Can I raise a question with the Minister on this section regarding authorised minimum share capital of £30,000? I understood, on reading the Bill, that the Minister has power, by order, to adjust this figure. I am not sure if I am raising this matter on the appropriate section, but the clarification I seek is this: will the Minister have authority to adjust that figure downwards as well as upwards?
Companies (Amendment) Bill, 1982: Committee Stage.
Sections 1 to 4, inclusive, agreed to.
SECTION 5.
Question proposed: "That section 5 stand part of the Bill."
The point arises on section 19. Perhaps we could deal with it then.
All right. I will raise the query then.
Question put and agreed to.
SECTION 6.
Question proposed: "That section 6 stand part of the Bill."
In section 5, a certificate of incorporation comes in under subsections (3) and (4). But for a company to commence business, it would appear under section 6 as I read it, that an additional certificate is to be issued. We are not talking about the same certificate in both sections.
They are different certificates.
The certificate under section 5 would confirm the registration of the company. But to commence operation, would I be correct in saying that an additional certificate is required under section 6?
That is correct, for a public limited company.
We are moving very rapidly. On subsection (7) of section 6, where a public limited company would commence to do business or exercise borrowing powers in contravention of this section the penalty on conviction would be a sum of £500. Bearing in mind the size of penalties and fines in relation to other contraventions of the Act that may arise, is the Minister satisfied that a penalty of £500 is an adequate deterrent?
I am not satisfied that it is. It is inadequate, but I understand that the reason that £500 is always mentioned in these sections in relation to summary conviction is that there was a judgment of either the High or the Supreme Court some time ago suggesting that that was the limit of the monetary penalty that could be imposed by a court of summary jurisdiction. I fail to follow the reasoning, because I would have thought that 12 months' imprisonment, for example, which can be imposed by a court of summary jurisdiction, is a very severe penalty. Particularly in a context such as this, a £500 fine is meaningless, but this is the figure which the draftsman puts in. If I felt that it would stand up I would prefer to change that to about £2,000 at the very minimum. Realistically, it should be about £10,000 to mean anything, but presumably there could not be a summons in a summary court. One would have to bring it before a judge and jury, which would be a very lengthy procedure for a relatively technical matter of this kind.
Question put and agreed to.
Sections 7, 8 and 9 agreed to.
SECTION 10.
Question proposed: "That section 10 stand part of the Bill."
The question of authorised minimum share capital arises again here, but we can clear up that matter in section 19.
Question put and agreed to.
Sections 11 and 12 agreed to.
SECTION 13.
Question proposed: "That section 13 stand part of the Bill."
We are back to the point that we were making earlier on the question of penalties. The penalty here would appear to be rather small in relation to penalties in other sections of the Bill for other offences. Perhaps the earlier observation of the Minister may apply to this situation as well.
It does apply. It is unsatisfactory, but unfortunately I cannot take the risk of putting in a more realistic figure because the section could be declared unconstitutional. It does, at least, have the possible merit, but certainly the last one, that it is not just the company that can be fined £500 but the various officers or other individuals who were involved in telling of business when they should not, or it may be that a fine of that kind may be a little more relevant or meaningful to them.
Question put and agreed to.
Sections 14 to 18, inclusive, agreed to.
SECTION 19.
Question proposed: "That section 19 stand part of the Bill."
This is the section to which I was referring earlier, regarding £30,000 of authorised minimum share capital for the company. Subsection (1) states that in this Act "the authorised minimum" share capital means £30,000 or such other sum as may be specified by order made by the Minister under subsection (2). I understood from the Minister on Second Stage that his authority was confined, more or less, to extending upwards. I do not get that understanding from the section, but my query is simply this: can the sum specified by the Minister be smaller as well as greater than £30,000?
Technically it can be less, but in practice it will never be less because the purpose is to raise the figure of £30,000 to keep pace with inflation and also with the possibilities of the changing relationship in value between the Irish punt and the European currency unit. As it is drafted, it is correct to say that it could be decreased, but that will not happen in practice.
Yes. I accept what the Minister has said, that technically it is possible to have a smaller as well as a greater sum. I have no doubt, from the way in which he responded to the query, that for as long as he is the man with responsibility there, it will not be less. It is nothing that can be guaranteed into the future and I am wondering ——
For quite a few years, Senator.
I am sure the Cathaoirleach understands the point that I am making that, at this stage, as we are now bringing the legislation into effect, why not provide against somebody in the Minister's shoes at some time in the future abusing the openings there and reducing the requirement to what might be a ridiculously low figure?
Well, to help the Senator, I suggest that on Report Stage, which I hope we might be able to take on conclusion of Committee Stage today, we could amend line 5, subsection (1) so that the subsection could read:
In this Act "the authorised minimum" means £30,000 or such greater sum as may be specified by Order made by the Minister under section 2.
The substitution of the word "greater" for "other" would put it beyond any doubt that it would have to be an increase upwards.
I thank the Minister.
Question put and agreed to.
Sections 20 to 30, inclusive, agreed to.
SECTION 31.
Question proposed: "That section 31 stand part of the Bill."
It is in this section that the penalty of £5,000 applies, the maximum penalty. As I said on Second Stage, it is a good figure and I hope that it will have the desired effect.
Question put and agreed to.
Sections 32 to 39, inclusive, agreed to.
SECTION 40.
I move amendment No. 1:
In subsection (1), page 42, line 1, before "any" to insert "the company should be wound up or if".
I welcome the Minister's positive approach to all the sections so far. We have recognised already his commitment to good strong legislation, and this Bill is evidence of such. However, on section 40 we believe that the amendment we have put forward would go along to strengthen even further what we are all committed to. In fact, it might even cover, to a certain extent, the problems that would arise regarding the low fines in the sections we have discussed. In so far as we can, within the section, we try to make sure that companies who find themselves in a serious situation would be controlled under this section through the extraordinary general meeting that would need to be called when the net assets of the company are half or less of the amount of the company's called-up share capital. Our first amendment asks the Minister to consider inserting before "any" on page 42, lines 1a subclause which appeared in Article 17 of the EEC directive related to this Bill, which we feel adds a thrust and force and could concentrate wonderfully the minds of the people calling the EGM to discuss the serious situation. Article 17 includes the words "whether the company should be wound up, or if any and if so what measures should be taken." We believe that there was great purpose in inserting those words into Article 17. We feel, with the seriousness of the situation that would demand an EGM, that clause should be included also in the section. Is there any reason why the sub-clause of Article 17 of the EEC legislation was left out of our Bill?
I would tell the Senator that it was not left out, that the words "whether any, and if so what, measures should be taken to deal with the situation" include the question of winding up, quite obviously. They also include various other possibilities. The Senator, with respect, is putting too much emphasis on winding up. What we should seek to achieve with companies who are in trouble is a resuscitation of them eventually, so that they will not go under and that employment will not be lost. There is one certainty about a company that is wound up, which is that it is at an end and its activities are at an end. But winding up is not the only solution to a company's problems. It inevitably has to be a solution to the problems of some companies and is, but it is by no means the only solution, and efforts to revive the company are what I would like to encourage, at least as much as winding up. I am loath to give prominence to winding up.
One of my reasons for being slow to accept the amendment is that if winding up is specifically referred to here as being the chief purpose of the meeting that would be called under this section, it will immediately frighten the life out of creditors and will make employees very nervous. The word gets out that such a company is having an extraordinary general meeting called specially under section 40 of this Act, which is the winding up section is the way it will be put, to consider the question of winding up. There is no better way to ensure that a company will go into liquidation than to call a meeting for the purpose specifically of discussing whether or not it should be wound up. It will bring every creditor it has in the country down on top of it like a ton of bricks. I would prefer the broader wording in this section — to consider all or any measures that might be taken to cope with the problems that the company has. The prospects of restoring it to health, retaining it as a viable commercial entity and retaining the employment that is involved in it, are greater under the wording as in the section, rather than under the wording as proposed.
With respect, I hoped that the Minister would realise that the introduction of this amendment would not inevitably lead to the winding up of such company. What the amendment could, should and perhaps needs to do on certain occasions, is lead to an EGM being called when several options were put foward. The option of winding up would be the last resort. I agree with the Minister that nobody wants to see a company wound up. That is the very last resort. However, our sad experience is that on some occasions, reviewing the final winding up of a company before such intervention, it has been realised that if the company had perhaps thought seriously about the winding up process before they were forced into it, the debts might be far less than when they reached that extreme. I hope I have made myself clear to the Minister.
Perhaps the most difficult and painful option for the EGM but the most realistic at that time, that of winding up, should have been looked at straight in the face. If this sub-clause is left out, that option might never need to be entertained, because it is not included in the agenda.
While accepting that there is a certain amount of merit in the Minister's argument, I advance two points in support of our amendment. The first one is that the section as it is does not, in our reading of the situation, adequately reflect what was intended in Article 17 of the EEC Directive. In our judgment, section 40 does not truly or adequately reflect what is intended or put forward as being necessary in Article 17.
The second argument in support of the amendment is that while I to some degree accept what the Minister has been saying in relation to the panic that may be caused among creditors and employees if the story is out that an extraordinary general meeting is being held for the purpose of winding up a company, we provide for that situation. We will be providing a very worthwhile inspiration to those whose responsibility it is correctly to guide the destinies of the company to get on with their job. What we are proposing here could be interpreted by them as either a threat or a stimulant and, maybe, both. For that reason, I feel that there is merit in what we are proposing.
This is a dangerous amendment. If the section were amended the meeting called would, first of all, have to devote itself to whether the company should be wound up. It is only when that matter was finally decided, and decided against, that other measures could be considered. If you have the emphasis on winding up and must have the decision first on that question, which I think you would, it is only then that the meeting could go on to decide other possible measures. If it is just one of many things, perhaps some measures would be suggested that could be tried first, before the question of winding up was considered. The emphasis, the whole psychological climate of a meeting in the circumstances of having this amendment included would be "Will we wind it up or will we not?" It is certainly a very negative approach, rather than a positive approach to the future of the company.
Undoubtedly, if winding up is the proper thing to do, I have no doubt that the meeting will come to that conclusion without necessarily putting it in as the first matter that has to be considered. From every point of view, it is more advantageous and certainly will give a better chance of survival to a company if all options are considered before they get around to the question of whether winding up is the only possible way of dealing with the situation.
I take Senator Ryan's point. However, unfortunately, I do not share the same faith and confidence in the wisdom of the management of that meeting. We are trying to work this out in the most constructive way possible. We are afraid that if there is no mention at all of winding up, it may never be considered, to the detriment of the many people we are trying to save. I understand that it might have to be the first option to be considered and therefore psychologically damaging. However, by leaving it out altogether it probably would be left out at the EGM as well when it should be a realistic option to be looked at fairly and squarely. What we are seeking is that companies, on arrival at a meeting, would not skate over the surface. One of the measures which they might not consider would be the reality of having to wind up before the situation would get worse.
I appreciate the point the Senator makes, but what both I and Senator Ryan have said remains valid. There is no question of the option of liquidation not being considered — the words used in the section could scarcely be wider: "The purpose of considering whether any, and if so what, measures should be taken to deal with the situation". We should have a more positive attitude. We should start by setting out whether the company should have recourse to Fóir Teoranta, or to the IDA rescue unit, or to the ICC, or whether it should seek greater accommodation from its banks, or start a new marketing drive, or whether it should cut out some of its loss-making activities in order to preserve the rest of it.
All these are options which I would like companies to look at with at least the same enthusiasm as they would look at the question of liquidation. In order to try to preserve the companies that are in difficulties I do not want to highlight the fact that liquidation was decided by the Oireachtas as the chief remedy for problems: I do not think that represents the views of anyone in either House. Both Houses would prefer that positive efforts be made to save the company before arriving at the ultimate situation.
There are cases in which companies should have gone into liquidation before they did, but the losses sustained would not have been as heavy. All of us are guilty, perhaps even as recently as last night, in trying to sustain the unsustainable beyond the period in which it should be sustained. The factory that was under discussion last night, along with a number of others, were helped out in circumstances that on reflection was perhaps too long. We should not go to the other extreme and regard liquidation as the remedy for everything. If a man is ill the best way to avoid having to treat him in hospital would be to let him die: death is not a remedy for either human beings or ailing companies, because the problem of treatment will not arise after death.
I agree to withdraw the amendment. However, the Minister has been talking about extreme measures. I would like to think that the collective intelligence of the management and executives at such a meeting would not be harried into feeling that because the company should be wound up in accordance with the section, they feel obliged to take the extreme measure of winding it up. If there is to be any hope for Irish industry, it is first options we should be thinking of. As the Minister pointed out, human behaviour and our psychological make-up allow us to sustain the unsustainable. The amendment was to help industry to concentrate on something which they might find unacceptable.
Amendment, by leave, withdrawn.
I move amendment No. 2:
In page 42, between lines 2 and 3, to insert the following new subsection:
"(2) Where a company holds an extraordinary general meeting pursuant to subsection (1) it shall during every subsequent 6-month period duly convene an extraordinary general meeting of the company in accordance with subsection (1) until the net assets of the company are in excess of half of the company's called-up share capital."
This is an attempt to extend the thinking and seriousness of the company regarding the situation that led to the EGM. The company, having got through the first EGM, and the situation not having improved — there might have been rapid disimprovement — there is nothing within the section to force that company to call another EGM to consider the situation which has become even more serious. When the company reaches the stage when the net assets are half or less of the amount of the company's called-up share capital, going though the formula of one meeting is not enough. We would like to think that the situation in the company would improve. When the company holds the extraordinary general meeting, pursuant of subsection (1), it shall during every subsequent six-month period during which it finds itself in that situation, hold an extraordinary general meeting.
Though I can see the objective of the amendment I feel justified in suggesting that it be rejected because of the burden and expense it would impose on companies which are in a difficult situation. Moreover, there is a danger that too many meetings, if their occurrence became known, would have a damaging effect on the confidence of employees, customers, creditors and shareholders alike. Different company rescue operations, in most cases, would require more than six months to take effect. In addition to the proposed extraordinary general meeting under section 40, in the normal course there would be the annual general meeting at which the shareholders would have the opportunity to review progress. I am introducing an official amendment which will meet the objectives of the Senator's amendments because it provides for a reference to section 40 in the auditor's report under section 163 of the 1963 Act.
If shareholders wish to examine particular difficulties in a company they, as a group provided they own not less than one-tenth of the paid-up capital with a right to vote at a general meeting, are free under section 132 of the 1963 Act to require the directors to convene an extraordinary general meeting. If the directors do not convene such a meeting within 21 days the shareholders themselves can convene the meeting.
There are three broad headings under which general meetings of a company can be held. They can all be held within the one year and must be held, irrespective of whether the directors want them or not. That seems to be adequate.
I accept that the Minister's amendment goes some way to monitoring the provision and keeping it under review.
Amendment, by leave, withdrawn.
I move amendment No. 3:
To delete subsection (4), page 42, lines 15 and 16, and to substitute the following:
"(4) Where the day mentioned in subsection (1) is before the appointed day and directors of the company shall duly convene an extraordinary general meeting of the company for a date not later than 90 days from the appointed day for the purpose of considering the matters mentioned in subsection (1)."
Section 40 (4) provides:
This section shall not apply where the day mentioned in subsection (1) is before the appointed day.
This is an attempt to try to include companies who under subsection (1) would not come under this section. However, there could be a number of companies who would need such an exercise to be gone through, and what we are suggesting in out third amendment is that where the day mentioned in subsection (1) is before the appointed day the directors of the company shall duly convene an extraordinary general meeting of the company for a date not later than 90 days from the appointment of the day for the purpose of considering the matters mentioned in subsection (1). It is an attempt to try to include companies who at present should be required to have such a meeting but would be excluded under subsection (1).
I am sorry but I must suggest that this amendment should be rejected also because as it stands it would embrace any day in the past, and that would not be appropriate. For example, if a company which is trading profitably on the appointed day, which will be some day after the Act has been passed, and has no major problems, had been in a situation in 1965 that it had lost half its paid-up capital but had long since overcome the difficulty, under the amendment it would be a criminal offence for the directors not to call an extraordinary general meeting.
I am sure the House will agree it would be quite inappropriate to force a viable company into that situation, which would be embarrassing and indeed damaging to it. The directive does not require any degree of retrospection, but there are other considerations. As a general proposition directors from the appointed day will be concerned with the state of their company because a breach in the statutory duty to call a meeting involves a criminal offence carrying a fine of up to £2,500 and up to two years inprisonment, or both.
I would ask the Senator to bear in mind that in accordance with the amendment which I am introducting and which we referred to earlier, it is amendment No. 7, every annual general meeting subsequent to the appointed day will have the comments of the company auditor in relation to the position of the company with regard to section 40 of this Act. For example, the annual general meeting of a company could occur within one or two months, or some short period, after the appointed day under this Act.
I accept the Minister's amendment goes a long way to cover the point. However, I am still a little concerned about companies who perhaps in 1965 would have been in default. We are not talking about that; we are talking about trying again to protect as much as possible the creditors, the shareholders and the employees particularly of companies who would now be in a desperate situation but could be excluded under the section. Maybe the Minister might consider making it retrospective within a certain date.
The day mentioned in subsection (1) is the day on which the directors find that the company has lost more than half its paid-up capital and so on. Subsection (4) provides that the section shall not apply when that day is before the appointed day. If the company is still in trouble and has still lost half its paid-up capital, the fact that the appointed day shall be 1 October 1982 will not cure it, and the directors can look at the situation on the appointed day. If it is still in that position on the appointed day they will have to call their meeting under section 40 or if they do not they will commit an offence. If the company is not in the situation of heavy loss that is envisaged by subsection (1) of this section, then the necessity to call the meeting does not arise. This section is to deal with present and future losses. It is not meant to carry out a historic review of past losses. If the company is not affected by subsection (1) on the appointed day then it is healthy.
Taking the example I gave to the Senator, why hold a meeting of this kind if at some date in the past the company was in a bad position? Whether it is in 1965, as I said, or whether it is the previous month or week it does not matter. If it is out of the bad situation you do not have to have those types of meetings so, therefore, there is no point or necessity or advantage or benefit in having a retrospective subsection of this kind, as suggested. It would only do harm, because the amendment implies that the company is now healthy but it was not a month or a year ago. If it is now healthy we should say "Thank God it is all right now," and leave it alone and let it get on with its business, rather than having post mortems into why it was in a section 40 situation a month or 12 months ago. The gratifying thing is that it is not in the situation today.
Amendment, by leave, withdrawn.
Amendments Nos. 4 and 7 are related and should be discussed together.
I move amendment No. 4:
In page 42, between lines 16 and 17, to add the following new subsection:
"( ) Where the net assets of a company are half or less of the company's called-up share capital on any balance sheet on which the auditors report pursuant to section 163 of the Companies Act, 1963, the auditors' report shall contain a statement on this matter."
I note that amendments Nos. 4 and 7 are related. I welcome amendment No. 7 because I think it goes a long way to cover the concern that led us to propose this amendment. I accept the Minister's point in regard to the other amendments. Amendment No. 7 goes a long way to controlling the situation proposed to be dealt with by those amendments. I welcome such an amendment.
Amendment, by leave, withdrawn.
Section 40 agreed to.
Sections 41 to 61, inclusive, agreed to.
FIRST SCHEDULE.
Government amendment No. 5:
In paragraph 2, page 61, line 30, to delete "that" and to substitute "the".
This is an amendment of a drafting nature only which was recently suggested by the parliamentary draftsman. It is necessary because it is part of a quotation from section 10(6) of the 1963 Act.
Amendment agreed to.
Government amendment No. 6:
In paragraph 16 (in the proposed paragraph (i)), page 65, line 11, after "share capital," to insert "within the meaning of the Companies (Amendment) (No. 2) Act, 1982,".
This also is an amendment of a drafting nature only, recently suggested by the parliamentary draftsman. Paragraph 16 amends section 213 of the 1963 Act by inserting two additional paragraphs. The proposed paragraph I refers to "the transitional period for share capital," which is a term not defined in the 1963 Act. It is therefore necessary that the proposed paragraph should indicate that the "transitional period for share capital" is defined in the Company's (Amendment) (No. 2) Act, 1982, which is this Act.
Amendment agreed to.
Government amendment No. 7:
In page 69, to insert after paragraph 26 the following new paragraph—
"27. The Seventh Schedule to the Principal Act is hereby amended by inserting after paragraph 4 the following new paragraph—
`5. Whether, in their opinion, there exists at the balance sheet date within the meaning of the Companies (Amendment) (No. 2) Act, 1982 a financial situation which under section 40 (1) of that Act would require the convening of an extraordinary general meeting of the company.'."
Amendment agreed to.
First Schedule, as amended, agreed to.
SECOND SCHEDULE.
Question proposed: "That the Second Schedule be the Second Schedule to the Bill".
I would just like to make a comment. I am not asking for any amending of it but I would just like perhaps for future drafting to draw attention to the fact that under the Second Schedule there are two lists of names as examples of shareholders. It will be noted that in the first line on page 70 there are the names of five men, all of whom have positions and professions within society. We then reach the list on page 71 and we have other names. Right at the end we have the name of one woman. While I would be the first to uphold the importance of women as housewives in this country, I would like to point out that I do not think the two lists reflect the positions and participation of women in the business life of the country at the moment. I ask that perhaps there would be a more realistic reflection of that in future lists from the Department.
I assure the Senator that I did not pick the names or occupations of these people. If she would like, on looking at the second of these lists, we will make "John Boland, Solicitor", "Joan Boland" and we will make "Martin Cullen, Hotel Proprietor""Mary Cullen".
I welcome the positive response of the Minister. Perhaps in the not too distanct future we might have 50 per cent of the names female and holding professional and business positions.
Question put and agreed to.
Third Schedule agreed to.
Title agreed to.
Bill reported with amendments.
Agreed to take remaining Stages today.