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Seanad Éireann debate -
Tuesday, 12 Jul 1988

Vol. 120 No. 15

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

An Leas-Chathaoirleach

I have arranged to have a grouping of the amendments circulated. We are resuming on amendment No. 153. Amendment No. 154 is an alternative to amendment No. 153 and they may be discussed together.

SECTION 106.

Debate resumed on amendment No. 153:
In page 92, lines 45 and 46, to delete "or to a fine not exceeding £10,000, or to both".
—(Senator J. O'Toole.)

I have already proposed the amendment. This section is the kernel of the legislation; it is the raison d'être for this legislation. This legislation was put together to deal with the single problem being addressed in this section rather than for any other reason. It deals with people abusing the privilege of limited liability. Over the years people have deliberately and recklessly traded a company out of business, and quite deliberately picked up the proceeds or feathered their own nests.

The section, as printed, allows a person on summary conviction to be imprisoned for 12 months or to pay a fine not exceeding £1,000 or, on conviction and indictment, a term not exceeding seven years or a fine not exceeding £10,000. I did not press amendment No. 152 because, on reconsideration, I can see the reason that discretion should be allowed in legislation — it allows the legislation to operate more efficiently.

With regard to amendment No. 153, we are talking about somebody being convicted on indictment. I strongly believe that should be an offence meriting a jail sentence. People who defraud others deliberately and use what was until now the protection of the law, in the sense of the limited liability legislation, should be penalised in the future. That is why we set up this legislation. All the discussion on company legislation was about people who had paid money into a company the owners knew was going into liquidation. All I am saying is that on conviction and indictment a jail sentence should be mandatory, and that the time discretion allowable should be up to seven years. I do not think people should be allowed to buy themselves out of this problem by the payment of a fine.

My amendment insists on a jail sentence and should be accepted by the Minister. It is not unusual to have jail sentences imposed in this type of legislation. The Finance Acts of 1986 and 1987, and probably earlier, made provision for jail sentences for tax fraud, but as far as I recall they also included an option. Consequently, there are people in this State who have defrauded the State and private individuals of vast amounts of money — hundreds of thousands of pounds — and they were able to buy themselves out by paying fines rather than serving jail sentences. There should not be an option. If hundreds of small people have lost their savings because of the reckless trading of a company director, which amounts to fraud, and if he is found guilty he should be jailed, not fined. There should be no discretion on the basis of a fine. The only discretion should be whether the sentence should be for one day or up to seven years.

As regards Senator O'Toole comments, what we are trying to do is to leave the courts with substantial flexibility. This section leaves it to the courts to decide whether a person should go to jail for fraudulent trading and-or suffer a hefty fine. That kind of flexibility is preferable to making it mandatory, as it were. It is perhaps better to leave it to the court to judge the circumstances as they see it. I do, however, agree with the general thrust of what Senator O'Toole is trying to do and for that reason I have introduced a Government amendment raising the maximum fine for conviction on indictment from £10,000 to £50,000. Under this section a person can go to jail. In the Bill, as drafted, we are leaving that decision to the courts. In this commercial area that might be the more sensible way to do it just now.

I would like to bring it to the Minister's attention that we are not talking about reckless trading. I quote from the section:

If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud...

That is the classic line. It is like the old penny catechism — the sin was committed once you decided to do whatever it was that was wrong. Here we are talking about intent to defraud the creditors of a company. In other words, if a person was knowingly a party with intent to defraud. It is a difficult thing to prove; it is almost like conspiracy. We discussed reckless trading and what it meant. I certainly see a case under the reckless trading, provision but here we are talking about people who coldbloodedly and knowingly set out to defraud somebody. It could be, for example, setting out to take a total life's savings from a pensioner.

I very much appreciate the Government amendment increasing the fine from £10,000 to £50,000. That is a very valuable change. However, I feel strongly that there should be provision for a jail sentence for those who set out to defraud somebody. We are not talking about someone who makes an error of judgment or somebody who could claim they were just taking a business risk and it did not work out. We are talking about somebody against whom it has been proven in the courts that they set out to defraud. They did not set out to take a risk; they did not set out to try to use the money for the good of the company; they set out from the moment the offence was committed to steal money, to defraud somebody else; to take something that did not belong to them. It is an absolute breach of the spirit of this legislation that there is not the provision I am seeking to have included. This amendment must be the most critical of all those tables. I have given it a lot of thought and consideration. I have read reports of debates on similar legislation in other countries and I have gone through details of the British experience. I do not believe a fine meets the case here. Take, for instance, a pensioner — I pick that kind of case quite deliberately as being emotive — who has total lifesavings of, say, £2,000. Anybody who would set out to defraud that person of that money would deserve to be jailed. I am not concerned with the kind of company that might be involved. We are talking about suppliers and distributors here but that need not necessarily be the case. The company that were being defrauded might be a small company who make deliveries to a bigger company and could be on what was for them a make or break delivery. The offending company could put such smaller companies out of business, perhaps in individual cases, putting 20 people out of work. I am talking about the person who deliberately sets out to defraud without any concern whatever for anybody else. I think that nobody can make the case for those people; they deserve to be put to jail and that is it.

I can understand Senator O'Toole's very strong feelings on this issue. However, I would agree with the Minister that it should be left to the courts to decide whether a person who is guilty of fraud should be sent to jail or be fined a certain amount of money because, after all, everything is relative. A person for various reasons — and I am not trying to make excuses for anyone who is guilty of fraud — may trade fraudulently but it may be a first offence. Does it mean, if we pass the Senator's amendment, that the judge has no option but to give such a person a prison sentence or let him off? Is there any in-between?

We could debate this at length. For the information of the House the situation in the UK is similar to what I am proposing, which leaves it to the court to decide. I agree that if somebody sets out to defraud they should get the stiffest possible sentence. We are touching on sentencing policy and that is an area I would not want to get into too deeply but each case will have different circumstances attaching to it. A person can be sent to jail for up to seven years under this legislation but it would not be for me to tell the Judiciary how to interpret the legislation. We are providing the courts with that option, if in the circumstances before them they wish to avail of it. I am happy that this is the correct balance. I think it does meet with Senator O'Tooles wishes. It is not, as if we are not giving the option, and only providing for a fine. We are saying that if the court so decides, a person can be sent to jail for up to seven years for the intention to defraud creditors of a company, etc.

An Leas-Chathaoirleach

Is the amendment withdrawn?

It does not give me any great joy to do so but I have to put this amendment to a vote. It is a point of fairly serious principle for me and I would like to put this issue very clearly on the record. I believe there should be a jail sentence. There should definitely be a jail sentence for people who set out trying to use the protection of the law to defraud others. I would have no sympathy for such people. It is not an ordinary fraud; it is a very deliberate thing.

Amendment put.

An Leas-Chathaoirleach

The question is: "That the words proposed to be deleted stand." On that question a division has been challenged. Will those Senators calling for a division please rise in their places.

Senators Ferris, Norris, O'Shea, J O'Toole and Ross stood.

An Leas-Chathaoirleach

The division will now proceed.

The Committee divided: Tá, 21; Níl, 3.

  • Cullimore, Seamus.
  • de Buitléar, Éamon.
  • Doherty, Michael.
  • Fallon, Seán.
  • Farrell, Willie.
  • Fitzgerald, Tom.
  • Fitzsimons, Jack.
  • Hanafin, Des.
  • Haughey, Seán F.
  • Hillery, Brian.
  • Hussey, Thomas.
  • Kiely, Dan.
  • Kiely, Rory.
  • McEllistrim, Tom.
  • McGowan, Patrick.
  • Mooney, Paschal.
  • Mullooly, Brian.
  • Mulroy, Jimmy.
  • O'Callaghan, Vivian.
  • Ryan, William.
  • Wallace, Mary.

Níl

  • Norris, David.
  • O'Toole, Joe.
  • Ross, Shane P.N.
Tellers: Tá, Senators W. Ryan and S. Haughey; Níl, Senators Ross and J. O'Toole.
Question declared carried.
Amendment declared lost.

An Leas-Chathaoirleach

Government amendment No. 154 has been discussed with amendment No. 153.

Government amendment No. 154:
In page 92, line 46, to delete "£10,000", and substitute "£50,000".
Amendment agreed to.
Section 106, as amended, agreed to.
SECTION 107.
Government amendment No. 155:
In page 93, to delete lines 1 to 22 and substitute the following:
"‘297A.—(1) If it appears that——
(a) any person was, while an officer of a company, knowingly a party to the carrying on of any business of the company in a reckless manner; or
(b) any person was knowingly a party to the carrying on of any business of a company with intent to defraud creditors of the company, or creditors of any other person or for any fraudulent purpose;
the court, on the application of the receiver, liquidator or any creditor or contributory of the company, may, if it thinks it proper to do so, declare that such person shall be personally responsible, without any limitation of liability, for all or any part of the debts or other liabilities of the company as the court may direct.
(2) Without prejudice to the generality of subsection (1) (a), an officer of a company shall be deemed to have been knowingly a party to the carrying on of any business of the company in a reckless manner if—
(a) he was a party to the carrying on of such business and, having regard to the general knowledge, skill and experience that may reasonably be expected of a person in his position, he ought to have known that his actions would cause loss to the creditors of the company, or any of them, or
(b) he was a party to the contracting of a debt by the company and did not honestly believe on reasonable grounds that the company would be able to pay the debt when it fell due for payment as well as all its other debts (taking into account the contingent and prospective liabilities).".

This amendment proposes the insertion of a new subsection in section 107 of the Bill, the purpose of which is to provide some guideline as to what is meant by trading in a reckless manner. Essentially what we are proposing here is that an objective test should be applied in relation to what constitutes recklessness. Recklessness is a concept which is familiar in our criminal law but it is one which is new to civil liability in company law. Essentially what we are trying to get at in this provision is the situation where a director of a company may not have actually intended to do anything which would defraud creditors — the test in relation to fraudulent trading is the intention — but who either knew or should have known that his actions or omissions would adversely affect the creditors of the company but nevertheless went ahead in any case.

The central element in relation to recklessness is whether the test to be applied by the courts should be a subjective or an objective one. If a subjective test is applied, it would be necessary to prove on the balance of probabilities that a person actually knew that, for example, a statement made by him was false, that the making of the statement could cause loss to creditors but nevertheless made the statement. Experience of the way the Irish courts have interpreted the recklessness element in the area of criminal law shows that the subjective test is applied. While the burden of proof would clearly be lighter in the context of civil proceedings, as envisaged in the Bill it seems likely that the courts would apply a similar test in such cases.

It is considered, however, that the objective test is the correct test to be applied in relation to reckless trading. Thus, what is relevant is, first of all, whether the officer concerned acted in a particular manner when he actually knew what the result of his actions might be or, secondly, whether the officer so acted when he should have known the likely consequences of his actions, taking into account the general knowledge, skill and experience that may reasonably be expected of a person in his position. It is important that this be actually written into the legislation in order to ensure, first of all, that an objective test is applied by the courts and, secondly, that in applying an objective test the courts should bear in mind how a prudent officer of a company would act, thus taking into account, for example, the fact that all business involves the taking of some risks which may not necessarily amount to recklessness.

While the proposed provision in the Bill is essential in view of the widespread abuse that is apparently taking place at the moment by people in directorship positions, I would be grateful if the Minister could define what is meant by "reckless". He has gone some way towards explaining it but I am worried that if we do not get the wording in this section completely right very bad decisions might be made in a court. In addition, it will put a very onerous responsibility on the auditor, liquidator or shadow director, as defined in the section, and will place them in an invidious position if they are asked to give evidence in a court regarding a person involved in reckless trading. In order to clear up the matter it is important that the words "reckless" and "knowingly" be defined. We are all very clear on what the Minister is trying to stamp out in relation to this matter but I would like certain assurances in relation to this section and definitions of "reckless" and "knowingly".

I would like to endorse what Senator Hogan has said. I understand exactly what the Minister is getting at but I think we are treading on a very difficult area as regards the word "reckless" and the spirit of private enterprise and taking risks. I am not sure where the line is to be drawn here. There is a great danger that those who are involved in enterprise and venture capital will suddenly come under the reckless category in this Bill if we are not absolutely certain what the word means. I would like the Minister to be a bit more specific on that.

I do not deny that this is a very difficult area. I will summarise it quickly. We are trying to introduce a new concept into company legislation called reckless trading. The main reason for that of course, as Senators will know, is that in the past it has become virtually impossible to prove fraudulent trading. There was a need to show that while you might not be fraudulent, you could do as much damage if you were reckless. Reckless obviously implies culpability, knowingly and with full knowledge setting out to do something or doing something which could cause loss to the creditors of the company. That is why we picked the words "a party to the carrying on of any business of the company in a reckless manner". This is fairly clear. The amendment states: "he was a party to the carrying on of such business and, having regard to the general knowledge, skill and experience that may reasonably be expected of a person in his position, he ought to have known that his actions would cause loss to the creditors of the company, or any of them". That is as clear as we can make it.

It is interesting to note that the concept of reckless trading was introduced in New Zealand's company law in 1980. In a 1983 New Zealand case in relation to the new statutory provision the court applied an objective test in respect of reckless trading. The test applied by the court was the following: "Was there something in the financial position of (the) Company which would have drawn the attention of an ordinary prudent Director to the real possibility, not so slight as to be a negligible risk, that his continuing to carry on the business of the Company would cause the kind of loss to creditors which section 320 of that Bill was intended to prevent". The judge in that case expressly stated that the carrying on of any business of the company in a reckless manner did not necessarily involve blameworthy behaviour to the extent of dishonesty. While this case would obviously not be binding in Ireland, the decidion has been extremely useful in our endeavours to draft a provision which would set out clearly in the legislation what is meant by reckless trading, in the hope of reducing the amount of litigation necessary on the subject. That case is Thompson v Innes, 1983, a New Zealand case.

We are trying to bring in an important new concept to company law. It is based on the idea that you can do as much damage by recklessly trading as you can by fraudulently trading. We want to make sure that there is a remedy for that kind of behaviour. The words are well known legal phrases. The word "knowingly" appears throughout our legislation. "Ought to have known" is a phrase that I am certain is in many areas of our legislation. The word "reasonably" also appears throughout our code of laws. They are words that the courts are well used to dealing with and are certainly very comfortable with.

Indeed I am more confused now, having listened to the Minister, than I was a few minutes ago.

That was the idea.

I think we have a real problem here, and maybe it is because it is introducing a new concept into our law. Will the difference, for instance, between reckless trading and risky trading, be an inhibiting factor in stopping companies and principals of companies from taking risks? We may be entering that area because as the Minister said it will be an offence only if the officer of a company knew or ought to have known it would cause loss to creditors. I do not think anybody is going to embark on a situation like that. Maybe they ought to have known, but who is going to say they ought to have known? They are not going to do it unless they think there is a fair chance of some sort of profit for the company. We could get into serious trouble in inhibiting people from taking normal commercial risks or maybe even taking slightly abnormal commercial risks, but which would be in the nature of a business to take.

While I understand exactly what the Minister is at, I do not think he has covered people taking commercial decisions which would be risky by their very nature but which in no way would be totally irresponsible even though they might involve the company in serious losses. Many companies, both public and private, take decisions knowing that the decisions are risky and could involve the company and the creditors of the company in losses. They take those decisions having weighed them in the balance but afterwards it could quite easily be brought back to them that what they did was reckless in the light of events that happened even though it was just a very bad, high risk business decision. I am not convinced of the difference between a reckless decision and bad, commercial, high risk decisions which are being taken every day. I do not see that distinction.

I am glad to say I am back in the Minister's court on this one. If I believed what Senator Ross has just said to be the case, I would certainly agree with him, but I do not believe it to be the case. I want to make three points, the first of which deals with the last point he made.

The interpretation which he has taken would certainly be worrying but, in fairness, I think what he meant was that if in the light of circumstances following it was proved that it was reckless trading. That would not be admissible evidence as I see it. The circumstances following the decision could not be used to prove that a person acted recklessly, wrongfully, fraudulently or whatever at the time. The legislation is very clear and excellently put together. It says that without prejudice, an officer of a company must first of all have "knowingly" done it. The concept of "knowingly" has to be proved in court and it is a very difficult concept to prove. It is one of the most difficult concepts to prove because there will only be circumstantial evidence one way or another. It will have to be proven conclusively in the court through circumstantial evidence that the person knowingly carried on in a reckless manner.

The amendment says that "a person of his general knowledge, skill and experience... may reasonably be expected or ought to have known". That does not cover what takes place afterwards. In other words, if I invest in a company and circumstances show it to be a very poor or unwise investment because of what happened afterwards, that is not, as I understand it, the evidence that would necessary be here. That is a commercial risk and that is not being ruled out here. It covers somebody who hides information or who did not present information that was there at the time of the investment, which would prove one way or another whether the person knowingly or wrongfully traded.

I want to refer again to the Cork report which very definitely allows the out for honesty. It is nice to see the word "honesty" appearing in legislation. It says that "If he was a party or contact to the debt and did not honestly believe on reasonable grounds..." There are safety nets all over that legislation. What the amendment means is that the commercial risk is not excluded. This amendment does not say: "You asked me to invest in your company. I invested in your company. It proved to be a reckless decision and, therefore, you are responsible". It says: "You asked me to invest in your company and now it appears that at that time you knew well that this company could not have traded profitably or could not have reaped the investment". In other words, it deals almost but not quite with the hiding of information or fraud.

It is the concept which is referred to as "wrongful trading" in the British legislation and it is now being introduced here as "reckless trading". I still do not understand why we need a different definition. If we are just asserting ourselves, that is fine — I suppose there is room for a bit of chauvinism — but is there a difference between the concept of "reckless trading" in our legislation and the concept of "wrongful trading" in the British legislation?

We do not call it "wrongful trading" because when this Bill was set out originally, a long time ago, it was referred to as "reckless trading" and when the UK legislators decided to bring in their legislation they chose not to use the phrase "reckless trading".

The Senators made many of the points I would obviously have made in support of this amendment. I refer the House to subsection (4) on page 93 which says: "Where it appears to the court that any person in respect of whom a declaration has been sought under subsection (1), has acted honestly and responsibly in relation to the conduct of the affairs of the company or any matter or matters on the ground of which such declaration is sought to be made, the court may,... relieve him" of the burden. That makes it clear that it is not intended to take on the risk taker. Somebody can be engaged in a very high risk venture provided they act honestly and responsibly in relation to the company, which you would imagine they should do even in a high risk venture. In a high risk venture you should certainly act honestly and responsibly. I do not think there will be any great problem with this. The points Senator O'Toole made in this area are valid. I do not want to prevent risk taking because, as I have said many times in the course of the debate on this Bill, I am particularly concerned to ensure that enterprise and risk taking are encouraged more and more with this legislation. However, we also want to make sure that we modernise and bring up to date the protection for the creditor, the investor and for people dealing with companies in the modern complex financial type of society which we now have. That is what we are trying to do here. If somebody is trading in a reckless manner, we are bringing in a remedy for that so that it will become a civil offence.

As Senator O'Toole rightly said, the UK called it "wrongful trading". There is a whole background to why they did that and I can let the Senator have this information if he wants it. It is contained in section 214 of the Insolvency Act, 1986, and it deals with the principle of "knew or ought to have known" and it is very similar to what we are now proposing to do here. If Senator Ross read the wording in the amendment carefully he will be reassured that it does not rule out in any way what you would call ventures that have a very high risk involved in them. I do not think that could be deemed to be reckless if it is undertaken honestly and responsibly. The point Senator O'Toole made about "knowingly" is included very much in the amendment and you will have to know or ought to have known that you could cause loss to creditors. I understand the sensitivity between high risk and reckless, but I think the wording of the amendment makes it clear where the line falls.

I understand exactly what the Minister is getting at but the more I think about it the more dangerous I think it may be. I think Senator O'Toole misunderstood something I said about subsequent events. A business decision can look reckless a long time after it has been taken, whereas it would appear to be responsible at the time. We are in serious danger here because one man's reckless decision is another man's high risk decision. It may well be that decisions are taken by a principal of a company which are very risky at the time but which a judge or a non-commercial person who does not understand that sort of business may, as a result of subsequent events, regard as reckless and they may look much worse in retrospect than they did at the time they were taken. We are moving into a dangerous area here — in one part we have fraud; there is no argument about that — which is the issue of honesty and we also have the issue of responsibility. The two are coupled together in subsection (4) which states: "Where it appears to the court that any person in respect of whom a declaration has been sought under subsection (1), has acted honestly and responsibly...”

I understand the concept of honesty. That is straightforward and we are all agreed about that but the concept of responsibility is far more blurred and far more difficult. We are moving into a grey area which may haunt us in the years to come because of different interpretations of the courts. While I think the concept has some merit in it, the definition just is not there. It is not satisfactory at the moment and it leaves too much for what the Minister called a subjectivity about this subject later on. It is very dangerous. What the Minister is thinking and what we are all thinking at the moment may well not be the same interpretation because of the subjectivity of this clause way down the line. I am very unhappy with it. Ordinary commercial decisions, because of the vague language and because of the lack of definition of "reckless", may be inhibited as a result.

I have not much more to add except to say that it specifically talks about general knowledge, skill and experience that may be expected of a person in his position. If you enter a high risk venture you obviously do so to make money for the company and, therefore, to pay your creditors. If you go in with that intention, this does not catch you because you are not going in knowing that your actions would lose money for your creditors. If you go into a high risk venture, no matter how high risk it is, you go in with the intention of making money for the company and therefore paying your creditors. You do not go in with the intention of losing funds for your creditors. The point must be made that the way this amendment is worded, "may reasonably be expected of a person in his position" you would have had to know that it would lead to loss, that his actions would cause loss to the creditors of the company. You would not enter a high risk venture knowing that you would cause loss to the creditors. If you did that, it would not be a high risk venture; it would be a reckless venture. That distinction is an important one.

Amendment agreed to.
Government amendment No. 156:
In page 93, lines 32, to delete "liquidator or receiver" and substitute "applicant".

This is a technical drafting amendment. If the House wishes me to expand on it, I will be happy to do so. It is to delete "liquidator or receiver" and substitute the word "applicant".

Amendment agreed to.
Government amendment No. 157:
In page 94, line 28, after "liquidator," to insert "receiver,".

Again, this is a drafting amendment to insert the word "liquidator" after the word "receiver". I have a long litany of reasons why we want to do that. As currently drafted a liquidator would be regarded as an officer under the section so that if he acted recklessly he could have a declaration or personal liability made against him in the courts. However, there seems to be no particular reason why a receiver could not also act recklessly within the meaning of the section. Amendment No. 157 would simply rectify this omission by allowing actions for personal liability to be taken against a receiver who acts in such a manner.

Amendment agreed to.
Question proposed: "That section 107, as amended, stand part of the Bill."

I want to put on the record that not only do I support the line taken by the Minister on the issue but I regret the fact that it has not been made a criminal offence. I know my chances of getting support on that one. I might not even get tellers this time.

Question put and agreed to.
Section 108 agreed to.
SECTION 109.
Government amendment No. 158:
In page 95, between lines 15 to 16, to insert the following paragraph:
"(c) the effect which such order would be likely to have on the creditors of the related company concerned.".

Section 109 of the Bill as it stands is designed to tackle the abuse of limited liability in a group situation. At its simplest the section will enable a court, on the application of a liquidator, a creditor or contributory of any company that is being wound up to order that any surviving related company should pay to the liquidator a certain amount towards the debts provable in the winding up. The section does not permit the limited liability of the related company to be automatically stripped away. The section contains a number of matters to which the court must have regard before it can make an order under the section. A number of parties have represented to us that, even with the safeguards and guidelines built into the section as it stands, inequities could result from an order to the court in certain circumstances. While the court always decide in some circumstances, that they may take a particular view, we think the court should be required to address itself to the question as to what effect the making of an order would have on the solvent company and that is the effect of my amendment.

Section 109 is seeking to introduce a concept which is also new to company law and that is the question of relating companies A, B, C and D who, up to now perhaps or in the past under the existing legislation were all parallel to each other and they not being related in terms of who was responsible for what if they got into difficulty. What we are doing in these few sections is allowing the veil of limited liability to be somewhat lifted between companies so that if there are a number of companies that are very close and company A is pulling the strings and it is just a myth that they are separate and it is the intention to remove that myth and say that they are not separate. The general thrust of what we are doing here is to connect companies that may appear to be legally separate but who are in reality linked to each other.

I welcome this section. It is essential. There is one question about which I am not clear and I raised it with the Minister in another context, that is, the question of the related companies. Movement between related companies is referred to as synergy by the free marketeers but I am talking here about where they actually move the whole business of the company. I raised with the Minister previously the question of people who are at this moment trying to subvert this legislation by stacking up other companies. Let us say that I own company A and I am trading in company A and I also own company B. Company A goes out of business and I continue the same trading and the same business with company B. They are not actually two companies within the same group but they are related inasmuch as I am the managing director of both. I am walking away from company A; I will let the receiver, the creditors and so on all sort themselves out and I am setting up shop again in company B. Without having any regard to carrying of liabilities from one company to another in other sections, under this section could the order be made governing company B?

Maybe I have not explained that too clearly. Let me sum up again. I own a company. It goes out of business. I owe money to a number of people and the receiver comes in. The receiver is trying to sort it out. He is trying to find whatever is due to the creditors. I walk away from the lot. Forget about my liabilities under other sections for a moment. I want to look at this in isolation. I activate company B because it has been a dormant company now but, conveniently, I have bought it previously. If I continue the same activities maybe with the same customers and certainly providing the same service or manufacturing the same product under the title of company B, can you get stuck into that company?

In short, yes, because it would appear under this present wording to be a related company from the example the Senator gives me. We have a whole list of proposals as to how to link these companies. In the example the Senator gives, one company in a group could be told to contribute to the deficiency of the company that has gone into liquidation. That would be one of the effects perhaps of a related company. Where one company has very heavy debts and is in liquidation and another company is deemed to be a related company, then that company could be ordered by the court to make a contribution towards the deficiency of the liquidated company. Whether the example the Senator gives would be a related company would depend on how it would fit into the criteria laid down here. Offhand, I think it would be a related company.

I am quite clear about the "within a group" concept, but the concept I am talking about is this: the company closes down today and tomorrow I open up with a new company providing the same service or manufacturing the same product and probably dealing with the same customers. My company, while it existed, was not trading yesterday and, therefore, was in no way connected with that company because one company stopped before the other began trading. They are not a group. The Minister will see why it is so important.

Let me extend an interpretation of that point. It means that for all those companies advertising on the back of The Irish Times and everywhere else for the past couple of months asking people to buy six companies for £1,000 or whatever — which is done to my mind with intent to defraud some time in the future — that it was all a sort of obair in aisce for them, they would not get anything out of it at the end of the day because they would just set up again and they would be liable. I am not talking about the other sections. I understand that in the other sections a liability becomes personal and it might be necessary to take it forward. Can the Minister assure me that “related” companies mean companies with the same major shareholder, the same owner, the same managing director? The Minister has gone into some detail but not enough for me. I do not quite understand what is meant here. This creates a marvellous opportunity of tying down something if we could be certain of it.

Section 109 contains a number of definitions and criteria laid down as to how we decide on what is a related company. From the example the Senator gave from the way he described it, it would appear that they would be a related company. A company in liquidation is still a company.

Yes. Therefore, the new company the Senator describes could be deemed to be a related company under this section because more than half the nominal value of the shares and so on could be held by a related company, a subsidiary or something like that. The Senator is worried about the phoenix syndrome. That is basically the cowboys who make a business of going into liquidation and starting up again and doing that as a business in itself. We are determined to stamp that out and we tackle that very strongly in the upcoming Part VII of the Bill which provides quite strong and hefty powers to prevent the phoenix syndrome carrying on.

Can I put a question?

There are two approaches to it. One is the related company one. Under the other more effective one, the example the Senator gives, closing on Friday and starting on Monday, is met head-on in Part VII of the Bill which is coming up. That is the question of the phoenix syndrome.

May I ask one question? I am aware I have got in ahead of Senator Mulroy. To my mind — I may be wrong and I stand open to contradiction — the phoenix syndrome was the setting up of a new company. I am talking about the activation of an existing company. There is some difference there.

We have an amendment coming up under section 117 to deal with the question of shell companies. I will have a great deal to say about that when we come to it but it covers directly the point the Senator raised.

I welcome this section because there has been a great deal of abuse in this area with assets being transferred to one company from another and then the company that is stripped of all the assets dropped and put into liquidation. Many people are concerned also that companies who stand alone or a company in a group of companies that stands alone, trades at arms' length and receives no benefits from a sister company would not be held responsible if, say, the parent company went into liquidation. People want assurance that legitimate companies within a group, stand alone companies, are protected. Has the Minister made provision for this?

In short the answer is "yes". The court has enough in the legislation to decide whether a company is related or not. We should not forget the principle here. We are trying to make sure that if companies are related in the ordinary meaning of the word, if they are very closely bound up in management, ownership and general direction, it should not be possible to pretend they are totally separate entities when they are not, when, in fact, being organised, orchestrated and managed by the same people and so on. Where, genuinely, there is no relation, the separate corporate entities will have their separate corporate protections in limited liability and so on. If they are related, then the court can deal with them under this legislation. I thank the Senator for raising the point. I am happy enough that only where they are genuinely related would the court obviously take the decision that they are.

Companies could be related with common directors and common shareholders but the management aim of a related company may be acting and managing that company quite independently. If they are trading, say, on a competitive basis with a related company I do not think they should be held responsible if the parent company gets into financial difficulties.

Senator Mulroy has given a very valid practical example of where we could find ourselves in trouble under the section. I welcome the principle which the Minister is trying to enshrine in the legislation. We have numerous examples of where asset stripping would have taken place from one company to another and financial arrangements would have been transferred from one company to the other and at the end of the day the creditors of that individual company would have nothing to fall back on. I noticed the Minister has taken a number of his amendments from New Zealand legislation. Certainly New Zealand legislation gives us an appropriate guideline and experience in how we can tackle the problem in Ireland.

What guidelines will the Minister be laying down and what will be required for the court to make a decision? What extent of intermingling of companies will be necessary? The extent of intermingling of the companies is important to know now and to be written into the record of this House in order to give some guidelines to the court in making its decision. If the guidelines are clearly set down fair enough, but on the extent of the intermingling being established — I think this is the point Senator Mulroy is trying to make — if sister companies become part of the one group of companies, if they are independently trading, one company should not have to cough up some of the debts of another company in the event of a financial problem.

The problem here also is that you have to be careful not to inhibit joint ventures from taking place. No matter what legislation is there, there are going to be difficulties in striking the proper balance. I totally agree with the principle the Minister is trying to enshrine in the legislation. I would be interested in the guidelines that would be needed before there could be a conviction under the section.

I had not proposed to issue any guidelines, I do not think that it is necessary. The section is quite clear. In the first instance, to make an application as to whether the company is related or not, subsection (5) states:

For the purposes of this Act, a company is related to another company if—

(a) that other company is its holding company or subsidiary; or

(b) more than half in nominal value of its equity share capital (as defined in section 155 (5) of the Principal Act) is held by the other company and companies related to that other company (whether directly or indirectly, but other than in a fiduciary capacity); or

(c) more than half in nominal value of the equity share capital (as defined in section 155 (5) of the Principal Act) of each of them is held by members of the other (whether directly or indirectly, but other than in a fiduciary capacity); or

(d) that other company or a company or companies related to that other company or that other company together with a company or companies related to it are entitled to exercise or control the exercise of more than one half of the voting power at any general meeting of the company; or

(e) the businesses of the companies have been so carried on that the separate business of each company, or a substantial part thereof, is not readily identifiable; or

(f) there is another company to which both companies are related;

That is to do with the initial view being taken as to whether they are related or not. When it gets to the stage of a court hearing, the court has then further matters to look at. They have to look, first, in section (2)(a) at the extent to which the related company took part in the management of the company being wound up; (b) the conduct of the related company towards the creditors of the company being wound up.

I am proposing, in amendment No. 158, that the court take into account the effect that such order would be likely to have on the creditors of the related company. I am happy that it is laid out here as clearly and as crisply as possible. The idea is simply to ensure, where companies are related, that they are seen to be and that the veil between them is clearly removed.

I certainly would support that point. It is one that needs to be spelled out. It is very important to read what is written here. It is not being said here that because a company is related to another company it should be responsible for its debts. It is not being said here that because company A and company B are a part of the same group or corporation, are totally related, or run by the same people, that one should be responsible for the other's debts. I think that that is the question that Senator Mulroy asks. What is being said here is covered completely by the first sentence, that the court must be "satisfied that it is just and equitable to make such an order". If it is not just and equitable, then it does not happen, even if the companies are totally owned by the same person, or within the same group, or whatever. In other words, it does not stop joint ventures; it does not stop a joint risk. Therefore, it is not an additional risk to the company. The receiver, or whoever applies to the court, says "I think it would be fair that that company should take responsibility for some of the liabilities for this company because ...". The court asks why and there is the burden of proof. I have not the slightest difficulty with that.

It is well worth stating, for the record, just, that there is no long tradition in Irish courts, or in the interpretation of our laws, if any sort of anti-entrepreneurial thread running through such interpretation; quite the opposite has been the case from the foundation of the State. British law has gone quite differently and has become what I would call more liberal in the area, although my colleagues here might look at it somewhat differently.

Every time I stand up to speak here I am interpreted as taking the line of making it more difficult for people to take risks. I want to make it absolutely clear that I take quite the opposite point of view. I am a risk-taker myself and have no time for people who are not risk-takers. What we are saying here is that we should identify risks and that they are risks, rather than fraud and that people can trade honestly and properly. Section 109 allows that to happen. It allows people to split up their activities into companies without adding the liability from one company to the other just because they happen to own two companies, unless the court rules that it is right that this company should take it. I am certainly satisfied that there are very few of our judges who would take an anti-entrepreneurial line in this area. I welcome the legislation.

Amendment agreed to.

Amendments Nos. 159 and 162 are related and may be discussed together.

Government amendment No. 159:
In page 95, lines 20 to 24, to delete subsection (4) and substitute the following subsection:
"(4) Notwithstanding any other provision, it shall not be just and equitable to make an order under subsection (1) if the only ground for making the order is—
(a) the fact that a company is related to another company, or
(b) that creditors of the company being wound up have relied on the fact that another company is or has been related to the first mentioned company.".

These amendments arise in different sections, but they are linked. Taking amendment No. 159 first, I mentioned already that section 109 will enable a court, on the application of a liquidator, creditor or contributor of any company that is being wound up, to order that any surviving related company should pay to the liquidator a certain amount towards the debts provable in the winding up. I also stressed that the protection of limited liability of a company in a group situatuion will not be stripped away automatically. The section already contains a number of matters to which the court must have regard in deciding whether it is just and equitable that a company should be required to contribute to the debts of a related company.

Moving to subsection (4) in particular, that subsection specifically provides that, notwithstanding any other provision in the section, the court cannot make an order where the only ground for making the order is the fact that the creditors of the company wound up have relied on the fact that another company is, or has been, related to the company being wound up. Amendment No. 159 would add a further somewhat similar bar to the making of a court order. We would be saying that the court would also be precluded from making an order if the only ground for making the order would be the mere fact on its own that companies are related; in other words, whether creditors relied on the relationship or not.

In a nutshell, paragraph (a) of the amendment is intended to rule out any question of automatic or strict liability of a parent company for the debts of their subsidiaries. The same applies very much to section 110, but that is another matter. The same kind of reasoning would apply there. It is not just that the companies are related, but the effect on the creditors and the other matters are very important, too.

To a certain extent, that goes a long way towards answering my query on the previous amendment and I welcome it.

Amendment agreed to.
Government amendment No. 160:
In page 95, line 50, after "Acts", to insert "and ‘creditor' means one or more creditors to whom the company being wound up is indebted by more, in aggregate, than £10,000".

Just to recap quickly, what we are doing here is putting in a number of guidelines for the court before they decide that companies are actually related, to help the court out. As the Senators know, if the companies are deemed to be related, then the court can order that the good company, as it were, should perhaps pay something to the debts of the company in liquidation. That is an overall picture of what we are doing here, just to try to put it in perspective.

Amendment No. 160 would insert what I might call a qualifying threshold before creditors can make an application to the court under section 109. It provides that an application cannot be made by a creditor unless there is a minimum aggregate of £10,000 owed to one or more creditors. It has been strongly represented to us that the creditors should be owed a certain minimum amount by the company being wound up before it would be permitted to make an application for an order under this section. Otherwise, it is claimed the possibilities opened up by the section would be endless. There would be considerable uncertainty about possible exposure to risk. There would be the possibility of frivilous or devious applications by very minor creditors and so on. That speaks for itself. What I am doing here is putting in the figure of £10,000 as being the figure which would be owed to a creditor or to a group of creditors in total before they could go into court and seek to have companies related.

I am not clear on what is meant. I have a slight sense that the small man is being got at here somewhere. Perhaps the Minister would explain the endless legislation which might arise if this amendment was not passed? I would like to hear an example of what we are talking about. It seems that £10,000 is a lot of money for a small company, for instance, a supplier company to be owed. Is this the aggregate debts of the company going into liquidation or is it the amount owed to the company seeking the order?

The Senator is talking about trying to make sure that there are no frivolous or devious——

That is a dangerous word.

Which word?

We are trying to ensure that there are no devious or frivolous claims and it seems like a sensible thing to do. There is nothing to prevent creditors clubbing together and making up £10,000, which would not be very much these days in commercial terms. I am quite happy that the small creditor is fully looked after here. Any group of small creditors getting together would not be long coming up to a debt of £10,000 and once they do that they can go to court with the matter. It is a sensible figure.

Amendment agreed to.
Government amendment No. 161:
In page 95, after line 50, to insert a new subsection as follows:
"(7) Where an application for an order under subsection (1) seeks to require a licensed bank, within the meaning of section 24, to contribute to the debts of a related company, a copy of every such application shall be sent by the applicant to the Central Bank who shall be entitled to be heard by the court before an order is made.".

Amendment No. 161 is fairly straightforward. It simply requires that where an application under section 109 might result in a licensed bank being ordered to contribute to the debts of a related company in liquidation, the court ought to give a hearing to the Central Bank in the first instance. I could expand on that if necessary but this really is to give the Central Bank a role in it where this matter of related companies refers to banks. The reason should be fairly obvious.

I will exploit the opportunity to raise a question on the Central Bank. I have no doubt about it, this is probably a very sensible amendment but having recently spent some time trying to get through the morass of legislation which covers the Central Bank, I am sure anybody could say anything about it and be proved right because, between the 1926 Currency Acts and various changes in the Currency Acts in the forties and fifties, I do not know if anybody knows the precise nature of the legislation covering the Central Bank. When is it intended to bring in reformed, uniform legislation covering the Central Bank?

My hands are full now with the Companies Bill.

Amendment agreed to.
Section 109, as amended, agreed to.
SECTION 110.
Government amendment No. 162:
In page 96, lines 43 to 47, to delete subsection (5) and substitute the following subsection:
"(5) Notwithstanding any other provision, it shall not be just and equitable to make an order under subsection (1) if the only ground for making the order is—
(a) the fact that a company is related to another company, or
(b) that creditors of a company being wound up have relied on the fact that another company is or has been related to the first mentioned company.".
Amendment agreed to.
Section 110, as amended, agreed to.
SECTION 111.
Question proposed: "That section 111 stand part of the Bill."

When a company is being wound up, the court, on application, can seek companies to repay or restore money or property to an individual company and to directors. I want an explanation in relation to subsection (2). Does it refer to all directors or just to managing directors? What is the situation in relation to nominal directors and all managers? The word "manager" is mentioned. Are we talking about all managers? Does that include sales managers, assistant managers or just the principal manager involved in the management of the company? Could we have an explanation of the definitions?

Section 111 is to clarify what directors and other members can be held liable for and the list of people affected by it is given. The court may, on the application of the liquidator or any creditor, examine into the conduct of the promoter, director, manager, liquidator, receiver or officer and compel him, and so on, so that net is cast fairly widely to include those involved in the management of the company. If somebody is not involved in the management of the company, obviously you could not pursue him or her under this section. I am reasonably happy it is laid out there that a manager would include senior management in the company who would be involved in the management of the company's affairs.

Under the present wording of the section it casts its net, as the Minister said, very widely. He is including in this liability a fairly wide number of people who might not be directly involved in the management of the company. They might be sales managers or marketing managers, and have nothing to do with the financial management or the day-to-day operation of the company. They have a particular role in the company and that is their job. The overall operations of the company and how it survives financially is not their responsibility. I would be concerned that the Minister is bringing more people under the provisions of this section than might necessarily be needed. We must clearly establish that the people we want to involve under this section are those who are managing the company on a day-to-day basis.

I see it in a different light. I welcome the section as it stands because you could have a situation where, say, a salesman on the road with the task or responsibility of collecting money on behalf of the company, could during the course of a week's work collect several thousand pounds and, at the same time, the company could go in liquidation and he could retain this money. This section gives the liquidator the opportunity to obtain and demand that this money is handed over. Maybe I am reading it wrongly but that is how I see the section.

The Senator is reading it correctly. My response to Senator Hogan's point is that we are getting at a very specific situation from which top management and management generally in the company should not be excluded. It would not be my intention to exclude them from this. It is quite the contrary, to make sure that they are included because it applies if the liquidator has reason to believe and so on that any person has misapplied or retained or become liable for or accountable for any money or property of the company or has been guilty of any negligence or breach of duty or trust in relation to the company. If any manager in the company fell under any of those headings one would certainly want to assume that the fact he was a junior manager instead of a senior manager should not protect him or her.

Question put and agreed to.
NEW SECTION.
Government amendment No. 163:
In page 97, before section 112, to insert the following new section:
".—Section 299 of the Principal Act is hereby amended by the substitution of the following subsection for subsection (1)—
‘(1) If it appears to the court in the course of a winding-up by the court that any past or present officer, or any member, of the company has been guilty of an offence in relation to the company for which he is criminally liable, the court may either on the application of any person interested in the winding-up or of its own motion direct the liquidator to refer the matter to the Director of Public Prosecutions and in such a case the liquidator shall furnish to the Director of Public Prosecutions such information and give to him such access to and facilities for inspecting and taking any copies of any documents, being information or documents in the possession or under the control of the liquidator and relating to the matter in question, as the Director of Public Prosecutions may require.'.".

This is a procedural amendment. The intention is to require liquidators in court liquidations to cooperate with the Director of Public Prosecutions in the same way as liquidators in voluntary liquidations are already required to do. If, during a winding up by the court, the court is of the opinion that any officer or member of the company has been guilty of an offence, it may, under section 299 (1) of the 1963 Act, direct the liquidator to refer the matter to the Director of Public Prosecutions. Section 299 (2) of the 1963 Act places a similar duty in the liquidator of a company voluntarily winding up. However, subsection (2) requires the liquidator to furnish the Director of Public Prosecutions with such information as the DPP may require, and must give the DPP access to such documents and such other assistance as he may require. There is no requirement on court appointed liquidators to help the Director of Public Prosecutions. There is no such requirement in relation to the giving of information under subsection (1). We have been told by the DPP's office that the absence of a requirement for court appointed liquidators to give the DPP any information which he may reasonably require has caused problems in practice in the past.

Amendment No. 163, therefore, proposes to amend section 299 (1) of the 1963 Act by adding a requirement in relation to the furnishing of information similar to that already contained in subsection (2) of section 299. This is to ensure that court appointed liquidators co-operate with the Director of Public Prosecutions. It may seem unusual that we have to legislate for that, but we are told this procedure is not flowing smoothly enough.

Amendment agreed to.
SECTION 112.
Government amendment No. 164:
In page 97, between lines 47 and 48, to insert a new subsection as follows:
"(2) Nothing in subsection (1) shall require a receiver or liquidator to specify the identity of any particular person mentioned in an account, abstract, statement or return to which that subsection relates.".

This is a new subsection. In a number of instances throughout the companies legislation, requirements are imposed on receivers and liquidators to make periodic reports in relation to the discharge of their functions under the Act. For instance, every six months a receiver has to furnish to the registrar of companies an abstract giving details of the assets and so on of the company. Separately, a liquidator of a company is required or can be directed by a court to report to the DPP any criminal offences committed by officers and members of a company prior to his appointment. We intend to make it clear that names do not have to be given. There is no requirement in the amendment to name names.

I welcome the amendment. This section may not inspire confidence among the liquidators or receivers, because their problems are great enough without having to publish names and other information people may not be too happy about. I realise my comments would be more appropriate to the section.

Is that a change in present practice? At the moment, is it necessary to identify?

No. Section 112 insists that the liquidator reports any criminal offence he might come across and puts it in his report. The name does not have to be given. The fact that the offences has occurred is what we want to get at. It is new to that extent.

I welcome the amendment. At this stage the liquidator is reporting suspected fraudulent trading or otherwise. I emphasise, it is only suspected. At that stage, confidentiality should be kept and at a later stage if it is proven, the names will be made public. I am glad there is protection to maintain confidentiality at this stage.

Amendment agreed to.
Question proposed: "That section 112, as amended, stand part of the Bill."

My experience with receivers and liquidators is that there is always a danger of assets being sold for a knock down price. The liquidator is charged with the responsibility of getting the best price he or she can for the assets of the company in liquidation. Nevertheless the practice is that once the secured creditors are looked after — the Revenue Commissioners, taxes outstanding to the State or financial institutions — there is a temptation on the part of the liquidators to forget about the unsecured creditors, especially those who put in the liquidators.

We spoke at length about this when we were debating the retention of title and the preferential status of the Revenue Commissioners, but it is no harm to reiterate my sentiments on the matter. I hope the Minister will think about the role of liquidators and receivers and that he can compel them in law to seek the best possible price for the assets of the company in liquidation. It is a step in the right direction that liquidators have to file reports and abstracts of accounts in relation to their activities. The shroud of secrecy surrounding liquidators and receivers will not exist in future. That is a welcome development because no matter who buys a company in liquidation, there will be unsecured creditors lining up to get what is left at the end of the day, which is invariably very little, and liquidators and receivers are of ten accused of acting to the detriment of unsecured creditors.

The section is specifically laying it on the liquidators to report criminal offences if they come across them. The Senator's comments deal with the general duties of liquidators. A liquidator has a duty, if appointed by the court or by the creditors, to get the best possible deal for those creditors, or for the court acting for the people. That is the duty of the liquidator and the receiver. The accountancy profession have very strict codes of conduct when their members are appointed liquidators or receivers as to how the liquidation should be seen through and I have no reason to believe they are not seeing them through.

The Senator will be aware that when we discussed an earlier part of the Bill we dealt with preferential creditors. I undertook at that stage to have a very close look at what we might do about providing greater protection for the unsecured creditors by looking at the rather privileged position of the secured creditor. We are still looking very closely at that and I hope we will be able to make some interesting moves on it.

The liquidators, when appointed by the court, and in all cases, are subject to a review by the court. If the court is not satisfied with a liquidator's performance, it can deal with the matter. I know it often seems that liquidators sell things for knock down prices, but sometimes it is justified and sometimes it is not. It depends on how astute the person is, and how astute the liquidator is, but I do not think this is a widespread practice. Most liquidators and receivers act very responsibly.

Liquidators should have certain qualifications and expertise because a company's assets are very often sold for knock down prices, particularly the fixtures and fittings. I do not believe the majority of receivers have the necessary technical expertise to evaluate the fixtures and fittings in some very modern companies. There should be some type of check on this because I have known if fixtures and fittings valued at £250,000 being sold for a knock down price of £20,000 or £25,000. A lot of IDA money has been invested in these companies. A team of experts should move in when a company goes into liquidation to evaluate the assets, particularly when there is a lot of State money invested in the company. They should investigate what parts of the company should be retained.

I did not quite hear the Minister's response to Senator Hogan on the question of unsecured creditors. I recall the Minister's commitment to examine the area but I did not quite understand the answer. The Minister said he was looking at it with respect to something or other. I would like to hear him expand on that.

On the question of the receiver moving into a company, I would have thought that when a receiver is preparing to dispose of the property of a company he would bring in a valuer or somebody who could give a professional valuation of the assets. I am very worried about that area because, one of the great developments in the "Phoenix" syndrome is that not only do the company set up next door but that they actually buy the fittings and fixtures of their previous company at the knock-down price. I thought that had been stopped and was not possible now. The old Irish tradition is that you do not buy from the banks or creditors who close on the company and if they put the goods up for sale, then the competition would gracefully stand aside and let the previous owner buy the whole lot back at 10 per cent. I want to be reassured that we are not walking ourselves into trouble and that a seemingly innocuous section could throw up these difficulties.

We have wandered completely from section 112 which simply says that if a liquidator spots something he should report as a criminal offence, he reports it. We have wandered into an area, which is really a role for auctioneers, as to what they can get for property.

The question of value is a difficult area. Something that is valuable today because the business is a going concern may not be that valuable tomorrow if it is not a going concern. A thriving factory on a nice site could be worth a fortune or, three days later, if suddenly it is noticed that it has not been doing well, it could be argued that it is not a good stand after all, and it must not have been a good stand because it was not doing so well. All of a sudden the value of that property plummets completely. Whereas last week it was a very valuable property, now it is worth much less because the perception of the value of that property has changed and value at the end of the day is about perception. That is why many people are frightened when the items on the balance sheet do not fetch what they are valued at on the balance sheet. It depends on the circumstances of the sale. Most liquidators and receivers will try to get the best possible price. One of the difficult areas for them is that they cannot often pick their time; they have to move in order to satisfy the requirement of being a receiver or a liquidator.

The Senator asked about preferential creditors. All I am in a position to say about that is that I undertook at an earlier stage in this Bill to look at the question of preferential creditors being ahead of the ordinary creditors by definition and to see whether we might be able to improve the situation vis-a-vis the non-preferential creditor.

We are happy with that, and we hope that concludes that investigation. I accept that the value of property or whatever may vary with time and place, but——

Acting Chairman

We are wandering from the point.

——when examining the operation of the company, if, for instance, the receiver felt that part of the property of that company was sold at 10 per cent of the price, would that constitute something that would be reportable under this section? If that were to be the case, I would agree with Senator Mulroy's view on valuations — that the value of an item is what it is worth on the market on a particular day. We are talking about something that is worth £250,000 being sold for one-tenth of that money. If that were to happen when the company is being wound up would that be a reportable offence under section 112?

I have another question for the Minister. Is there anything in the Bill whereby a liquidator can be held responsible if it is proved that he has sold the assets of a company way below the actual value on the day of sale?

Acting Chairman

We had better deal with the section. We are dealing with section 112 but we have started wandering all over the place. The Minister must be allowed to reply to the last point made by Senator O'Toole and we must keep to the section and to the amendments.

We are entering into a debate about the role of liquidators. Section 112 specifically requires liquidators to report criminal offences. We are really dealing with that issue here. I dealt also with the question of value. The only regret I would have in that area would be on the question of time. Very often if a liquidator or a receiver could pick a different time to dispose of a property or an asset they could perhaps get a better price for it but because their first duty is to try to get the funds for the creditors, they very often have to go at it much more quickly than would otherwise be the case. I am happy that in other parts of the Bill we have made provisions which will greatly improve that situation and if assets are being disposed of they can now be disposed of at a more orderly pace. It is a question of pace of disposal, not the price that is actually achieved.

Question put and agreed to.
SECTION 113.
Government amendment No. 165:
In page 98, after line 18, to insert a new subsection as follows:
"(2) A person convicted of an offence under any of the following provisions, namely section 262, 272, 306, 319 (2) or 321 of the Principal Act, shall, in lieu of the penalty provided in any such section (as increased by section 15 of the Companies (Amendment) Act, 1982), be liable to the penalties specified in subsection (1).".

This is a technical amendment which does not alter the substance of section 113 in any way. Under the present Companies Acts, when a requirement is placed on a liquidator or receiver to make periodic returns of one kind or another, the section concerned also sets out the penalties that can be imposed on defaulters. In the Companies (Amendment) Act, 1982, the maximum fines were increased to £250 in some cases and £500 in other cases. Section 113 of this Bill increases the penalties for contraventions of these existing provisions in two ways: first, by introducing the possibility of conviction on indictment and, secondly, by increasing the actual levels of the maximum fines applicable. The section does not specifically provide that these new penalties supersede the penalties which previously applied and the purpose of this amendment, therefore, is to do this.

Amendment agreed to.
Question proposed: "That section 113, as amended, stand part of the Bill."

Section 113 states that where the receiver or liquidator is in default and having been found guilty of such default shall be liable to a fine etc. I just want to clear my mind on one issue: is there any way that the payment of the fine could become part of his or her costs and could, therefore, be a charge on the company being liquidated? I want to know more about the process. We would certainly be shooting ourselves in the foot if that were to be the case. I want to be reassured on that issue, and that if the liquidator or receiver was not doing his or her job that it should not in any sense be a further cost on the creditors of the company.

This would be a personal fine imposed on the liquidator or receiver by a court and in no way could be seen as a liquidator's cost or expense. It clearly is a personal fine imposed by the court on the liquidator or receiver and under no stretch of the imagination could it be seen to be a cost involved in the liquidation or in the receivership.

Question put and agreed to.
SECTION 114.
Government amendment No. 166:
In page 99, between lines 11 and 12, to insert in section 300A, proposed to be inserted by the section, a new subsection as follows:
"(5) This section shall not apply to a winding-up commenced before the commencement of section 114 of the Companies Act, 1988.".

By way of introduction, may I say that amendment No. 166 will insert a new subsection in section 330A of the 1963 Act, section 114 sets out various catogories of persons who will be disqualified from appointment as the liquidator of a company. These new prohibitions are in addition to the existing disqualification of bodies corporate acting as liquidators. When section 114 comes into force there will probably be some liquidators in the process of winding up companies who will be caught by the provisions of this section. The question this raised in our minds was whether such liquidators should be forced to resign when it comes into effect as they would under subsection (3). Our initial reaction was that they should but, having reflected on the matter, we felt that the greater good would be served by permitting existing liquidators to complete their assignments. Take a situation where a liquidation has been going on for two or three years. If the liquidator involved in such a case found that he was suddenly disqualified by virtue of the provisions of the section, a new liquidator would have to be appointed and this could cause delay and, more important, add to the cost of the liquidation. On balance, we consider the existing liquidators should be permitted to complete their assignments and that is what this amendment provides for.

Amendment agreed to.
Section 114, as amended, agreed to.
NEW SECTION.
Government amendment No. 167:
In page 99, before section 115, to insert a new section as follows:
"115.—Section 228 of the Principal Act is hereby amended by the insertion in paragraph (g), after the words ‘section 300', of the words ‘and section 300A (inserted by section 115 of the Companies Act, 1988)'.".

I should like to put a proposal to the House before we commence the debate on this amendment. As the room is very stuffy and we will be continuing on this Bill until 9.30 p.m. would it be appropriate to take a break for half an hour? I accept that such a proposal has to come from the Government side of the House.

That is a matter for the Leader of the House and he is not present at the moment.

I propose that we adjourn until 6.20 p.m.

Sitting suspended at 5.55 p.m. and resumed at 6.25 p.m.

This is a technical consequential amendment arising from the fact that section 114 of the Bill inserts a new section 300A in the 1963 Act. Section 228G of the 1963 Act which contains general provisions in relation to liquidators provides that subject to section 300, the acts of a liquidator shall be valid notwithstanding any defects that may afterwards be discovered in his appointment or qualification. Section 300 disqualifies a body corporate from being appointed as a liquidator. However, section 114 of the Bill inserts a new section 300A into the Principal Act and adds to the people that are disqualified from being appointed as liquidator. Therefore it is necessary to amend the provisions of section 228G of the 1963 Act by including reference to the new section 300A now inserted and this amendment provides that accordingly. In other words, it is a technical amendment.

Amendment agreed to.
SECTION 115.
Government amendment No. 168:
In page 99, line 35, to delete "of the Principal Act".

This is a fairly straightforward drafting amendment and has no bearing at all on the substance of section 115. Section 115 inserts a new section 301A in the Principal Act. It is therefore wrong to refer in that new section to the Principal Act itself. Amendment 168 would simply remove the unnecessary words of the Principal Act from the second line of subsection (5). Again, it is a technical amendment.

Amendment agreed to.
Question proposed: "That section 115, as amended, stand part of the Bill."

As regards the relationship, a parent, spouse, brother, sister or child, I can certainly see how they would be closely connected. Are we being somewhat unfair to such people? I know that blood is thicker than water. Are we saying in this section that even though they have a connection they can still be appointed? Is it a disclosure or disqualification or both? What precisely is meant by the representative of a creditor? Is it anybody who seeks to represent a creditor or is it somebody specific?

What I am trying to achieve here is that if somebody at a creditor's meeting has a connection with the person who is proposed to be the liquidator, that connection be made known. It really is to ensure that the meetings are conducted in such a way as there is not too much manoeuvering. If there are interests in a room pushing for a particular liquidator to be appointed, I want to make sure that any connection between the person being proposed and the people doing the pushing would be made known to the meeting.

We are talking then about disclosure as opposed to disqualification.

That is very healthy but it is unfortunate that we gave any examples because the minute you give examples it becomes almost exclusive to that group. For instance, somebody who was employed by another company in the group or who had some connection with another company in the group might not be tied in terms of "employed by or a partner of". I would have preferred a more general statement. I do not think this subsection is necessary. It may be a case of making an assurance doubly sure but in a sense it actually confuses the issue. The section would have been fine without the inclusion of subsection (3). I do not think it is necessary to identify or to tie down the categories of people. It does not add to the legislation because it was very clear at the beginning but I found that on reading the section I became confused towards the end of it. I am worried that somebody who would be much more closely connected with the business of the company than, say, a brother, father, sister, mother or partner, would in effect be eligible to be proposed without any disclosure. In other words, they could use the exclusions or the definitions as a way around not making a disclosure which might otherwise be appropriate.

I welcome the fact that there is a disclosure clause in this section and that the previous section disqualifies a related person from being appointed as a liquidator. All too often in the past in the case of a voluntary winding up the members of the company would appoint somebody who would dispose of the assets at way below their actual value, and in some cases dispose of them to another related member of the company. Therefore, this section is very necessary and the important point is that in the case of a voluntary winding up a company can appoint a liquidator of their choice provided he is independent and not related to another member of the company.

With respect, so far as I know, that is not true. Let us tease this point put. So far as I understand and interpret the section, the person does not need to be independent of the family or otherwise; he just needs to disclose that fact. In other words, if a company are going to the wall and I am about to be proposed for the position of liquidator or receiver all I have to say is "I want to make it clear to the meeting that the managing director is my brother". I should like the Minister to clarify that point.

Let me clear this up because we are getting our wires crossed. Section 114 deals with the appointment of a liquidator and it lists the people who cannot be appointed as liquidators, for various reasons — a person who used to work for the company, parents, spouses and so on, except with the leave of the court. Section 114 sets out the people who cannot be appointed as liquidator. Under existing legislation the only body ruled out is a body corporate. This section spells out the people who cannot act as liquidators.

Section 115 is an entirely different section. There is a practice by creditors at their meetings, when they are going to appoint a liquidator, for those people who want the appointment to canvass for it and in that canvassing to ensure that they have their people and their creditors at the meeting. I want to be sure that the people at the meeting are aware of which applicant for the post of liquidator has his representative creditors, for want of a better word, in the audience. It really has nothing to do with the appointment of a liquidator as such; it just seeks to make known the fact that there is a connection between the proposed liquidator and a particular creditor at the meeting. In a way it is to sort of flush out who is canvassing for whom at a creditors' meeting. They are entirely different sections. Section 115 has nothing to do with the kind of people who cannot be appointed; it is purely to make the information available.

So that I understand clearly what the position is — it is about casting a vote for a person. Is it not a bit macabre really? It is like lawyers in the US who chase after ambulances to get a case. We will have potential liquidators following struggling companies around in the hope that they might go bust so that they get the job of liquidator. I believe the section is useful but I am still not clear about who a representative of a creditor will be. Will it be anybody who is representing the interests of a creditor?

By proxy maybe. For example, a creditor's solicitor.

It is an official position.

Question put and agreed to.
Section 116 agreed to.
SECTION 117.

Amendments Nos. 169 and 177 are related and may be discussed together.

Government amendment No. 169:
In page 101, between lines 18 and 19, to insert a new subsection as follows:
"(6) Where a person to whom this section applies was a director of another company on the relevant date, and that company had not, on that date, commenced business, he shall not act in any way, whether directly or indirectly, as a director of secretary of that company unless that company meets the requirements set out in subsection (5).".

Because we are starting a new Part of the Bill maybe I should reflect a little on what we are at and where we are going.

We are entering into a Part of the Bill which deals with the question of restricting directors in insolvent companies and of disqualification. With the permission of the Cathaoirleach, I should like to mention one or two matters in this regard. The Senators will be aware that the Bill deals with a number of areas. Part II of the Bill strengthens the provisions of existing legislation regarding the investigation of the affairs of a company. Part III is designed to give us more disclosure. Part IV has been designed to give us the true ownership of a company and to flush out the nominee director of a business. The House will be aware that Part V of the Bill deals with insider trading and that we brought in very substantial penalties for those found guilty of insider trading. Part VI of the Bill, which we have just dealt with, deals with the question of reckless trading and the setting up of that principle.

Part VII deals specifically with what we can call "delinquent directors" and its purpose is to ensure that no one will be allowed to be involved in the management of a company if he is not a fit person to be a director. This Part of the Bill ensures that if you are not fit to be a director, you cannot become one. It deals with the restrictions on the activities of directors and is really the kernel of this Bill. That is why I took the liberty, with the Leas-Chathaoirleach's permission, of saying that this is a very important Part of the Bill in that it contains a number of very strong measures designed to curb abuses of the privilege of limited liability, abuses which are in danger of bringing the whole concept of limited liability into disrepute. I will deal with these issues as we move into this Part.

I want to summarise briefly the remaining Parts of this Bill. Part VIII deals with receivers and is designed primarily to clarify the existing law in a number of respects. Part IX of the Bill deals with the question of company rescue and the business of providing a mechanism to allow companies to have a kind of intensive care period so that they can get their act together. We are now dealing with the Phoenix syndrome, the famous and most widely known abuse in company law where a company closes down Friday, opens up under a new name on Monday with nothing having changed, except perhaps the name over the door. Therefore, the kernel of the Companies (No. 2) Bill which is now before the House is to tackle this outrageous abuse of the Phoenix syndrome, of pulling new companies out of the ashes of the old. Senators will agree that this section tackles that abuse head on and is the kernel of this Companies (No. 2) Bill. I just thought I would put that on the record at this stage to help focus both my mind and that of the House on it.

I want to move on to Government amendments Nos, 169 and 177. The purpose of amendment No. 169 is to ensure that the stringent requirements of section 117 cannot be avoided by the use of shelf companies. It has come to our attention that company directors are being encouraged in the city, even before the Companies Bill comes into operation, to protect themselves from section 117 by setting up shelf companies now which can be used at a later stage if the company, with which a director is already involved goes into insolvent liquidation. The section, as presently drafted, applies the capitalisation requirement to situations where a person who has been involved in an insolvent company begins to act as a director or otherwise in relation to another company. It is clear, however, that if a person is already a director of a particular company before another company of which he is a director goes into insolvent liquidation, then the section as presently drafted could be avoided. In seeking to close off this possible loophole we have been conscious of the danger of restricting the operations of a genuine director who is involved in two companies, one of which goes into insolvent liquidation.

It is not our intention that section 117 should apply to the director in relation to the company which is solvent. The formula which we have devised in amendment No. 169 therefore is to cover the type of situation where a director becomes aware that his company is in trouble and may become insolvent and in order to protect himself he incorporates another company of which he will be a director so that he can start up business again without being subject to the requirement of section 117. It can be seen that without this provision our reference in dealing with this Phoenix syndrome could be thwarted quite legally by unscrupulous operators.

Amendment No. 177 which is related to amendment No. 169 ensures that the further restrictions relating to maintenance of capital contained in section 119 will apply also in the type of situations which I have just outlined. Section 119 as presently drafted applies where a person begins to act or becomes involved in another company. As with section 117 (4) it is necessary to amend section 119 to ensure that its provisions are not avoided by the use of shelf companies.

There are times in the business of legislation — which appeals to me greatly at the best of times — when it is worth while being a legislator and this is one of those times. I compliment the Minister and the drafters of this amendment for dealing with what was a blatant abuse. It is worth making headlines about the fact that the Minister has taken on hand very promptly and responded very quickly to an untenable situation which was developing where people were advertising, selling and shelf companies were being bought for the express purpose of subverting what was intended by this legislation.

I almost succeeded in being thrown out of this House one day by the Cathaoirleach when I attempted to raise this matter on the Order of Business as a reason for bringing the Companies Bill forward urgently. I discussed it with the Minister and I compliment him on the way he has taken on board this matter and the way in which it was very efficiently drafted. I cannot underline enough the importance I attach to this matter because this is what legislation is all about. If this House means anything, this shows where it can be important. This could not happen in the other House. The legislation is strengthened beyond measure. Nothing else we have done today could strengthen it as much as this has done. The proposal which I pushed to a vote was less important than this particular one. This means in effect that all those dormant inactive companies lying on shelves all over the city are now no threat to this legislation. I compliment the Minister and his team for bringing forward this legislation and it deserves recognition.

I want to put on the record my appreciation of Senator O'Toole's championing of this amendment. The Senator was one of the prime sources which we used in becoming aware of this abuse which was designed to thwart this Companies Bill and whereby people in the business community were specifically offering shelf companies in an attempt to thwart the wishes of the Oireachtas and the wishes of the legislators. I want to put on record my appreciation of Senator O'Toole's direct involvement in focusing my mind on that problem and I thank him.

I compliment the Minister and his colleagues for moving swiftly in recognising this loophole which will thwart the activities of fly-by-night operators and will, I hope, go a long way towards eliminating what is known as the Phoenix syndrome. For too long fly-by-night operators have used and abused the status of limited liability. Any amendment which can be implemented to stop these practices are very welcome.

Amendment agreed to.

Acting Chairman

Amendments Nos. 170, 194 and 195 are related and may be discussed together.

I move amendment No. 170:

In page 101, subsection (6) (b), line 27, after "applies" to insert "and the registrar of companies shall compile a list of the names of such persons and shall publish the list by whatever means he sees fit".

I am moving this amendment on behalf of Senator Brendan Ryan who, unfortunately, cannot be here today. It goes with the general thinking of this section that where justice is done, it should also be seen to be done. The proposal here basically is that we should have a list to which we could refer. It should be an easy operation, so that when the company goes into liquidation the information is at the disposal of the registrar and it should be quite easy to compile that list. The last part of the amendment: "and shall publish the list by whatever means he sees fit" means to hold that list in the Companies Office.

These three amendments are related. I will deal with amendments Nos. 170 and 194 first. I respectfully suggest that these amendments are unnecessary. What the Senators are proposing will in effect happen. Section 117 (6) (b) requires every liquidator of an insolvent company to give the registrar of companies the names of all present and recent directors of the company. Secondly, section 132 (1) provides that where the court makes a disqualification order or convicts a person of an offence which has the effect of that person being deemed to be subject to a disqualification order, the registrar of companies must be notified.

Section 370 of the 1963 Act provides that any person may inspect any documents kept by the registrar on payment of the prescribed fee. Therefore, any document sent to the registrar under section 117 or section 132 of the Bill will be available for inspection by the public in the Companies Registration Office. The registrar is required to keep this information indefinitely and not just in relation to companies wound up in the previous ten years. This is because the provision in the 1963 Act which allows the registrar of companies to dispose of documents relates only to the dissolution of a company itself and not to any officer of the company.

Part IX of the Bill, section 188, will allow the registrar to classify all the information he gets in any manner he thinks appropriate. Thus, he might, for example, see the registrar compiling a list of all directors. Such a list might well show those people who had been disqualified under Chapter 2 of Part VII of the Bill as well as directors of insolvent companies, details of whom had been sent to the registrar by liquidators under section 117. Therefore, in all the circumstances I hope the Senators will accept that the 1963 Act together with sections 117, 132 and 188 of the Bill will cover what they are trying to achieve with these amendments.

Related amendment No. 195 proposes that the Minister should be required to make regulations in relation to the specific register which Senator O'Toole wants to provide for and which is perhaps unnecessary. It follows that if amendment No. 119, is unnecessary then amendment 195 is also.

I am happy that the list is compiled. Will the Minister explain somewhat further the access to that list? Who would have access? How public or accessible is that information? I certainly take the point that because of paragraphs (a) and (b) it is quite possible that the list has been put together.

I made the point at an earlier stage of the Bill that these things should be retrospective for ten years, so here I am speaking against myself: what is the significance of them being available for longer than ten years? Do they become a historical record at that point or do they have some significance in terms of either this legislation or the 1963 Act?

Section 370 of the 1963 Act provides that any person may inspect the documents kept by the registrar of companies, on payment of such fee as may be fixed by the Minister. That quite clearly allows any person to inspect the documents. In regard to the ten years, I suppose it is important that they are there for as long as possible. That makes sense. I want to be careful regarding the amendments that the registrar may not necessarily have the list in the format the Senator was suggesting, but the information is available for anybody who wants to go after it. It may not be available in list form but it would certainly be available on a company by company basis, or a specific request about a specific director or company will certainly get the information.

The Minister has answered adequately. The list is there and people have access to it. By the very fact that it is compiled it is published. I, therefore, beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
Government amendment No. 171:
In page 101, line 30, to delete "will", and substitute "may".

This amendment relates to section 117 (7) which requires a liquidator of an insolvent company to inform the court where he is of the opinion that the interests of any other company will be jeopardised by the fact that a person who was a director of the insolvent company is involved in the management or formation of that other company. It can be seen from the wording of the section before us as presently drafted that the liquidator must be of the opinion that the interests of another company will be placed in jeopardy by the particular circumstances. On reflection, we consider this to be a very heavy onus of proof on a liquidator and we are concerned that this could result in the liquidator not bringing proceedings where such would be desirable simply because it is not possible for him to establish that the interests of the company will, in fact, be jeopardised. Therefore, we are proposing to replace the word "will" by the word "may". This, we feel, will make the provision much more workable and will ensure that matters which should be brought to the attention of the court will, in fact, be brought. I think that is a much more practical approach because if we leave "will" there we run the risk of it not being used.

Amendment agreed to.
Government amendment No. 172:
In page 101, line 37, after "such", to insert "other".

This amendment relates to section 117 (8) and its purpose is to clarify an ambiguity in that subsection. Therefore it is really a drafting amendment to that extent.

Amendment agreed to.
Government amendment No. 173:
In page 101, lines 40 and 41, to delete "the requirements of subsection (5)", and substitute "the restrictions referred to in subsection (4)".

This is another drafting amendment. It is a straightforward one designed simply to clarify what may be regarded as an ambiguous reference in section 117 (9).

This refers to applying for relief from the requirements of subsection (5). This seems to be important if it gives somebody the possibility of getting out from underneath the legislation. I would like it explained a little more clearly. I am not clear about what is intended here or what the circumstances are that would lead to the implementation of that subsection.

I want to ensure that the reference there is not ambiguous. Subsection (9) provides, as the Senator will see, that a person to whom section 117 applies, in other words a person who has been a director of an insolvent company, may apply to the court for relief. As drafted at present the application for relief will be from the requirements of subsection (5). However, the requirements of subsection (5) are matters which apply to a company and not to the director himself. It is really a matter of not being ambiguous about it. What applies to the director concerned is the restriction imposed by subsection (4), in other words that he may not become involved with a company unless that company meets the requirements of subsection (5). I consider that the subsection would read better by virtue of amendment No. 173 and would better reflect the meaning intended, that is that a person may apply for relief from the restrictions referred to in subsection (4) of this section. It is a drafting change which does not change the meaning of the section itself.

The minimum paid up capital for a company where a restricted director is on the board will be £50,000 for a public company and £10,000 for a private company. In subsection (9), line 42, I see the words "just and equitable". This section provides for relief for a person or a director on whom a restriction has been placed. The phrase "just and equitable" is a description or a directive for a judge. Could we be more specific about "just and equitable"?

I think the point the Senator is making could be made more aptly on the section when we come to deal with it. We are dealing now with amendment No. 173.

Amendment agreed to.
Government amendment No. 174:
In page 101, lines 47 and 48, to delete paragraph (a), and substitute the following paragraph—
"(a) to the liquidator (if any) of the company the insolvency of which caused him to be subject to this section;".

This is also a very straightforward drafting amendment. It relates to section 117 (10) which provides that an applicant for relief under subsection (9) must give notice of his intention to apply for relief, first of all to the liquidator of the company of which he was formerly a director and, second, in the newspapers. The purpose of the amendment is twofold. First, in relation to the requirement to give notice to the liquidator, clearly there may be situations where no liquidator would be acting. For example, the liquidation of the insolvent company may have been completed or simply no liquidator may be acting. Maybe he has resigned or died. We consider it desirable, therefore, to make it clear that the requirement to notify the liquidator applies only if there is one acting. Hence the inclusion by virtue of the amendment of the words "if any". I think that is a logical step.

The second reason for the amendment is simply typographical. The reference in paragraph (a) to "the insolvency to which" should, of course be "the insolvency of which".

Amendment agreed to.
Government amendment No. 175:
In page 102, line 2, to delete "of" where it first occurs and substitute "or".

This is another typographical error which we are taking the occasion to correct.

Amendment agreed to.
Question proposed: "That section 117, as amended, stand part of the Bill."

On this section, it is appropriate to place on record that here we are restricting access to limited liability. For that reason it will be welcomed. We are now taking a monumental step in that we are saying that limited liability should be a privilege rather than a right. People now will have to prove themselves before they can set up limited liability. This is a major, positive move in that direction and I welcome it for that reason.

It is important that we are quite clear what we are doing in section 117. It is the core of this Bill in many ways because people have been talking for years about this Phoenix syndrome, of companies going bust and starting up again the next day. There is an important matter which has not been mentioned by anybody, although Senator Mulroy may have just touched on it. It is simply that section 117, in effect, says that if you have been a director of a company that goes insolvent, you cannot start another company without a minimum share capital of £10,000 paid up in cash. It is important that commentators and the business community, in particular, understand that. In the case of a public company it is £50,000. It is important that we focus on that and ensure that the business community are aware that that is quite a major step forward.

There are just one or two points on which I would like some clarification. Subsection (2) imposes certain restrictions. Will these restrictions result in an exodus of non-executive directors from both commercial and semi-State companies? Their expertise is particularly badly needed in the semi-State sector. I wonder if they will continue to provide this type of public spirited service for which they get very little remuneration, when the consequences of these restrictions may have such a major effect on commercial life. Would the Minister consider an exclusion clause for companies in which the State has a majority shareholding?

I know exactly what the Senator is getting at. I suppose what the Senator is worried about is whether, in laying down these kinds of controls, it will be more difficult for people to become directors, particularly in State companies. The answer is that I would think not. Other countries also have very modern legislation like this and have no difficulty in recruiting directors. In many ways it will make life simpler and clearer for directors who are serious about their business. I would not envisage that directors would be hard to get as a result of this legislation or would be worried by it. Would-be directors of companies should be very aware of the new legislation and understand that there are additional responsibilities.

There is additional exposure for many directors, but it is appropriate exposure. Honest, straightforward directors who do a good job and know their duties and responsibilities will have nothing to worry about in this legislation, once they are aware that it does lay certain new duties on them and are aware of those duties and do not regard the job of company director as just a handy sinecure. We want them to take seriously the job of directing the affairs of the company.

In the case of a non-executive director of a semi-State company, if that company go into liquidation, will he be prohibited from, say, becoming a director of a private company? If, for example, there is some very good, professional person who would be a great asset to any company — maybe a small, indigenous company which need professional expertise — does it mean that the private company need to increase their share capital to have such a person on their board?

This is a very important area that should be cleared up. If you are a director of a company which go into liquidation, be it owned by the State or owned privately, and you want to become involved in another company afterwards — the next week, or next year, or immediately — if it is another public company then the share capital of that must be £50,000 paid up. If it is a private company, it will be £10,000. I think that the Senator is asking if a non-executive director of a State company which goes into or is put into liquidation by the Government of the day is left in the position where if he wants to start his own company the next week he has to come up with £10,000. The legislation means that precisely and I would argue that that is a good thing.

I do not think we can accept a notion that there are innocent directors. If you are on the board of a company you have responsibilities to make sure the company is run properly. If the company goes insolvent, we want to make sure that the next company you get involved in is, at least, properly capitalised. The specified £10,000 for a private company, particularly in legislation today, is the minimum capital that a company would even dream of starting up with in modern circumstances. It does make life more difficult for directors of companies that go insolvent but the legislation is not necessarily geared towards making life easier for such directors.

That leads me to subsection (9), which involves the concept of "just and equitable", whereby a company employing a restricted director can apply to the High Court for relief. Could that terminology of "just and equitable" be more specific, because judges on a bad day can be very fickle.

Their interpretation of what is just and equitable may not be in keeping with the company's thoughts on it.

I will link that question with an expansion of my reply to the Senator's earlier question, that is, that if there is a case where this should not apply, where it would not be just and equitable for it to apply, then a person can apply for relief under subsection (9) and get that relief. The Judiciary are the only people who could approach any attempt at deciding what is just and equitable. That is what the courts are for. It is the best phraseology we could come up with and it also makes sense. Even in layman's language it is reasonably obvious. I will not comment on the mood of the Judiciary on any particular day.

On the issue, I take Senator Mulroy's point that it will certainly make directors more aware of their responsibilities. It should be great relief for political parties in Government that perhaps they will not in future have people queueing up for nominations for directorships of various semi-State bodies when they realise that there is more involved than just warming the seat and claiming the expenses.

It does what the Minister claims that it does, it makes people more responsible and more interested in their company. At the same time, it would be regrettable if it backfired on us to the extent of depriving the State of the expertise of people who could make a very practical input into developing State or semi-State industry. The let-out of the application to the court would cover those cases that deserve to be covered. I do not think there is a real danger of its being over-harshly implemented or of creating a difficulty. The fact that it does expose people more will make them more aware of their responsibilities. That is probably a good thing.

The purpose of this important section is to curb the abuses of public liability and to get rid of the cowboys who fold companies one day and open a new company another day. All the legislation in the world would be useless if we did not have personal liability. This section focuses on the individual directors becoming liable for the activities of the company going into liquidation, the activities of a company that recklessly traded or the activities of a company that fraudulently traded.

The 1963 Act, in extending the scope of limited liability to companies, did so for perfectly good reasons but it certainly did not do so to flout the law. The experience over the past 25 years has been the flouting of the status of limited liability, which has been a national scandal. The deterrents here and the onerous responsibility placed on the directors to ensure that they know exactly what is going on in their company, together with the information now needed to be supplied by auditors, will certainly copperfasten the fact that directors will have to be on top of their job and know what the information in the company is all about.

I mentioned in my Second Stage speech and earlier on Committee Stage my concern about community enterprise. There are situations — Senator Mulroy touched on them — where communities might become involved in a FÁS funded scheme, might even seek to become directors or might wish to become directors to represent a community group on a particular private company to lend professional experience to the formation in the initial stages of that company. I am thinking of people in the public service who, through their experience in local authorities or in the semi-State sector, lend their names now to being directors of a private company to assist a community enterprise project to get off the ground. Indiscretions could take place because of the nature of part time directorship. One will not be absolutely familiar with the day to day management of the company. That will be left to the managing director and the people involved in the day to day running of the company. We could infringe on a great resource in a community that might be essential to assist community enterprise. I hope subsection (9) will ensure that the just and equitable phraseology mentioned in the subsection will allow people in that capacity who are there for bona fide reasons to assist people to create employment and will not be unfairly treated in the event of unscrupulous and reckless activity on the part of others in the company.

I am concerned about those people whose companies have been wound up. What about the managing director who resists the winding up of the company, activates another company, moves sideways into another company, or begins trading under another title in some other way without winding up the company which cannot meet their liabilities? I did not get a chance to investigate how far the law could be pushed in that area but there must be room there for manoeuvrability where the law could be abused by the managing director of a company resisting the winding up by whatever means, activating another company and trading for quite some time in the sort of interregnum. There could be a lacuna in the legislation.

Section 189 (2) of the Bill says that the following sections, with the necessary modifications, shall apply to a company to which this section applies, notwithstanding that it is not being wound up. There is a list of sections.

Subsection (12) states that any liquidator who contravenes subsection (6) or (7) shall be guilty of an offence and liable to a fine not exceeding £1,000 and, for continued contravention, to a daily default fine not exceeding £50. I would like to pose a question. In section 113, for a similar type of offence, it says that on summary conviction there will be a fine not exceeding £1,000 and, for continued contravention, a daily default fine not exceeding £50. Paragraph (b) says: "on conviction on indictment to a fine not exceeding £10,000 and, for continued contravention, to a daily default fine not exceeding £50. Should they be consistent with each other? Why is it not the same for both? There is probably a very good reason.

It is a very good question. There is no particular reason for not going the additional step in this one. We will have a look at it. I thank the Senator for raising the point.

Question put and agreed to.
SECTION 118.
Government amendment No. 176:
In page 102, line 13, after "debts,", to insert "taking into account the contingent and prospective liabilities of the company,".

Amendment No. 176 is simply intended to ensure some consistency between sections 117 and 118. Section 118 applies the provisions of section 117 to receiverships. The House will recall that section 117 imposes restrictions on a person who has been a director of a company which has gone into voluntary liquidation. The principal requirement of that section is that any new company with which the person becomes involved should be properly capitalised. I talked a while ago about that aspect of section 117, basically putting down the requirement for a private company to have a share capital of £10,000 fully paid up if a director becomes involved in it who had been a director of an insolvent company under section 117. Section 118 provides that the provisions of section 117 will apply if it appears during the course of the receivership, as opposed to liquidation, that a company are unable to pay their debts. This section as drafted does not make it clear that in determining whether a company are able to pay their debts in receivership, contingent and prospective liabilities should be taken into account as they are in the winding up by virtue of section 117 (1). It is important that this should be made clear as the ability or otherwise of a company to pay their debts, including their contingent and prospective liabilities, is a normal test of solvency of a company.

Besides section 117, this test is used already in the 1963 Act in section 214 where one of the circumstances in which a company can be deemed to be unable to pay their debts is if it is proved to the satisfaction of the court that the company is unable to pay its debts the court shall take into account the contingent and prospective liabilities of the company. What we are doing here is extending the idea of section 117 to receiverships because section 117 deals with the question of liquidations.

In regard to the prospective liabilities of companies that are going into receivership, I am not clear what that means. Does this apply in the case of a company continuing trading under the receiver?

That phrase appears in the accounting standards; it is well known in company legislation generally and covers the ability of a company to pay their present debts and their contingent and prospective liabilities. It is not enough, in company law in determining solvency, just to be able to pay your existing debts. If there are prospective or contingent debts, you would need to be able to meet those also. There are debts and there are contingent liabilities — contingent on some event happening or contingent on some sale going through. It is a well-established accountancy concept. As well as being able to pay your debts you must be able to pay your contingent and prospective debts, debts which you can foresee in the normal course of business. For example, you may have concluded a deal and it has not become a debt yet, but it will become one in three weeks time, and you are not sure exactly what the amount will be or on what date it will become a debt. To include the contingent and the prospective debts of the company is an extension of the debt of a company.

I understand contingent liability, but as regards the prospective liability, I am not clear that a company being wound up in receivership could have a prospective liability. I am trying to think of an example where it could happen. I am not arguing if there is a need for it, but it seems unnecessary. Can the Minister give me an example where it might come into operation? In the winding up of a company by the receiver, are we adding to the liability of the company, which would appear to be one interpretation? The contingent liabilities would be there from the time the receiver took over, but prospective liabilities would appear to develop while the company were being wound up. By implication, it would appear that the receiver will worsen the situation by adding to the liabilities and debts. I am worried about that.

This is a wording with which I have a little difficulty but the Minister has given an explanation. An example might be where a company went into liquidation and had an outstanding energy bill for natural gas or electricity, which would not be due for three months.

Debts are not just debts, they are debts plus contingent liabilities. I will give an example. Say there was an insurance claim to be made against the company, but you are not sure when it will be made, for how much it will be or, whether there is possible litigation. You cannot ignore that because it is every bit as much a liability or debt as the debts in front of you. You cannot stop the definition of debt at the debt that is actually incurred. If you take that insurance case, that is a prospective liability or debt which may not have crystallised but you are aware of it. Therefore when you are talking about debts you must include it.

It might be a prospective debt but it is a current liability. If I am to take over the running of an insurance company, the liability is there. Say there is a a car accident in which four people are claiming against the company, that is a liability I have now and it becomes a prospective debt, not a prospective liability. Maybe we are only arguing about words here but I am just trying to establish that I could not run up a new liability. There is a difference between a liability and a debt. One is liable for the debt, but the debt is prospective in the sense that the court case has not been heard yet and we do not know the exact amount involved, but I am aware of the liability now because it is on the company's books. I have no difficulty with the word "contingent" because that is quite clear, but I am worried that a receiver could incur new liabilities. I am not talking about new debts; new debts I can understand. As Senator Mulroy said, the lights have to be switched on every morning and the electricity bill will keep going up, but that is not a new liability as such. I am worried about a prospective liability which means to me that your are now creating a new liability for the company.

That is not the intention. The wording here is to include contingent and prospective liabilities in getting the overall picture of what the company may ultimately be responsible for. Under this section a receiver would not be able to use it to run up further debts, but there is a separate discussion where a receiver in the normal course of managing the disposal of the assets would be entitled to run up certain debts, but that is not covered in this section. This section attempts to make it clear that the debts are there at the start of the receivership — it is the time frame we need to get clear here — and we have to look at what contingent liabilities are there too. There is a difference between debts and liabilities, and we could debate that, but ultimately both have to be met, The debt is probably more imminent and more immediate, but then some liabilities are also imminent and immediate and some are longer term and do not have to be met just now. It would be nonsense just to take account at a particular date, say at the start of the receivership, of debts without taking account of, for example, an insurance claim that might be made, but it cannot be used, and would not be used, by a receiver to incur unusual new contingent liabilities other than those in the course of doing the receivership of the company.

Amendment agreed to.
Section 118, as amended, agreed to.
SECTION 119.
Government amendment No. 177:
In page 102, lines 17 to 22, to delete subsection (1), and substitute the following subsection:
"(1) Where a person to whom section 117 applies—
(a) is appointed or begins to act in any way, whether directly or indirectly, as a director or secretary or begins to be concerned or take part in the promotion or formation of any company to which the requirements of section 117 (5) apply on or after the relevant date as defined by section 117 (3), or
(b) being a director of another company on the relevant date which had not, on that date, commenced business, acts in any way, whether directly or indirectly, as a director or secretary of that company,
this section shall apply to that company.".

This amendment has been discussed with amendment No. 169.

May I just say that in the last sentence on page 102 the word "preceding" is misspelt.

Amendment agreed to.
Section 119, as amended, agreed to.
NEW SECTION.
Government amendment No. 178:
In page 103, before section 120, to insert a new section as follows:
"120.—(1) Where a company to which section 119 applies allots a share which is not fully paid up as required by section 117 (5) (b) the share shall be treated as if its nominal value together with the whole of any premium had been received, but the allottee shall be liable to pay the company in cash the full amount which should have been received in respect of the share under that subsection less the value of any consideration actually applied in payment up (to any extent) of the share and any premium on it, and interest at the appropriate rate on the amount payable under this subsection.
(2) Where a company to which section 119 applies allots a share which is not fully paid for in cash as required by section 117 (5) (c) the allottee of the share shall be liable to pay the company in cash an amount equal to its nominal value, together with the whole of any premium, and shall be liable to pay interest at the appropriate rate on the amount payable under this subsection.
(3) Subsection (1) shall not apply in relation to the allotment of a bonus share which is not fully paid up as required by section 117 (5) (b) unless the allottee knew or ought to have known that the share was so allotted.
(4) Subsection (1) does not apply to shares allotted in pursuance of an employees' share scheme within the meaning of section 2 of the Companies (Amendment) Act, 1983.
(5) In this section, ‘appropriate rate' has the meaning assigned to it by section 2 of the Companies (Amendment) Act, 1983.
(6) Section 26 (4) of the Companies (Amendment) Act, 1983, shall apply for the purposes of this section as it applies for the purposes of that section.".

This amendment combines sections 120 and 121 of the Bill as it stands. Our reason for doing this is that having examined these provisions further we decided that the two sections are very similar in a number of respects and that it would be better just to have one section. There are, however, a number of problems in relation to the two sections as they stand and we are dealing with them in the amendment. Sections 120 and 121 are largely similar in that they set out the requirements in relation to the allotment of shares in the context of section 117 (5). Section 120 deals with situations where shares are allotted without being fully paid up, while section 121 deals with the situation where shares are allotted without being fully paid for in cash. It can be seen, therefore, that subsection (1) of each section is similar in a number of respects. Furthermore subsection (4) of section 120 is the same as subsection (5) of section 121.

What we are proposing is to combine these two sections, and in doing so try to iron out a number of other problems which we see with them. For example, there is a reference in section 120 (1) and section 121 (1) to "interest at the appropriate rate". This however, is not defined. We are introducing an appropriate definition in subsection (5) of the amendment. Similarly, in section 120 (3) the term "employees share scheme" is not defined. We are clarifying the situation in subsection (4) of the amendment.

There are other important matters which we are seeking to rectify in this amendment. First, the reference in both sections to "contravention of section 117 by a company" is inappropriate as there is no obligation imposed on a company under section 117. We have, therefore, reworded this reference. Thus, the reference in subsection (1) of the amendment will be to the allotment of the share which is not fully paid up as required by section 117 (5) (b). The same change will be made in the new subsection (2) of the amendment.

Finally, there are a number of provisions in section 121 which, on reflection are not appropriate. These are subsections (2) to (4). These provisions relate to contracts for the allotment of shares and the avoidance of certain variations in such contracts in certain circumstances. Having re-examined these provisions we are satisfied that they are not appropriate in the present context.

Amendment agreed to.

Acting Chairman

The acceptance of amendment No. 178 involves the deletion of sections 120 and 121.

SECTION 120.

Question, "That section 120 be deleted" put and agreed to.
SECTION 121.
Question, "That section 121 be deleted" put and agreed to.
SECTION 122.
Question proposed: "That section 122 stand part of the Bill".

I have just one query on section 122. On getting back to applying to the court for relief on the appointment of restricted directors, I understand that this request has to go before the High Court, which is expensive. I wonder would it be possible to put it before, say, the District Court or to apply to, say, the Master of the High Court, which would be less expensive on companies. Why does it have to go to the High Court?

The matters are very serious ones and that would be the standard and normal court for company law matters given the nature of the matters involved. We could not bring it to another court, given the nature of the offences. I appreciate there is expense in litigation but that is something that is outside my control in this Bill.

Question put and agreed to.
SECTION 123.
Question proposed: "That section 123 stand part of the Bill."

I have some difficulty with this section. I am not clear in what circumstances it might be implemented or as to the necessity for it. It seems to me that it puts undue pressure on a Minister to allow an out from the requirements of section 117. Perhaps the Minister could explain the intention of it or the times when it might be implemented or the appropriateness of it in general to the legislation as we have discussed it.

Any action would have to be cleared by the Oireachtas. There would be no question of the Minister doing it without coming to the Houses. That is the first point. Second, with regard to some of the figures mentioned in the Bill, time may show that they are inappropriately low and the Minister of the day may wish to amend the figures in the light of the circumstances of the day. Again, they would have to go through the Houses of the Oireachtas. If you put figures into a Bill you must give the Minister of the day the power to come back to the Houses of the Oireachtas and have them altered.

Could the Minister give any indication of how these figures would be amended? I know it is a difficult question but if, for example, a company wants to employ a restricted director and, say, they evaluate the necessary share capital to qualify to employ this person, they would need to have some guarantee that in a month's time the paid up share capital would not be doubled or trebled. Would it be index-linked or is there any means whereby the adjustment up or down would be just and equitable.

I see the Senator's worry but there is no great cause for concern. If I knew what the figure was going to be I would have put it in the Bill in the first place. I do not know what the figure would be but the figure that is in the Bill is the figure that is appropriate for here and now. The Minister of the day could change that figure when the time comes. The figure we have now is sensible for today's conditions. There is no question of it being jumped on the business community. In all the orders that go before the House there is always a couple of months lead time, so a company will have time to adjust. There would be no question of a company being asked, time and time again, to put in more and more money.

I just want to clarify this. I accept the Minister's argument on this. There is a need to change the numbers in a Bill like this, by whatever means, when it becomes law. I was more worried about the way it might be varied for an individual company. Paragraph (c) of it includes the phrase "contains such supplemental and transitional provisions". I do not mind "supplemental" because it has to imply in addition to the ones that are there already, but "transitional" worries me because it seems that the Minister may, as he thinks appropriate, make different provision for different cases. I want to be reassured that that cannot be used for individual companies. What does "transitional" mean in this sense? If it just means from the old to the new I do not mind that either. The difficulty I have condenses or distils itself to the line "make different provision for different cases". Could I have that expanded on? At what stage or when will the Minister see fit to make different provision for different cases? Does "cases" in that sense mean a company or does it mean a type of company, or does it mean a generalised bit of legislation to deal with new circumstances as opposed to an individual company?

The word "transitional" would be where the Minister decided to increase the figure and decided that that would not come into effect, say, for three months. There may be some transitional arrangements in getting from the old to the new and the Senator says he is satisfied with that. That would be a typical transitional provision. There is nothing deeper involved in it. Incidentally, the Companies (Amendment) Act, 1983 has, in section 19 (c), precisely the same wording as we have now in here so we have used section 19 (c) of that Act in the Bill. That in itself does not make the case, but it is just to say that it is a reasonably standard sweeping-up clause. If it comes to the Minister's attention that there are difficulties in certain areas he can make an order to amend them. The business of making orders is an old debate as to how much power it gives the Government of the day, but the orders must come to the Houses of the Oireachtas. That is the standard response when a fear is expressed about what a Minister may put in an order, that it must come before the House for approval.

I am still not clear about what the different cases may be. I accept the Minister's explanation on the supplemental and transitional provisions and I certainly agree with them also but I am still not clear on what the provision on different cases is about.

It refers to different categories and types. It certainly does not refer to individual companies.

I would suggest, therefore, that on Report Stage the word "case" should be replaced by the word "categories" or "types". That would make an awful lot more sense because the word "case" could be interpreted much more narrowly.

I agree and I will do that.

Question put and agreed to.
SECTION 124.

Acting Chairman

We now come to deal with amendment No. 179. Amendment No. 184 is consequential on amendment No. 179 and amendment No. 188 is related. All three may be discussed together.

Government amendment No. 179:
In page 104, to delete lines 36 and 37, and substitute the following:
"‘disqualification order' means—
(a) an order under this Part that the person against whom the order is made shall not be appointed or act as an auditor, director or other officer, receiver, liquidator or examiner or be in any way, whether directly or indirectly, concerned or take part in the promotion, formation or management of any company, or
(b) an order under section 184 of the Principal Act."

The effect of amendments Nos. 179 and 184 would simply be to shift the actual definition of "disqualification order" from section 125 (4) to section 124. Section 124 is the definition section for Chapters 2 and 3 of Part VII and would seem to be the more appropriate section for fully defining what a "disqualification order" is. We think that an amendment to section 125 (4) would have been required anyway because the definition contained in that subsection at present is expressed to apply for the purpose of section 125 only, whereas disqualification orders can be made under other sections also, for example, section 126 (4). The third amendment, amendment No. 188, is related to amendments Nos. 179 and 184. It is not correct for section 125 (9) to refer to a disqualification order by virtue of this section since other sections in Part VII also allow such orders to be made, for example, section 126 (4). The right expression therefore in section 125 (9) seems to be "by virtue of this Part" and amendment No. 188 makes this technical correction. Therefore, what we are doing here is shifting it to where it belongs in the definition section. It is a technical amendment.

Amendment agreed to.
Government amendment No. 180:
In page 104, lines 39 to 41, to delete "or any person in accordance with whose directions or instructions the directors of the company have been accustomed to act".

This is a drafting amendment and it arises in connection with the definition of "officer" in section 124. The words we propose to delete here are a relic of an earlier draft of the Bill. We had not at that stage conceived the notion of mentioning "shadow directors" specifically throughout the Bill. Therefore, our definition of "officer" in section 124 of the earlier draft did not mention "shadow directors" specifically. However, the current text of section 124 does refer to "shadow directors" specifically so that the words "or any person in accordance with whose directions or instructions the directors of the company have been accustomed to act" now appear to be tautological and should be removed. That is what we are doing here.

I am just wondering if it is tautological. I remember asking on Second Stage what the definition of "officer" was. I asked a number of people what the definition of "officer" was before coming across it in the legislation. I do not believe that the definition is contained in the Principal Act. Perhaps it is but I could not find it. I certainly would not be in favour of inserting additional words which might be totally unnecessary. If I knew what was intended originally, perhaps I would understand better what we are now getting rid of. This is a very critical definition because the legislation refers to the officers of a company and if we go wrong in this particular one we will be found out in a very short space of time indeed when people will be able to insinuate themselves into a company without holding any of the officerships mentioned. I am not clear on what is meant by a "shadow director" as it applies here. Is this term defined earlier in the Bill as I am getting confused at this stage? If it is not, what are we getting rid of in this section? Who did this apply to before we began to use the term "shadow director" and what precisely does the term "shadow director" mean? I know how it is used but does it have a legal definition?

This is the first time we have used the term in legislation. We cannot approach the reform of company law without bringing this concept into play because very often the people who would appear to control a company are not the ones who control the company. They are operating on someone's instructions. If the Senator looks at page 12 of the Bill he will see that the term "shadow director" has the meaning assigned to it by section 26 and if he moves on from there to section 26, on page 27, he will see that a shadow director is defined, subject to subsection (2), as a person in accordance with whose directions or instructions the directors of a company are accustomed to act shall be treated for the purposes of this Part as a director of the company unless the directors are accustomed so to act by reason only that they do so on advice given by him in a professional capacity. This concept has been around since the 1963 Act. It is just that we did not call them shadow directors. This concept of someone behind the scenes issuing instructions has been around since the 1963 Act — somebody who was not obvious — but this is the first time we have put a title on them. The term is defined in section 26 of the Bill. It did not seem necessary to mention it a second time in the section which we are now dealing with.

I am glad that the term "shadow director" is clearly defined in section 26 on page 27. Is there a possibility that the phrase was used to describe a shadow director and when we came to use the term "shadow director" we then got rid of the phrase? If that is the case, we have covered it completely and I agree there is no point in retaining it. Is that the logic behind it? Can the Minister of State tell me whether there is any way of getting around it? It seems to be very clear. From reading what is stated on page 27 I can see what we are now deleting. In effect, we are not deleting it at all as it is contained in the legislation further back. I accept that.

That is precisely the case. It is already contained on page 27 and there is no need to say it here again.

The word "officer" is defined here and in section 107 on page 94. Can the Minister of State tell us what significance that has?

Some of these phrases are defined for different purposes in different Parts of the Bill. This Part of the Bill defines the word "officer" in a particular way. Again, that is the procedure used in most Bills.

That is why company law is so complex.

To make money for lawyers.

That is right but I would like to know why the word "manager" was not used. I am aware that this Chapter deals with directors and other such officers but the word "manager" has not been mentioned in the definition of the word "officer". The Minister of State went to great lengths to widen the net in relation to the definition of the word "manager" in a previous section.

We can certainly take a look at that. Do you want us to put it in?

We will be putting down an amendment on Report Stage.

It is defined for this part of the Bill. The reason there are different definitions in different parts is that we may want to cast the net differently depending on the purpose of the part.

Amendment agreed to.
Section 124, as amended, agreed to.
SECTION 125.
Government amendment No. 181:
In page 105, line 7, to delete "body corporate", and substitute "company or any society registered under the Industrial and Provident Societies Acts, 1893 to 1978".

While amendment No. 181 on the face of it, is straightforward, the background is a little complicated. Once a person has been disqualified under section 125 he is, under the present text of subsection (1) (a) disqualified from being a director of not only a company as defined in section 124 but of any body corporate; in other words, Companies Act companies, building societies and industrial and provident societies but not friendly societies. There are inconsistencies in this approach and that is the reason for this amendment.

The main inconsistency is that where a person is disqualified from being a director of a company he would also be disqualified from being a director of a building society or an industrial and provident society: for example, a cooperative or a credit union. Building society legislation has its own disqualification provisions and I feel we should not overlap that legislation and section 125 of this Bill. Amendment No. 181, therefore, makes it clear that an order under section 125 will disqualify the person concerned from being a director of any company or industrial and provident society.

Amendment agreed to.

I move amendment No. 182:

In page 105, subsection (2), line 33, after "fit" to add

"or may require him to carry the outstanding debts to the new business venture."

On the question of disqualifications and the authority, right and discretion of the court to make certain orders, where the court is satisfied that a person is guilty of fraud, of a breach of duty and so on the court may make certain orders against that person. It says that it may make a disqualification order against a person for such period as it sees fit.

I see the phrasing of the amendment as being somewhat clumsy but I am still proposing it. In this amendment I am suggesting not only would the court see fit to propose a period of disqualification but that the person discredited would be liable for the outstanding debts in a new business venture or company he would set up. I put the amendment forward as an excuse to debate a point. I think the question of discharging one's debts or meeting one's liabilities is important. I would like the court to have the discretion to make any person who is going to set up anew to be responsible for previous debts incurred and, therefore to be made liable for the discharge of those debts.

I understand entirely the reasons behind the tabling of Senator O'Toole's amendment. I know he feels strongly about this. I am afraid, however, I have a basic problem with the amendment, both in principle and in practical terms.

To begin with, amendment No. 182 is clearly based on the philosophy that a person who has been involved in an insolvent company should repay the debts his company incurred before being allowed to start again. However, it seems the underlying principle here is already provided for in those sections of the Bill which provide that a company director may be made personally liable for the company's debts in a whole range of circumstances. Thus, we have section 107 which allows for personal liability where a director has been a party to fraudulent or indeed reckless trading. That section will allow a liquidator, creditor and so on to pursue a director personally for his company's debts in certain cases. Indeed, where a director has been made personally liable in this way, the court can go on to make a disqualification order against him also.

Section 117 of the Bill — which we have just dealt with — will apply to the type of case the Senator had in mind. Section 117 (7) refers to where the liquidator of an insolvent company thinks that the involvement of one of the directors concerned in another company, whether this is a new company or not, may put the interests of his creditors in jeopardy he must inform the court about this and the court can then make whatever order it thinks fit. That provision is pitched in a deliberately wide way to allow flexibility to the court. We are not restricting in any way the kind of order the court can make. I am not saying the court would make an order of personal liability against the director concerned under section 117 (7) but I could not rule it out either.

A further problem with Senator O'Toole's amendment is that if a person were to automatically carry previous debts to a new company I would expect the creditors of the old company to go after the new one immediately. The effect of this probably would plunge the new company into insolvency also. There is also the problem that there would usually be more than one director of the old company involved here who might become involved in several different companies subsequently. There would be considerable uncertainty as to which of these companies should carry the debts involved.

I have stressed all through this debate that what I am after is balanced legislation, one that responds to the abuses we all know exist but in a considered and measured way. This is true of Part VII as it is of other Parts of the Bill. Thus, on the one hand we have section 117 which will restrict the right of anyone concerned in an insolvency to start up in business again without meeting a certain number of conditions. This will ensure a degree of protection for the creditors of any new company the person concerned becomes involved with.

On the other hand, we have the strong measures in Chapters 2 and 3 of this Part which will deal severely with anyone who is disqualified by the courts from being a director and so on. A person who is disqualified will effectively lose his livelihood, at least as far as being involved in company management is concerned. I feel strongly, therefore, that the range of provisions we have go as far as is necessary or as is sensible in countering the abuses which we set out to tackle in the first place.

What we are doing in a general way in sections 124 and 125 — and I want to make this clear as I did a few moments ago — that if a person is a director of an insolvent company, the new company has to have £10,000 start-up capital. Equally, I want to make clear under this section we are putting into legislation that the court can disqualify a person for any period of time from being a director of a company. That is a very strong power indeed to put into this legislation and one which we should not underestimate. A person can actually be disqualified from being a director of a company. I thank the Senator for his amendment but, unfortunately, I am not in a position to consider it.

An Leas-Chathaoirleach

Is the amendment withdrawn?

I am still not absolutely clear about this. I will be referring back to parts of this in the next amendment. At this point it seems there is no reason why this discretion should not be allowed. As the Minister says, under section 117 (7) with notification to the court it might be possible for a court to make such an order. Does that mean that a court could order a person to take the liability with them? Are we back to the question of personal liability? I am not sure what the Minister was referring to but I am saying that one cannot walk away from the responsibility.

There is plenty of scope in the Bill to make a director personally liable for the debts. We have gone as far as we should go in regard to this and if we go any further we might as well dump the whole notion of limited liability. That is something we do not want to do because it is a privilege which if respected is very valuable in business life. We want to ensure that people who abuse that privilege answer for it.

The question of personal liability will hang around the neck of the individual concerned but the Senator, in his amendment, wants that liability carried to the new business venture. I am not sure if that was deliberate. I presume that the words "new business venture" mean the new company and in view of that I do not think it makes sense to carry the debt to the new company. There is a lot to be said for adopting our attitude under which a director can be held personally liable for the debts of the old company in a whole range of circumstances. To go another step and say that they would have to be carried into a new company would, frankly, make a nonsense of the limited liability privilege. It would mean that the debt would be carried from company to company with the result that the difficulties of one company would be carried on into another. If there is a case to be answered the director can be made personally liable by the courts. If we adopted the amendment we would be delivering a death blow to the whole notion of limited liability.

I can understand the anxiety of Senator O'Toole in regard to this provision but it is important to bear in mind that companies can fail for legitimate reasons. Very often it is at the second or third attempt that an entrepreneur succeeds. A company may be brought down if the concern it is supplying goods to fails. I appreciate the Senator's concern in regard to this but his proposal would inhibit entrepreneurs and legitimate businessmen from starting a second time.

I tabled that amendment a long time ago and before the House accepted other amendments to the Bill. At the time I was very concerned about the matter and not disposed towards the privilege of limited liability. I accept that the changes in sections 105, 106 and 117 have tightened up the Bill considerably. When I prepared the amendment I was determined to provoke a discussion on the matter but at this stage I accept that the House has made major changes to the Bill and that the issue of personal liability has been made clearer. I accept that the question of criminal and civil liability has been tightened up.

It is not my intention to threaten the concept of limited liability. I was endeavouring to protect it at all stages. In my view the whole concept has been dragged into disrepute by abuse in recent years. I accept that what I am seeking in my amendment can be dealt with in other sections although not as cleanly as proposed. I am sure clever lawyers will find a way to make the provision work. I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

I move amendment No. 183:

In page 105, between lines 33 and 34, to insert a new subsection as follows:

"(3) A person having been an officer of a company, declared insolvent or wound up without fully discharging its debts during the previous ten years, shall be required to make application to the court for a certificate of fitness prior to becoming an officer of any other company. The applicant must satisfy the court that his conduct as a company officer previously does not make him unfit to be concerned in the management of this different company."

I would like to see subsection (2) coming into operation automatically after the Bill has been passed by both Houses. Those who do not comply with the provisions in that subsection should be automatically disqualified. In my amendment I am proposing that a person having been an officer of a company — at the time of framing the amendment I was trying to decide what an officer of a company might be and I am glad that has been clarified since — declared insolvent or wound-up without fully discharging its debts during the previous ten years should be required to make an application to the court for a certificate of fitness prior to becoming an officer of any other company. In other words, a director of a company that has not fully discharged its debts should be required to seek a certificate of fitness from the court prior to becoming an officer of any other company. In my amendment I am suggesting that the applicant must satisfy the court that his conduct as a company officer previously does not make him unfit to be concerned with a different company.

My amendment is seeking to protect limited liability. I have listened intently to what Senator Mulroy said about the need not to exclude people who were directors of a company which due to market forces or the usual risk taking in commercial life went to the wall. We have never attempted to prevent those people starting up afresh. When we were dealing with section 2 I pointed out that to become a bookie one had to apply for a certificate of fitness. For the same reason a person who is a director of a company that fails should have to go through a similar procedure. By coincidence the Killanin Report which we discussed earlier outlines the conditions necessary for qualifying for a bookmaker's licence. It states that any person can qualify for a bookmaker's licence by applying to the relevant authority and on production of a certificate and the appropriate duty that person would receive a certificate of fitness from the appropriate authority. In the case of bookies the superintendent may refuse to issue a certificate following which the applicant can appeal to the courts. I do not see any reason for not having a similar provision in this Bill. We can delete "superintendent" and insert "registrar" or the appropriate authority. There should be an appeal process to the District Court. That would not impose a huge cost on the appellant.

I am sure the Minister accepts that this will not be a restriction on the person starting a new company and that it does not hit the honest director. In fact, it would protect the honest person who is not guilty of fraud or did not intend to defraud but was a director of a company that became insolvent due to market forces. In such circumstances it is most appropriate that such a person should apply to the courts, or the relevant authority, for a certificate of fitness prior to becoming an officer of any other company. The procedure will be simple because all information concerning the previous company will be available. It will be easy to prepare a model. I commend my amendment to the Minister.

My biggest problem with the amendment is that it implies that if a person has been involved in an insolvency he or she is somehow guilty of something because otherwise he or she would not have to demonstrate his or her fitness to be a director again. The theory about the person applying for a certificate of fitness, as it were, to be a director is one with which I have difficulty. I have always been at great pains in this debate to stress that we should not regard involvement in an insolvent company as a crime, necessitating some form of absolution or, indeed, restitution. All we are saying in the Bill is that if a person is involved in an insolvent company, any company with which he subsequently becomes involved should have to meet a number of conditions, mainly to do with his capitalisation, and we have dealt with that. I am talking here mainly, of course, about section 117 of the Bill.

On the other hand, we have already provided in the Bill for the type of cases where the director concerned is guilty of, for example, some form of improper or dishonest behaviour. I am thinking here, first of section 117 (7) and (8) which between them require the liquidator of an insolvent company to report to the court cases where he thinks the involvement of a director concerned in any other company might jeopardise the interests of that other company or their creditors. In such cases we are giving the court a very wide discretion to make whatever order it thinks fit to meet the circumstances of any particular case.

Section 125 (2) allows the court to have regard to a person's conduct while a director and it will enable the court to make a disqualification order against him, where it thinks his conduct makes him unfit to be involved in a company. I should point out here that the court will not have to wait for a specific application to be made to it before being able to consider this. Subsection (2) clearly allows the court to make a judgment on the matter, of its own motion, in any proceedings before it.

The Bill as it stands already contains provisions which would deal adequately with cases where a director of an insolvent company was in some way culpable in connection with the insolvency. More importantly, however, the Bill does not regard involvement in an insolvency as something implying guilt in itself. I particularly would not want that to be the case. In those circumstances I know what the Senator is trying to get at but I am not in a position to accept the amendment.

Senator O'Toole often says he is on the side of the Minister and I am certainly on the side of the Minister on this occasion. I suppose that comes as no surprise in this debate. If the two amendments which Senator O'Toole has proposed under section 125 are accepted we would run the risk of seriously undermining limited liability and preventing directors and entrepreneurs of becoming involved again in a new company. The Bill has to maintain a balance, as the Minister rightly pointed out, in outlawing or trying to repel the people who trade indiscriminately, fraudulently and recklessly, without at the same time inhibiting people in the future from becoming involved again in the formation of a company which would assist job creation. I know that my colleague, Senator O'Toole, would not want that to happen. He would be on the side of the risk taker and the entrepreneur in creating employment. The explanation given by the Minister satisfies me that the amendment proposed would cause a director to think twice about involvement in a future company formation. For that reason I am against that amendment.

With a certificate of fitness, while it might be appropriate in certain professions, in the case of a bookmaker, to take the example given by Senator O'Toole, the danger would be that he would be running the risk of having an each way bet rather than betting on the nose, as it were, in relation to the success or failure of the company. I will have to back the winner in this case and not the one who is placed second, third or maybe at the tail of the field.

The Minister's explanation is quite acceptable. Somebody has to initiate this process and the disqualification has to be arrived at through a particular process. What I am suggesting here is that it should become practice that somebody who wants to set up again in business should approach the court. Far from being an indictment of a person, if he happens to be a director of a company who become insolvent or were unable to discharge their debts or meet their liabilities, quite the opposite is the case. What I am saying here is that such a person would be able to clear his or her name, because there is a stigma attached. There is a stigma attached to an unemployed person and, similarly, to a director of a failed company, quite incorrectly, inappropriately and unjustly. The cowboys are certainly in the minority, we are all agreed on that. This procedure would be a very simple process. I am not putting forward the proposal as a big deal for something that would have to go through a major court hearing. It is a process that could be dealt with outside of court. The initiative would have to be taken by the potential director of the new company and I have proposed in the amendment the process that should be followed in order to achieve that.

I am not saying that the Bill does not address the problem; I accept that it does, but what concerns me is the direction and the perspective of the method of address. The potential director should make the move to be accepted. The Minister would say that this happens within the process in which the person's qualifications are determined. It is a matter of perspective but I feel that people could slip the net as the Bill is published. It would be impossible to slip the net if what I have proposed is accepted because each case would have to be looked at de rigueur. What I am proposing would strengthen the Bill and would not threaten the concept of limited liability, as Senator Hogan said. It would certainly not add to any perception of a director of a failed company being seen as criminal or anything negative like that. It would be a very simple way of clearing the person's name so that he could go on to the next business venture. Everybody would understand that the people who were not allowed to set up in business again were those whom the court had felt were not appropriate people to be given that privilege of limited liability again.

I am sorry to have to disagree with my colleague again on this matter. I hope that this Bill, when it is finally enacted, will encourage people, legitimate bona fide business men, to get involved in business and create jobs. Just because an entrepreneur fails on the first occasion, perhaps for legitimate reasons, I do not think he should be inhibited in this way, as this amendment suggests. We are looking to this type of person to create jobs, and God knows jobs need to be created at this time. If the owner of a company fails in business the first or second time, for legitimate reasons, he should not be inhibited in such a way as to have to apply for a special licence to start again and give employment to people. There are adequate provisions in the Bill in other areas to deal with people who are trading in a fraudulent manner but the amendment does not specifically deal with company directors who have been trading fraudulently and for that reason I could not support it.

I want to say to Senator O'Toole that I have a problem with this amendment. The way the Senator explained it sounds sensible — a routine matter which would be almost rubber-stamped. That certainly is the way the Senator envisages it but when that is stripped away we are really looking at a situation where you would have to apply to the High Court so that it can say whether you are a fit person to be a director of a company. The simple fact that you have to apply to the High Court for a certificate of fitness almost suggests that because you are seeking a certificate which states that you are a fit person to be a company director, without which certificate or bit of paper you could not be a director, you would be approaching the court on the basis that up to that point you were not fit to be a director.

That is not the situation because limited liability is still enshrined in our legislation and if a company get into difficulties and the directors behave honestly there will be unpaid creditors. That is what insolvency means; either it is a crime or it is not. If it is something that we totally deplore, why have limited liability at all? If we do not provide for insolvent companies and unpaid creditors as part of our system, why have limited liability at all and why not face that squarely and say "Let us not have limited liability"? If we are taking a decision to keep the privilege of limited liability surely that means that companies who will close down and leave people unpaid will have their personal assets protected from having to make that good. That is what will occur but it does not mean that an honest director cannot go on into other business ventures.

We have taken this route to ensure that the new business ventures which they go into are properly capitalised to minimise the risk of it happening a second time to those people. Perhaps it is the Senator's intention to make it sound like a routine rubber-stamping mechanism where one has only to get a certificate but the way it would work here is that a director whose company goes into liquidation and, as envisaged under the legislation, where limited liability applies will have to go to court so that it can tell him that he is a fit person when, in fact, he would not have been shown to be unfit by virtue of the previous closure. It raises very fundamental differences and the routine way in which the Senator believes it will work could, in fact, turn out to be a major event for a person who will have to apply to a court, with all the implications that that has about his or her fitness or unfitness. I have a real difficulty with the amendment.

An Leas-Chathaoirleach

Is the amendment withdrawn?

I have to accept the Minister's argument about the procedure. I had not adverted to the fact that creditors could possibly attempt to give evidence at such a hearing. That was not my intention. I referred to the court in my amendment but reference to the High Court is made throughout the Bill. I agree that that reference would be most inappropriate and, therefore, I reluctantly withdraw my amendment.

Amendment, by leave, withdrawn.
Government amendment No. 184:
In page 105, lines 47 to 52, to delete subsection (4).
Amendment agreed to.

An Leas-Chathaoirleach

Amendment No. 185 is consequential on amendment No. 187 and both amendments may be discussed together.

I move amendment No. 185:

In page 106, subsection (5), line 3, to delete "or".

Amendment No. 185 is a drafting amendment to accommodate amendment No. 187. I have very strong feelings on amendment No. 187 and I have referred to this every day we have discussed the Bill.

We have had much discussion about employment and Senator Mulroy in his last contribution mentioned the need to create jobs, etc. We must remember that every time a company go to the wall a number of employees become unemployed. Because they are unemployed we direct our sympathy towards them, and quite rightly so, and some people have various interests in those who are unemployed. Under section 125 (2) of this legislation an application may be made to the court that a person has been guilty of fraud, guilty of a breach of duty, or guilty of some action which would make him unfit to be concerned with the management of a company and the court may then disqualify that person. We have agreed to that section and I have no difficulty with it. I put down an amendment to strengthen the section but it was not accepted. Nevertheless that is the section which will be in operation and we are now referring to the people who can make an application.

The Minister said: "Let us make this legislation work; let us not complicate it and let us work the procedures that are written into it". There is a procedure written into the legislation which can be initiated by the Director of Public Prosecutions, or by any member, contributory, officer, receiver, liquidator, examiner or creditor of any company in relation to which the person who is the subject of the application is acting or is proposing to or being proposed to act as a promoter. In other words, when the application is made by a member, contributory or creditor of the company, the court may require security. What I am saying is that one group of people — the workforce — have invested a whole lifetime, their working life, present, future and very often past as well in a company. They are dependent on the company and they also have access to information. There has been a growing openness in this area, particularly with the growth of worker-directors and also with the continuing education by the trade union movement of its members to take more of an interest in the financial position of their company. If a workforce believe that a director who is joining their company might be inappropriate, for whatever reasons, I do not think there is any reason why the trade union representing those workers cannot make an application to the court like the other persons mentioned in the section.

As is stated in the section, the court would require security for all or some of the costs of the application. That is fair enough and is all the more reason why the trade union, rather than a member of the workforce, should represent the workers. It would be totally unfair to ask a member of the workforce to guarantee the costs of the court hearing or the application. The workforce should have clearly defined rights under this section and should have the power to make an application under subsection (2) in the same way as the other people mentioned in section 125 (5) (a) and (b). This would require a very simple addition to the subsection, which I believe would strengthen it. It would not take from the section and would not create any further pressure. It could not be used for any frivolous reasons because people would have to pay the cost of the hearing or the application. I do not think it would be abused. It would not allow the frivolity and it certainly would allow people to put forward their point of view.

In this day and age industrial relations go far beyond employer-employee relations. Industrial relations means taking an interest in the workings of the company, examining the risks the company are taking and looking very carefully at the direction the company are taking. This is a natural progression of that type of development. I commend the amendment.

Senator O'Toole is proposing that a trade union should be given the right to apply to the court for a disqualification order under subsection (2) of section 125. Section 125 deals with disqualifications generally. Subsection (2) provides that the court may make a disqualification order against a person in certain circumstances on the basis of an application by the persons mentioned in subsection (5). The circumstances — as we all know already — in which the court can make an order are listed in subsection (2), for example, where a person has been guilty of fraud in relation to a company and so on. The persons who have been given the right to apply to the court for disqualification order are, first, the Director of Public Prosecutions, secondly, any member, contributor, officer, receiver, liquidator, examiner or creditor of a company. While this may be considered to be a long list of potential applicants, nevertheless, if we examine it it is quite a restricted one. Only those who would have particular knowledge in relation to the company or in relation to the person concerned would be entitled to make an application to the court. The DPP must be given a right of application because there would clearly be circumstances where information would come into his possession, in the course of an examination by him of the activities either of a company or its officers, which would lead the DPP to consider the disqualification order should be made against an officer of a company.

With regard to the persons listed at paragraph (b) of subsection (5) — that is the people I have mentioned — these are all persons who by virtue of their particular position may have information regarding the activities of a director or other officer which could form the basis for an application for disqualification. For example, a receiver or liquidator of a company would have access to the books and records of a company in the exercise of his functions and might thus become aware of information which would lead him to believe that a disqualification order should be made against a particular officer. Similarly an officer of a company will have regular contact with his fellow officers and maybe aware of certain activities of those fellow officers which will make them unfit to act a directors of a company. Here again it seems appropriate that such a person should have a right to apply to the court for a disqualification order.

I have difficulty in accepting Senator O'Toole's proposal that a trade union should also have a right of application. There is no way in which it can be said that a trade union has been directly affected by the activities of a director. Clearly the members of the trade union, who are employees of the company, may have been affected and in the case of an insolvency will very often be badly affected. However, the employees have a right to apply to the court by virtue of the fact that they are probably creditors of the company in which the director has been involved — that is for moneys due to them. I do not know if Senator O'Toole is aware that this is actually the case but I would point out that subsection (5) of section 125 gives the creditor the right to apply to the court for a disqualification order and an employee would be a creditor for this purpose. I consider that this is the right way of approaching the problem, that is by giving an employee a right to apply to the court for a disqualification order. Furthermore, there is nothing to stop a trade union from giving financial and other assistance to an employee, or group of employees, who wish to take such an action. I do not, however, agree that the trade union who will not have been dirctly affected should have a right to apply and therefore I have difficulty with the section. I cannot accept it.

I should like to say to Senator O'Toole that there is a parallel on the other side of the corporate fence as it were. We have not put in here, for example, that the FUE, the CII or some manager type representative organisations would have a right to apply but the people they represent, if they come within these categories, certainly would have a right to apply. We have not put in the organisation that would represent creditors, for example, the Irish Trade Protection Association or the Federation of Trades Association or all the bodies that represent persons who have an interest but rather we have put the people themselves in. That is a better approach than putting in the representative bodies. If we go down that road we would then have to look at the other side of the fence where the Irish Trade Protection Association, the CII or the various organisations that represent mangement would have a right to apply to the court. It is better to deal with the people who were directly affected and let them get whatever assistance and support they needed from their representative organisations in whatever way that organisation wants to assist them. They can hold their hand throughout the entire application if they wish. That is the function of a represenative organisation. We have not, for example, put in banks, the Revenue Commissioners or other kinds of creditors either. We have put in the individuals who are affected rather than the organisation of which they are members or the category to which they belong. It is a very specific approach. It is not that I do not want to put in trade unions but rather I want to put in the people who are directly affected. A member of a trade union might be directly affected but the trade union itself would not be affected. That is the principle I will be following here.

An Leas-Chathaoirleach

Is the amendment agreed?

Indeed it is not. That is the most unacceptable explanation I have heard from the Minister today. Before I deal with the points I would like to have one very simple clarification. How could a worker who is fully paid up to the last day of his or her employment and who has been paid any due redundancies be construed to be a creditor?

He would not be a creditor. I do not wish to exclude an employee. I have no difficulty in ensuring that this is clarified.

That is the basic point. I have put in "a trade union" in my proposed amendment and the Minister's argument has dealt with the fact that a trade union represents employees and that employees can be considered to be creditors. They can only be considered to be creditors if they are owed money or if money is owed to them at the particular time. There are plenty of examples where people lose their employment and who are paid all their wages and everything else they are owed. Therefore, they do not come under this category and it is grossly unfair of the Minister to say that they do. They do not. Under no circumstances can "creditor" there be extended to cover the rights of employees. If on the other hand the Minister accepts that employees should have that right and that they will now only be covered under the term "creditor", then if they are not covered under the term "creditor" they must be covered in some other way and the only other way they can be covered is by having them included.

For the record I want to stress what a union is about. A trade union is about representing its members and it is licensed under legislation to do so. I was not at all proposing that a trade union be included there because a trade union might in some way be financially at a loss. I do not see how that would work except that it might lose members and lose subscriptions. That was not and is not my intention. I am saying they should be there with the interests of the workers at heart in the same way as the DPP is there with the interests of the State of heart. I did not include trade union under paragraph (b) because they are a specific group of people but I put it in as a new paragraph — the new paragraph being "a trade union". It is grossly unfair of the Minister to say that even if workers were creditors of the company, if they were owed money, they would have to initiate that process in the sense of highlighting and taking a stand on an individual worker or workers and also having to be personally liable for the cost of the application. That is what a trade union is for, to represent its members' interests.

Before we get down to discussing that point I want to make the point very clearly that the interests of the workforce are not covered as the subsection is now drafted. I do not think it can be adequately covered by adding anything to paragraph (b) which deals with creditors, etc. If the employee happens to be a creditor who can invoke or initiate the procedure under that section that is fair enough. If they are not owed any money but they still feel a sense of civil and civic responsibility that this company officer should not participate in another company or if they wish to make that point publicly they should be entitled to make it. As I said, they cannot do it for any frivolous reasons. It is going to cost them too much. They are not going to walk into this without being sure of a result at the end of the day. It does not in any sense restrict the legislation.

In terms of the Minister's response on the question of information, with all due respect an employee in a company might very often know far more about the books etc. than would a fellow director. In many a company in this State the managing director's private secretary might know more about the workings of the company than anybody else in the whole company. It does not mean one has to be a fellow director to have the information to initiate this. Therefore, the information argument does not stand up and neither does the argument of regular contact. Nobody has more regular contact with a company than the people working in it day in and day out.

The word "creditor" does not cover the best interests of the employees. While they may not be owed money, in order to make sure that there cannot be a repeat of what happened previously, they would wish to have a person disqualified. That is not covered there and that is why I propose it in paragraph (c). Secondly, the area of information is critically important. An employee might have far more information than any of the people listed under paragraph (b). Thirdly, on the question of regular contact, an employee will have every bit as much regular contact with a company and far more so than most directors. Fourthly, the trade union would have to act responsibly in the way this legislation is now drawn up. They could not initiate the process for frivolous reasons because it would cost them too much.

Therefore, it is in the best interests of the employee of the new company and of this legislation generally that we include here the right of the employee and the representatives of the employee and that the employee be represented by a duly legally recognised and licensed trade union. For those reasons, anybody on the right or left of the political spectrum would agree to that. Very often what happens in terms of industrial disputes and aggravation within companies occurs because there is not legal redress. There is not a remedy available within the law to pursue the views and feelings of the members of the trade union.

This is something which I feel very strongly about and have dealt with in any legislation that has come in here. I have tried to demonstrate the need for a very clear recognition of industrial relations to meet the needs of the next century. It is important that legal redress be available. We want to get away from the old-fashioned response of demonstration, strike and aggravation in the workplace. Let us use the instruments laid down by law in the same way as they have been used over the ages. I think this would strengthen this legislation. I do not see that it could be abused. I do not see that it would be in any sense a threat to either the limited liability privilege or to the workings of the legislation, or that it would lead to any frivolity or any abuse of that section. I am very committed to pursuing this point.

I have no difficulty at all with the idea of an employee being able to take an application. That wording is not in that format but I will certainly consider putting it in. I cannot accept the inclusion of the phrase "trade union" in this section for the reasons I have given. The Senator mentioned, for example, an individual employee bearing the cost and so on. If a trade union wishes to help the individual employee, to pay the bills and stand behind him, carry the cost and advise him, that is perfectly all right, it is fine. In the same way if the FUE wishes to help an officer of the company to make an application, then that is a decision for the FUE, the CII or whoever to make. They are not just picked at random. I have no difficulty in making it clear.

I take the Senator's point. The way it is worded would indicate that the employee would have a say only if he was a creditor. The employee would have to be owed money before he would come in under the present wording. I have no difficulty in trying to tidy that up to make it clear that I could accept an employee making an application. I will give that very strong consideration to make it clear.

I could not accept the proposal about the trade union because I would then be faced with the difficulty of putting representative groups into it. Then I would have to think about the Revenue Commissioners, banks and other organisations particularly the Irish Trade Protection Association, for example, who legitimately represent creditors. I do not want to give a right in the legislation to representative group; I want to make sure that they are individuals. All these people mentioned are individuals, an officer, a receiver, a liquidator, the DPP, a creditor, an examiner, and we will strongly consider putting in the word "employee". However, the whole nature of the section would be changed if I put in "trade union". I would have to go back and look at all the bodies that hold the hands of all the other people listed here and see whether they should be put in. I do not think it would make sense.

There is no attempt here at all to undermine the legitimate role of the trade union movement in this whole area. They are quite entitled to provide their normal services to the employee who has the information to come forward with that information. It is far better that an individual employee with the information comes forward than if a trade union comes forward with that information. It would be far better legislation for all of us if some one who has the information — whether the person be the DPP, an officer, a receiver, a liquidator or a creditor — is prepared to stand there in his personal capacity and say "I have information which indicates that this person should not be a director".

I do not want to be taken up wrongly in this, but that is why I do not want any more anonymous group to have the right to do it. It is far better that an individual is prepared to put his or her name to it. One is taking quite a serious step. One is asking the High Court of the land to disqualify a person, perhaps for many years, from being director of a company. One could ruin that whole person's future prospects in the country by simply taking that step. It is important that anyone who is prepared to do it be a person, an individual who is named and stands there and says "I have the information on that person". I do not think it would be correct to allow the representative organisations of management, creditors or employees to step between the person with the information and the taking on of a person in court. It is an individual he would be taking on; I think it should be an individual who takes on an individual in these circumstances.

I want to deal with a number of points. I do not believe, though I cannot prove it just now, that groups like the FUE and the creditors association have the same status and recognition as trade unions. Trade unions are very closely and carefully licensed and there is legislation dealing with them from the 1906 Act through to the various industrial relations Acts of 1946 and 1947 to legislation through the early seventies. Their role is very clearly defined. I make that point because it is not correct to say that the Director of Public Prosecutions is there as a person. He is not there as a person. He is there by virture of office and if another person were to be appointed in his place tomorrow, it would not effect the taking of the case.

The other point that I would like to make very forcibly is that it is fine to say that somebody seeking the disqualification of an individual could ruin the person's future. I accept that point, which is why I support the idea that the cost of the application has to be up front. It is a serious step that people should not lightly be allowed to take.

I am regularly in the courts in my capacity in the trade union movement, with members of my teachers' union who are daily nominated in cases of schoolyard or school accidents by virtue of the fact that the lawyer wishes to tie in the teacher, the principal and everybody else. There is nothing as threatening to an ordinary member of the public as to be at the centre of a court action. That is so for two reasons. First, I recognise that a person's future can be ruined. I know of instances of people having nervous breakdowns simply because they were named in a court action. They are named only by virtue of their office. They happened to be teachers. They were not being held personally responsible but legally they were the persons named.

It is very difficult for an individual to initiate this type of action. It is not something that people are comfortable with. Therefore, it is something which will be done with more consideration by a trade union. Trade unions are not going to rush into court; they will go to court only if it is necessary. Conversely, if we are worried about somebody being taken to court whose future could be threatened, an individual with a grudge, or a gripe, someone who is prepared to lose all in order to try to ruin somebody else, is far more likely to initiate such an action than a trade union which have to get the agreement of their national executive before taking such a step. The fail-safes that I am talking about here are important. They are important from the point of view of the Minister's argument.

I want to hear more about his view that he could include "employee" in the list in paragraph (b). It is my view that it does not fit in with that paragraph. The other people listed there are in a particular category. I did not amend this section for the reason that I felt it would be more appropriate somewhere else. However, there is no reason why "employee" could not be included there, although it is somebody with a somewhat different interest. If the Minister were prepared to say that it was his view that "employee" might be included on Report Stage, subject to an examination between now and then, I would certainly accept that point. At that point I will have done a much more detailed examination of the role and recognition of the various other groups that he talked about.

It would be totally unnecessary to mention, for instance, banks and various other groups. They are definitely covered by "creditor". What I will be looking at is whether or not it would mean the inclusion of the FUE. I hold no brief for the FUE, but that does not mean that I disapprove of their existence; I do not. I like to have strong people at the other side of the table. It makes negotiation easier.

We should look very closely at this. We can agree on a number of things. There is not going to be abuse of this section by representative groups whatever about individuals abusing it. We have agreed now that employees have particular and genuine rights here. The Minister, for two reasons, does not wish to include trade unions. One reason is that he does not wish to include representative groups because the list might become too long. That deserves looking at. If it just makes the legislation cumbersome. I would be prepared to listen to that argument. Paragraph (c) covers that and if it means the inclusion of the FUE, so be it. I do not think the FUE will run madly into court cases in order to seek the disqualification of directors at major cost to themselves if they do not have a very strong case to put forward.

I cannot see anybody's interest being served by the abuse of this section. Anybody who abuses it will pay the price, will look a fool for having lost it and will have to pay the costs. There is far less danger of its being abused by a representative group or somebody with some kind of administrative or representative role. I add that to my previous arguments that employees will have information about the company, will know the workings and the interaction between themselves and the director, between the director and the company, or whatever. This does strengthen the legislation.

There is a need to start building up a body of what I would call industrial relations law. Instead of people taking measures like industrial action, demonstrations and sit-ins and all the other things people do by virtue of frustration, we should be presenting remedies in law for people who have a clear grievance and that grievance should be processed through a process of law which is acceptable all round. It would show commitment to sorting it out from a new perspective. I am not in any sense doubting the Minister's commitment to good legislation. I do not for a moment think that this objection to my proposal is to protect any particular group. His argument has been that it would make the legislation more cumbersome, but I cannot accept that argument. I believe that there is a very strong case for the point that I make. I ask the Minister to reconsider and to respond on the points I have made.

Let me make a brief contribution. My personal hope is that, when this legislation goes through both Houses of the Oireachtas, it will act as an instrument which will encourage people to become involved in setting up new businesses and creating jobs. I accept that we in Ireland are very lucky that our trade union movement is a very responsible organisation. We must bear in mind that the first thing any prospective international company thinking of setting up here will request from the IDA is a copy of this legislation. The case could be made that in other countries the trade union movement is not as responsbile as it is in Ireland. I am afraid that, if we go along with this amendment, it might in some way inhibit international companies from coming here, companies that perhaps have had bad experiences in their own countries and that do not realise that we have here such a responsible trade union movement.

Let me make something clear to Senator O'Toole. My argument is not that it is cumbersome. There would not be this difference between us if it were as simple as that, because that is something that one could tidy up. The argument here is that we are giving this privilege to specific people who have a direct interface with the area. It is a deliberate decision not to extend that net to the represenatitive associations of which these particular individuals might be members It is not law designed to promote industrial relations. It is law to reform company legislation and the people who deal with the companies, the usual people like creditors, the officers of the company, the employees and the individuals who deal with the companies. If this was legislation dealing with industrial relations I would have an entirely different argument and could readily accept the legitimate role of representative organisations in industrial relations legislation but in company legislation it is not needed.

There is a principle involved here, that if an individual is taken to the High Court with the proposition being put to the court that he or she be disqualified for being a director of a company in the future, it is important that there is a named person. In that context the DPP is a person you can put a name on, albeit an office holder, but you can still put a name on him so that the person on the other side of the charge is not a representative association who can hide behind that representative association cloak. It is far healthier that if an individual is being taken in, that an individual faces them. I could not really accept the argument that that is difficult for an individual. If it is difficult for the individual taking the case, think how much more difficult it must be for the person who is being charged with the fact that he or she should be disqualified.

If the Senator is interested in putting down an amendment on Report Stage to include in a neat way the point he wants to make about employees being in the list, I will certainly have a very close look at it but I have to hold the line on the inclusion of the phrase "trade union" purely for the reasons that I have outlined to the Senator.

I thank the Minister for what he said and it would probably be more appropriate for me to put down an amendment on Report Stage encompassing the ideas we have just discussed. I want to clarify one point. Of course I am quite clear that it is not industrial relations legislation and I do not intend it to be that. I said from the very beginning that one of the interested parties — I have been quite consistent on this issue from Second Stage — the employees, were interested parties right the way through. If you accept the employees being the interested parties and if you would be well disposed towards accepting that, I would have to be disposed to withdrawing the proposal that it should be a trade union and to go along with the view that it should be the employee. I take the argument that there should be a named person on both sides and that people should not be able to hide. That was never my intention. I will table an amendment on Report Stage and I hope I do not have to go through all these arguments in late September.

I thank the Minister for his response and hope that the legislation, if passed, will be useful to the trade union movement and will help the setting up of companies in the future. We need precise legislation which works in everybody's interest.

Amendment, by leave, withdrawn.
Government amendment No. 186:
In page 106, lines 4 to 8, to delete paragraph (b), and substitute the following paragraph:
"(b) any member, contributory, officer, receiver, liquidator, examiner or creditor of any company in relation to which the person who is the subject of the application—
(i) has been or is acting or is proposing to or being proposed to act as officer, receiver, liquidator or examiner, or
(ii) has been or is concerned or taking part, or is proposing to be concerned or take part, in the promotion, formation or management of any company,".

Amendment No. 186 makes two distinct changes to the existing text of section 125, (5) (b). The wording of the existing section 125 (5) (b) is incomplete since it makes no mention of a person who is, in the words of section 125 (1) (a), concerned or taking part in the formation or management of a company. The amendment would rectify this by including these words in the subsection. The effect will be that, where a person was proposing to be involved in the formation or management of a company, any member, creditor and so on of the company concerned could apply to the court for a disqualification order in respect of that person.

The second problem with subsection (5) (b) is that the various people mentioned in it who could apply for a disqualification order can only do so on the basis that the person concerned was already acting in a company of which they were members, creditors or otherwise. Subsection (5) (b) as drafted takes no account of cases where a creditor might want to apply to the court to have a person disqualified on the basis of his previous conduct in a company even if he was no longer acting in relation to that company. The amendment would rectify this particular problem too by making a person's previous involvement with the company a ground for making the application to the court under subsection (5) (b).

Amendment agreed to.
Amendment No. 187 not moved.
Government Amendment No. 188:
In page 106, line 22, to delete "section", and substitute "Part".
Amendment agreed to.
Section 125, as amended, agreed to.
NEW SECTION.
Government amendment No. 189:
In page 106, before section 126, and in Chapter 3 to insert a new section as follows:
"126.—(1) Any person who, in relation to any company, acts in a manner or capacity which, by virtue of being a person to whom section 117 applies or being subject or deemed to be subject to a disqualification order, he is prohibited from doing shall be guilty of an offence.
(2) Where a person is convicted of an offence under subsection (1) he shall be deemed to be subject to a disqualification order from the date of such conviction if he was not, or was not deemed to be, subject to such an order on that date.
(3) Where a person convicted of an offence under subsection (1) was subject, or deemed to be subject, to a disqualification order immediately prior to the date of such conviction, the period for which he was disqualified shall be extended for a further period of ten years from such date, or such other further period as the court, on the application of the prosecutor and having regard to all the circumstances of the case, may order.
(4) Section 125 (9) shall not apply to a person convicted of an offence under subsection (1) of this section.
(5) Where—
(a) a person who is a person to whom section 117 applies is or becomes a director of a company which commences to be wound up within the period of 5 years after the date of commencement of the winding-up of the company whose insolvency caused that section to apply to him; and
(b) it appears to the liquidator of the first-mentioned company that that company is, at the date of commencement of its winding-up or at any time during the course of its winding-up, unable to pay its debts; the liquidator shall report those matters to the court and the court, on receiving the report and if it considers it proper to do so, may make a disqualification order against that person for such period as it thinks fit.
(6) If the liquidator fails to comply with subsection (5) he shall be liable to a fine not exceeding £1,000.".

There are a number of problems with section 126 and amendment No. 189 takes the approach of solving them by replacing the entire section rather than by making several piecemeal amendments. It might be more convenient if I took each subsection of the proposed new section, one by one, and explained the changes. There is no problem in relation to subsections (1) and (2). These are the same as section 126 (1) and (2) respectively of the Bill as it stands. Subsection (3) of the amendment is new and this would fill a gap which seems to exist in the current text of section 126. The present subsection (2) provides that where a person to whom section 117 applies, in other words a restricted person, acts while restricted, he will then become subject to an outright disqualification order. However, we have no such further sanction where a person who has already been disqualified under Part VII acts while disqualified.

The new subsection (3) will provide that, in such a case, the person concerned will have his existing disqualification order extended for a further ten years or whatever other period the prosecutor in the case applied for. Subsection (4) would replace the existing subsection (3) and solve the following problems with that subsection. First and most important, subsection (3) bars a person convicted of an offence under subsection (1) from seeking relief for ten years after the conviction. However, the court might, in some cases, disqualify a person for only five years. In such a case barring him from looking for relief for ten years seems meaningless. So it seems preferable simply to bar a person convicted under section 126 (1) of acting while disqualified from looking for relief for the duration of this disqualification order and that is what subsection (4) of the amendment does.

Subsection (5) would replace the present section 126 (4) and make two amendments. The first of these amendments is to the last two lines of the subsection. The problem with the existing provision is that, while it allows the court to make a disqualification order in the circumstances described in the subsection, it makes no reference to the period for which the court may make the order. The new subsection (5) would rectify this by allowing the court to decide on the period of disqualification in this case. The second amendment in subsection (5) is also a simple one. Paragraph (a) of the subsection currently provides that where a person to whom section 117 applies becomes involved in a second company insolvency within 20 years after the first one, the liquidator must report the matter of the court which can them make an outright disqualification order against him. It is this period of 20 years that is the problem.

First, it would be very difficult for a liquidator to go back this far to establish whether any director of a company through a liquidation was involved in the previous insolvency up to 20 years before. More important, however, our view on whether being involved in two insolvencies in 20 years was a matter which ought to expose the person concerned to disqualification from being a director is that it should not. What we are after in the Bill is some balance. On the one hand, we have section 117 which imposes certain modest conditions on a person who has been involved in an insolvent company and, on the other hand, we have the severe sanction of outright disqualification under section 125 where a person is being shown to a court to be unfit to be a company director.

The problem is that, with the best will in the world, a person could still be involved in two insolvencies over a lengthy period like 20 years and I do not think that should lead to him being disqualified. For that reason, we are putting forward this figure of five years. In subsection (6) of the new section we will be making one minor consequential amendment because we will be adding an extra subsection to the section. The correct reference in the first line of the subsection will be to subsection (5).

To summarise, what we are saying is that we have identified certain problems with the practicalities of section 126. Rather than take care of them by making piecemeal amendments to the section, we thought it was preferable to replace the whole section with what we think is a more complete and workable provision.

I welcome this as an improvement. The wording of the original Bill was very weak and people who acted in blatant contravention of the law seemed to be getting off very lightly. I welcome this as a tightening up of that arrangement. One of the difficulties about keeping lists is that we look upon them as being very difficult to trace. A computer does not age, and if lists are fed into a computer, it does not matter how much time has elapsed — whether it is 20 years, 100 years, one year or six months — because the computer will give the name if somebody asks if a certain person was involved in insolvencies. I do not see any great difficulty there but that is not central to this legislation.

Where a person is convicted of an offence under subsection (1) the period of disqualification shall be extended — I wonder if that is enough. Should there be a fine as well? It seems weak following the other issues we have been discussing and I am not sure that it follows naturally. What happens if the person involved refuses to take any notice, is in contravention of the legislation and does not fulfil the requirments? One could keep extending the period of disqualification to 100 years.

The fine could apply because section 184 deals with offences. Subsection (1) states:

(a) On summary conviction, to a fine not exceeding £1,000 or, at the discretion of the court, to imprisonment for a term not exceeding 12 months or to both, or

(b) 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 to both.

If there was an offence under this legislation, this would be applicable because it would be an offence. The fine is there if there is an offence.

Amendment agreed to.
SECTION 126.
Question: "That section 126 be deleted", put and agreed to.
Section 127 agreed to.
NEW SECTION.
Government amendment No. 190:
In page 108, before section 128, to insert a new section as follows:
"128.—Where a person is, as a consequence of his conviction of an offence under this Chapter, deemed to be subject to a disqualification order, he shall be deemed to be so subject for a period of five years from the date of such conviction or such other period as the court, on the application of the prosecutor and having regard to all the circumstances of the case, may order".

This is a new section which will fill a gap which seems to exist in Chapter 3 of Part VII. There seems to be the difficulty where a person is, following conviction of certain offences under Chapter 3, deemed to be subject to a disqualification order, and no provision exists for determining how long the order should run. The sections of Chapter 3 involved are section 126 (2) and section 129 (2) which we are introducing by way of amendment No. 189, and section 133 (2) which we are introducing by way of amendment No. 196. The new section 129 we are proposing to insert will fill this gap by providing that the period of disqualification in such cases should be five years from the date of the conviction which resulted in his being deemed to be subject to an order, or such other period as the court, on the application of the prosecutor and having regard to all the circumstances of the case, may order. This idea is already contained in section 125 (1) and all we are doing here is extending it to cases where, by virtue of certain provisions in Part VII a person would be deemed to be subject to a disqualification order.

I am not clear how this comes into operation when somebody is "deemed to be subject".

The section says:

Where a person is, as a consequence of his conviction of an offence under this Chapter, deemed to be subject to a disqualification order, he shall be deemed to be so subject for a period of five years from the date of such conviction or such other period as the court, on the application of the prosecutor and having regard to all the circumstances of the case, may order.

An example of that would be in amendment No. 189. Section 126 (2) says:

Where a person is convicted of an offence under subsection (1) he shall be deemed to be subject to a disqualification order from the date of such conviction if he was not or was not deemed to be subject to such an order on that date.

In so far as anything is reasonably clear, that is.

Amendment agreed to.
SECTION 128.
Government amendment No. 191:
In page 108, between lines 33 and 34, to insert a new subsection as follows:
"(4) Where a company which has received a notification under section 119 (6) and which carries on business following such notification without the requirements of section 117 (5) being fulfilled within a reasonable period——
(a) is subsequently wound up, and
(b) is at the time of the commencement of the winding-up unable to pay its debts (taking into account the contingent and prospective liabilities),
the court may, on the application of the liquidator or any creditor or contributory of the company, declare that any person who was an officer of the company while the company so carried on business and who knew or ought to have known that the company had been so notified shall be personally responsible, without any limitation of liability, for all or any part of the debts or other liabilities of the company as the court may direct.".

The purpose of this amendment is to close what I see as a gap in the operation of section 117 which provides that a person who has been a director of an insolvent company cannot be involved in the management, etc. of another company, unless that company has the minimum paid up share capital of £10,000 as a private company, or £50,000 as a public company. That is laid down in section 117 (5). If a person acts in contravention of these requirements he commits an offence under section 126. There is, however, nothing in the Bill at present which prevents the company, as opposed to the person, from carrying on business without the capitalisation requirements of section 117 (5) being fulfilled, although failure by a company to comply with the further requirements of section 119 is an offence under the relevant 1983 legislation, provided the company has been notified by the director of his status.

On reflection, I considered that if a company has been informed by one of its directors that he was previously involved in a company which went into liquidation, the capitalisation requirements of section 117 therefore apply, and that the company should be subject to strict sanctions if it continues to trade without being properly capitalised. What I am proposing in amendment No. 191 is that where a company has been informed, as required, by the director but continues to trade regardless, if the company subsequently goes into insolvent liquidation, any officer of the company who knew, or should have known, that the company had been notified, will be held personally liable for the debts of the company to the extent determined by the court. We are proposing the aplication for the imposition of liability may be made to the court by the liquidator or any creditor or contributory of the company. This amendment plugs a gap which we have identified with the enforcement of section 117 of the Bill, which is to ensure that companies are properly capitalised if they involve directors who have previously been involved in a company which became insolvent.

I certainly welcome this. It very definitely tightens up on section 117. I particularly welcome the reiteration on the question of personal responsibility and liability for debts incurred. It makes it much stronger and closes a very clear loophole. I have some difficulty with the section which I will refer to when we discuss it but I certainly support the amendment.

Amendment agreed to.
Question proposed: "That section 128, as amended, stand part of the Bill."

Section 128 (2) refers to a person convicted of an offence under section 126, that is a person who is continuing to be an officer of a company, despite the fact that he or she should not be. The section very worthily proposes that in that case the person so acting ultra vires the law would be personally liable for the debts of the company incurred in the period in question. I am not sure how that can be implemented. Does it mean the debts of a company which cannot be met or discharged? As drafted, it means that a person can now be a director of a company which was trading profitably, correctly and legally in every way except for the fact that a director who should not be a director because he is in fact disqualified is acting as such. During that period certain debts could be incurred which would not throw the company into jeopardy or threaten it. In what way is that director to be held responsible for debts incurred during, that period? How are those debts measured? Is the day to day trading of a company taken into account? Would bills be considered to be debts during the normal period that elapses before they are paid in this particular case? Are we talking about any particular liabilities, and does it refer to the discharge of any particular debts? How, in fact, will that operate in a company situation?

It is a very strong clause. Normally if somebody is owned money by a company, they would have the option of suing the company because one could not sue an individual director in the present situation, but if somebody in that company who is disqualified from doing so is acting as a director, one could also sue that individual for all the debts of that company. In other words, it removes limited liability from the company to the extent that that director who should not be acting is involved. He is, in effect, ignoring the legislation and, perhaps, the wishes of the court. Whereas at the moment one could just sue the company for a debt but not an individual director one could in this case sue both the company and the individual who would not have limited liability. That is how it would work in practice.

Therefore, it only applies to debts which are not discharged. It need not necessarily be an imposition on the person who acted ultra vires the regulations. If, in effect, the company was trading legally, profitably and without problems in fact it would not then create any problems for that particular person. I want to establish that point first it is a pity, but it may well be the case. Perhaps the Minister would explain that. I am wondering if there is any difference between a debt and a liability. I am sorry to have to raise this issue again. Let us take for instance, a case where there is court action for negligence or public liability or something of that sort against a company. Would it mean something then? For instance, if a company director were then to be operating totally without a net, could we charge not just the company but those directors who should not be acting as directors or who were subject to disqualification? How would that work? Let us say that the period about which we are talking is a period during the year 1987 during which time an accident takes place in the work place, and the case comes to court in 1990. At that particular period everything has been put in order and we are back in operation again. Where does that leave us? Let me underline what I am saying. Let us say an accident takes place during a time when a director who was, in fact, disqualified from doing so was acting as a director but the case does not come to court until three years later, by which time the whole issue has been regularised. Could the case be taken against the person who was acting as director at that time? Would he be personally liable at the time the case is heard? That is one point. I recognise there are other sections under which such a person would be caught, but am I right in saying that if a company did not run into difficulty under this section the director would be home free?

Let me start by saying that the Senator has raised something here that leads me to the conclusion that I am not happy with our own drafting. I do not think it captures precisely what I want to capture. We will certainly look very closely at a redrafting of that. What I want to do is to make sure that anybody who flouts the law we have here and acts, either as a disqualified director or having been involved in an insolvent company previously, without the necessary capitalisation, is discouraged from disobeying this piece of legislation. That is what I want to get at, and a great way to do that is to make sure that if they start to operate again in a limited liability circumstance, that is removed from them without necessarily removing it from the company. That person who starts to do business again does not have the cover of legal liability and they personally can be taken to court for the continuing outstanding debts. The best way to crystalise that is to put oneself in the position of a creditor who might want to sue the company for his or her money. Under this they would be able to sue the individual for money which the company owes them, because that individual should not be there in the first place and, therefore, does not have the protection of limited liability. That is a long way of saying it but that is what I want to achieve. I think the Senator is right and I thank him for highlighting it. The wording as it is there does not quite get that and we will certainly try to get a better wording for it as soon as possible.

If a company unknowingly appoints a restricted director and subsequently gets into financial difficulties, can a creditor go after all of the directors of the company or is he confined to taking an action against the restricted director?

I think that is covered in section 122 to the extent that if there is a section 117 person involved in a new company without the company knowing it, the company could go to court and get relief from that. But then there are other sections which cover the area where the company would not be aware. In general the company can get relief if they take on board a person who should not be there because of section 117. I think that covers the point about which the Senator is worried.

The Minister has given an indication, and I agree totally with his thinking on this, that what we are talking about is removing the concept and privilege of limited liability from those who are flouting the law, who are acting ultra vires and who should be disqualified. It is not very elegantly put in the section and it is not clear. I presume that what the Minister of State is saying is that he will redraft the section before Report Stage. I would welcome that and I thank the Minister of State for taking my point.

Question put and agreed to.
Progress reported; Committee to sit again.

An Leas-Chathaoirleach

When is it proposed to sit again?

At 10.30 a.m. tomorrow.

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