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

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

Mr. G. Reynolds

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 many loopholes in the Companies Act, 1963 and something had to be done in a very serious manner. I should like to compliment the Minister on introducing it in this House and giving us the chance to initiate it. I am sure many Senators will make very valid and worthwhile contributions to the Bill.

Notwithstanding its title it 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.

It is very important that, whatever legislation is introduced, there should be genuine confidence in the business world. Over the past number of years we have lived in a very tough economic climate. It would be unfortunate if legislation were brought in which prohibited jobs being created through the private sector. The Minister and the Department have come up with what I hope is a very evenly balanced Bill. I hope no legislation would be so extreme as to prevent people, especially in private enterprise, going into business which, in turn, would prevent the creation of very necessary jobs in our economy. However, the Bill by itself will not necessarily achieve our objective. Being investigated or examined by the High Court or the Minister for Industry and Commerce 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 they conduct their business. Failure to comply with the direction of an inspector in certain cases may be considered as contempt of court as 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 company in which these 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 companies, 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 or secretary is obliged to disclose his or her holding shares in excess of 5 per cent, which will be required to disclose their interest. The Minister will have power to adjust the percentage reporting threshold. The secretary of any private company could be the company's typist or the son or daughter of the owner. A company secretary should be qualified in matters of company law or have some initial background in dealing with companies.

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 are 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. Usually small shareholders feel the brunt of this. This 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 section 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 within the previous 12 months has been a director of a company who are insolvent and winding up, that person will be forbidden to become involved in the direction of another company unless that company have, as a private company, a minimum of £10,000 share capital paid in cash. I feel that £10,000 is a great deal of money but people who engage in these practices, cowboy directors, actually know for quite a long period before the company are wound up that they are going into liquidation and they put by as much money as possible. Perhaps the sum could be made more substantial.

The Minister referred to the Phoenix syndrome whereby people can shed their liabilities by closing down one company and instantly reopening a business under a new company name in the same premises. I find this most offensive and, as a director of a small company, I have had the experience of being left with outstanding amounts of money owned to me by firms who have gone into liquidation and then had the audacity to start a new company in the same premises about a month later. These people have to be dealt with harshly and weeded out of our business communities as the practice is disillusioning and shattering for companies who are struggling for survival and keeping within the law. The economic climate at the moment for people who are involved in honest business practices is quite difficult and these cowboy directors have to be dealt with very harshly. Cowboy directors should be dealt with severely and given very little chance to be involved in any business enterprise for a long period.

The Bill also deals with the winding-up of companies. I note that there is no change in the preferential status given to the Revenue Commissioners. A change here could stop some bad habits, both on the part of Revenue and companies who owe money to the Revenue Commissioners. The ordinary creditor may often have a more pressing case. Where a company owe money to creditors as well as to the Revenue, many creditors may also find that they are in the same situation as the company and, by not being paid their money, they could go out of business. It is necessary to keep as many small companies in business as possible and the Revenue Commissioners might be able to do without the money on a different basis from a small company.

Revenue would be better off if they were more vigilant in their collection of debts. I would like to see Revenue collectors behaving as ordinary creditors and hassling companies for money when it is due. Many companies take the option of not paying the Revenue when money is due. Very quickly a situation builds up. Great amounts of money are owed to the Revenue and with very high interest rates, the company find themselves in financial difficulties and there is no way out. At this stage the Revenue may also lose money, employees in the business lose their jobs and the business sector loses out.

The most important aspect of the Bill is that, once the legislation is passed, we must have the intention and capacity to enforce the law. We can provide the law easily enough but we are unwilling to pay for the enforcement which makes a reality of the law. The fact is that this new law comes on top of the Companies Act, 1963. There is not much wrong with the existing law. What is wrong is that we have not had the capacity to police it. The Fraud Squad is made up of competent people but they do not have the resources necessary to ensure that company law is properly enforced and that, where there are breaches of company law, those responsible face the consequences in court.

The history of the existing legislation over the past 25 years has shown 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. I hope that when this Bill becomes law the Government will have the resolve to see that it is vigorously enforced.

Professor Hillery

I would like to welcome the Minister of State to the Seanad, to congratulate him on his appointment and to wish him well during the term of office. With regard to the Companies Bill, I welcome the open attitude the Minister has adopted to the debate. The detailed consideration of it can be left to Committee and subsequent Stages. In the course of this short contribution, I propose to focus on a few issues only, namely, Part VI which deals with abuses at the winding-up stage of companies, Part VII which addresses the provocative question of fly-by-night directors and Part IX, which provides for the appointment of an examiner to companies in temporary financial difficulties.

This reforming measure, as the Minister outlined in his opening speech, requires a sensitive approach so that the requirements for investment, economic growth and the creation of wealth will be preserved and enhanced and, at the same time, safeguards will be provided against abuse in that minority of cases — I stress minority — in which directors have abused their position. That minority which engage in reckless and dishonest practices must be brought within the rule of law so that the honest director and businessman will be encouraged to stay on the straight and narrow path.

I want to start with Part IX of the Bill which introduces a new legal mechanism for the rescue or reconstruction of ailing but potentially viable companies. The idea behind this part is to give a company in temporary financial difficulties a breathing space in which to get their act together and attempt to become viable once again. This breathing space as outlined in the Bill will be provided through the appointment by the court of an examiner and the company will then be under the protection of the court for a period of three months. If, in the view of the examiner, the company or a part of it can be saved he will then prepare a draft rescue plan. This plan will then be put to meetings of members and creditors in a democratic fashion and if found acceptable to them it will be put to the court for confirmation. If the court confirms the plan it will then become binding on all those concerned. It is at that point that the examiner's appointment will be terminated.

Many factors contribute to companies getting into financial difficulties. I want to highlight the extreme reluctance by managements to disclose and discuss their problems with a variety of relevant people, including their employees, in certain companies. I was a member of the Joint Committee on Commercial State-Sponsored Bodies which reported on An Fóir Teoranta in 1981. In addressing the problem of inadequate notice from companies in difficulties, An Fóir Teoranta, in the course of evidence, told the committee:

The fact is that we continue to receive requests for assistance at very short notice. The reason for this would seem to be psychological. Many businesses experiencing financial difficulty will go to endless trouble to conceal their plight from creditors, bankers and financial advisers in the expectation that things will come right. The result is that very often irreparable damage has taken place before we become aware of the company's problems.

I would like to add that this reluctance by management on occasion to disclose information extends to their employees who are important stakeholders in companies. It seems that if employees were put on the alert about difficulties in the business in which they work they could and probably would, jointly with management, contribute to ideas for improving the business. After all, employees are very often the local experts of the workplace. They very often possess a pool of knowledge and expertise about the working of an organisation which may well go untapped because management do not ask them for their views. Furthermore, where a business has financial difficulties, surely key stakeholders like employees should be among the first to be informed but, regrettably, this is not the case generally speaking.

While I welcome Part IX of the Bill, this breathing space for a rescue period for troubled companies, I again wish to emphasise that prevention is better than resort to a legal provision such as this. We all know some companies have substantial arrears of PAYE and VAT which are due to the Revenue Commissioners. The Revenue Commissioners would be doing a valuable service to companies that do not pay their taxes on time by insisting on prompt payment of them. In so doing they would be placing an onus on these companies to get to grips with their financial situation, to get their working capital requirements in order, and also they would be placing an onus on the offending business to find a loan elsewhere such as from Fóir Teoranta instead of giving the opportunity to these troubled companies to fund themselves from unpaid taxes.

In the context of the prevention of business failure, which is relevant of course to Part IX, there are several State agencies that can contribute to the rescue of operations of businesses in financial difficulties. Fóir Teoranta are a rather obvious one. The IDA, AnCO and CTT, for example, also have a role to play. By acting in a co-ordinated fashion these State agencies could bring a speedy, concerted rescue package to a business in difficulty. I know the Minister is very eager to have more effective co-ordination among State agencies in a variety of fields. Could I ask him, therefore, if he is satisfied that the State agencies now available for the rescue of businesses in financial difficulties actually co-ordinate their activities in a satisfactory manner?

I now want to turn to that part of the Bill which deals with winding-up abuses and fly-by-night directors. As the law stands at present, creditors cannot effectively take action against dishonest practices by directors and managers of insolvent businesses. I share the Minister's view that the reforms in respect of winding-up and fly-by-night directors are, indeed, among the most important in the Bill before us. Our company law as it stands, makes it an offence for any person knowingly to carry on business with intent to defraud. That is the law as it stands. The difficulty, of course, lies in the area of proof.

Section 107 of the Bill actually addresses this problem by lowering the standard of proof as compared with the present legal position in a civil case brought by a liquidator or a creditor. Secondly, the Bill also introduces the notion of reckless trading with the possibility of personal liability where this is proved. This is a sensitive area and the last thing we want to do in recessionary conditions is to frighten off honest directors from maintaining and expanding their businesses. The Minister is clearly conscious of this and the Bill tries to strike a balance so that the honest directors will have nothing to fear.

Turning specifically to the fly-by-night directors, one of the most provocative spectacles we see in this respect is that of directors of companies which have become insolvent starting businesses again, perhaps even the next day, under a different name. This practice is very discouraging for honest directors who play by the rules. I am glad the Bill proposes to tighten up the law in respect of a director who is convicted of any offence in connection with the management of company, or of any offence involving fraud or dishonesty whether in connection with the company or not. It is expanded that far. The Bill provides that such a person will be automatically disqualified for a minimum of five years following such a conviction. The Bill also provides a discretionary power for the court to disqualify a person in a wider range of circumstances than has been the case up to now.

I welcome the manner in which the fly-by-night director is being tackled. The Bill specifically addresses the situation where a director of a company which goes into liquidation and which turns out to be insolvent, leaving unpaid creditors behind, no longer will be able to set up a business the next day under a different name without meeting certain conditions. If such a director becomes involved in a new company, the capital requirement will be £50,000 fully paid up in cash for a public limited liability company and £10,000 in the case of a private company. This type of safeguard is undoubtedly necessary because honest businessmen must be encouraged rather than discouraged to stay on a straight path. It is not unreasonable that directors of insolvent companies, when starting up in business again should meet certain requirements in the interests of their future creditors.

I have a particular worry, however, in this regard. It relates to companies where part time directors who have established reputations and are known for their expertise are invited onto boards which might indeed eventually be liquidated. It is true that relief is provided under the Bill for certain directors, but they can only seek that relief by actually going to the court. Going to the court pulls it into the public arena and directors may be very reluctant — I am talking now about people of integrity and expertise who are very valuable assets to companies that might well go into liquidation through no fault of those part time directors — to go on boards in the future if, in fact, there is the exposure of actually going to the court, as the Bill now stands, in order to get that relief. I would like the Minister's comments on that one because we need all the expertise we can get on boards for policy making. After all, business is very often the engine of growth in our economy, and we want to encourage and foster any initiatives in that regard.

The final point I want to refer to briefly relates to the duties of auditors. Section 176 specifies certain actions that must be taken by auditors if a company fail to keep proper books of account. There will be an obligation on the auditors to serve a notice on the company that they are failing to keep proper books of account and, where such a notice is served, the auditors are required to notify the registrar of companies also. Often the legislation which is considered by the Houses of the Oireachtas — this Bill is no exception — requires certain resources for its proper implementation. There is little point in us passing legislation here if the resources are not there to implement it. On the resource question we have been critical of legislation that has been passed in recent years.

I have no personal knowledge of the staffing and expertise in the Companies Registration Office. I am aware, especially after several years on the Joint Committee on State-Sponsored Bodies, that civil servants possess intelligence and integrity but that, very often complex decisions have to be made by Ministers who rely on their advisers for key advice in that regard. That raises the question of the expertise of those who are obviously highly intelligent people. This may require considerable technical expertise which may, in turn, require specialised training. As I said, I really have no knowledge of the staffing arrangements and expertise in the Companies Registration Office. I merely raise the question of whether the staffing and expertise among the personnel in that office are adequate to implement the provisions of this Bill. I will reserve any further comments for Committee Stage.

Mr. Kennedy

Is mian liom ar dtús fáilte a chur roimh an Bille seo, Bille na gCuideachtaí, 1987, agus ar ndóigh fáilte a chur roimh an Aire, An Teachta McCarthy go dtí an Teach seo. Is mian liomsa freisin comhghairdeas a dhéanamh leis an Aire Tionscail agus Tráchtála as ucht an Bille tábhachtach seo a thabhairt os comhair an tSeanaid i dtosach báire.

I welcome the Companies (No. 2) Bille, 1987, which is being introduced by the Minister for Industry and Commerce, but which was first initiated by the Coalition Government and adopted by the present Government. It represents the most major and comprehensive legislation in this area since the Companies Act, 1963, and contains 11 parts and 189 sections. I welcome the Bill because it seeks to strike a fair balance between, on the one hand, the need to tackle firmly abuse and malpractice and to discourage and prevent dishonest and reckless people from becoming involved in limited liability companies and, on the other hand, to encourage and promote honest and genuine enterprise. In the words of the Cork committee, a British review committee under the chairmanship of Sir Kenneth Cork, which reported on insolvency practice in the United Kingdom in 1982:

A balance has to be drawn between the right of the honest and prudent businessman who is prepared to work hard and to continue to trade out of difficulties if he can genuinely see the light at the end of the tunnel and the corresponding obligation to put up shutters when by continuing to trade he would be doing so at the expense of his creditors and in disregard of those business considerations which a reasonable man is expected to observe.

In the context of the world of today we must endeavour to maintain a just balance between the creditor on the one hand and the debtor on the other. It is interesting to recall here today that the appearance on the Statute Book of the principal Act, the Companies Act, 1963, coincided with the beginning of a period of considerable growth in the Irish economy. However, all this increased economic activity did not alter the predominance of the private company in Irish company law. Thus while the number of public companies remained static at around 300 between the years 1925 and 1982, there has been a considerable increase in the number of private companies from a mere 1,088 in 1925 to 7,385 in 1956 and to 69,432 in 1982.

When the Irish economy moved into a deepening recession in the eighties the problems presented by the growing number of insolvencies among companies began to receive more attention and the vast number of private companies limited by shares in a comparatively small economy such as ours made the abuse of the concept of limited liability a matter of increasing public concern. I have no doubt that the appropriate legislation to tackle the abuse of limited liability and to put a stop to the activities of deliquent and dishonest directors has the support of a wide consensus of opinion in the public, commercial and political world. Therefore, I welcome the proposals contained in part VII which covers the area which has been the subject of many demands for legislative action. These proposals, as other speakers have said, seek to tackle the so called phoenix syndrome and the fly-by-night director rising from the ashes of an insolvent liquidated company under another name leaving behind, in most cases, a trail of unpaid creditors.

In the words of Judge Ronan Keane, now President of the Law Commission:

In one area at least pressure for reform has become so insistent that one can reasonably expect legislative action in the future. The abuse of the protection of limited liability is causing many problems. In particular the readiness of some entrepreneurs to put companies into liquidation, leave their creditors to whistle for their money and then form another limited company has understandably caused serious concern.

The purpose of Part VII Chapter 1 is to prevent the directors of companies which are insolvent and winding up from being appointed as directors of — or becoming involved in the promotion or formation of — companies unless such companies meet certain minimum conditions including greater capitalisation as a protection to the creditors of a new company. Thus section 117 provides that where a company is insolvent and winding up, any person who is a director of the company at the commencement of the winding up, or within the previous 12 months, will not be qualified to be appointed as a director, or to be concerned with the promotion or formation of any company unless that company has a share capital of £50,000 in the case of a public limited company, or a share capital of £10,000 in the case of a private company, fully paid up in cash in each case.

In addition Chapter 2 of Part VII makes provision for the replacement of section 184 of the Companies Act, 1963, by providing for the disqualification of company directors in a much wider range of circumstances. Thus section 125 of the present Bill will replace section 184 of the principal Act which deals at present with the disqualification of directors. Under section 184 of the Companies Act, 1963, the court could disqualify a person from being a director where such person was convicted on indictment of any offence in connection with the management of the company, or of any offence involving fraud or dishonesty whether in connection with the company or not. Now under section 125 such a person would be automatically disqualified for a minimum of five years following such a conviction. In addition, under section 125 the court may, in its discretion, disqualify a person for such period as it sees fit where it is satisfied that a person is guilty of any fraud or breach of duty in relation to the company which makes him unfit to be concerned in the management of a company.

It is important, therefore, as the Minister for Industry and Commerce said, to emphasise that these provisions are not designed to prevent directors of insolvent companies from starting off in business again. They are merely providing for the minimum set of safeguards in the interests of future creditors. Therefore, I welcome these proposals to strengthen the prohibitions on undesirable categories of persons becoming directors of companies, but I also wish to support the suggestion made in The Irish Times editorial of 13 May 1987:

The "Phoenix Syndrome" is not a recent development but it is occurring on a much more frequent basis. It has been made a considerably easier (and more tempting) proposition by the inability of the taxman to prevent companies from running up huge arrears of PAYE, VAT and PRSI contributions. This should not be allowed to happen. If extra tax officials are needed so that defaulters can be pursued more vigorously then the Minister for Finance, Mr. MacSharry, would satisfy that need.

Mr. Reynolds, in promptly presenting his Bill, is doing what he can to punish the "corporate cowboys". Mr. MacSharry could lend him valuable assistance in making it more difficult for them to run up the debts in the first place:

Part VI which deals with the winding-up of companies and related matters is, as the Minister said, one of the most important provisions of the Bill for it is in the winding-up that most company law abuses eventually come to light and there is much public demand that dishonest directors should be made more accountable for their actions. Under section 297 of the Companies Act, 1963, provision was made in respect of fraudulent trading under which company directors could be made personally liable for all or any part of a company's debts. However, practice has shown that liquidators have tended to shy away from seeking such declarations in the courts on the basis that, under our law as it stood, it was too difficult to establish the necessary standards of proof. At the same time, of course, the Judiciary have taken the initiative on this matter. We have had some notable and significant cases such as re Aluminium Fabricators (1983) per O'Hanlon J., and re Hunting Lodges Ltd. (1984) per Carroll J., where they made declarations in respect of personal liability of the company thus lifting the corporate veil of limited liability. In the words of Judge Carroll:

The privilege of limited liability which is afforded by the Companies Act in relation to companies incorporated under the Act with limited liability cannot be afforded to those who use a limited liability company as a cloak or shield beneath which they seek to operate a fraudulent system of carrying on business for their own personal enrichment and advantage.

Section 107 has a twofold objective. The question of civil liability for fraudulent trading has been separated from criminal liability which is now dealt with in section 106, whereas the civil liability is dealt with in section 107. This splitting of criminal and civil offences of fraudulent trading will I believe, lower the standard of proof required in civil cases when liquidators or creditors take such actions.

Section 107 also introduces the notion of reckless trading for there have been many cases where directors have operated a company in a way which, while not actually with fraudulent intent, completely disregarded the interests of the creditors and the shareholders. Therefore, in devising this reckless trading provision the Department of Industry and Commerce and the Minister have endeavoured to ensure that it does not have adverse effects on business by providing safeguards to protect the "honest director". Under section 104 (4) if the court considers that a person has acted honestly and responsibly, it may relieve him either wholly or partly from personal liability on whatever terms it thinks fit. However, it must be pointed out that phrases such as "honestly and responsibly" are equitable phrases and the introduction of such phrases may, indeed, cause much litigation before the exact meaning of these terms is clarified.

Part IX of the Bill introduced a new legal mechanism for the rescue and reconstruction of ailing but potentially viable companies. It has been truly said that the primary objective of insolvency law must be to support the legitimate efforts of directors and shareholders who wish to save an ailing business while, at the same time, protecting the rights of creditors in the event of the business collapsing. In the words of Joseph Chamberlain, a former president of the British Board of Trade, "Parliament has to endeavour as far as possible to protect the salvage and also to diminish the number of wrecks." In this respect, therefore, we have much to learn from other countries who have tackled the problem of the rehabilitation of companies in trouble. Under our present system it is necessary for the directors to have substantially developed their plan for reorganisation before they can approach the court, whereas in the United States, for example, the protection of the court is available during the hiatus period while the plan is being developed.

In the United Kingdom the Insolvency Act of 1985 took note of these developments in the United States and also acted on the recommendations of the Cork committee in that the 1985 Insolvency Act added another alternative to a receiver in the shape of a court appointed administrator. In their recommendations for the appointment of an administrator the Cork committee recommended:

Elsewhere in this Report we have made a number of criticisms of the present law relating to floating charges, and we shall put forward various proposals for reform. There is, however, one aspect of the floating charge which we believe to have been of outstanding benefit to the general public and to society as a whole; we refer to the power to appoint a receiver and manager of the whole property and undertaking of a company. This power is enjoyed by the holder of any well-drawn floating charge, but by no other creditor. Such receivers and managers are normally given extensive powers to manage and carry on the business of the company. In some cases, they have been able to restore an ailing enterprise to profitability, and return it to its former owners. In others, they have been able to dispose of the whole or part of the business as a going concern. In either case, the preservation of the profitable parts of the enterprise has been of advantage to the employees, the commercial community and the general public.

An Cathaoirleach

Could I have the quotation reference please?

Mr. Kennedy

The Insolvency report of the Review Committee. The Cork Committee report continues:

None of these steps is possible in the absence of a floating charge.

Accordingly, they proposed that "in all cases, and whether or not there is a floating charge in existence, that provision should be made to enable a person (whom they have called an Administrator) to be appointed whenever the circumstances justify such a course, with all the powers normally conferred upon a receiver and manager appointed under a floating charge, including the power to carry on the business of the company and to borrow for that purpose". Under their proposals "the Administrator may be appointed for all or any of the following reasons". Again I am quoting from the same report:

(a) to consider the re-organisation of the company and its management with a view to restoring profitability or maintaining employment;

(b) to ascertain whether a company of doubtful solvency can be restored to profitability;

(d) to carry on the business where this is in the public interest but it is unlikely that the business can be continued under the existing management.

Thus, there seems to be obvious merit in providing a system in this country whereby a company in temporary financial difficulties can be given a breathing space in which to reorganise and reconstruct and to face their difficulties at a much earlier stage and to take action to salvage the company instead of letting it slide into liquidation and perhaps leaving a trail of unpaid creditors behind.

The central feature of the new system, as envisaged by the Bill, is the appointment by the court of an examiner and the placing of the company under the protection of the court for a period of three months. So long as the company is protected it may not be wound up, a receiver may not be appointed, debts cannot be executed against the company and no security can be enforced against it. If the examiner considers that the company, or part of it, can be saved and that this would be more advantageous than winding it up, his purpose is to prepare a draft rescue plan. This draft rescue plan will be put to appropriate meetings of the members and creditors and if agreed it will be put to the court for its confirmation. If the court confirms such a plan it will become binding on all those concerned and the examiner's appointment will be terminated.

Part V of the Bill deals with the unscrupulous and reprehensible practice of insider dealing. This is a malpractice which is contrary to the principle of maintaining an efficient and fair shares market involving equal access to information, etc. and also because it impedes the aim of promoting a wider share ownership among the general public. Part V of the Bill, therefore, proposes 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. However, Part V should be improved and strengthened especially in the light of recent developments throughout the world. For example, Part V of the British Companies Act, 1980, creates a criminal offence of insider dealing, to deal on a recognised Stock Exchange in the securities of a company as an insider or as a recent ex-insider, that is somebody connected with the company within the preceding six months.

Finally, the Cork committee states:

It is the basic objective of insolvency law to support the maintenance of commercial morality and to encourage the fulfilment of financial obligations. Insolvency must not be an easy solution for those who can bear with equanimity the stigma of their own failure or their responsibility for the failure of a company under their management.

They have outlined what I believe should be the aims of a good modern insolvency law. It would be useful to outline these aims which they set out for a good modern insolvency law system:

(a) To recognise that the world in which we live and the creation of wealth depend upon a system founded on credit and that such a system requires, as a correlative, an insolvency procedure to cope with its causalties;

(b) To diagnose and treat an imminent insolvency at an early rather than a late stage;

(c) To relive and protect where necessary the insolvent, and in particular the individual insolvent, from any harassment and undue demands by his creditors, while taking into consideration the rights which the insolvent (and where an individual, his family) should legitimately continue to enjoy; at the same time, to have regard to the rights of creditors whose own position may be at risk because of the insolvency;

(d) to prevent conflicts between individual creditors;

(e) To realise the assets of the insolvent which should properly be taken to satisfy his debts, with the minimum of delay and expense;

(f) To distribute the proceeds of the realisations amongst the creditors in a fair and equitable manner, returning any surplus to the debtor;

(g) To ensure that the processes of realisation and distribution are administered in an honest and competent manner;

(h) to ascertain the causes of the insolvent's failure and, if insofar as his conduct or, in the case of the company, the conduct of its officers or agents, merits criticism or punishment, to decide what measures, if any, require to be taken against him or his associates, or such officers or agents;

(i) to recognise that the effects of insolvency are not limited to the private interests of the insolvent and his creditors, but that other interests of society or other groups in society are vitally affected by the insolvency and its outcome, and to ensure that these public interests are recognised and safeguarded;

(j) to provide means for the preservation of viable commercial enterprises capable of making a useful contribution to the economic life of the country;

(k) to devise a framework of law for the governing of insolvency matters which commands universal respect and observance and yet is sufficiently flexible to adapt to and deal with the rapidly changing conditions of our modern world; in particular, to achieve a system that:

(i) is seen to produce practical solutions to financial and commedical problems,

(ii) is simple and easily understood,

(iii) is free from anomalies and inconsistencies, and

(iv) is capable of being administered efficiently and economically;

(l) to ensure due recognition and respect abroad for ...

in this particular case English insolvency procedure, in our particular case Irish insolvency proceedings. They concluded:

If these aims are accepted as a fair description of the principles of which modern insolvency law should be based, then it must follow that the various statutory procedures which now form our present law should be radically revised and combined to achieve such aims. In our view the time for piecemeal or patchwork tinkering is long since past.

This has been the case with Irish company law for some time. The detailed provision contained in the Companies (No. 2) Bill, 1987, is a positive and comprehensive contribution in this direction. Finally, it was Judge Ronan Keane who wrote:

There is no indication at the time of writing...

— which was in July 1985 —

... that a consolidating Act is in contemplation. In view of the fact that no major inquiry into Irish company law has taken place for over 25 years it seems reasonable to assume that this would be preceded by a full-scale examination of the manner in which this principal, the Companies Act, 1963, has operated over the past two eventful decades in Irish economic history.

Perhaps Deputy Reynolds, as Minister for Industry and Commerce, is the man to put this major inquiry into the functioning of our company and insolvency law into motion.

Mr. Fallon

It was my intention to welcome the Minister, Deputy Reynolds, and wish him well. I welcome the Minister of State, Deputy McCarthy, on his first visit here. He has the very important portfolio of science and technology. I wish him every success in that role. I congratulate the Minister on introducing the Bill in the Seanad. It is an important and complex Bill which must be welcomed and it will assist in curbing certain malpractices and abuses which can occur in the management and erection of companies.

The basic Act covering the operations of limited companies is still the Companies Act, 1963. From my knowledge of that Act only minor changes were made for 18 or 19 years. Since 1982 there have been three significant changes, the major one coming in the Companies (Amendment) Act, 1986, which effectively translated into Irish law provisions of the Fourth EC Company Law Directive. In the light of the number of changes occurring since 1982 I am wondering if it would be opportune to embrace current commercial practices in one Companies Act which could deal with the changes brought about by what can best be described as a more open economy and international trading as well as the necessity to comply with the various EC regulations. This is not for now but is perhaps for the medium term. Meanwhile, I am confident that the provisions contained in this Bill will assist in the creation of a better climate for commercial development in Ireland and provide a better base to reward honest endeavour.

Part II of the Bill deals with investigations. To my knowledge the number of companies investigated by the Minister under sections 165 to 173 of the 1963 Act were few and far between. I wonder if the provisions in Part II, which removes the role of appointing inspectors from the Minister to the High Court, will work on a practical basis. Already the High Court appear to be extraordinarily burdened with the number of commercial applications being presented to them. There can be much delay in bringing motions before the court. Additionally, there is the question of cost for the applicant seeking appointment of inspectors by the High Court. Could there be a more simple format for dealing with basic commercial decisions? The Minister said in the House last week: "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." I cannot share the same level of optimism as the Minister on that point. Perhaps I will be proved wrong, but nevertheless I feel entitled to raise it. On the other hand, I welcome the formalising of the procedures whereby the Minister appoints an investigator.

Part III of the Bill refers to transactions involving directors. The incidence of companies failing and receivers and liquidators being unable to recover amounts outstanding in directors' loans has been influential in the changes being brought about in this Bill. At first sight, the provisions of the Bill limiting directors' loans are harsh. However, they reflect the trend of recent tax legislation which has limited the attractiveness to directors of taking loans in companies.

Certain owner managed businesses will find it difficult to come to terms with these provisions in the Bill. I have no doubt that the Minister will receive a barrage of representations from all areas to lessen the severity of some of the proposed provisions. In seeking to curb abuses the legislation may create an onerous administrative imposition on companies in the form of a requirement to maintain extensive registers and to obtain approval at general meetings for directors employment and commercial contracts. The onus on banks to maintain a ten-year register will also be burdensome. This will be especially so in the first year in which it is established.

The Bill may also limit the flexibility of companies through restricting the lending of money to directors or reimbursing them for expenditure incurred to carry on the business of the company. Loans to enable directors to relocate in response to changing business demands will also be limited to £50,000 which, in the Irish context, may seem adequate but for companies expanding overseas and developing their business internationally, it may be very restrictive.

I am not clear on the section which refers to directors' share options. It is somewhat imprecise and it will be necessary to await its implementation to judge its effect in practice. There does not appear to be any retrospective element in the Bill to compel the repayment of existing loans or the cancellation of existing share options. However, such loans would have to be disclosed in the accounts.

The provisions of Part IV largely implement existing Stock Exchange requirements for listed companies and reflect the reporting practices of listed companies. The usefulness of this section will be primarily to persons who wish to establish a relationship with a public limited company, whether as investors, lenders or creditors. In a climate where the takeover of public companies is common, the significance of such a section is in the protection it affords the general shareholder against abuses by directors or groups of predators. Having made that point I wonder if this climate has developed to such an extent here. The facility to extend the requirements to private companies, albeit through a cumbersome court application process, together with the imminent publication of private company accounts, may increase the relevance of Part IV here in coming years.

Part V of the Bill refers to insider dealing. The effect of this will be restricted by the limited market in Ireland for share dealing. It is very topical at present in the UK and this is very necessary legislation arising from the deregulation of the financial markets. These provisions reflect UK legislation and the current Stock Exchange regulations. It will be difficult for officers and directors of public limited companies to avoid insider information as defined in the Bill in relation to their own company and close attention will have to be paid to the legislation by any such officers or directors contemplating dealing in such shares. The consequence of insider dealing is that private investors are reluctant to invest in companies and it hinders the aims of promoting wider share ownership among the general public.

The penalties proposed in the Bill are mild enough when one considers the difficulties in tracing and proving that actual insider dealing took place. We all know it takes place but it is difficult to prove. There is a role in this area for the Government and the Stock Exchange have a role to play in helping to stamp out this malpractice. The general public ought to be encouraged to invest in Irish industry via the Stock Exchange. Up to now the general impression was that others had the inside track or the inside knowledge and this has not helped this type of development.

Part VII deals with disqualifications and restrictions on directors and other officers relating to the winding up of a company. The common theme is that of increased accountability of company officers who when their company is liquidated are shown to have engaged in malpractice, as well as generally strengthening the hands of company creditors in the winding up. The objective is to discourage company officers who might otherwise be tempted to engage in dishonest activity from doing so. It would be difficult to find anything obnoxious in the overall objectives and aims of the sections in Part VII. Certainly, in recent years in Ireland there have been well publicised instances of abuses and malpractices under the Companies Act by disreputable owners/directors. These were the more publicised cases. Hardly a day goes by without owners/directors of companies who have gone into liquidation being back in business as though nothing had happened. The public perceive, and very often know, that abuse and malpractice have occurred but proving this is a horse of a different colour.

The extra powers given under sections 96 and 97 to the court and the liquidator to assist in the procurement of documents and information, including the examination of officers of companies, are a step in the right direction and are welcome. As things stand, these procedures are proving very time consuming, expensive and, in many cases, very unproductive. I urge that the Bill should incorporate specific procedures and the disclosure of information to creditors in the case of a winding up in advance of the meeting called for this purpose. It appears as the Bill stands, and under the principal Act, that creditors are more or less kept in the dark as regards financial information until it is presented to them on the day of the meeting under the various sections of the principal Act. I wonder — this is something that can obviously be raised on the Finance Bill also — whether a change in the special arrangements which the Collector General enjoys in regard to preferential treatment should not be considered or reviewed. Perhaps this is to some extent contributing to the general tardiness in collection of taxes at present being experienced, namely, that the staff of the Revenue Commissioners and the Collector General's office are aware that there is preferential treatment for any sums falling due by a company in trouble within 12 months of going into liquidation.

The Bill also deals with the problem of charges registered under fixed charges. Perhaps the Bill should also look at the inequity of giving a selected creditor, namely, the Collector General, special treatment by affording him the luxury of automatic preference for 12 months prior to a liquidation. As regards disqualification and restriction of directors I query the adequacy of the requirement of £10,000 to be allotted and paid up in a private company as a prerequisite for a director to recommence business in a new company following the liquidation of the old one, and especially £50,000 in the case of a public company. Those figures are not high enough; they should be doubled.

In regard to disqualification of directors, the imposition of a period of ten years disqualification for a first breach and 20 years for a further breach is excessive. It should be revised to a maximum of two years for a first disqualification and a maximum of five years for further offences. A clear distinction ought to be made between a director who is the entrepreneur or controlling director; the full time executive director; the non-executive director; the employee who is also a director; the director who is a nominee of, say, a development agency of the State; the director who is a nominee of a financial institution and the director who is essentially a company doctor who has been brought in to assist in the recovery of a company that might be in difficulty. If an attempt is made to deal with the various categories of director under a general heading of "director" the result could be very confusing and very inequitable for certain persons. It should be a matter of concern to this House that the blameless should not be exposed to the risk of prosecution. We must encourage participation by well meaning persons in the development of the private sector by their participation on boards of directors and the Bill must not interfere with this process.

Parts VIII and IX deal with disqualification of receivers. The Bill should address the qualifications required by a receiver but, interestingly enough, this has been omitted. One of the most innovative sections deals with the appointment of an examiner. This is overdue and cannot but help in present economic circumstances.

Part X of the Bill deals with the accounts and audit. The requirement to maintain proper books of accounts at all times and the strengthened definition of what constitutes such books will place a heavy onus on many small businesses. The Bill implies the need to maintain stock records in certain instances and places small businessmen who write up books irregularly from incomplete sources in a very difficult position. I have no doubt that Part X will impose hardship in the Irish environment.

There is an obligation on the auditors to notify the directors of any failure to maintain proper books. It is very difficult to envisage this operating effectively in an environment where audit visits occur only once a year. It is unlikely that this legislation envisages a continuous audit in such cases and it is to be hoped that this point will be clarified as the Bill proceeds. The strengthening of the auditor's hand in circumstances where he finds himself in conflict with management is a necessary step in maintaining the independence of the auditor. However, in the context of many Irish companies where the owners and directors are the same people, the provisions may have very little real effect. Part IX refers to companies under court protection. This is an important constructive proposal in the Bill. It provides for a company with temporary difficulties to be under the protection of the High Court for a three month period. I would welcome a much longer rehabilitation period of, say, six, nine or ten months for a number of what I regard as very obvious reasons. This is a very important and complex Bill. It is right, as the Minister said, that the views of everybody should be received. The views of trade unions, industry and the public will be sought and every effort will be made to improve the legislation so that it will last for another 25 years or more. Certainly, the whole nation will be behind the Minister in helping to end the antics over the years of those known as fly-by-night directors. Knowing the Minister as I do, I know he will listen to everybody in the hope that the Bill will be the best possible. I have no doubt that he will amend it if he thinks fit.

Knowing the make up of Irish business, it is very important that throughout the Bill we seek to get the right balance. There is a need to ensure that legislative change is not punitive for those business people who, while they might be commercially imprudent, are not in the slightest way fraudulent in a criminal sense. There is a need to ensure that every legislative measure is designed to help the continued existence of a potentially viable company in the interests of all parties, whether they be employees, suppliers or customers. In this context the suggested new legal mechanism for the rescue or reconstruction of ailing but potentially viable companies is clearly welcome. There is a need to ensure that legislative changes will not create any additional or unnecessary administrative burdens for trading companies in circumstances where enterprise in Ireland is already grossly overburdened by administrative requirements.

The topic before us is one which should interest an enormous number of people. There are more than 80,000 limited companies here. Admittedly, many of them are non-trading and, while there are no official statistics on the number of individuals who are executive or non-executive directors, it is hard to see how this number could be less than 100,000 even allowing for the fact that people hold multiple directorships. The Bill aims to clamp down on those abusing the limited liability status. It is very important that the benefit of limited liability to entrepreneurs must not and must never be diminished. Companies fail for a variety of reasons. Indeed, as we all know, first time success stories may well be the exception rather than the rule. After a first failure people come back and through hard work and honest endeavour might only come right at the second or even the third time of asking. In a small country with an extraordinarily high level of unemployment, over 19 per cent, and with a national output per head of population only 70 per cent of that of the EC average, the main focus of our efforts should be to ensure the creation of a climate which will attract more people to establish enterprises. We should ensure that an appropriate balance is always maintained between the need to encourage enterprise and the need to protect the legitimate interests of all upon whom the enterprise will in any way impact.

The Explanatory Memorandum accompanying the Bill states that the underlying aim is to create a climate of confidence for business activity in which genuine commercial endeavour will prosper and the prospects for economic development in general will be enhanced. I welcome that statement which is in accord with the view that measures should be taken which are aimed specifically at curbing certain identified abuses, while at the same time introducing provisions which inspire more confidence among those directly affected by the activities of limited companies, and encouraging companies who get into difficulties to address those difficulties in a positive and constructive manner at a much earlier stage. This is a very difficult and complex Bill and I welcome the Minister's indication that he is prepared to listen and to amend it to make this even better legislation. I know the Minister will do that. I wish the Minister and the Bill every success.

Mr. Harte

I welcome the Bill. It has taken a long time to prepare but that is to be expected with Bills of this type. Company law is a difficult area to deal with. It is very extensive and complex, as the last speaker said. One can, therefore, understand the reason for the delay in bringing the Bill forward. It is really not finalised and while I am very happy with most of it there are one or two areas where I shall be suggesting amendments. Since the Bill is being introduced in the Seanad it is appropriate that we should try to amend it where necessary because the legislation is liable to be on the Statute Book for a long time. It is important that we do not miss the opportunity to correct any weaknesses we find in it.

I should like to congratulate the Minister because I know it was difficult to get over the problems with so many lobbies interested in the wording of it. Many interest groups tried to ensure that the completed wording did not place too much hardship on them. I know that kind of lobby exists and it is to the Minister's credit that he has brought in this Bill. While the Minister and his predecessors resisted a substantial amount of pressure — that is to their credit — in one area, which I will deal with in a moment, there seems to have been an oversight whether through pressure or otherwise. For some reason or other the matter of political contributions has been left out of the Bill. Many people said to me that they did not believe Fianna Fáil would bring in the Bill and that Fine Gael had delayed on it even though they had the bones of it ready for a substantial number of years. People said it was unlikely that Fianna Fáil would proceed with the Bill because of its far reaching objectives. I am pleased to be able to say that that is not the case and I should like to thank the Minister for bringing it in so speedily after taking office.

We were particularly keen to see that there would not be any hedging in regard to the question of disclosure and are pleased that there has not been, except in the area of political contributions. The Minister has knocked the view that Fianna Fáil would not proceed with this having regard to the fact that Fine Gael did not rush with it. The question of the disclosure of political contributions is a very serious one and we should give a little time to it. When Deputy Frank Cluskey was Minister for Trade, Commerce and Tourism he drew up the skeleton of the Bill with his civil servants. As I understand it, he did this at a very early stage. In the draft, and as far as I can remember, there was a provision about the question of disclosure of information in regard to subscriptions paid to political parties by various companies. I am not too sure of the amount but I believe that a contribution in excess of £250 to a political party had to be disclosed. That information should be readily available but for some reason this provision has not been included.

I do not want anybody to get the wrong impression. I do not think for one moment that the Minister will not face up to this. Frankly, I think he will, but there must be an explanation as to why it is not in the Bill. An awful lot of cynicism is created in the minds of people when that is not provided for. It is rather unfortunate that it is not in. I am not sure where the blame for the omission lies but that does not matter now. The fact is that it is not there. We should be serious about this whole question of open Government and we should, through legislation, force people to reveal specific information to allay public fear. The public believe that if you subscribe heavily to a political party you will gain.

Mr. Doyle

The building industry would not think that now.

Mr. Harte

They should think about it. It depends on where you drink of course. I drink in the Liberties and that is the way the people there think. They believe that if you are throwing in the few bob there is a kick-back in some shape or form. We have evidence of it in the referendum where 70 per cent of voters could not be persuaded to come out and take an interest. That is because of the view people have of politicians because of certain omissions and so on. Fianna Fáil have an opportunity now. We could now say we almost have a national Government. The parties involved have a great opportunity to tackle this. It should be made clear that if one makes a contribution there will not be any special favours arising out of it. If we are talking about social responsibilities the public have got to know a lot more about the sources of revenue of political parties. For example, when the Labour Party or The Workers' Party fight an election they do not have any opportunity to raise the type of finance that is available to the other parties. The do not get those types of contributions. Inevitably as it cannot be written into company law we will have to have the State donating funds for elections to each party. All parties will have a chance then. Some may consider this is a bit of a belly-ache but we will have to deal with it.

That type of income should be revealed. How can one blame the ordinary citizen who is not au fait with the position for believing that benefits result from contributions from industries. Let us get this out in the open so that people can gauge what the true position is and put matters into perspective. The Bill goes a good way towards achieving the principle of opening up the process of Government. This House will agree that it is absurd and conducive only to bad Government that the general public should have less access to information than favoured individuals or groups. That is the impression people have. They believe special information is there for the privileged individuals and groups who make contributions to political parties. The feeling is that individuals or groups have an ascendancy in the nation because of contributions made to political parties.

We are into the question of open Government. The Bill is a revelation to me because I thought there would be a lot of hedging on it and I am very pleased that there has not been. No Government wishing to govern by consent have a right to withhold information. The public are entitled to it. If we wish to remove unnecessary and unjustified doubt about the validity and integrity of the directors who run companies the citizens must know all the facts. If they do not, it is quite clear that they will continue to believe that decisions by Government are arrived at conveniently and can be based on inadequate, or incomplete, or even prejudicial information. That stems from the lack of information. I am satisfied that the Bill is intended to ensure that directors must act in the best interests of the company, the shareholders and the public. I am satisfied also that the Bill goes a step further, and involves the community in a partnership with industry.

In general the best interests of the nation are being looked after in the Bill. It is not narrowed down to the special interests of the company or the shareholders. That does not remove the criticisms I have made. The Bill will make a major impact on the level of social responsibility of industry. Existing legislation which is outside the framework of the Companies (No. 2) Bill must also be strengthened and more rigorously enforced. I say that not only in respect of one particular issue but a very wide range of issues. A greater protection of consumers' interests might be achieved through increased local authority powers. Would it be a feasible proposition on the basis of our population to have a consumer authority in its true sense? On the other hand we could do it by strengthening the various inspectorates. For example, an inspectorate of health and safety of employees and an inspectorate of pollution might be considered. I am not sure whether the sections dealing with disclosure will reveal enough details about the associated companies with particular regard to multi-nationals. I wonder whether the Bill will reveal emoluments and other payments to individual directors and highly paid employees and also to consultants and others with contracts of service with the company. Will there be a spin off in regard to information on the structure and financing of the developments? I do not know whether this is the legislation we should be thinking about in this connection.

Perhaps some of my observations could be examined to see whether they would improve this legislation. We should look at possible amendments we could make now. Other legislation in the business area which runs in tandem with the Companies Act should be dealt with if we cannot deal with it in the Companies Act. There are many areas of concern not only to employees and shareholders but also to the community who are, in fact, the consumers. The Bill makes the point that existing legislation is not adequate. It also makes the point that legislation outside its scope needs to be looked at and strengthened and made more vigorous, in particular in relation to the areas of doubt in the public mind. Further disclosures should be pressed for. When pushing for more detailed disclosures than the Bill will reveal, you can start talking about a cut off point for each item of disclosure provided, of course, the criterion is properly set.

One of the main reasons for tough investigative powers is that the self-regulating concept does not work. It certainly does not work in the system as we know it. It certainly has not stopped abuses growing up and has not shown the necessary flexibility to deal with abuses in current practices and put them right. There is a lack of will to use the self-regulating system and there are other factors of major importance. By its very nature company law is not tackled effectively for long periods with the result that abuses arise. There is a certain amount of looking after your own area and righting your own wrongs. Everything is left to the directors because we cannot keep changing the legislation and company law tends to be permanently out of date. That is why I am talking about the laws that run side by side with the Bill. It should be possible to legislate in this area at regular intervals and we should expect the law to meet the needs of the day. I do not think any Government find it easy to give time or priority to company law as so many other matters are pressing for attention. Because it is complex and difficult company law cannot get the attention it should get and that is why it has remained unchanged and out of date. It is not policed in a proper way and if it is to be policed the provisions within the Bill do not give sufficient scope to the people who are policing it.

I do not think the Act is flexible enough. I believe somebody said — I did not hear the debate — they thought it was too inflexible. The criticism could be made that this Bill is removing flexibility in certain respects. It is flexible in one way but it is inflexible in the area of allowing people to let bad habits grow up. Laws are not introduced always to allow people to do things, but to prevent them from doing certain things. Certain types of laws are needed for certain reasons. In this case if we did not make laws there is no doubt that we would be in a lot of trouble. We would certainly be run over roughshod.

I am nervous about the fact that we have put quite a lot into this legislation. It is good and I am quite happy about it. I am afraid that without secondary legislation — because of its permanent nature — the Bill may run into trouble fairly quickly. In order to keep the legislation up to date, the idea of secondary legislation has a lot to recommend it. I ask the Minister to think about that. The criteria will be there provided parliamentary control can be safeguarded. The problem with company law down through the years — and we may even see it at the end of this debate when the new law starts to function — has been enforcement. I do not think it can be left to self-appointed bodies, as I mentioned earlier on. For some of the self-appointed bodies temptation crops up and difficulties arise. On the other hand, there are very worthy bodies who have done a good job. The whole question of the enforcement should not be left to non-Government bodies. It is a job for Government agencies which would be ultimately subject to ministerial and parliamentary control. The so-called self regulatory bodies are not subject to this ultimate ministerial and parliamentary control. Organisms tend to survive which are best fitted to utilise the environment for their own purpose. Inevitably the incidental evils are carried with them. We must support this measure and measures of this nature.

An observation was made earlier on the question of disclosure of information to employees. As a former trade union official involved in the trade union movement for about 35 years, I am not sure whether that is a priority for the ordinary person, but it may well be for the leaders of trade union opinion. It may be a good idea in that they could make their own representations in an effective way. I am not so sure that the actual worker who is not sitting on the board is much interested in knowing exactly how the company functions. Nevertheless, I think it is the honourable and the most suitable thing to do. If possible the company should assemble their employees once a year and tell them the associations they are involved with, the difficulties of trading, where the benefits come from, their intentions and the political difficulties they might run into if they have invested in other companies. For over 20 years Guinness have assembled their employees on one day every year and there is a full disclosure of what the company's intentions are. Obviously it is not a full disclosure in the sense that one particular gentleman in London did not come back to make any disclosures.

Incidentally I do not know whether it will happen this year, but it always happened when I was there. I do not know whether this London gentleman has made any difference to that decision. The fact is that it was a wonderful way of breaking down information in a way that could be understood by the ordinary worker on the floor. It was very revealing. People began to realise that there is a lot more to company law and the functioning of a company than making sure you sold a few barrels of stout or a few kegs of porter to somebody across the water. They realised that there was a world aspect to the principles underlying health and safety and humanity. This was very revealing to people.

Relationships were always very good in Guinness but these meetings tended to help them to develop and grow and remain stable over a sustained period. With regard to the disclosure of information, we should think about secondary legislation so that we will not always have to depend on the Companies Act to get to the bottom of something. I ask the Minister to do something about the question of political contributions.

Mr. Magnier

I welcome the provisions of this Bill and also the wise and unselfish acknowledgment by the Minister for Industry and Commerce, Deputy Reynolds, of the work of previous administrations. For far too long it has been possible for people to trade without respect for liabilities due to others. Furthermore, unscrupulous people have been able to re-establish businesses which have previously failed without having to meet liabilities previously incurred and flagrantly disregarded. This has encouraged a situation where a man's word is no longer his bond, where successive businesses are pulled down through the knock-on effect of the failure of one business, and has led to a general reduction of business confidence at a time when it is most needed.

Ireland needs investment, it needs people who have confidence to set up in business. That requires a stable and satisfactory business climate. I believe this Bill will assist in that objective. There shoule be an absolute prohibition on a rogue director being a director subsequently. There should be no such prohibition on a director who, acting honestly, has been involved with a business which has failed. Such a director should, however, have to meet certain tests before being allowed to be a director again. I see that the Bill follows this line.

I have had first hand experience of dealing with people operating under the Chapter 11 procedure in the US. All the cards are on the table, so to speak, and all parties are given time to plan their affairs. It works effectively, perhaps saving the liquidator his next job. We need to take care against having too much legislation. The United States has a huge array of legislation covering all areas of business life. We are a far smaller economy and in our economy too much legislation can stifle enterprise and initiative. Indeed, this problem already seems to exist and has been highlighted in various submissions and reports.

Therefore, while I welcome this Bill, I believe that demands for further legislation in this area should be accommodated only when it can be shown that further legislation will assist in generating economic benefit to the country. In other words, keep it simple; do not fix it unless it is broken. The Minister for Industry and Commerce said he will take amendments on Committee Stage, again a very good attitude on his part.

Mr. Doyle

The Bill before Seanad Éireann was first published on 20 January this year by the then Fine Gael Government. The Explanatory Memorandum which accompanies the Bill states that the underlying aim is to create a climate of confidence for business activity in which genuine commercial endeavour will prosper. The memorandum notes that the Bill was also designed to introduce measures aimed specifically at curbing certain identified abuses. Last week the Minister spoke about the Bill as being the most radical overhaul of Irish commercial law since the Companies Act, 1963. For all these reasons this Bill is timely indeed and I welcome its re-adoption by the present Government and urge its adoption by Seanad Éireann.

It is worth reviewing in some detail the principal measures proposed in the Bill. Firstly, in a winding up situation, the directors may often become personally liable for the company's debts. Secondly, directors of companies which become insolvent will have certain considerable restrictions placed in the way of their ever again becoming directors of companies. Thirdly, insider dealing, a particularly corrupt phenomenon, with which we have become very familiar because of recent goings on in the United States, will be expressly prohibited. Fourthly, greater powers are to be given both to creditors and to the Minister to have inspectors investigate the affairs of a company which may have entered into trading difficulties. Fifthly, directors of certain holding companies may have the same responsibility as directors of an insolvent subsidiary for the affairs of that insolvent subsidiary. Sixthly, there are to be very substantial penalties for noncompliance with regulations established by this Bill once it has become law.

We all know that what is needed in Ireland today is a new spirit of enterprise, the creation of an environment in which people will be willing to work for themselves and to take the risks which are the only known route to commercial and economic success. There are many obstacles in the way of creating this type of society in Ireland today, not least being the archaic, unfair and unworkable tax regime. One of the problems which business suffers from in Ireland is the overwhelmingly negative image with which it is associated in the public mind. To the extent that this negative image has been due to the activities of a number of cowboys within the overtly loose structure of our present company law, this Bill represents a step towards improving the situation and is, therefore, obviously a step in the right direction.

In Part II of the Bill it is proposed that inspectors can be appointed by the High Court to investigate the affairs of a company in certain circumstances. These inspectors will be authorised to examine past and present officers of the company, including bankers, solicitors, auditors and any person likely to be in possession of relevant information. Any evidence given to these inspectors will be admissible in subsequent criminal and civil proceedings. To many Senators these powers may appear to be somewhat draconian. We in this party are committed to the fuller development of society which will allow ordinary citizens the right to live their lives in privacy and without unnecessary interference by outside persons or bodies, least of all the State.

It can be claimed not unfairly that there is too much State activity in Ireland today and that only with a devolution of power and responsibility for their own affairs to ordinary people can we lift this huge burden of State interference off the backs of our citizens. Yet, the new investigatory powers conferred by this Bill must be seen in their proper light. To the vast majority of companies they will never be relevant. To all those individual companies who run properly, without shady or improper dealings, the provisions of this section of the Bill will prove immaterial. There are, however, as we all know, individuals in our society who feel no responsibility either to those with whom they work or to those whose lives are otherwise affected by the operations of their companies.

The pages of our newspapers, magazines and even our television screens are at times littered with the accounts of the doings of individuals whose recklessness and selfishness in business affairs have wrecked the lives of many innocent bystanders. It is these unscrupulous individuals we wish to pursue under the provisions of this Bill. So often the cry has gone up: "If we only had known in time". This provision will allow us to know in time the affiars of a company whose activities appear to be drifting close to disaster. It requires the full authority of the High Court to initiate an investigation of this type. This provision gives the lie to those who claim that it will prove an unwarranted interference in the affairs of the ordinary citizen. It is a reasonable provision which seeks only the protection of society at large, and it is to be commended to the House.

Additionally the Bill gives the Minister power to appoint an inspector to report on the ownership of a company. This is an important provision which will allow the Minister to determine the identity of those persons who are fronting a company and perhaps using improper influence because of their position to determine the affairs of that company. Again those who are acting within the law will have nothing to fear from this provision. It is proposed in section 7 (d) of the Bill to give creditors power to request the appointment of an inspector. It is important that this provision should be retained and strengthened because almost invariably the unsecured creditors stand last in the line to recover their investment in a company which is getting into trading or financial difficulties. Again, the purpose of all legislation of this type must be to create a climate of business confidence, a climate which will encourage people to get started in a business of their own and to take the risk which alone can turn Ireland into a profit orientated industrial and service economy.

It is invidious that ordinary people in business should have carried a greater exposure to the activities of sharp operators with whom they have had to deal from time to time. I welcome the provision which will allow creditors the right to request the appointment of such an inspector although I must say I have reservations about the practicality of the requirement by such creditors to lodge as security an amount against any costs which may be incurred in this process. I urge the Minister to reduce the potential cost of such a procedure for creditors to the absolute bare minimum. The Bill gives the Minister the right to require the production of a company's books and papers for inspection and, under a court order, to enter and search premises and to seize books. It is unfortunate that such practices have become necessary to safeguard the welfare of some unfortunate business people from a small number of sharks we have to deal with. On balance I welcome this measure as necessary and constructive.

Part III of the Bill deals with transactions involving directors which lie at the heart of the intention behind this legislation. The principal features of the Bill in this regard include the following: (1) the company may not buy or sell a non-cash asset to or from a director where the value of that asset exceeds £50,000 or 10 per cent of the total assets of the company without the approval of shareholders at an ordinary meeting; (2) there is a prohibition on the making of certain loans to a director or any person connected with him where the value of that loan exceeds £2,500; (3) in general, companies may not enter into credit transactions with a director or anyone associated with him for any amount exceeding £5,000 unless the transaction is entered into in the ordinary course of business or under normal commercial terms; (4) such transactions by directors must be disclosed by way of a note in the company's accounts; (5) directors service arrangements for periods of five years or more require the approval of shareholders in a general meeting.

There are other provisions introduced under the Bill which regulate the relationship between directors, shareholders and company operators, but these are the most important provisions. They are an attempt to regulate the behaviour of directors generally and in particular those directors who have especially close operating or financial relationships with their own firms. It has long been a source of some concern to me that so little information is furnished in the published statutory accounts of a company in respect of the amounts which the company pays to its directors. In the case of larger companies where a sort of old boys' club of company directorships seems to apply, this is particularly the case. All one ever sees disclosed in company accounts are brief items of information relating to directors' fees and emoluments, whatever they may be, and of subsequent pension payments. I favour the complete disclosure on a director to director basis of the amounts which have been paid to each director during the year. In the past we have seen too much shady dealing by directors with their companies, together with the use by directors of companies merely as tax shelters, or in the construction of quite elaborate tax avoidance shemes.

I know there is a legitimate distinction between tax avoidance and tax evasion. Nevertheless the distinction between the two issues is often a very fine one. I am aware it is the practice in the civil jurisdiction of many of our European partners that where a commercial arrangement has been established solely for the purpose of tax avoidance it will be looked through for the purpose of raising an assessment of tax. The courts here and in Great Britain have been moving towards an increasingly less sympathetic interpretation of some of these tax avoidance schemes in recent years. Nevertheless, I believe it would be beneficial if such a strict interpretation of these artificial schemes were written into our statute law as well. Too often we leave it to the courts to deal with these issues for us. We should have the courage to do away with these artificial schemes and I welcome an indication from the Minister that he will consider incorporating such a provision in legislation in the near future. The issue dealt with under this part of the Bill will prove of benefit in showing ordinary members of the public that we will not tolerate the use of companies by directors simply to make financial arrangements for their own personal advantage without any underlying commercial basis.

There are two intentions behind the sections of the Bill which deal with winding up and I subscribe to both intentions wholeheartedly: (1), the Bill attempts to strengthen the position of creditors in winding up; and (2), the Bill increases the accountability of company officers where the company is liquidated. I commented before on the undesirability of having ordinary trade creditors in the least strong position with respect to the company which is being wound up. These directors in smaller concerns invariably provide companies with goods and services which they need to carry on their daily activities and are the backbone of our economy. If we are to place our hope for future employment and growth in Ireland on small businessmen, it is imperative that we afford the businessmen all the protection and assistance we can give them under the law. This is what the Bill is attempting to do in these sections.

Secured creditors of a company when registering particulars of a charge will be required to include a monetary limit of a fixed and definite sum on the amount to be secured by that charge. This registration will, at least, have the benefit that potential investors or creditors in a company will have some indication of the extent of secured charges which rank before them for consideration in the event of a winding up. Too often it has happened that the unsecured creditors have been left penniless not least because it was unknown until the winding up how great was the value of the charges which had received prior security in the office of the company. In the matter of increasing the accountability of officers of a company it is proposed that any person, while an officer of the company, who is knowingly a party to carrying on any business of the company in a reckless manner may be held personally responsible by the court without any limitation of liability for all or any part of the debt or other liabilities of the company. This is, of course, only as it should be.

The original purpose of limited liability was to protect the shareholder, to indicate the limit of his potential liability so that business confidence might be maintained and the economy might prosper. It was never intended that limited liability should serve as a shield behind which dishonest directors or other operators might shelter. I welcome the removal of this anomaly and warmly support this section of the Bill.

There are sections of the Bill which deal with the role of auditors. In the past auditors have had too easy a time in their dealings with client companies. For a company the price of limited liability is the annual audit, the process whereby an independent report is made on the accounts prepared by the client company. How much work and actual research goes into running a statutory audit? Is it not the case that very many audits are conducted by the same firm of auditors year after year for the same company? In these circumstances I wonder whether it is unreasonable to expect that a certain cosiness creeps into the relationship that exists between the officers of a company and the company's auditors where the annual audit fee merely becomes payment for the varnishing of a company's accounts by the audit firm. Do auditors really deliver any service of estimable value to the clients they serve? I do not know what the answer to these questions is but I wonder if we should consider, in a future Companies Bill, what the expected role of the auditor might be. Perhaps we might suggest a rotation of auditors away from their client company after a particular firm of auditors have worked for that company for a period of, say, seven years. These are interesting issues, not quite appropriate to the present discussion, but perhaps of value for a future debate.

Under the Bill auditors are required to report on a declaration of solvency and they must state whether, in their opinion, the opinion which has been expressed by the directors that the company can pay its debts within 12 months of its liquidation is reasonable. This declaration must also state whether the directors' assessment of the companies assets and liabilities gives a true and fair view. I know that much debate has taken place over what a true and fair view actually means. We should note that auditors are required to give a true and fair view, not the true and fair view. What precise meaning this distinction has I do not know. To me as a layman it sounds like allowing the auditors very considerable leeway in the work they do in preparing their various reports. I wonder whether in phrasing the requirement for the declaration of solvency in this way we are drawing its boundaries too wide. Perhaps the Minister might consider the imposition of stricter guidelines for this declaration since the declaration itself appears to be an issue of such importance and of much potential assistance in work of this sort. I welcome the provision of the Bill which states that an auditor is precluded from acting as liquidator in a member's voluntary winding up. I similarly welcome the provision which states that all regular returns by receivers and liquidators to the Companies Registration Office are to be required to include a report as to whether the officer or member of the company may be guilty of a criminal offence.

This may be an appropriate time to make a comment on the operation of the Companies Registration Office. Many Senators will have had direct experience of the difficulty which can often be experienced when trying to retrieve a file from the Companies Registration Office for examination. One often has to spend a great deal of time waiting for the material in question and at times the file which one requires is nowhere to be found. This does not reflect in any way on those civil servants working in the Companies Registration Office. They must be one of our most over-worked group of civil servants.

It is surely time for the Government to apply more resources to that office and this would not require any manoeuvering with the embargo on employment in the Civil Service. I could instance a number of Government Departments where civil servants have a great deal of time on their hands and could be more usefully deployed in the work in the Companies Registration Office. This office is at present undergoing a programme of computerisation. Perhaps the Minister could tell us something about the progress of this computerisation project and any other plans which he may have to make the operation of the Companies Registration Office more effective.

Finally, it might be useful if the Minister could give some consideration to the problem of getting companies to file their accounts with the Companies Registration Office in time. We must accept that some of the practices which have grown up in this regard, not least from time to time in semi-State or State-sponsored companies, are disgraceful. The only way we will get companies to file their accounts on time is to impose financial penalties on those who default in this regard and also to increase the personal liability of directors in this area. Perhaps the Minister could let us know if he has given this matter any consideration or what he intends to do in this area in the future.

Part VII deals with the disqualification of directors. The heart of this Bill and its most welcome features lie in areas relating to the restrictions and disqualifications which relate to directors and other corporate body officers. I welcome the provision that, where a company is insolvent and is winding up, any person who is a director of a company at the commencement of the winding up, or within the previous 12 months, will not qualify to be appointed as a director or to form another company unless the other company has a minimum allotted share capital fully paid up in cash. We have all grown too familiar with the Phoenix syndrome where individuals have been able to walk away from the disasters which they have imposed on other people's lives through their reckless conduct and then begin to trade again, without any shame or accountability, within a very short time. This measure aims to do away with that carry on and I fully support it.

The ability of individual directors to apply for relief from these provisions is welcome in that it allows genuine cases to escape from the rigours of these regulations. The disqualification from acting as a director of any person who has been convicted of any indictable offence in relation to a company or involving fraud or dishonesty is also welcome. It might, perhaps, have been appropriate for the Minister to take this opportunity to exclude other categories of persons from acting as directors. It is hardly edifying to find a company one of whose statutory directors is a typist, or secretary, or other basic employee of the original instigator of the company. It would be a difficult area on which to legislate, but the Minister should investigate areas where anomolies and further abuses could be eliminated.

A number of other matters are addressed in this Bill but I do not propose to comment on any of them in great detail. The imposition of an obligation on a receiver to compile a statement of affairs within two months of his appointment may prove difficult to implement in practice if the receiver experiences difficulties in obtaining the required information from directors. The requirement on directors to call a general meeting where they have been notified by the auditors that proper books of account are not being kept is a welcome addition to the earlier provisions of the Companies Act, 1963. The even stricter invocation of personal liability on an officer of a company where the inability of the company to pay its debts has been contributed to by the lack of proper books of account is a particularly welcome development.

The new provision relating to the appointment of an examiner for companies which are ailing and are still potentially viable is also welcome. We all earnestly hope that measures of this sort will prevent the sort of collapse which the Exchequer had to endure and ultimately rescue in such cases as the PMPA, Irish Shipping and the more recent Insurance Corporation of Ireland fiasco. The whole thrust of this Bill is correct and timely. The Minister in his remarks last week pointed out that there were only 11,500 companies registered when the 1963 Bill was enacted and today there are over 100,000 companies. Companies, large and small, are now a major part of economic life in Ireland. We owe it to all the parties concerned in developing and fostering the growth of our economy to see that these affairs are regulated properly, fairly and wisely. The Bill does this in full measure and I welcome it.

Mr. Lanigan

First, may I welcome the Minister of State on his first visit to the Seanad and wish him every success in his new portfolio? The portfolio he has taken over is very important and can have enormous repercussions throughout industry in Ireland.

I welcome the fact that this very substantial Bill is being introduced in the Seanad. It has been in the hands of various Ministers for a very long time and many people felt it would never see the light of democratic scrutiny. The Minister, having his mind well attuned to the needs of industry on the ownership, management and worker side has, I am delighted to see, seen fit to accelerate the process of bringing more order into the Irish companies scene. One would have had to be deaf and blind not to have seen or heard of the many abuses and malpractices in the running of Irish companies over the past number of years. Many people, however, perceive this Bill as being a deterrent, not the deterrent the public and Minister want but just one more obstacle thrown in the path of people of enterprise who wish to undertake the very hard and hazardous work of company formation and management.

The past number of years have been difficult for anyone in business and many businesses, big and small, have gone to the wall. In the majority of cases these business failures were not accompanied by any indication or suggestion of fraudulent practices or shady business transactions by the directors, management or workers. It would be a pity if the current trend of company director bashing were allowed continue without pointing out firmly that company directors, in the main, work extremely hard to see their companies through trading conditions and play a vital role in the progress being made on the industrial front in Ireland. This fact is borne out by the results being achieved by Irish industry in the current hostile business environment.

There are, however, a minority of people who have manipulated the current company legislation to their own personal advantage and have caused havoc within the company area. We have seen too many companies wound up leaving huge debts which have had the knock-on effect of closing supplier companies and had major detrimental effects on what were otherwise successful smaller businesses. Because of flaws in company law we have seen these errant businessmen rise from the ashes of one company and emerge on the same day, in the same business, in the same premises, but with different names.

It is time the nettle was grasped and an attempt made to bring some semblance of order into a highly complex company law scene. Business has become more and more difficult in the financing management and operational fields and business people have to confront legislation on many fronts on a day to day basis, whether it is in the taxation area or in the area of company legislation.

People have to be extremely well versed in these various aspects if they are not to fall foul of some element of Government interference. It is difficult for the most dedicated management personnel not to fall at some time into some innocuous trap laid for them by legislators. Up to now it was too easy for the unscrupulous operator to manipulate the weaknesses in company law and to escape the censure that should accompany any breach of these laws. While pointing out that there might be a negative side to any extension of legislation governing the management of companies, it is agreed that this Bill deals not only with the problems associated with fraud and malpractice but also contains many provisions which are of a positive nature and which should assist and protect companies which might run into difficulties and which in the past would have been forced into closure.

I am particularly pleased to see that in section 9 a new system is being introduced whereby a company in temporary financial difficulties can be given a breathing space in which to re-organise or reconstruct. This section is a source of encouragement to firms in difficulty to face these difficulties at a much earlier stage and to take action to salvage the company instead of letting it slide into liquidation, perhaps leaving a trail of unpaid creditors behind.

I should like to know the financial cost of having an examiner appointed by the court as it is a fact that the cost of professional advice can often be prohibitive. I believe that the procedure whereby an examiner is appointed by the court is a good one and the temporary placing of the company under the protection of the court is an excellent means of protecting not alone the interests of the company but also all creditors whether they are of a private or governmental nature.

The fact that a full examination will take place of the operation of the company before any creditor can take precipitate action is welcome. The operation of the company may be departmentalised so that the possibility of a smaller but more viable entity may emerge after thorough examination of all the facts. I am also pleased that at the end of the examination the draft rescue plan may be put to members and creditors of the company and the court will be asked to confirm the results which will become binding on those concerned and then the examiner's appointment will be terminated. This system of management of companies which are in trouble by examiners has been very successful in the United States where firms in trouble have been able to place their companies under protection and, therefore, have been able to stay in business after putting their affairs in order. This is one of the major elements in this Bill and it is welcome. Too often in the past because one creditor decided to jump the gun companies which had potential were forced out of business with advantage to no one except professional people such as receivers and liquidators.

The strengthening of existing legal provisions relating to the investigation of a company's affairs is welcome. It shows a determination on the part of the Minister that disclosure of all relevant company matters shall be a priority in any investigation that may take place. It is important that inspectors employed by the court can now compel witnesses to attend and can investigate bank accounts. It is also extremely important that the power of inspectors is extended to allow investigation of subsidiary companies, holding companies, or companies in which the directors have an interest.

The restriction on transactions by directors is also welcome. Control of the aggregate amount of loans to directors and their families is also to be desired. I agree with the hindrance placed on directors in not allowing them to deal in auctions in their own company shares. The fact that there will have to be disclosure of substantial interests in public limited companies will make for a more efficient share market. In the past creditors and others did not always know with whom they were dealing. The Bill will ensure that disclosure will deter potential fraud and corruption within the company area.

The other strengthening element is the power now being given to interested parties to apply to the High Court for an order requiring disclosure of beneficial ownership of shares in a private company in exceptional cases. The question of insider dealings is included in the Bill. It is important that this vexed question should be addressed to ensure that the huge fraudulent share transfers which have taken place in the international share market over the past number of years do not have a knock on detrimental effect on the operation of Irish companies. The Guinness company, which is a major employer in Ireland and is a major contributor to the Irish economy, has been through a very traumatic period recently because of insider trading.

Insider trading could have major effects on the standing, in terms of prestige and in the financial world, of the Irish company, with a knock on effect on employment in the short and long term. It is correct that insider dealings should be made unlawful. It will leave the insider dealer open to civic liability. I am delighted to see that it will also be unlawful to engage in tipping on the basis of inside information. It is suggested in the Irish context that insider trading does not take place and has never taken place. The financial people working in the Stock Exchange give the impression that this is true but the impression of people outside the Stock Market is that insider trading takes place on as big a scale in Ireland as it does in other countries. The fact that the Bill places such emphasis on the problems of fraudulent operations by some directors and on the problems which often accompany the winding up of companies, may suggest that the majority of directors are criminally minded and that most companies are operated for the sole right and benefit of their directors but this is patently not true. We should praise constantly the hard and persistent work of most directors.

The number of companies which have been wound up for various trading reasons in the past few years has been enormous and I have no doubt that this will continue into the foreseeable future. Therefore, it is important that on the winding up of a company the interests of all parties should be equally protected. In the past the interests of the directors have not always been taken adequately into account when receivers and liquidators have had to be placed in charge of the running down or liquidation of a company. The duty of a receiver is to get the best possible price for company property and this should be of paramount importance so that both the principals of the company and the creditors are safeguarded to the maximum extent.

This has not been the case on the past and often property has been disposed of at ludicrously low prices to the detriment of all interested parties. I am glad the Bill places obligations on the shoulders of receivers in this regard. It has always been my opinion that the action of certain receivers has been as close to fraud as the activities of fraudulent directors. Any attempt to remove the grey areas of receivers' operations is welcome. The reference in the Bill to the shortcomings of the book-keeping methods employed by many Irish companies is accurate. I agree that the failure of many companies is often accompanied by poor book-keeping.

Section 9 places further barriers in the way of potential businessmen as they are now placed in a position where further criminal and civil liability measures can be operated against them. The problem here is that there are large and small companies and the large companies have access to better accounting and better book-keeping methods. I suggest it is within the larger companies that the majority of the fraudulent activities of directors have taken place. Good accounting and good book-keeping have not prevented directors of large or small companies acting in a fraudulent manner. The problem of smaller companies are not properly addressed by anybody in the country at present. Smaller companies wishing to set up in Ireland have every possible barrier placed before them. If they want a grant, they have to prove they can become profitable within a short time. Projections seem to be more important than the will to work. Too often we have seen that when people go to a bank or a Government sponsored body, the people with the best presentation get the grants, whereas in many cases the people with bad presentation can become very good business people and produce goods cheaper and to a higher standard than people with the better paperwork.

We have to be extremely careful that we do not put too many barriers in front of people who have the ambition and enterprise to get into the marketplace. Smaller companies do not have access to the accounting and book-keeping methods of bigger companies. Sometimes they are inclined to work at the production end and the sales end and leave the book-keeping. Suddenly they get into conflict with the Government agencies for not sending in returns in time of PAYE, PRSI and VAT. The find that because they have left things on the long finger they are in a sense being deemed as criminals. The full brunt of the law should not be felt by a person for something which at worst could be considered as careless rather than criminal.

The Bill addresses many of the problems facing business people in the operation of their affairs and it attempts to regulate in a better manner company affairs in Ireland. I hope it will be seen as a Bill of regulations of business rather than a Bill of attrition against business people. If it is a Bill of regulation and is seen to be such it can be successful. It brings together many of the things which people have been criticising over the past number of years, I sincerely hope that at the end of the day it will do away with the fraud which has been perpetrated by many business people whether sole owners or company directors.

I am also glad there is a section in the Bill which gives the Minister power to revoke, suspend or attach conditions to his recognition of a body of accountants for auditing purposes under the Companies Act into the authorisation of individuals who may not be members of such recognised bodies. There is a need for regulation in this area. The regulation in relation to auditors and accountants should be as strict as it is in relation to directors of companies which are trading.

Section 176 places a new duty on company auditors if it appears that the company is not keeping proper books of account. This is a welcome section and I do not think anyone will disagree with it. Section 177 states that a stringent criminal and civil liability will result where an auditor acts while disqualified. I welcome all the sections concerning the auditing of accounts which are being addressed in this Bill. The Bill is of a highly technical nature and Committee Stage will take quite some time. There will be adequate time given between Second Stage and Committee Stage so that every Member of the House will be able to go through each section and be well aware of all the problems associated with each section of the Bill.

Mr. Hogan

A Chathaoirligh, I take this first opportunity I have had to speak in this House to extend my congratulations to you, on your election as Cathaoirleach, and to Senator McDonald on his election as Leas-Chathaoirleach. We are discussing a very important Bill. The public in general have been expressing grave disquiet over the past number of years about the ability of people to set up in business and the possibility of going into liquidation quite easily. The essence of good law is to protect the common good as far as possible. The Companies (No. 2) Bill which we are discussing today gives us an opportunity to strengthen the existing law which goes back to the Companies Act, 1963, and to close any loopholes that appeared in that legislation so that we can protect society against those who are deliberately using the present inadequacies to defraud the taxpayer.

There are a number of major areas we need to look at and ask ourselves does the Bill afford adequate protection in the overall context of company law. We, as legislators, have not got the right to deal lightly with these matters. We should treat these matters with the greatest urgency so that the assistance needed to bring our country back onto a solid economic footing can be provided by enacting the best possible law.

I welcome the initiative of the Minister for Industry and Commerce in bringing this Bill to Seanad Éireann so quickly. He has responded very swiftly to grave public disquiet about the inadequacies of company law. Perhaps most of the concerns are generated by, I am glad to say, a minority of those companies who have received more than undue media attention over the past number of years because of the manner in which they have been liquidated. We all know of instances, unfortunately, where companies in a fraudulent way have used the present company system to liquidate and to set up in another venture as quickly as possible under another name.

Perhaps the poor business management we hear so much about and see in the workplace is compounded by the existing company law. Often accountants, because of their inability to get information, or their own inability, may not be able to bring to the attention of the company the necessary remedial action to provide a survival plan for a company as quickly as possible. That is why I welcome the section dealing with the legal mechanism for the rescue and reconstruction of an ailing company, a potentially viable one. It provides a period of protection by the courts in order to allow the ailing company to consider the possibility of rescue or reconstruction. This is a very important section in the Bill and it will help business people and entrepreneurs in particular, people with good ideas, and they will not shy away from having a go at getting involved in a small or large business.

As many speakers have stated in this House we have to ensure that we achieve a proper balance between getting at the people who are deliberately defrauding the taxpayer and defrauding society and encouraging people to take risks. All of us agree that this House should come down firmly on the side of risk takers. I am very glad that we have the Minister of State, Deputy Brennan, who is responsible for trade and marketing in the House. He has a key responsibility in ensuring that small businesses are set up as quickly as possible and are encouraged as far as possible. Laws enacted are intended to ensure that these people will not have any fear or anxiety about their own future or the future of their families. Laws should be enacted to help those people, by financial incentive or otherwise, to create employment as quickly as possible for the benefit of our country and our young people.

I welcome the advent of the inspectorate in Part II of the Bill. I note that responsibility for it is being transferred from the Minister to the courts. Senator Fallon referred to it earlier today. Having regard to the amount of work the High Court has to do in the normal course of events, he wondered would the Bill get caught up in that work. This section should be looked at again to see if it is possible to enforce the work of this particular inspectorate. We do not want any delay in having a number of companies coming before the High Court, or before any court for that matter. Whatever procedure is adopted we want to ensure that, where there are creditors with a lot of money outstanding from a particular liquidation, the inspectorate can operate effectively and without delay.

I also share the concern about the £2,500 loan that is to be allowed to directors of a company. Perhaps this is a little bit strict and merits further examination. There are a number of areas we must examine closely to see if they are covered adequately in the Bill. Directors of companies up to now had in the eyes of the public — especially in limited companies, as limited by share of capital and not by guarantee — the extreme liberty of going into liquidation and in a short while setting up a new company, and sometimes repeating the process at the expense of the unfortunate creditors, and of all of us in terms of taxes unpaid.

Can we be sure that there is sufficient power in the Bill to ensure that this will not happen in the future? Can we be sure that the agents concerned in the company, perhaps under the section dealing with auditors, and the people who advise those companies, have an obligation to make responsible information available to the company and will be held responsible, in addition to the directors, for the protection of the common good? If these agents are knowingly involved and aware of the problems of the company and fail to act in the interests of the common good, the auditors and accountants in question will have to be brought into the area of civil or legal liability.

Should we not look at the areas at present costing the State millions in trying to collect legitimate taxation whether in PRSI or VAT and incorporate them in the Bill to ensure that payment is made on time. There is grave disquiet about the amount of taxes that are outstanding. Because of media reports people are under a misapprehension about the amount of money outstanding from corporate taxation. Perhaps the work of the inspectorate could be extended to investigate the affairs of the company and find out the real level of tax collectable. This would bring about about a greater understanding and less frustration on the part of the public who perceive companies as being people who are getting away with not paying their taxes. The inspectorate should have a role to play in the collection of taxes. It is important, from the tax collection point of view, that people in companies are seen to be paying their taxes on time and not getting away with it in the context of equity and and fairness.

The position of the examiner in the winding up operation is a very important development and something that I welcome wholeheartedly. The examiner will have sufficient powers to ensure that people are treated fairly in the event of an insolvency and that justice is seen to be done on all sides. Because the receiver will be in a position to ensure that the maximum amount is received for the assets of the company, the creditors will have some hope of getting some recompense for their unsecured credit.

There is a need to ensure that every legislative measure is designed to help the continued existence of a viable company. I referred to that earlier in the context of the new legal mechanism for the rescue and reconstruction of an ailing but potentially viable company. This is very important because enterprise in Ireland is already overburdened by a lot of paperwork. There are many administrative burdens on companies who, unfortunately, are perceived as unpaid tax collectors for many of our State institutions. We do not want to create a monster bureaucracy where companies are caused further administrative delays and there are requirements they must meet by particular deadlines, thus reducing the possibility of the company surviving in the final analysis. We must at all times create a climate that will attract more people to establishing enterprises.

Other speakers referred to the distinctions we have to make between bona fide business interests and people who are deliberately defrauding. The existence of appropriate penalties as outlined in the Bill will serve to protect the bona fide business interests and protect employees, creditors, customers and suppliers. This will be more important in the future when we will have more shareholders, employees taking shares in their companies, and people operating under the business expansion scheme. They will want to know that their investment on a shared basis in any company will be protected. The amount of information they will require will be greater than is the case now. This is bound to be a good thing, and the probability of a company going into liquidation irresponsibly recedes.

We should ensure as far as possible that we do not over-penalise our directors and we should bear in mind that there are various types of directors. There are people who have no shares whatsoever in the company. There are people who might have a tremendous number of shares in the company and they will have to be treated appropriately in the context of the shareholding they have. Under the Bill the change in relation to the position of directors must also be such that it does not force directors of a company to cease trading prematurely just because they are a little behind their financial targets. Directors should not be in a position to take the easy way out legally and fold up the company as quickly as possible. Pressure for premature closure of a business obviously is not in the interest of the company; it is not in the interest of the employees and it is not in the interest of suppliers or the general community. The Bill will go some way towards rectifying that. There is a need to ensure that legislative change is not of such a punitive nature as to bring everybody in commercial life into a criminal net and give a bad name to companies, which is the danger, and which can often be painted wrongly by media interests.

I welcome the Bill wholeheartedly. There is no doubt that it has its inadequacies but I welcome the good intentions of the Bill, I certainly welcome the speed with which it has been brought before the House. For this and all other legislation we must arm ourselves with the best possible information and having done so be prepared to accept amendments. I have no doubt that on Committee Stage there will be desirable amendments to the Bill. We must stand up to sectional interests. There will be great pressure on all of us on this Bill and other legislation to make amendments to suit sectional interests. We must enact law that is to the benefit of the common good. I have no doubt that the Bill will be treated honestly and fairly in the interests of the nation and its people.

Mr. Fitzsimons

A Chathaoirligh, I have already congratulated you on your appointment. Like Senator Hogan, I should like to take this opportunity to congratulate Senator McDonald on his appointment as Leas-Chathaoirleach. Many tributes have been paid to him. The one I would like to pay to him is that I find him a very human person, in plain words, a very nice guy. I wish him well. I should also like to take this opportunity to welcome to the House the Minister of State, Deputy Séamus Brennan.

Like all other Members of the House, I welcome the Bill. Members from all sides of the House have paid tribute to the Government for bringing the Bill forward without change. As the Minister has stated, this is to speed up company law reform. In the context of the work put into the Bill, the time spent on it and the expertise involved, this is the proper course to take. As Senator Hogan stated, most of the things, by and large, that apply to legislation in this area apply no matter what party are in power.

Other Bills which were introduced by the previous Government — the National Monuments (Amendment) Bill, 1986, and the Air Pollution Bill — are being processed in the same way. The purpose of the Opposition is, to a large extent, to criticise. At the same time, they can make constructive suggestions and these should be taken on board whenever necessary.

I am glad this Bill has been initiated in the Seanad. The history of Bills which have passed through the Seanad in my time is very good — the Air Pollution Bill and the National Monuments (Amendment) Bill 1986. Indeed with regard to the latter, the Bill that left this House was a far different one from the one that came in here due to amendments which were accepted from all sides of the House. I have no doubt that the same will apply now. I wonder if the Bill, when it finally passes through the House, will be different from the Bill as it now stands. I hope it will. As Senators have stated, Committee Stage will indicate the interest of the Members of the House in the Bill.

I should like to comment on Bills when enacted and published in book form. There seems to be a departure from the procedures of some years back. Until 1979, Acts were published in book form in Irish and in English. Since 1980 they are published only in English. I could not get any explanation for this change. I am not sure this is the appropriate place to mention it. Nonetheless it was an unfortunate decision and should be looked at again. Consideration should be given to reverting to the pre-1979 procedure for the many Members of the House who are concerned about the Irish language.

I mentioned in the House before that, when a major Bill is introduced, some attempt should be made to consolidate the legislation into a single Act. In this Bill there is reference to 13 previous Acts from 1851 to 1986. In addition to this, the amendments, for example, to the 1963 Act would make it difficult for people considering this legislation in future years to deal with any matter that might be under consideration. Section 94 states:

The Principal Act is hereby amended by the substitution for section 99 of the following section——

There is a substitution there. Section 97 states:

The Principal Act is hereby amended by the substitution for section 245 of the following section——

Section 99 states:

The Principal Act is hereby amended by the substitution for section 256 of the following section——

This general practice makes it very complicated when considering the law. At a time when a major overhaul is taking place, as on this occasion, it should be possible to incorporate in one volume all the enactments with regard to that legislation. Perhaps those sections of previous Bills not altered could be included in a different type of print, or in italics, to differentiate them in some way. In regard to this Bill, 1987 could be a datum mark and it would not be necessary for those considering legislation in this area to go beyond this year. Then, of course, in future other Bills could be introduced but we would have that datum mark beyond which it would not be necessary to go. It may be a small point but it would simplify the procedure.

Debate adjourned.

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

Seanad Éireann debate - Wednesday, 27 May 1987

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

Seanad Éireann debate -
Wednesday, 27 May 1987