish companies. The wit of the Irishman is considerable. When faced with what he regards as excessive taxation it is extraordinary what he can do, within the law, to see that these profits available for taxation are reduced. A phrase that has been used recently is "the dogs in the street are barking". When the Minister comes to consider what that proportion ought to be, despite the barking of the dogs, he must have regard to the position of the Dublin market: what proportion of his funds is it right for a manager to put into the acquisition of Irish equities when he is in the position that he may be called on to sell, to repay unit holders who want repayment.
I mentioned Irish Government securities, I mentioned equities and I have mentioned in another context immovable property. Here I would strongly counsel the Minister and the Seanad generally to consider the deletion of these words: "the securities or cash" because, of course, no unit trust could possibly operate if it did not have the ability to hold cash and to put money on deposit. I see some reference here that "securities" means
—rights (whether actual or contingent) in respect of money lent to, or deposited with, any industrial and provident society, friendly society, building society.
I think the Minister might have a look at that definition. If you include one thing—an old principle of the law —you are taken to exclude something else. We would not like the position to be, particularly having regard to the problems of taxation which arise with regard to investments abroad, that rights in relation to a company, even if it were not an industrial and provident society, friendly society or building society, should not be included within the definition of debentures. A deposit with a company, for example, may not be a debenture; it may simply be a deposit. A deposit of money with a company is not necessarily debenture. A debenture need not be something that is secured on the assets of the company, but it must be an acknowledgment in a formal way of the debt by the company. A deposit may not be such and I think it must be included. Am I going on too long? Would the Minister like to deal with what I have said?
I would hope not, and I do not mean that in a derogatory way.
My strength would be equal to it even if the Minister were. Even if one knows perfectly well that the audience would like to be elsewhere, one likes to feel that one's remarks are being considered by those who have the job of governing the country. I hope the Minister will not misunderstand that is not being in any way derogatory of him, because I do not wish to be, but the points are not unimportant, I think.
There is a necessity for a definition of effective control. This appears in section 3, subsection 1, paragraph (d). There is great doubt as to the meaning of these words, which appear in British legislation. For example, if there are common investors, common managers, common directors, common secretaries and so on, is there a sufficient separation between them to mean that one does not effectively control the other? I quote from a book on the subject:
The meaning of this provision is not free from doubt. Does it mean, for example, that the manager and the trustee may not have any common directors or shareholders? If it does not, how many common directors or shareholders may they have without the management losing its independence?
This is very important in Irish circumstances, as everyone in the House will realise.
There are certain companies who engage in the business of being trustees and whose securities are quoted on the market. Insurance companies and banks are the people who mostly do this business. The two big banks are both quoted on the stock market. One insurance company—in fact there are two, I think—is quoted on the market. If there happened to be shareholders in that is there effective control? Are the managers and trustees at arm's length? I think there should be a definition about this. I am not asking the Minister to say what that definition ought to be at this stage, but I am arguing for a bit of hard work by the parliamentary draftsman to try and cut out a problem which is greater in Ireland than it is in Britain. When you think of the contradiction in interest there is between certain banks and certain insurance companies and the investment of insurance companies in certain banks, you realise that there is a problem. It may be solved simply by saying that having shareholding that does not amount to a majority shareholding does not amount to effective control, or something of that kind. You have to have it if you want to have legislation that is meaningful.
I should like now to mention one other thing. There are references in this Bill to a subsidiary of a company. Where the reference to "subsidiary" first occurs the definition given is that given in the Companies Act. The form of our legislation here in Ireland is, I think, far superior to that generally used in Britain—this is my own view— because of the practice laid down by the first parliamentary draftsman, who was a very experienced and senior chancery lawyer. He was a dedicated man who, in fact, remained four years working for the Government before the Minister for Finance would agree on what he should be paid. I refer to Arthur Matheson. He was a trained chancery lawyer who said that all the definitions should go into the first section so that everybody would understand what came afterwards.
The British have not yet got round to that system. It is a most appalling job to try to read an English Act, where you get definitions in Schedules half way through the Act, and so on. This Bill is pretty good on this point but there is one definition that should be here—it appears later on—and that is the definition of "subsidiary" by reference to the Companies Act. I do not think the definition of "subsidiary" in the Companies Act is a good definition. I should like the Minister to give some thought to this. The definition of a subsidiary in the North of Ireland Act of 1960 includes, as a subsidiary, a company which is half owned, not merely a majority of the voting shares held.
There is a well-known commercial device, if you want to lock away profits that you do not want to come up to the parent company because you do not want to declare a dividend or you want to lock it away for the days when the wintry gales are blowing that you have a half-owned company. This is not a subsidiary under our Bill and is not a subsidiary under the UK Act, but it would be a subsidiary in Northern Ireland. When we are applying, as we are in this Bill, many stringent provisions to subsidiaries, and I think should be applying in some cases other provisions that at the moment apply only to the parent to a subsidiary, the definition of the subsidiary ought to be extensive enough to catch what is after all a device like this.
I was dealing with a foreign lawyer recently and he used an expression which delighted me. To get over certain statutory obligations in that particular country he said the only thing to do was to have an underhand agreement, which I thought was splendid. An underhand agreement is simply one between the parties concerned which nobody knew anything about except themselves but whereby they achieved what they wanted to achieve. I think the definition of "subsidiary" in the North of Ireland Act, 1960, is the definition the Minister ought to adopt, if I may suggest that, in relation to section 1.
I do not know whether this is the correct point of time in which to make this remark. I ask the Chair to tell me if it should appear somewhere else. I know the Minister is the Minister for Industry and Commerce and not the Minister for Finance and that he only brings this Bill into effect when he makes a certain order, but there are certain absolutely essential changes required in the taxation law of the country if unit trusts are to be established here successfully. I noted the Minister in his reply to Second Reading used very pertinent language in saying that this was not a unit trust promotion Bill. I took that well but I think he must face the situation that we have people here, who are small savers, who are investing in UK and foreign trusts. He must accept the fact that he is not proposing to make that illegal. He said that in his Second Reading speech and it is clear from the Bill that it is not going to be illegal. He must do everything to facilitate the success of any unit trust that is established and has to comply with the provisions of this Bill when enacted.
It might be as well for me to say at the start that I do not know why the Senator should have got the impression that my mind was somewhere else.
I did not say I got that impression.
The Senator created that impression.
Forgive me if I did. I did not mean to.
The Senator was pointing out that he was anxious to go into this in detail and he might be hard on people or people might think he was hard on them.
From my point of view this is a pretty intricate piece of legislation. I am more than anxious to see it fully thrashed out on Committee Stage with a view to seeing if any improvements can be brought about or any anomalies cleared up.
The most important factor to which the Senator referred was the definition of a unit trust scheme. He was worried about the addition of "or any other property whatsoever" after the word "securities". The definition is:
A unit trust scheme means any arrangement made for the purpose, or having the effect, of providing facilities for the participation by persons as beneficiaries under a trust, in profits or incomes arising from the acquisition, holding, management or disposal of securities...
He suggested then "or cash" rather than "or any other property whatsoever".
One of the reasons the Senator gave for his suggested amendment in this regard was that this had not been included in similar legislation in the definition of a unit trust scheme in the UK. This is one of the deficiencies in the legislation in the UK: that property trusts, as such, operate without any supervision. I appreciate the position arising when the management of the unit trust buy or invest in certain property with the result that, when the trust holder comes in to reclaim his money or to sell back his trust to the management, the liquid assets are not there to meet the demand. However, my view is that on the registration of the unit trust, the Minister for Industry and Commerce would take into account the manner in which the management would invest their money. The reason for the inclusion of "any other property whatsoever" in that regard is not for the purpose of enabling the trust to invest all its money in property. The Senator commented to me "The Minister may say he would be regulating that by order". From my point of view, this would be one of the factors that would require to be spelled out by the Minister for Industry and Commerce in the operation of this Bill. There is the necessity of ensuring that there would be investment in realisable securities, so that the subscribers could collect their money at any time.
This legislation is more comprehensive by reason of the inclusion of "or any other property whatsoever" in the making of the regulations with regard to the investment of the income by the management. The Senator pointed out that it is a disadvantage to have this included in this interpretation section. My view is that it has the advantage of giving control, on behalf of investors, to the Minister to act in the interests of the investors.
The Senator also mentioned that it was desirable that a definition of effective control should be included. He mentioned that the words "effective control" were used in section 3 (1) (d). This was to cover what was likely to happen here—the type of management setup we would have here. We could visualise a situation whereby personnel of the management of the unit trust scheme might also be involved as directors in the trusteeship. I do not feel that it is necessary to define or to outline a definition of "effective control" because there is a problem in this regard. One would have to say that, if there are more than such-and-such a percentage, say 25 per cent, of the directors of the management committee who are also directors of the trustees, then that would be too many. The section to which the Senator referred, section 3 (1) (d) states:
...that the Minister is satisfied that the scheme is such, that the effective control over the affairs of the manager and of the trustee under the scheme will be exercised independently of one another.
The Senator expressed the feeling that "effective control" should be defined in that regard.
I feel it is rather difficult, indeed well-nigh impossible, to endeavour to define "effective control" or the volume of influence that named people could have as part of the management board, on the one hand, and part of the board of trustees on the other. That would be wrong, and it would be more appropriate that this be left to the Minister's discretion, were to refuse registration on the basis that he felt that the affairs of one would impinge on the other, he would be in the position of refusing, as Minister, to issue registration. Under the terms of the Bill the proposed trust would have the right of appeal to the courts. It is far better that I should not endeavour to define "effective control" from that point of view.
The Senator also referred to the question of the subsidiary company. One could speak about that in much the same way, leaving it to the discretion of the Minister for Industry and Commerce, for the time being, to decide whether the question of a subsidiary company or a subsidiary board could be open to undue influence by the trustees.
I shall take the points in the order in which the Minister has made them, and then deal with the one he did not deal with, which to me was the most important one.
The Minister is not correct, if I may say so, in telling the House that the definition of a unit trust scheme in legislation in the United Kingdom is any different from that contained in this legislation. It is, in fact, precisely the same and includes the words, "or any other property whatsoever". What I said with regard to that was that despite the provision in this legislation for the registration of a unit trust scheme which could invest in any other property whatsoever, the Board of Trade has for many years refused to register any scheme with power to invest in any other property whatsoever. This is important because the Minister went on to say that, if he did not have this, he would not have control and that they do not have control in the United Kingdom. I should like to remind the Minister that the Act of 1958, which repeats the provisions of an Act of 1939 in Britain, is an Act described as the Prevention of Fraud (Investments) Act. The sole effect of the decision by the Board of Trade not to register a unit trust with the power to invest in any other property whatsoever is that the unit trust in question does not get the benefit of being free from the licensing provisions of that Act. We have in Britain the control involved in the fact that schemes which have provision for investment in any other property whatsoever are not permitted dealers, under the Act in question. I think the Minister should have another look at that because it is quite an important point.
The Minister may have dealt with the point I made about effective control by saying he has control in the sense that he must be satisfied there is effective control over the affairs of the manager and of the trustee exercised independently of one another. All I can say with regard to that is that section 17 of the Prevention of Fraud (Investments) Act, 1958, gives precisely the same power to the Board of Trade and lawyers in Britain have expressed great doubt as to what is the meaning of this. There is some difficulty in Britain, even in a large commercial place such as the City of London, where there are countless different trustees and managers. When one looks at the numbers in Dublin, and at the requirement of what a trustee is to be—there must be £500,000 of which not less than £250,000 is issued —how many of them are around? How many of them are, in fact, in one way or another, invested in the managers? Having said all of that I am still suggesting that if the Minister wants to maintain the idea that there should be independent effective control of the two, I remain in the greatest doubt as to the necessity for it at all.
If companies are established on this sort of scale in Dublin—and the Minister will know the bodies with which he is dealing—I wonder is it necessary to have this separation at all? I know that theorists in this field feel very strongly about the desirability of it. One knows of people in different professions who are capable of advising people with conflicting interests and yet they are able to give them correct advice. Trustees will have certain responsibilities and they are not exonerated in this Bill from the discharge of those responsibilities. I wonder if there should be a rethink on the necessity for a division. I seem to be running contrary to what I have said earlier about this, but I am not really. If we are going to have effective control, let us know what it means. Although it is perhaps more appropriate to make this point on a later section, and I shall do so then, is it wise to have this separation which is an imitation from Britain? The requirement as to the substance of the manager might be supplemented by an equal requirement as to the substance of the trustee, which I do not think is in the Bill. Perhaps I am overlooking something, but I do not think it is in it.
With regard to a subsidiary company, I would repeat my invitation to the Minister to consider again whether there should not be a proper definition of "subsidiary". It is referred to and defined in relation to the Companies Act at a later stage in the Bill which, in any case, with great respect to the draftsman, seems to me to be bad. If things are going to get defined, they should all get defined in the same section so that we can look at them all at the same time. It should not necessarily be the definition of "subsidiary" in our 1963 Act. Equality should render a company subsidiary. When we come, for example, to a section such as that contained in section 12:
A manager under a registered unit trust scheme shall not carry out transactions for himself, or make a profit for himself from transactions, in any assets held under the scheme.
I do not think it should be "himself", but we will be dealing with that another time. However, it would be very easy for him to organise a subsidiary that would do those things. I think that "subsidiary" should go in there. The section, as drafted, does not take in the activities of a subsidiary, and the activities of the subsidiary throughout may prove to be important. Therefore, in this first section, we should have a definition of "subsidiary".
The Minister did not deal with the valuation of property, and I am not now asking him to do so. However, between now and Report Stage, I should like him to give consideration to this whole question of the valuation of property, the subject of the trust. I think this is a most difficult matter. The prudent practice followed by one company of valuing shares in a private company at the cost of acquisition of the shares, if the company is one which does not have to render a return to its investor by a distribution, may be a right policy for it to follow. But say you have a unit trust that has put £100,000 into a private company which is now worth £200,000 and somebody who has put his money into the unit trust wants to get it back, at what price is the private investment to be valued? If it is cost, then he is robbed; if it is not cost, who is to determine what the value is. I do not think this is a matter which should be left to ministerial order, with great respect, because when the Minister is making his orders we will have power of annulment I know 21 days after the last sitting day of the Seanad, whatever that is. By that stage everybody will be bored to death with it and when it is made we will not annul it anyhow, everybody will march in as they should, do their duty and support the order. We will not have been present when the deliberations are taking place between the Minister and his advisers as to what form this ought to take—and we are present now. We should hear what are the intentions.
I do not think that the Minister for Industry and Commerce has come in here with the Unit Trust Bill which has been in the oven for some years, and is half baked. I imagine that there is a good deal of regulation and order baked in the background of the oven. We ought to know the principle of the Minister for Finance, that the public ought to be informed of what is going on. Who better to be informed than the likes of us who have not to cast our votes on such a measure—our energies must be spared—but have to discuss then and to express any view that we think might be useful for the Minister to hear. In relation to this, I do not know whether the Minister has got any people in his Department who have managed unit trusts, who have formed unit trusts, who are aware of the practical problems involved in unit trusts.
I admire all the Minister's advisers, whether they be present or absent, but I have got to take note of the fact that it is only in this place and in the other place that people are going to be able to give expression to opinions based on information which they can get, which they can interpret, which they may be able to look at from an entirely different point of view from the Minister's advisers who, as I said on the Second Reading speech, have had to do their work in relation to this under a shadow cast by the gentlemen's agreement with the insurance companies.
I know the Minister has put down an amendment to section 8. I am looking forward very much to hearing a full explanation from him as to what he has in mind. I hope it is an ameliorative provision. I think it may be and it may well be that, if it is, a lot of my troubles will be going out the door. But I think that this question of the valuation of the assets is very important. There is another section—by the way I do not want to anticipate again but perhaps it is no harm to——
An Leas-Chathaoirleach
The Senator should not unduly anticipate.
I am not referring to them, am I?
An Leas-Chathaoirleach
The Senator should only refer to them in the context of definitions which are either already in the section or which he thinks are necessary to be in section 1.
Will I be allowed to refer to the fact that the word "value," which I am suggesting should be defined, appears in section 9?
An Leas-Chathaoirleach
This would appear to be in order but one cannot discuss every subsequent word of the Bill from the point of view of its definition.
I do not propose to do so. I want to refer to the fact that there is an onerous provision resulting from section 9 dependent on the definition of "value" which does not appear in section 1.
An Leas-Chathaoirleach
That would appear in order.
The Senator commenced by saying that I referred when I was speaking earlier to a number of the matters he had raised in the first instance but that there was one, which he felt was the most important one, which had not been referred to. I think this must be the one he was speaking about, defining "value."
The Senator took the opportunity of anticipating my remarks in this regard at that time when he said that—and to my mind the problems of valuation do not arise until the Bill has been enacted and the Orders are being made —this would be too late to deal with them as such. I do not think that it is necessary to include in the definition section a definition of "value". He outlined the problem that could arise because of the non-definition of "subsidiary" and drew attention to section 12 in this regard. That particular section may need eventually some elaboration but I do not think that the word "subsidiary" even need be included—"carrying out a transaction for himself or on his behalf" could cover that without the necessity for using the word "subsidiary".
Question put and agreed to.
SECTION 2.
Question proposed: "That section 2 stand part of the Bill".
I would like this section to be greatly expanded so that we will know what the register will contain. There is no provision, for example, for an annual return to the register. We have conflicting provisions with regard to the information which will be laid before the House and the obligation to furnish information which will be available for inspection in the registry, whether it is laid before the House or not. There is a provision for the registration of the deed establishing the trust, there is no provision for the registration of a deed supplementing the deed establishing the trust. So that the original deed, when amended, may not be available for inspection. The trustee may contain provision for the amendment with the name of the trust scheme. I do not find any provisions here requiring the unit trust scheme managers or trustees to register any change of name. What are the obligations with regard to the register cast on the managers or trustees? What are the penalties if they fail to comply with the obligations? I think of "register" as a strange word. It may contain little, nothing, or very much. It should be spelt out in one section what is to be in this register which is to be available for inspection. Perhaps an example of what I mean with regard to the matter would be this. I do not see that—perhaps the Minister may be able to tell me if I have missed something in this —all the information about the manager and the trustees is to be in the register. I am always afraid to another section, but it appears that the manager can be a company. The Miniser has tabled an amendment to make it clear that it is a body corporate. It may be a company, a friendly society, or an industrial and provident society or a building society. These various institutions all register information about themselves in different places. It ought to be possible for somebody interested in the operations of a unit trust scheme to be able to see it all in one register, kept in one place and not in two places. The register of companies operates in one place, the register of friendly societies, who also takes in industrial provident societies, as the Minister knows, operates in another place. Consideration ought to be given in this section, or in relation to this section, what the register ought to contain. I imagine that the officer in the Minister's Department who has to deal with companies will have a lot to tell him what should be in that register. It should be available for inspection. If you are engaged in the pursuit of somebody for the recovery of something, which some of us have to be from time to time, it is very important to get the information quickly. I have no more to say on that.
I should like to ask the Minister for some information on this register. The register of unit trust schemes clearly includes unit trust schemes founded and managed in this country. I am a bit worried that unit trust schemes which are not founded in this country will be classified as unregistered schemes under the terms of the Bill. Is this the Minister's intention?
Yes.
Therefore, the rules and regulations and prohibitions concerning unregistered unit trust schemes would apply to any unit trust scheme not founded and managed in this country?
Yes. This is so. One of the objects of the Bill is to try to ensure that as much money as possible is invested here and is in a position to be reinvested in the State. Certainly, any trust that is not registered cannot be advertised here. There is nothing in this that Senator FitzGerald did not mention earlier on. I am not taking the power to make it illegal for any Irish subscriber to invest in a foreign unit trust, but I am taking the power, as far as possible, to discourage outside unit trusts from endeavouring to attract our money.
In reply to Senator FitzGerald's remark that "maybe the Minister will tell me if I have missed something", the Minister appreciates that the Senator does not miss very much anyway. I think that the various other sections which have yet to come such as section 3 (1) (f) and sections 14, 15 and 17 all deal with the further information the registrar will have. The register can be examined and is open to the public at all stages. The Senator said section 2 does not spell out sufficiently what is required. What is required under this section is to ensure that a record of unit trust schemes is available for inspection by the public. This is mainly a list of the names of the unit trust schemes. The affairs of the unit trust schemes are dealt with in the various other sections but this particular section just enables the registration by the registrar of the various unit trust schemes.
The Minister is quite correct with regard to that. I thought that section 15 did not require the registration with the registrar, but it does. I would simply leave the Minister with the idea that it might be worth looking at that particular section to see if it should not all be brought together in one section, so that we would have no difficulty in practice.
There is an amendment to section 15.
We are still debating section 2. I think it might be worth bringing together what are the consequences of all the different provisions of the Bill in terms of what will be in the register. If we group them all together we might find things missing which it might be desirable to have.
Question put and agreed to.
SECTION 3.
Question proposed: "That section 3 stand part of the Bill."
With regard to section 3, I have a number of points and some of them have been anticipated but others have not. First of all, I will take section 3 (1) (a). I am sure the Minister should consult with the Central Bank of Ireland with regard to the matter mentioned. I should have thought that he should also consult with the Minister for Finance, because you could get two different points of view on the same information. Indeed, if I may be allowed to comment, we have had over the last two years two different points of view on the same information. It might be useful for the Minister to become satisfied after he has consulted not merely with the Central Bank but also with the Minister for Finance. That is my first point.
I made this, my second point, in my Second Reading speech. There may be some kind of fiscal objection to it. I thought that the body corporate should not merely be incorporated and have a place of business in the State, but should also be resident in the State. The effect of that would be that the Exchequer would get taxation on the profits. A body corporate could be established in the State and because of the 58 per cent taxation of body corporates, would manage to arrange itself to be managed and controlled outside the State. Therefore, the Minister would only get the corporation profits taxation of the manager, I think 23 per cent, whereas it could get 58 per cent if it were managed and controlled here. That might be worth looking at anyhow.
I anticipated my next point, but again I think it is worth repeating. I am on to subsection 1 (b). The words which appear in the equivalent English Act—by the way, it is the wrong Act altogether for this kind of stuff to appear in that is, prevention of fraud; it should not be in such an Act at all and is much criticised for being there— but the words have been excluded in this subsection 1 (b). I do not know why. I am going to give the words now. At the end of (b) it says:
"the manager under the scheme is a body corporate that is incorporated and has a place of business in the State,"
I think that should read "managed and controlled in his place of business in the State". The following words, which are in the English Act, have been omitted for some reason from this Bill, I would have thought it particularly desirable to have them included:
...at which notices and other documents are received on behalf of the body corporate...
This follows from my point that the Registrar of Friendly Societies and the Industrial Provident Societies is in Kildare Street. I think the existing Registrar is in the Attorney General's office, but his Register is kept in Kildare Street although the Companies Register is kept somewhere else. It would be desirable if we were able to serve our documents on the place of business because companies have a habit, particularly if they are not doing all they ought to be doing, of not keeping registers up to date about where they are now registered and this is quite a problem. We ought to be able to serve notices under this section on their place of business.
I made a mistake earlier which I should like to correct. It is the trustee here who is obliged to be a person of substance, not the manager. I think the manager should be a person of substance. I make the point for consideration at any rate.
I have quite an important point to make with regard to paragraph (c) (i) which states:
(c) the trustee under the scheme is a body corporate that is incorporated in and has a place of business in the State, and—
(i) has a capital (in stock or shares) for the time being issued of not less than £500,000, of which an amount of not less than £250,000 has been paid up.
May I suggest the addition of the words "in cash". One can pay up a great deal of capital in goodwill and in know-how based on one's management.
Would you accept stocks and shares as well?
That is easy. It is a simple exchange of cheque operation. One can subscribe for a great deal of capital by saying one has been a trustee of unit trust schemes in Switzerland and the Bahamas and consequently one's know-how is worth a £100,000, and that means paying up for 100,000 shares in know-how. I think the words "in cash" should be included, or "goodwill". I dare not mention names, but the reputation of certain well-known unit trusts would be such that they might be able to say their goodwill is worth so much and they would attract a great deal of money because of that.
It might not.
It might or it might not, but the point is they could claim from the point of view of qualifying, as a trustee that they had discharged their obligation under this section. Perhaps the Minister will be satisfied by an examination of the books. I do not think it should be left in that form. The end of paragraph (c) is very good; it states:
...and the assets of the body are sufficient to meet its liabilities (including liabilities in respect of the repayment of its capital),
Surely that should read "of its paid up capital"? If it has taken 500,000 shares, should they be obliged to have assets to cover the unpaid capital? I mention this for policy consideration. I do not know what my view is on the subject, truth to tell, except to say that I would have thought logically it should be paid up capital.
Section (c) (ii) (I) states:
...is wholly owned by a body corporate (in this paragraph referred to as the parent body) in relation to which the conditions as to capital specified in subparagraph (i) of this paragraph are complied with, and
Why are the conditions with regard to assets not required to be complied with? Subparagraph (i) requires not merely that there should be a certain amount of paid up capital, but that the assets should be sufficient to meet its liabilities. May I compliment the Minister on the next paragraph (c) (ii) (II):
...the discharge of the liabilities of which is guaranteed by the parent body.
That is an excellent provision, It cures a real defect that appears elsewhere. We have had this thing about effective control and we need not go into that again, I imagine. With regard to 1 (e), my main criticism is that it is a lazy compilation, if I may be excused for saying so, in so far as the Minister has given himself the greatest freedom to make any orders without any regard to any matters. You are given some idea of the policy of the Board of Trade if you look at the First Schedule to the British Act—Prevention of Fraud Act of 1958. I am not one who thinks we should be emulating the British in all matters, I can tell you, but they have experience in relation to this field.
The Minister ought to look at the Jenkins Committee Report on this and consider whether he should spell out statutory obligations throughout which are not spelt out and which are intended to be covered by orders. He should take unto himself the additional power to make orders in case the statutory obligations are not sufficient. Then a person wishing to establish a unit trust would know where he was. This is the whole policy of the Act as here disclosed by the statutory obligations. Rationally, the Minister takes power by order to supplement what is in the statute. I would not deny him that power at all. In fact, I think he should have it, because financial circumstances are changing all the time and he must have power to add to the obligations. He must at this stage know that the obligations he is going to exact in these orders should be in the statute with power to amend them, and power to add to them, by order.
The deed, which is the fundamental document in the whole affair, should contain a covenant obliging the trustees and managers to comply with the statutory obligations in giving the necessary rights arising from that to the persons who are beneficiaries under the deed, who will have civil rights if there is a covenant to comply with the statutory obligations. I should like other Senators, either at this Stage or the next, to give thought to this. I do not know whether those persons will have civil rights if an order is made and not complied with. There would probably be prosecutions and I am not sure that this should be so.
Subsection (1), paragraph (f), provides for the filing of a deed, but it ought to provide that any alteration in the deed should also be deposited with the Registrar. It is a constant feature for deeds to be amended to deal with changing circumstances. They should be obliged to deposit the deed and all supplements to the deed with the Registrar. The only power the Minister has is the rather unsatisfactory power of cancelling a scheme. This is too much and ought not be so. It is too rough an instrument to deal with it. There ought to be a system under which the deed can be amended, provided it is in order, and then deposited with the Registrar. Probably, what would happen is that a draft of the deed would be sent over to the Minister and they would not dare amend the deed without the Minister seeing what they were proposing to do. The logical thing would be that the amended document, as a matter of legal obligation, should be deposited with the Registrar.
With regard to the registration of unit trusts—I am not very good on the matter of the proof of documents —how does one prove that a unit trust scheme is a registered unit trust scheme? Should the Registrar not be obliged to issue some document over his name which would certify that a unit trust is registered under the Unit Trust Act? I think that would be desirable.
I should like to praise the Minister for breaking new ground here in the provision for appeal to the High Court. I welcome this. However, I will have a criticism to make about subsection
(3) in a moment. If we are going to have the right to appeal to the High Court for a refusal—which could be very damaging to the persons concerned with the whole exercise and enterprise—the reasons for the refusal should be specified under this section, as the Minister proposes to specify the reasons under section 5 (2). If he is sensible enough to specify the reasons under section 5 (2) why not specify the reasons for refusal under section 3 (2)? This would mean that when the matter was brought to court we would know what we were talking about, what the argument and the reason for it was?
I now come to subsection (3). I do not profess to have any knowledge of constitutional law but has the Legislature a right to require a decision of the High Court to be final? I should have thought in a question of law, that the Supreme Court was always available.
This does not alter it.
I do not think you can make the High Court the final authority. They are there always to protect us and we have a very good Supreme Court, too.
To take one point at a time. I would ask the Minister to accept the suggestion of Senator FitzGerald which is an excellent one, that in section 3 (c) (i) the words "paid up" to interline the words "in cash," because as he has rightly pointed out, very often shares are issued and treated as being paid up when there is nothing only goodwill or something else, and the value of goodwill is a subjective rather than an objective one.
Before the Minister replies to Senator Nash's point, I should like him to clarify what exactly that subsection means? If you have £500,000, of which £250,000 has been paid up, does this mean that the other £250,000 is on call? If it is on call what are the assets that follow on here?
The assets of the company must be sufficient to meet their liabilities and also to repay the capital that has been subscribed.
Yes, but it is a trustee scheme.
In relation to the points made by Senator FitzGerald in this regard I wish to say, first of all, that Senator Nash has backed his observations on section 3 (1) (c) (i) in relation to the question of including "in cash" after "paid up". It appears to me that there is no reason why I should not do this and that there are quite a number of reasons why I should. I would propose to introduce that, by way of amendment, before Report Stage. I will also consider before Report Stage Senator FitzGerald's observations in relation to section 3 (1) (b).
On the question of the inclusion of assets in section 3 (1) (c) (2), there is a share of merit in the fact that assets should be included there. I should like, without fully committing myself, to take all these matters into consideration in relation to possible amendments for the Report Stage.
Senator FitzGerald said that the number of potential trusteeships to make this amount of guaranteed money available is rather limited but I do not think that goes well with his argument about a management committee.
I am very grateful to the Minister for indicating his attitude to some of the points I have made. The Official Report will contain a record of any other points I have made.
Without going into them at all, I should like to draw attention to one —the first one I made and which the Minister did not mention, this was that the Minister for Finance ought to be consulted. Secondly, any supplemental deed or amendment of the deed should be registered. Thirdly, we should be told now what is the Minister's policy in regard to these unit trusts, and that should be in the statute. There should be a covenant required to be in a deed, as a statutory obligation, that the statute would be complied with. In addition, I made the point about the evidence that there is a properly registered unit scheme. There should be provision made for that. I also suggested that, as the Minister has proposed to provide in section 5 (2) (a), when he is considering the representations to be made under subsection (2) should specify the reasons for any refusal.
I welcome subsection (3), so far as it goes in providing for the decision of the High Court as being unappealable, but I think this should be expressed. Our Acts should go forth reconcilable easily with each other and with the Constitution. I failed to make a point, which I now make. I should like the Minister to look at subsection (2) (a). This lays down that whenever the Registrar proposes to refuse to register a unit trust scheme in the Register:
he shall notify the manager and the trustee under the scheme that he so proposes and of the reasons therefor and that the manager and the trustee may, within 30 days after the date of the giving of the notification, make representations....
Should that not be "or the trustee" as in subsection (3)? Subsection (3) provides that the manager or the trustee may go to the court. It is a drafting point, and I do not attach any importance to it.
I think Senator FitzGerald and the Minister are ad idem. as regards the suggested registration of an amending deed if one considers paragraph (e) and paragraph (f) together as relating to the trust deed. The scheme must be expressed in a trust deed which complies with the provisions of the order. The deed must be deposited with the Registrar. If the scheme is altered by an amending deed, then the first deed no longer applies, because the amending deed alters it. Therefore, unless the amending deed is lodged with the Registrar, the company and the whole scheme is invalid and does not come within the framework of the Bill at all.
On reconsideration, Senator FitzGerald may agree that this is so. The scheme must be expressed in a deed. If I alter one deed by another deed it is the second deed which is the effective deed; or if I alter one will by another will, the second will is the effective will. If the deed which creates the scheme which is now the second deed is not lodged with the Registrar under paragraph (f), the whole thing is invalid. I do not think it would be necessary to provide expressly that the second deed must be lodged.
One of Senator FitzGerald's points may not, for some odd reason, have been picked up by the Official Record. He did ask the Minister—this is subsection (1) (c) (i) with regard to including liabilities in respect of the repayment of its capital—that it should be its paid up capital. I think that may have been overlooked in the general discussion.
On Senator Nash's point—he knows I respect his view on these matters—but I would require time to consider this. The scheme is such as to secure that every trust created in pursuance of the scheme is expressed in a deed. Then the deed aforesaid is to pass to the Registrar. The trust is created by the original deed but the terms of the trust are altered by a subsequent deed.
The scheme is expressed in the subsequent deed.
As I say, I require time to consider the Senator's point. All I can say is that Jenkins recommends the registration of supplementary deeds as well as original ones.
They have to be registered, as the law stands here.
Let us accept the fact that I propose, as I have indicated to the House, to take into consideration the various observations that have been made and the various amendments that have been suggested on this section. Also, looking at the discussion that we have had in connection with paragraphs (e) and (f), I am inclined to take the view that the depositing of an amended deed, as Senator Nash puts it, is the same as a new will. The intention is the same and it is a question of how best we can accord with that. It is necessary that there be no cross purposes of how best we can do it. I am most anxious to have a further opportunity of looking at that as well.
If you add to (f) after the words "the deed aforesaid", "any amendment thereof must be deposited with the Registrar" that would put it beyond all possible doubt.
Question put and agreed to.
Progress reported; Committee to sit again.
The Seanad adjourned at 10 p.m. until 10.30 a.m. on Thursday, 18th February, 1971.