Companies (No. 2) Bill, 1987: Committee Stage (Resumed).
Government amendment No. 192:
In page 108, before section 129, to insert the following new section:
"129.—(1) If any person while a director or other officer or a member of a committee of management or trustee of any company acts in accordance with the directions or instructions of another person knowing that such other person is disqualified or that, in giving the directions or instruction, he is acting in contravention of any provision of this Part he 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 date of such conviction if he was not, or was not deemed to be, subject to such an order on that date.".
The purpose of this amendment it to make three changes to section 129, and again, rather than making the changes piecemeal we propose to replace the section altogether by a completely new one.
The first change is a practical one. We would propose to omit any reference at all in the section to receivers and liquidators since it is hard to see how either of these two officers could be acting under the directions or instructions of a disqualified person. Receivers and liquidators are very much their own people, as it were, and do not normally take directions or instructions from outsiders.
The second change would be to substitute "or" for "and" in the present text at page 108 line 37. The intention here is to include within the scope of the section a person who acts under the instructions of another person knowing that the other person is a person to whom section 117, which we dealt with yesterday, applies. The simple reference in the present text will disqualify a person who does not achieve this.
The third change is to add a new and second subsection to section 129 itself. This is to fill a gap which is currently left open by the section as it how stands. At present if a person acts under the direction of a disqualified person, the only sanction for doing so is conviction of a criminal offence. However, to be consistent with the rest of Chapter 3 of Part VII, we think that such a person ought also to be deemed to be subject to a disqualification order from the date of conviction under section 129. That really is what subsection (2) of the amendment does.
Amendment agreed to.
SECTION 129.
Question, "That section 129 be deleted", put and agreed to.
Sections 130 and 131 agreed to.
NEW SECTION.
Government Amendment No. 193:
In page 109, before section 132, to insert a new section as follows:
132.—Where a court—
(a) makes a disqualification order;
(b) grants or varies relief under section 125 (9); or
(c) convicts a person of an offence—
(i) which has the effect of his being deemed to be subject to a disqualification order, or
(ii) under section 126 (1) or 129,
a prescribed officer of the court shall cause the registrar of companies to be furnished with prescribed particulars of the order, relief or conviction at such time and in such form and manner as may be prescribed.
This section contains the information to be supplied by the court to the register of companies and the circumstances in which that is necessary. Our amendment to that is by way of section 132. We found a number of technical problems with the section and again amendment No. 193, which is this one, takes the approach of solving these problems by replacing the entire section rather than by trying to make some piecemeal amendments to it.
The first problem is with subsection (1). That subsection, which Senators can see there, currently overlooks the fact that, as well as making a disqualification order under section 125, a court can also make such an order under section 126 (4) where a person restricted by section 117 contravenes such restriction. However, rather than fix the problem by inserting a reference to section 126 in section 132 (1) (a) it would be preferable to extend the definition of a disqualification order which is in section 124 to cover not just orders made under section 125 but orders made under section 126 (4). We have already made this change by virtue of amendment No. 179 which was to section 124. Paragraph (a) of the new section 132 accordingly makes no reference to the section under which an order is made.
The second problem here arises under the present section 132 (1) (b). The amendment would add two further cases to those listed in the section, cases on which a prescribed officer of the court must send certain prescribed particulars of offences and so on to the Registrar of Companies. The first of the extra cases would be the case of a person convicted of an offence under section 126 (1), in other words, while disqualified. The registrar and thereby the public would be interested in seeing such information. The second case would be the case of a person convicted, under section 129, of the offence of acting under the directions of a disqualified person. In such an event the registrar should also be told, of course.
The third problem arises under the section 132 (2) which allows the Minister to make regulations for the purposes of subsection (1), but the matters on which he would make the regulations are items which are prescribed in subsection (1), and under section 31 of the Bill "prescribed" means prescribed by regulations. Section 132 (2) appears to be unnecessary, therefore, and this amendment would delete it.
To summarise, there are technical problems with the workings of section 132 as it is presently worded and the new version I am proposing by means of this amendment would tidy up the position and solve those problems.
Would acceptance of the amendment preclude the next two amendments?
Acting Chairman
The amendment stands on its own.
SECTION 132.
Amendment agreed to.
Amendments Nos. 194 and 195 not moved.
Question, "That section 132 be deleted", put and agreed to.
SECTION 133.
Government amendment No. 196:
In page 109, to delete lines 35 to 44, and in page 110, to delete lines 1 to 6, and substitute the following:
"‘183.—(1) Subject to subsection (2), if any person being an undischarged bankrupt acts as officer liquidator or examiner of, or directly or indirectly takes part or is concerned in the promotion, formation or management of, any company except with the leave of the court, he 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) A person shall not be guilty of an offence under this section if he was, at the commencement of section 133 of the Companies Act, 1988, acting as officer, liquidator or examiner of, or taking part or concerned in the management of, that company, and has continuously so acted, taken part or been concerned since that date, and the bankruptcy was prior to that date.
(4) In this section "company" includes a company incorporated outside the State which has an established place of business within the State."'.
Section 133, basically, prohibits undischarged bankrupts from acting as directors or other officers of companies. As Senators are aware, it already pertains to directors and we are extending it to cover other officers and other functions of such people.
Again, there are a number of problems with it as we see it and amendment No. 196 takes the approach of solving the problems by replacing the entire 1963 Act insertion rather than by making several piecemeal amendments to the existing text.
The first change we are proposing is to subsection (1) of the existing version of section 133 here and it would be to substitute the word "officer" for "director" in the second line. This is to tie in with the definition of "officer" in section 124. That section defines "officer" as including any director, shadow director, secretary or auditor of the company. An undischarged bankrupt should not be entitled to act in any of these other capacities any more than he should be allowed to act as a director specifically. In addition, substituting "officer" for "director" means that we no longer have to mention "auditors" specifically in this section.
The second change I propose is to add a new subsection (2) to the existing text of section 133. While section 1 makes it an offence for an undischarged bankrupt to act as a director or auditor and so on a person convicted of an offence under this section really ought, in addition, be subject to a disqualification order, under Part VII of the Bill, and that is what subsection (2) of the new section seeks to do.
Paragraph (3) of the amendment corresponds to subsection (2) of the current version of section 133 and makes certain amendments to the existing text. Section 183 (2) of the 1963 Act was a transitional provision which "disapplied", as it were, the section to existing bankrupts. The problem is that we have not carried over this saving provision to cover the new category of people now provided for in section 133, in other words, officers, liquidators and so on. Therefore paragraph (3) of the amendment would rectify this problem by expanding the saving provisions accordingly. At the same time we would take the opportunity to shorten the wording of the subsection somewhat while still preserving its basic meaning.
Paragraph (4) of the amendment corresponds to subsection (3) of the current version of section 133 but again it amends the existing text. It is unnecessary to specify here that "company" includes an unregistered company for the purposes of section 133 of the Bill since "company" is already defined in section 124 to include companies which may be wound up under Part X of the 1963 Act. Since an unregistered company is one of the entities which can be wound up under Part X of the 1963 Act, the new subsection (4) would remove the anomaly by deleting the reference to unregistered companies in the present section 133 (3).
A thought struck me last night, after concluding one section of this Bill, in regard to the definitions. The Minister has outlined, for instance, that he is deleting the reference to "unregistered company" in this section because such a reference is unnecessary as it is included in the definition of company in an earlier section of the Bill. In discussing Part VII of the Bill we referred to a definition given in Part II, on page 26. Part VII makes it clear and indicates that the definition relates to companies outlined under Part VII. I am not asking a specific question on that matter but I would like to know whether there is a danger that a definition in one section could be translated into an interpretation of another section and, therefore, lead to confusion at the end of the day? I certainly see the sense behind what the Minister has said. As the definition of "company" includes "unregistered company" it would appear to be unnecessary to insert a reference to it here. It appears to be the convention to give at the beginning of each Part of the legislation an interpretation or definition relating to the application of that particular Part.
I have one other query on this section and that relates to the definition of an undischarged bankrupt? Perhaps, it is defined somewhere in the Bill but can the Minister of State tell me if the reference relates to an undischarged bankrupt in this jurisdiction or could it be in another jurisdiction, given that the section refers to companies operating outside the State? Is there a difficulty given that a person might well be an undischarged bankrupt in, say, the UK while involved with a company which might have an associate company or part of its operation based in the UK? I am wondering how that reference fits in with this section.
In regard to the Senator's first question about the definitions, the definition of "company" is contained in section 124, which as the Seantor has rightly said, is in the same Part. Therefore, in this case there is no difficulty. On the more general question, as I understand it, the normal procedure is to outline at the beginning of each Part the definition which would relate to that Part of the legislation. The Bill, as drafted, is broken down into Parts and Chapters within the Parts. Often definitions, if needed are outlined at the beginning of a Part. In the absence of definitions in any Part definitions contained in other Parts of the Bill would apply unless it was stated in the Bill that they would apply only to a specific Part of the Bill. If it is a more general definition and it is not stated that it specifically applies to a specific Part of the Bill it would apply throughout the Bill. That would be the general position, but in regard to the specific section we are discussing it is quite clear that section 124 which is within Part VII of the Bill covers it. On the question about the jurisdiction, all I can say to the Senator is that the intention in drafting this Part would apply to those adjudged bankrupts by the Irish courts within the jurisdiction. I would need to look very closely at bankruptcy law, not company law, to see whether the phrase "bankrupt" might be taken to extend beyond the boundaries, or whether there might be some consequential recognition of internationally adjudged bankrupts. We may have an agreement whereby we recognise foreign bankruptcy decisions but I will have to check that matter. The intention is that it will apply to the Irish courts. If I find, having looked at that, that it does not make that clear, then we will make it clear.
I have found the reference I was talking about a few minutes ago. Just lying in bed last night — I have most uninteresting dreams — the thought struck me as we had been discussing — I am using this just to illustrate the question — a shadow director and I had asked why we were deleting certain words from the text and the Minister quite rightly pointed out that those words in the text were explained in a previous section in page 27. In page 27 it refers back to Part II of that section and says: "for the purposes of this Part." Earlier on in the section it also says: "in this Part". We are only talking about words here which, as the Minister says may well prove to be unnecessary, but they may prove to be necessary if it comes down to a smart lawyer in a court in two years saying: "well, look, in the interpretation of a particular person or office, it is only described in Part III for the purposes of Part III and therefore it does not translate to Part VII".
I confess also to having nightmares last night about this legislation. The phrase "shadow director" which the Senator referred to, has the meaning assigned to it by section 26. Because that is under the heading "Preliminaries" setting up the Bill, wherever it is mentioned it now has the meaning assigned to it in section 26.
Would the same apply to all other definitions?
It is no use just knowing it ourselves, we had better tell the general public.
Amendment agreed to.
Section 133, as amended, agreed to.
SECTION 134.
Government amendment No. 197:
In page 110, line 38, to delete "310", and substitute "319 (2)".
This is a straightforward drafting amendment and it simply corrects a wrong reference in the text. Section 134 substitutes a new section 315 for the existing section 315 of the 1963 Act. It adds to the various categories of persons who will be disqualified from appointment as a receiver of a company. Yesterday we dealt with those people who could not act as liquidators of a company. What we are doing now is putting in somewhat similar clauses for those people who cannot act as receivers of companies. While all this is general background, I would repeat that amendment No. 197 simply corrects a wrong reference in the text of the subsection as published.
Amendment agreed to.
Government amendment No. 198:
In page 110, between lines 39 and 40, to insert in section 315 of the Principal Act proposed to be inserted by the section, a new subsection as follows:
"(4) This section shall not apply to a receiver appointed before the commencement of section 134 of the Companies Act, 1988.".
When section 134 comes into force there probably will be some receivers in place who will be caught by the provisions of the section. The question is, whether such receivers should be forced to resign when the section comes into effect as they would be under subsection (2) of the section as is presently drafted. Our initial reaction was that perhaps they should, but having looked at it again I feel that the greater good could be served by permitting existing receivers to actually see their assignment through before the section bites.
Again, I have difficulties in interpreting the amendment. The new subsection 4 says: "This section shall not apply to a receiver appointed before the commencement of section 134 of the Companies Act, 1988". My interpretation of that is that none of the people listed in the section shall be qualified for appointment as receiver of the property of a company except if they happened to be appointed before the section came into operation. It would appear that they would be excluded from the provisions of (a), (b), (c) and (d) not only for the purposes of continuing the receivership on which they were occupied but for future receiverships. I think that what was meant was that receivers who are engaged in an operation would continue, but as regards the future there is an error in the text.
I think the Senator got a very good sleep last night because he is right about that. That could be ambiguous. It could appear to suggest that they are excluded from the provisions for future receiverships; it is meant to say they can continue the receivership which is going through at the moment. I thank Senator O'Toole for spotting that.
Acting Chairman
I would obviously like to have the amendment agreed and amend it on Report Stage, if that is technically possible.
Certainly. We are saying that somebody in the process of receivership should continue that out and that that is the only exclusion from the provisions of the section. In other words it does not mean that they have a carte blanche to be appointed to future receiverships just because they happen to be receiving at the time this legislation comes into operation. I would be agreeable to let that sit until Report Stage.
Amendment agreed to.
Question proposed: "That section 134, as amended, stand part of the Bill."
Consequential to that, we were dealing with the sections on liquidators yesterday, and it just strikes me that the same problem will probably have arisen. I will have a look at those sections because we may have to make exactly the same change for liquidators as we are now proposing for receivers.
I have come in late and I am just wondering are we on to Part VIII? Is it too late to speak on Part VII?
Acting Chairman
We are on section 134. At this time we have passed it and it is not traditional for the Chair to return to a section after it has been passed.
I think in a case like that a Member should not ask the question. He should say what is on his mind and wait to be corrected.
Question put and agreed to.
SECTION 135.
Acting Chairman
Amendment No. 199 is consequential on amendment No. 201 and they may be discussed together.
Government amendment No. 199:
In page 111, line 7, to delete "subsection" where it secondly occurs and substitute "subsections".
This section will amend section 316 of the 1963 Act by adding a number of parties who will have the power to seek a court direction in respect of the performance or otherwise by the receiver of his functions. The parties who may now seek a direction in addition to the receiver would be an officer, member, creditor, liquidator or contributory of a company. That is the general thrust of section 135. As a general principle, it is in everyone's interest that when a receiver is appointed to a company he should discharge his duties as expeditiously as possible. At the same time in doing so he should not in any way deny interested parties their legitimate rights. Essentially it comes down to a question of balancing the rights of the different interests. Amendment No. 201 would insert two further and distinct new subsections in section 316 of the 1963 Act. However, the underlying aim of both new subsections is the same, it is to reduce the scope for devious, vexatious or frivolous applications to the court under the section. There is a need to satisfy the court that the matter should be examined.
The new subsection 1 (a) is self-explanatory. An applicant who goes to court wanting directions to be given to the receiver should, in the first instance, establish his standing before the court by showing that his interests are being, or are likely to be, affected by the receiver's action or proposed actions. As in so many situations, different parties have different ideas as to how problems should be tackled. This subsection will enable any of the specified parties to seek a court direction where they are convinced that what the receiver is doing, or failing to do, is in some way or other prejudicing their position.
Because a creditor is any person who is owed money by a company the scope for devious, vexatious or frivolous applications by such parties, the subject of a receivership is particularly great. This could be all the more so given that in many receiverships unsecured creditors may not realise all of the debts they are owed. Accordingly, creditors could be particularly prone to making frivolous applications. As I have already mentioned it would not be in anyone's interest to have a receivership continually interrupted by court actions. To do so, could mean that the assets could be dissipated while the hearing was awaited. For instance, the receiver would have to continue to pay rent, rates, and perhaps, also pay for the security of premises. All the costs could dissipate the assets of the company. Hence the provision that applicants must establish their standing before the courts.
Subsection (1) (b) is identical to an amendment which we have already introduced to section 119 of the Bill. It will introduce a qualifying threshold before creditors may make an application to the court under section 316 of the 1963 Act. In this particular instance an application may not be made by one or more creditors unless there is a minimum aggregate of £10,000 owed to them. Amendment No. 119 is consequential on amendment No. 201 and would just simply change the singular of subsection to the plural.
I am interested in amendment No. 201 which the Minister has referred to. I must say that I welcome his decision to disallow applications that would be frivolous, vexatious or just simply moved by the worst motives. To insist that evidence be presented is an important provision so far as I am concerned. I would like to get a clear explanation of what the terminology "unfairly prejudiced" means. Can this be interpreted to mean something that would be in the worst interests of the applicant or is there a tighter legal meaning to it? What is meant by saying that the applicant must provide evidence that his or her action or omission could lead to the applicant being unfairly prejudiced? I do not quite understand that.
There is not a legal definition that I can find of the word "unfairly", other than what that word is commonly understood to mean and which courts are used to dealing with. The actions of a receiver will always prejudice somebody, either in a positive or a negative way. The key word here is, "unfairly". Evidence will have to be presented that what is being proposed by the receiver, or what the receiver is not doing which he or she should be doing, would put the applicant into an unfair position, would lead to him being unfairly prejudiced in the common meaning of the word "unfair". That is what is meant by the amendment. I cannot be more helpful than to say what the word "unfairly" is a word the courts are used to handling.
That is very helpful. What we are actually saying is that if somebody thinks that a decision, action or a proposal by a receiver is unfair to his or her interests they may ask the court to make a judgment on the rights and wrongs of the issue. In other words, the court would be asked to decide on the basis of the evidence presented, and the case argued, if the action was unfair.
Amendment agreed to.
I move amendment No. 200:
In page 111, between lines 16 and 17, to insert a new subparagraph as follows:
"(v) an employee of the company or a trade union representing employees in the company."
Under this section any of a number of persons can decide to apply to a court for directions related to any matter that the receiver is engaged in at the time, or any decision or proposal.
The receiver himself or herself may look for advice or guidance from the court, or an officer of the company — we have interpreted and defined "an officer"ad nauseam— or a member of the company, a creditor of the company, which might in some cases include members of the workforce if they were owed redundancy money or had not been paid their full salary, or a liquidator of the company. I made the point last night that we tend to forget about that group. We talk about the owners and the suppliers, but the workers in a company have invested not just their money but their future and, perhaps, put in a lot of effort in the past in the company. I do not think I was graphic enough about this last night. I met a man once who worked in a hotel since he was 14 years of age but at the age of 60 when he was near retirement the hotel changed hands and he was sacked. When he walked into the hotel he was asked where he was going by the new employees and employers. That man felt shattered by that experience. He had given his life's blood to this hotel but could not claim any ownership or share in it. He certainly had a commitment to the hotel. That is an example of how every employee has a commitment to the company.
The employee can sell his or her labour, his or her skill, his or her technique, art or craft and get paid at the end of the week but that is not the end of the story. It is not just simply a case of balancing the books every week and saying, Ce n'en fait rien at the end. People also have a commitment to their company. Those who work in an industry will have a concern for the industry, and, perhaps, for the future generations of worker in his or her town, city or area and for the development of the industry. A tradition builds up. The old story is that in many places the line between the ambiance of work and ambiance of leisure becomes very blurred indeed. The more companies have associated activities like leisure, sport, support, insurance, health insurance or various other perks tied to their employment the more blurred that distinction becomes.
We have now looked at people who have an interest in the way the company is being wound down. A company could be wound down in such a way that a certain part of it might be transferred to the workers as a going concern, not, perhaps, the whole lot of it. But a slimmed down version of various aspects of it. The workers who were involved in that part of the industry would have a serious and a very important vested interest in seeing that the operation they took over would continue. That part of the company could be sold as a going concern without loss to the creditors or anybody. The receiver may sell the fittings, the machinery or the building which would mean that the company could not be sold as a going concern. In other words, not only would be it wound down but more people would be out of employment. The position of those workers, who would have little chance of further employment would be worsened by the decision at that stage of the creditors. Workers should be permitted to go to a court and point out that the receiver intended to sell off some property on which there was a small operation, let us say a printing operation, which they would be prepared to buy as a going concern, to organise a loan, to fund it and to pay for it. I am just trying to describe a few scenarios: the receiver is not interested because it is easier for him or her to sell in bits and pieces, to allow in the auctioneer and get the market value available at the time, to dispose of it in that way and liquidate the assets. For that reason the former employee of a company, or whatever would be the terminology to describe him at this particular time, would certainly have a real interest in this area and it becomes more appropriate, given the fail safe procedure and the additional conditions the Minister has just added with amendment No. 201. It now means it cannot be used for frivolous reasons. In making the application, the employee would have to say "look, I am not just trying to get my own back here on the receiver". What we are saying here is that there should be some sort of prima facie evidence presented and that in making the case, the receiver should not take this decision or should not put into operation this particular proposal. The person seeking the guidance of the court, or in the words of the Bill “seeking direction from the court” should also present his evidence.
To sum up, I am saying that it is not just the creditors, members and officers or the receiver who might apply but also people who are and who may still be the employees depending on the way in which the company is being wound down — if it has stopped trading it is one situation if it is still trading it is a different matter. I would put that to the Minister in the narrow context of the Bill and perhaps go a little further as well. I know the Minister dislikes the next part of my argument. I am going to put two further cases here.
The first is that in many instances if such an application were to be successful, it could provide continuing employment in an area or in a location or workplace. It just might be the reason for providing continuing or further employment — restricted employment but nevertheless jobs in the area. Everybody in this House is committed — the Government are committed — to creating job opportunities and not to closing off the areas in which jobs might be created. That would be another reason why I would ask the Minister to look sympathetically on my proposal.
The second reason is that in this and similar legislation either for the workplace, factories or anywhere else, cognisance should be taken of the legitimate interests of the workers. At present because of frustration or otherwise, because of lack of local domestic or other remedy, workers resort to sit-ins, demonstrations, protest marches and strike actions because there is no other way of processing a grievance or complaint.
For those reasons, it would be appropriate to include among the people who can apply to the court for direction about a proposed action or any such proposal by the receiver the employees of former employees of the company.
As Senators are aware by now, section 135 of the Bill substitutes a new subsection (1) in section 316 of the 1963 Act to permit a number of extra parties to go to court and seek a direction in relation to the performance or otherwise — lack of performance perhaps — of the receiver's duties. In addition to the receiver, we will now be adding officers, members, creditors, liquidators and contributories to the companies concerned. It is important to keep in our minds precisely what section 135 is trying to do.
In regard to Senator O'Toole's amendment, in general the intention underlying this particular section in giving the power to seek court directions to other parties was welcomed but a note of caution was sounded by some parties pointing out that this could be used as a means of delaying a receiver carrying out his functions. Senator O'Toole's amendment proposes to give the right to seek these court directions to two other specific groups, employees and the trade union representing employees.
On the subject of trade unions, as I said yesterday, I appreciate the sentiments underlying what Senator O'Toole is trying to achieve. As in similar amendments by the Senator, I do not think that the Companies Bill is the appropriate place in which to make provisions for the position of representative groups, representatives of employees or representatives of employers. There is no way in which it can be said that a trade union has been directly affected by the activities of a receiver. Clearly the members of the trade union who are employees of the company may be affected and in the case of insolvency they will very often be badly affected. The employees would normally have the right to seek a court direction and undoubtedly they would use this right where it was considered appropriate for them.
On a slightly technical point, I would point out that all the parties that are being given the right in this section to seek a court direction in relation to the performance or otherwise of the functions of a receiver have a direct financial interest in the outcome of his activities. To permit the trade union to become involved in the process would mean giving a right to a party who did not or who were not actually owed any money by the company. I could see a problem arising in a company where there was a number of trade unions involved, if the Senator's amendments were accepted each of them could seek direction in relation to their members. They would not be limited by the requirement of being owed £10,000 as provided by amendment No. 201. In addition, there may be some employees who are not members of any trade union. Accordingly, to give all these parties the right could substantially increase the number of cases where court directions could be sought.
As in the case of amendment No. 187 which we discussed, I would not be prepared to include a trade union as a party under section 135. I appreciate the Senator's sentiments in this regard but for the reasons I have given I could not agree to include trade unions at this particular point.
However, where employees were not actually creditors of the company concerned, the same consideration and arguments as were made by Senator O'Toole yesterday in relation to amendment No. 187 to section 125(5), would apply. In that case, I undertook to think about the effect of adding employees specifically to the parties who could apply to the court for a disqualification order. I am not so sure that the same reasoning applies here because in section 125 we were talking about employees having specific information about a director which might lead them to seek a disqualification order against that particular director. In section 135, on the other hand, we are not talking about the disqualification of anybody but rather about the way a receiver in a company carries out its functions.
While some thought is needed here, I am nevertheless prepared to tell the Seanad that I will consider whether the same right should be given to employees specifically to seek court directions as are being given to other parties under the section. In doing so I would also have to take account of the fact that there is — unlike section 125 — no requirement in section 135 that an applicant may be required to provide security for all or some of the costs of the application. It might be necessary to have a look at this requirement to the section.
I am not in a position to include trade unions for the reasons I have given but I am certainly prepared to think about and consider how we might find a role for the employee in the regime.
The Minister's response was heartening and encouraging. Not all the people there, the receiver being the obvious person, have a direct financial interest. In that sense they do not all quite fall into the same category. A receiver might go to court and seek a direction in an effort to make a decision, and the same could apply to employees. Obviously it would not be a financial decision. A receiver would always know that he would be charged to get the best possible financial return out of his operation, to get as much money built up or assets liquidated to get the best deal possible for the creditors and other people who are owned money.
I agree with the point raised by the Minister that perhaps before doing this not only should evidence be presented but there should always be money in terms of part of the costs put up front or guaranteed. The last thing I want in any of the amendments I am proposing is to create a situation where the receiver would be hampered in doing his or her work and I would not encourage anything that would do that. The Minister suggested what could happen if a number of trade unions were involved. I have no doubt that that could happen as a result of my proposal and I accept, therefore that there might be a better way of dealing with it. Similarly, every creditor of £10,000 or more could also do the same should he or she wish to do so. I do not think it is a very strong argument against my proposed amendment. The key words here are "unfairly prejudiced". If people feel they are unfairly prejudiced by a decision the only place they can go to appeal, countermand, restrict, change or whatever the proposal by the receiver is the court to seek a direction there. They want the court to say that the applicant is right; it would not be proper to sell off that part of the factory or works just now; it is in operation; it is working; it is creating employment and there is a certain income from it. It is almost like an injunction. We are talking about the balance of opportunity. A judge would look at the factors on both sides and make the decision on balance. With whom does the balance of opportunity weigh? With whom does it lie?
The section we debated last night had to do with the disqualification of a director and was, therefore, quite different from this matter. I accept that, of course. Last night the Minister indicated that when he had examined the ramifications he would be favourably disposed towards accepting the amendment on Report Stage. I would like to hear from the Minister that he would be favourably disposed on this occasion provided that it does not affect any other part of the Bill adversely. If that were the case the last thing I would want to do is to damage what I think is going to be fairly historical legislation. This will strengthen the legislation because it gives more security to companies. We must look at the commitment of the workers to the company. They have committed their future and probably their past. It is not just selling their art, craft, sweat or labour. It is a commitment to their employment in the future. Therefore, it would be right to consider them persons of importance in their own right here and that, acting in the best interests of continuing in employment of the company, they would seek an application. I ask the Minister to consider that favourably for Report Stage.
I would like to put on record that I disagree with his viewpoint on the trade unions. I will not go into that again because I do not want to delay the business of the House. I do not think his interpretation of it is right, but that is only a point of view and makes no change in the legislation. I am quite happy to deal with "employee" rather than "trade union" if that gives the rights to the worker in the workplace.
If the Senator, as he suggested, is prepared to submit an amendment for Report Stage dealing with the employee aspect of it, I will certainly give it as favourable consideration as possible and see whether it is workable. I think that would be very helpful and perhaps the right way to do it. We need to watch one aspect carefully. In the case of a creditor of the company the £10,000 barrier is there, as it were. In the case of an employee if just one employee happens to take a vexatious approach to something that might be an area of difficulty for which I have no immediate answer. The creditor has this £10,000 barrier around his neck before he can move. If I can get a somewhat similar approach on the employee case and to make sure that it is serious, that is what we would be looking for in the Senator's amendment when he submits it.
I accept that point. The easy way would be to use a trade union because a trade union who have to convince a national executive to take a decision and go to court will not be prepared to run the case for a vexatious reason for one disgruntled employee. That would be the best fail safe. Perhaps as a different approach in this section from the former one and not just to cover the costs, a certain amount of money could be lodged with the court which might be forfeit in the case of the application not being successful.
In terms of the workings of this section, what time schedule are we talking about to make this operate? For example, a bunch of creditors could decide today they want to move on a decision or proposal by the receiver. Obviously, time is of the essence on these occasions. How does one push it so that very quickly the court gets the opportunity to hear what is going on? How quickly is a court case set up? Are the receiver's hands tied for a period of time? What are the workings?
Acting Chairman
Is amendment No. 200 withdrawn?
No, I just raised a query with the Minister on it. I would like to hear the response.
The court comes up with its own rules and regulations in terms of applying sections of Bills. The High Court will come up with its own rules as to how to apply them. Our understanding is that there will be a speedy, peremptory kind of approach not unlike the injunction system. I am not saying it is similar because I have not got that information, but I gather the spirit of it would be in that area. It is a matter for the High Court to have its rules in regard to how it would do that.
That is critical because an application could pervert that. Somebody could say: "A decision has to be taken in the next 48 hours and, therefore, we will lodge an application and so delay it". The decision is of no value after that. It is essential that there should be a very speedy model for dealing in the court with applications under this section. I do not know how that is to be done. It might be worth while to consider providing that a decision would have to be taken within a certain time with a court hearing. Is it possible in legislation to put a time limit on the hearing, that the hearing has to be held within a certain period of days? A delay could confound that whole section. My grandfather always said delays are dangerous.
What the Senator is saying in quite correct. I cannot in this legislation put any limit on what the High Court might decide to do in regard to its own rules. The rules of the High Court will have to take care of the way the section is interepreted. All I can say is that our understanding is that it would be dealt with very speedily, overnight if necessary. These are the kinds of rules that the High Court will be seeking to put in place. That is my understanding of the High Court's approach to this matter. That is as far as I can legally go.
Let me make a final comment on the matter. With all those rules put into operation, the more I listen to this discussion, the more I think it would be in the Minister's interest to use "trade union" as opposed to "employee" because before trade unions could move on such things they would have to have their own decision-making process in operation. There are fail-safe procedures all the way. It just means getting through structures and getting decisions taken, rather than having a hothead move on an issue, and having a decision taken in the calm, clear light of day. I certainly welcome the Minister's comment that he will give favourable consideration to the inclusion of "employee" in this section or Report Stage. I promise him I will have an appropriate amendment for Report Stage. I wish to withdraw the amendment.
Amendment, by leave, withdrawn.
An Leas-Chathaoirleach
Amendment No. 201 has been already discussed with amendment No. 199.
Government amendment No. 201:
In page 111, between lines 21 and 22, to add to the insertion proposed to be made by the section in section 316 of the Principal Act the following new subsections:
"(1A) An application to the court under subsection (1), except an application under paragraph (a) (i) of that section, shall be supported by such evidence that the applicant is being unfairly prejudiced by any actual or proposed action or omission of the receiver as the court may require.
(1B) For the purposes of subsection (1), ‘creditor' means one or more creditors to whom the company is indebted by more, in aggregate, than £10,000.".
Amendment agreed to.
Section 135, as amended, agreed to.
SECTION 136.
Government amendment No. 202:
In page 111, lines 25 and 26, to delete "A receiver of the property of a company who sells any of that property" and substitute "A receiver, in selling property of a company,".
We are dealing here with section 136 which deals with the duty of receivers selling property to get the best price that is reasonably obtainable. A number of Senators were concerned about this general area yesterday. What section 136 does is to ensure that a receiver who is selling property gets the best price that can reasonably be got for the property — property in its broadest sense. Incidentally, that is already the common law position. What we are doing here now is trying to put that into statute.
It has been strongly represented to us that subsection (1) of the section as drafted could cause difficulty and some uncertainty for receivers and, having looked again at the matter, I agree there is a certain merit in the arguments that were advanced. In the circumstances, I have brought forward this amendment to overcome the difficulties. The difficulty with the section as we have it here is that receivers will be required to get the best price for every single item they sell regardless of whether they sell company assets as a whole or whether they sell them one at a time piecemeal. On some occasions the best outcome for all concerned is the sale of a company as a going concern, or the sale of all stock in one particular unit. It is obvious that this approach, which might in many circumstances be the best and most desirable one, might not of itself involve a best price for every single nut and bolt sold. It is important to clear that up.
At present the receiver has a number of options in relation to how he will deal with company assets. He can, for example, dispose of them as a going concern, or he can sell them piecemeal. For example, he can sell them by public auction, or he can sell them by private treaty or whatever way he wishes. It is a question of his judgment as to the best outcome. Because of the onus which would be placed on receivers by section 136 as drafted here, it is likely that to protect themselves receivers might shy away from disposing of company assets on a going concern basis and, to be on the safe side and protect themselves, they might dispose of everything by auction. This would avoid their being accused of selling premises, particular stock or certain raw materials at an undervalue, an accusation that has been voiced in the past, in fact, as recently as yesterday in this House. As Senators are aware, when a company goes into receivership every effort should be made to ensure that the company is able to continue in operation. This is particularly important as far as the employees are concerned. However, it would also be in the interests of all creditors.
To summarise, therefore, the intention behind this amendment which I am putting forward now is to ensure that receivers are not placed in a position where they feel that in order to protect themselves they would have to dispose of all assets by way of auction. I want to take them out of that position. That would very often be the least desirable option and in many cases it is perhaps the last resort. This would clear up that situation.
An Leas-Chathaoirleach
Is the amendment agreed to?
It strikes me that it will be very difficult to interpret this section, that a receiver of a company who sells any of their property should exercise all reasonable care to obtain the best price reasonably obtainable for the property at the time of sale. Is this just to get at people who might be selling off to their friends, or doing a deal with somebody? I am not quite clear why that is written into the Bill. It is in a sense tautologous. He is sent in with a very clear direction, that direction being to liquidate the company — perhaps not to liquidate the company, but to create for the creditors the greatest value in assets. Is it that we are afraid here of the side deal? I am not quite clear about this. I thought we all understood what a receiver was going to do under all the legislation so far, that he would go in and see just how much he could get out of the place. What was wrong with what is there? Why is this necessary?
Because there was nothing there really, other than the general common law position. I do not know that there are that many cases agreed under that. There is a general common law position that says that you should get the best price, but there was no specific legislation making it a duty for a receiver to get the best possible price he can get for the assets of a company. It is important — this was voiced here yesterday in regard to liquidators — because very often there is a pretty hasty move by liquidators and receivers to move in on Monday and flog the lot on Tuesday. I want to make absolutely certain that the prime motivation in looking at an asset is that you get the best possible price that is reasonably available for it at the time, that you take the correct way of going about doing that.
You have to remember also who appoints receivers. They tend to be appointed by debenture holders so, for example, a bank or a financial institution by and large, will appoint the receiver. Unlike the liquidator, the receiver goes in to do a specific job, not of managing or wrapping up the company but of getting out what his appointer has in the company. Very often a financial institution will appoint a receiver to go in to look after their particular loan, to sell whatever assets are necessary to cover that loan and then to get out, or pass the company on to a liquidator. That is a slightly different view.
A receiver could be appointed for a very small amount of money and could quickly sell a substantial number of assets which would easily cover the case and then his work would be done. There is a temptation for receivers to dispose quickly and easily of assets because even at greatly under-valued prices these would probably still cover the loan but would not perhaps leave much for anybody else. I am not saying that receivers behave unscrupulously in this regard but that, given the nature of their appointment, there is a great danger and a great temptation if they are sent in, particularly by an institution to get the money by disposing of the assets as quickly as possible. This makes it clear that there is a duty on them, not just to look after the person who appointed them, but to look after the greater interest of getting the best price for the asset.
My confusion arose from the fact that I did not realise this was a new section, an insertion to the Principal Act. I thought it was a change. I understand what the Minister is saying. It considerably strengthens the legislation and it is amazing it was not there before. I would use far stronger words to describe it. I have no doubt that receivers will go in there to sort out the people who sent them in and once they have those people sorted out the rest can look after themselves. This is an important addition which strengthens the legislation considerably.
This area is very contentious. There is a feeling that very often the receiver will move in and dispose of the assets of the company as quickly as possible and move on to the next receivership. I welcome this section whereby the receiver is responsible for getting the best possible price available for the assets of the company. In the UK there is a requirement whereby if a liquidator or receiver moves in he has to hold a licence. I wonder if a liquidator in this country should be a licence holder or be attached to a body who will monitor his activities as a member of that body.
I am pleased that there are penalties if it is proved that the liquidator or the receiver has sold off assets below the market value. The penalties do not compensate the owner of the factory where a penalty is a fine which would be paid to the State or a term of imprisonment. If it is proved that a receiver or a liquidator does not carry out his duty and if there is collusion where he has been acting in a fraudulent way, should the liquidator or the receiver to held personally liable for the consequences?
The interesting and well though out points from the Senator pose a number of difficulties in regard to the licence for the liquidator and the question of registration. While a liquidator does not have to be an accountant, the bulk of receivers in the past few years have been members of the Institute of Chartered Accountants or other institutes. A lawyer may also become a liquidator. I see the point the Senator is getting at but it is not necessary at this stage. The main requirement for a liquidator and a receiver is their independence and that they meet the criteria laid down in the Act. Supervising them by means of legislation is much more likely to be successful than trying to establish another institute of liquidators or another registration body which would have to be regulated. It is better that we lay the onus on the individual receiver and liquidator under legislation. After this legislation goes through both Houses and comes into law there will be a very strong body of legislation governing the activities of receivers and liquidators, the strongest we can put in place.
Under section 139 the court may, on cause shown, remove a receiver and appoint another receiver. That is only an example. There are a lot of stipulations about liquidators and receivers who may act, who may not act and so on. This is a major reform of company law and it lays a lot of new onuses on liquidators and receivers and generally tightens the whole business of liquidations and receiverships. I know what the Senator is getting at but that is probably enough for the moment. The main protection the public, the company and the creditors have is this new legislation which is very strong. Irish companies and the public will only discover how much bite is in this legislation when they start to operate it. It is a very tough regime and anyone who becomes a director, liquidator or officer or goes into business will find that they will have no option but to carry on their business in an honest and straightforward fashion.
Will the Minister comment on whether the fines are sufficient or whether the liquidator should be held responsible? I agree with the Minister that most receivers are professional men such as accountants or solicitors but it is believed that when a receiver is put in by the main creditor his prime task is to recover the moneys owed to the main creditor. Very often a manager of a company feels aggrieved because, although the receiver may be a solicitor or an accountant, the company owner does not feel that the receiver is fully qualified to dispose of assets of a very technical nature. Should there be an onus on such a receiver to take professional advice when disposing of such assets?
The Senator was interested in whether the receiver should be made personally liable. I missed one or two of the Senator's points. Perhaps he could give me a summary of the question again?
An Leas-Chathaoirleach
If there is agreement on amendment No. 202 we could take the Senator's point on the section.
Amendment agreed to.
Government amendment No. 203:
In page 111, to delete lines 28 to 30, and substitute the following:
"(2) Notwithstanding the provisions of any instrument—".
Amendment agreed to.
Question proposed: "That section 136, as amended, stand part of the Bill."
If it is proved that a receiver was not operating properly, that there was collusion between the receiver and a company director, and if he disposes of the assets below their cost, should he be held personally responsible? Very often, when a receiver is appointed, a solicitor or an accountant, the owner of the business may feel that he is not technically qualified to dispose of the assets. Should there be an onus on the receiver to take professional advice to ensure that he knows what he is selling and that he gets a fair market price for it?
A receiver would normally get technical advice, perhaps from an auctioneer or somebody like that, if he was disposing of straightforward property assets. If they were very technical assets, like machinery or technologically based assets, I imagine any sensible receiver would get necessary advice. That would be a legitimate expense in his receivership and in the liquidation. I do not think it is necessary to lay that down because, once we lay down that the receiver must get the best possible price, if he does not do that and does not take the professional advice he needs, he is acting contrary to the legislation and the penalties are there to deal with that. It is better to put the onus on him or her to get the best possible price. That implies that they get whatever advice or information they need. I would advise receivers to get the best possible technical advice, but now that we have put it in legislation that they have to get the best possible price, they would be very foolhardy not to cover themselves by getting the best possible advice. They will probably get that advice more and more often from now on.
With regard to personal liability, I do not think it would be wise to make the receiver personally liable, because if the receiver does not comply with this legislation, he can be sued for breach of trust, or breach of duty, under section 136 of the Bill. That is probably enough. It would be going too far to make an individual liquidator or receiver personally liable for the debts of a company. After all, it is not his or her company. They are there to perform a service. If they do not perform that service properly and they are in any way in breach of duty, they can be sued or removed from office. They can either be removed or sued, and that is probably enough, given the fact that we put new onus on liquidators and receivers.
Many companies have been put into receivership, very often good companies. Companies that had contracts with larger companies have been put into receivership, even though they had assets, when their largest debtor went into liquidation. If the banks are the largest creditors they may move on this. However we will deal with this in the next section. The company can come under the scrutiny of the court. If a company which might have survived is put into receivership, and if the receiver disposes of the assets way below the market value, that is not much consolation to the owner of that company.
May I suggest that the House adjourn until 3.30 p.m.?
I know we have come to the end of the Government amendments, but does the Minister intend to continue debating the sections? I am not pushing this, I would prefer to go along with the Minister's wishes but we have completed the Government amendment. My understanding was that we were stopping at this point.
We can come back at 3.30 p.m. I gather a Senator has a matter to discuss on the Adjournment at 4.30 p.m. We can debate this Bill for another hour or we can leave it. On balance, the latter would probably suit us. We can continue the debate until section 142, but only on the sections. That is for Senators to decide.
I do not mind, but to continue the debate up to section 142 would mean debating three more sections. It is hardly worth meeting again to do 20 or 40 minutes work. There are many more sections to be discussed and I suggest that we adjourn the debate on this legislation for now.
An Leas-Chathaoirleach
That is for the House to decide. The Chair would have to take such a proposal from the acting Leader of the House. Senator Haughey.
If it is the view of the Minister and the House that we should adjourn the debate on this legislation at this stage, I propose that we take a sos until 4 p.m. to ensure that the Adjournment debate goes ahead.
An Leas-Chathaoirleach
Progress reported; Committee to sit again.
Sitting suspended at 2.55 p.m. and resumed at 4 p.m.
