Perhaps the Minister could define "a member of a company". I do not think it is defined anywhere in the Bill. What exactly is meant by "a member of a company"? It is not in any of the lists in the Bill.
Companies (No. 2) Bill, 1987: Committee Stage.
Sections 1 and 2 agreed to.
SECTION 3.
Question proposed: "That section 3 stand part of the Bill."
There is no definition in this Bill. Neither is there in the Principal Act of 1963. It is commonly understood to be a shareholder of a company. That is the closest I can go to giving a definition.
I thought that might be the case and I am slightly worried about it. I am not raising an objection in any sense but reading down through the Bill there are times when it also obviously covers a director. Does that mean it is only a director who is a shareholder? I am looking for an assurance from the Minister that there is no problem in the Bill. Perhaps at a later stage the Minister might bring in a definition that a member of a company is either a shareholder and/or a director. It might be something that would be worth while doing. I am not 100 per cent certain of it but it seems to me that there is a slight weakness in later sections on account of that.
It is a good point and we certainly will look at it but for the purposes of this section, a member is a shareholder. A director who is not a shareholder, in my view, would not be a member as such. That is something I will have a very close look at. Membership means holding shares in the company. That would seem to exclude a director who does not hold shares.
In places where there is a reference to a member of a company, directors should also be included. Whether that should be done by the inclusion of "director" at that point in the text or whether it should be done by defining "member of a company" as a shareholder and/or a director, I do not know. I do not wish to pursue it any further. I just raised the point and I ask. the Minister to take it on board.
Question put and agreed to.
Sections 4 and 5 agreed to.
SECTION 6.
Government amendment No. 1:
In page 12, between lines 37 and 38, to insert a new subsection as follows:
"(2) The reference in the Ninth Schedule to the Principal Act to sections 165 to 173 (investigations) of that Act shall be construed as a reference to Part II of this Act."
This is a somewhat technical amendment. The effect of it is to apply all of the provisions of Part II of the Bill to unregistered companies. However, we are not really doing anything new here since section 377 of the Principal Act of 1963 together with the Ninth Schedule to that Act already apply the existing investigation provisions to such companies. However section 6 repeals sections 165 to 173 since they are effectively being replaced and expanded on by the provisions in Part II of the Bill. It is necessary now to reapply the new investigation provisions to unregistered companies. That is the effect of the official amendment.
Amendment agreed to.
Section 6, as amended, agreed to.
SECTION 7.
I move amendment No. 2:
In page 13, subsection (3), line 13, to delete "£200,000" and substitute "£50,000".
On a point of order, the renovation work is becoming quite audible in the Chamber and it is extremely distracting. We were given assurances that the workings of this House would not be discommoded while that work is in progress. I am sure I do not need to explain further that it is quite unacceptable.
An Leas-Chathaoirleach
I do not know what the Chair can do about it. The House and the Members took the option of continuing in this Chamber while the work was proceeding. We anticipated and we were told that there would be some inconvenience. We will have to continue for the moment and see whether that is possible.
I agree with Senator Bulbulia. I am a member of the Committee on Procedure and Privileges. This matter was discussed and the inconvenience was being here. The noise level was discussed separately and we were given an indication that it would be kept as low as possible on sitting days or, if possible, there would not be any. On the amendment, I recognise that £200,000 is an amount of money which can be easily eaten up by a financial investigation into a company, but it sounds, to me, like too much money to have to put up and I want a number of points clarified.
Is this to be put in the form of a bond of some description, or is this an actual hard cash amount of money that has to be put up before somebody can seek an investigation of a company? I agree that the sum of money should not be a mickey mouse amount so that somebody could create aggravation for a company simply by asking for it to be investigated. There should be a substantial amount of money but I do not think it should be prohibitive, and this is prohibitive. If the Minister were to ask me why I picked the sum of £50,000 I am afraid I could not give a very cogent response. I feel that £200,000 is far too high a figure and because the figure is so high it takes from what was intended to be achieved by that section. How was the figure of £200,000 reached? I am proposing £50,000 which is a far more reasonable figure. I know it sounds like a Dutch auction, that we just move down until we find an acceptable figure, but how many people can put up that kind of money? I know in a very large company one-fifth of the shareholders would not have a huge difficulty in finding that amount of money. How is it intended to work? Is it a bond or actual cash and if it is cash does the Minister think it should be so high?
Those are very good points. It does not have to be cash, or it does not have to be a bond. We are trying to give the court the maximum leeway and, as long as the court is satisfied that it is covered for that amount, the court can then decide how to get themselves covered for that amount whether in cash or in bond. The sum of £200,000 was selected about as scientifically as the Senator's £50,000. It is a maximum figure. The court can settle on £50,000, £40,000, or £30,000, or whatever they like. Secondly it is based on experience — the best way to base many decisions. A very small and, indeed, infinitesimal number of investigations have been undertaken to date, two since 1963, and the cost involved in those ran to figures of that order. So it is based on experience. To put an upper limit of £50,000 on it would mean that it might not cover a lot of the costs involved. But I stress that it is a maximum figure and there is nothing to stop the court taking a more lenient view if they wish.
One of the interesting things about this figure is the remarkable unanimity between two very different bodies about it. I have two submissions in front of me, one from the Irish Congress of Trade Unions and the other from the Consultative Committee of Accountancy Bodies in Ireland. There is not an awful lot in both submissions that coincides. There is more than I expected, but there is not an awful lot. One of the things they both agree on is the figure. I fully accept, as I am sure Senator O'Toole does, that there has to be a deterrent to people maliciously seeking investigations into companies. As that stands it appears to me that bona fide persons seeking an investigation into a company will be legally committed to the procedure before they are aware of the scale of the bond they will have to enter into. This will deter large numbers of people from even beginning the process.
For instance, a trade union might have good reason to seek an investigation into a company through an official. It appears to me, from the way it is worded, that the court will first of all agree to the application for the investigation and will then proceed to fix the figure for which the person will have to give security. That will mean that people will have no prior knowledge of the scale of the security they will have to give before they are committed to the process of applying for an application. That of itself will deter people. That is one of the problems with such a large figure. If people knew they were operating in the region of Senator O'Toole's figure of nought to £50,000 it gives them an order of magnitude within which to operate. A figure of nought to £200,000 will deter people because there will be an element of uncertainty all through the early stages of initiating an investigation. People will not know what scale of security they will have to fix until after they have made the application. That is the problem with such a large figure.
I appreciate the Senator's concern about this. I should put firmly on the record that section 7 (3) says:
...the court may require the applicant or applicants to give security, to an amount not exceeding £200,000.
I have to stress that that means the court may decide there is no security at all needed. They may inform the applicant that they are not in a particular case looking for any security for any number of reasons which will be left to the court. It may be they feel the person has not got the funds; it may be that they are not warranted, or it may be of serious national importance and so on. There are a number of circumstances one could imagine. The court can decide to have security lodged up to £200,000 but that also means that the court has the option to decide on not having any security.
The second point the Senator made about the knowledge the person has as to what he or she is getting into before they get into it is a valid one. The steps would be that the person would apply to the court and, at the stage when the court are deciding whether to appoint the inspector, the court have to decide whether to seek the bond or cash. At that stage a judgment has to be made by both the person bringing the case and the court. The court have to decide how much security they should be looking for. They will have to estimate what they think the size of this would warrant. Courts are used to that sort of thing and could take professional advice. I am happy that a person who feels at that stage that the sum demanded is too great has the option not to proceed.
It does not seem to me to read like that.
Legislation is not as creative as ministerial speeches very often.
The Minister has more or less covered the point I was about to make, that the courts will take all of the circumstances into consideration in any proposed investigation. If there is a genuine injustice or if there is a genuine need to launch an investigation, the court may not demand any security. That is my reading of the Bill.
Having listened closely to what the Minister said I accept the point. I would like it to be expanded to take in some of his creative ideas. On the basis of what the Minister said I am prepared to withdraw my amendment but I ask him again to expand it at some later stage.
Amendment, by leave, withdrawn.
Question proposed: "That section 7 stand part of the Bill."
Would the Minister think about rewording subsection (3) before Report Stage so that it actually says that what will happen is precisely what he described would happen? I am not too worried about the upper limit of the figure. I accept the range of discretion. However, the Consultative Committee of Accountancy Bodies says that the possibility of that scale of security may deter people with quite legitimate grievances from seeking redress through the courts. They may be worried that they will have no way of knowing in advance what is the scale of the commitment of security that will be required. It would be much better if people could have a procedure whereby they would know before they were legally committed to any course of action what was the scale of the security they wanted. Otherwise people will not be prepared to take the risk.
I will certainly consider that matter. I see certain practical difficulties as to how we might set that up. It is only when one goes to court and all the evidence is available that the estimates crystalise and one gets an idea of what the likely costs will be. We would want to make sure that this procedure is available to everybody. We are talking about companies that are actually in existence. We are talking about somebody going to court and sending in an inspector which is quite an intrusion and this might or might not be appropriate. Anyone who takes that course of action would want to take it seriously. It may be a company with large employment and the very fact of such an appointment becoming generally known through the grapevine or wherever might damage that employment. We have to be very careful about that. A balance must be maintained to make sure that we scare off vexatious complaints but that we can accommodate serious ones which may not have the funds to facilitate the case being heard.
I thank the Minister for that and since he has all the expertise of his own Department and that of the Attorney General available to him he is far more likely to come up with a proper draft than I would. Therefore, I will leave it to him to have a look at it.
Question put and agreed to.
SECTION 8.
Question proposed: "That section 8 stand part of the Bill."
Again the Consultative Committee on Accountancy Bodies raised the question of the intent to defraud in subsection (1) (a) and talked about the difficulty of proving that. Later on they used the phrase "wrongful or insolvent trading" as what they would regard as a more provable offence and one that is more open to objective analysis. I take their point. Anywhere you get involved in a judging intent you are actually as much assessing motives as you are assessing activities whereas wrongful or insolvent trading is based on the facts available to a company at a particular moment. A company ought to have the obligation, not just to avoid intending to defraud people, but also to avoid reckless behaviour when they know that the company are in or approaching an insolvent position. The phrase in section 8 about "intent to defraud" is far too generous in many ways to the company because it is a difficult concept to enforce or to prove and will leave enormous leeway. When I hear the accountancy profession saying things like that, given their expertise, it is well worth considering whether a different form of words and a more precise offence ought to be inserted to replace that. Again I ask the Minister to think about it so that what he intends can actually be implemented.
I have the same concern as Senator Ryan on this point and like him I have no answer to the problem. It is simply a difficulty with the phrase "intent to defraud". In so many other parts of the Bill details are specific and clear but this is one where there is great difficulty. I notice that the consultative accountants group did not come up with any better phrasing when they drew our attention to the difficulties in all of this. I wonder if the Minister and his officials might see before Report Stage if there is some way in which this section could be spelled out a little so that people could have a clearer idea. I do not have a great deal of confidence that it will be possible to achieve any great improvement on what is there already.
On the same point, in the Cork report in Britain, they used the term "wrongful trading" as a generic term and included as wrongful trading intent to defraud. One of the ways in which they set about defining what that might be was in a situation where there was clear intent. I take Senator Ryan's point on this. I do not know how one can prove intent. They gave the example of where a company were clearly technically insolvent in the sense that their liabilities were greater than their assets and that they had no prospect of paying off their debts. If they took on more debts which they clearly were not in a position to pay off that would be seen as wrongful trading. In other words, if the company were technically insolvent and if they were to liquidate and all their assets were put against their liabilities, they would be in debt and would not be in a position to clear off those debts. If, at that point they went ahead and took on more responsibility which they could not discharge, that would be seen clearly as wrongful trading. It seems that is nearly a definition of this. I am not saying it answers the problems raised by the previous two speakers but it is something that could be taken on board, giving at least one or two examples of what might definitely, if proven, be considered to be wrongful trading or intent to defraud.
Perhaps I could say in a general way to reassure Senators that every point made by Senators will be taken on board between now and Report Stage because this is, perhaps, one of the most complicated pieces of legislation that has come before either House in many years. It has been on the stocks for a long time. Various Governments have had bites at it. We are now on Committee Stage which is a very technical, difficult stage. I want to give Senators a general assurance that we need all the input into this legislation that we can get. It is not political legislation. It needs every point that is available. That is the spirit in which I want to see this legislation put through the House.
Section 8 allows the Minister to apply to the court to put an inspector into a company. It gives a list of the circumstances in which he may do that. There is a list here of degrees of sinfullness, as it were, and one can draw the line anywhere. We have chosen to draw the line in three areas. At the end of paragraph (a) there is the word "or" which means that the affairs of the company were being conducted or have been conducted with intent to defraud. That is just one circumstance. Another circumstance is:
(b) that persons connected with its formation or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards it or towards is members;
I would interpret "or other misconduct" as serious wrongful trading. Perhaps there was a case for inserting this but we will have a look at it. It goes on to state "or" that its members have not been given all the information which they might reasonably expect. We started at the top of the ladder and said that the Minister may go to the courts to have an inspector put in if there are circumstances suggesting fraud, or intent to defraud, or misconduct, or information not being made available to members which might be reasonably expected. In those three areas there is an escape and I am reasonably satisfied that no Minister or no court would use it lightly. It is broad enough, particularly the phrase "or other misconduct", to allow the Minister to go to the court.
In the past it has been very much of a sledgehammer when Ministers have had to consider the appointment of an inspector which has happened on two occasions only since 1963. Arguably it is much easier for Ministers to decide to apply to the court because the Minister is only initiating it and the court then has to make a decision on it. I take the points but I am happy that this section allows the Minister, in circumstances suggesting misconduct, fraud and so on, to go to a court of law and seek to have an inspector to be brought in.
Question put and agreed to.
Section 9 agreed to.
SECTION 10.
Government amendment No. 3:
In page 14, line 44, to delete "account", and substitute the following —
"account; and in this subsection `bank account' includes an account with any person exempt by virtue of section 7 (4) of the Central Bank Act, 1971, from the requirement of holding a licence under section 9 of that Act.".
Section 10 (3) as it is presently worded gives the inspectors wide powers in relation to the investigation of a directors' bank account into which money has been paid arising from loans to him by the company which are prohibited under Part III of the Bill, and any transaction between him and the company which is discloseable in the company's accounts under Part III but which was not so disclosed, and any act or omission on the director's part which would amount to misconduct. However, it has been suggested to me that we would need to ensure that limiting the scope of section 10 (3) to a director's bank account would not allow an unscrupulous director to escape examination merely because he deposited his money in some other similar type of account. This would probably be an account maintained in financial institutions other than licensing banks, for example, a building society or a credit union. This is a sensible suggestion and the amendment provides for this by expanding the definition of "bank account" to include accounts with, for example, the following: the ACC, ICC, Post Office Savings Bank, Trustee Savings Bank, building society, credit union, Industrial and Provident Society, Friendly Society, Investment Trust Company and unit trusts.
I welcome the amendment. Can I ask the Minister in relation to this rather peculiar form of words: are there any deposit taking institutions which would now be exempted from this provision?
No. The phrase "bank account" is used in section 10, and I want to make it clear that that applies to the other institutions.
I am aware of the problem.
Amendment agreed to.
Government amendment No. 4:
In page 14, line 47, to delete "or other body corporate".
This is purely a technical amendment. It simply corrects an error in the Bill. In an earlier draft of the Bill the words "or other body corporate" were moved to the previous line to read "officers and agents of the company or other body corporate". The phrase was retained twice in error. This amendment removes the phrase "or other corporate body" from where it appears in section 10 (4).
Amendment agreed to.
Question proposed: "That section 10, as amended, stand part of the Bill."
I want to apologise because this question should more properly have been asked under the definitions but the definition that I am interested in is referred to in this section. It is a reference to books and documents. In the definition, "books and documents" include accounts, deeds, writings and records made in any other manner. Is the Minister satisfied that includes all forms of computerised records? In other legislation we have dealt with in relation to records there has been a specific reference to computerised records, electronic data collections, and so on. I am a little surprised that there was no specific reference in this Bill to electronic data records and so on. It is implied in the definition but I would like to be assured that the Minister is totally satisfied that that is exactly what the courts will interpret it as.
I share that concern and I wonder if we might not save ourselves a lot of bother at this stage if we could spell out that definition to include all the various items referred to by the last speaker. I would also like to know from the Minister the basis upon which he can give us this assurance. It would save us a lot of bother at this stage if that point could be taken on board.
I will consider putting that phrase into the legislation on Report Stage but perhaps I could remind the Senators of section 3 where it says under "Interpretation":
"books and documents" and "books or documents" include accounts, deeds, writings——
I underline the following phrase:
——and records made in any other manner.
Records made in any other manner to me include computerisation. I do not see how that cannot include computerisation but I will certainly ask the legal people to have a look at it.
Given the vagaries of legal interpretation, it might be a simple matter on Report Stage to include these words to preclude any doubt in the future. Most of our judges are sane and sensible, but there could be the odd occasion when a judge, whose thinking is still rooted in Victorian or Edwardian practice, might refuse to take this sort of thing on board. Stranger things have happened in the law courts and this is a small insertion which might preclude some trouble later on.
Yes, I will certainly consider putting in a reference to computers in section 3. I might insert: "records made in any other manner, particularly computerised data" or something to that effect. I would like to make a comment on section 10 because it is important in dealing with the business of bank accounts of directors to say to the directors of companies or those who might want to become directors of companies that we are trying to achieve a balance here. It is not intended to engage in any sort of witch hunt. If somebody is invited to become a director of a company he has nothing to fear provided he is behaving professionally and properly towards his customers, creditors, workers and so on.
And employees.
I was getting to that. I want to say to directors that they have nothing to fear. A number of people have said to me over the past couple of weeks that the fact that their bank accounts can be got at would scare off directors. I want to stress that directors who obey the law and who go about their business in a professional manner have nothing to fear. This is designed to prevent abuse of limited liability. The extension of limited liability is still given to people and it is expected that they will treasure it. It is intended to prevent abuse so this will not affect the majority of directors who are responsible people. I want to stress that.
We are trying to get a balance in this legislation. I do not want to make it difficult for people to become directors of companies and to go on and create employment by being directors of companies. Someone has to take responsibility and we want to make sure that we have directors who take responsibility. At the same time, it is to weed out the cowboys in the system. It is important at this stage in this discussion to put that firmly on the record. Responsible directors have nothing to fear but there is a warning in this Bill from the Oireachtas to the cowboys in the business. That is the message from the Oireachtas.
This is not going to be a contentious discussion but am I reading in what the Minister says a code for telling directors that, whatever the inspectors discover, they will not tell the tax man? Is it essentially a signal to the effect that we are talking about company law rather than taxation law and any breaches of tax law are not going to be noticed in this sort of investigation?
No. In section 10 where bank accounts can be got at I am saying that I do not want this to be interpreted by directors as reasons for not becoming directors. They have nothing to fear provided they are behaving responsibly. That is my only message. There are other sections dealing with who information can be given to. Perhaps we will deal with that question under those sections.
Arising out of what the Minister has said — and I welcome his assurance — I just have a general point which is not specifically relevant to this section. In many ways it is almost too easy to become a director of a company at present and, on the other hand, many people are frightened away because of the pitfalls. When this Bill goes through both Houses and finally is law there is a need on the part of the Minister's Department and the various professional bodies involved to ensure that the full duties and responsibilities of directors, as incorporated in this legislation and others, are made clear to people in a way which they can readily understand. There is a great deal of ignorance at present as to what the duties are and sometimes people who are directors find themselves in trouble not out of any sense of criminality or ill-will but often out of a sheer culpable ignorance as to what their responsibilities were. I remember talking on an earlier occasion to the Minister on a different Bill in this House and making this same point on the need for Government Departments to ensure that there is the greatest amount of clarity and that the regulations and the responsibilities are as widely known as possible.
I endorse what Senator Manning said. In the light of what the Minister has stated and bearing in mind that it is Government policy to encourage entrepreneurship, obviously if that policy is to be successful people who involve themselves as directors of companies must be made aware of the law. It is vitally important because this legislation is so complex and so far ranging in its implications that the Department and the Government have an obligation to ensure that existing directors, but more important potential entrepreneurs, are made fully aware of their responsibilities and obligations under this law. Might I further suggest that, perhaps at some future stage down the road when this legislation has eventually been passed by both Houses of the Oireachtas, whenever a company is being registered or whenever a director is registering a business name, a leaflet outlining the more important and relevant aspects of this Bill as they pertain to the obligations and responsibilities of a director is sent out as a matter of course from a particular date.
I know there are already a large number of people queuing up to write books on the Companies (No. 2) Bill, 1987, long before it becomes an Act. There will certainly be plenty of would-be entrepreneurs trying to make a few bob out of the Bill itself. That will be greatly welcomed. Secondly, I know a number of seminars are being organised by various professional institutions over a period to make sure professionals are well aware of what is in the Bill. Thirdly, the debate on this Bill as it goes through this House and through the Dáil will highlight a number of details. I will take on board Senator Mooney's suggestions about the Companies Registration Office informing people who apply to register companies of their responsibilities. The important thing to remember is that when people are applying to form a company they do so with proper advice. The onus is on the people giving the advice to make sure that they are fully briefed. It is very complicated legislation. I would not advise anybody to go at it without some professional advice when it comes to the formation of companies. It is important to get it right from the start.
Question put and agreed to.
SECTION 11.
I move amendment No. 5:
In page 15, subsection (3) (b), between lines 32 and 33, to insert a new subparagraph as follows:——
"(ii) any employee of the company or trade union representing employees in the company."
From my point of view I have a real, philosophical problem with this section as it stands. It is a problem which underlines many of the problems in Irish industry today. Every day we hear about the need for redundancies or about companies or employees being in trouble. This always creates a very aggravated response from the workers. At a time when we are discussing the whole area of the social partners, when the Government wish to discuss their books with the general trade union movement in a microcosm, it is fair to suggest that at the end of an investigation, the workers in a particular company would also have access to information on the state of the company. I appeal to the Minister to take this matter on board.
The rights and the responsibilities of the owners of the company also extend to their employees and it would appear to me that an extension of that would certainly be that the workers in the company should know the state of the company. Taking it further than that it is in the interests of good industrial relations that the workers should be made aware of any problems within the company. I suspect that information concerning the problems that have arisen over the years came out of the blue when management went to the workers and said: "We need 40 redundancies". If the workers were closer to the working of the company, and to the problems of the company and were made to face up to the problems at all levels there would not need to be a unilateral approach to problems. There could be a multilateral approach in which the workers would take their responsibility for the working of the company, the product of the company and the marketability of the company as well as everybody else.
By not making this slight amendment to the Bill we are excluding the workers from knowing what is happening in the company. At that level there is also a question of their right to be aware of their own future prospects. The workers in a company have a very strong vested interest in making the company work and in making the company successful; the vested interest for them is their future employment and future stability. I would certainly like to hear the Minister say he will take these points on board and concede that the workers are an interested group. It would be quite difficult to see a full report from a company which did not in some sense refer to the workers or employees of the company. It would be a small step. Applying for that kind of information could only be in the best interests of the company as well as in the workers. I do not see whose interests would be damaged by adding this. Taking it from the most selfish point of view there is no group I can think who would lose by taking on board this idea, if not these particular words.
On a point of information and in the light of what Senator O'Toole has been saying I ask for clarification of the words in subsection (3) (v):
any other person whose financial interests appear to the court to be affected by the matters dealt with in the report...
Just to elaborate on what Senator O'Toole said, it is possible to argue, in the construction that is here, that it would be possible for the employees of a company to receive copies of such a report. In some ways, this amendment is as much symbolic of a view of the rights of employees as it is actually a necessary legal condition. Under paragraph (c) the court may, if it thinks fit, cause any such report to be printed and published. But it may not see fit and it need not make available copies to all the other people either. The principle here is to recognise that the employees are an important equal partner in the determination and in the concern about the welfare of a company. Paragraph (6) (v) refers to any other person whose financial interests appear to the court to be affected by the matters dealt with in the report and it goes on to talk about a creditor of the company or body corporate.
It is regrettable that in a definition like that, the employees are not recognised as persons whose financial interests appear to the court to be affected by the matters dealt with. They are obviously people whose financial interests are vitally affected, probably more so than virtually any creditor. It is simply a philosophical point to recognise what we all believe to be true, which is that an employee's rights are affected by these things as much as anybody else's and their future and security is affected. We should simply incorporate that point by recognising them as a vital interest group to whom such information may be made available.
I agree that generally workers should be made aware of any problems within a company and that they should be aware of the outcome and the workings of any investigation. I am sure that their interests are covered under subsection (3) (b) (v) and we do not want to make it any more complicated than it already is. We could go right through the Bill and insert words in every section but, if the Minister can assure me that their interests are protected under that section, I will be reasonably happy with it.
Part II of the Bill must be taken as a whole when talking about this question, because in Part II there is provision for example, to investigate the proper ownership of the company. The workers in a company are entitled to know who is the owner. If there is a question of liquidation workers' claims have got to be established. There would not be any problem in putting in that provision. Nowadays it is a regular feature of many companies that wages and conditions are worked out on the basis of consultation and discussion of information made available to the workers. Information such as trading arrangements, profits and losses and so on are put up on graphs for the information of workers. The political difficulties companies are encountering are very often revealed so I cannot see any great difficulty in putting this provision in, particularly if we are talking about democratising industry to a greater extent.
For example, if we talk about increasing democracy in local government by reforms, we could not let things go wrong for local government employees and not disclose information to them. The consumers are covered to some extent when we talk about corporate bodies and, in fact, everybody is covered, with the exception of the worker who actually sells his labour to the company and who is dependent on that for his livelihood.
The section as drafted says at subsection (3) (b) (v) that a report may be made available to any other person whose financial interest appears to the court to be affected by the matters dealt with in the report whether as a creditor of the company or body corporate or otherwise. I am happy that that includes employees of the firm. It can include also many other people who are not named. For example, it could include the IDA or an individual bank branch. I am reasonably satisfied that "any other person" would cover the point Senators are making.
I have listened carefully to the debate and probably there would not be any disagreement with the points made by the proposer of this amendment. It is a philosophical point and there is an important principle involved. As in the earlier part on definition, the inclusion of an extra word or two which would recognise by their inclusion the role of the employees and their rights would not damage the Bill. It certainly would not leave the IDA or other people feeling discriminated against. It would meet the point made by the proposer and it would strengthen the Bill.
This question of disclosure to employees in the context of this provision is important but I wonder where the list would end if we began to designate them or name them. It would be almost beyond the wit of man to include everybody who would be affected. The inclusion of "or otherwise" is, in fact, an important advance in legislation and should meet the circumstances.
I know Senator Ryan and Senator O'Toole are talking about including a new section in the Bill but you can get the same effect by amending subsection (3) (b) and including "an employee or his representative".
Following on that point, on what the Minister said and on what Senator Hillery said, I believe that Senator Hillery will see the need better than most people for good industrial relations in any company. Before his entry into the debate I made the point that I believe good industrial relations are built on this type of thing as well and that I wanted employees brought in for that reason. In response to the Minister, it could well be said that you might interpret the workers' interests as being included in "any other person who has financial interests" etc., but you could also interpret it as including some of the other people referred to earlier in the Bill, any member of the company, for instance. A member of the company need not necessarily be mentioned because a member of the company could be included as a person whose financial interests would appear to be affected by the report. There is no doubt that every member of the company would be affected financially in the same way as each worker.
I am asking the Minister why can we not put in employees if we have a special line there for the member of the company? This is an important point. I am not just trying to push my own amendment. Perhaps the Minister might talk to me about including the words "or worker" in subparagraph (v) so that it reads "any other person or worker whose financial interests" and so on. Could that perhaps be taken on board without creating a new section? It would not change the section in any remarkable way.
Employees are not just another body who might be affected. They are always and on every occasion vitally affected by these activities. This is where they ought to have equal recognition with the members of the company because in many cases their interests are far more vital and fundamentally at risk than perhaps many members of the company whose livelihoods may not depend on the company. A member of the company is not necessarily depending on that company for his livelihood, whereas an employee is, by definition, dependent on the company for his or her livelihood. The only proper way to recognise the importance of this investigation to the employee is to enshrine his right alongside the right of members of the company to know what is going on. Otherwise, we are effectively saying: "We recognise that they have an interest, but it is a subordinate interest". That is not the case. The emphasis within this would look much better and be much better if employees' rights were recognised overtly and not implicitly.
Subsection (3) (b) (ii) says: any person whose conduct is referred to in the report. If it was necessary to include in that report some behaviour of a trade union official, would he then be entitled to the information?
Yes, if a person is referred to in the report, he would be entitled to a copy of it. Having listened to the discussion, I will undertake to think again about this section. At the risk of being contentious, and I do not wish to be, I will share some of my thoughts with Senators. The list, so far, deals with individuals: a member, a person, the auditor, or the applicants. I have no wish to exclude an employee. I wish to ensure that a person who works in a company affected by this has access to that information. I would be a little concerned about being over-generous in regard to the general body of employees. I say that without trying to be contentious.
The whole question of the company's future is at stake here. If an inspector goes into a company and makes a report, if that report becomes a major public issue on the financial pages it could bring down the company. That would not be our wish. What I am trying to do here is to make sure that any individual who reasonably should have the report can have it. I do not want to give it to a broad group of people, which would be tantamount to giving it to the public. I say that, without in any way suggesting that if you give a report to a broad group of employees you could equally give it to a broad group of employers and it could be a major public issue. It is important to remember that this may be a company that is trading. The inspector's report may not be so damning; it may be a constructive report. I am not worried about an employee who is entitled to a report having it, or a member of the company or a person who is mentioned in the report.
I wonder whether Senators really want to make such a report public and whether if you have a large number of employees you are not, in fact, making the report public. I say that without in any way suggesting that employees by definition would make something public. We all know that if you make a report available to a large number of people it will become public. These are comments off the top of my head, rather than having thought about the Senators' debate. I will consider on Report Stage putting in a reference to "an employee". I will come back to Senators on that. It is not my wish to exclude individual employees if they wish to have the report, but I am concerned about confidentiality. The whole future of companies is bound up with the business of what is written in financial papers and elsewhere.
I accept what the Minister has said but I am now somewhat baffled by the purpose of this section. As far as I can see, nowhere in the section is there any enjoinder as to confidentiality. It is just as possible in so far as keeping the report confidential is concerned that some of the other groups who have got it may well have an even greater axe to grind.
The court could order it to be published.
On the other hand some of these groups could leak information. Even in politics things are leaked occasionally. Even parliamentary party meetings occasionally find their proceedings reported. I am not clear as to why, if in the first place the wording would allow an employee to make an application to have access to the report, the Minister now seems to be suggesting that this is a discretion and that an employee would not have that right. I am confused.
I take the Senator's point. Subparagraph (v) says "any other person". Any other person could be an individual employee. Under that section an employee could get the report. Senators have impressed on me the need to actually use the word "employee". I am undertaking to rethink this and perhaps insert it on Report Stage, but I am slow to broaden it to a group of people by definition because with any group of people, you are into difficult situations.
In the light of all that has been said will the Minister confirm that, even if he were to accept the amendment stating "an employee", the key words are at the beginning of subsection (3): "the court may, if it thinks fit——". Despite the points raised by Senator Manning in relation to confidentiality and the Minister's remarks about the inherent dangers in a wide publication of a report of this nature, the court may decide in its own judgment that the report is not to be published or, indeed, to be given to any of the people listed in this section. Will the Minister confirm that?
That is precisely the circumstances. The court may decide not to publish the report.
The Minister seems to reveal a certain suspicion that somehow employees are perhaps less to be trusted than other groups. We must remember that among the people mentioned here are the applicants for the investigation. There is no reason to believe that, if people have applied for an investigation into a company, they can then be expected to observe total confidentiality if the courts see fit to give them a copy of an inspector's report which perhaps does not reflect well on the company. There is no reason to believe that all the members of the company may take a similar view. One thing the employees of a company have is a fundamental vested interest in the survival of the company, far more than many of the people referred to here. People make mistakes, but it is wrong to suggest that the employees are somehow going to be less careful about the information available to them as a group, or to their trade unions as a unit, than other people. It flies in the face of their self-interest. Their self-interest is that at all costs the company should survive. We will find that most trade union members and employees will be singularly unhappy if a company is put into a position, by an investigation like this, where it has to be wound up. That would not be in their interests. Therefore, their own interests will dictate that they will behave extremely responsibly because their future is at stake.
There is a view abroad that Irish employees have been responsible for the closures of a large number of companies. It is a view that has no objective evidence to support it. So this argument of confidentiality is not a good one on which to exclude the right of the trade unions to have access to a report. I would be concerned that if the Minister, on the grounds of confidentiality, restricts this right to an employee, he is inherently restricting the right of that employee to make it available to his trade union. If the Minister does not intend that, he ought to refer to the trade unions as having the same rights as the employee. Otherwise there is no point in simply concentrating on the individual employee.
The other thing to remember is that this is a matter for the court's discretion. The court may decide not to supply it to anybody. Does the court have the discretion, if it thinks fit to furnish the report, to choose between the groups listed under paragraph (b)? Can it give the report to some but not all of those groups? If it decides to make the report available does it have to make it available to all of the people referred to in paragraph (b)?
I will start with the last point. As I read the section, the court could decide to make it available to some and not all. The phrase "the court may if it thinks fit" clearly implies that if it does not think fit it need not give it to a particular person on the list. It is wise to leave that discretion with the court. All I can do on Senator O'Toole's amendment is to undertake to have a very close and sympathetic look at it between now and Report Stage. We are not trying to edge out of this very important involvement of both the trade unions and the employees in a company. I just ask the Senator to take on board my worry about getting groups involving large numbers of people into legislation. It could be any class of persons, not just because they are employees. We are all employees of one sort or another.
I am very pleased to hear that. I was determined to push this to a vote, but I am quite pleased with the very positive response from the Minister. I look forward to the Minister taking this on board, and to hearing how he can deal with it on Report Stage.
I understand the Minister's initial points on this section, but I do not agree that there could be a problem because the vested interests of the workers would militate against any irresponsible action with the report. I take a great interest in the stock market and in the way it works. It is not unusual for a shareholder investing in two companies to invest in two companies competing with each other. People who dabble in stocks, dabble in an area which they understand, be it oil, industry, or catering. A shareholder of company A which has just been investigated is entitled to the copy of the report on company A. If that report reads very negatively about the future trading prospects of company A, that night he will be on to his stockbroker and will sell all his shares in company A and transfer them to company B. I make that point because, it is certainly privileged information which could be used irresponsibly. I am not saying it would be but I am just balancing the Minister's initial point.
The people mentioned here could also be people who could create difficulty for the company by creating a lack of trust or a lack of confidence in their future prospects by leaking that information. The Minister will have to take on board the point made by Senator Ryan that the people with most to lose if the company fold would be the actual employees of the company. Perhaps that should concentrate our minds on agreeing to include them.
The point made by Senator Mooney is absolutely right. The courts may decide not to publish in the very best interests of the company. I do not have any objection to that. Decisions have to be made at various times and it could well be that it would be wrong to publish the report and that discretion should be allowed to the court. I certainly take on board Senator Manning's point that confidentiality should be highlighted a bit more if that is what is intended in this section.
Could the Minister clear for me the very last sentence in paragraph (b) (v) "any other person... as a creditor of the company or body corporate"? Does it mean a creditor of the body corporate?
It does.
I just wanted to clarify that. I will leave it at that point and look forward to Report Stage. I see that the Minister makes a distinction between the trade union and the employee. In all fairness, an employee, perhaps on the ground floor of a company, would very often need the professional advice of his or her trade union before the report would make any sense to him or her, but we do not need to address that point. If the Minister is prepared to address the point relating to "worker", other legislation covers the area I am talking about and I accept that that would be a very good middle point to reach.
I will conclude on this section with an observation more than a point. The points made by Senator O'Toole about shareholders having conflicting interests could unfortunately also be true of the workforce. It is not inconceivable that we could have a group of workers who were divided in their views about the future of the company and future control of the company and the way in which it should be run. We have seen examples in this country in recent times of protracted strikes where the workforce were clearly divided on their stance. I am making this point more or less to say that I have come some part of the way to accepting the complexity of the case and the difficulties which the Minister has raised. I would like him to reiterate or even to clarify the nature of the confidentiality in all of this. It is not as black and white as I made it sound in the beginning. I will finish by saying that the principle enunciated by Senator O'Toole is one I support.
Amendment, by leave, withdrawn.
Government amendment No. 6:
In page 15, subsection (3) (b), line 39, to delete "and", and between lines 39 and 40 to insert the following new subparagraph—
"(vi) the Central Bank, in any case in which the report of the inspectors relates, wholly or partly, to the affairs of the holder of a licence under section 9 of the Central Bank Act, 1971; and".
Section 11 (3) (b) provides that following the conclusion of investigations the court may, if it thinks fit, furnish a copy of the inspector's report to a number of parties. These parties are listed in paragraph (b) and we have dealt with that.
The next section we want to amend relates to the question of the Central Bank. It struck us that, as well as parties with a direct financial interest in the company concerned, where a bank is amongst those whose affairs have been investigated, the Central Bank, as the supervisory authority concerned, would have an obvious interest in the outcome of the investigations. Thus the amendment would allow the court to give a copy of the inspector's report to the Central Bank in any case where the inspector's report had to do with the affairs of a licensed bank. It is a sensible amendment where the report has to do with the affairs of a licensed bank that the Central Bank should be included on the list of those who get a copy.
I feel like making a long speech about banks and banking but I will not.
Amendment agreed to.
Section 11, as amended, agreed to.
Section 12 agreed to.
SECTION 13.
Question proposed: "That section 13 stand part of the Bill."
I would like to raise a point here which was made by the Consultative Committee of Accountancy bodies on section 13, on the question of a recouperation from specified persons including the applicants for the investigation of the expenses which arise from the inspector or the inspectors' investigation. There seems to be some sort of on the one hand and on the other hand here, and the end result does not lead to a great deal of clarity.
Subsection (1) (c) refers to the applicant's liability "to such extent (if any) as the court may direct". Under subsection (2) they could be required to make good any deficiency up to the amount which the security given by them exceeds the amount which they have already been required to pay by the courts. It is the view of the Consultative Committee of Accountancy Bodies that this requirement is unduly onerous, partly because the applicants have, in the nature of things, already suffered considerable losses. If they make the application in the first place or if they have gone to the trouble of having the investigation started, they have already paid what the court would have deemed to have been their share of the costs of the investigation, the eventual total cost of which is outside their control. It is the view of this body that, where the investigation will probably be a lengthy one, appropriate provision should be made for payments on account in respect of expenses incurred by third parties carrying out work on behalf of the inspectors. I am sure the Minister has had this submission and I am sure he has considered it. I do not have a strong view on this and I would be interested to hear his reaction because they are a responsible and authoritative grouping.
We have considered it and my officials have discussed that with the accountancy bodies. I want to make it clear for the record that in no circumstances will anybody be asked to pay more than the figure of £200,000, if that is the figure set by the court. In no circumstances will anyone have to pay more than the amount set as the security. If the security is set at £60,000 that is the most you will have to pay. I appreciate that the wording of section 13 (2) has to be read once, twice or even three times to make that clear because it says: "... if the court deems it just and equitable to do so, be required to make good the deficiency up to the amount by which the security given by them under section 7 exceeds the amount, if any, which they have under that subsection been directed by the court to pay ..."
That means the shortfall between the security and the actual costs. It is the shortfall that has to be paid over and the maximum that will have to be paid in any circumstances is the actual security figure of £200,000, £50,000, £60,000 or whatever. Perhaps we could have worded it a little more clearly but that is the legal interpretation of it.
I read the section more than the required three times the Minister asked for. Given that the Consultative Committee of Accountancy Bodies in their first submission also had difficulty in finding clarity in the matter and, in fact, seemed to misinterpret it I earnestly urge the Minister and his officials to see if the section could reflect with clarity what the Minister intends it to do.
That is the intention. The maximum is the amount secured.
I want at this stage to make what is almost a ritual protest of mine. Will somebody please pass on to the parliamentary draftsman the wish of this House and the other House of the Oireachtas that legislation should be drafted in English? It is a continuous complaint, not just of lay persons like myself, but of skilled and able lawyers, that the language used in legislation is unnecessarily complex. I have heard very able lawyers in ten seconds redraft sections and make absolutely crystal clear what was intended by the section without losing any of the legal refinements that were necessary. If competent, professional bodies are misled by the way something is written that is a very good case for rewriting it in a proper and intelligible way. There is no reason legislation that passes through the Oireachtas should not be intelligible to a person who bothers to read it a couple of times.
I support that point. We work on the assumption that everyone should get a good education from the State and that the people who do not get a good education are not entitled to know anyway. We have got to overcome that. To be quite frank about it, I never had any secondary education and I have to read a Bill more often than anyone in this House before I grasp it. It is supposed to be for everybody but you can take it from me that everybody will not understand it: it is only the legal people and others who can finally get round it. I make that special appeal to the parliamentary draftsman. Without putting it too bluntly, you have to cater for the thickest guy in the squad.
I will have a look at that and see if we can get a better draft of it.
Question put and agreed to.
Section 14 agreed to.
SECTION 15.
Question proposed: "That section 15 stand part of the Bill."
I rise without any great convictions but simply to ask the Minister why not: The intent of sections 14 and 15 is to investigate the true ownership of a company. That means findings as to fact by inspectors. I do not have strong feelings on this but the accountancy bodies have suggested that people who feel aggrieved by those findings as to fact ought to have a right of appeal to the courts. That opens a process of lengthy litigation. Investigators can make mistakes and they can come to erroneous conclusions. I do not know if it is ever possible in human affairs to reach absolute certainty. I do not know any other area of human life where it is possible to reach absolute certainty and I doubt that it is possible here either. Perhaps the basis for appeal is implied in the section but it is not clearly stated and this leaves people with a reasonable sense of grievance.
The legal situation is that a person has the right to go to court in any case or matter under a ministerial function. As I understand it that is the legal situation and it is not necessary to put it into the legislation.
Question put and agreed to.
SECTION 16.
Government amendment No. 7:
In page 20, lines 19 to 21, to delete subsection (18) and substitute the following subsection—
"(18) The Minister shall cause notice of any direction given by him under this section—
(a) to be sent to the company concerned at its registered office, and
(b) to be published inIris Oifigiúil and in at least two daily newspapers,
as soon as may be after the direction is given.".
This proposes to amend section 16 (18). It has been suggested that while a Minister can impose restrictions by a notice in writing and such notice must be published in Iris Oifigiúil and in newspapers, there is no requirement that the Minister must send notice to the company. I am amending that oversight in this amendment.
Amendment agreed to.
Section 16, as amended, agreed to.
Sections 17 and 18 agreed to.
SECTION 19.
Question proposed: "That section 19 stand part of the Bill."
The issue that I spoke about on section 8 arises here. Section 19 (2) (b) states: "... the affairs of the body are being or have been conducted with intent to defraud". The same questions arises in relation to the difficulty of proving such intent. Section 8 suggested that a company were guilty of wrongful or insolvent trading in a situation where debts were being incurred without reasonable prospect of their being paid. That seems to be more precise and more capable of being proved and, therefore, more likely to be a deterrent to improper behaviour. I have long held the view that the most effective deterrent is the likelihood of being caught because the likelihood of being caught involves the likelihood of being penalised. That depends on the capacity to actually prove that something was being done. When you get involved in proving intent you are involved in subjective judgments and, therefore, the likelihood of a case being proven is that much less. I ask the Minister to think again about the wording in that section.
I will certainly do that. I want to refer the Senator to section 19 (2) (f), which states: "... that any actual or proposed act or omission or series of acts or omissions of the body or on behalf of the body are or are likely to be unlawful ..." It is a very general, almost catch-all, section and I am reasonably satisfied that it should cater for most circumstances. It is a sort of pecking order of wrongfulness where there is fraud, or where the affairs are being conducted for fraudulent purposes, or where they are being conducted in a manner which is unfairly prejudicial to some of its members. There seems to be enough there to catch most circumstances but I will have a look at the details of the wording.
I want to bring to the Minister's attention a point made by Mr. Ben O'Raferty in the Small Firms Association Newsletter of August 1987. Volume 3, No. 6 where in reference to this section he states:
"Reckless trading" is not defined by the Bill nor is it defined by any other legislative provision. Recklessness is a concept known only in the criminal law and in that field there was been a wide divergence of views and opinions as to what form of conduct could be described as reckless.
Could the Minister give some indication as to how reckless trading could be defined or whether the point made by Mr. O'Raferty, who was a candidate for this House from the Trinity panel last time round, is a valid one?
Section 107 of the Bill deals with civil liability of persons concerned for fraudulent or reckless trading of a company. This is the first of a number of sections which deal with this. We will have plenty to say about reckless trading later on.
I am very happy to hear that. I hope the Minister will be able to give me a definition of it when we get to that stage.
I hope so too.
Question put and agreed to.
Section 20 agreed to.
SECTION 21.
Government amendment No. 8:
In page 23, line 18, to delete "1978" and substitute "1986".
This is a technical amendment substituting 1986 for 1978. It is a minor amendment to bring up to date the reference to the Exchange Control Acts in section 21 (1) (d). Following the enactment of the Exchange Control (Continuance) Act, 1986, the collective citation that follows now is the Exchange Control Acts, 1954 to 1986.
Amendment agreed to.
Government amendment No. 9:
In page 23, line 36, to delete "by the Minister".
Section 21 provides for the confidentiality of any information obtained under section 19, the ministerial power to require production of books and documents, or section 20, entry or search of a premises by warrant. Broadly speaking, no information or document obtained under those sections may be published or disclosed without the company's previous consent in writing unless (1) it is required for one of five specific reasons generally to do with the commencement of legal proceedings of one kind or another, or (2) it is disclosed to one of the competent authorities listed in section 21 (3).
The competent authority listed in section 21 (3) (c) is "an inspector appointed under this Act by the Minister". While the Minister will retain some power to appoint inspectors under section 14, the investigation of company ownership, and section 58, the investigation of share dealings, the general function of appointing inspectors to investigate a company's affairs is being moved to the court. It is as logical to allow relevant information to be disclosed to an inspector appointed by the court under section 7 or section 8 of the Bill as to inspectors appointed by the Minister under section 14 or section 58. Therefore, the purpose of this amendment is to remove the words "by the Minister".
Amendment agreed to.
Government amendment No. 10:
In page 23 to delete lines 39 to 42, and to substitute:
"(f) any court of competent jurisdiction,
(g) a supervisory authority within the meaning of regulations relating to insurance made under the European Communities Act, 1972, and
(h) the Central Bank.".
The purpose of this is to add the Central Bank as a competent authority. This amendment recognises that, apart from those already listed, the Central Bank are another supervisory authority who ought to be included in this subsection as being competent to receive information which would otherwise be confidential. Therefore, the amendment provides that, where any information concerned relates to a licensed bank, the Central Bank will be a competent authority under section 21 (3) and information which would otherwise be confidential may be communicated to them. The reason the existing paragraphs (f) and (g) are repeated in the amendment is that, because we are adding a new paragraph (h) to the subsection we have to move "and" which currently appears at the end of paragraph (f).
Amendment agreed to.
Question proposed: "That section 21, as amended, stand part of the Bill."
Last week must have infected me because I am beginning to wear the law and order hat more than I am used to.
Comfortable though.
With the state of my hair at this stage any hat is comfortable. The disclosure of information assembled under these sections is obviously something that could be a very serious threat to the wellbeing of a company. It is a very serious offence and quite rightly is such. In terms of commercial considerations, the future of the company, market confidence in the company and a number of different areas, disclosure of that information is a very serious offence.
I went looking for the penalty in the section. The penalty is a fine not exceeding £10,000, or a term of imprisonment not exceeding three years. Far less serious offences, for example, taking a car without the owner's permission, are subject to far more severe penalties. The maximum imprisonment for taking a car without the owner's permission, or being in a car knowing it to be taken without the owner's permission, carries a penalty of five years. Imposing a maximum penalty of three years, as referred to in section 184, has a little bit of the classic idea of a white collar crime being somehow more acceptable and less reprehensible than other forms of crime. An upper limit of prison sentence of three years for an offence like this completely understates the seriousness of the offence.
I am not trying to dodge that and I will be happy to discuss it with the Senator when we deal with section 184 of the Bill which specifies the penalty. I take the Senator's point that it is implied under this section——
There is no penalty specified here.
Section 184 states: "... on conviction on indictment, to a fine not exceeding £10,000 or, at the discretion of the court, to imprisonment for a term not exceeding 3 years or both." I will have a look that between now and the time we get to section 184. At present imprisonment for three years plus a maximum fine of £10,000 appear to be adequate.
I do not imply that there is any impropriety in this but considering the kind of fees that the economist research service charge people for far less sensitive information, and information that is often public knowledge but which somebody has assembled, £10,000 could be a very minor consideration in terms of the commercial value of material like this. I do not want to preclude discussion on section 184 but there are generalised penalties specified for a range of offences. I have one gone through the Bill and identified each offence covered by section 184 but this offence seems to be one of such gravity that it ought to carry a greater fine. Perhaps the Minister could consider between now and Report Stage the possibility of introducing a penalty considerably in excess of what is in the section and a prison sentence of up to five years. Five years — which in terms of the Criminal Justice Act has a particular intent — is far more representative of the seriousness of the offence. I do not want to enter into a long discussion on this but it is a very serious offence.
Question put and agreed to.
Sitting suspended at 4.20 p.m. and resumed at 4.35 p.m.
This is fairly intense stuff. I would like to propose, if the Acting Leader of the House is agreeable, that we adjourn at 5.45 p.m. Agreed.
Sections 22 and 23 agreed to.
SECTION 24.
Government amendment No. 11:
In page 24, line 26, to delete "recognised" and substitute "licensed".
An Leas-Chathaoirleach
Is the House agreeable to discuss amendments Nos. 11, 17, 21, 25 and 25a, 26 to 31, inclusive, and 33 and 34 which are similar, together?
Perhaps An Leas-Chathaoirleach would explain why?
An Leas-Chathaoirleach
They are all similar amendments, and to avoid repetition. Would Members bear that in mind? It is a fairly wide-ranging debate.
Various references are made throughout Part III of the Bill which we are now moving into, starting with section 24, to "recognised" banks. Section 24 (1) defines the term "recognised bank" as the holder of a licence under section 9 of the Central Bank Act, 1971. It has been pointed out to me that the term "licensed bank" would be the more normal term when referring to the holder of a bank licence and this amendment makes the necessary change in section 24 which contains definitions for the purposes of Part III. The term "recognised bank" is used in sections 32, 33, 36, 38 and 39, which are all in Part III of the Bill and consequential amendments are necessary to change the term in those sections to "licensed bank" also.
Amendment agreed to.
Question proposed: "That section 24, as amended, stand part of the Bill."
I will be subject to your ruling on this but I am talking about section 24 in the context of the objectives of Part III. The Explanatory Memorandum reads:
Part III of the Bill contains a series of detailed provisions to deal with recognisable situations where a company director might be tempted to put his personal interest before that of the company. The main emphasis in this Part is on the question of loans to directors and other similar transactions... The Bill proposes, subject to certain limited exceptions, to prohibit 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 other companies in which those persons have a controlling interest and, in addition, to require them to disclose in detail any loans made.
It refers there to all companies, both public and private but in section 24 (1) (e), a "relevant company" is defined as meaning:
a private company limited by shares which fulfils at the date of the last annual accounts any two of the following conditions — (i) the amount of its turnover exceeds £2,500,000, (ii) that its total assets exceed £1,250,000, (iii) the average number of person employed by the company in the financial year to which the last annual accounts relate, which average number must be certified by the auditor of the company, exceeds 50.
That means that any company which does not meet two of those three conditions is not covered by the provisions of Part III.
The number of companies that do not meet those conditions in the manufacturing area amount to thousands. According to the figures supplied to me by the Irish Congress of Trade Unions, approximately 80 per cent of all manufacturing companies in Ireland employ fewer than 50 people. There are over 2,000 small IDA grant-aided companies with fixed assets of less than £500,000. Therefore, a large number of private companies are exempted from the provisions of Part III, or I am missing something in Part III, or the Explanatory Memorandum is missing something.
It appears to me that large numbers of companies of the kind most lay people associate with a lot of malpractice in the area of company activities are actually exempted from the provisions of Part III which, as the memorandum says, are to do with situations in which a director might be tempted to put his own interest before that of the company. For example, all the smaller builders who have gone into liquidation under very dubious circumstances, that half the country must have experience of at this stage, are companies which would come within the terms of paragraph (e) and, therefore, would be exempted from the controls and provisions of Part III. I would like to ask the Minister why this is so. I know the reason has to do with the provisions of other company legislation about disclosures, and so on, but this is in relation to malpractice and people misusing their positions as directors of a limited company with all the privileges that implies. I can see no good reason why all companies should not be covered by the provisions of this Part.
In dealing with loans, it includes all companies. It is in relation to the more legal area of quasi-loans and credit transactions that the threshold has been suggested, the threshold of turnover of £2.5 million, total assets of £1.25 million and the number in regard to those employed. Those thresholds are taken broadly from the Fourth Directive type of thresholds. The only explanation I can give is that in the area of quasi-loans and credit transactions it is very much a pragmatic and practical type of approach to the thousands of companies that exist — very small private limited companies. It is one thing to forbid loans and to make some attempt to police it, but there was a feeling that it would not be practical to attempt to get involved in the whole area of quasi-loans and credit transactions, involving thousands of companies with perhaps thousands of transactions but that we should start by tackling the straightforward loan and that we would have some chance of policing that.
This is a practical approach to what we can police. We felt there was no point in bringing the legislation into disrepute by laying down something we had no chance of policing in the short term unless we invested substantial resources in it. It is a matter of doing the best we can on the loan front without getting into the other area which is an endless piece of string — it is hard to know where it stops and where it starts.
I can understand the commonsense and logic behind what the Minister is saying at one level but, even if the resources are not available to police such a provision in the case of every company, does it not seem reasonable in a situation where a company fails because of the carry ons referred to here, quasi-loans and things like that, that at least those in the company who are responsible for that are guilty of an offence under company law even if it is only in a post hoc situation, that when a company has failed and this sort of information becomes available after the event at least those who have behaved in this way would be guilty of an offence? Even if we do not have the resources to police it and enforce it in a way that can prevent such happenings, can we not at least ensure that people who do these sorts of things are guilty of an offence?
If these quasi-loans did not affect a company's capacity to trade and to operate within the law, we would not be worried about them. I must presume that those sorts of things are ways of impinging on the capacity of a company to trade properly and, in the long term presumably, threatening the interests of creditors and employees. If those things are wrong, we can at least ensure that when they are done and they cause a company to collapse, the people who are responsible for doing them are guilty of an offence.
As it stands, if a company of that scale is jeopardised by this sort of practice the people who do it are not guilty of an offence. That is not to say that it would be possible to police, according to my figures, of the order of 75,000 plus private companies in the country. I am not saying that. What I am saying is that if those things are wrong, they should be wrong for everybody. Even if it is not possible to police all of those companies in advance at least where companies collapse and those sorts of practices emerge, people should be guilty of an offence and that is all that would be involved in deleting these exemptions.
I have no major problem with this provided it is sensible for us to actually make it stick. Just to be clear, the only authority that can pursue an offence would be the authorities, the State, so that in making it an offence, it would be putting quite a burden on the State to try to police and pursue and take action. The point which the Senator makes is a valid one and certainly worth thinking about of the case where an offence is presented to you, where it is a fall out from a situation and it is on your plate, then obviously you can police that one because it is there waiting to be policed. It is a fine judgment as to whether you should have a piece of legislation which, quite frankly, we are unable to police for a considerable time and whether you just enact it on the basis that if one turns up then you chase it. I am not sure whether that is the wisest way to look at the legislation at the moment.
That is a point we should make to Senators generally, and this is very much a matter for Senators and Deputies to think about. We are talking about some practices in very small companies which might be tightly held and might be owned by a family, might have perhaps little or no employment and one has to ask the question whether, say, a simple thing like extending a credit card to a member of a company like that, in fact, is what we want to spend our time chasing. It is a general question as to whether that detail in small companies is actually wise or necessary at this stage, or whether we should content ourselves to make progress on the loan front. Most Senators would be aware of very small companies with little or no employee content, whether it is essential to police that type of situation, which is what including quasi-loan and credit transaction would mean in a company with perhaps only a family working, that you could perhaps have no credit transactions or no quasi-loans within that structure.
I am just wondering whether that is practical from a business point of view and indeed, in effect, if we could police it, if we were to make such a regulation that the smallest possible company which might be a man and a wife in a local shop and maybe a girl who comes in the morning, and if he pays one of her bills or extends her a credit card that, in fact, becomes an offence, or whether we need to set up that kind of paper tiger. I have my doubts at this stage as to whether we should leave that alone and confine ourselves to this.
Those of us who have looked at this section have come up with the same difficulty. I must say I agree with the points made by Senator Ryan and, at the same time, I dislike the idea of bringing in a law that might not be enforced. I do not like the idea of just presenting legislation that might hit or miss that we could apply at some stage. At the same time, I agree with the point that he is making and I support it.
I have researched this fairly thoroughly and I have come up against the same problems about the size of the company. On the day I was reading about this thing I was collecting my car from the garage. The garage is a middle sized company and it has roughly ten to 15 employees. One of the senior employees — I think he is the foreman — was talking to the owner and he said: "I am stuck. I want to change cars myself." I knew both of them. They came to an arrangement and it struck me that here was a sort of privilege being extended to somebody within the company who could, in fact, also come under this section. I felt that was not really what I wanted. I accept that there is a difficulty in trying to achieve what I would like to achieve here without handcuffing companies in many ways. The Minister's assurance is important in terms of the attitude of the State and what is intended to be covered by the company.
The Minister has come to one of the nubs of this Bill. Many of us made the point on Second Stage that this Bill could run the risk of becoming just another piece of legislation on the Statute Book, on the shelf and not enforced. We are probably one of the best or worst countries in the world at not enforcing so much of the legislation which we research very carefully or copy from other countries, debate very thoroughly and then ignore in practice. I believe that the success of this Bill will depend on the capacity of the State and those appointed by the State acting for the State to police it effectively.
The Minister has raised a central point and that is the whole element of commonsense. Like Senator O'Toole, it is difficult to distinguish between laws which should be enforced in full or should be enforced in part, or should not be enforced at all. We should not be in that business. Nonetheless the Minister's distinction is a very valid one. If we end up with armies of inspectors going around the country making life even more difficult for people in small businesses because a credit card of some privilege of this sort was extended, the whole spirit of this Bill will have been defeated and, much as I dislike saying so, I suspect that the success of this Bill or otherwise will depend, to a large extent, on the discretion and the commonsense of those who are in charge of enforcing it. They live in the same world as the rest of us. They will have to be aware that it is easier, very often, to go after the small person who does not have the benefit of expensive financial advice, who does not have a series of degrees and consultants and whiz kids to tell him or her how to evade the law. It is much easier, as we can see from the very small number of cases brought by the fraud squad over the years, to go after the small person. It is much more difficult to go after, or at least to succeed with the big evader.
The point made by Senator Ryan about penalties is one to which we will all have to address our minds later on in this Bill because it raises fairly fundamental questions about equity in our whole legal system. I take the Minister's point very much on this. If we end up with a situation where the administration of this law is aimed at the smaller people because it is easier to get convictions and so forth, the whole purpose of the Bill will have failed. I am reluctant to give my consent, for what it is worth, to a Bill which will, I believe, depend to a great extent on the commonsense, integrity and discretion of those operating it. It will be inevitable in this case in some parts of this Bill and I am glad the Minister has brought this particular example to our attention.
In relation to the section dealing with loans to directors, I will quote from the Small Firms Association Newsletter:
Part III of the Bill deals with transactions involving directors. Section 31 prohibits companies from making loans (direct or indirect) to directors. Section 32 of the Bill provides for technical exemptions to the effect that a sum of £2,500 may in certain circumstances be loaned by a company to one of its directors. In certain other limited circumstances a director may benefit to the tune of £10,000 where the expenditure has been specifically approved by a general meeting of the company. Firstly, it is suggested that the general exception of £2,500 is too low and, secondly, the condition attaching to larger exemptions are unduly restrictive particularly in the case of small companies.
Basically, I might be jumping the gun a little on section 31 and section 32 but, if we get into the policing of small companies, I take the Minister's point, it will be very difficult but, also on the other hand, Senator Ryan has stated that there seems to be a lot of cowboy mentality in companies employing fewer than 50 people. That is a problem we will have to address. I know quite a number of examples where perhaps five, six or seven people are employed in a company. They go into receivership or liquidation and they start off a new company the following week. That is one thing the Bill has to try to get rid of.
In dealing with small companies and the limit of £2,500 loans to directors of small companies, as other Senators have said, this seems to be a little bit restrictive, but we must accept that the issued paid up share capital is for the productive use of the company. This legislation recognises the need to curb the abuse of directors borrowing indiscriminately from the company. Is the £2,500 an arbitrary figure or is there any room to move on that figure? Could it be, say, a £10,000 loan, or 10 per cent of the issued share capital, or 10 per cent of the net assets, whichever might be the lowest of these three figures? We do not want to restrict small company directors because this country will be depending a lot on the development of small industry. The limit of £2,500 may be a little bit restrictive. A repayment schedule should be registered within the company, a clear repayment schedule put down, agreed and listed to ensure that directors have a clear intention of repaying any such loans borrowed.
An Leas-Chathaoirleach
It will be easier for the Chair if we confine ourselves, as far as possible, to the interpretation of this Part and leave the actual bones of the problem to the later sections.
I will start by confessing to the fact which must be obvious from my contribution that I am no expert in this area. I am, therefore, presuming that the fact that there is so much detail entered into here about loans and quasi-loans, which is not presumably contained in earlier companies' legislation, means there must be considerable evidence that this area of loans and quasi-loans is an area in which there is prima facie evidence of considerable abuse in the past. If there was considerable abuse and if this abuse was at the expense of other people — usually the creditors — you have to wonder about where this abuse took place.
I strongly suspect — it was Senator Reynolds who said it — that companies who employ over 50 people and companies with assets exceeding £1,250,000, or a turnover exceeding £2,500,000, are not by and large cowboy companies. They are real companies. They are in the business of trading and, therefore, any area where they loan money to directors is probably relatively acceptable in the sense that it is probably a reasonable reward for considerable expertise and effort contributed by a company. But they are told they cannot do that because of our fears, apparently, about the abuses to which this could be put. The sort of companies that tend to abuse these sort of privileges — none of us I suppose has any empirical evidence on this, but most of us would suspect — are companies that are exempted from this legislation. I appreciate that nobody, including myself, wants every small family firm to feel there is an inspector from the Department descending to see if they are meeting the law. One must remember that in the area of VAT, taxation and so on, all of those companies have to live with the fact that everything they do is subject to rigorous and detailed cross-checking by various agents of the State and, in particular, by the Revenue Commissioners. Therefore, the experience of having to justify all decisions about how they earn revenue, taxation provisions and so on is something they are quite familiar with.
I cannot see any reason a private small company operating within the law should have anything to fear from this legislation. On the other hand, I will be quite happy to talk about small companies and reduce it down to ten employees, reduce each of the figures by a factor of five down to 500,000 and 250,000 or something like that. It is not good enough that those who drafted this Bill, and many of those who wanted this sort of legislation introduced, should exempt the scale of companies which most of us suspect are most liable to abuse limited liability. Limited liability is an extraordinary privilege given to encourage people to take risks, to encourage enterprise, wealth creation and, as a consequence of that, to encourage job creation. It is not something people should be allowed to take for granted. It is an extraordinary privilege and, therefore, it is reasonably legitimate for the community to expect high standards from people who are granted that privilege. That is why, according to the ICTU, we should not leave 80 per cent of manufacturing industry in this country exempted from it. I know that, by and large, it will not be in the area of manufacturing industry that many of these abuses will take place but I am still not convinced that there is not a formula by which the number of exemptions could be substantially reduced.
I support the views of Senator Ryan. This type of legislation, does not come on the stocks very often. It is a very difficult and complex area and we must appreciate that. If we do not get hold of the nitty-gritty as best we can when the Bill is being discussed, it will be a long time before we will get an opportunity to put things right. If you make exemptions to the law, as it were, by a form of acquiescence in the way you word something, eventually the law breakers shall become as powerful as the people who are keeping the law and, maybe, exceed them to some extent. We have seen that in other directions. I support the idea of getting into this Bill as much as possible at this time. It will be many years before we get an opportunity to deal with the company law.
I appreciate the Minister's difficulty and his advisers' difficulties from the point of view that you have to consider the safety of generalities in many cases. Because of the nature of this type of law it will not be possible to bring in enabling legislation or to fill any vacuum left as a result of this legislation. Consequently it must be done now. I ask the Minister to think seriously about it between now and Report Stage.
Like Senator Ryan I am no expert on company law. In a sense it is a learning process for me. I ask the Minister to clarify section 24 (1) (e) which states:
a private company limited by shares which fulfils at the date of the last annual accounts any two of the following conditions—
(i) the amount of its turnover exceeds £2,250,000,
(ii) its total assets exceeds £1,250,000,
Does this infer that the subsequent parts of Part III in relation to loans and quasi-loans would not apply to the large majority of companies with a turnover substantially less? That seems to be my reading of it. Does this section apply to a company owned by a husband and wife, or indeed, by an individual, a small operating private company which would not have a turnover of that nature? They could in a sense give loans or take loans from the company. Finally, as I was coming into the Chamber I heard a reference to £2,500. Could the Minister confirm that this comes under section 32 and not section 24?
I will take the last of Senator Mooney's points first. It applies to loans in private companies no matter how big or how small. Under this legislation they are forbidden from making loans in excess of £2,500. In that regard I would like to say to Senator O'Toole and to Senator Ryan that I appreciate their desire to tidy up the whole matter. I would have to ask: how far we are moving and how quickly? That is a practical plea in the sense that what we are doing here for the first time ever is saying that no company can make a loan of more than £2,500 to its members. That is a big step. We are going another step and saying that not only can they not make a loan, but in all public companies and in the large private companies and the medium sized private companies they cannot make a quasi-loan or a credit transaction — that is paying for somebody's house or giving them a credit card. The 80 per cent exclusion figure for manufacturing industry is a little misleading in the sense that the number of companies might be large. In fact, some of the largest companies are private and are not on the Stock Exchange. I can think of one supermarket which is a major operation but privately owned.
The definition of private does not necessarily mean small. While 80 per cent of companies are out of it the bulk of the turnover in sales and economic activity of the country is captured. We are going a long way by saying that no company can make a loan of over £2,500 and furthermore that no large private company or no medium sized private company can make a loan or, indeed, a quasi-loan or a credit transaction. We are not interfering with quite a large number of small companies. We think that saying to them that for the moment they cannot give loans is enough without making unreasonable requests.
I understand that advances have been made in UK company law in recent years. This section is broadly similar. We go a step further in that the UK confine it to public companies only in regard to the quasi-loans. They do not go after the private company in that regard. We go after the large private company whereas they go after only the public company. It is important to remember that we have gone as far as the UK legislation in supervising any abuse in that area and we have gone a step further. It is enough at this stage. Wearing my hat as trade Minister in this House, two thirds of our exports come from large foreign companies. It is important to that section of small companies we are trying to entice into exporting, marketing and developing the economy that we do not smother them completely with regulations which (a) we cannot enforce and (b) would just take up their time. In the vast majority of cases it is only chasing paper around because they are small tightly held companies and it does not make much sense chasing credit cards and various subsidies they have amongst the members of a family. That does not make much sense at this stage. I do not want to smother a whole range of small companies with unnecessary big stick stuff. That might not be necessary at this stage. We have gone far here in saying they cannot make loans over £2,500. This is the first time this was done and it is a major step forward, but you cannot try to pick up every small company that has extended this facility to one of its members. That is too heavy handed of the State.
Those companies should be allowed to grow and get to a stage where they have additional civil responsibilities. They have civic responsibilities at that level but they have additional and more far reaching ones when they get up and running. They are not as tightly held and, therefore, they have more public accountability than perhaps the tightly held small family owned company with two or three people in it. It is unnecessary and quite impossible to get into that.
I do not intend to keep us here all night. The problem is that the abuse in this area is almost definitely going to be in the area that is excluded from the provisions of the Bill. I do not believe there are many companies exceeding the criteria mentioned in paragraph (e) who are going to get involved in dubious practices. When people get involved in the scale of investment where they have assets of £1,250,000, and have 50 employees — they are not big companies by international standards — they have considerable levels of expertise on investment, and "foostering" around with dubious transactions to help out directors is not really going to be a serious business. The area of abuse will be small companies set up by people with very dubious intent. That is what I am concerned with.
I fully sympathise with what the Minister is saying. Small companies should not be tied up in unnecessary regulations drawn up by people like ourselves who will never have to live with them afterwards. I accept that but suggest that the Minister should consider taking to himself power by regulation to change those criteria as circumstances permit over the years. There would be no concession in principle. Apart from anything else, if we had a bout of severe inflation the figures for turnover and assets, particularly for turnover, could easily be exceeded if we had a revision to some of the years of bad inflation we had in the past. Quite a large number of companies the Minister currently does not intend to be covered by this legislation would, without any real change in the circumstances, be taken into it. I suggest that he should consider taking to himself power to alter those figures by regulations as circumstances develop.
Section 43 gives the Minister that power.
For purposes of clarification about the definitions in this section, subsection (7) on the coming into force of this Part is a slightly complex section. I wonder if the Minister would elaborate on the meaning of it and when it will enter into force in relation to arrangement of transactions.
Section 24 (7) provides that with one exception the provisions in this Part which prohibit the various transactions involved do not apply to any arrangement or transaction entered into before the section comes into force. The reference to sections 36, 38 and 39 make it clear that, although the prohibitions will not have retrospective effect, the provisions in those sections requiring retrospective disclosure in company accounts will nevertheless apply to transactions which occurred before the enactment of the Bill.
As mentioned above this subsection provides one exception to the rule that Part III does not retrospectively prohibit any loans or credit transactions, and so on. This exception relates to an arrangement "to which section 31 (3) or (4) applies". These deal respectively with assignments of liability and with back to back transactions. In those cases the transaction to which the arrangement relates, even if it was entered into before Part III comes into operation, will be deemed to have been entered into after that date. This means that an assignment or a back to back transaction related to a loan entered into before the Bill comes into force will be caught. Accordingly, for example, if a person wholly independent of a company were to make a loan to one of its directors before Part III comes into force, and after that day the company were to enter into an arrangement whereby the creditors' rights were to be assigned to it, for example, the loan transaction would in accordance with the subsection be deemed to have been entered into after the coming into effect of Part III with the result that the arrangements would be in breach of the prohibition in subsection (3) of that section.
Having recovered my breath after having made a fool of myself, section 43 does not give the Minister any power to alter the numbers of employees. So we are simply talking about an inflation proofing for the future. It will not guarantee that, as circumstances develop, as information comes that abuses are being carried on, the scale of companies involved can be reduced. I accept, of course, that if subparagraphs (i) and (ii) of paragraph (e) were substantially reduced, two of the three conditions would be met. I do not suspect that is the intention or that it will happen. I still think that, since the intention is to deal with people who abuse the privilege of limited liability, we should as a community empower the Minister to extend these controls to the extent that circumstances dictate. As long as we have a minimum of 50 employees we are providing a large area of exemption for people. I think it is in the area where the exemptions are provided that most of the abuses have taken place in the past. That is my final word on it. I will think about an amendment for Report Stage in the meantime.
I compliment the Senator on his excellent recovery. The Senator is correct in what he says about section 43. It deals only with financial limits; it does not deal with the numbers employed. I would still argue that that allows the Minister of the day to bring in increasingly smaller and smaller companies. If the Senator looks back at section 24 (e) he will see that it says any two of the following three, so if the Minister particularly wanted to use this device to bring in small companies he would have to change the financial limits under paragraphs (e) (i) and (e) (ii). That would automatically bring in small companies, irrespective of the numbers employed, because they only have to have any two of the three covered. You could do it that way if you wished. My attitude to this is that we have prohibited loans over £2,500 for every company no matter how big. We should see how that works and, if necessary, the Minister of the day can always use that section, to bring in increasingly smaller and smaller companies. Let us start with companies we are deciding on and if it proves necessary then we can tighten the noose.
Question put and agreed to.
SECTION 25.
Question proposed: "That section 25 stand part of the Bill."
On a point of clarification, as I understand it this is to extend the scope to cover what the Explanatory Memorandum describes as shadow directors. In relation to subsection (2), I am not clear why the definition of a connected person would be a director of a company associated with the body corporate if, but only if, he and the persons connected with him, together, are interested in shares comprised in the equity share capital of that body corporate. It is accumulative test, in other words it must be both the director and the persons connected with him. There may be a straightforward explanation of this but it seems that the test is a somewhat narrow one.
Subsection (2) (a) defines two concepts for the purposes of various provisions in Part III, first, when a director of a company is to be regarded as associated with the body corporate and, secondly, when a director would be deemed to "control a body corporate". Subsection (1) already provides that, if a director of a company is associated with another body corporate, that body corporate is a connected person of the director. Subsection (2) (a) which is the one the Senator raised stipulates how a director of a company is to be regarded as being associated with the other body corporate. It lays down two alternative tests for determining this issue. A director will be associated with any body corporate with which either test is satisfied. The first test of association applies where a director of a company together with any persons connected with him or her are interested in at least 20 per cent of the issued share capital of the company, or are able to control at least 20 per cent of the voting power at any general meeting of the company. Subsection (4) applies certain rules for determining whether a person has an interest in shares. I do not know if that informs the Senator in any way.
Just to pursue it with another question. If the spouse of the director of the company was the person who was interested in the shares, that would not seem to be sufficient for the purposes of subsection (2) (a). The only point I am making on this is that the director of the company and the persons connected with him must be interested in the shares comprised of the equity share capital. There may be a good reason for it but I would like to be clearer on what that reason would be. Will he be a director of a company associated with the body corporate if he does not have an interest but his wife has an interest?
The director himself will have 20 per cent.
If the director did not hold but a person connected with the director held and had an interest in shares.
I will have to clarify that. I see what the Senator is getting at.
It is a point of clarification.
It is a very detailed point which I will have to clarify. I will get back to the Senator on Report Stage on it. I see the point and I think it is a drafting situation which we will have to correct.
Question put and agreed to.
Section 26 agreed to.
SECTION 27.
Question proposed: "That section 27 stand part of the Bill."
I am very concerned about where a general meeting of the company can be held to draw up a contract of service of five years for a director. Because of the way section 27 (2) is framed, it is not too difficult for a topping up service to try to get over that problem. The topping up service agreement could circumvent the five year limit as the section stands.
At the moment the sanctioning of service contract can be undertaken by the company. What we are trying to do here is to ensure a broader sanctioning of it. It will have to be in a general meeting. Approval of a director with a long term, service contract with his or her company has to be sought in a general meeting of the shareholders. Heretofore, the board could actually sanction it. It is an important reform in that regard which gives the members of the company more concentration and a broader input.
Question put and agreed to.
SECTION 28.
Government amendment No. 12:
In page 31, between lines 10 and 11, to insert the following new subsection:
"(9) In this section——
(a) `non-cash asset' means any property or interest in property other than cash, and for this purpose `cash' includes foreign currency;
(b) any reference to the acquisition of a non-cash asset includes a reference to the creation or extinction of an estate or interest in, or a right over, any property and also a reference to the discharge of any person's liability other than a liability for a liquidated sum; and
(c) `net assets', in relation to a company, means the aggregate of the company's assets less the aggregate of its liabilities, and for this purpose `liabilities' includes any provision for liabilities or charges within paragraph 70 of the Schedule to the Companies (Amendment) Act, 1986.".
An Leas-Chathaoirleach
The substitute amendment, No. 12, is on the Order Paper. Amendment No. 35 is consequential on Amendment No. 12. Amendments Nos. 12 and 35 may be discussed together.
The amendment inserts the definition of a non-cash asset and net assets for the purposes of section 28. Essentially, section 28 requires the approval of a general meeting for substantial property dealings between a company and its directors. The kind of transaction involved would be the transfer of a non-cash asset if its value exceeded either £50,000 or 10 per cent of the company's net assets, whichever was less, subject to a limit of £1,000. The section applies whether the director involved acquires such assets from the company or the company acquires them from him or her. As for the definitions themselves, these are on the lines of definitions of these terms which already appear in the Companies (Amendment) Act, 1983, section 2 (1) and section 2 (4). It is just a matter of property transactions.
I accept that the Minister's amendment tightens up the section, but the thresholds in the section appear unnecessarily high. I would like some clarification as to whether or not the definition of a non-cash asset covers distribution in kind?
Are we still on the amendment?
An Leas-Chathaoirleach
Yes.
Senator Harte's point is dealing more with the section than the amendment.
Amendment agreed to.
Question proposed: "That section 28, as amended, stand part of the Bill."
Could the Minister explain to me what section 28, subsection (2) means? That is an innocent question. There is no hidden meaning involved. I tried to read it half a dozen times and it still does not make much sense to me.
A company is only bound to secure shareholder approval for an arrangement where the non-cash asset forming the subject matter of the arrangement is of the requisite value, that is, if its value exceeds either £50,000 or 10 per cent of the amount of the company's relevant assets, whichever is the lesser, with a minimum threshold of £1,000. The relevant assets for the purposes of the 10 per cent limit are the net assets shown in the company's accounts for the last financial year before the arrangement was made, unless no such accounts have been prepared and laid in which cases they are the amount of its called up share capital.
We should note that a non-cash asset cannot be of the requisite value if its value is less than £1,000. Accordingly, it is unnecessary for the company to seek approval for what would be relatively minor transactions. As to the figures themselves, £50,000 and so on, it is obvious that picking any such figure for a section like this, having regard to the previous sections, was very much a matter of judgment and we could quite easily move the figures around or argue them. All that can really be said about it at this stage is that it seems a suitably sized sum. It is a considerable amount of money and it is considered that shareholders should be told about a transaction of that size.
A sum of £50,000 would be the absolute top limit for arrangements which would not have to be notified. Ten per cent of the company's assets could well amount to less than that, in which case this limit would apply. To build a figure into legislation without arrangements for it to be changed would be unsatisfactory. That again brings us back to the point I made earlier that section 43 allows the Minister to change the figures, as necessary. The figure is somewhat randomly selected but it seems to us to be a sensible figure. It is only above that figure that you have to go to inform the shareholders at a general meeting. We tried to keep a balance between making sure that the shareholders are fully informed and the need not to strike at an enterprise.
Do non-cash assets cover distribution in kind?
Yes, non-cash assets mean any property or interest in property other than cash. It does take account of non-cash assets.
Question put and agreed to.
SECTION 29.
Government amendment No. 13:
In page 31, lines 29 and 30, to delete "as respects which there has been granted a listing on" and substitute "for which dealing facilities are provided by".
It has been suggested to me that the reference in subsection (2) (a) to a company which has a listing on a Stock Exchange is not specific enough. For example, it is not clear whether it means a company on the full Stock Exchange, or whether it will include, for example, a company dealt with on the unlisted securities market, the USM, or indeed the new market, the small companies market. We would obviously like to have the widest possible coverage of this section. The wording of the proposed amendment was prepared in consultation with the Stock Exchange authorites. Thus the action will now apply to the purchase of options by a director of a company of any shares which are dealt in, in any way, on the Stock Exchange, whether the dealing involved relates to the full official listing, the USM or the SCM or to any other Stock Exchange dealing facilities. We want to get the widest possible application of the section.
Would the Minister not agree with me that he would want to be extremely wary about accepting the judgment of the Stock Exchange about matters like this, in the light of recent events?
I would not like to add to that.
Amendment agreed to.
Section 29, as amended, agreed to.
SECTION 30.
Government amendment No. 14:
In page 32, to delete lines 7 to 9.
The purpose of this amendment is to remove subsection (2) which we consider to be unnecessary. Section 29 penalises the dealing by directors of a company in options or shares of their company which are dealt with on the Stock Exchange. Section 30 extends the prohibition involved to spouses and children of such directors. By virtue of section 26 (1), which we have already dealt with, the prohibition in section 29 applies also to shadow directors of a company. In other words, they cannot deal in the options either. The purpose of section 30 (2) is to provide that a person who is a shadow director under section 29, would also be a shadow director under section 30. However, subsection (2) is unnecessary since all of the provisions of Part III, including sections 29 and 30, apply as much to shadow directors as they do to normal directors. For that reason we wish to remove that subsection.
Amendment agreed to.
Section 30, as amended, agreed to.
SECTION 31.
Question proposed "That section 31 stand part of the Bill."
In the context that there are about 75,000 or more private companies, is there any way you can put a figure on the number of companies that will be exempt from the scope of this section?
The Senator is looking for information which is difficult to compile, because there are a number of exemptions here. If there was just one exemption I could probably compile it but there are a lot of exemptions here. There are exemptions from the quasi-loans, credit transactions and there are the various thresholds. Under each threshold, in theory, you could have different companies exempt. I do not have a figure. It is obviously an important figure, and I will certainly put some work into it between now and Report Stage and I will try to get that information to the Senator.
I would only be concerned if it was a substantial amount.
The key figure is not the number of companies. It relates more to the amount of business activity we are covering. There are a plethora of small companies doing a lot of small things. If we deal with it just on the number of companies, there is the old 80:20 rule which seems to apply here as it does in all walks of life, in that 80 per cent of the business is probably undertaken — and this is guesswork — by 20 per cent of the companies. It is the amount of activity which we are after here. It is not meaningful to worry about the actual number of companies. I will try to dig up some information for the Senator on that.
Question put and agreed to.
SECTION 32.
Government amendment No. 15:
In page 33, lines 24 and 25, to delete "director or, in the case of a guarantee or security, the amount guaranteed or secured" and substitute "person to whom the quasi-loan was made".
This is a technical drafting amendment. This amendment changes the definition of "amount outstanding" which is contained in the last clause of section 32 (2). This subsection contains a particular exemption from the prohibitions in section 31 for quasi-loans for directors. Essentially, the purpose of the exemption is to enable quasi-loans to be made to a director for a period of up to two months, provided the amount outstanding in any given case does not exceed an aggregate of £1,000. In the definition of "amount outstanding" we say that in the case of a guarantee or security it is the amount guaranteed or secured. However, the exemption in this subsection is designed solely to allow a relevant company to make a quasi-loan and not to allow such a company to enter into a guarantee or security. For this reason reference in the definition to "amount outstanding" is all that is necessary and "in the case of a guarantee or security" is superfluous and should be deleted. That is precisely what this amendment does.
Amendment agreed to.
Progress reported; Committee to sit again.
An Leas-Chathaoirleach
Is the House agreed that we will take a sos from 5.45 p.m. until 6.30 p.m.? Agreed.
Sitting suspended at 5.45 p.m. and resumed at 6.30 p.m.