I have already made a number of points on this section. I have a few more points to make on the section and I will deal with these points in any way the House would prefer. I propose to make all my points on the section.
The first point is, I think, the most important point. I direct the attention of the House to subsection (5), which states:
Where, in relation to a unit trust scheme, there is a contravention of or failure to comply with a provision of an order under this section (other than a provision relating to a matter specified in paragraph (f) or (i) of subsection (2) of this section), the manager and the trustee under the scheme and, where the contravention or failure relates to the publishing of any document, the person who publishes the document, and any person who procures such publishing, shall each be guilty of an offence.
I cannot make this point without inviting the House to look also at section 20. If I understand that section correctly it means that the offence will also be committed, in the case of an offence by a body corporate, by any director, manager, secretary, member of any committee of management or other controlling authority of such body or official of such body.
This section contains provisions for the making by the Minister of orders prohibiting or regulating the publishing by or on behalf of the manager of advertisements or documents containing any statement with respect to the sale price of the units and various other matters, unless the advertisement or document in question also contains a statement of the yield from the units and statements giving such information in relation to such other matters, if any, as may be specified in the order.
There is another paragraph of subsection (2) which similarly requires to be complied with in any advertisement which is published. This is to break into new territory and to render it obligatory on newspapers or any other media which may be used to communicate an advertisement with regard to the unit trust, to be informed in a specialised way with the provisions of the Unit Trusts Bill, and in a specialised way with any orders or regulations made by the Minister under it. This is completely new ground.
I should like to direct the Minister's attention and the attention of the House to the very careful language used in the Companies Act which provides for offences where prospectuses do not comply with the requirements of the Companies Act. The persons who are liable in relation to these offences are the director or other persons responsible for the prospectus, in the one case. In the case of a crime— that is in section 44—the liability is on any person who authorised the issue of the prospectus. There is no question of a newspaper editor, or the director of a newspaper company, or the manager of a newspaper company being required to know anything about company law; or being required to know whether the law with regard to comcompanies is being complied with when they take an advertisement for the publication of a prospectus.
As this section is drafted I am confident that this is what was intended. It would seem to me that an offence will be committed if in fact any person publishes a document which does not contain the information that the Minister requires should be in the document, or which contains any information which should not be in the document. For example, any person who procures the publication, the agent who might be employed, the director or the manager of this company—might all be rendered guilty of offences by this section.
The instinctive reaction of people who do not think in this way— Senators with my training happen to— is that they may say: "This is all rot; they are not going to be prosecuted for this; it will be the people who prepared the advertisement who will be prosecuted." That is all very well, but they will be guilty of offences. They will be liable to be prosecuted and susceptible to receive the punishments which are set out in another section of the Bill, section 19, into which I need not go. However, I should like to make this general comment: there is a variety of different types of offences capable of being committed by a breach of section 8. There is no variety in the fines or other punishments which may be meted out to these persons who commit those offences. This is a matter of importance and is also a matter very easily remedied. It is simply a question of amending the language in subsection (5) to deal with that particular point.
There is another matter to which I should like to refer. Perhaps there is no harm in making a point which will make it clear that my interest in this matter is entirely one of having good legislation. I am in no way concerned with making life easy for the managers of unit trusts. There is no provision in this section or in this Bill— it seems to me that it is on this section that I should make this point—for rendering civilly liable a manager who makes an untrue statement, misleading the public in making an advertisement. The Jenkins Committee report on these matters recommended strongly that there ought to be a civil remedy. I would therefore recommend that investors in units trusts here get the benefit of the best and most up-to-date advice in regard to this. They have such remedy available to them if they subscribe to shares that are issued by an Irish public company here; they can take action against every person who is a director of the company, every person who has authorised himself to be named in the prospectus as a director, every person being a promoter of the company, and every person who authorises the issue of the prospectus.
I am not going to trouble the House with the full and unreasonable reading of section 49 of the Companies Act, except to say that this section—a most carefully drawn section—provides protection for persons who were innocent of the mistakes which had given rise to the civil remedy. There should be civil remedy, but civil remedy along the lines of section 49 of the Companies Act, 1963. The civil remedy which is in this Act is paralleled by a similar provision in the Northern Ireland Act of 1960, and by a similar provision in the 1948 Act in England, and is recommended to be in new legislation with regard to unit trusts in Britain. We ought to take advantage of their experience. I cannot see any reason why they should have less rights than people who invest in public companies. Indeed, I should have thought that these smaller people, being less in touch with people who give them good advice, should if anything have greater rights. They certainly should have equal rights. People who invest in unit trusts should be given all the rights that persons who invest in public companies do not have.
My third point is in reference to subsection (2), paragraphs (c) and (d). Here the Minister is taking power to provide that advertisements or documents should contain various kinds of statements and so on. I should like to know why we do not now have before the House what these statements are going to be. We would have the advantage of being able to debate them. When the Companies Act was being enacted the two Houses debated it very fully and comprehensively. As a result of their debate, they produced a very much better piece of company legislation than prevails in Britain. We would now be able to debate the statements which should be contained and which will be in the order. There is no good saying that the order can be annulled when we know that the order will not be annulled. Let us face a political fact.
Having made an order no Minister can come into this House and allow it to be annulled, unless there is something utterly crazy in it. We are not going to expect such to be the position. Now is the time for us to hear from the Minister what matters ought to be in the advertisements, and now is the time to have a debate on them. I should like to give the House an idea of the sort of things that might well be in the advertisements. At this point I should invite anyone who has anything else to do to go and do it, because I shall be going on for quite a while. Unfortunately, the Minister has his obligations which I know he will perform.
The advertisement should contain a specimen portfolio of the equity securities, together with a statement of the proportion to the other securities in which it is proposed to invest. Or if it does not contain that, it should contain a statement setting out the investment objectives and proposed methods of achieving them. For the information of anyone who wants to follow this, it is useful to get a short summary of this on the record. I have referred to it already in my Second Reading speech. It is the Rules of the Association of Unit Trust Management in the United Kingdom.
The second point is that, where there is an invitation to the public to subscribe to what they call a block offer—that is one which would be issued after the first one—which contains any reference to one security or another security, it must give the complete list of securities. When you think about that you see the wisdom of it, because you could pick out your star performers and tell the public that you had invested in these and be very quiet about the ones in which you lost money. This is more or less what all those who talk about the stock exchange do: they tell you about their successes and they do not tell you about their failures, which very often outweigh their successes, particularly the people who are given to talking about their stock exchange investments.
The third point is that the advertisement should contain a statement of the objectives of the trust. Capital growth, for example, would be one objective; another trust might be income; another trust might be a balance of both. Another point is that the advertisement should not suggest that if you do not come in quickly you will not be able to get units; in other words, implying that there is a scarcity of available units, encouraging people to get excited by the news that there is a terrific new trust and to get in quickly. The advertisement might contain, for example, a statement to the effect that the price of units and the income from them may go down as well as up, reminding the public of what many of them may need to be reminded of. This is not law here, but it is a stock exchange requirement, and in that sense it has the same effect as law. When you are issuing a prospectus you have to put something on the top of it to the effect that statements or expressions of opinion quoted in any advertisement must be those of the whole board of the managing company. Everybody is responsible and anybody who does not agree, if he is in a minority, off he goes before that statement carries his name in support.
If the quoted yield as is proposed under the Bill is an estimate, as presumably it must be, it must state its nature, whether it is a gross yield or a net after tax yield. Where you have a block offer, which is to say that for a particular period the units are available at a particular price, the offer should contain a statement to the effect that, after the current price closes, units may be bought at the current daily price. In other words: "Do not worry about this block offer; you still have an opportunity of buying these at the current daily price which is quoted for the units in question."
Another point which might be provided for in this Bill, as I think it ought to be, is that the name, style, title or description given to or required by a unit trust is not or does not become misleading to the public in relation to the objectives or portfolio of such unit trust.
A further point of considerable importance is that every statement should contain a proposition to the effect that units trusts are medium-or long-term investments, that this is not a suitable vehicle for people who want to get their money back very quickly. This is not equivalent to a deposit, and if they want their money back they will run the risk of getting less back than they put in.
Finally, with regard to what might be in the statement, no advertisement should contain any disparaging reference to another unit trust. Neither should any comparison be made with another unit trust or other unit trusts unless the comparison distinguishes between the differing objectives and portfolios of the unit trust or unit trusts under comparison.
I have taken the liberty of giving these absolutely derivative propositions merely to indicate that this is the sort of thing which I should like to see in an appendix to this Bill, so that we would then be looking at the language in which it is all expressed. Different Members of the House might have different ideas as to what ought to be in the advertisement or in what would be the equivalent of a prospectus, and the House would be able to have a full debate on it. This would be advantageous to the measure itself and enable it to be a better measure.
Might I, fourthly, refer to subsection (2) (g)? This is a small but valid drafting point, which, I think, requires a follow-through throughout the document. I hope I am correct in this. Section 6, subsection (4), includes in a unit trust scheme something other than a trust, and the Minister described what he had in mind with regard to that— the sort of arrangements they have in certain places on the Continent where you can have the equivalent of trusts but where, generally, trust is an idea of the Anglo-Saxon system and is not a continental one. But you could have something which was equivalent to a unit trust, though organised in such a way that it did not create a trust.
May I refer the House to subsection (2) (g) where the Minister by order:
may provide that the deed in which are expressed the trusts created in pursuance of the scheme shall make provision, to the satisfaction of the Minister, in relation to such of the requirements of the order as may be specified in the order.
Surely, if that paragraph is to remain, or if it is desired that it should remain, the words: "the deed in which are expressed the trusts created" should go on to say: "or the legal instrument giving rise to the arrangements which under subsection (4) (c) of section 6 are regarded as a unit trust scheme"? There may be no deed. If you have something which is a unit trust scheme because it is deemed to be such under section 6, there may be no deed of trust at all, but the Minister may want to provide that whatever is the legal instrument containing the equivalent of the deed will contain certain matters. My thinking on all of this is that we should set out as much as possible in the Bill, but the Minister must retain residual power to add further burdens on the managers of unit trusts. This seems to me to require a change in drafting and worth referring to.
With regard to subsection (4) (c), frankly, I am not sure that I understand what is here intended. I think I understand it as meaning that a registered unit trust in being obliged to conform with the provisions as to the proportion of the assets to be invested in Irish securities can look at securities that are not Irish and invest in them, provided they carry on part of their business in Ireland. If they do carry on part of their business in Ireland, the Minister will determine what proportion of that business constitutes the proportion of the holding of that company which can be regarded as Irish. I think this is what it is. If that be so, I have a small point to make. Should it not include "subsidiaries of such companies", the shares of which might in fact be available to be taken up by the manager in question under perhaps special arrangements he might make with the parent? This is not a point which I should emphasise too much because, quite frankly, I lack the understanding of the intention of paragraph (c). Therefore, I may be completely wide of the mark with regard to what I have just said. That was my point.
It is not clear to me as to what is intended in subsection (4) (c) (iii). What is meant by the word "issue"? My understanding of it is that it is construed differently according to the different places in the Bill in which it is found. For example, does it mean that a nuclear company can come over here and issue their shares by sealing them in Dublin. I should like to get some clear information on this. In my opinion it is important. With regard to subsection (4), where the Minister makes an estimate under paragraph (b) and expresses an opinion under paragraph (c), how does he make the estimate? I have already expressed that point, so I will not dwell on it, but I have not made this point with regard to paragraph (c).
For example, can the Minister vary that opinion from year to year? On what basis can he vary it? How is the unit trust manager to know what proportion of the business the Minister is regarding a particular company as conducting in this State? I do not think what is proposed is anything other than a liberal approach to the problems of the unit trust manager. I should have thought that the manager must be given notice if the Minister's opinion has changed in regard to the proportion of the business as having been conducted in the State and, therefore, the proportion being available for investment as being Irish. What degree of notice must the manager get of this change of opinion. It is only fair that he should get some notice of the change of opinion, as the company could be conducting their business on a very extensive basis during the year and, as we know, they could curtail their business very sharply. Therefore, the manager should be given ample notice of the change of opinion, because what he previously regarded as the percentage would be a much lesser percentage.
I have two more general points regarding this section, but I am afraid that I am repeating myself in referring to them. It should be set out in as clear a way as possible what the unit trust managers have to comply with. Paragraph 309 of the Jenkins Report states:
In our opinion it was not unreasonable, in early attempts at control, that these wide discretionary powers should have been vested in the Board of Trade since it would probably have been very difficult at that stage to devise clearly defined and limited statutory rules. Moreover the present system has in practice worked reasonably well and the Unit Trust movement has an enviable record of fair and honest dealing over the whole of its life. We also think that the Board of Trade have exercised their wide powers with moderation. Nevertheless, we have come to the conclusion that the present system is open to objection to two counts. First, on principle, we doubt the wisdom of leaving control completely within the unfettered discretion of the Board of Trade; we think that it should now be possible for the latter, with the experience of the last thirty years, to draft precise rules for unit trusts which would be of general application and subject to Parliamentary approval.
The precise recommendation of the Jenkins Report with regard to this matter is that this should be done by statutory instrument. I do not think that this invalidates the point I am making with regard to Irish practice in connection with statutory instruments. They do not receive the kind of debate that this kind of Bill receives. The Jenkins Report continues:
Secondly, in practice, we think there is some substance in the complaint of the Association of Unit Trust Managers that these absolute powers have led the Board to concern themselves too much with the detailed arrangements of the unit trusts. This, it is said, tends to embarrass the managers owing to delays in the settlement of matters of relatively minor importance and uncertainty as to the new requirements which the Board may think fit to impose from time to time. For example, we do not think it necessary to require, as a condition of authorisation, as the Board of Trade have informed us that they do, that trusts should distribute dividends to unit holders at least twice a year.
In a particular kind of unit trust the investors might not be interested in receiving a dividend at all; it may be that they are only interested in getting it to grow in value, and this would simply add to the cost of the administration of the scheme. The paragraph is to argue support for the general proposition that we should have here in perhaps a Schedule or Schedules to the Bill what the Minister's mind must now be on with regard to what is to be required of unit trusts, which we hope will be established and be successful here.
Finally, on this section, I will repeat a point which is so important that, having said it at the beginning of the section, I wish to say it again at the end. It is this: if a UK or non-Irish trust of any character performs better because they are operating under a less restrictive type of code than Irish trusts are, then the inevitable consequence of this will be that money will flow out from the Irish trusts to the UK trusts, because the news with regard to the performance will get around. Therefore, the proportion should be determined on the basis of a real desire to make the unit trusts in Ireland succeed.
There has been some degree of confused thinking with regard to this. We understand that there has been a considerable outflow of money to UK unit trusts. This is undesirable. We all agree that we must try to harness Irish savings to be invested to the highest degree possible in the Irish economy. We have to live with the facts of life. I do not believe that section 7 will be operable; I do not believe it will be possible to hide anything from the Irish investors. They are quite well able to discover, in various ways, what the news is about performance abroad and if it is better than it is here.
I believe there is a natural patriotism here which can be invoked and which will come in support of Irish unit trust managers. The Minister, in his Second Reading speech, referred to a gentlemen's agreement. He can have another gentlemen's agreement for the managers of these trusts. I am sure he will find that the managers of these trusts will want to invest as high a proportion as they can in the Irish economy. Many of the managers of these trusts will be people whose own profitability will be determined by the success of the Irish economy; they will want the Irish economy to succeed and will want the savings to be harnessed to profitable ventures here. It should be the Minister's approach that he ought to try to establish something that leaves the matter as flexible as possible in the hands of the managers and, at the same time, have a constant exchange of views between him and them as to their policy and the reasons why they have to put such a proportion elsewhere at this time rather than at another time, and so on.
If as a result of such a policy we have a Bill which makes the unit trust movement in Ireland successful we will be doing more good to the economy and retaining more savings than if we tried to retain too much by specifying too high a proportion as a result of which the unit trusts here may not perform well or may not perform as well as their UK counterparts. The result of that would be that the outflow which the Minister and his advisers desire to dry up and stop would continue.
