Seanad Éireann debate -
Wednesday, 20 May 1987

Vol. 116 No. 2

Companies (No. 2) Bill, 1987: Second Stage.

Question proposed: "That the Bill be now read a Second Time."

Minister for Industry and Commerce (Mr. A. Reynolds)

First of all may I take the opportunity on this my first visit to the Seanad since having the honour and the privilege of being appointed Minister for Industry and Commerce to congratulate you, a Chathaoirligh, and Senator Charles McDonald who has just been elected Leas-Chathaoirleach and to extend good wishes to all those who have either been re-elected or elected for the first time. I hope that on this very important Bill we will have meaningful constructive discussions. I come in here with an open mind on this Bill. Work was started on this Bill back in 1982. Since then seven Ministers for Industry and Commerce have had their finger in the pie. I cannot claim to have been one of the previous six although I was there as a caretaker for two weeks.

On assuming office and recognising the many malpractices that exist and the bad name that business is getting and, indeed, the damage that can be done to the promotion of enterprise in our society I felt it incumbent on me not to look at aspects of this Bill which personally I have certain reservations about. We would like to strike the right balance but, rather than take the course or amending this Bill and sending it back for redrafting and so on, I decided to take the Bill as it was printed and published just before the general election and bring it here first for a constructive debate knowing full well that the Seanad will have a great input into the various sections. It is against that background that I take this Bill to the Seanad. I hope we will hear from the various Senators their views in relation to whether this Bill strikes the right balance between eliminating malpractices and, on the other hand, not being seen in practice as a deterrent to the promotion of enterprise.

Everybody will agree that the world and his wife have been calling for the stamping out of many of the malpractices this Bill sets out to address. I am not exaggerating when I say that this Bill is the most radical overhaul of Irish commercial law since the Companies Act, 1963. That Act has stood the test of time extremely well, but it has become increasingly obvious in recent years that some of the joints were beginning to leak, as it were, and needed to be replaced by more modern approaches.

In the past 20 years alone Ireland has undergone an industrial and commercial revolution. The number of companies registered with the CRO has mushroomed since 1963. At that time there were about 11,500 companies registered. Today there are well over 100,000. Company law has only begun to respond to these changes. It is inevitable that, here as well as elsewhere, the pressure created by an accelerating pace of change has had its negative spin-offs. The increasing incidence of all types of criminal activity including sophisticated "white-collar" crime bear testimony to the fact that commercial standards have been allowed to decline. While there can be no doubt that fundamental reform is needed, I want to stress that what we are talking about here generally is a minority of cases in which directors have abused their position. A large majority of people in business conduct their affairs honestly and honourably, and have no intention of defrauding their company, its creditors or anyone else.

However, I am equally satisfied that legislation to tackle abuse of limited liability and to put a stop to the activities of rogue directors has the support of a wide consensus of opinion in commercial and political life, and is not the result of pressure from any one interest group. It was undertaken, not because of a few spectacular scandals, but as a result of growing public concern about the increasing incidence of malpractice in companies, and in particular about abuse of limited liability status.

This concern was shared by employers, employees, accountants and other professionals in the business area. It was reflected in wide media coverage and also in the commitment of successive Governments to the introduction of legislation. Failure to deal with abuse and malpractice in a strong and decisive way would be seen in the public mind as condoning and, even worse, encouraging it.

One of the main purposes of this Bill, therefore, will be to discourage the reckless and the dishonest from being involved with limited liability companies. Such a development can only be beneficial to the community — far from inhibiting enterprise, it can only strengthen it. The enterprise we wish to promote is honest enterprise. Fraud does not benefit the community, but eats away at the heart of the free enterprise system. Fraud must be liquidated.

Faith in the integrity of the institutions and in the practices of commerce and finance underlies all developed economic systems. It is certainly crucial to the free enterprise system and, if the public are to have confidence in the system, we must continually strive to eliminate malpractice. Otherwise there will be fewer small investors, more corruption, more manipulation, and less attention paid to the interests of proprietors, creditors and workers in companies. Taxpayers are one of the greatest sufferers from any of those malpractices. Many times when a business closes overnight, we find that the largest creditor is the taxpayer. Investment is about confidence. Commercial abuses destroy trust and erode confidence in commercial institutions. In a society which is averse to risk taking and views the Stock Exchange with hostility and suspicion, every incident of malpractice, every dubious insolvency, every abuse of limited liability serves to reinforce existing fears and prejudices. It turns people away from speculative commercial enterprise to the bank, the building society or even the mattress.

Far from being a threat to investment, therefore, greater investor protection must be regarded as an integral part of any strategy to encourage both the development of industry and commerce and more widespread participation by individual investors in new commercial ventures.

This, then, is the general thinking behind the Bill and, I hope, it is fairly reflected in the kind of detailed provisions contained in it. It would be impractical for me to try to cover all of the Bill's content in a Second Stage speech, but I will nevertheless try to give a general overview of the main provisions of each Part.

I believe the main "meat" of the Bill lies in Parts VI, VII and IX and I will comment in more detail on them later on. However, the first part of substance is Part II, which deals mainly with official investigations of various kinds into a company's affairs. There have, of course, been provisions like this in company law for many years now, but experience has shown that inspectors have met severe difficulties in trying to make them work effectively and we have seen important investigations frustrated as a result.

The main change in emphasis in Part II of the Bill, therefore, is the moving of the role of appointing inspectors to investigate a company's affairs from the Minister to the High Court. We expect that the path of any future investigations will run more smoothly under the aegis of the court and that any procedural or legal problems which arise can be quickly and effectively settled there.

Part III of the Bill contains a series of detailed provisions to deal with situations where a company director might be tempted to put his personal interest before that of the company. The main emphasis is on loans to directors and other similar transactions.

Specifically, sections 31 and 32 prohibit a company, subject to certain limited exceptions, from making loans in excess of £2,500 to any of its own directors or their families or to other companies in which such persons have a controlling interest. However, because experience has shown that restrictions on straightforward "loans" can often be avoided by using other more subtle techniques, these sections also extend the restrictions, in the case of public limited companies and large and medium-sized private companies, to what we call "quasi-loans" and "credit transactions". Briefly, these are arrangements whereby third parties pay a director's liability in a financial transaction or provide him with goods or services on the understanding that the company will eventually pay the third party.

There are also other important provisions in this part dealing with matters such as directors' service contracts, section 27, substantial property transactions by directors, section 28, as well as a series of sections on disclosure in the annual accounts in relation to loans and other transactions in favour of directors.

The basic idea running through this whole part is that a director should not use his company to divert what is essentially creditors' money to his own personal use — in other words he should not regard the company as his own private bank.

Part IV of the Bill contains detailed provisions about disclosure of interests in shares. The bulk of these apply to public limited companies, although I will mention the case of private companies in a few moments.

The central idea of Part IV, contained in Chapter 3, is that the beneficial owner of a given percentage of the issued share capital of a public limited company should be required to declare that fact to the company, and that such information should be available to directors, shareholders, employees and creditors of that company. Section 62 sets the reporting threshold at 5 per cent but allows the Minister to vary this by order.

Whereas Chapter 3 applies to the general body of public company shareholders and is totally new, Chapter 2 applies solely to directors and secretaries of such companies and their families and strengthens existing provisions in the 1963 Act. This chapter will require such people to keep the company informed of their dealings in the company's shares and the company, for its part, must keep a separate register of such dealings.

While I do not think a general regime of disclosure is necessary for private companies, there may be circumstances in which a person with a direct financial interest in such a company may want to establish who really owns it. Such a person could be a banker or a creditor, another shareholder perhaps, or even a liquidator. Chapter 4 will enable such a person, in exceptional circumstances, to seek a disclosure order from the court.

The basic philosophy behind Part IV is that, first, a system of disclosure makes for more efficient credit and investment decisions. Secondly non-disclosure of beneficial ownership facilitates fraud and insider dealing. That is a subject that has had wide media coverage in more recent months. Thankfully, it did not affect this country but up to now there has been no legal ban on insider dealing here. It ran free and with the experience of more recent years behind us it is time that we legislated in that regard. The insider or the "tipper" can conduct all his operations through nominees and, thus, avoid detection.

Another powerful criticism of the non-disclosure of the true ownership of shares is that it can facilitate corruption. In a company the nominee system can allow directors, other officers or even public officials to channel contracts to firms in which they or persons connected with them have an interest. In a sense what is important here is not whether corruption exists or the extent of such corruption. What is important is that abuse of the nominee system is seen as an effective means of facilitating corruption.

Part V of the Bill concerns the unscrupulous practice of insider dealing. This practice, or should I say malpractice, is clearly contrary to the principle of an efficient and fair shares market, involving equal access to information etc. Obviously, it also hinders the aim of promoting wider share ownership among the general public. Such people will certainly not be encouraged to invest in Irish industry via the Stock Exchange if the general impression is that someone else always has the "inside track" on relevant information.

Although hard evidence on insider dealing is extremely hard to come by, there can hardly be any doubt that it exists. Indeed, I might say in passing that I am somewhat disappointed that the market authorities themselves do not appear to have acted more decisively to root out this cancer in the securities markets.

Of course, other countries have been having similar experiences, and we have paid close attention to the approaches they have adopted by way of tackling the problem.

The approach we have taken in the Bill is to make it a civil offence to deal in securities on the basis of inside information, to pass on such information by way of a "tip", or to deal on the basis of a "tip". In this way, a person who suffers loss as a direct result of insider dealing will be able to win compensation from the insider. I have looked at the situation in the UK and it is a criminal offence there; in the US it is a civil and criminal offence. The Bill had already contained this provision of making it a civil offence. I am not absolutely convinced or certain at this stage that the penalties are stiff enough. I will be listening with interest to what the various contributors have to say in that regard. Accepting that it is very difficult to prove, we should have a deterrent there. What is the right way and the right balance with which to get a deterrent is basically what I am looking for. This is an area of the Bill to which I will be paying close attention to see if it needs to be improved or strengthened.

I consider Part VI to be one of the most important in the Bill. It is in winding-up that most company law abuses eventually come to light and that is also where there is most public demand for dishonest directors to be made more fully accountable for their actions. Each and every one of us knows of cases where this situation has been abused.

Probably the most significant area being tackled in this part is that of fraudulent and reckless trading, sections 106 and 107. I think many people do not realise that we have, in fact, had provisions on fraudulent trading in company law since 1963, under which company directors could be made personally liable for their company's debts. However, liquidators tended to shy away from seeking such declarations, on the basis that, as the law stood, it was too difficult to establish the necessary standards of proof. All the same, since the early eighties, the courts have, in some notable cases, made declarations of personal liability for company debts, thus "lifting the veil" of limited liability.

Section 107 will, I think, encourage liquidators, in two ways, to seek such orders more often in future. First, the criminal and civil offences of fraudulent trading have been split into two separate sections, thus lowering the standard of proof required in a civil case brought by a liquidator or creditor. Secondly, section 107 introduces the notion of "reckless trading", with the possibility of personal liability where this is proved. There have been many cases where directors have operated a company in a way which, while not actually fraudulent in intent, nevertheless completely disregarded the interests of its creditors, and indeed its shareholders and the taxpayer also.

The Department, in devising the "reckless trading" provision, were very conscious of the need for careful drafting in this important area, to ensure that it would not have adverse effects on businesses generally. That is why we have built in a series of safeguards to protect the "honest director". For example, so long as a person can, if required, show that he acted honestly and responsibly, he can be relieved of liability. I am confident that in this section, we have got the balance right, and that honest directors who play by the rules will have nothing to fear.

There are many other important provisions in Part VI, of which the most crucial, perhaps, are section 104 dealing with fraudulent preference, section 105 on the validity of certain floating charges, and sections 109 and 110 which tackle abuses which often occur in inter-company "group" situations.

Part VII covers the area which has probably been the subject of the loudest public calls for action, that is, the "fly-by-night" director who liquidates one company, leaving a trail of unpaid creditors behind, then turns up in business again shortly afterwards under another name — the famous "Phoenix syndrome". I am sure we have all seen instances of this happening over the years — I certainly have — and am equally sure there is a strong consensus that firm remedial action needs to be taken.

Section 184 of the 1963 Act already allows the court to disqualify a person from being a director where such person is convicted on indictment of any offence in connection with the management of a company or of any offence involving fraud or dishonesty, whether in connection with a company or not. What we are saying in Chapter 2 of Part VII of this Bill is that such a person will be automatically disqualified for, effectively, a minimum of five years following such a conviction.

We are also providing, in this chapter, a discretionary power for the court to disqualify a person in a wider range of circumstances than heretofore. For example, a disqualification order could be made against a person who had been made personally liable for a company's debts in a fraudulent trading case, or where the court is satisfied that a person's conduct in relation to a company makes him unfit to be involved in company management. I think the House will agree that this is the correct approach in such serious cases and that, if the Bill is to have the desired effect, it must provide a clear and visible deterrent to fraud.

Chapter 1 of Part VII, on the other hand, does not prohibit, or disqualify, anyone from being a director. What it does is to say that, if you are a director of a company going into liquidation which turns out to be insolvent, leaving unpaid creditors behind, you cannot set up shop again with impunity, around the corner, under a different name. It is not saying that you cannot be a director, but it is saying that, next time, your company must meet a number of modest conditions, including greater capitalisation, as a protection to the creditors of the new company.

The minimum capital requirement for the "new" company with which such a director becomes involved will be £50,000, fully paid up in cash for a public limited company and £10,000 in the case of a private company. There may be different views offered here in respect of that and I am prepared to listen to those views. Other restrictions are contained in sections 119 to 121. I think Senators will agree that, overall, the restrictions proposed are modest enough, and I will be ready to listen to arguments in favour of, for example, different capital requirements in section 117, or any other views on the matter.

The provisions involved are based on the simple philosophy that we should learn from experience. If someone has a record of being incompetent, reckless or dishonest in the management of company affairs, it is necessary in the interests of creditors to establish significant safeguards to be met by him in the formation of a new company. I repeat — we are not preventing directors of insolvent companies from starting up in business again — we are simply putting a minimum set of safeguards in place in the interests of their future creditors. The honest director who makes an honest effort to run his company has nothing to fear from this legislation but the dishonest ones have a lot.

I believe that honest businessmen are extremely discouraged at the sight of their defaulting debtors setting up shop again in the same place and under a similar company name after putting their original company into liquidation. The level of psychological pressure on honest entrepreneurs by widespread malpractice should not be underestimated. If some are seen to be involved in malpractice with impunity and to grow rich in the process, this can create tremendous pressure on others to follow suit. Too many small businesses have been put out of business by fly-by-night directors who leave these businesses with the impossible task of trying to continue on. Surely the time has come to stamp out that malpractice.

In Part VIII of the Bill, we are taking the opportunity to tighten up certain aspects of the law in relation to receivers. We hear plenty of complaints about those from time to time. The amendments are mainly concerned with the status of the receiver and a clarification of his powers and duties. They include a new duty, in section 136, on the receiver selling property to get the best price reasonably obtainable, and a new procedure in section 135 whereby a creditor or person involved with the company may apply to the court for directions in connection with the performance by the receiver of his functions. Many people have found themselves with no recourse, when they saw the business which they had built up over the years being sold very cheaply by a receiver, either to go to the court or take any action whatsoever. This section, I hope, will change that situation.

Part IX of the Bill introduces a radical new legal mechanism for the rescue or reconstruction of ailing, but potentially viable, companies. There is obvious merit in providing a system whereby a company in temporary financial difficulties can be given a breathing space in which to reorganise or reconstruct. The central feature of the new system will be the appointment by the court of an examiner and the placing of the company concerned under the protection of the court for a period of three months; for so long as the company is "protected", it may not be wound up; a receiver may not be appointed; debts cannot be executed against it, and no security can be enforced against it. If the examiner considers that the company or a part of it can be saved and that this would be more advantageous than a winding-up, he will prepare a draft rescue plan. This will be put to appropriate meetings of members and creditors and, if agreed, will be put to the court for confirmation. If the court confirms the plan, it becomes binding on those concerned and the examiner's appointment will be terminated.

How often do we see companies being put into receivership or put into liquidation overnight? People come to us as public representatives saying it was just a temporary cash-flow problem: they never got the opportunity to recover with banks refusing finance; they had no recourse. Somebody appoints a receiver on the foot of a debenture and the receiver takes over, sells off the business or a liquidator eventually comes in and breaks it up. This is a new provision to give the company in that kind of situation the protection of the court for three months, an opportunity for the business to be sorted out. Maybe receivers are appointed in the middle of financial negotiations between various banks. Where there are three or four banks involved in a business how many times do we see one bank agreeing to go forward, another bank refusing to go forward and the matter comes to a head so fast by perhaps a bank refusing to pay the day-to-day cheques of the company, that the owners and shareholders of the company have no opportunity to act. Given a week, two weeks or a month, if they got that chance they could put that company back on the rails and hold it there.

This is what this provision is about. It is time it has come. All of us have experience of a situation where many a company could have been saved and need not have gone under if this type of provision existed. It gives the company full protection from anybody executing or moving against them for the three months period. The court has to be satisfied that the examiner's plans will work and, if they work, the company stays in business. We are losing enough companies and enough jobs in this country. This section is to be commended to the Seanad.

I see this new procedure as an encouragement to firms in difficulties to face up to those difficulties at a much earlier stage and take action to salvage the company instead of letting it slide towards liquidation, perhaps leaving many dissatisfied creditors behind. To put it another way, the new system will be a counter-balance to other provisions of the Bill which carry the possibility of personal liability for company debts. Companies will be able to seek protection from their creditors and work out a rescue plan. In a nutshell, they will, in effect, have no excuse to trade while insolvent. They can get the protection of the courts. That is what this section is about.

Part X deals with the inter-related areas of company accounts and audit. There is clear evidence that many Irish companies suffer chronically from poor account keeping and, indeed, that this is the reason many of them fail. Sections 180 to 182, therefore, will strengthen legal requirements in relation to keeping of books of account. There is also clear evidence that the law in relation to auditors needs to be tightened up, both to clarify their duties on one hand, and strengthen their own hands in their dealings with company managements on the other.

Part X contains a number of detailed provisions with these twin aims in mind. I will be interested not alone in the debate here but the submissions I will get from outside. It is important to strike the right balance in this section so that auditors do not go overboard in interpretations of this and put restrictions on companies that are not necessarily required. On the other hand, they need strengthening in relation to what their duties are with creditors and the general public.

Part XI is basically an "odds and ends" part, although there are many important provisions in it, dealing mainly with offences of one kind or another. I would, however, draw the attention of the House to one particular provision — section 189 which applies certain provisions of the Bill — and indeed of the 1963 Act — to companies who go out of business without formally winding-up. This is an increasingly common way of avoiding those penalties in the Companies Act which apply only in a winding-up. Unless this gap is filled, many of the Bill's provisions could be avoided by the simple device of not putting companies into liquidation. This, then, is a general tour of the main thrust of the Bill and its most important provisions as I see them. There have been widespread and frequent demands from all parts of the community for this kind of legislation and the individual provisions have been carefully researched and thought out over a number of years by the Department on that basis. The project has been helped along the way by many submissions and representations by interested parties as to what needed to be done and I would like to place on record our appreciation of the time and effort which went into these submissions. I also understand that many associations, auditors, accountants, CII and the business community are looking at the provisions of this Bill and I will welcome submissions from them. We are not rushing into anything. We want to get it right or as right as it can be got.

Indeed I would like to renew the invitation I issued on the publication of the Bill last week to anyone with an interest in the subject matter to give us the benefit of their views on the details of the Bill. While I am confident that it strikes a fair balance between the need to tackle abuse firmly and a wish not to discourage honest enterprise, I will certainly consider any reasoned arguments to the contrary. Indeed, I would be open to any reasonable suggestions as to how the Bill could be improved or made more effective. We do not say that we have all the collective wisdom within the Department of Industry and Commerce. There are many other views and aspects to be discussed and we are open to listen, to read and if we can strengthen the Bill we will be prepared to do it.

There may be those whose first impression is that this measure is "anti-business" or "anti-director" in some way. I would be disappointed if this were the case. I can assure everybody that this is not my approach. The practical difficulty with a Bill of this size and complexity is an entirely understandable tendency to generalise that it is "pro" this or "anti" that. This tendency to generalise obscures the real merit and value of the individual provisions of this or any other similar Bill which would become apparent on closer analysis.

If I had to generalise, I for my part would maintain that the effect of the Bill will be to encourage honesty and confidence in business dealings, that it will encourage directors of companies in difficulties to face up to their problems at a much earlier stage and that there is no reason why honest directors who play by the rules should have anything to fear from this Bill.

The fact is that the Bill is aimed directly and solely at the growing level of abuse and malpractice in company affairs. While it will certainly involve the bringing to book of unscrupulous company directors and managers who engage in malpractice, an equally important purpose will be to act as a deterrent to those in business who might be tempted to deviate from the highest standards of efficacy and ethics in their business affairs. As well as curbing outright fraud and dishonesty, if such a deterrent encourages higher standards of company management, it will indeed have been well worth while.

I believe I have given a fair balance. It could be said to be a carrot and stick approach, an approach to stamp out fraud and malpractice with which we are all too familiar. In the area of the evasion of taxation and the amount of money which is unpaid by many companies in a mad rush to become insolvent or close down overnight, by and large, the taxpayer is in many cases the largest creditor. It could be said that the law is deficient in this regard. There may be views on how the taxation system could be improved. It is our duty to stamp out malpractice and fraud so far as we can while, at the same time, ensuring that we do not deter the development of enterprise and enterpreneurship so badly needed at the moment.

Mr. Manning

At the outset I should like to congratulate you, a Leas-Chathaoirligh, on your election as Leas-Chathaoirleach and wish you many fruitful years in that distinguished position.

May I say how pleased I am that the first major work of this new Seanad is of such a significant and substantial nature. This Bill has been in gestation for many years now. It was completed by the last Government and during its time of gestation it had many ministerial hands put to its shaping, from Deputy Frank Cluskey through Deputy John Bruton to Deputy Michael Noonan. There has been a reasonable ideological input into the finished product. I commend the Minister for going ahead so quickly with this legislation. It would have been easy for him, and it might have been tempting for him, to have kept this in cold storage, to have made a number of cosmetic changes and to have pretended it was all his own work. However, he has not done that and we now have the Bill before us today.

I am glad this Minister is handling this Bill because he has shown here this afternoon a very open-minded approach to the content of this legislation. As he said the Department do not have the last word on what is a very difficult, complex and worrying series of problems. There is not just one problem; there is a whole series of problems. He is open to suggestions from outside groups. He also gave us today a script which was free of jargon, which is something I would recommend to other Ministers. It is very easy in questions of this sort to fall into the trap of the professionals and to come along with a script which blinds us with all sorts of legalese and officialese and which, at the end of the day, leaves the people most affected by the Bill not clear as to what is involved. The Minister's script was very clear and very much to the point.

This is a Bill of great length and great complexity. In all it has 189 sections and, as such, is as lengthy a Bill as the Bankruptcy Bill which began its life in 1982 and completed Committee Stage in joint committee in the lifetime of the last Oireachtas and which has just been restored to the Order Paper. I hope this legislation will get through in the lifetime of the present Oireachtas.

The complexity of this Bill calls for the most careful consideration and the most detailed teasing out of what is involved. Many of the sections in this Bill have the potential for consequences which are probably not very clear to us at this stage and we could in turn have a situation aimed at remedying an existing problem which could well leave us worse off at the end of the day. For that reason this Bill needs to be thought through as thoroughly as is possible. I am glad the Minister has said there is no question of rushing this Bill through, and I do not believe now that it will be. I hope the summer recess will intervene between the consideration of this Bill in this House and its consideration by the Dáil. It is a Bill which, having taken so long to prepare, is best left to mature and around which detailed discussions by all interested groups can take place.

When I talk about interested groups and interested parties. I do not just mean the various professional institutes such as the bankers, the insurance corporations, the accountants, the Big Boys and so on. All of these are very good at looking after their own interests. I am thinking more particularly of the people who will speak in this House, the representatives of the smaller people, the consumer groups, the people who are not usually so well organised and who do not have the expertise to examine legislation in the detailed way which will safeguard their own interests. I hope that, in considering this legislation in this House and in the other House, the interests of the smaller people, the small creditor, the small business person, those who are victims of the malpractices at present, will be very clearly looked after.

In general, in legislation of this kind it is very easy to get bogged down in detail. Those of us who have been talking to various interest groups over the past week or so in getting familiar with this legislation will realise the extent to which these people tend to become bogged down in the detail as it affects their particular interest. At this stage it is important to look at the general thrust of this Bill and to leave the detailed considerations to the proper place, which is Committee Stage.

I must say at the outset that I and I am sure everybody else in this House welcome this Bill. It is a very sophisticated measure. In some ways it may be somewhat too sophisticated and too elaborate for our specific needs, but these are points we can look at on Committee Stage. Manifestly it is a Bill which is designed to tackle some very real problems which have caused some very great hardship and which have been the source of some considerable scandal in our community over the past number of years. It is a Bill which tightens up and clarifies many aspects of our company law as it exists at present. It updates other sections which have become obsolete and there are some sections about which I am either not very clear or not terribly happy.

This Bill cannot be seen in isolation. Over the past number of years we have had a spate of new company law, almost all of it inspired or required by developments in the European Community. Much of it springs from those Articles in the Treaty of Rome, Articles 52 to 58 and specifically Article 54, subsection (3), in which the member states have agreed to harmonise their company law to coordinate the safeguards contained therein for the protection of the interests of members and others with a view to making such safeguards equivalent. What the founders of the European Community, those who drafted the Treaty of Rome, were trying to do — and it is very relevant to our legislation today — was attempting to remove the obstacles constituted by differences in the national laws of the then Six countries, laws which might very well inhibit the full exercise of certain basic liberties consecrated by the Treaty, namely, the freedom of establishment of companies and firms and the free movement of capital. What is equally important, and very important in this legislation, is that they sought to co-ordinate the safeguards contained in national company laws to ensure that throughout the Community certain minimum safeguards and standards at least figure in all national legal systems.

On foot of this section of the Treaty of Rome we have had in particular the translation into law here of a number of major directives over the past number of years, the Second and Fourth Directives in particular. The Second Directive introduced minimum safeguards for creditors of companies. The Fourth Directive is largely concerned with disclosure which means among other things, that over 70,000 firms must disclose their affairs. I am not sure if the hard-pressed officials in the Ministers' Department are keen on the idea but we are faced with much more from Europe. We must face up shortly to the Fifth Directive to Vredeling which will mean widespread disclosure of company information to employees. There is the Seventh Directive on consolidated accounts. Also there is new legislation on both banking and insurance companies. All in all the Minister's Department will be kept busy over the coming years.

This spate of legislation, including in particular this Bill, raises some fundamental questions for us. First of all, how much of this legislation would have emerged — the question may be academic, but it is perhaps appropriate in the light of present controversies — if we were not in the European Community, if we did not have the stimulus needed to change our laws or, indeed, the requirement to change our laws. Certainly our pre-EC history showed us as having neither much initiative nor any great sense of urgency in this area. Almost all of our legislation was derivative. Almost all of it came from Great Britain and usually with a fairly substantial time lag To those who at this point in our history see the European Community and our European connection largely in negative terms, there is no harm in pointing out that much of the progressive legislation in the field of company law has come from that quarter and might not be on our Statute Book if left to our own native resources, given our track record in this particular area.

The second and more pressing question is: how much of this legislation is really appropriate to our circumstances? The Minister was very careful and I welcome the distinctions he made in his speech about the sort of atmosphere and the general intentions of this Bill, but the question must be asked whether we have been obliged to create a huge infrastructure of laws with resultant confusions and perhaps inhibitions. Have we created an infrastructure of laws much of which may not be really relevant to our circumstances and which may serve to inhibit legitimate entrepreneurial activity and may lead to the creation of unnecessary extra costs or extra layers of bureaucracy?

There must be, indeed there are, many people of entrepreneurial bent who feel inhibited at present from going into business because of the maze of regulations and the complexity of laws which they encounter. It is not that they are in any way dishonest in their intent but simply the complexity, the number of regulations they encounter the ease with which they can fall foul of a regulation of which perhaps they never heard, can serve as a deterrent to people who might well be in a position to generate new economic activity and thereby create more jobs and wealth.

We should be careful in examining legislation, which we take in part at any rate from Europe, and our obligations in Europe, to keep in mind the scale of operations in this country, the large numbers of small businesses which exist and to ensure that the laws are appropriate to our own circumstances rather than to those of economies of a much greater scale.

The third and the central question is: how much difference does legislation of this type make, or does it make any difference at all? We are one of the greatest countries in the world for making regulations and laws which we never enforce and have neither the intention nor the capacity to enforce. This is true of almost every single aspect of Irish life. We have only to look around at the great number of laws we have on preventing air pollution, preventing water pollution, preventing pollution of various sorts throughout the country, and then look at our capacity to enforce these regulations. In every aspect of Irish life this is a national characteristic. We provide the laws easily enough but we are very unwilling to pay for that enforcement which makes a reality of the law.

This is particularly true in the area of company law. The fact is that this new law comes on top of the Companies Act, 1963, which itself was a replica of the 1948 English Act. There is not much wrong with the existing law. What is wrong is that we have not had the capacity, or the will, to police the existing law. As things stand at present, when we look at the agencies responsible for company law we see first of all the Companies Registration Office. The Companies Registration Office is little more in effect than a filing office, a great repository of information, which has no real powers. Certainly it is not in a position to enforce the law. Then we look at the fraud squad which is undoubtedly made up of competent hardworking people. I do not believe that the fraud squad has the resources, either in terms of manpower or in terms of the detailed high level technical and accounting expertise, which are needed. I do not believe that it has those resources necessary to ensure that company law is properly enforced and to ensure that, where there have been breaches of company law, those responsible are brought to face the consequences in court. It is seriously limited and does not seem to be in a position to enforce breaches of the company law where these have blatantly occurred and have been seen to occur over the past number of years.

As for the Minister's own Department, I do not for one moment doubt the competence, the will or the high level of expertise of the section in the Department dealing with company law.

For reasons which are certainly not the fault of the people concerned — I have had many dealing's with this section over the years — the Department have shown themselves to be totally inadequate for the task of enforcing the Companies Act, 1963. I am not sure whether it is a function of the Department. Certainly they have not been in a position to act as an enforcing agency. They do not seem to have any regulatory role. In all, there have been, over the past number of years, about six investigations. If I am correct, in these cases the Department were obliged to bring in outside expertise because of the burden of work within the Department. These were brought in to conduct these investigations. As far as I understand — and I would welcome clarification on this — they have invariably been inconclusive and certainly no prosecutions have emanated from them.

Today we are embarking on a course which will undoubtedly result, before the end of 1987, in the placing on the Statute Book of a new comprehensive body of laws. We are bringing in laws on top of existing laws. We do not seem in any way to be providing the mechanism whereby these laws can be implemented and policed. For a start, any serious discussion on the Companies Bill begins with a question which must be put to the Minister and to the Government and which is not answered in the Bill itself, that is: how is this new law going to be policed? There is no point in saying existing resources are enough; manifestly they are not. Will the Bill, when it becomes an Act, be seriously implemented? Will there be a complaints mechanism? Could there be a role for the Ombudsman in all of this? It could very well be that an extension of the powers of the Ombudsman is needed. It is possible and inexpensive for at least some of the malpractices to be spotted and referred, if necessary, to the Director of Public Prosecutions. It could very well be that an extension of the powers of the Ombudsman may be one way around all of this.

Is there a case in all of this for looking at the regulatory role played by the various professional institutes, the Institute of Chartered Accountants, for example. I know that the Institute of Chartered Accountants do a good job in policing their own members. The problem, however, is that many accountants, or people who call themselves accountants and who practise as accountants, are not in fact members of the institute and there is no way in which their activities can be regulated. Frequently, though not always, these are the people who do most of the damage. The simple fact is that the 1963 Act, the existing legislation, its history over the past 25 years, has shown us that we are not in a position to police activities properly in this area. It is good legislation but there is no policing mechanism, no structure through which it can be adequately enforced.

The Fourth Directive has added enormously to these problems. The Minister mentioned a figure of about 100,000 companies in this country. Of those 100,000 companies, 70,000 are what we could call active companies. These companies under the Fourth Directive are obliged to file annual returns, called Form 6A. The fact is that a huge number of these companies are actually in default. Many companies never send in any returns at all. The Companies Registration Office, which is responsible, is still living in the 19th century in terms of its capacity to operate this Fourth Directive and it is expected to cope with problems which are really problems of the 21st century.

The scale of the problem here is enormous and the whole law is being brought into disrepute simply because it is not being implemented. There are those who are close to the situation resulting from the Fourth Directive — I am talking now about people in the academic world who have made particular studies of this — who have watched developments here and believe that it could take, at the present rate, up to ten or 15 years to sort out this problem. Again, I warn the Minister that we are piling up problems for ourselves if we believe that simply passing a new law here today will solve the problems we face in the whole area of company law. It simply will not, and I hope that in the course of this debate it may be possible to get some fairly firm undertakings and that the Government will spell out in some detail just how this new, major, welcome legislation can be implemented and policed.

I am glad the Minister has given time for this and he has invited outside views — I would like to hear proposals from the professional bodies, not as to how they would administer this particular law or how they think it could be improved to help their own interests, but how those with practical experience believe this legislation can be enforced in a practical, rigorous and open way? It might be no harm — it is a pity we do not have a proper committee system in this House such as exists in many European countries and in the US — if perhaps the victims of some of the people who have operated freely under the old legislation could be brought along here to tell us, as legislators, just how it was that the existing law proved to be inadequate and how they ended up losing great deals of money, indeed, often their livelihood, as a result of the failure to police and enforce the existing law.

When we talk about enforcement I know the Minister will say there are high penalties in the Bill. There are very high penalties against those who are found guilty and I welcome this. I believe that high penalties on their own are not the answer. Given our national psychology and the sort of people we are — there is a streak of the gambler in most of us — most people will continue to break the law. Even though they know there is a high penalty they will continue to break it, if they know there is very little likelihood of their actually being apprehended. They will keep taking the chance in the hope — and in many ways the knowledge — that they will probably get away with it. So the high penalty, on its own, is not sufficient in cases like that.

The Minister talked about the purposes of this Act and I certainly would have to agree with him in the way in which he spelled out the main principles and purposes of this Bill. In simple language one of the main purposes of this Bill, and the aspect on which it will be judged in the public mind, is its ability to ensure that limited liability companies are run in an honest way and that those who run them are legally accountable for what they do. That in simple terms is, I think, the principle and the criterion by which this legislation will stand or fall. The Minister talked in his speech — I was very interested and pleased to see him take the line — about the question of balance. This is not seen as an anti-business Bill. It is not seen as intending to create any sort of new class of group in the community who, simply because they indulge in a particular type of activity, are almost by definition dubbed as being anti-social or enemies of the people.

The whole concept of limited liability has, it must be said, been brought into disrepute by the legally protected antics of the cowboys and the Phoenix merchants, those gangsters who can walk away from one debacle after another leaving decent, honest people not just at a loss but frequently out of business. These same people can then brazenly open up down the road and repeat the exercise, not once but over and over again. We all know these people. In passing I must say with regret that we do not have to any great extent that type of investigative journalism which could fully expose their antics. In this regard the magazine Phoenix may well have it shortcomings — in fact, it has plenty of them — but it deserves special commendation because it has fairly consistently set out to investigate companies of this sort and it has not been shy of naming names. We could do with more journalism of this sort.

What is particularly galling for many people in all of this is that we know these people. We know their victims and we know those who have suffered at the hands of the fly-by-night merchants. Yet those who have suffered at the hands of the perpetrators can see these people received in society, can see them in the best restaurants and the best watering holes in the city and throughout the country with no stigma of opprobrium or any sort of social disfavour attached to them. In an earlier time, in the sixties, some of these people were almost the heroes of the hour. They became almost a fashion or a cult in themselves. That day is gone. Nonetheless it is particularly galling for those who have suffered to see these people accepted in society, to see them living off their ill-gotten gains in such an open, ostentatious and brazen fashion.

One of the tests of the Bill will be its capacity to redress this present imbalance. A question which must be asked over and over in the Bill is whether it protects the small creditors against these cowboys. I am not so sure it does. I believe that the banks and the large institutions are usually adept at looking after themselves. They have the resources, the information and the muscle to protect their own interests, and usually they succeed. That is probably why they are big. It is the small man who gets clobbered and frequently, indeed usually he does not have the resources, the information or the capacity to recover. There are many very bitter people in our country, people whose lives have been blighted by this whole phenomenon, whose families have had to endure deprivation and humiliation because of the antics of these people and who must endure the sight of those who robbed them flaunting their ill-gotten gains free from legal constraint. This type of anti-social behaviour has, I believe, been a national scandal for far too long and it is something about which we as a society, and not just our legislators — and this could include the public and churchmen — have been far too complacent.

The Bill will be judged by the public in terms of whether it can bring these people to book and protect especially the rights of the small person. I hope that much of the debate will focus on this point and I am very glad that the Minister invited outside submissions. I urge outside groups, especially consumer groups or indeed people in the general public who have suffered at the hands of these people, to come to Members of this House with their experiences and with any information they have so that we can ensure that the legislation puts such activity firmly outside the law.

The Minister said, as I have referred to it, that we do not want to create a new type of social pariah. We are not saying in this legislation that the concept of the limited liability company is wrong in itself. Far from it. The Bill must be judged on its capacity to achieve a balance between taking advantage of the very special qualities for economic growth provided by the concept of limited liability and, on the other hand, to provide the safeguards for those who may well suffer from a consequence of abuse of this particular concept. There will always be tension between the two forces and the job of legislation must be to achieve balance and fairness but it must not destroy the possibilities for economic development and wealth creation inherent in the whole concept of limited liability.

A distinguished accountant, Mr. Laurence Crowley, recently reminded a gathering of credit managers that they must have as a fundamental principle that "limited liability is a privilege and like any privilege it brings its share of obligations". We are looking today at the obligations, but we must not and should not try to destroy or damage the possibilities for genuine economic development and wealth creation inherent in the whole concept of limited liability. If we could view limited liability in this context, we might be able to put it into its proper perspective as having obligations as well as rights.

The concept itself — I do not intend to disgress into a history seminar — goes back to the 19th century and it undoubtedly had a very profound effect on economic developments during the time and certainly helped enormously in promoting entrepreneurial activity. Before the concept arrived the prospect of the threat of the debtor's prison and the albatross of the single business failure was alleviated by the application of the principle to joint stock companies and this gradually assumed the role of the dominant form of organisation for large scale business enterprises.

The protection afforded by subsequent Companies Acts to investors was in sharp contrast with that of the earlier period when the law concerning debts was exceedingly harsh and the consequence of a business failure could destroy a person totally and all of those belonging to him or could, in fact, have them ending up in the debtor's prison and this continued until 1869. However, it is not my purpose today to indulge in a history treatise — I will save that for another occasion — but to look at the concept of limited liability and try to put it into its proper perspective. Limited liability is a good concept and it has been a very useful instrument in economic development and in the creation of wealth. It was at the root of much of the more positive developments in business over the past number of years. As the Minister pointed out, if there is one thing which this country needs at the moment, it is a climate which encourages entrepreneurs, which does not inhibit them, which provides the rewards which their enterprise and willingness to take risks merit and which will make their energy worth while.

We should be very conscious in the Bill that, when we talk about limited liability, we are not talking about something which is itself wrong. Sometimes reading the papers and listening to aspects of the media in recent times one almost gets the impression, especially from some of the left dominated sections of the media, that business itself is in some way something to be ashamed of being involved in, and that the concept of limited liability is some sort of charter which allows people to escape from their debts or responsibilities. Yes, limited liability has been abused and that is why we are discussing this legislation today, but the concept itself is a useful one and its operation is very much to our advantage and something which is very positive. It needs to be circumscribed by legal restraints but it is very much to our advantage.

In this Bill we must try to get the right sort of balance to create a climate in which legitimate enterprise is encouraged, where the inhibitions which might prevent legitimate enterprise are broken down but where, at the same time, there is adequate protection for those who might well be damaged by an unfettered use of the concept of limited liability. We must ensure that those who might be damaged are protected from the worst effects.

I should like to look at a number of specific aspects of the Bill. I will, as I said, be saving detailed consideration for Committee Stage. I want to raise a small point on section 3, which really is a question of interpretation. Section 3 refers to "writings and records made in any other manner". As Senators are probably aware, there has been a great deal of confusion in the courts over the years with unnecessary restrictions on evidence simply because frequently in the past photostats, recordings, etc. were not admissable. I am glad the definition in the Bill expands the existing practice, but I wonder does it really go far enough. It says: "writings and records made in any other manner". There is a feeling among some people who will be involved in the administration of this law that perhaps it might go a little further and actually define the type of documents, those in manuscript form created by a mechanical process, produced by photostatic or photographic processes, as well as allowing for future developments in technology and commercial practices. It is a small point but one which arises fairly early on.

The next section of the Bill which gives me some degree of worry is section 7 (3) which deals with investigations. Section 7(3) provides:

Where an application is made under this section or section 8, the court may require the applicant or applicants to give security, to an amount not exceeding £200,000, for payment of the costs of the investigation.

We are dealing here with a case perhaps of somebody who has already lost heavily and now has to give security of up to £200,000 towards the cost of that investigation. The person who has already lost may find that the costs of a genuine investigation are simply far too much in this case. I appreciate that we must have protection against frivolous or vexatious applications, but it is essential that the security requirements in the Bill should not prevent the complainant who has already suffered significant losses arising from the company's activities from exercising his legal entitlements purely on financial grounds. I ask the Minister to look at the need for a much greater degree of flexibility in this section.

My next general area of concern is section 32 (5) (c), which deals with directors and transactions involving directors. The general principle behind all of this is good and many of the controls on the activities of directors are worthwhile, but I believe that in this section we could have a situation which would seriously inhibit many people who are involved in export drives because, as I see it, the Bill suggests that all expenses incurred by directors should be approved by the shareholders of the company. This could mean, for example, that the export sales director of a major Irish company would be required to explain this to a meeting of shareholders, whom he had entertained on various trips to the US, the Far East or wherever it happened to be. Again, it is not a major issue but it is one which could be unnecessarily niggling and inhibiting of export drives.

Part IV of the Bill, the entire chapter 4 — sections 82 to 89 — which the Minister discussed but did not go into it in any great detail, leaves me somewhat puzzled. These are the sections on disclosure orders. I am not at all sure what the purpose of the sections is or what the Minister is trying to achieve in sections 82 to 89 and I would be interested in hearing the Minister elaborate at the end of Second Stage debate on the reason for including these sections. I do not see the application for and the granting of a disclosure order arising very frequently. I feel that the matters covered in these eight sections will occur very rarely and, given that private companies are obliged to control the transfer of shares, I wonder if the very, very elaborate procedures in these sections are justified. If we could clarify the law rather than create unnecessary provisions, we might not do that.

The Minister spent some time dealing with insider dealings. I am glad he has an open mind on this because the provisions in this Bill do not, I believe, go nearly far enough. I agree with the Minister on the stricter section. I am extremely disappointed with the role played by the Stock Exchange. We have a very sleepy Stock Exchange, one which tends to live in its own exclusive world. It should be made very clear to the Stock Exchange that there is great disquiet amongst the public generally about the alleged scale of insider dealing and that the present arrangement is far too cosy. The Stock Exchange should be expected to police its own activities adequately, to come forward with guidelines and new regulations as to how this might be done.

It is clear that there is a problem of insider dealing. We have the testimony of Senator Shane Ross, a member of the Stock Exchange, who has stated publicly on television programmes and elsewhere that insider trading does exist in a fairly significant way on the Irish Stock Exchange. He has gone on the record with regard to these allegations and he has been very specific as to the inability or, indeed, the incapacity of the Stock Exchange to police its own activities.

My main complaint is — and I am glad the Minister has an open mind — that while the Bill brings us into line with legislation in Britain, we are still treating insider trading simply as a civil and not a criminal offence. We should call insider trading by its proper name. It is a fraud, usually a very serious fraud. It is frequently give the title of white collar fraud. It is white collar crime and should be treated as such. The gentility of the civil law should not be the place where crimes of this sort are tried. Rather it should face the full rigours of proper criminal law. It is a crime in the US, where charges are brought.

In recent time we have all seen pictures of stockbrokers or Stock Exchange employees — when they are sniffing cocaine which I gather is the new stimulant for many of the stockbrokers both there and in Britain; Senator Ross lives in a very rarified world and perhaps at some stage he might let us into some of the inner and more exotic workings of the Dublin Stock Exchange — being led from their Wall Street offices in handcuffs because they were about to be tried on charges of insider dealings. I do not think we want to see that sort of spectacle in Anglesea Street and I hope there will never be any reason for activity of that sort. We have seen the huge publicity which surrounds this type of crime in the United States.

In Britain it is a criminal offence, although there is rather less vigour in prosecuting there than in the US. Nonetheless, we should be very clear and specific when talking about insider dealing. It is a nice term, a very innocuous term. What it means is criminal fraud. The main sufferer usually is the smaller investor. The other great sufferer is the credibility and integrity of the Stock Exchange. We should spend some time on this particular concept. We should attempt, in the course of the debate, to ascertain both the nature of the fraud, the extent to which it is happening and try to devise remedies which would properly fit the crime. I am glad the Minister has an open mind in all of this.

Part VI of the Bill deals with the winding up of companies. I will make a general comment here which may well be slightly outside the scope of the legislation, but I would like the Minister to bear it in mind. I note that there is no change in the preferential status given to the Revenue Commissioners. I ask whether this is wise. The present situation, where the Revenue have preferential status, produces some very bad habits, both on the part of the Revenue and on the part of companies who owe money to the Revenue. I would like to see greater protection in all of this for the ordinary creditor. The ordinary creditor may often have a more pressing case than the Revenue and when I talk about the Revenue, I am talking about the common good. Nevertheless, I do not think it is good for the Revenue that they should be able to relax in the knowledge that they will get the first bite at whatever becomes available.

The Revenue would be far better off if they were more vigilant in their collection of debts. I would like to see the Revenue behaving as an ordinary creditor does, with the Revenue collector hassling people for money when it falls due. Many companies take the easy option by not paying the Revenue when payment is due by using that money, often under pressing circumstances. But, very quickly, a situation builds up where the amount owed to the Revenue is enormous, where the interest is crippling and where there is simply no way out. At the end of the day the Revenue may be a great loser; the business certainly is. Then we have the scandal of companies going into liquidation, with enormous amounts owed to the Revenue.

In many cases part of the problem lies with the Revenue. I would like to see greatly improved collection procedures. I am not so sure that a huge number of extra staff is needed. It may well be a question of a more vigorous approach, or an approach where arrangements can be made at an earlier stage with people who are in trouble so that if a payment is delayed for one or two months, at least it is clear that the company is not going to go too far down the road and the enormous problems, which can happen so easily and so quickly, are not allowed to build up. There might be some case for looking at the preferential status of the Revenue Commissioners in all of this. It is a complex problem and I am only giving it passing mention at this stage, but it is something which could well be looked at under Part VI of the Bill.

The Minister spent some time on section 117. I felt he was not taking into account very real difficulties which may arise under this section. Section 117 proposes that if a company is insolvent on its winding up, any person who is a director of the company or who was a director during the 12 months prior to the commencement of the winding up cannot be subsequently appointed as a director or become involved in the formation or promotion of a company unless certain specific conditions as to the minimum paid up share capital are met. The figures mentioned were £250,000 for a public limited company and £50,000 for a private company.

I certainly subscribe to the general thinking behind this provision and I would like to see everything possible done to prevent the type of abuses which this section is designed to remedy. But one aspect which worries me slightly is the effect it might have on the operation of Fóir Teoranta. Take for example a company which is in trouble, a company which may be viable, possibly is viable, and where the risk is worth taking. Usually such a company needs an infusion of very good directors, what we call establishment people, who will create an air of confidence and stability around this company as well as bringing in whatever expertise they can. Fóir Teoranta frequently make it a condition of a loan, or it may well be a condition of a bank, that directors of this calibre are brought in. Clearly, in all of this there is a question of risk. Some companies, so aided, succeed. Others, very often through no fault of their own and in spite of the best endeavours of all concerned, fail.

Talking to a number of people who have been directors of such companies, people who have been put in by Fóir Teoranta or by the banks, with the very positive intention of stoking up a company, of giving it the sort of boost I have talked about, I find that these people may now be very reluctant to become a director of such a company, given the consequences of failure. We are saying that failure is an element of risk in all of this. This is not academic. We are talking about jobs. Fóir Teoranta are involved at present in saving in the region of 10,000 jobs in this country. If, inadvertently, we have written into this Bill something which will inhibit or deter public spirited people whose expertise is vital to the survival of a company and without whose presence the company will not have credibility in the public mind, or in financial circles, whose very existence may well be the only life line the company has from becoming directors of these companies then we should look very hard at it indeed. It is my information, from talking to a number of people I would regard as very sensible and who have much experience in this area, that they would find such a clause in the Bill something which would make them think twice about undertaking such a responsibility. I know the Minister will look at all of this very carefully and very openly.

Part IX of the Bill deals with companies under court protection. I welcome this section. I am not clear, however, how the examiner will be funded. Clearly, there will be some need for consultation with creditors, for example, if companies wish to keep on trading. A difficulty could arise where the bank has lent money and wishes to appoint a receiver. This new provision would weaken the bank's security if an examiner could be appointed by the courts without reference to the security holder. I am not sure that this point has been thought through and I look forward to having it teased out on Committee Stage.

The Minister spoke at some length on audit reports and I think he dealt with the matter adequately. I would like to see a greater simplification of the whole auditing system. I will not go into it in detail at this stage. I feel that in some ways reporting should be by exception only. I look forward to Committee Stage of this section because there have been some undesirable practices in recent times on the part of auditors. The Minister was absolutely right when he pointed out the very large number of Irish businesses which got into trouble — businesses which would otherwise be good businesses — because of bad accounting practices and procedures. Companies can keep on going for years believing they are actually making money, believing they are at least in a break-even situation whereas, in fact, because of bad accounting procedures and bad auditing they may well be in a parlous situation. It may well be that had there been proper accounting in the first place, the proper remedies could have been put into place. These are some of the areas I look forward to teasing out with other Members of the House in committee.

As the Minister has done, I stress that this Bill must be about achieving a balance, of seeing that the whole useful and positive concept of limited liability is used to the advantage of the common good as well as to the advantage of those individuals who are involved in such companies. The Bill must set out rigorously to exclude from our business life the Phoenix merchants and the cowboys who have been such a blight in recent years. It must tackle head on this new crime of insider trading. It must ensure strong protection for the smaller trader. In doing all of that, and this is where the balance is to be found, it must ensure that a climate is created which does not inhibit genuine entrepreneurial endeavour, a climate which is not repressive and which does not create a new class of social outcast known as the business community. The business community must be central in the private sector to the generation of wealth and the creation of jobs in our community. We must do nothing which will inhibit genuine, legitimate economic endeavour and we must see that those who abuse the system are properly brought to book.

I will finish on the point on which I began, that is, the question of the effectiveness of this legislation good as it is. I know from the open attitude of the Minister and his willingness to accept amendments and to examine all parts of the Bill in detail that it will be a much better Bill by the time it leaves this House after Committee Stage. No matter how good we make this Bill, unless it is accompanied by proper regulatory and policing mechanisms, and unless these are backed by a firm sense of will and purpose, our time might as well be wasted. In the course of this debate let us try to get a good Bill and let us get from the Government the resolve that that good law will be vigorously and comprehensively enforced.

Mr. Mulroy

A Leas-Chathaoirligh, may I congratulate you on your election to the high office to which you have just been appointed and assure you of my utmost co-operation at all times? The Minister for Industry and Commerce, Deputy Reynolds, is to be highly commended for introducing this most important Bill which incorporates the most radical overhaul of company law since the Companies Act, 1963, an Act which in tone was based on the UK Act of 1948. The Bill endeavours to incorporate requirements that have built up over almost 40 years and to reflect changes in commercial practice which have taken place during that time. The whole area is very complex and the Bill is not the product of a couple of days' work. It has been through the mill for quite a number of years.

The Minister, a man of renowned business acumen and a former company director, has drawn on his personal experience and expertise and has recognised that if Ireland is to continue to develop its industrial and commercial base, the speedy enactment of this Bill is essential. I believe that many of the large number of corporate failures which have occurred in Ireland in recent years could have been averted had they enjoyed the protection of this Bill. It will create a climate of confidence for business to develop and prosper and it will enhance economic and industrial development. It will reward the bona fide businessmen, many of whom have suffered due to ineffective company law which allowed unfair competition to prosper.

The main objectives of the new Bill are to strengthen some of the existing provisions in the 1963 Act and to introduce measures which will eliminate recognised abuses. The Bill incorporates many new initiatives and I propose to comment on a number that I consider to be particularly important. Part II deals with the investigation of companies. The transfer of power to appoint an inspector from the Minister for Industry and Commerce to the High Court and the provisions allowing the Minister to obtain information from companies without instigating formal investigation should speed up this procedure and strengthen the powers of investigators. Previous ministerial investigations have run out of steam because they lacked adequate legislation. I am aware that there were many constitutional difficulties in the power of these investigators. The Minister is to be congratulated on identifying the weakness that existed in previous legislation. He has now given muscle to investigators and of course he can still ask the court for a company to be investigated.

Section 23, which deals with privileged communication, will be welcomed by the population at large in that their affairs will remain confidential. In addition under section 14 the Minister can investigate the membership of a company. I could visualise the Minister using this power sparingly, but I would not be particularly surprised if it were used where a contentious takeover was building up or, perhaps, where it was suspected that money was being laundered through a company.

Part III deals with transactions by directors. The issued paid-up share capital is for the productive use of the company. This new legislation recognises the necessity to curb the abuse of directors borrowing irresponsibly with no intention of ever repaying the money to the company. It is common knowledge that flagrant abuses prevail. However, I am happy that, with the principle contained in the Bill, there is sufficient legislation to tackle them. However, I have reservations about the £2,500 limit because it does not differentiate between the capacities of a company to make these advances. On Committee Stage there may be suggestions on how this area may accept some changes. A possible alternative would be to restrict loans to directors to £10,000, or 10 per cent of the issued paid up share capital, or 10 per cent of the net assets, whichever is the lowest of the three figures. I would like also to see a repayment schedule in respect of loans granted to be filed for inspection by the members of the company.

I am very pleased that the practice whereby directors can enter into friendly long term service contracts with their companies on terms set by themselves or their colleagues is now being tackled in section 27. One suspects that this is used to circumvent section 182 of the Principal Act which empowers the shareholders to dismiss a director at any time. A similar situation pertains in relation to property and the provision in section 28 will go a long way to tackling these abuses. Directors should not deal in options in their own company. One, of course, does not know whether abuses occur in relation to options, calls, or puts as they are known in Ireland. Section 29 will deal adequately with any irregularities. I am pleased to see that share option schemes are not affected by this.

Part V of the Bill deals with the very contentious area of insider dealing on the stock market. One of the consequences of insider dealing is that private investors are reluctant to invest in companies and this hinders the aim of promoting wider share ownership among the general public. Many important and interested parties have spoken out against this malpractice which at present is not illegal. Insider dealing is to be made unlawful and this will leave the insider open to civil action.

However, recent developments in the UK and the USA have shown that self-regulation has led to serious abuses of confidential information by directors and connected persons. As a previous speaker pointed out, there was much publicity in the USA when the Securities and Exchange Committee successfully prosecuted Ivan Boesky and he was fined $100 million. This highlights the extent of the problem in the USA. The penalties proposed in the Bill are very mild when one considers the difficulties in tracing and proving that insider dealing actually took place.

That having been said, I am aware of the implications of bringing a criminal case to trial. The evidence must be rock solid and should the Government in their wisdom decide to incorporate criminal provisions in the Bill, a specific State agency will be required to carry out these investigations.

Although some people may consider that this part of the Bill has not gone far enough to tackle the problem, the provisions are realistic in the Irish context. There are two ways that insider dealing can be tackled. One is by Government legislation and the other is by the Stock Exchange. The Government have proposed in this Bill what they are going to do. Now let us hear from the Stock Exchange.

Part VII is another contentious are in the Bill. I hope the provisions contained in Part VII will put an end to the antics of rogue directors and fly-by-night operators, many of whom fold their tents and disappear overnight leaving behind a trail of unpaid creditors and broken investors, only to reappear a short time later under another name. For too long these fly-by-night operators have abused the status of limited liability, which is a very special privilege. They will now be accountable for their actions and will be curtailed by the strong sanctions incorporated in the Bill.

It must be highlighted that businesses can fail for a wide number of reasons and this Bill takes that into consideration. It contains special new provisions to rehabilitate legitimate companies who find themselves in temporary difficulties.

Part IX of the Bill makes provision for companies who find themselves in temporary difficulties. Part IX of the Bill is one of the important and constructive proposals contined therein. It provides for a company in temporary difficulties to be put under the protection of the court for a period of three months. One wonders how many Irish companies that have been wound up in recent years could have been saved in one form or another had they been given time to implement a realistic rescue plan? These provisions have been sought for many years by insolvency practitioners, for example, Fóir Teoranta, the State rescue agency, the associated banks and many other interested parties. The Part XI provisions which operate successfully in the United States are a similar type rescue plan, but are not entirely applicable to the Irish scene.

The proposals contained in the new Bill have identified the correct balance between the rights of creditors and the national interest to protect employment and jobs. The ease of access to the courts should encourage companies to use this mechanism in adequate time and, for that reason, I hope the Bill gets a speedy passage through the Houses so that companies can use this new legislation to good advantage.

Part X of the Bill deals with accounts and audits. A substantial number of company failures in Ireland occurred because companies do not keep proper records. Too many people keep the affairs of the company on the back of an envelope. It is about time we got our act together and Part X will greatly assist in this. The provisions proposed strengthen the obligation of companies to keep proper books and accounts and significantly extend the penalties on company officers where this is not done. We see this as a partnership between the company and its directors and the auditors. On the one hand it strengthens the auditor in dealing with the company and, on the other hand, it increases his obligations in relation to that company. As professionals, their standards must continue to be impartial and beyond reproach. For that reason, the independent criteria set out in section 173 are far reaching and are to be applauded. I am delighted to see that the onus for keeping proper books of accounts is still with the directors of the company. The Bill encompasses a wide range of new legislation. As previous speakers have said and as the Minister has suggested, he is open to suggestions from interested parties. This is to be welcomed.

There will be much discussion on Committee Stage on the section dealing with preferential creditors. Many people feel that the State should not enjoy the status of a preferential creditor. People think it is because of this privileged position that we have a vast amount of outstanding and unpaid taxes. On the other hand many small companies are juggling each month their tax returns, PAYE, PRSI and VAT and deciding which to withhold in order to maintain a cash flow situation so that they will be able to pay their employees' wages at the end of the week.

It is very difficult to find the solution to this problem. One would need the wisdom of Solomon. Should the State lose its preferential status, it would have a much more rigorous approach to collecting these taxes. It would put undue pressure on small companies to make their tax returns on time. Small companies could be put in danger of being wound up if they failed to make tax returns for taxes which they had not yet collected. This and many other areas will be discussed on Committee Stage.

I congratulate the Minister on bringing this very important and complex Bill before the Seanad. As he said, he is open to responsible amendments. I am sure that when the Bill leaves the House it will be a better Bill and, when enacted, it will respond to the need to develop Irish industry for the next ten or 20 years.

Mr. Norris

I should like to congratulate Senator Charles McDonald on his appointment as Leas-Chathaoirleach. In particular I welcome his appointment in the light of the question from my colleague, Senator John A. Murphy, about his qualifications in the first national language. I wish that I was as qualified as my distinguished university colleague. It is important not only to be able to speak the language but also at a slightly lower stage, to understand it. People may well make contributions in the first national tongue and I intend to achieve that level of both understanding and fluency as soon as possible.

I welcome the fact that this Bill is being introduced through the Seanad. It is a very good indication of the seriousness with which the Government take this House. It is also very appropriate that it should be introduced by a distinguished and successful businessman, the Minister, Deputy Reynolds. In the light of its long gestation and the fact that it is a product of two Governments at least, not of a notably radical composition, Senator Manning's fears that a new class of social outcast, namely, the business community will be created by the provisions of this Bill are groundless. I was interested to learn that the crypto-social outcast class the Senator fears may be created is being currently excoriated in the press belonging to the hard left. I would be very grateful to the Senator for further information on this because, if there is such an organ in this country, I will certainly subscribe to it. I was previously unaware of its existence.

There are some provisions in the Bill which I particularly welcome. I refer specifically to the attempt to end the nominee system. This is a very noxious practice and anyone who has read Frank McDonald's excellent book on the destruction of Dublin will realise the invidious way in which it operates. It is almost impossible for anybody who does not devote years of time to it to discover who exactly are the financial manipulators behind companies. Mr. McDonald did the community a very great service in digging out those personalities and interest groups, many of whom were not even Irish. During the late sixties various interest groups from outside the State were able to use this kind of situation which I would compare to the Chinese box syndrome. You get inside one box and you think you have got to the end of it and you then find another box, another box and another box. I hope that the provisions of this Bill will end this Chinese box syndrome.

There is another syndrome — and I apologise for the restrictions of my vocabulary in repeating this phrase but it is also used in the Minister's speech — and that is what he correctly identified as the Phoenix syndrome whereby people can shed their liabilities by closing down one company and instantly — and this is a particularly offensive feature of the practice — reopen, sometimes in the same premises, with their creditors left at the front door. This is very disheartening.

There is another aspect to this. I speak in a somewhat unusual capacity as managing director and majority shareholder of a small company from which I derive no personal profit. It has been an education to me which not many of my academic colleagues share in the ways of the business world. I know of a number of companies, particularly in the entertainments area, where there is a common practice of closing down and reopening, not merely to avoid liabilities to individual creditors but also as a device — and this is probably recommended by their auditors — to shed tax liability. As a company director who is scrupulously involved in ensuring that the highest standards are involved, I can see that there is a considerable feeling in areas of the business community that such attempts to shed tax liability constitute unfair competition.

I should like to make some reference to the question of insider trading. This is a very important aspect of the Minister's proposals. I am very glad the Minister said he should add that "this is an area of the Bill to which I will be paying close attention to see if it needs to be improved or strengthened". It seems clear to me from the contributions this afternoon that there is a general feeling throughout the House that this is in fact an area which could be strengthened. The Minister referred to two other jurisdictions in which this matter has been addressed. He drew the attention of the House to the fact that in one of these it is a criminal offence and in the other it is both a civil and a criminal offence. In other words, of the three instances our legislation would be the weakest. It is important that this should be made a criminal matter particularly in view of the comments made by the Minister when he said:

The approach we have taken in the Bill is to make it a civil offence to deal in securities on the basis of insider information, to pass on such information by way of a "tip", or to deal on the basis of a "tip". In this way, a person who suffers loss as a direct result of insider dealing will be able to win compensation from the insider.

My concern about this is that the phrase "a person who suffers loss" although not necessarily a vague one does cover what may be a vulnerable entity. In other words, a small investor may or may not be aware of the fact that he or she has suffered loss. It is a moral responsibility on the part of the State to protect precisely that kind of vulnerability on the part of the citizens. I would welcome an assurance from the Minister that further consideration will be given to this matter.

There is one other matter to which I want to refer. I will be brief because I realise our time is limited. I would like a reaction from the Minister to the inclusion of another section in the Bill which would require companies to disclose donations to political parties because, if I understand the principle of the Bill correctly, such a requirement would be in concert with this kind of principle. I refer, for example, to the Minister's speech where he says:

The basic idea running through this whole part is that a director should not use his company to divert what is essentially creditor's money to his own personal use — in other words he should not regard the company as his own private bank.

This is an excellent principle and one which should be extended to cover the case in which concern might be expressed about the resources of a company being used to bankroll political parties. The citizens of this country would be anxious to discover who is paying the bills of the political parties, who is bankrolling the political parties, and thereby manipulating the political scene. In very much the same way people have a legitimate public interest in the direction in which funds are flowing from public companies. I make this point and it is even more relevant than it was some years ago when, I understand, legislation was prepared and an attempt was made through this House to introduce such legislation. It is even more relevant now because the way in which politics is developing leads me to believe that the amount of money available for the manipulation of public opinion through the media, advertising and this kind of campaign is a very significant element in the possible political success of the various parties.

An Cathaoirleach

Senator you passed a remark about a time limit. There is no limit on the time. We adjourn at 5.30 p.m. but you can continue on until 5.30 p.m. and resume next week. I would hate you as a Senator to feel there is any time limit. I am not too mad about the line you are on at present but, having said that, I would like to guide you.

Mr. Norris

That is most kind of you. I appreciate your comment but the limitation is totally self-imposed because I do not wish to exhaust the patience either of the House or the Minister or to make irrelevant comments. However unappetising it may be to those who are members of political parties, the philosophy behind the Bill, with which I agree, would sustain the kind of interpretation I am attempting to place upon it. The Minister has quite rightly said that there may be circumstances in which a person with a direct financial interest in such a company may want to establish who really owns it. It seems to me that by extension of that principle the people have a very clear right to know, not perhaps who owns the political parties because I accept that there is, thank God, in this country a considerable degree of independence even though there maybe sponsorship, but which companies make substantial political donations. It is important to know, as a member of the public as well as an independent Senator, who is contributing to the funds of the political parties. I say this without malice and in the general public interest.

I am pleased that the Government have chosen to introduce this Bill through the Seanad. I welcome its provisions. I hope they will be successful in doing what they have set out to do. I hope they will have the co-operation of the Stock Exchange in making up the deficiencies of the past and thereby helping to create confidence in the business and industrial community.

Mr. McGowan

I welcome the opportunity to contribute to this important debate. The legislation is very much welcomed by the business people of the nation at large. The Minister has been very open and honest. He has invited people to contribute to the Bill and has made it easy for people like myself to make a contribution. That is the first successful approach to the amending legislation.

We now have an outdated Act going back to 1963. It is only proper that this type of legislation should be updated occasionally. Most of the Bill deals with the difficulties of controlling directors and, as the Minister rightly said, the fly-by-nights and the abuse of company law. It deals quite extensively with that area. Senators of every political persuasion and from every side of the House will totally support the Minister in his attempts to improve the legislation.

Most Senators will speak from wide experience in public life. I speak with experience — and unfortunately I have some practical experience — of how outdated legislation does not take care of some small companies. I had the unfortunate experience of being associated with a company that had difficulties. I have no doubt that if this legislation had been in force the company of which I was a director would not have run into the same sort of difficulties. With hindsight people would approach life a bit differently. It is useful to learn from and to examine the experience one has had in the light of legislation such as this. Business people right across the country find themselves involved in directorships without having the backup knowledge and experience of company law. That can cause many problems.

I support all of the provisions in the new legislation. The Minister is right, at the same time, in not dealing solely with those people who have been offenders under the company law. He has also looked at how to protect and assist new companies. That is vital because out of this Bill must come some confidence to the public. The public have had a very difficult time. People who were involved in businesses have been tested and tried and their stamina and ability to survive have been well tested over the years. This legislation will encourage those people to examine how to approach the setting up of a new business. It is timely, useful and very safe legislation and I have no doubt the public will respond very favourably and very positively.

The Minister has taken the opportunity to tighten up certain aspects of the law in relation to receivers. The provisions are mainly concerned with the status of receivers and the qualifications, powers and duties of receivers. A receiver was put into a company with which I was closely involved. He would have been prevented from acting in the manner in which he did had this legislation been in force. I am aware of many companies — and the Minister is also aware of them — that should not be in difficulty. I see a receiver as a kind of vulture watching ailing companies and waiting to get his pound of flesh. To my knowledge many receivers are very close to banks, to lending agencies, and they hope their harvest will be great. A viable company can get into a cash flow difficulty and generally the assets of the company are sufficient to pay the receiver a very substantial fee.

I want to put my personal experience on record. If you have lived through an experience you understand more clearly what the legislation means. I saw a receiver going into a company valued at £1,800,000. I saw the receiver stay in the company for less than a year and he took £90,000 in travelling expenses and £140,000 in salary out of that small company. He sold the company for £200,000 to a friend, a company valued at £1,800,000. It was a good company employing almost 60 people. This kind of legislation is long overdue to protect companies and prevent that happening. The emphasis can be far too easily focused on the fellow, the fly-by-night, who forms a company, leaves the company without cash, and winds it up.

There are abuses and it is right to take care of them, but there are also the more serious abuses for the country and for those who are anxious to get involved in promoting industry. They must have legislation which will prevent them being pushed out of business overnight. The general public and those intending to get involved in industry will be very interested in this Bill. I do not think it goes far enough because there must be some restrictions on the major lending companies. I am thinking of State lending companies without mentioning them. State lending companies can lend a firm, say, £200,000 at 12 per cent and if there are cash flow difficulties or if for any reason the payments are not met by the company, there is a mechanism that comes into force. The lending agreement is suspended and emergency interest rates are then applicable. A company borrowed £200,000 from a State bank and within 12 months the £200,000 became £340,000. Many of the directors were unaware of the penal condition that was inserted. They were unaware that inside 12 months, because the penalty clause on interest came into force, the company owed £340,000. A receiver was put in and destroyed a business worth £1,800,000 using Irish raw material and employing 60 people.

No Member of this House is more anxious and ready to welcome this legislation than I, even though it might be too late to protect the personal interest of the speaker in a particular instance. I am not reluctant to relate my experience here in the hope that it will encourage the Minister to protect those who are going to get involved in business, those who are going to borrow. People who lend money have protection and security on property. People who borrow money should not be put out of business by emergency regulations which are not fully explained to them. The lending company has to have some rules, laws and control. Now is an opportune time for this legislation to put down markers so that the Minister, the Government, the State and the ordinary John Brown out on the street know where they stand. If three people get together and set up a sawmill or a stone crushing business, or whatever kind of business they are in, they should be able to see clearly where they are going. Protective legislation should work both ways. I am satisfied that this is an attempt to encourage and protect those who are setting up in business.

This Bill introduces a radical new mechanism for the rescue or the reconstruction of ailing businesses. The word "rescue" is very important. I wonder what the new rescue law will be. The rescue law as it is at the moment means that two people in this room or outside it can set up a company and put all of their life savings into it. They believe in the company and they run it, but if they run into a cash flow difficulty which is outside their control, a receiver, a grant support agency or anybody who decides to rescue those people can go in. What "rescue" has meant up to now is that you reach for the man and throw him overboard, and you rescue the company. It means that you get hold of the directors and you dump them.

In County Donegal I know of somebody who set up five factories. In County Donegal where unemployment is almost the highest in Europe it takes a fair bit of muscle and sweat to set up five factories. These factories were set up in small towns like Donegal, Glenties, Dunkineely. These are five major factories. "Rescue" was applied. Some people from "rescue" arranged a meeting with the principal director in the Central Hotel in Donegal town. The principal director of the company that set up these five factories met the person from "rescue" and "rescue" gently nodded to him that they were prepared to make some arrangements whereby he would have a little involvement in the company. They had talked to some of the workers in the company and believed that his influence would still be in the company and it would be better if he stayed away from the company. The poor man died of a heart attack in the Central Hotel in Donegal town that night.

That is the sort of thing that goes unnoticed at State level and those are the sort of things that influence the small man who is prepared to take a risk, start a business and promote industry. That type of man is the backbone of this country. Unless we protect him and others like him, we will not have business promotion to the extent that it is needed. I hope this legislation will give protection to those who are involved in the setting up of small industries that are creating employment, people who are prepared to go out and take a reasonable risk. They must not be left to the wolves. I know what "rescue" means. "Rescue" means the scuttling or dumping or getting rid of some people.

The central feature of the rescue system in this legislation will be the appointment of a court examiner and the placing of the company concerned under the protection of the court for a period of three months. I say to Senators that that is not enough. All of us who have experience of dealing with ordinary representations, perhaps to get a medical card back for somebody who lost it unfairly, know how long it can take. When you are dealing with banks three months is not enough. If you were putting a company under the protection of the court it would take much more time. I think it would take 12 months. Even with auditors, accountants, solicitors and everybody working to the best of their ability, one would need a minimum of three months to prepare the case properly in order to have a good case when going before the courts. I ask that the three months be extended to a minimum of 12 months. There cannot be any risk in extending the three months to 12 months because if the court is encouraged to take custody of the company it will take that length to find out whether the company is viable.

These are some aspects of this new legislation about which I feel pretty strongly. I have a right to feel strongly about them. I am keenly interested in the development of industry in rural Ireland and the development of our natural resources, whether it be energy, raw material, sand quarries or food. Whatever our natural resources are there is a crying need for us to get involved more and more in industry. It is there that the future of our young people lies. If we do not develop the full potential of our natural resources — and we have many — unemployment will continue to be with us. This Bill will be the cornerstone for the future. Every Member of the House should look at it and say: "it will affect me; it will affect my area". It is very important to read this Bill and not wake up a year from now and find it is either strong or weak on some points. It is an important document. It is a guideline and it is a blueprint for the future which will help industry. It is very timely and very useful.

I am glad to see a practical, down to earth Minister like Deputy Reynolds introducing this Bill. It is not too difficult to speak with the Minister. His attitude encourages people to make a contribution in their own language and in their own way. The Bill cannot be left to the professionals. The professionals are very able people but their vision or outlook is often very restricted. Their whole background is that of a university and they have not gone through the hassle and rough and tumble of life. Therefore, it is necessary for people like myself, who have come from the side of the mountain, to relate our experiences to the Seanad and hope that it will contribute to legislation that will be helpful to business people. This is legislation for the future.

I compliment the Minister. I would also compliment the Minister of State, Deputy Brennan, who has taken a very active interest and has expressed himself in the Sale of Goods Act and in the promotion of the products of the nation. He has massive support around the country. I ask him to keep up the good work. He is doing an important job. We must produce and we must sell more. Selling is a very important aspect of what we will have to do if we are to succeed. I am pleased to see the Minister present. I hope he will be successful and that this Bill will be successful.

Mr. G. Reynolds

May I take this opportunity to congratulate my colleague, Senator McDonald, on his election as Leas-Chathaoirleach? I am sure he will do this important job with the diligence which he has shown in the past and I look forward to working with him and also working with you, a Chathaoirligh, in promoting the Seanad.

I welcome the initiative taken by the Minister in bringing this Bill to the House. It is very intricate and complicated legislation. The public perception is that there were a lot of loopholes in the Companies Act, 1963. Something had to be done in a very serious way. I would like to compliment the Minister on introducing it in this House and giving us a chance to initiate it. I am sure many Senators will make very valid and worth-while contributions on the Bill.

Notwithstanding its title, the Bill is not a consolidating Bill, but simply expands the area of existing law in an attempt to eliminate, deter or penalise certain abuses and malpractices which occur in the management and direction of companies. The professed aim of the Bill is to create a climate of confidence for business activity in which genuine commercial endeavour will prosper. I believe it is very important that, whatever legislation is brought in, there should be genuine confidence in the business world. As we know, over the past number of years we have gone through a very tough economic climate. It would be unfortunate if legislation were brought in that prohibited jobs being created through the private sector. The Minister and the Department have come up with an evenly balanced Bill. I hope that no legislation would be so extreme that it would stop people, especially private enterprise, going into business to produce jobs.

However, the Bill by itself will not necessarily achieve this object. Being investigated or examined by the High Court, or the Minister for Industry asserting the true ownership of limited companies, is unlikely to deter greatly the accomplished abuser of these areas of company law. An early part of the Bill deals in great detail with the ability to appoint inspectors of companies and to establish by examination of the details from officers and agents of the company the manner in which it conducts its business. Failure to comply with the direction of inspectors in certain cases may be considered as contempt of court and punished accordingly.

One aspect of the Bill to which I should like to refer is loans to directors. This is dealt with at some length in the Bill. The proposed new law resembles in many ways the law in the UK on the subject and, with very limited exceptions, prohibits all companies, both public and private, from making loans in excess of £2,500 to their own directors and members of their families or to the companies in which those persons have controlling interests, in addition to requiring them to disclose details of any loans made. In the case of public limited companies and large and medium sized private compnies, the provision extends to quasi loans and credit transactions above certain limits. Credit transactions in this matter include arrangements whereby third parties pay a director's liability in financial transactions, or provide him with goods or services on the undertaking that the company will eventually pay the third party. In order to enforce the foregoing provisions, the Bill also provides that no person who is not a director secretary is obliged to disclose their beneficial interest in shares but in practice will provide that any persons holding shares in excess of 5 per cent will be required to disclose their interest. The Minister will have power to adjust this percentage reporting threshold.

I would also like to make the point that the secretary in many private companies could be the company director's typist or it could be a son. A secretary of a company should have a business qualification. He or she should be qualified in matters of company law or company legislation.

For the first time the Bill introduces legislative provisions in relation to insider dealing. The proposed provisions make it unlawful for an individual in possession of inside information to deal in securities on a recognised Stock Exchange and make remedies available to persons who suffer a loss as a result. The Bill also strengthens existing provisions by extending the concept contained in section 297 of the Companies Act, 1963, in regard to fraudulent trading to the concept of reckless trading. When a company is in liquidation an increased accountability is placed on officers who are shown to have engaged in malpractice. It is very important that we should deal very severely with people who are taking up insider trading. It is usually small shareholders who feel the brunt of this. The law should be enforced rigidly here.

Beyond the immediate sanctions inherent in the foregoing part of the Act, unprecedented strength of legislation is contained in the extension of sections 184 of the Companies Act, 1963, which allowed the High Court to disqualify a person from being a company director. Under the new Bill if a person is a director or has within the previous 12 months been a director of a company which is insolvent at its winding up, that person will be forbidden from becoming involved in the direction of another company unless that company has, as a private company, a minimum of £10,000 share capital paid in cash. I know that if you have not got it £10,000 is a great deal of money but some of the people involved in business, cowboy directors, are quite sure of what they want to do and £10,000 in a deception like this would not be a lot of money to them. The Department and the Minister might consider increasing that amount.

Debate adjourned.

Sitting suspended at 5.30 p.m. and resumed at 6.30 p.m.