Companies (No. 2) Bill, 1987: Committee Stage (Resumed).
Government amendment No. 133:
In page 87, to delete lines 13 to 24 and substitute the following:
"‘245A.—If in the course of an examination under section 245 it appears to the court that any person being examined—
(a) is indebted to the company, or
(b) has in his possession or control any money, property or books and papers of the company,
the court may order such person—
(i) to pay to the liquidator the amount of the debt or any part thereof, or
(ii) to pay, deliver, convey, surrender or transfer to the liquidator such money, property or books and papers or any part thereof,
as the case may be, at such time and in such manner and on such terms as the court may direct.'".
This amendment is to section 98 of the Bill which, as Senators know, deals with the court ordering persons, if necessary, to repay debts to a company, property or so on. The amendment is designed to tighten up in a number of respects the new section No. 245A that we are inserting here in the 1963 Act. However, rather than having several piecemeal amendments we thought it would be preferably simply to substitute a new section 245A within the present section 98 of the Bill.
The basic purpose of this section, as presently drafted, is to strengthen the position of the liquidator in order to improve the efficiency of liquidations generally. The section gives power to the court to determine questions relating to the property of a company in the context of an examination under section 245 and to order the delivery to the liquidator of any property or the payment of any debts which the court considers are due to the company.
The amendments which are now proposed do not change the substance of the section as it is in the Bill. They are designed to improve the operations. The amendment will alter the section as presently there in three different ways. First, the term "property" is being extended to include any money, books or papers. The reason for this is to ensure that the court has the power to order the return of any property of the company whatsoever, not just real property. This is a distinction made elsewhere in the 1963 Act, for example, in section 236.
The second change to the section removes the reference to an application being made by the liquidator. It is intended that the court should have the power to determine any questions relating to property of the company or indebtedness to the company in the context of an examination under section 245. It will, therefore, not be necessary for the liquidator to apply to the court separately for such a ruling. The object of this and like sections is to avoid a double process and to do complete justice in the winding up. It is only in rare circumstances and rare instances that a separate action should be brought instead of using the jurisdiction given by the section.
The third and final amendment to the section is designed to ensure that the liquidator, in having any property of the company delivered to him, will actually acquire proper title to the property. This applies essentially in relation to the real property of the company. The section, as presently drafted, provides that the court may require that property be delivered to the liquidator. This, however, would only entitle the liquidator to possession of the property without acquiring whatever legal title to which the company may have a right.
It is clear that in a winding up the liquidator should perfect his title to the assets of the company as far as possible. The proposed amendment, therefore, provides that the court may require not only that property should be delivered to the liquidator but also that legal title to the property should be transferred to the liquidator whether by means of a conveyance or otherwise.
I welcome this amendment. It strengthens what was intended by the section. It also will have worried some of those people who are trying to find ways around the implementation of this legislation when it is enacted.
I would like to put on the record my appreciation of the work done by the ministerial advisers and the workers in the Department. As the Chair knows, I rarely stand up here without complimenting public servants in some form or another, that being their sole vice very often. Any complaints I have had over the past few months have never been directed at the excellent work done by the people who have put together all the various amendments to this Bill.
Section 98, as drafted, will have a bearing on previous legislation. This amendment is welcome. It broadens the scope of the liquidator and gives him an opportunity to recover any outstanding moneys, properties or other such items. I certainly welcome it.
Amendment agreed to.
Section 98, as amended, agreed to.
SECTION 99.
Government amendment No. 134:
In page 88, line 10, after "declaration" to insert "with the report attached thereto."
Subsection (2) (c) and (d) of the new section provides for a report to be made on the declaration of solvency by an independent person who, by virtue of subsection (3), must be someone qualified to be the auditor of the company. Paragraph (d) requires that the statutory declaration must embody a statement by the independent person that he has given his consent to the issue of the declaration.
I should say by way of introduction, that section 99 of the Bill substitutes a new section for section 256 of the 1963 Act. That section deals with the declaration of solvency made and delivered to the registrar of companies by the directors of a company in the members voluntary winding up. It is this declaration of solvency that distinguishes a members voluntary winding up from a creditors voluntary winding up. I should also say that the purpose of amendment No. 134 is to make it clear that the independent person, in giving his consent to the issue of the statutory declaration of solvency, is only in fact consenting to the inclusion of his report in the declaration. It is that inclusion he is agreeing to. He is not in any way to be taken to be consenting to the actual making of the declaration itself by the directors since that is really none of his affair. The paragraph, as it currently stands, would have this undesirable and unnecessary effect. This amendment should clear that up.
Amendment agreed to.
Government amendment No. 135:
In page 88, lines 19 to 27, to delete subsection (4) and substitute the following subsection:
"(4) The report shall state whether, in his opinion and to the best of his information and according to the explanations given to him—
(a) the opinion of the directors referred to in subsection (1), and
(b) the statement of the company's assets and liabilities embodied in the said declaration,
are reasonable.".
It has been represented to us that the requirement in subsection (4), as it presently stands, of the new section 256, which we are inserting here, would require the independent person to carry out no less than a full audit of the company's affairs before he would be able or indeed prepared to give the opinion required by paragraph (b) of that subsection, particularly since the independent person could be leaving himself open to personal liability under subsection (8).
Clearly a requirement of a full audit would unnecessarily dissipate the assets of what is, after all, supposed to be a solvent company. It would also far exceed what we want, which is basically some form of simple check on whether the directors are in effect telling the truth in their statutory declaration of solvency. Therefore amendment No. 135 will confine the duty of the independent person to giving his opinion as to the reasonableness of the directors' opinion about the company's ability to pay their debts and the prepared statement of assets and liabilities. This would go back to our original idea of a simple check on the making of declarations of solvency in members' voluntary liquidations while at the same time avoiding the unnecessary expense of what would amount to a full audit of the company's affairs before the declaration was actually made.
I am not too clear on the reason for replacing the words "a true and fair view". I understand that terminology but not the terminology "reasonable". I know that it is in the previous subparagraph and it has been used before. Could the Minister explain to me the difference between "a true and fair" report and "reasonable"— in other words, the type of criteria that would be employed to distinguish.
"A true and fair view" is a well known accountancy concept. You will not get any qualified accountancy personnel to declare that something reflects a true and fair view. They will not really do that unless they carry out a full audit. That would be the core of their professional approach. Subsection (4) (b) says "a statement of the company's assets and liabilities embodied in the said declaration gives a true and fair view". You would in fact be asking people to find that it gives a true and fair view. They would not do that without a full audit and it would seem unreasonable to get a full audit done at that stage of the company.
We want here to ensure that, when the directors make a declaration that the company is solvent, some independent person has a look at that and says "Yes, that is reasonable". It was not envisaged that a complete audit of the company, costing perhaps thousands of pounds, would then again take place. That would be unreasonable. Provided a suitable person is prepared to declare that the opinion of the directors is reasonable, that should suffice. The words "true and fair" have to come out because it is a whole new concept, which is difficult.
I understand the definition of "true and fair", but I am still not sure what "reasonable" means. That is giving me a problem. I can understand the reasons for the exclusion of "true and fair" but I do not know what "reasonable" means in this context. I am not trying to be awkward here. For instance, could the term "reasonable" be determined by the type of information made available to this person? I know the Minister tried to cover that earlier, but could he take me through that part of it again? Is there a possibility of a snow job being done on this person to try to get him to say it is reasonable?
Basically, a company proposing to wind up would statutorily declare they are solvent. They would prepare a statement of affairs saying "We are solvent". We are trying in this section to make sure we have some check on that. There was no check in the past. It was in the 1963 Act. Directors could say "We are solvent. Here is a statement of affairs" and leave it at that. We are now bringing in an outsider who says, "You say you are solvent. Let us take a look at it and make sure you are". How far you go on that road is what we are debating. Do you go down the full road of a company proposing to close down or to wind up saying they are solvent and therefore winding up?
Amendment agreed to.
Government amendment No. 136:
In page 88, line 42, after "order", to insert "or, if no liquidator is acting, the company".
There are two related amendments here and they are fairly straightforward.
We are taking amendments Nos. 136 and 137 together.
As I say, they are two related amendments and they are fairly straightforward. They are really designed to improve the wording. Subsection (6) of this section is supplementary to subsection (5) and provides that, where a court has ordered that a members' voluntary winding up should be converted into a creditors' voluntary winding up, then the person who held the office of liquidator before the order was made must deliver a copy of the order to the registrar of companies. Amendment No. 136 is designed to take account of a situation which could arise where there would be no liquidator acting. The members' liquidator could have resigned or died, for example, If this happened neither subsection (6) nor subsection (7) could work. The amendment would rectify this by providing that in such a situation the obligation would fall back on the company to notify the Registrar of Companies as to any court order made under the section.
Amendment No. 137 is primarily consequential on the previous one to subsection (6). The obligation created under subsection (6) to notify the Registrar of Companies will, as a result of amendment No. 136, now fall on the liquidator or, where there is none, on the company. It is, therefore, inappropriate for subsection (7) to refer just to the company and every officer in default. The term "any person" in amendment No. 137 is intended to cover both the company and the liquidator, whichever is under the obligation in subsection (6) to notify the Registrar. They are two fairly technical amendments designed to improve the wording of section 99.
Amendment agreed to.
Government amendment No. 137:
In page 88, lines 45 and 46, to delete "the company and every officer of the company" and substitute "any person".
Amendment agreed to.
Question proposed: "That section 99, as amended, stand part of the Bill."
Section 99 is welcome as it closes up certain loose areas which enabled company directors to avoid facing up to the reality of the insolvency of their company by initiating a members' voluntary winding up based on a nonrealistic statement of assets and liabilities. This section also provides for the preparation by the independent person of a report stating that in his opinion the declaration of solvency is a true and fair statement of the financial state of the company at that particular time. Directors making reckless statements regarding declarations of solvency and, indeed, any independent persons making a report on such matters shall now be personally liable for all or any of the debts of the company. This strengthens the legislation as a whole and I welcome it.
Question put and agreed to.
NEW SECTION.
Government amendment No. 138:
In page 89, before section 100, to insert a new section as follows:
100.—(1) This section applies where, in the case of a creditors' voluntary winding up, a liquidator has been nominated by the company.
(2) The powers conferred on the liquidator by section 276 of the Principal Act shall not be exercised, except with sanction of the court, during the period before the holding of the creditors' meeting under section 266 of that Act.
(3) Subsection (2) does not apply in relation to the power of the liquidator——
(a) to take into his custody or under his control all the property to which the company is or appears to be entitled;
(b) to dispose of perishable goods and other goods the value of which is likely to diminish if they are not immediately disposed of;
(c) to do all such other things as may be necessary for the protection of the company's assets.
(4) The liquidator shall attend the creditors' meeting held under section 266 of the Principal Act and shall report to the meeting on any exercise by him of his powers (whether or not under this section or under section 276 or 280 of that Act).
(5) If default is made——
(a) by the company in complying with subsection (1) and (2) of section 266 of the Principal Act, or
(b) by the directors in complying with subsection (3) of the said section,
the liquidator shall, within 7 days of the relevant day, apply to the court for directions as to the manner in which that default is to be remedied.
(6) ‘The relevant day' means the day on which the liquidator was nominated by the company or the day on which he first became aware of the default, whichever is the later.
(7) If a liquidator without reasonable excuse fails to comply with this section, he shall be guilty of an offence.".
This section is aimed at a device or abuse which is known as centre binding. Just to brief the Seanad on it, this abuse takes its nature from the UK case of Centre Bind Limited in 1967. What happened there was that the members of an insolvent company resolved to go into voluntary liquidation. They appointed their own liquidator and, before any creditors meeting had been held, they took immediate steps to restrain the Inland Revenue from proceeding against the company's assets. The judge held that the liquidator had been properly appointed and that he had power to act until the creditors meeting had been held. Although the actions of the company and their liquidator in the Centre Bind case were done entirely in good faith, the practice developed of calling only a shareholders' meeting in the first instance to pass a winding up resolution and, although the company were known to be insolvent, deliberately putting off for some time, or perhaps indefinitely, the holding of a creditors meeting.
This, of course, would be in breach in our case of section 266(1) of the 1963 Act. However, it means that the controllers of a company with the aid of an unscrupulous liquidator could effectively sell off the assets at a knock down price to a buyer closely connected with themselves and the creditors would then be powerless to prevent it. The way section 100 tackles this problem is to require ten days notice to be given of every shareholders' winding-up meeting, regardless of whether any other provision would allow meetings called at shorter notice or, indeed, would allow winding-up resolutions to be passed without having a meeting at all.
We have since looked at how the UK tackled this problem in their recent Insolvency Act. The UK approach seems, on balance, to be somewhat better than our own. The exact UK reference is section 166 of their Insolvency Act, 1986. While our section 100 takes the approach of actually requiring a shareholders' meeting in every case of voluntary winding-up and, indeed, requiring a mandatory ten days notice of such a meeting, the UK approach is to allow a liquidator to be appointed before the creditors' meeting is actually held but to severely restrict its powers, for example, to dispose of assets in that intervening period. This will still allow a shareholders' meeting to be called at shorter than usual notice in an effort to preserve the company's assets. It would also allow the company to have no actual meeting for the purpose of passing a winding-up resolution, but to avail of section 141(8) of the 1963 Act, which allows a company to pass a resolution without having a meeting if all the shareholders agree in writing. Thus, the amendment would have the effect of countering the practice of centre binding by preventing the dissipation of assets before a creditors' meeting while also preserving the existing flexibility of shareholders to actually put their company into liquidation at a time of their own choosing.
I am sorry that this explanation is a bit long, but I want to try to explain as fully as I can the background to section 100 as it stands, as well as the reasons that amendment No. 138 would be a better way to tackle this identified abuse.
I welcome the explanation. A story always makes facts much easier to assimilate and grasp, and this certainly makes the case for the extension proposed under the new section. I certainly welcome it. It is very sensible in that it allows the protection of the assets in a way that will be to everybody's benefit.
I support the amendment also, because it is a known fact, unfortunately, that this is common practice. This amendment will prevent the dissipation of assets before the winding-up of the company. I welcome the amendment.
Amendment agreed to.
Question, "That section 100 be deleted", put and agreed to.
SECTION 101.
Amendments Nos. 139 and 140 are related and may be discussed together.
Government amendment No. 139:
In page 89, line 45, after-"advertised" to insert ", at least ten days before the date of the meeting,".
Although these two amendments arise in different sections of the Bill, the background to them is somewhat similar. They are both intended to ensure that notice of creditors' meetings are advertised in good time in the newspapers. I will take amendment No. 140 first; this would introduce a new section in the Bill, which would in turn amend section 266(2) of the 1963 Act, the section which requires a creditors' meeting to be called in a creditors' voluntary winding-up. The company are usually insolvent in such cases.
Section 266 requires notice of the creditors' meeting to be published in the newspapers, but it does not actually put any deadline on it and that is clearly a defect in the present legislation. It has been strongly suggested to us that some companies have taken advantage of the absence of such a time limit by putting the advertisement only in the press on the very morning of the creditors' meetings, in other words, in the hope that they will not have to face too many angry creditors on the day. Amendment No. 140, therefore, would simply require newspaper notices of creditors' meetings to be published at least ten days before that meeting.
I am proposing a similar amendment, No. 139, to section 101, which amends section 261 of the Principal Act. That section requires the liquidator in a members' voluntary winding-up to call a meeting of creditors if he forms the view that the company will not, as previously thought, be able to pay their debts in full. It has been suggested to us that in the same way as with ordinary creditors' meetings, the absence of a deadline for newspaper advertisements could be taken advantage of by the liquidator in a section 261 type case. He might only put the advertisement in the press on the very morning of the creditors' meeting. While these two related amendments are clearly important to avoid actual and potential abuse of creditors' meetings, it is also desirable to embody the best practice in the statute and for that reason it is important to put these time constraints into it.
Amendment agreed to.
Section 101, as amended, agreed to.
NEW SECTIONS.
Government amendment No. 140:
In page 90, before section 102, to insert a new section as follows:
".—Section 266 of the Principal Act is hereby amended by the insertion in subsection (2) after ‘advertised' of the following:
‘,at least ten days before the date of the meeting,'.".
Amendment agreed to.
Government amendment No. 141:
In page 90, before section 102, to insert the following new section:
"102.—The Principal Act is hereby amended by the insertion after section 276 of the following section:
‘276A.—(1) The appointment of a liquidator shall be of no effect unless the person nominated has, prior to his appointment, signified his written consent to the appointment.
(2) The chairman of any meeting at which a liquidator is appointed shall, within 7 days of the meeting, notify the liquidator in writing of his appointment, unless the liquidator or his duly authorised representative is present at the meeting where the appointment is made.
A person who fails to comply with subsection (2) shall be liable to a fine not exceeding £1,000.'.".
Amendment No. 141 would insert a new section, 276A, in the 1963 Act and in effect, expands on our original idea. As currently drafted, section 102 requires that the chairman of any meeting at which a liquidator is appointed must notify the liquidator in writing within seven days of the meeting, unless the liquidator or his representative is actually present at the meeting. While this section has been, generally, welcomed, some professional bodies have asked us to go further. These people referred to situations where a liquidator is sometimes not aware of his actual appointment until well after the winding-up meeting and while section 102 certainly goes some way to rectifying this, it has been suggested — and we would agree — that a liquidator in any voluntary winding-up should be required to give his consent to act in advance of his appointment. Such a consent is already required in practice in a winding-up by the court and amendment No. 141 will introduce the very same concept for these types of voluntary liquidations.
As for the form of the amendment itself, we thought that, rather than amend the section in a piecemeal way, it would be simpler to replace the existing section 102 of the Bill altogether by a new version of the section and in the amended version only subsection (1) is actually new. We are trying to improve the procedure in regard to the appointment of a liquidator by making sure that he gives his consent in advance of being appointed, and this seems reasonable.
May I just ask what are we changing precisely? Under the present procedure, if my understanding is correct, the meeting could, in fact, appoint a person to do the job without that person ever having been consulted? What happens if the person says, "I am not doing it"? Is that the problem?
There would be a hiatus. If a person was appointed liquidator and then was not in a position to act, one would have to go through the procedure again.
In other words, the net effect of this amendment would be to stop that happening, in fact, to telescope the timescale. What could have happened before this is that the company could meet, appoint somebody, and if the person refused to do the job, they would have had to call another meeting and do the same business again, whereas this amendment provides that before the meeting takes place contact be made with the person to see if he is willing to take on this responsibility and then that person would be either invited to the meeting or notified.
The actual position under the existing legislation — and it is not legally very clean — is that the appointment would be actually valid if the liquidator was not consulted, for example, whether he liked it or not he is the liquidator. Assuming he does not wish to do the job, he would be called on to resign the position and then the procedure would have to be gone through again. He would actually have to resign and I am hoping you will not ask me what would happen if he did not resign?
I was not aware that was the position before, but the amendment certainly is a major improvement and I welcome it.
Amendment agreed to.
Question, "That section 102 be deleted", put and agreed to.
SECTION 103.
Government amendment No. 142:
In page 91, line 14, to delete "intimated" and substitute "notified".
Section 103 of the Bill amends section 285 of the 1963 Act which deals with preferential payments in a winding up. Liquidations can often be delayed in a situation where the liquidator feels that the position in relation to preferential debts is uncertain and he is afraid of a late claim. In order to speed up matters this section provides that the liquidator can exclude any preferential creditors who do not come forward within six months of his advertising for claims. Amendment No. 142 is a straightforward drafting amendment which simply substitutes the more normal word "notified" in paragraph (a) for the rather curious word "intimated". I do not know why we chose the word "intimated" in the first place but, reading it a second time, it does seem out of place. Therefore, I think the word "notified" is better.
The same word had me greatly confused as a student going to school. I always got it confused with "intimidate". Consequently I have always found the word "intimate" very intimidating over the years. I can see arguments for and against it in terms of the meaning of the word, and what it was meant to cover. The word "notified" indicates a certain action, and semantically it does mean a written notification. I know the meaning of the word has changed nowadays. I am not saying it could only be interpreted as written communication but that was the original meaning of it. I presume, and I want this clarified, that the interpretation of the word "notified" could include "told" or "faxed" or any other way in which the person is informed.
The objection I have to the word "intimated" is that it does not actually mean anything. It could be a hint, a nod or a wink, or "you owe me a few bob" without any sort of clear notification. The word "notified" means that it is clearly established that the person is informed. It achieves clarity. For that reason I welcome it. However, I would not like to think we were closing down some forms of communication. I would like to be reassured that there is no possibility that "notified" creates a problem. The Minister said this is a drafting amendment and, therefore, there will be no problem. The word "notified" is a much clearer and easier word to deal with. I would like to be assured that it is not intended in any way to change what was intended originally.
It is not intended to change what was intended originally. It would be a foolish creditor who would not notify in writing first of all. The normal every day practice would be notification in writing but it does not exclude notification by any other means. If it specifically insisted on notification in writing it would say "in writing". Therefore, the broadest meaning of the word "notified" is what we have in mind here.
Any slight improvement in this area must be welcomed. Many people feel genuinely aggrieved about the inadequacy of the protection they receive under the present legislation. I agree with the Minister and I support the amendment.
Amendment agreed to.
I move amendment No. 143:
In page 91, between lines 15 and 16, to insert a new subsection as follows:—
"(2) All rights arising from pension funds contributed to by employees shall be protected in the winding up of a company.".
Senator Ferris asked me to propose this amendment in his absence. I am doing so formally because I have not done the background research on it. It seems it is intended quite clearly to protect pension funds. Before I go into a long explanation perhaps the Minister could tell me what provisions are already in the legislation to protect pension funds. In other words, if the Minister can assure me that this amendment is not necessary, I will not press it.
The workers' future is dependent on their pension fund. I have no doubt that the Minister is as concerned about this as the trade union movement or any reasonable employer. The amendment is put down to try to protect pension funds. Perhaps the Minister could tell me that pension funds are protected in previous legislation. I would like to hear the Minister's response before pushing this amendment.
There is substantial protection at present. The actual wording of that amendment "shall be protected in the winding up" is quite meaningless legally. The proposed wording would not help. In my own area of responsibility, company law already provides protection for pension contributions where the company concerned goes into liquidation. In particular, under section 10 of the Companies (Amendment) Act, 1982, unpaid company superannuation contributions due after 15 June 1982 and members' contributions deducted after that date but not remitted by the company to the trustees of the company pension schemes, were added to the list of preferential creditors in the event of a company going into liquidation. They were turned into preferential creditors in the 1982 Act.
At the same time, I am aware that there have been cases where, despite the protection of preferential status, companies have gone into liquidation leaving the pension fund high and dry. The increased penalties and remedies which we are building into the Bill generally should greatly reduce such abuse. I am thinking here of the provisions in later sections of this Part about fraudulent and reckless trading and indeed about the provisions in Part VII of the Bill in relation to disqualification and restriction of company directors. The major step forward in this area was making these contributions a preferential creditor, which is about as much protection as one can give. Combined with the reckless and fraudulent trading provisions coming up later, it is probably as far as one can go. I certainly cannot think of a device which would protect them any more.
I am sure we will have a lot of discussion on reckless, fraudulent and wrongful trading and so on. It was my impression that pension funds were preferential creditors. I recall that it was said in the discussion on the Companies (Amendment) Act, 1982 that legislation had been introduced in Britain which made it compulsory that pension funds would be self-supporting, in other words, they would stand alone from the accounts of the company. Not only could there be no fradulent interference, but they had to be in a position to meet the liabilities that could arise at any time. Payments made since 1982 are protected but does that mean that payments made before 1982 are not protected? I just want clarification on this point. For example, if a 25-year old company are wound up — many of their employees will have been there for 20 years — will their pensions be fully protected under the present legislation, in that if the company dies, the pension fund is there?
One of the reasons there is such bad practice in this area is that the Government give a very bad example by not having a pension fund of their own and paying pensions out of a current account, but that is a separate issue. I would like the pension fund of a company to be in a position to meet their commitments at any time, should the company be wound up. In other words, the former employees, now unemployed, would have a pension dependent on their years' service and their contributions. I recognise that this may be moving away from the amendment, and may be complicating it needlessly. The Labour Party put down this amendment because they felt this was another opportunity for companies to eat into the pension fund. Does the present legislation allow moneys paid before 1982 to be put at risk when the company is being wound up?
The position is that 1982 was a watershed in that it made the contributions preferential. Before that date they were not preferential but they were a debt nevertheless. They were an ordinary debt and ranked as an ordinary creditor not as a preferential creditor. Therefore, they only had that measure of protection of an ordinary creditor and, depending on the extent of the deficit of the insolvent company, they either got their contributions or they did not. Turning them into a preferential makes it much much likely that the contributions will be protected. That is the first point. Before 1982 there was far less protection than there is now.
On the question of pensions overall, the brief of the Minister for Social Welfare, as Senators know, includes matters relating to the area of pension schemes. The National Pension Board who were set up to advise him on all aspects of occupational pension schemes reported to him in January 1987. Senators may be aware of the board's report which concluded basically that there was a lack of comprehensive supervisory framework for pension schemes and that there was a need for much greater accountability with regard to the management and operation of these schemes. The board recommended to him that most of the shortcomings they identified should be addressed by the introduction of a Pensions Bill. I understand that consultations are at present going on between the Minister for Social Welfare and interested parties about suggested Pensions Bill.
My view now would be that it would be better to let the Minister for Social Welfare in a proposed Pensions Bill perhaps deal with the further question of how better to protect the pension funds because that precisely is what this board recommended to him and it is very very much in that area right now. In company legislation all we can seek to do is to ensure the preferential status and that the reckless and insolvency stipulations and fines, and so on, are sufficiently strong to ensure that, from a company point of view, matters are dealt with properly. The best way to handle what the Senator has in mind is the Pensions Bill if the Minister decides to go ahead with it.
I am not happy but I cannot respond to the impeccable logic of the Minister. Of course it would be better dealt with in a Pensions Bill. I was hoping that some protection might be brought in, in the meantime. I saw the report on pensions, not the January 1987 but a later one at the very end of 1987 or perhaps January 1988. It struck me on reading that report that we have a major job to do to bring into the national psyche the importance of pensions. They really are being very badly managed, not deliberately by people but in terms of the controls over them. For that reason I would agree with the Minister in saying that we badly need a Pensions Bill. People feel that paying into the pension fund is sufficient but the constraints on it are not quite well enough spelt out. In fact, much of the advice being offered at the moment is incorrect advice. In that report, for instance, they made particular play of the fact that many workers like to get a large lump sum and a small pension, as opposed to a small lump sum and a larger proportion of pension. They would maintain that the second option should be the requirement and that the choice should not be there at all. I agree with that, particularly with people tending to live longer nowadays. I accept the Minister's explanation and reluctantly withdraw the amendment because I feel I am leaving people without cover in some sense.
Amendment, by leave, withdrawn.
Question proposed: "That section 103 as amended, stand part of the Bill."
I do not know whether it is appropriate to talk on the section about preferential creditors or payments on this section or the next one. I am disappointed that the Minister has not looked more deeply at the whole question of preferential creditors. We have, on the one hand, the lending institutions and, on the other hand, the Revenue Commissioners. Looking at firms who had liquidity problems over the past 20 years in the midlands my view is that, in the main, it was either the Revenue Commissioners or the lending institutions who were pulling the plug at a time advantageous to them. Especially from the point of view of the Revenue Commissioners there seems to be absolutely no thought about the national interest or the national good.
There is an anomaly here. I accept fully that the Revenue Commissioners are guided and bound by the Finance Acts and that they have an obligation to collect finance. It is daft that, for the sake of outstanding amounts of taxes or VAT, a company can be put into liquidation or receivership while the amount owing to and recoverable by the Revenue Commissioners is greatly exceeded in many cases by the amounts paid either in redundancy payments by the State or by the dole in the following period. Surely this is an area that the Minister should have confronted head on in this legislation.
I am definitely quite confident that the banks would not be so quick in putting liquidators in companies if they did not get the first slice and the largest slice of the cake. Have the Minister's Department given any thought to this huge problem and does he hope to improve the situation not only for the people working in these concerns but also for people who in the normal course of trade and commerce are caught with sales to those firms?—
I think Senator McDonald is dealing with Amendments Nos. 144 and 145.
I wish to dissociate myself totally from the words of Senator McDonald on this issue. I certainly would not in any sense agree with the argument that he was putting forward there. This idea that the State should in some sense downgrade itself in the collection of its due debt is something to which I do not subscribe having spoken time and time again here about the recklessness — to use that word not in the context of the Companies Bill — of people operating and not paying the State what they duly owed.
I take the contrary view also. I think that when taxes are paid by individual people, let us say workers in an enterprise or VAT paid by people who purchase goods, there is a public duty on the Revenue Commissioners not alone to collect that but to collect it promptly. A further reason I would say is that unpaid taxes, be they PAYE, or PRSI, or VAT, may well be a very important signal that companies are in trouble. If, in fact, the Revenue Commissioners do not move early enough, it may be too late to pick up the pieces at a later point and the employees, of course, in particular, can be the most vulnerable at the end of the day. The point I want to make is that I would favour the prompt collection of taxes by the Revenue Commissioners. That could lead — and I have this from liquidators — to better chances for survival at the end of the day if the problems are faced early enough.
There is the temptation obviously when companies get into trouble for employers — and psychologically it is understandable enough — to disguise or conceal their problems for as long as possible. That disguise process takes place in respect of employees as well. That is not fair to the various parties including suppliers. Could I make a further point since we are on the preferential treatment for the Revenue Commissioners? I am not convinced really that they should have preferential status. I think uncollected taxes form a very small part of the total Revenue take in a country. Take the collapse of a supermarket, and we had an example recently. What about the small suppliers who did not have preferential status, some of whom are now gone out of business?
I will make two points in summary. One is that the Revenue should act promptly to collect debts. They have a public duty to do so and it is provocative for employees, in particular, who pay their PAYE if, in fact, the employer does not pay over what they have already paid promptly. The second point is that I am not convinced about the preferential status for the Revenue Commissioners because I think there are other more vulnerable creditors in situations like that.
I am sure the Minister is aware that many interested parties feel this opportunity should be taken to encourage all creditors to be more vigilant in the collection of debts due to them. Negligence in debt collection tends to encourage and results in bad debts, trading under the appearance of solvency and ultimately fraudulent trading. In this regard the Government have in the past year shown a willingness to grasp the nettle and have put pressure on the Revenue Commissioners and local authorities to collect unpaid taxes and other charges. Many people believe that the Revenue Commissioners should carry out this duty without reliance on preferential status in the event of a company winding up. The fact that income tax, capital tax, capital gains tax, acquisition tax, rates and other taxation remains unpaid should not justify giving preferential status to the Revenue Commissioners. As Senator Hillery has pointed out, a bad debt owed to the State is likely to be insignificant in terms of total Government receipts while the loss of a similar sum to a supplier could result in serious hardship and further insolvencies.
I recognise that certain debts owed to the State are in respect of moneys collected by a debtor on behalf of the State, for which the debtor could be said to have trustee status. I do not think anyone would disagree that in that instance preferential status is indeed justified. However, I ask the Minister to consider reducing the preferential period for VAT and excise duty to the last complete period of say, six months, for which returns ought to have been collected and to consider reducing the preferential period for PAYE and PRSI payments to the last three months for which returns ought to have been collected. Would the Minister consider some movement in that area?
I am a little bit confused about who is saying what and what is happening here. As I understand it, because of moneys outstanding to the State in taxation the State is given preferential status and it is intended to retain this provision in this legislation, unless we propose otherwise. I am well aware of the views of the Confederation of Irish Industry on this issue. I do not agree with that particular point of view but I want to make it clear that if we let this section go through as it stands, and indeed the next section as it stands, we will preserve the present position and the State in respect of moneys due to it in VAT, income tax, corporation tax and everything else will be given preferential status. I would certainly support that point of view. We can make all sorts of arguments in favour of letting the State get the last whack of whatever is left but, as has been said previously, this is an intimation of what is going to happen later on. It is a precipitation of the inevitable and I do not believe it is a protection.
Section 103 relates to advertising for preferential payments and we have dealt with that matter. We have been debating Opposition amendments Nos. 144 and 145 in the names of Senators Hogan, Bradford and Connor——
We are not. We are discussing section 103, as amended.
Section 103 preserves the position as of now, and I stress the latter few words.
On a point of order, there is in place a 12 month period in respect of unpaid taxes.
Would the Minister consider reducing that period to six months?
I will expand further on this matter when we come to deal with the next section.
Question put and agreed to.
NEW SECTIONS.
Acting Chairman
We now come to amendment No. 144. Amendments Nos. 144 and 145 are related and may be discussed together.
I move amendment No. 144:
In page 91, before section 104, to insert a new section as follows:
"Section 285 of the Principal Act is hereby amended by the deletion of subsection (2) (a) (ii)".
We have put down this amendment for the reasons outlined by my colleagues, Senators Hillery and Mulroy. They rightly point out that there are a number of reasons why it might not be appropriate to give preferential status to the Revenue Commissioners. First of all, a number of small suppliers of goods to various businesses who found themselves in financial difficulties have been thrown to the wind, as it were, and have collapsed as a result of the failure of the larger company or concern. There are many examples we could give to show how the balance is tilted in favour of the State rather than in favour of the business involved which would enable them to bring about an appropriate reconstruction of the ailing company. I agree with Senator O'Toole and other Senators when they say it would be a lot better if a company, large or small, were tackled by the Revenue Commissioners at an earlier stage in order to establish what their difficulties are and an earlier decision made on the payment of their taxes.
The Committee of Public Accounts recently revealed that the Revenue Commissioners have been less than speedy in their actions in bringing people to heel in relation to unpaid taxes. I know of companies who have been written to by the Revenue Commissioners who outlined to them the amount of taxation owed and the consequences of failing to pay that money but who did not receive any further communication from the Revenue Commissioners for two and a half years. This kind of inaction has brought about many company collapses and we have to face up to that fact. The Revenue Commissioners because of their preferential status know they are going to get their money at the end of the day if a company collapses and this has led to complacency on the part of the State in so far as that it gobbles up any moneys owed to it at the expense of the smaller unsecured creditors who get no recompense on the collapse of the company. We could give many examples to show this. H. Williams is one example. The receiver or the liquidator concerned is supposed to get the best price they can for goods to be sold but they do not. In many cases they are happy once they have secured sufficient finance to keep their secured and preferential creditors happy and very little effort is made to bring about a pool of resources which would give unsecured creditors as little as 20p or 25p in the pound.
Section 285 (2) (a) (ii) of the Principal Act states:
All assessed taxes, including income tax and corporation profits tax, assessed on the company up to the 5th day of April next before the relevant date and not exceeding in the whole one year's assessment;
This is regarded as giving preferential status to the State on the winding-up of a company. The Revenue Commissioners now have the power of attachment and they are becoming complacent in relation to the collection of taxes, a duty which they are required to carry out under legislation. I would not suggest for one moment that they should not carry out their duties or let people away without paying their taxes, far from it. The balance in company law has gone against the smaller unsecured creditor who needs some protection. We can all give examples of small unsecured creditors who inevitably collapsed following the collapse of a larger firm. I appeal to the Minister to consider the arguments I have made and while not tilting the balance against the State, as the State is obliged to get in taxes owed to it in the first place and it should be seen to be doing so, he should consider providing some relief for the unsecured creditor who unlike the preferential or secured creditors has nothing to fall back on.
Let me refer briefly to amendment No. 145. Section 285 (2) (a) (iii) of the Principal Act states:
Any amount due at the relevant date in respect of sums which an employer is liable for under the Finance (No. 2) Act, 1959, and any regulations thereunder to deduct from emoluments to which Part II of that Act applies paid by him during the period of 12 months next before the relevant date reduced by any amount which he was under that Act and any regulation thereunder liable to repay during the said period, with the addition of intererst payable under section 8 of that Act....
It is my belief that the amount of interest required to be paid along with the outstanding principal to the Revenue Commissioners and to secured creditors places an enormous burden on a company in receivership or liquidation and it extracts money which should remain to enable a payout to be given to the smaller unsecured creditors. The Revenue Commissioners and the banks already have some security in that they have the deeds of the property concerned. They could sell that property to cover the repayment of the outstanding debt. It is grossly unfair that, when unsecured creditors and preferential and secured creditors try to get their money in the event of a liquidation or receivership, we are prepared to support legislation which will give precedence solely to the Revenue Commissioners and the secured creditors with no thought being given to the other unsecured creditors, who are equally important.
I support the amendment proposed by my colleague, Senator Hogan, and what he has stated, giving an advantage to certain people in the event of a liquidation can have a terrible effect on some small businesses and some individual might find himself ruined as a result of a liquidation. Perhaps the Minister could enlighten me, but I do not know what the origin of giving preferential treatment to the Revenue Commissioners in the event of liquidation is. The Revenue Commissioners already have certain advantages over other people who trade or who deal with companies. The Revenue Commissioners deal with, or should be dealing with, a company on an annual basis or perhaps on a monthly basis and the symptoms of trouble in a company should become apparent to the Revenue Commissioners at an early date.
An early symptom is, and it is part of Irish company culture nowadays, that you do not make your corporation tax, income tax or PAYE payments to the Revenue Commissioners if you find yourself getting into difficulty. The last thing some companies think about when in difficulty is making their returns to the Revenue Commissioners; but that should be a warning to the Revenue Commissioners that trouble is looming in that company. They should ensure that they investigate the company in good time to see if they are generating enough profits — that would be one of the results of a proper investigation — to pay the Revenue Commissioners what is due to them and, by a clear extension of that argument, what is due to small creditors. That is what this amendment seeks to achieve — to protect the small man, who may be a supplier to a company, who may find himself ruined because he has supplied goods or services to a company which were not paid for or who had paid for goods which had not been delivered at the time of the liquidation. He may not find himself getting 25p in the pound but perhaps only a penny in the pound. We want the Minister to seriously consider these amendments and I will not repeat the very eloquent and very comprehensive case which has been made by my colleague.
It would be appropriate to remind the House that the small man in this case is not the person who owns a supply company but the guy who will be out of a job at the end of the day and who will be dependent on the State to look after him or her. The only way the State can look after him or her is by the due and proper collection of taxes.
Before we continue this discussion I think it is appropriate that we, I do not have the Principal Act before me, get a list of those to be given priority or preferential treatment so that we know exactly what we are talking about. I dislike a discussion where it becomes the State against the rest. I want to see all the players involved in this game before we decide which ones we will take out of the game. Perhaps, the Minister will accommodate us by letting us know who are to be given preferential treatment.
I rise to support my colleagues who have put their names to these amendments, which are extremely important. Earlier I asked for the Revenue Commissioners to lose the status they have been given of preferential creditors; and I am not advocating that people should be slow in paying their taxes or not pay their taxes. The Revenue Commissioners are well established. They have every facility and, I presume, an adequate number of staff. I am aware that the very small trader receives a visit from the Revenue Commissioners or the VAT man on a monthly basis. These small traders are the unpaid tax collectors. When a company is in difficulties I do not see why the State should be given preference over the small suppliers. During the last number of years we have seen quite definite examples of this. The majority of small companies who went into liquidation did so because they had not been paid for goods supplied. It is most unfair. I cannot understand why trading stock, whether it is livestock or grain or bread, which a small manufacturer or producer sells to a firm, which may not be added to or improved by the buyer and which is not even paid for, is considered to be an asset of the company who goes into liquidation, by virtue of the fact that the stock is inside the entrance gate of the company. The Minister should consider introducing a system whereby trading companies would keep a special register of trading stock. I am aware that most of the big supermarket chains at present obtain several months credit from their suppliers, big and small, and it is most unfortunate that a small or large company can be put out of business through the failure of the larger combine to pay up, which has a knock-on effect.
I was a Member of this House when the Principal Act was enacted in 1963, that is a long time ago. I do not anticipate that we will have similar legislation before the Oireachtas again for another 20 years. The Minister must take this opportunity to provide some protection for those people who in good faith dispose of their produce or stock. The system in operation of late seems to be that as soon as traders in difficulty seem to be stocked up at the expense of bona fide businesses, the preferential creditors are promoted to pull the plug. This is most unfair. The purpose of these amendments is to bring about a change whereby people who sell commodities to trading companies will have some protection and will get some proportion of the cost of the unpaid stock. That should prevent people from being at a total loss and I ask the Minister to endeavour to improve the position because it is absolutely iniquitous at present.
I have no problem with the Revenue Commissioners being given preferential treatment in respect of moneys that have been collected by a company. The legislation, as drafted does help small companies in the area of cashflow. The fact that the Revenue Commissioners have preferential status for a 12 month period in respect of unpaid taxes makes them a little less concerned as to when they collect those taxes. I am aware that in some cases they wait 12 months before collecting it. This amounted to a double-edged sword in that many companies who are experiencing trading difficulties often use this money as a cashflow to give extended credit, in the hope that they will be paid for the goods and that they in turn will be able to pay the Revenue Commissioners eventually. If the Revenue Commissioners were entitled to six months preferential status in respect of outstanding taxes only they would obviously be more vigilant and more energetic in the collection of those taxes and this cashflow, if you like would be lost to the small supplier.
We are all concerned about the small businessman. When a small company supply goods they should have some protection, such as being allowed to retain title to those goods. Let us take as an example a company who supply goods to a sub-contractor carrying out a Government contract. If that sub-contractor goes out of business, not having paid for the goods, that small businessman loses the value of those goods even though they were supplied to a sub-contractor carrying out a Government contract. A design group, architect and engineers will have been appointed by the Department who in turn would have appointed sub-contractors. Yet, the nominated supplier is caught for the value of the goods. I am not sure whether I should deal with this matter under this section but I think supplies, particularly on Government contracts, should be given more protection. If they are nominated suppliers they should be allowed to retain title to those goods. It should be written into the Bill that nominated suppliers would be guaranteed payment.
I mentioned that I was not convinced of the merit of having preferential status accorded to the Revenue Commissioners. I would give a greater priority to the prompt collection of taxes by the Revenue Commissioners themselves. Here we are talking about liquidations after the event as it were. I am of the belief that some liquidations at least could be avoided if taxes due to the Government were collected promptly by the Revenue Commissioners. I can understand why people make a plea to the Revenue Commissioners for the postponement of the collection of taxes in the hope that a company would survive and jobs would be preserved but they may well be doing a bad day's turn for all concerned by not having prompt collection. The point I am making is that the Minister, in his ministerial capacity within the Government, might use his influence to ensure that the Revenue Commissioners act promptly in the collection of taxes. After all, PAYE is a hot potato at present and here we are talking about workers who have paid over their taxes to their employers. We now find in many cases that the employers in turn have not actually paid over that money to the State or have not paid it promptly, so it is highly provocative in that sense. My plea would be not so much for preferential status but rather for the Minister to take the more preventive measure, if you like, whereby the Revenue Commissioners would be urged by whatever means to collect the taxes promptly that have already been paid over.
On a point of order, may I take it that the two Senators on the Fianna Fáil side of the House are also speaking against the section? Am I the only person here who is going to defend the Minister on this one? Is that the position?
Let me add that a careful assessment of what I have just said would underline the fact that we are not pressing that issue.
Acting Chairman
I do not think that was a point of order, Senator. Senators on this side of the House are entitled to make any point they wish to make.
I listened very carefully to the debate on this taxation question. Let me start by saying that this is a very fundamental issue. One of the most fundamental issues in this new Companies (No. 2) Bill is whether we should give the taxman preferential treatment. That is a very central issue. There are very good reasons why we should and I listened very carefully to the reasons why we should not.
A number of Senators referred to the collection of taxes. I doubt that there is anybody in the country today who is under any illusion as to the resoluteness of the Revenue Commissioners which is quite the opposite to what some Senators indicated to be the case. I have been told in my own clinics and by the business community that the Revenue Commissioners have never been as tough or as difficult. If there are Senators who, from their experience, can tell me that that is not the case I would certainly welcome hearing from them. With the power of attachment, threat of prison, publication of people's names and with sheriffs having extraordinarily tough attitudes at present, I understand that the Revenue are collecting taxes as toughly and as accurately as they possibly can. Senators should consider whether they are arguing for an even tougher approach. What kind of a State that might lead us into is an issue that we could debate here for many a long day.
I want to make the point that the method of collection is improving and the Revenue are now by and large getting in taxation due in a manner which they never did before because of the very strong powers they have and which they are most certainly using. That is borne out by what I have been told by the business community. I do not want to leave any impression in the Seanad today that the Revenue are soft on the collection of taxes and that if they went out, like everybody else, and got their money there would be no problem. Not only are they going out, like everybody else, but they are ahead of everybody else right now and getting their money. I want to make that clear in the strongest possible way.
The reality is that income tax, corporation tax and capital gains tax are preferential for any 12 month period for which those taxes are due. They are company taxes. With regard to PAYE, PRSI and VAT, the position is that PAYE and VAT are due to the Revenue Commissioners and PRSI to the Department of Social Welfare and they are preferential for the most recent 12 months. That is not perhaps the most technical way of expressing it, but that is the idea. The rates due to the local authority are preferential for the previous 12 months. Wages and salaries due to employees for the previous four months are preferential and, as we discussed earlier under the 1982 Act, pensions contributions are preferential. That has been an open-ended preferential contribution since the introduction of the 1982 Act.
All of these rank together as preferential creditors and Senators are no doubt aware of the order of preferential creditors. The first thing paid in a liquidation is the expenses of liquidation, which one could have a very exciting debate on; then the fixed charges and fixed assets are looked after properly; then the preferential creditors are paid; then the floating charges are paid, and what is left is for the unsecured creditors. Obviously, what we are talking about today is a change in that order. That is the proposal from the Senators who have put down this amendment. Section 285 of the Companies Act, 1963, provides that certain debts shall rank in priority to all other debts in a winding up, and I have listed those here today. Section 98 of the 1963 Act applies the provisions of section 285 to receiverships. These preferential debts are, therefore, paid after the holders of fixed charges and before floating charges and unsecured creditors. I have given the Senators their order of ranking.
The principal reasons that sums due in respect of unpaid tax ought to have priority are, first, because such sums are owed to the community and, secondly, because the Revenue Commissioners are an involuntary creditor. Unlike other creditors they cannot choose whom they do business with. They are obliged to accept their taxpayers as they find them and cannot generally avoid giving them credit. Indeed, it could be said that taxing authorities necessarily operate after the event. Even if there are no delays on the part of the taxpayer, there will inevitably be a significant lapse of time after the transactions giving rise to the tax liability before any attempt to collect the tax can be made. There is no means such as may be available to private creditors to restrict the amount of credit which they extend or to require existing tax liabilities to be discharged before further transactions giving rise to fresh tax liabilities are entered into. By definition it rolls automatically. Furthermore, it is a common experience to find that a taxpayer, in his efforts to avoid impending insolvency, has ignored the demands for payment of tax while continuing to pay suppliers and other creditors whose goodwill is essential to his commercial survival. Because it is preferential, one could argue that very often this device enables the small man to get paid. One could turn the argument one is making on its head, but that is not the intention. Because the Revenue Commissioners are preferential creditors perhaps one could argue that the small man does get paid. That is not the intention of either of us in what we are trying to do. Obviously, we are trying to make sure that everybody gets paid, but one should think twice or three times before one automatically removes the preferential treatment in order to help the small man because very often it may have the opposite effect for him.
In the case of PAYE in particular the State's claim is for moneys actually collected by the debtor and for which the debtor is accountable to the State. The debtor is, therefore, really a tax collector rather than a taxpayer. Unless some measure of priority was accorded to the State for moneys collected on its behalf, those moneys would go to swell the insolvent's estate to the advantage of the general body of creditors. It is not acceptable that the statutory provisions enacted for the more convenient collection of the Revenue Commissioners should accrue to the benefit of private creditors.
Criticism is sometimes levelled at the Revenue Commissioners over their alleged heavy-handedness in pursuing tax debts with the result that businesses have collapsed when they could have survived. The argument goes "If they had been allowed some more time ..." To be realistic, and many Senators have said this, if financial help is needed it should be sought from sources other than the public purse. In practice I understand that some limited measure of flexibility is generally shown by the Revenue Commissioners if there appears to be a bona fide case of short term difficulty in finding cash to pay a particular bill. It is worth noting that although the Cork Committee in the United Kingdom recommended a number of changes in this area, they recommended also that the Revenue Commissioner's preference in relation to PAYE should be maintained.
I want to say to Senators that I have listened very carefully to the arguments they have made and I can find sympathy with some of the points made. I would like to give some further thought to those points between now and Report Stage. I could not accept this amendment as it is presently worded and, if it is pushed, I would have to totally reject it.
There are a number of very complex issues involved in, for example, company taxation. This is an example taken at random. There are interesting arguments as to whether or not the preferential status should be maintained in that area because that is money which is due by the company. In other areas — for example, PAYE and so on — that money is held in trust by the company to be passed on to the State. Perhaps that is an entirely different argument and one which brings us into the area of community money. I would like to think further about the broader issues involved and to feel free to raise them again in the Seanad at a later date if I decide that is necessary.
I welcome the fact that the Minister has not exactly thrown out the baby with the bathwater in rejecting completely out of hand the arguments we have made. I welcome his intention to consider the situation between now and Report Stage. I hope that his consideration will be long and hard and that he will come up with an appropriate Government amendment in order to rank the position of unsecured creditors much higher and much more meaningful than it is now.
I agree with the arguments and points made by the Minister that the Revenue Commissioners must have some hold on a company so that they can get the right amount of taxes due to them. The experience over the last number of years has been that the Revenue Commissioners delayed for a long time before they moved in order to get what they were rightfully owed by a company. They delayed to such an extent that the company went into an even worse financial situation because, as the Minister rightly pointed out, creditors, smaller suppliers and even larger suppliers, used the VAT and unpaid taxes due to the Revenue Commissioners in order to keep their companies solvent. I condemn that activity and it is one which should not be part of the commercial scene. Nevertheless, the collection of taxes is, as laid down by the Oireachtas, the responsibility of the Revenue Commissioners and there is no excuse whatsoever for the Revenue Commissioners in allowing a situation to develop over a period of time whereby a substantial amount of money is owed to the State by a company. Unfortunately, as the situation gets worse, smaller suppliers and creditors to that company are left in an even more vulnerable position. This is why we are seeking an expeditious and accelerated process of tax collection in the context of this Bill.
I am glad that various new measures have been brought in over a period of years in order to speed up the system of collection. This will ensure that the delay of up to two and a half years in issuing a second reminder to a company to pay taxes which I mentioned earlier will not occur in the future and that a second reminder will issue within six months. I assure the Minister that he will have the support of the Fine Gael Party in seeking to give a higher ranking to the smaller supplier of goods to a firm that goes into receivership or liquidation through no fault of the supplier of goods. Because a company involved in a co-operative, a meat processing company or even a company as large as H. Williams owe large amounts of money to small suppliers of goods this means that, unfortunately the small suppliers are in an untenable position and substantially more jobs are going to be lost as a result of that inactivity by the Revenue Commissioners. We are seeking to have a higher recognition of the position of unsecured creditors included in this legislation. I hope the Minister will be able to frame an appropriate amendment to do that.
I want immediately to make the point that Senator Hogan in his contribution took a somewhat different line to the one he opened up with. He opened up saying that the preferential status should be taken away from the State whereas he finished up by saying that a better preference should be given to the smaller supplier. Indeed, if there was an amendment before us which would in some way protect the smaller supplier there would be some way in which I could look at it, but there is not the slightest possibility that I would support any attempt to take away the preferential status of the State in the collection of tax due to it.
The general attitude towards this was well summed up by Senator Connor, who said that not paying the Revenue Commissioners has become part of our culture. It has been, and they are the first people to suffer. In my speech on Second Stage I made the point that the person who takes the decision in the first place not to pay due taxation at the proper time is the person who should be held liable for it. I believe very strongly in this and I agree with the Minister that it is a key aspect of this Bill.
It seems that the Revenue Commissioners can do no wrong. I have heard all the arguments. The Minister referred to the question of the sheriffs and we all agree with the point he put forward. The Revenue Commissioners are prepared to be reasonable and to go along to the companies and say: "If you cannot pay it now, we will do a deal with you and maybe we will defer it." If they do that they are liable not get paid if the company is wound up, but on, the other hand, somebody could say that the Revenue Commissioners should have been easier in dealing with these people a year ago. They are in a no-win situation. They more than any other group need the support of elected representatives. They are attempting to do an impossible and absolutely unpopular job and they deserve our support.
I compliment the Minister on resisting the advances of the CII and other groups in their proposals for changes in this area. I am sorry if they seem to have made some impact on my two colleagues in the Government benches, but I am here to defend the Minister and I will continue to defend him against his colleagues as well as the other side of the House. I am not finished yet, Senator Hogan, so you can relax.
I also looked at the recommendations of the Cork report on this and I noted the Minister's somewhat selective quote from that issue. I noted, somewhat poignantly, that the first recommendation of the Cork report was that the funeral, etc., expenses of a bankrupt person should also get number one preferential treatment. I thought that showed a little bit of humanity. Putting the existing legislation in the context of the proposed changes and also in the context of the Cork report, the Minister is doing an excellent job in this section.
What we are hearing here is the old story of hit the State and protect everybody else. As I said at the beginning, if a company got out of business the person who is going to suffer as much as anybody else is the worker at the end of the line who is going to be out of a job. The one place that worker can turn for support in the immediate future is to the State. The State can support such workers only if tax duly owed has been collected. I am not impressed by the arguments that sometimes the State should not collect, that other times they should collect, that other times they should send out the sheriff but that at other times they should not. They cannot win in that situation. They have to do the best they can. They are understaffed and that is one of the reasons they have problems.
I would go further and say that the case for taking the preferential status from the duly owed taxation in this case does not in any sense meet the case put forward very eloquently by my colleagues in the Fine Gael benches. Of course, the first thing that will happen with the change in this legislation is that companies will be able to go out and borrow. At present if a company in trouble looks for money from a bank or lending institution all parties know that if the company is wound up the State will get first preference. Therefore, the lending institutions will be quite slow in putting money forward.
The other immediate effect it will have on the workings of the company is that, of course, it would impact on the credit period. The main reason small suppliers lose out in this area is because the large companies, quite unfairly, insist on long periods of credit. I have spoken on this before. From our discussions on the Cecchini report we are aware that one of the big problems is not market share but is the share of the distribution outlets which control a large amount of the market. If one company control 80 per cent of the market and a supplier is trying to get into it, the company will make demands and look for three months credit, or whatever would be inappropriate, and free supply for a period of time or that the supplier has to take back unused goods. I am aware of the pressures that are put on small supplier's but that problem should be dealt with at that level; this is not the way to deal with it. The idea of the State having to pick up the pieces one more time because of the unacceptable practices of those people who put unfair pressure on small suppliers is not the right way to deal with the problem. We should look at who is causing the problem and deal with it there. A strong case has been made to protect the small supplier. No one can doubt that fact, but this is not the way to go about doing it. That is my basic objection. I agree with the comments that in this case the balance is with the State. I welcome the fact that the balance is with the State in this case. In order to deal with the problems created by giving this balance to the State, there should be another structure, but this is not the one. I am opposed to the amendment and I support the existing section as it is written into the companies legislation.
I do not think I can take issue with any of the comments Senator O'Toole has made because we all know that in any legislation, particularly if we are talking about preferential creditors, that the State must have a primacy. We realise the primacy of the State, the Revenue Commissioners, Fóir Teoranta and all the other agencies that are involved with companies and employers. However, a balance must be struck because if we were to operate the system as outlined a possible 20,000 jobs could be lost. That is the reality. People employ other people at tremendous cost to themselves and incentives must be given to employers to continue holding people in employment. If everybody met their immediate obligations to the State there could be widespread unemployment.
Recently a Minister of State advocated that employers should give young people an opportunity or start in order to stop emigration. However, the reality is that there is relatively little incentive for companies to do that because it can cost an employer something like £50 per week to employ one person. I should like more people to be employed directly by companies which have an incentive to do so and that they would not be penalised. There are penalties involved in the creation of employment and that is one of the problems we will have to address in our efforts to ensure that more people are employed.
I am concerned about the rights of employees and that is why I had an amendment down to the previous section, which my colleague, Senator O'Toole, moved in my absence. In previous legislation preferential treatment was given to the entitlements of employees in an insolvency but unfortunately pension funds were not included. Anomalies arose with two or three companies where the pension funds and pension rights of people were not protected when the company went into insolvency. All the other rights of employees such as wages, holiday pay, pay in lieu of notice, etc. were protected and gladly became the responsibility of the State. This legislation followed a European Directive and was back-dated to 1985. Unfortunately, pension funds were excluded from that legislation. That is why we in the Labour Party considered that the Companies (No. 2) Act should contain a relevant section. Perhaps the Minister would look at the possibility of updating the Protection of Employees (Employers Insolvency) Act which gives preferential treatment to employees, when a company goes out of business.
The concept of the small supplier is one that cannot be overstated. Small employers also employ people. They are usually family companies and they employ people in good faith. They may supply materials and services to a larger company which may go out of business and, therefore, we must worry about the implications of that for smaller businesses. That is the balance these amendments are trying to achieve. Nobody wants to remove the predominance of the State and its entitlements, whether it is through Fóir Teoranta, the IDA or the Revenue Commissioners, but we must have a balance so that small companies are not put out of business through no fault of their own. In a recent well-known case the contributing companies were the sufferers and suffered job losses. The Minister has a major responsibility in this area. He is attuned to the problem and is forthcoming in our efforts to strike a happy balance.
I would not be too optimistic about how generously the Revenue Commissioners deal with people who are in difficulty because I have seen proposals made to the Revenue Commissioners by companies. Those proposals on the repayment of tax were brought to the attention of the Revenue Commissioners by the companies and not vice versa. They brought certain anomalies and errors to their attention and companies who employed up to 30 people set down a programme for the repayment of the debts they owed. The Revenue Commissioners were not prepared to give companies an opportunity to do that and they put a company into liquidation, which realised 50 per cent less than what the company had offered as a first instalment. You can operate everything according to the book but you may not necessarily achieve the desired results. Therefore, a balance is required.
I agree with Senator O'Toole that the State must have a preference but, after that, we must have regard for the small suppliers who employ people. They should not be forgotten in the overall context of the service industry. The service industry is often the only employer in small towns which have a small manufacturing base. The service industry is one of our most important industries and it gives considerable employment. I think that is recognised by the Government.
I must admit that I do not have the same great faith as my colleague, Senator O'Toole, in the capacity of the State to dole out social justice.
I do not understand his argument. This State has the most advanced — I do not want to use the word "draconian"— and strongest legislation for the recoupment or repayment of taxes of any State in the Community, with the possible exception of Denmark. That being said, I do not think that if it fails to use the machinery that is at its disposal, which is almost draconian, it should get its pound of flesh off the backs of the small private individual, whether he has a firm, is a farmer, or whatever, because taking money earned by the small supplier will put additional people out of work and out of business. With respect, that is the argument we make.
All companies such as meat factories or grain merchants should legally have to maintain a separate trading stock account. This trading stock account should be kept separate from other assets and if a company goes into receivership all money collected for stock on hands should go into this account. If my memory serves me correctly, there was a similar section in the Auctioneers and Estate Agents Bill which was enacted some eight to ten years ago. That would not be a novel idea but it would give some security to the small suppliers. I do not accept that the Revenue Commissioners and the secured creditors should be guaranteed payment at the expense of the small producer or small supplier.
It should be possible for the Minister to examine the retention of title clause which would, perhaps, maintain the ownership of produce or goods supplied until such time as they were paid for and exclude a situation whereby receivers would come in. This is a difficult problem and I very much appreciate the Minister's undertaking to look at it again. Perhaps on Report Stage he might be able to meet this vexatious problem which causes much hardship and backache for people.
I do not want to be repetitive but there are a number of points I should like to put straight. I do not wish to be at any cross-purposes with my good friend Senator O'Toole. He quoted me as saying that it is part of Irish culture that we do not pay our taxes. I said it is a part of company culture and because there are cultures and subcultures about everything nowadays I am sure there is a company culture also. I want to elaborate on my essential point and set down clearly my view on these matters.
I can accept the argument for preferential treatment for the protection of pensions and wages but I find great difficulty in giving this open-ended preferential treatment to the Revenue Commissioners. In my earlier submission I pointed out the advantage the Revenue Commisioners have in knowing the progress of a particular company because of their fairly constant contact with the company. That kind of contact need not necessarily exist for a supplier, a small company, or an individual. When I refer to suppliers and small companies I am referring also to the people they employ because they can be directly affected by the liquidation of a company. They too can lose their jobs if the dominoes start to fall right down along the line and naturally we have to think of them sympathetically.
I am delighted that the Minister has an open mind on the argument in relation to giving preferential treatment to the Revenue Commissioners and that he intends at least to think about it and come back to it on Report Stage. I leave him with the suggestion that that aspect needs to be looked at because the Revenue Commissioners have extraordinary powers. They have protection under the law in the collection of taxation and, as somebody said, they are bound by Acts of this Oireachtas to collect their taxation. Part of their duty is to know exactly the solvency, health and ability of a company to pay the taxation it duly owes to the State.
In the very nature of things, a pension fund, of course, does not have that kind of information open to it. A supplier who has a normal trading relationship with a company takes it at face value and always acts in good faith. A supplier does not have that kind of information open to him. Of course, the unfortunate workers, whether they be in the company which is in difficulty or in the companies that will be put into difficulty by the insolvency or the liquidation of the first company, do not have that open to them. I am making the plea that we should create a level field, if you like, for the people — all the players, if you like — and we give preferential treatment to the workers for their immediate wages and their pensions, etc., but that the Revenue Commissioners would take their place in the level field with all the other unsecured creditors of any company in the unfortunate event of a liquidation or a winding up.
I have no problem with the preferential status of the Revenue Commissioners for moneys such as PAYE and PRSI which were collected and held in trust by a company. I am pleased that the Minister will consider removing this on corporation tax and capital gains tax. The big problem in this country is the taxes that are not being collected. I believe this legislation will give the Revenue Commissioners the necessary ways and means to collect this outstanding tax because the problem behind this for the small supplier and the small businessman is extended credit. One of the reasons he has to give extended credit is competition. One of the reasons he has this unfair competition is the number of fly-by-night operators who are out there and whom the Revenue Commissioners cannot touch. Until this legislation is enacted the problem will still be with us.
There are companies that are actually using the 25 per cent VAT just to keep the company going and that is their profits and overheads. It is the VAT they are using. When the Revenue Commissioners finally catch up with them, what do they do? They change the company name and set up again the next day. Until this legislation is enacted, we will have that problem and the sooner the legislation is enacted the better for everybody.
Acting Chairman
Is it agreed to adjourn the House until 2 p.m.?
Agreed.
What is the position on the amendments? I will look again at the situation, but I am wondering if they are still on the table or are they withdrawn.
Perhaps we should leave them until the Minister gives us the benefit of his reconsideration at the next opportunity.
I can assure the Senator that I shall have a look at the position between now and Report Stage but on Committee Stage, I am opposing the amendment.
Acting Chairman
Is the amendment withdrawn?
Senators
Amendment, by leave, withdrawn.
Amendment No. 145 not moved.
Sitting suspended at 12.35 p.m. and resumed at 2 p.m.
