I am pleased to have an opportunity to address the Seanad and to bring the Companies (Amendment) (No. 3) Bill, 1999, before this House.
I should explain how we have arrived at this Bill so soon. In February of this year, a Private Members' Bill was tabled by Deputy Pat Rabbitte. That Companies (Amendment) Bill, 1999, had as its sole objective the amendment of section 21 of the Companies Act, 1990, in relation to the disclosure of information which becomes available as a result of investigations carried out by inspectors or officers appointed by the Minister for Enterprise, Trade and Employment under sections 19 or 20 of Part II of the Companies Act, 1990. The Bill has still to be discussed.
In March of this year, the Companies (Amendment) (No. 2) Bill, 1999, was published. That Bill deals primarily with amendments to the Companies (Amendment) Act, 1990, which introduced the process of examinership into company law, the removal of the statutory audit requirement for certain small private limited companies and will introduce a number of company law amendments as part of an overall package involving company law and finance law to tackle the problems created by Irish registered non-resident companies. The proposed Bill will be brought before the Dáil for its Second Stage in the near future.
The Companies (Amendment) (No. 3) Bill, 1999, which I am bringing before this House today, is designed to introduce amendments in two areas of existing law – those relating to insider dealing and disclosure of interests and securities – in such a way as to permit price stabilisation in the context of issues or offers of securities to the public.
It might be helpful to the House if I were to sketch in the background that has led to the introduction of this legislation. Part V of the Companies Act, 1990, introduced into Irish law provisions to deal with the issue of insider dealing in relation to the securities of companies. Insider dealing essentially occurs when people who are in possession of price sensitive information use that information to buy or sell shares to realise a gain or avert a loss. Thus, section 108 of the Companies Act, 1990, provides that it shall not be lawful for a person who is at any time connected with the company to deal in any securities of that company if, by reason of his or her connection with the company, he or she is in possession of information that is not generally available but which, if it were, would be likely materially to affect the price of those securities. The section goes on to prohibit people who indirectly obtain price sensitive information from dealing, as well as people seeking to have the dealing done by procuring other people to engage in the deal on their behalf.
Chapter 2 of Part IV of the Companies Act, 1990 deals with the disclosure of information in the shareholding of a company. In particular, a person who has an interest of 5 per cent or more of the share capital of the company has to disclose that information to the company. In addition, where as a result of buying or selling securities, the interest increases or decreases by one percentage point, that information has also to be disclosed to the company.
In the context of the public issuing or offering of securities, international practice permits those organising the issue or offer to engage in what is termed "price stabilisation" for a limited period after the issue or offer takes place. The purpose of the price stabilisation is essentially to ensure that the price of the security which has been issued or offered does not vary significantly from the issue or offer price in the immediate aftermath of the issue or offer. However, as our law currently stands, such action would be in contravention of Part V of the Companies Act, 1990 prohibiting insider dealing, if carried on within the State. By virtue of regulations made by the then Minister for Industry and Commerce in 1992, if the stabilisation activity were carried on outside the State, for example, if the securities were also listed on the London, New York or Tokyo stock exchanges, such stabilisation could be carried on without breaching Part V of the Act.
When the Company Law Review Group submitted its report on a number of areas of company law that it examined at the request of the Minister of the day, the group made recommendations for a number of changes in relation to the insider dealing provisions. Because of the diversity of the areas examined by the Company Law Review Group, the decision was taken early on to progress implementation of the recommendations on a phased basis. It was in that context that the Companies (Amendment) (No. 2) Bill, 1999 was prepared to implement the Company Law Review Group recommendations in relation to examinership and the removal of the statutory audit requirement for certain small companies. Work on the preparation of proposals to implement the changes recommended by the Company Law Review Group to Part V has not yet been progressed.
However, with the proposed offer of securities in Telecom Éireann due to take place later this summer, the Government has decided that it would be appropriate, given the size and nature of the proposed offering, and the fact that the principal market for the shares will be the Irish Stock Exchange, that price stabilisation should be possible in this jurisdiction as well as the other jurisdictions in which the securities may be listed, for example, in London and New York as proposed at present.
I should also mention that while price stabilisation is permitted in these other jurisdictions, it is subject to certain rules and regulations. Accordingly, the Bill proposes to set aside the prohibition on insider dealing and certain of the disclosure requirements in the Companies Act, 1990, only where certain criteria are met.
Thus, in broad terms, the ability of the manager of the offer or issue to engage in price stabilisation will be available only where advance warning has been given in all relevant publicity that stabilisation may be engaged in; the stabilising action can only take place for a relatively limited period, 30 days from the date of allocation of and for the securities; only if the manager has satisfied himself or herself that all necessary compliance was observed; specific limits as to the price level at which intervention can be made – the issue price or the market price, whichever is the lower; proper records of any stabilisation interventions are retained by the stabilising manager; and appropriate notifications are made to the Irish Stock Exchange of any stabilisation intervention. These are the general requirements that must be met before stabilising action can be engaged in.
Turning to the present proposal, this Bill contains seven sections and a Schedule. The Schedule contains the stabilisation rules, which must be observed by parties engaging in stabilising activity.
Section 1 contains the interpretation and definition of a number of terms that are used subsequently in the legislation. I would draw attention in particular to the definition of "stabilising period" and to the fact that it defines this period within the jurisdiction, by reference to the stabilisation rules, and the stabilising period for stabilising action outside of the jurisdiction is specifically defined in the definition. While the latter definition is similar to that applying within the jurisdiction, it is not identical because the same control will not apply to stabilisation conducted outside the jurisdiction.
Section 2 is the main operative part of the Bill as regards exempting stabilising action from the prohibition contained in Part V of the Companies Act, 1990, in relation to insider dealing. Paragraph (a) exempts stabilising action conducted within the State for the purpose of stabilising or maintaining the market price of securities once it is done in conformity with stabilisation rules. Paragraph (b) on the other hand, exempts stabilising action undertaken outside the State, but only if the action taken is in all material respects permitted by, or is otherwise in accordance with, all relevant requirements applicable to such actions in the jurisdiction where the stabilising action is undertaken, including the rules or regulatory requirements governing that stock exchange if the securities are listed on a stock exchange in the jurisdiction.
Section 3 exempts acquisitions or disposals of interests in the relevant share capital of the company, which is acquired by a person conducting stabilising actions during the stabilisation period, from the disclosure requirements contained in sections 67 to 79 of the Companies Act, 1990. This exemption only lasts for the duration of the stabilising period. At the end of the stabilising period, if the person engaging in the stabilising actions on behalf of the issuer or offeror still holds securities, then disclosure will have to be made in accordance with the relevant sections. The disclosure that is required by the relevant sections is a holding of 5 per cent or more of the share capital of the company in question. Where a person holds such a holding, disclosure of that fact must be made to the company. Moreover, where a person holds more than 5 per cent and engages in purchases or sales of securities which result in a 1 per cent change in the amount of securities held, then the fact must also be disclosed to the company concerned.
I should explain that chapter 2 of Part IV of the Companies Act, 1990, also implemented a European Union directive on the disclosure of major shareholdings. In this context, where a shareholder crosses certain defined thresholds, that is where a holding moves between the threshold of 10, 25, 50 or 75 per cent, then disclosure must also be made to the competent authority, which in the case of Ireland is the Irish Stock Exchange.
Subsection (3) of section 3 provides that the obligations in respect of such disclosure will continue to apply even to the activities of any manager of an issue or offer of securities which is otherwise exempt from the earlier disclosure requirements described.
I will explain briefly the background to section 4. In 1991, the then Minister for Industry and Commerce made regulations under section 121 of the Companies Act, 1990, to modify section 110 to facilitate the operation of Part V. Specifically, a number of clarifications were made in respect of the activities undertaken by underwriters in offerings and issues of securities. The opportunity is being taken in the present Bill to revoke this statutory instrument and to replace it by the content of section 4. In other words, that which we had in secondary legislation is now being adopted into primary legislation.
Section 5 is designed to enable the Minister, by regulation, to make what would be termed minor adjustments to the stabilisation rules to remove any difficulty that may arise in their operation. Any such amendments would obviously be within the policies and principles contained in the present legislation.
Section 6 revokes two statutory instruments which were made by the former Minister, and to which I have already referred briefly, on the basis that the present legislation effectively replaces them. Section 7 contains the title, collective citation and arrangements for the commencement of the legislation.
The Schedule to the legislation contains the stabilisation rules which must be observed by any parties who wish to engage in stabilisation activity. Rule 1 contains a number of definitions which set out precisely what the terms mean within the rules. Of particular note are the definitions of "introductory period" and "stabilising period", which set the limits on the periods during which certain actions must be or can be taken.
Rule 2 defines the scope of application of the rules, and the securities to which they apply. Essentially, any issue or offer of securities for cash which are not already dealt with on a stock exchange will be covered once arrangements are made for the securities in question to be listed on the exchange. In respect of an offer of securities for cash where the securities are already listed, the offer will have to be for at least £15 million. This is designed to ensure that the exemption provided for stabilising action is not used in normal sales of securities on the Stock Exchange.
Rules 3 and 4 set out what action or ancillary action may be taken by the stabilising manager, and includes the purchase or sale of securities or associated securities. The stabilising manager must be satisfied that he or she meets the other conditions set out in later rules. Rule 5 sets out the information that must be contained in any preliminary announcements or other publicity issued prior to the actual offering or issue taking place.
Rule 6 prohibits stabilising action in relation to associated securities where the basis on which the associated securities may be exchanged for, or converted into, relevant securities had not been finally settled and been made the subject of a public announcement.
Rule 7 imposes limits on the price that the stabilising manager may pay for the securities. Essentially, the issue price is the maximum that may be paid. However, if a stabilising manager undertakes intervention at a lower price, then he or she can intervene again at that price or, if there had been an independent deal in the marketplace, at the market price.
Rule 8 is designed to deal with the early termination of stabilising actions and provides that notification must be made to the stock exchange where this occurs. This will have the affect of ending the period during which interventions may be made by the stabilising manager.
Rule 9 sets out the requirements as regards records to be kept by the stabilising manager, and the fact that these must be communicated to the Irish Stock Exchange where the stabilising actions take place within the State. The Irish Stock Exchange is the competent authority in respect of the examination of possible breaches of Part V of the Companies Act, 1990, in relation to insider dealing. It is considered appropriate that it should be informed of any actions undertaken by the stabilising manager in the course of an issue or offer. In this particular instance, however, the information which is communicated to the Stock Exchange will not be disclosed by the Stock Exchange to the market. However, it will help the Stock Exchange to understand better how and why prices may be moving in the market place.
That is a brief overview of what is contained in the Companies (Amendment) (No. 3) Bill. As I mentioned, the Government has decided that the ability to engage in price stabilising activities in the context of the forthcoming Telecom Éireann flotation, is considered appropriate and, accordingly, there is an urgency in having the present Bill enacted without delay.
I thank the House for its co-operation in arranging this early debate on the Bill and I look forward to the Bill passing all remaining Stages in this and the other House as a matter of urgency. I commend the Bill to the House.
