Somebody must know that the Bill is being debated in the Seanad because while there was a very disappointing lack of response in the earlier stages, when the Bill was published, in the past ten days there has been a marked increase in representations coming into my office from various bodies affected. I am delighted to see this — although there is not enough — and I hope that the opportunity is taken between now and Committee Stage to get those representations in because it is a very important and complex Bill. I will be dealing with all the points raised in my reply on Second Stage.
Again, I take this opportunity to say the time for making representations is now. We have had quite a number over the past ten days but not enough. I took the opportunity since the Bill was published at any time I was speaking to people who might be interested to give the message that this legislation should be examined. This Bill is a major updating of company law in Ireland since 1963 and people should not miss the opportunity which is being given to them now to get the balance right. That is basically what I and the contributors to the Bill are concerned about.
I thank all the Senators who contributed to the Second Stage debate. There, were almost 30 contributions and approximately 28 to 30 hours debate. It has got a very good examination here in the Seanad. I thank Senators for the quality of their contributions and the amount of data they researched. I think we have all benefited from this discussion. I said when I introduced Second Stage that I would be very open to suggestions from the Members of the House and from outsiders, provided it was not seen as coming from a specific pressure group or a special interest lobby. We are here to get the balance right and that is the approach I will take when I get down to examine all the various contributions and representations.
I also think the House has accepted, as I hoped it would, that this Bill is necessary and that its general approach is correct. Of course there are areas that could do with a little more thought and refinement — indeed, I said so at the start of this debate. I can only repeat that I am more than willing to consider reasonable suggestions as to how the nuts and bolts of the Bill could be improved.
On that score, I am glad to say that submissions have already begun to arrive in the Department from various interested parties, in response to my earlier invitation for comments. I can assure the House that these will be examined with the same care that went into the preparation of the Bill. I have no doubt that I will be bringing forward a number of amendments on Committee Stage arising from this examination and, indeed, arising from our own internal continuing examination. I am determined to make sure that when the Bill reaches the Statute Books it will be a well-balanced, well thought out, but above all, a workable Bill.
At the same time, I want to make it clear — and I am sure the House will accept this — that, when we are talking about amendments, I will want to be convinced that any changes we make will not simply serve to make life easier for the cowboys. For example, I would not be particularly interested in representations or suggestions that smacked merely of special pleading for some particular interest group, particularly if this had the effect of undermining what we are setting out to do here. I just wanted to put this on the record and I am sure the House will agree with my approach.
Turning to the debate itself, most Senators made wide ranging comments of a general nature on the Bill, as well as many points of detail on the actual provisions themselves. I will try to deal with the general areas first.
Some Senators pleaded for a single Act which would consolidate all the provisions of the 1963 Act along with other recent amending Acts and indeed this Bill as well. Incidentally, Senators will, I am sure, not be too pleased to hear that there are at least three EC Directives in the company law area queueing up to be implemented into Irish law in the next year or so.
I have to point out, too, that if we were to consolidate, we would be talking about a Bill of somewhere around 800 or 900 sections. Not alone would I not wish that on the House, but I am afraid there is no way the Department would currently have the resources to undertake such a massive job. At the same time, where we are, in this Bill, amending a section of the 1963 Act, we have tried, where we could, to reproduce the whole section in its amended form. The sections mentioned by Senator Fitzsimons, sections 94 and 97, are examples of this.
Senator Manning wondered whether, and to what extent, the thinking behind the Bill was prompted or stimulated by our membership of the EC. I should say straight away that the Bill as it is stands is very much a product of our own research into the problems we are trying to tackle. At the same time, I suppose it is true that our Community membership has, in general, prompted us to be a bit more willing to bring forward novel legislation, and indeed to be more conscious that other countries have been facing the same kind of problems we are addressing. I should mention, too, that in their research, the Department did not confine themselves to looking at European solutions, but took account of approaches taken in places like the USA, Australia and New Zealand.
Speaking of the EC, by the way, some Senators particularly Senator J. O'Toole wondered whether we had implemented all current EC company law directives in the country. The answer is that we have; just a month ago we implemented the Third and Sixth Directives by way of regulations under the European Communities Act. The most important, in recent times, of course, was the Fourth Directive on company accounts, which was implemented here by the Companies (Amendment) Act, 1986. Therefore, although there are further directives in the pipeline, we are completely up to date in our EC commitments in that area.
Several references were made to the Companies Registration Office and con cern was expressed about their expertise and efficiency; for that reason I would like to say a few words about the office generally. A few years back it was, perhaps, true that they were not in a proper position to enforce the law. However, assisted to a very substantial extent by our computerisation programme in the Companies Office, some 13,000 companies, which were seriously behind in the filing of returns, have now been told in no uncertain terms that this default will no longer be tolerated. Indeed a total of 2,000 companies have been struck off the register, a first step in my aim to clear the register entirely of defunct companies, which are estimated to account for as much as a quarter of all the companies registered.
I would like to take the opportunity at this stage to express my appreciation of the outstanding efforts of the staff of the Companies Office who have, I think, done an exceptional job in difficult circumstances in the very recent past. I can only repeat my determination to bring the information filed in the office up to date.
Senators asked whether the Bill would be enforced. I can only say that I am determined that it will work and that I will do everything in my power to make sure that it does. At the same time, it is worth drawing attention to what I think is an evolving philosophy of company law in recent times. The idea is to try, as far as possible, to draw up a workable companies code which will enable the commercial community to settle their own problems, with minimum interference from the State. Of course, I am bound to say that the State will always continue to have a strong regulatory role in these matters. Thus there are a significant number of new criminal penalties in the Bill. I feel confident that the courts will use these powers judiciously when cases are brought before them.
Several Senators raised the issue of donations by companies to political parties. I should say, first of all, that the reason the subject is not addressed in the Bill is quite a simple one. The Bill was, as Senators know, on the stocks when I took office, to tinker around with it in any specific or indeed general area would only have had the effect of further delaying a Bill which was, and is, urgently needed to address various identified problems.
More importantly, however, I tend to agree with Senator Fitzsimons that this is not really an issue that is properly in the company law area. As Minister for Industry and Commerce, I would be concerned if the provision of such contributions had adversely affected the trading performance of companies or indeed resulted in company failure. However, I am not aware that any evidence whatever has been produced in recent receiverships or liquidations which indicated that the company's difficulties were caused, or worsened, by any such contributions, or indeed any other kind of sponsorship.
Finally, it could be said that the question of political contributions is really part of the broader issue of the funding of political parties generally and, if it needs to be looked at, it would be in this broader context.
For all these reasons, I do not think the issue is appropriate to be raised in this context. It does not apply to this Bill.
Apart from these issues of principle, individual Senators urged that the Bill should be expanded to cover other, perhaps worthwhile, subjects not already covered in it. For example. Senator Doyle wanted us to provide for rotation of auditors and for stricter guidelines as to what constitutes a "true and fair view" of company accounts. In the course of a wide ranging contribution. Senator J. O'Toole referred, among other things, to the payment of taxation by off-shore companies, the position of workers as interested parties vis-á-vis companies, and the question of special insolvency courts. Senator Cullimore suggested the creation of an office of official receiver, and a licensing system for insolvency practitioners, while Senator Bulbulia referred, among other things, to the creation of a “fighting fund” from a levy on secured creditors, to enable liquidators to pursue dishonest directors.
I can honestly say that most of these issues were considered at one time or another while the Bill was being prepared. However, the House has already commented at length on the size and complexity of the Bill as it stands, running as it does to almost 200 sections. Therefore, decisions had to be made along the way to include this, not include that, and so on. In other words, we had to reach a cut-off point somewhere, otherwise the Bill would be completely unmanageable. I would appeal to Senators to agree with me on this — I repeat the undertaking I gave in my opening speech, that I will consider reasonable amendments. Let me stress, however, that I am happy with the general thrust and balance of the Bill, and I would not want to make wholesale changes which would totally upset that balance. However, you can be assured that any points specifically made here will get long and detailed consideration in our approach to the Committee Stage of the Bill.
It was obvious from listening to, and reading over the debate that Senators had read the Bill closely and had thought carefully about it. By our count, there were at least 100 specific points raised on the various provisions and I hope the House will understand that I could not possibly reply at this stage to all of these. We can, I am sure, pick many of them up again on Committee Stage. Many of the points made by Senator Lydon, for example, would fall into this category. What I will do is to pick up some of the more important points now and undertake to consider the rest carefully between now and the Committee Stage.
Senator Robinson wondered why there had been so few company investigations up to now. The main reason for this is simply that there have not, in fact, been very many requests to the Minister to have particular companies investigated; and of the requests that have been made, only a handful have been regarded by the Minister of the day as warranting a full investigation. While there is no particular reason for expecting an increase in the number of cases after the enactment of the Bill, the hope is that those that do take place will not be frustrated by legal procedural difficulties.
The big problem with ministerial investigations in the past, as I understand it, has essentially been that inspectors have been regarded as carrying out a quasi-judicial function. Thus, while they have been allowed, under company law, to question witnesses under oath and so on, a central problem has been that those being investigated have no way of knowing whether serious allegations are being, have been, or will be, made against them. It follows that they have no means of refuting such allegations, no facility for cross-examination etc., which would be features of a judicial inquiry. These and other allied problems have led to recent investigations becoming bogged down in constitutional arguments, with little chance of firm and successful conclusions being reached.
We consider that moving the function of appointing such inspectors to the High Court should remove these problems, since the inspector would, in effect, be an officer of the court, and those investigated would not be able to frustrate inquiries, as they have been able to do in the past.
I should also say to Senator Robinson that we are not just moving the role of appointing inspectors from the Minister to the High Court and leaving it at that. We are also clarifying, and indeed expanding, the powers of the inspectors themselves in those investigations that do take place. As I have already said, I do not really expect a significant increase in the number of investigations undertaken. What we are trying to do is to make sure that those that do happen will be successfully concluded in future.
One specific point on this Part is that section 7 may require an applicant for a company investigation to give security to an amount not exceeding £200,000 for payment of the cost of the investigation. Some Senators felt this might be an onerous requirement on a person who has already been aggrieved by the actions of a company or their directors. However, it is important to remember that the court is given the discretion as to whether it will require security for the payment of the cost of the investigation. I should point out too that £200,000 is a maximum figure, not a standard one. I have no doubt that the courts will be very conscious of the circumstances of any application before requiring security for the payment of costs.
The subject of trafficking in share options, the abuse of which is tackled in section 29, was referred to by Senator Fallon and, I am sure by Senator Ross; I had to leave before he made his contribution. It is most certainly not the intention to prohibit executive share option schemes. May I explain that the purpose of this section is to ensure that directors do not engage in sideline speculation in "options" in relation to their own publicly listed companies? However, I will look again at the wording in the section to see whether it is possible to make it more precise.
Senators Mulroy and Fallon, among others, referred to the limit of £2,500 on loans to directors and wondered whether this and some other provisions of Part III would make life unnecessarily difficult for companies on a practical level. A significant number of companies make loans to directors and senior executives for legitimate, practical reasons such as hotel and other expenses and so on. Of couse I would not want to put unreasonable restrictions on such normal commercial practice. While I am fairly satisfied that £2,500 is the right kind of figure, I am prepared to listen to reasoned arguments on the subject and will examine them. What we want to do, of course, is to guard against abuses which, after all, is what this Bill is all about.
Senator Manning was puzzled about sections 82 to 89 which provide for the disclosure of shareholdings, in exceptional circumstances, in the case of private companies. He rightly suggested that this would only rarely arise. The fact is, however, that the real ownership of private companies can be enormously difficult to establish, given the availability of the nominee shareholding system.
Thus, there may be situations where someone with a crucial and direct financial reason to establish who owns the company is not in a position to do so. Such a person could be a major creditor, such as a bank or, indeed, the Revenue, somebody who may be concerned that he no longer knows whom he is dealing with. It could be the liquidator of the company or of a related company. It could even be a State company such as ICC or Fóir Teoranta having a role as a creditor.
I am sure the courts will be very cautious in providing these orders. The court may make a disclosure order if it deems it just and equitable to do so and if it is satisfied that the financial interest of the applicant is or will be prejudiced by the non-disclosure of any interest in the shares of debentures of the company.
As regards insider dealing, I think most of us, like Senator Robinson and Senator Ross, find it hard to pin down the extent of the problem. However, there have been so many suspicious share price movements in recent years, in advance of takeover announcements, good annual company results and what have you, that I think we are clearly entitled to say that the abuse does exist here. In a sense, of course, the size or extent of the abuse is not so important — what is especially important is the public perception of what is happening, and the fact that no one seems to be successfully doing anything about it.
At all events, the House clearly agrees that this abuse must be curbed, and quickly. Although the approach in the Bill is to provide a civil remedy to those affected, many Senators wanted to make it a criminal offence. I must say I am not totally convinced by this. To provide for criminal penalties would, I fear, require cast iron evidence after prolonged and intensive investigation. If overseas experience is anything to go by, the success rate in criminal prosecutions is not encouraging. However, I know we all agree that something has to be done, and I am considering how Part V of the Bill could be strengthened to deal with this abuse more effectively.
While doing this, I also take the opportunity to renew my call to the Stock Exchange authorities and ask them to do what they can to root out the insiders. They have a responsibility in the running of the Stock Exchange to ensure that they do what they can in relation to it. I certainly will do what I can. In relation to the criminal offence I may or may not have mentioned on the introduction to the Bill here in the House that in the UK, where it is a criminal offence, something like 25,000 situations were investigated, some six criminal prosecutions were brought and only three were brought successfully. In America it is civil and criminal. We will have a look at it, but there is a responsibility on the Stock Exchange as well to do what they can about it.
On Part VI, Senator Bulbulia quoted extensively from a recent newspaper article which dealt with fraudulent trading. The main suggestion was that fraud was very difficult to prove and, accordingly, was being replaced by the concept of reckless trading in section 107. However, this is not quite the case. We are, in fact, retaining the concept of fraudulent trading as a criminal offence but also, quite separately, making it a civil offence as well. I accept that it is difficult to prove, involving questions of intent and so on, but the effect of separating the civil and criminal aspects of fraud should, I think, make it easier for liquidators to seek declarations of personal liability against company directors in appropriate cases.
In addition to clarifying the law of fraudulent trading, we are, as Senator Bulbulia mentioned, introducing the new concept of reckless trading. This will not require proof of fraudulent intent, and should make it easier for liquidators, or other interested parties, to pursue company directors in appropriate cases. I stress "appropriate cases", since some people seem to be worried that "honest failure" in business could be penalised by this provision. I do not accept this, and a close reading of the section shows that this fear is not justified. I think it is a perfectly reasonable approach to say that, if you knowingly run your business in a reckless way, without, in effect, caring whether you can pay your debts or not, then you run the risk of personal liability. I also think a close reading of the section shows that there are enough safeguards built in to it to protect the honest businessman or woman.
A number of Senators mentioned the question of preferential payments in a winding-up. As far as the Revenue Commissioners are concerned, I agree wholeheartedly with those who said that withholding tax payments, PAYE, VAT and the rest, legally due is nothing short of scandalous. However, I am not so sure that the solution to that is to reduce the level of preferential payments to which Revenue are entitled under the Companies Act. This is a tricky area and one I am very conscious of — I think the House will agree that the issues involved are considerable and have wide-ranging implications. I would just repeat that the Bill's primary aim is to tackle abuses. Since reducing the Revenue preference does not really fall into this category, we did not contemplate any change in the existing position. However, I will take on board the points made. I will read them in detail because I have a certain view in that regard myself, and we will see what comes out at the end.
As far as employees are concerned, I would like to assure Senator O'Toole that the Bill will not worsen their preferential position as regards wages arrears, pension contributions and so on which, of course, is enshrined in the Companies Acts already.
A large number of Senators spoke on Part VII of the Bill and most, I think, were happy with the underlying ideas involved, subject to a number of detailed comments, mainly on section 117. Many felt that the minimum capital sums mentioned in this section were too low and should be increased significantly. In the light of what has been said, I have some sympathy for this view, and I will look at this point again before Committee Stage.
On the same point, Senator Cullimore thought that the minimum capital required could, perhaps, be related to the size of the unpaid debt of the liquidated company. I do not really think that would be practical, since it often takes some time for the actual level of debt to become clear, whereas what we need in section 117 is some kind of legal certainty. At all events, we will, as I said, be coming back to this later. Incidentally, could I say to Senator O'Toole, who suggested a "certificate of fitness" requirement for directors of failed companies, that the minimum capital requirements we speak about in section 117 are, in fact, a kind of financial "certificate of fitness".
Some Senators, while endorsing the underlying idea of minimum capital requirements in section 117, were concerned that the restrictions applied in a general way to all directors of the company concerned. The suggestion was that some "way out" should be found for certain types of directors, for example, those appointed by Fóir Teoranta, who might not, as it were, be "guilty" of anything. While of course I understand the point being made, I have a basic difficulty of principle with it, in terms of distinguishing between one kind of director and another.
I see the practical problem that is involved in relation to State companies, accountants or solicitors taking positions on small companies' boards who might feel that in this new situation perhaps they should not risk the reputation either to themselves or their company. It is a basic difficulty in how to differentiate between one kind and another. We will try to clear it up before we come to Committee Stage.
As Senators will know, we could, if we wished, talk about many different classes of directors; for example, directors appointed by Fóir Teoranta to an ailing company or by a bank as part of a credit agreement. We have worker directors and non-executive directors. We have financial directors, personnel directors and so on.
However, in company law terms, the collegiality of directors is a pretty basic principle. In other words, while a director may have been appointed for a specific reason to a company board, he is, nevertheless, regarded, rightly in my view as having the same rights, duties and obligations as all the other directors. I would not like to start departing from that principle in this Bill. That could be a very slippery slope indeed for us to get onto. There is a practical situation to be considered. We do not want to take away the opportunity of the contributions that directors can make in certain situations, and not for any great financial return.
I should point out, at the same time, that there is, in section 117 (8) scope for a director to be excused from the minimum capital requirements in the section, by seeking relief from the court. I am sure the court would take a sympathetic view in appropriate cases. However, because of its importance in the context of what we are trying to do in the Bill and in view of what has been said here I will pay close attention to section 117 to see if any improvements can be made.
One last point on Part VIII, Senator O'Toole suggested the creation of a black list of directors of companies that go into insolvent liquidation. I must say I am a bit wary of black lists generally. Indeed, in this particular case, as I have said already, I do not regard it as a crime to fail in business, provided, of course, that the failure has been an honest one, as it were. In America people sometimes fail two and three times before they make the grade, but in Ireland there seems to be a stigma attached to the first failure. If it is an honest failure we should recognise it for what it is and ensure that a person has the opportunity of getting up and going again. A person can fail through no fault of his own. The market can change and the product can change. There are various reasons for failure. We should do all we can to keep the good name of enterprise in business alive.
However, I would draw Senator O'Toole's attention to section 132, under which the courts will inform the registrar of companies of cases where a person has actually been disqualified from being a director. I would have no problem with a list in those circumstances. I think this provision, along with section 188, which deals with the classification of information by the CRO, goes a long way to meet the Senator's point.
I think it is fair to say that Part IX of the Bill, dealing with company salvage, has also received a fairly universal welcome. I am delighted about this since I think it is a great leap forward in helping companies to survive in worthwhile cases, rather than simply sliding irrevocably towards liquidation. However, a number of Senators felt that the tenancy of an examiner in a company under Part IX might be too short, at three months. I have to say that we thought long and hard about this.
The provisions in this Part are all about balance. By obtaining the protection of the court, a significant shift in the operating environment of companies will occur. Creditors, temporarily, will not be entitled to proceed for their due debts. Therefore, I feel it necessary that this period of examination be as short as possible. However, under section 150 the 21-day period in which the examination is to occur can be extended by the courts. Courts will use this discretion judiciously where there are unusual or complex issues involved. On balance, I think that imposing tight time limits on court protection under this Part will serve to concentrate the minds of all concerned on rescuing the company. We must guard against allowing these arrangements to drag on endlessly, as has often been the experience elsewhere.
I am very eager to see that these arrangements will be practical and workable in practice. For that reason, we are keeping our eyes and ears particularly open for ways of improving Part IX, and indeed I already have some changes in mind for Committee Stage. I will be looking closely at some worthwhile suggestions to that effect that were made during this debate.
While on Part IX, I would like to mention the role of the State agencies, a point specifically raised by Senator Hillery. As Senators will know, I am very concerned at ensuring that effective support is given to industry by the various State agencies. In my own area of responsibility I have undertaken a study to ensure that there are neither gaps in services nor duplication of functions. Fóir Teoranta are the agency that have prime responsibility for providing or enabling the provision of financial support for industrial firms in financial distress, and I am happy that Fóir, in providing such support, work closely with a number of State agencies and Departments, including my own.
A weekly meeting takes place between representatives of my Department, the Industrial Development Authority, Fóir Teoranta and the ICC. There is what I call a fire brigade service in existence. There is an early warning system and signals are given in time. One of the weaknesses that was there for too long is that everybody found out too late that a company was having serious financial problems and had it been know in time in quite a number of cases a lot could have been done. We are trying to correct that weakness by this reporting system. There is a list drawn up weekly and the companies that are heading in that direction are continually monitored. I hope that will save some of the companies that otherwise would go under if it was found out too late that they were in difficulty.
I have presumed upon the time of this House to give a lengthy reply to the debate. I felt it was appropriate to do so, to give full credit to the excellent contributions that were made. However, even at that, I fear that for reasons of time I had to leave many questions unanswered for the time being. I trust that the House will understand my position on this. I got the feeling that many Senators were keeping their powder dry until Committee Stage. I have no problems with that approach, since the individual provisions in the Bill are necessarily complex ones, and we were, at this stage, really debating the general principles involved.
Finally, while some have argued that in some aspects we go too far and in others not far enough, nobody has argued about the fundamental need for this kind of measure. Indeed, some Senators in this House have spoken of their own personal experiences of abuse. If anyone still doubts the need to take strong action on these questions, I think they could hardly do better than to read carefully the short contribution of Senator Fitzgerald to this debate, which had all the eloquence born of direct personal experience.
