May I take this opportunity, in resuming my contribution on this Bill, to add my congratulations, with other Members of the House, to the Minister of State who has graced us with his presence and to wish him well in his important responsibility for science and technology.
I do not propose to go over a lot of the ground which has been covered by other Members on both sides of the House on this rather detailed and complex Bill. There are areas of it which relate to fundamental changes in company law that should be emphasised. Perhaps in some cases there will be repetition. I propose to look at areas of the Bill in which I have taken a particular interest and I signal my intention, if amendments are put forward in these areas, to debate them in more detail.
Members of the House have gone through the various Parts of the Bill so I will take the areas that have a particular interest for me. Section 32 (1) states:
Where a relevant company is a member of a group of companies, consisting of a holding company and its subsidiaries, subparagraphs (ii) and (iii) of section 31 (1) (b) shall not prohibit that relevant company from—
(a) making a loan or quasi-loan to another member of that group; or
(b) entering into a guarantee or providing any security in connection with a loan or quasi-loan made by any person to another member of the group;
Section 32 (3) states:
Without prejudice to any other provision of this section, section 31 (1) (a) shall not prohibit any company from making a loan to a director of the company or of its holding company if the aggregate of the relevant amounts does not exceed £2,500.
I would like to question the limit of £2,500 on the basis that a director of a solvent company with surplus funds may require a bridging loan to finance the purchase of a house, or something that is fundamental to his livelihood, but he would be guilty of an offence under the proposed new Act if that loan exceeds £2,500. I do not think the figure is realistic in that context. I can understand the thinking behind it, that there could be an unscrupulous company director in a successful company who was using his privileged position as a director to fleece the company of its profits. I can understand why this section is included in the Bill but a commonsense approach would seem to suggest that there should be some flexibility in that area. Perhaps the limit of £2,500 might be looked at in that context.
Part VI relates to circumstances where companies might be wound up by the court. Section 95 states:
Section 214 (a) (which relates to the circumstances in which a company is unable to pay its debts) and section 345 (5) (a) (which relates to unregistered companies) of the Principal Act are hereby amended by the substitution in each case for "£50" of "£300".
That is suggesting that the figure in the Principal Act of 1963 should be increased from £50 to £300. I suggest that this amount is too low. An account could be in dispute and a solvent successful company could face the embarrassment of the legal costs and exposure of a High Court action. The original figure of £50 at that time might have seemed like an appropriate amount but 24 years on it seems rather low. I would suggest that this could be looked at and an amount substantially higher of £1,000 to £2,000 might be more appropriate in the circumstances.
Section 117 is a restriction on a director of an insolvent company acting as a director of another company. The Bill stipulates that if a person is a director of an insolvent company, on winding up he may not act as a director or shareholder of another company unless he invests in cash £50,000 in the case of a public company and £10,000 in the case of a private company. A person with special expertise could be invited to act as a director of a public company and, through no fault of his own or her own, this person may have been associated with a previous insolvent company and will be prevented from being appointed a director unless he or she invests £50,000 in the company, I know that several other speakers from all sides of the House referred to this section and some said the figure is too low, that the cash limit of £10,000 for a public company and £5,000 for a private company is too low.
I understand the reasons behind this. A cowboy director fleeces a company, retains substantial sums of money and over a period of time is aware, because of his privileged position within the company, that it is going downhill and will eventually become insolvent. Perhaps for fraudulent reasons he may decide to use the company's assets for his own uses and take whatever funds are there, fold up the company at an appropriate time leaving creditors, the Revenue Commissioners and the banks clamouring for money. These people can then set up again tomorrow morning literally in the same premises with the same office staff and all they have to do is change the name. I can understand why this aspect of the Bill has been looked at closely and has attracted a great deal of comment.
However, there are people who through no fault of their own get involved in companies which because of the prevailing market conditions are unable to trade properly and effectively. I would hate to think that in this country, where there seems to be within the national psyche a negative attitude towards failure, any legislation dealing with company law would take account of that national characteristic. One does not find that in the largest trading bloc in the world, America, or to a lesser extent in some of the European countries where being a failure in a company is not looked on in any way as a social stigma. If one were to delve into the family history or the business history of some of the most successful entrepreneurs internationally one would find that in a substantial number of cases they failed not just once or twice but several times before they have eventually came up with an idea that proved to be successful in the marketplace.
I would hate to think that would happen in Ireland which is a developing economy and where we should be encouraging as many people as possible to set up business. If business is successful it creates wealth and a country that creates wealth is in a position to help the less well off in the community. We are in favour of that. For that reason I am questioning the sum of money and I am wondering if there could be an exemption when this law is implemented and that the director or directors involved might have some recourse, some appeal. There are people who through no fault of their own have failed and who might not have the financial wherewithal to start up again but who, at the same time, have a sound business idea and would like to get involved in business again and who are not fraudulent, are not criminals or people who in any way wish to defraud — just honest brokers who have failed. There is also a disqualification included in that section. Perhaps it should be for a limited period of, say, three years.
Part IX deals with the appointment of examiners to companies in difficulties. Section 145 (1) reads:
During the period beginning with the presentation of a petition for the appointment of an examiner to a company and ending with the expiry of three months from that date or the withdrawal or refusal of the petition, whichever first happens, the company shall be deemed to be under the protection of the court.
I do not think a period of three months is long enough. Other Members of the House referred to this. As someone who is involved in business I do not think it is fair that a company in difficulties because of prevailing market conditions should only be given three months to get themselves back on the rails again. For example, the books and records may be in a very poor condition. There could be many reasons other than just the simple matter of a product not being successful in the marketplace. To give just three months for the sort of restructuring and reorganisation that is necessary seems to be a little stringent and perhaps might have resulted from an attitude within the draftsman's office amongst people who may not have been involved in business themselves or involved in the day-to-day operation of business. On paper it may look to be a sufficient length of time, but I suggest that it should be considered and that a longer time, say six months, should be given to it. That would be much more logical.
Part IX, deals with costs and remuneration of examiners, and states specifically in section 165 (1):
The court may from time to time make such orders as it thinks proper for payment of the remuneration, costs and expenses of the examiner.
It goes on to say in subsection (2):
Unless the court otherwise orders, the remuneration, costs and expenses of an examiner shall be paid and the examiner shall be entitled to be indemnified in respect thereof out of the revenue of the business of the company to which he has been appointed, or the proceeds of realisation of the assets (including investments).
Subsection (3) states:
The remuneration, costs and expenses of an examiner which have been sanctioned by order of the court shall be paid in full and should be paid before any other claim, secured or unsecured, under any compromise or scheme of arrangement or in any receivership or winding-up of the company to which he has been appointed.
Subsection (4) states:
The functions of an examiner may be performed by him with the assistance of persons appointed or employed by him for that purpose provided that an examiner shall, insofar as is reasonably possible, make use of the services of the staff and facilities of the company to which he has been appointed to assist him in the performance of his functions.
Subsection 5 states:
In considering any matter relating to the costs, expenses and remuneration of an examiner the court shall have particular regard to the proviso to subsection (4).
Section 165 (4) is of particular interest. It is difficult to compel the examiner to use existing staff. The experience in these cases seems to be that the examiner will be inclined to use his or her own staff to augment the company fee. On that subsection I suggest that the doctor's bill could kill the patient. Where an examiner is coming in he will be more inclined to use his own staff rather than use the staff of the company. Again, it is an aspiration but I think it could be strengthened a little, keeping in mind that the reality of the marketplace is that an examiner going in will be as concerned about making money for himself and for his company as he is in helping the particular company he is helping to salvage.
Part X, specifically section 173 (1), relating to the appointment of a close family relative as auditor of the company states:
A person shall not be qualified for appointment either as an auditor of a company or as a public auditor unless—
(a) he is a member of a body of accountants,
(b) he is, having regard to the obtaining by him of an accountancy qualification...
(c) he was authorised by the Minister ...
Subsection (2) states:
None of the following persons shall be qualified for appointment as auditor of a company—
(a) an officer or servant of a company...
(b) a person who has been an officer or servant of the company within a period in respect of which accounts would fall to be audited by him if he were appointed auditor of the company,
(c) a parent, spouse, brother, sister or child of an officer of the company...
It is limited to a parent, a spouse, a brother, a sister or a child of an officer of the company but it does allow a grandson or granddaughter to act as an auditor of the grandparent's company. Perhaps that prohibition could be extended in section 173 (2) (c) because the area of family involvement is a bit restrictive if one is concerned — as obviously this particular section is — to ensure that everything is done according to the law.
Sections 168 to 183 of the Companies Act, 1963, are dealt with, that is, in relation to auditors. This country accepts the self-regulatory concept for the control, standards and discipline of accountants who act as auditors to companies. None of these bodies stipulates that their members should be adequately insured when they accept appointments as auditors. I suggest that the Minister should at the least threaten legislation if the accountancy bodies fail to compel members to be adequately insured, particularly when they act as auditors to public companies, friendly societies, trade unions and credit unions. In this way an element of protection and confidence will be given to the public because when you have auditors going in who are not insured it obviously leads to enormous difficulties at a later stage.
Recent cases such as the PMPA and the Insurance Corporation of Ireland give credence to that. Audited accounts indicated solvent companies in both instances but subsequent investigations revealed massive deficits. I suggest that perhaps the professional bodies who recognised auditors should put their house in order. The Minister should look at that area and perhaps threaten that, unless they put their house in order for the protection of the public, particularly where it related to the companies I have mentioned, he will force them to do so by introducing legislation.
In conclusion, I should like to reiterate what I said at the outset. It is the easiest thing in the world for any Administration to introduce legislation that tightens up. This legislation was introduced in response to public clamouring for a number of years that the increase in the number of private companies over the past 25 years necessitated a critical look and an indepth analysis of the original Companies Act, 1963. It has been generally recognised on all sides of the House and by those outside that the Minister has attempted successfully to strike a balance. I am sure this can be dealt with on Committee Stage.
I echo what has been said about the honest broker to the people who are involved legitimately, honestly and conscientiously in business. We are a developing economy. There is no hope for this country unless we can manage to manufacture products which we can then sell effectively in the wider world. We are a trading nation. It is important that every possible incentive is given to the enterpreneurs who wish to stay in this country, to make a living here, to create wealth not only for their own company but for their workers and ultimately for the country itself. There is a very real obligation on whatever Government are in office to ensure that the business community is given as wide a latitude as possible to carry out trading effectively, fairly and honestly.
This is not to diminish in any way the reasons behind many of the sections in the Bill which are to outlaw fraudulent and reckless trading. All of us would welcome those aspects of the Bill but, at the same time, I would not like to think that when the Bill eventually becomes law and is being operated and worked in subsequent years, there will be criticism from the business community that it has proven to be too restrictive in ordering their business affairs, in helping them to develop their products, to create more employment and ultimately to create more wealth which is something this country needs. All in all, it is an excellent Bill, one that is welcomed by all sides of the House. I would like to expand more on some of the points I put before the Minister on Committee Stage.