The printed amendment list should read "Committee" instead of "Report".
Companies (Amendment) (No. 2) Bill, 1999: Committee and Final Stages.
An Leas-Chathaoirleach
Sections 1 to 6, inclusive, agreed to.
SECTION 7.
Question proposed: "That section 7 stand part of the Bill."
Mr. Ryan
I welcome this section. How, if at all, will the contents of this pre-petition report be made available? I am not very knowledgeable about company law. To whom will it be made available and to whom will it be made accessible? There are two issues involved and there is always a balancing act – on the one hand is the commercial sensitivity of information and on the other is citizens' needs. Limited liability is an enormous privilege and I enjoy reminding the business community that ordinary citizens have no way of having similarly limited liability. If ordinary citizens undertake risks of a financial nature in their personal lives, they take the consequences whereas limited liability companies are, to a certain degree, protected from such risks. There is a need to balance the concerns of commercial sensitivity with the need to ensure that society and the potential creditors of a company would be informed sufficiently not to advance credit where there is a great liability to end up with a bad debt.
The report will be examined by the court. Based on requests from creditors or otherwise, the court will decide what information will be given and it will be obliged to and can protect any sensitive commercial information from going into the public domain. Therefore, the interests of the companies will be protected.
Mr. Ryan
There are no guidelines or rules of court on this. It is entirely at the discretion of the court. The court could decide that nothing would be published. Could the court decide that even the existence of such a report would not be published?
No. The report would be going to the court for adjudication and the report would be part of the hearing in the court to decide on the examinership. On that basis, the report itself could become public by virtue of the fact that it would be a tool or apparatus to assist the court in arriving at its adjudication. Prior to that the court would decide on the entitlement of those seeking to get the report and on what exactly it would give them.
Section 11 states that "The independent accountant shall supply a copy of the report prepared by him under section 3(3A) to the company concerned or any interested party on written application being made to him in that behalf".
Mr. Ryan
The Minister must excuse my ignorance.
All parties would be covered but when it comes to distributing the report to other parties who may seek information from the court, the court will decide on the commercial sensitivity and on the right of those parties to be given the report.
Question put and agreed to.
Section 8 agreed to.
SECTION 9.
Question proposed: "That section 9 stand part of the Bill."
Mr. Ryan
I presume section 9 is an amendment to the previous forms of protection which used to exist where a company was in danger. It would be helpful if the Minister were to explain to us where the procedure now contained in legislation differs from the previous procedure.
Company law is notoriously complex. Senator Cox will be glad to hear that spending weeks on Committee Stage is not a new habit of mine. In the 1980s I spent endless weeks on one of the major items of company legislation. What always strikes me is that limited liability is a necessary but enormous privilege to encourage enterprise and some level of risk taking while enabling people not to take disproportionate risks. There is a good deal in the business pages of newspapers about the degree to which protections have been used or abused. What is the intent of the amended section as opposed to how it used to operate?
The purpose of the Companies Act, 1990, was to have another option available rather than receivership or liquidation. The Act created the examinership procedure. Based on the experience we have gained over the years and the recommendations of the Company Law Review Group we have now decided to refine the examinership procedure. The review group felt that in exceptional cases, if a petition is presented by members or employees who do not have immediate access to information, circumstances could arise where the survival of the company as a going concern is threatened, but where an independent accountant's report is not available. In such cases it considered that the court should be able to grant a protection period of ten days to allow for the preparation of this independent report. It is envisaged that this protection would be granted very rarely. If the report is produced within ten days the court should consider it in the normal manner. If the report is not produced within ten days the protection should cease, but without prejudice to the presentation of a further petition. The big difference is that in 1990 the auditor or accountant of the company seeking the examinership made the application whereas in this case the court seeks the independent accountant's report and then makes a decision and an adjudication based upon it. That is totally different to the situation prevailing heretofore.
Question put and agreed to.
Sections 10 to 12, inclusive, agreed to.
SECTION 13.
Question proposed: "That section 13 stand part of the Bill."
Mr. Ryan
One welcomes the idea that people seeking protection by petitioning a court will have to act in good faith. However, I cannot establish what burden of proof is required, or is this entirely a matter of discretion? Is there an obligation on somebody to petition the court to say that this is being done in bad faith, or is it up to the courts to make a judgment? If so, what sort of criteria would a court use in judging a petition to be in bad faith?
Everybody is obliged to act in good faith. Information given, on the basis of which the court takes its decision, must be reliable, accurate and totally verifiable in so far as that can be done. Those preparing the report accompanying the petition must always act in good faith. Section 13 imposes a specific duty on persons presenting a petition and involved in the preparation of the accompanying report, to exercise their utmost good faith and disclose all relevant facts material to the exercise by the court of its discretion to appoint an examiner. Section 13 would be invoked by the court if somebody brought to its attention that somebody had not acted in good faith and had not presented all the material facts to the court. They would then take another view of the situation.
Mr. Ryan
These matters are never as informal as somebody bringing them to the attention of the court. How and under what circumstances would somebody bring it to the attention of the court? I am concerned about these sections in particular, and I am sure that people with more experience of business than I have would also be concerned. Where there is a possibility of a firm paying its debts, there is also the possibility of a firm seeking the protection of the court to postpone or delay such action where assets are sufficient to meet its liabilities. If all debts could be paid and some resources were left over, the viability of the company might be threatened but the capacity to pay the debts might not be. How will a person who is concerned that a petition is being made in bad faith go about notifying the court?
Section 13 provides that the court may decline to hear a petition under section 4(2) or, as the case may be, may decline to continue hearing such a petition if it appears to the court that in the presentation of the petition or in the presentation of the report of the independent accountants, the petitioner or the independent accountant has failed to disclose any information available to him or her which is material to the exercise by the court of its powers under the Act, or has in any other way failed to exercise the utmost good faith.
Under section 10 we have given statutory rights to creditors to be represented. If they find that somebody is not reporting the facts as they see them, they can bring that to the attention of the court. Since the legislation was first enacted in 1990, in a small number of cases which came before the courts under the existing legislation, it emerged that reports were economical with the manner in which they presented information to the courts. The judges concerned took a very strict line in the cases concerned. This provision forewarns parties of what is expected of them. Therefore, we have some case law where decisions have been taken because the judges were not happy that they were receiving sufficient information or that a reasonable effort was being made to provide all the information. The new legislation contains added protection for creditors who will now receive statutory rights and statutory representation. At any time they can bring any information they see fit to the notice of the court which will adjudicate on it thereafter.
Question put and agreed to.
Section 14 agreed to.
SECTION 15.
Question proposed: "That section 15 stand part of the Bill."
Mr. Ryan
I am as enthusiastic as anybody else to agree to this section—
Wonderful.
Mr. Ryan
—but I must ask a few questions. The question that legitimately arises is why precisely this amendment is here. It is a further amendment to the 1990 Act and is a restriction on the payment of petition debts. Was there a loophole in or other abuse of the previous legislation or were certain creditors receiving preference? I hesitate to speculate about certain creditors in a certain part of the country who got preference over others because of which constituency they were in. It is near Christmas so we will leave that particular matter.
I take it that it was neither Galway nor Cork.
Mr. Ryan
Indeed it was not. We do not do things like that in our constituencies. I am concerned about the reason for this amendment because something must have been done to necessitate it.
Section 15 inserts a new subsection 5(a) after subsection (5) of the 1990 Act. The new subsection 3(b)(j) of the Act of 1990 inserted by section 7 of this Bill requires the independent accountant's report to identify the extent of the funding needed to allow the company to continue to trade. Subsection 3(b)(k) further provides for the independent accountant to give his recommendations as to which liabilities incurred before the presentation of the petition, if any, should be paid. This new section provides that no payments, other than those identified in the independent accountant's report, should be paid during the protection period unless, on application being made to it by the examiner or an interested party, the court directs otherwise. The new subsection 5(a)(i) provides that no payment may be made by a company during the period the company is under the protection of the court in respect of liabilities incurred before the date of presentation of a petition, unless the independent accountant's report recommends that all or part of such liabilities be paid. The purpose of this provision is to prevent an examiner unfairly favouring one pre-petition creditor over another. It will also prevent an examiner being put under undue pressure by a pre-petiton creditor. In other words, all creditors are equal and all must take their places in the queue together.
In order to clarify what was intended by this section, two amendments, one to section 5A(1) and a second to section 5A(2), were agreed on Committee Stage in the Dáil. These amendments remove the reference to the examiner making payments, which is inaccurate, and make it clear that the company, rather than the examiner, would have to make the payments.
Section 5A(2) allows the court, on application made to it by the examiner or any other interested party, to authorise the payment of the whole, or part of, a liability referred to in section 5(a)(1) if the court is satisfied that a failure to make such a payment would jeopardise the prospects of the company, or any part of it, as a going concern. This will allow the court to consider any hard case that may be brought to its attention, where strict compliance with subsection (1) would prevent payment which could impact negatively on the company, perhaps even placing its survival at risk. Flexibility is given to the court to adjudicate on certain hard cases, where not making the payments could be tantamount to depriving the company seeking the examinership from getting supplies from another company. In order to protect that position, the court has the flexibility to allow payment of the liabilities which it adjudicates deserve to be paid.
Mr. Ryan
I am scrambling at the back of mind for what I remember about company law. Where would the employees of a company fit into this? My understanding is that they are creditors of the company. Are we saying that a company in a pre-petition situation will be prohibited from paying debts, which means it will not be able to pay its own employees?
Yes. The employees would be creditors and stakeholders in the company. Based on that, they would have the same rights as other creditors.
At that stage the company is post-petition and the examiner has been appointed and is in situ. The key point, if I have correctly decoded the Minister of State, is that a prudent examiner would only allow the payment of debts which were essential for the supply of further services as a lifeline to a company in examinership because all debts must rank pari passu. Am I correct in that?
The Senator is interpreting it pretty well. However, those debts would have to be specified in the independent accountant's report before the court would allow them to be paid.
In answer to Senator Ryan, section 3 of the Companies (Amendment) Act, 1990, states in its definition section that "subject to subsection (2), a petition under section 2 may be presented by the company or the directors of the company or a creditor or contingent or prospective creditor, including an employee of the company". Therefore, employees are included in the 1990 Act and, being deemed to be creditors, they have the same rights as creditors.
Mr. Ryan
Can the Minister of State say there is no possibility of this section making it impossible for a company to pay its employees? I can envisage situations where there might be debts relating to trading. It would be peculiar to draft legislation which made it possible to pay suppliers but created a possibility – and, while it is only a possibility, that is what we are supposed to explore here – that a company would be precluded from paying employees. One could argue that while employees are a necessary part of a company, they are not part of its trading relationship. Therefore, legislation could, by accident, prevent them being paid. The Minister of State can answer "yes" to that and say there is no problem.
It is not as easy as answering yes because we must be fair to the House. The law can never legislate for a particular individual's situation because something unforeseen could happen which might not be specifically covered in law. It is important to clarify that if a company was beginning to get into difficulty and the managing director or the board of directors authorised the manager to tell the employees the company was in serious trouble and could pay them only half wages for the next three months, arrears would be due to the employees. If the company had then not traded out of business and the board of directors decided, on the recommendation of its auditor, to seek examinership and the protection of the courts, there would be an accumulated debt to the employees. These debts could not be paid until the examinership had gone through the various processes and the company had traded forward, unless it was specified in the independent accountant's report and subsequently adjudicated on positively by the courts that they could be paid. In other words, those arrears that had accumulated on a voluntary basis between the company management and the employees would be treated the same as the debts of creditors who were supplying the company. It would be up to the court to agree to the payment of any of those debts. They would not have priority over any other creditor. However, if the company's ability to function as an organisation necessitated retaining particular skilled staff and the independent accountant specified in his report that it was necessary to discharge the arrears due to these people, the court could award the payment and they would have to be paid.
Question put and agreed to.
Sections 16 and 17 agreed to.
SECTION 18.
Question proposed: "That section 18 stand part of the Bill."
Mr. Ryan
I know this is not a fair question to ask—
Then the Senator should not ask it.
Mr. Ryan
Section 18 is titled "Repudiation of contracts". I have read it twice, but perhaps the Minister of State could tell me what it means. It inserts subsection (5A) which states:
Without prejudice to subsection (5B), nothing in this section shall enable an examiner to repudiate a contract that has been entered into by the company prior to the period during which the company is under the protection of the court.
Subsection (5B) refers to subsection (5C), and subsection (5C) refers back to subsection (5B). It is not clear to this layman what precisely we are talking about here. The objective of the limiting of the right of an examiner to repudiate contracts makes sense. However, I find the subsequent subparagraphs more than a little confusing.
Section 18 amends section 7 of the 1990 Act by inserting three new subsections – (5A), (5B) and (5C) – after section 7(5) of the 1990 Act. The powers of an examiner under section 7(5) have been held by the Supreme Court in the case of Kentz Holidair Limited examinership to include a power to repudiate contracts, although they were entered into prior to the period of court protection. This is considered to undermine the reliability of contracts entered into with Irish companies and could pose serious consequences for the financing of Irish industry. Accordingly, this section prohibits the examiner from repudiating a contract entered into by the company prior to the protection period.
However, an exception is provided for in relation to the so-called "negative pledges" in contracts. Subject to the service of notice, such contracts may be set aside by an examiner for the period during which the company is under the protection of the court if, in the opinion of the examiner, their enforcement would prejudice the survival of the company. Negative pledges are, typically, conditions included in loan agreements or debentures and are designed by lenders to secure their own position vis-à-vis any potential subsequent lenders. In other words, they give them a certain advantage over other creditors. In this situation, we are allowing the examiner to have discretion in that area.
The new subsection (5A) prohibits an examiner from repudiating a contract entered into by a company, or on its behalf, prior to the period during which the company is under the protection of the court. However, this provision is without prejudice to the new subsection (5B). The history behind this change is that in the Kentz Holidair Ltd examinership, the Supreme Court held that the provision of section 7(5) enabled an examiner to repudiate any contract previously entered into by the company. Such a construction is considered to be too wide and could impact on all contracts and the way business is done. It undermines the reliability of contracts entered into with Irish companies, as it means that someone transacting business with an Irish company cannot be certain that contracts will be properly honoured if an examiner is subsequently appointed to that company.
It is proposed to limit the circumstances where a contract can be rescinded to those instances where an examiner has been appointed and the management, who normally continue to run the business while the examiner is preparing his rescue proposals, enters into a contract which the examiner considers inappropriate. He will be able to rescind such a contract. That means that once an examiner is appointed to a company which has contracts with various companies, whether in Ireland or abroad, he must take into account the totality of the environment in which he finds himself. He cannot decide that all contracts he inherited in the examinership can be disregarded and that he can continue to trade normally into a positive environment without taking account of previous contracts entered into. Under normal contract law, and under various European directives, all contracts are sustainable legally within the Union.
From an international global trading point of view, Ireland has a strong record and is heavily involved in international trading. We could not have a situation whereby companies who do business here would find, as a result of the appointment of an examiner, that the contracts which they entered into in good faith would be disregarded and ignored. This section has been included in order to maintain the integrity of normal commercial trading.
Question put and agreed to.
SECTION 19.
Question proposed: "That section 19 stand part of the Bill."
Mr. Ryan
No one could take exception to what is contained in section 19, which states:
"(5)If any officer or agent of such company . . . .
(a)refuses to produce to the examiner any book or document . . . . or
(b)refuses to attend before the examiner . . . . or
(c)refuses to answer any question which is put to him by the examiner . . . . the examiner may certify the refusal . . . .
(5A) . . . . . the court may, after a hearing under that subsection, make a direction–
(a) to the person concerned to attend or re-attend . . . . .".
What astonishes me and what is worthy of comment is the apparent fact that until we get this through a person could refuse without penalty. They could simply say, "No, I won't". We are now giving the court the right to tell someone who refuses to co-operate with an examiner that they must co-operate. I am astonished to discover that the previous position was different.
The Senator is correct. Previous legislation was passed on the basis that everyone involved would act in good faith because examinership is serious for any company. We all felt that directors, managers, staff, employees, suppliers, creditors, accountants, auditors, lawyers and everyone involved in an examinership would act in good faith. We have observed in great detail the decisions of the court and performances by companies in the court and we want to leave nothing to chance. We are tightening up the law in this area so that the court has the power to take action against those who do not co-operate.
Mr. Ryan
I am a little confused because my understanding of the examinership procedure was that a company had to seek the protection of the court. Now it appears that a company could have sought the protection of the court and then officers or agents of the company could refuse to co-operate. I am at a loss to understand how that could be. I could understand it if it applied to suppliers and creditors who were not part of the original procedure to seek examinership. Once a company seeks examinership I thought one could reasonably assume that they would co-operate. Perhaps the Minister can confirm that.
Of course it is not just the company that can apply for examinership. The directors of a company and any creditor can apply. A contingent or prospective creditor, an employee, members of the company holding at the date of the presentation of a petition and any other parties, together or separately, can apply where they deem that this is warranted to save the company and to save their own personal position or corporate position.
Section 19 replaces section 8(5) and (5A) of the Companies Act, 1990. The latter as inserted by section 180(1E) of the Companies Act, 1990 with new section 8(5) and (5A). Section 8(5) and (5A) mirror section 10(5) and (6) of the Companies Act, 1990 which deal with the investigation of the affairs of companies and, more particularly, with the refusal by an officer or agent of a company to provide documents or information.
The Supreme Court held that certain aspects of section 10(5), that is those that would enable the court to punish an offender as if he or she had been guilty of contempt of court, were unconstitutional but that, subject to the excision of this part of section 10(5), and making the consequential adjustment to section 10(6), the provisions were not in breach of the Constitution. For the purpose of clarity the amendment of section 8(5) and (5A) reflects the Supreme Court judgment. That is the intention of this provision. In essence it is considered more important that the court should either oblige a person from whom the examiner has sought information to give that information or rule that he or she did not need to give that information rather than for he or she to be found guilty of an offence and either be fined or imprisoned but without having to disclose the information sought. This provision grants discretion to the court to order the information to be provided or to say that it is not necessary to provide the information or that it would not be an offence not to provide the information. It is also based on the Supreme Court decision.
Question put and agreed to.
SECTION 20.
Question proposed: "That section 20 stand part of the Bill."
Mr. Ryan
The Senators on the other side are enthusiastic about getting this legislation through. I want to say something that the Leas-Chathaoirleach will get annoyed about so I will say it quickly. Iris Oifigiúil is mentioned in this section. I suggest to the Minister, as a little pet project, that he talk to someone about changing the presentation and layout of Iris Oifigiúil because it is about 100 years out of date. It is illegible, hard to follow and hard to get. Copies of this publication should be sent to every Member of the Oireachtas on a weekly basis. It is an extremely important document. It is hard to read, follow and understand but that could be changed. As well as the layout being changed, its accessibility ought to be changed.
I agree with many of the sentiments expressed by Senator Ryan. However, after 18 years here it is my opinion that Members are sent too much information and receive far too much paper. During my first year here I christened this place the House of paper. It is not necessary to spend the huge amount of money that is spent by the Oireachtas in sending huge volumes of paper to Members every week by post. We should get all the papers and documentation but it should be available in our pigeonholes when we arrive so that we can peruse and study it. Of course Front Bench spokespersons dealing with legislation like this would need to have it in advance in order to table amendments.
I accept what the Senator said. He will understand, however, that not alone do we have to publish this proposal in Iris Oifigiúil, which is a serious document, but it must be published in two daily newspapers circulating in the area. Consequently, Iris Oifigiúil is not the only organ in which publication is obliged to be placed. It must also be inserted in two national newspapers. This publication is a constitutional document because it is referred to in the Constitution. It is always available in the Oireachtas Library for Members of the Dáil and Seanad. Perhaps the question of whether we should get copies every week could be taken up at Committee on Procedure and Privileges level. Notice of appointment is covered in three different organs, two newspapers and Iris Oifigiúil and, therefore, I believe we have covered all eventualities.
Mr. Ryan
I do not object to the section. I am also aware that we are not under enormous time pressures and there are things that are worth pursuing here. Please do not tell me that we are.
An Leas-Chathaoirleach
I would be the last to rush the Senator.
The Government side is not rushing him either.
Mr. Ryan
I do not feel rushed.
Relax.
Mr. Ryan
I am relaxed. I am in much better humour now than I was this morning.
The Senator was cranky this morning.
Mr. Ryan
I appreciate what the Minister of State said. However, I do not think Iris Oifigiúil is available via the Government or the Houses of the Oireachtas website, which would be the proper solution.
That is a good idea.
Mr. Ryan
I agree with the Minister of State about a lot of stuff that Members receive. We could be notified that documents are available on a particular URL on the Oireachtas website. We should make sure the website is efficient and fast and that Members can access what they want. A classic case is Iris Oifigiúil. As present draft legislation is not available on the Oireachtas website for reasons to do with the peculiarities of copyright. In deference to Senator Cox I will not talk about copyright this afternoon.
Question put and agreed to.
SECTION 21.
Question proposed: "That section 21 stand part of the Bill."
Mr. Ryan
Nobody could object to the section as it is described in the margin as a "Hearing regarding irregularities". I am concerned by some of the qualifying adjectives in the first section which is 13A(1) as it will be section 13A(1) in the 1990 Act. Section 13A(1) states:
Where, arising out of the presentation to it of the report of the independent accountant or otherwise, it appears to the court that there is evidence of a substantial disappearance of property of the company concerned that is not adequately accounted for, or of other serious irregularities in relation to the company's affairs . . .
Is that not a little too generous? I would have thought the disappearance of property was a serious matter without qualifying it with an adjective such as "substantial". It is a little generous. I return to the point that limited liability is an enormous privilege protecting people from the consequences of their mistakes which the rest of society does not have.
The point here, which is perhaps slightly peculiar, is that the court has before it an independent accountant's report and then it finds that there are some irregularities and it may direct the independent accountant to prepare a report on such matters. I am slightly confused myself. What would be the need for the second report from the independent accountant? If it is arising from that, they have already received his report.
This new section 13A(1) provides that where it appears to the court from the report of the independent accountant or otherwise there is evidence of irregularities, for example the disappearance of stock, the court shall hold a hearing as soon as possible to consider and examine the evidence. This effectively sets the scene in context for the remainder of the section.
Section 13A(2) provides that the examiner, if directed to do so by the court, shall prepare a report in advance of the hearing referred to in 13A(1), on any matters which would assist the court in carrying out its investigation of any irregularities. The subsection is deliberately worded to allow the greatest flexibility to the court.
Section 13A(3) provides that a copy of the report referred to in section 13A(2) shall be supplied by the examiner to the company on the same day as the delivery of such report to the court.
Section 13A(4) provides that the examiner shall also supply a copy of the report mentioned in section 13A(2) to every person who is mentioned in the report and to any interested party on written application.
Section 13A(5) provides that the court may, on application being made to it, omit from the report supplied to the persons referred to at section 13A(4) any information which it seems fit to omit.
Section 13A(6) provides that the court may, in particular, give a direction under section 13A(5) if it considers that the inclusion of certain information in the report to be supplied would be likely to prejudice the survival of the company or any part of its undertaking. This could include management accounts, details of industrial processes, pricing policy and such like.
In response to the points raised by Senator Ryan, the reason for including "substantial" is that it should not be frivolous. In other words, if there were pens or pencils missing, it would not go to court but if there was machinery or stock missing one would certainly go to court. In response to Senator Coghlan's situation, once an allegation is made to the court that irregularities have taken place or the removal of substantial material has taken place, the court then orders the independent accountant to report. It is that second report we are referring to. The independent accountant is obliged to report to the court and give a copy to anybody he names in the report. The court will then decide if certain things must be omitted as a result of what has been reported to it.
Mr. Ryan
I apologise for continuing on the same theme but why should there be such sensitivity to the company? An examiner is appointed, who then discovers or is satisfied that there is evidence of a substantial disappearance of property of the company – not property of the individuals, but property of the company. The Minister quite clearly says this is a serious matter which is effectively fraud.
Or theft or larceny.
Mr. Ryan
Yes, or other serious irregularities which could be evidence of reckless trading or something like that. Why should the company have the right to have the second report at the same time that the court has it? This would not be the case in a criminal offence. The book of evidence would be served to the court and then the defendant would in the fullness of time get a copy of the book of evidence. Why are we being so sensitive to the company where there is prima facie evidence of wrong-doing?
The examiner's function is to protect the company and to try to bring it to solvency, if that is possible. The court adjudicates based on the information coming to it whether the examiner has other particular functions to discharge or whether the independent accountant is called back to discharge them. Section 17(1) (d) of the Act of 1990 contains provisions which enable the court to arrange a hearing to consider any evidence of irregularities which come to the attention of the examiner in the report prepared pursuant to section 15 of that Act. The other provision in section 17 dealt with matters arising from the examiner's 21-day report. These are now effectively superseded by the proposed pre-petition independent accountant's report and section 17 of the Act of 1990 is repealed in section 30 of the Bill. Accordingly section 21 adds a new section 13A in the Act of 1990 and contains similar provisions to deal with any irregularities which might come to light in the independent accountant's report provided for in this Bill. The examiner has a serious role, as has the independent accountant, who could turn out to be the examiner if the court so appointed that person to be the examiner but in most cases it may not be. The independent accountant's report would be the basis on which examinership would be granted and the examiner may be somebody acting for the company as an auditor or external to the company in that profession.
The court may ask either the examiner to report or the independent accountant to report on irregularities, more particularly the independent accountant, may have to report on it.
Question put and agreed to.
Sections 22 to 24, inclusive, agreed to.
SECTION 25.
Question proposed: "That section 25 stand part of the Bill."
Mr. Ryan
I was very good. I went through three sections and kept my seat. On section 25 just a quibble which I happily accept may be ignorance on my part, this is described as "Provisions with respect to guarantees". We are moving into the area of compromises and solutions where a company is subject to examinerhips. Section 25A(1) states:
The following provisions shall have effect in relation to the liability of any person (‘the third person') whether under a guarantee or other wise, in respect of a debt (‘the debt') of a company to which an examiner has been appointed:
(a) subject to paragraph (b) and save where the contrary is provided in an agreement entered into the third person and the person to whom he is liable in respect of the debt (‘the creditor'), the liability shall, notwithstanding section 24(6), not be affected by the fact that the debt is the subject of a compromise.
I am not entirely clear what that means. If the liability is not subject to the compromise or scheme of arrangement does that mean they have to pay it in full? I accept that I may have misunderstood something.
Section 25A(1)(a) provides that that the liability of a third party to an agreement will not be affected by the fact that a compromise or scheme of arrangement has taken effect. Thus, the approval of a compromise or scheme of arrangement will not affect a creditor's right to recover any loss incurred due to a write-down imposed under such a compromise or scheme of arrangement from a guarantor under a third party guarantee. However, paragraph (a) respects the freedom of the third person and the creditor to come to some other arrangement by mutual agreement. It is also subject to the subsequent paragraph. Guarantees are a widely used arrangement which facilitate the granting of credit. Money is often only lent where the lender is satisfied that a third party guarantor will be able to discharge debts should the debtor default. In such cases, the guarantor and not the creditor becomes liable for the loss. The company law review group believes that the existence of a guarantee should not result in different circumstances applying where an examiner is appointed.
Mr. Ryan
I am surprised at this recommendation but I am not going to object to it.
It is the recommendation of the company law review group.
Mr. Ryan
I am surprised by it and it should give people reason to be wary about giving guarantees.
It is a very serious matter and people do not understand the seriousness of giving guarantees.
Question put and agreed to.
SECTION 26.
Question proposed: "That section 26 stand part of the Bill."
Mr. Ryan
We are on record as opposing this section. Section 26(2) states:
Subject to subsection (3), proposals for a compromise or scheme of arrangement shall not contain, nor shall any modification by the court under section 24 of such proposals result in their containing, a provision providing for either or both–
(a)a reduction in the amount of any rent or any periodical payment reserved under a lease of land [etc.]
It appears that leases and rents, as defined in the Bill, are to a degree protected from the compromise with which everyone else, including employees, other creditors and suppliers must deal. Why should lessors be treated differently from every other kind of creditor?
We had a long debate on Committee and Report Stages in the Dáil on this section which deals with the position of lessors opposed to examinership. On Report Stage I introduced amendments to take account of some of the points raised by Deputies on Committee Stage and it would be useful to outline the purpose of this section.
In existing legislation, the position of lessors in somewhat unclear as regards future payments due after the examination period has come to a close and a scheme of arrangement has been put in place. The company law review group considered it unreasonable to require a lessor of an asset, such as an office block, to be required by an examiner's scheme of arrangement to accept reduced payments for a future period. Section 26 is designed to preclude this situation.
It would be useful to give the House an example of a company which is in difficulty, has a 20 year lease on an office block and which pays £10,000 in rent per annum. The company is in the fifth year of the lease but is in arrears with its rent due to the difficulties in which it finds itself. The company owes the landlord £5,000 in rent arrears. An examiner is appointed to the company and draws up a scheme of arrangement which is ultimately approved by the court whereby each creditor will receive 50p for every pound owed to them. This means that the lessor will receive £2,500 of the rent owing, probably on a phased basis, and, along with the company's other creditors, will have to write off the remaining amounts owed.
Section 26 determines what cannot be included in the scheme of arrangement. In this example it means that, subject to what is contained in subsection (3), nothing in the scheme of arrangement can make the landlord accept reduced rents in the future and the company will have to honour the terms of the lease for the remaining 15 years. Otherwise, the lessor would be subsidising the company's operations which would be unfair on the lessor and the company's competitors. The company will, therefore, have to pay £10,000 per annum for the remaining 15 years of the lease. That is the economic rent for the property.
This provision puts lessors on the same footing as other creditors, none of whom are expected to accept reduced payments for goods or services supplied after the examinership process has come to an end, and once the company has been restored to health. I hope this outlines the situation to the satisfaction of the House. The purpose of the section is to ensure that equity prevails and where a scheme of arrangements is arrived at, where a figure of settlement is agreed and discharged and the company returns to normal trading, it has to honour its commitments to the owner of the property.
Mr. Ryan
I appreciate that there is a distinction with regard to the person renting property, and the Minister of State's explanation clarifies the position regarding existing debts and future arrangements. However, it is a little simplistic to draw too great a contrast with the position of other suppliers. When dealing with other suppliers, a company is often in a position to negotiate new prices and can change suppliers. However, it cannot change the person with whom it is dealing if it is tied into a 20 year lease.
The going rate for a small shop in Cork city centre is about £50,000 per year – £50 per square foot for a small premises. Such an amount is not a small part of a small business's liabilities. I would be reluctant to say that section 26 should not be included in the Bill, however, I am not happy with the idea that the person to whom the rent must be paid can sit back in the knowledge that the company will either go bust or it will get all its rent.
Successful small businesses are networks of people supplying each other and I would question the concept of exempting one person. I would have thought that a compromise would be arrived at whereby they would be at least required to negotiate in good faith, even if we were not going to apply the precise terms. I accept that the position can be changed by mutual agreement. However, the company to whom the rent is paid may be a business development agency with no real stake in the business, whereas most small suppliers and most suppliers to small businesses are small businesses themselves, and, therefore, are in a position to reach a compromise with a customer where they believe there is a possibility of the company trading its way out of trouble. It would be a pity if the intransigence of the person to whom the rent is being paid was to prevent an otherwise functioning compromise from taking place.
There is a genuine issue and I am not entirely sure that the section meets the proper balance – the objective being to ensure that companies which are potentially viable can survive. We must remember that this sort of protection for companies in temporary trouble arose in the US – that most competitive of countries. We are not getting involved in some sort of statist protection but I am concerned that we are giving a privileged position to someone who has no reason to compromise in a trading relationship.
I appreciate the Minister of State's response. This provision will only apply to leases where the company involved is primarily, if not solely, dependent on the rent. This puts us in a different category to other classes of business and I would have to disagree with Senator Ryan. This provision is necessary.
Mr. Ryan
The Senator must be a property owner.
This could involve a company involved in aircraft leasing or any kind of company – it does not have to be a property company. It could be a company involved in any kind of leasing – aircraft, shipping or any company leasing an asset.
Mr. Ryan
The Bill states, "a lease of land".
As I understand it the provision applies to leased property and is not confined to land.
In response to Senator Ryan, I do not enjoy limited liability in a personal capacity. I know the Senator is being amusing rather than serious.
That is a terrible thing to say.
Senator Coghlan is correct that section 26 refers to more than land. Section 25B(1)(a), contained within section 26, refers to "under a lease of land". Subsection (2) refers to a "provision relating to a lease of, or any hiring agreement in relation to, property other than land. . . .". All types of lease are covered in the section. I accept what Senator Ryan said. However, he did not give the other side of the argument. In common with the other creditors, the property owner must settle liabilities and debts. Once that is done, he is tied into an agreement from which he cannot opt out. He must honour the agreement and remain in business with the company even if there is a risk involved. The advantage those who supplied goods and services prior to or during the examinership have is they do not have to do that. They have an opt out and can refuse to do business with a company. The landlord or property owner does not have that option. He is tied into a 20 year agreement and whether five years or 15 years has expired, he must fulfil the contract he has with the company.
As I have made clear, far from attempting to discriminate between creditors in different categories, the objective of section 26 is to ensure creditors who are lessors are not put in a more disadvantaged position than any other creditors, that is, post-examinership suppliers to the company who, if they find they are not being paid the price they charge for goods, can cease supply. A lessor is not in that position. The scheme of arrangement drawn up by an examiner could, without this provision, be drawn up in such a way that it would force the lessor to accept reduced rent in the future.
The basic question is why should a lessor be forced to subsidise the ongoing operation of a company unable to pay its debts? Post-examinership, other creditors are not forced to accept reduced payments for their goods and services from a company because it was once in examinership. Creditors who have to accept a write-down during an examinership in respect of money owed to them might decide not to do business with that company again, which is their right. A lessor does not have the same level of flexibility. He or she must honour the terms of the lease with the company.
This section ensures that post-examinership, a company, unless the lessor agrees otherwise, should do the same, which is only fair. That does not preclude the lessor, property owner, landlord or the owner of the equipment which may be leased to the company, reaching a new arrangement to charge a lower figure. We are not impinging on their rights to do that but we are saying the examiner cannot include in his computations a situation where the health or liability of the company could be dependent on forcing an uneconomic rent on property or leased equipment which would put the owner at a serious economic disadvantage or, alternatively, would give a major competitive advantage to a company in examinership against its competitors in an open market. That would not be fair or just in any commercial circumstances and would not be acceptable in Irish or EU law.
Question put and agreed to.
Section 27 agreed to.
SECTION 28.
Question proposed: "That section 28 stand part of the Bill."
Mr. Ryan
I have always been wary about the scale of costs, remuneration and expenses those involved in liquidation or examinership seem able to concoct. However, it is more disturbing that the courts agree to these levels of expenses and costs, which I presume goes back to when eminent barristers and solicitors took rates of daily payment – of which mere politicians could never dream – for granted. What happens in the case of a small company where the process is protracted and the costs, remuneration and expenses of the examiner exceed its assets? Who pays in those circumstances? Is the examiner taking a risk? I doubt it because they never do.
If the examiner goes too far and incurs expenses greater than the assets of the company, there is nothing with which to pay him or her. It would be foolish for an examiner to go down that road. They must operate within normal performance criteria and to the highest professional standards. They must know the macro value of a company and must ensure the expenditure they incur is never greater than the assets with which they deal. In most cases, that should not happen. If a court found the gross value of a company would not enable it to come out of examinership positively, it would not allow that to arise. It would liquidate the company or occasionally put it into receivership. I do not think the professionals involved would get into a position where they would incur expenditure not refundable to them from the asset value of the company involved.
If an examiner did that he would quickly put himself out of a job and it would lead to a liquidation. His costs would rank ahead of those of the liquidator.
I concur with Senator Coghlan.
Mr. Ryan
I am concerned that an examiner could draw up a scheme of arrangement which would make a firm viable and then extract a level of remuneration, costs and expenses which would cause the house of cards to collapse. I can see no incentive for an examiner to work out an arrangement whereby his costs, remuneration and expenses would not cause the compromise to fail. The examiner will not be at a loss as long as there are sufficient assets. To put it crudely, if we believe these matters are motivated by the rational economic decisions of so-called man, what is there to motivate an examiner to minimise costs, other than the supervision of the courts which seem to have a generous idea of what constitutes the reasonable costs of professionals?
Subsection (3A) deals with liabilities incurred by the company which are also deemed expenses properly incurred by the examiner and must be paid before any other claim but after any claim secured by a mortgage, charge, lien or other encumbrance of a fixed nature or a pledge. This seems to turn matters around in the case of mortgages. The most obvious question is how does section 28 relate to section 26 which deals with leases?
The independent accountant's report will go before the court to decide whether the company should go into examinership. If there is not a reasonable chance that the company has, first, a viable prospect of survival and, second, sufficient liquid assets or the ability to generate these liquid assets to discharge the payments required by the examiner, the court would not go down the road of appointing an examiner; it would recommend liquidation.
With regard to the examiner pushing the boat out and creating an aggressive accumulation of expenses in the discharge of his or her duties which may threaten the company, this would be very foolish because it would be unethical, unprofessional and unwise. If the company folded, the possibility of this person being appointed to carry out an examinership in the future would be very slim. The incentives are in place and by and large examiners have done a good job and carried out a detailed appraisal of companies. They have managed them carefully, adhered to the law and saved them from going into liquidation. Since the 1990 Act was passed, examinership has served the country and the economy reasonably well. We are satisfied that the facility should continue.
Mr. Ryan
I asked about the connection between the priority of costs and remuneration for the examiner and the provision with respect to leases in section 26. Section 28(3) seeks to amend section 29(3) of the Companies (Amendment) Act, 1990, which reads:
The remuneration, costs and expenses of an examiner which have been sanctioned by order of the court shall be paid in full and shall be paid before any other claim, secured or unsecured, under any compromise or scheme of arrangement or in any receivership or winding-up of the company to which he has been appointed.
Section 28(3) of this Bill reads:
The remuneration, costs and expenses of an examiner which have been sanctioned by order of the court (other than the expenses referred to in subsection (3A)) shall be paid in full and shall be paid before any other claim, secured or unsecured, under any compromise or scheme of arrangement or in any receivership or winding-up of the company to which he has been appointed.
(3A) Liabilities incurred by the company to which an examiner has been appointed that, by virtue of section 10(1), are treated as expenses properly incurred by the examiner shall be paid in full and shall be paid before any other claim (including a claim secured by a floating charge), but after any claim secured by a mortgage, charge, lien or other encumbrance of a fixed nature or a pledge, under any compromise or scheme of arrangement or in any receivership or winding-up of the company to which he has been appointed.
The costs incurred by the examiner must be paid and they have first priority over all claims. Expenses incurred by the examiner must be paid in full before any other claim is paid, except a secured mortgage, charge or lien. In other words, expenses incurred, including professional fees and so on, would take second place to the present fixed charges.
Question put and agreed to.
Sections 29 and 30 agreed to.
SECTION 31.
Question proposed: "That section 31 stand part of the Bill."
Mr. Ryan
I understand this provision applies to private companies rather than to plcs, which by definition must have audited accounts. I am concerned because many charities are private companies. I am not happy that charities, in particular, do not have a requirement, since they are covered by company law, to have their accounts audited. These are not trading companies whose efficiency of performance is measured by profit and loss resulting in some market test of how they are doing. I am involved in a charity and learned the hard way how sloppy the systems can be unless one has the gentle reminder of a good auditor. For many years Coopers and Lybrand have been auditing the accounts of the branch of the charity with which I am involved. That organisation taught us a lot about sensible practices in recording donations and so on. We would not have managed to put a proper accounting system in place if the auditors had not threatened not to sign off on the accounts. I am still a director of two charities and the scale of the operations means they would not be covered by this exemption. However, many charities would be covered and I would like to hear the Minister of State's views on the issue.
This is covered under section 32(3)(a)(i). I will reply to Senator Ryan's queries by referring to that section.
The importance of this obligation is that companies not trading for the acquisition of gain are excluded from the scope of the 1986 Act. Such companies not trading for gain are either private, if they have a share capital, or public, if limited by guarantee without a share capital. If they are public, they are not eligible to claim an audit exemption in any event. If they are private, they are in the category which falls under the 1963 Act's accounts and audit provisions. Under section 128 of the 1963 Act, such private companies are not obliged to file annual accounts. It is considered that companies with no disclosure requirements should not be eligible for exemption from audit as there would be no outside scrutiny either through the audit process or publication of minimal accounts, abridged balance sheets and so on, yet they would have the full benefit of limited liability.
In addition, it may be technically difficult to draft a provision exempting these companies without also exempting charities. Some management companies for apartment maintenance, etc. or sports clubs fall into this category. They could equally be public companies or they may not be incorporated as companies at all and not be subject to an audit requirement, while some may be too big to qualify in any event. The Companies Registration Office does not identify company annual returns which claim to benefit from the exemption under section 2(1) of the 1986 Act, but their incidence is considered to be reasonably small.
Charities are primarily regulated by the Department of Justice, Equality and Law Reform. In 1989, the then Minister for Justice established a committee to examine fund-raising activities for charitable and other purposes and the adequacy of existing statutory controls. The report published in 1990 concluded that the existing system was inadequate and proposed a new regulatory framework incorporating a system of registration, greater accounting controls, increased public accountability and tighter controls on public collections. This matter was further considered by the advisory group on charities and fund-raising which was established in March 1996 by the then Minister of State, Joan Burton. Membership of the advisory group was drawn from a cross section of the charitable voluntary sector whose remit was to provide a practical input into the drafting of the new legislation. The group reported in November 1996 and made specific recommendations in relation to accounting obligations.
The Minister for Justice, Equality and Law Reform, Deputy O'Donoghue, has included in his legislative programme the reform of the law relating to administration and regulation of charities along the lines of the report of the committee on fund-raising activities for charitable and other purposes, and the subsequent report of the advisory group on charities/fund-raising legislation. While awaiting the determination of policy decisions in relation to the standard of accounting required from charitable fund-raising organisations, the Minister for Justice, Equality and Law Reform has proposed that the current audit obligations remain at least until the proposed charities legislation is finalised.
The threshold amount for the turnover of a company was increased from £100,000 to £250,000 by a Committee Stage amendment. The 1986 Act specifies an annual turnover figure of £3 million as the maximum for treatment as a small company. For the purposes of availing of an exemption, the turnover maximum amount is set at £250,000. The amount was amended on Committee Stage to ensure that small companies are those who do not turn over more than £250,000. We have retained in current legislation the audit requirements on charities until the new legislation is introduced.
Mr. Ryan
I thank the Minister of State for his clear explanation.
Question put and agreed to.
Sections 32 to 36, inclusive, agreed to.
SECTION 37.
Question proposed: "That section 37 stand part of the Bill."
Mr. Ryan
I have no desire to suggest that there should be longer prison sentences for offences under this section. However, I have reservations about fines not exceeding £10,000 for false statements, returns, balance sheets, etc. In light of the way we currently levy fines, that is not a particularly significant penalty. The figure of £10,000 represents the upper end of the scale because the maximum fine to be imposed on summary conviction is £1,000. The latter amount is only double the fine imposed for failure to possess a television licence, approximately £500, and I am sure one would only pay £1,000 for having a bottle of poitín in one's possession.
Is it the television licence or the poitín the Senator does not possess?
Mr. Ryan
The latter. I am not going to admit to the House that I have a bottle of poitín in my possession. However, such an admission would probably be privileged and could not be used against me.
Limited liability is an enormous and justified privilege. However, the penalties, particularly those imposed on indictment, are quite small. I understand the penalty imposed on summary conviction is not the upper limit of what a person can be fined. Perhaps the Minister of State could explain the rationale behind this. Given that section 32 limits a company's turnover to £250,000 and stipulates that its balance sheet should not exceed £1.5 million, the provision which states that false declarations shall carry a maximum fine of £10,000 is somewhat generous.
Section 37 creates offences and provides penalties in respect of false information being wilfully given in relation to the availing of an exemption from audit. Section 37(1) makes it an offence for any person to wilfully provide false information in any return, statement, balance sheet or other document provided in relation to the provisions in this Part of the Bill. This is to discourage persons from deliberately falsifying information in order to try to avail of an exemption from audit.
The matters to which Senator Ryan referred were raised on Committee Stage in the Dáil by Deputies Owen and Conor Lenihan who questioned whether the penalties in this section were sufficiently severe. Deputy Owen suggested that the fine should be increased to an amount not exceeding £10,000 while Deputy Lenihan queried whether the option of a fine or imprisonment should be removed and suggested that there should be an automatic prison sentence. As legislators, it is wise to ensure that the legislation we are introducing is consistent with that which already exists.
The penalties in this section are consistent with those in section 240 of the 1990 Act which provides for general sanctions for any person found guilty of an offence under that Act for whom no specific punishment is provided. The company law review group made a number of recommendations on creating an office of director of corporate enforcement. This would be a major new apparatus of State to ensure consistency in the regulation of companies. It was also recom mended that the company law review group would become an advisory body charged with observing and making interim recommendations.
It is important that the legislation should be consistent with the 1990 Act. However, I can visualise situations arising in the future where, when legislation for a director of corporate enforcement is being considered, major new proposals will be forthcoming in this area. It would be wise, therefore, to leave consideration of this matter to the review group.
Mr. Ryan
I would not dream of suggesting that the prison sentences outlined in the section should be increased. Any members of the middle class who might be involved in offences under this section would be quite terrified by the prospect of spending a year in prison, not to mention three. I do not agree, therefore, with the prospect of increasing the term to six years. In addition, I do not support the imposition of compulsory custodial sentences except in cases involving murder and a number of other crimes. There are far too many people – usually the wrong people – in our prisons.
I still believe the penalties are insufficient but I take the Minister of State's point. In that context, however, if a person is convicted under this section will they be disqualified from holding directorships?
They would not be automatically disqualified from holding a directorship under this section. However, if convicted on indictment, they would be disqualified.
Mr. Ryan
It is, therefore, possible for somebody to go to court, be convicted of making a false declaration or return or providing a false balance sheet and still become a director of another company. That is a peculiar situation and one which should be investigated by the new director of corporate enforcement to whom the Minister of State referred.
Section 160 of the Companies Act, 1990, states:
(1)Where a person is convicted on indictment of any indictable offence in relation to a company, or involving fraud or dishonesty, then during the period of five years from the date of conviction or such other period as the courts, on the application of the prosecutor and having regard to all the circumstances of the case, may order–
(a)he 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 any society registered under the Industrial and Provident Societies Acts, 1893 to 1978;
(b)he shall be deemed, for the purposes of this Act, to be subject to a disqualification order for that period.
(2)Where the court is satisfied in any proceedings or as a result of an application under this section that–
(a)a person has been guilty, while a promoter, officer, auditor, receiver, liquidator or examiner of a company, of any fraud in relation to the company, its members or creditors; or
(b)a person has been guilty, while a promoter, officer, auditor, receiver, liquidator or examiner of a company, of any breach of his duty as such promoter, officer, auditor, receiver, liquidator or examiner; or
(c)a declaration has been granted under section 297A of the Principal Act (inserted by section 138 of this Act) in respect of a person .
The section continues in that vein and lists the various penalties involved.
Mr. Ryan
I do not wish to delay the House but consideration must be given to this serious issue. I do not have the advantage of consulting the Minister of State's advisers or the 1990 Act. I suspect, however, from my understanding of the section from which he quoted, that a person, on summary conviction, could still become a director of another company. I accept that a summary conviction under the law generally ought not to be a disqualification from holding a directorship because many people have been the subject of such convictions. However, a summary conviction of the kind to which the section refers – which involves the making of false statements or returns or providing false balance sheets, etc. – deals with a particular and specific offence for which a particular and specific penalty, that is, disqualification from holding directorships, ought to apply.
It would not be correct to state that a person with a summary conviction for punching someone should be automatically disqualified from holding a directorship. The position is different, however, where an individual is convicted of fiddling statements or returns. I hope my understanding of the matter is wrong.
Section 37 refers to the a summary conviction and the penalties relating thereto. It also refers to "conviction on indictment" which is a serious matter. Section 160(2)(f) of the 1990 Act states that "if a person has been persistently in default in relation to the relevant requirements . the court may, of its own motion, or as a result of the application, make a disqualification order against such a person for such period as it sees fit." In that context, discretion rests with the court in terms of adjudicating on the suitability of a person if they have been convicted on indictment. I am glad that discretion exists and I am not sure that it should apply on conviction on indictment of offences which have nothing to do with company law. The courts should not have discretion but I accept that is the case. If an individual wilfully and knowingly makes a false statement of returns from a company and is consequently found guilty of a criminal offence under the Bill, he or she ought to be disqualified from the privilege of directorship.
Senator Ryan is saying that anybody who makes a mistake, whether it is intentional or otherwise, should be disqualified for the remainder of his or her entire life from being a company director.
Mr. Ryan
I did not say that.
If that is the case he is condemning them to a sentence without remission and that penalty does not apply even to capital offences in this State.
I totally agree with Senator Ryan. This does not refer to a mistake or an oversight.
I did not refer to an oversight.
This refers to an individual knowingly and wilfully committing an offence. A company is a separate entity in law. It is a serious offence and the Minister should take that on board. We want the highest standards to obtain and limited liability is precious. People must respect the law and the fact that a company is viewed as a separate entity in law. I would have no time whatsoever for anybody who would knowingly make a false statement. It is important that we should be strict in this regard.
Mr. Ryan
Senator Cox provides great entertainment but I was not suggesting that people should be disqualified for life. I am the ultimate softie when it comes to penalties for any offence, including some controversial offences. For example, I have never shared the view that child abusers should be locked up for 30 years and the key thrown away. However, a penalty should be referred to in this section. There should be a fine and/or imprisonment and a disqualification from the right to be a director for a period to be determined by the courts. The court must decide what the term should be. Perhaps it should be six months or five years, but the court should have a duty to disqualify. People who deliberately falsify returns ought to suffer some penalty of exclusion from the privilege of limited liability for a short period at least, depending on the offence.
I agree with Senator Ryan that they should be disqualified. Unless we engage in a huge prison building programme, we should not put people in prison.
Mr. Ryan
Half of them should be closed.
Depending on the severity of the offence, perhaps directors should be prevented from ever holding such a position again.
There are no soft options in the law for offenders. Section 160(1) of the Companies Act, 1990 states:
Where a person is convicted on indictment of any indictable offence in relation to a company, or involving fraud or dishonesty, then during the period of five years from the date of 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–
(a)he 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 any society. . .
That is very strong.
Mr. Ryan
But it is on indictment.
Yes.
Mr. Ryan
That does not apply to offences which are dealt with on summary conviction. The problem is that many agencies tend to go to the District Court rather than go for indictment. That criticism was directed at the Health and Safety Authority by Judge Kelly in the case involving Zoe Developments. The authority spends its life in the District Court instead of seeking the imposition of serious penalties elsewhere. It is a constant complaint against the EPA and local authorities. They apply for summary conviction rather than the extra complications of indictment. The Minister is saying that an individual convicted on summary conviction of wilfully making a false statement, knowing it to be false, can be convicted, fined and even go to jail but when they leave prison they can start up a new company and claim the right to be a director again as the law stands. Will the Minister pursue and investigate this issue further?
Most definitely. We are pursuing it and the company law review group, through the office of the director of corporate enforcement, will examine this and the issue of penalties and will make recommendations on where certain offences should go for final adjudication. I will bring this to the attention of the review group. If the Senator wishes to send me a note about it, I will make sure that he receives a response.
Mr. Ryan
I thank the Minister of State.
Question put and agreed to.
Sections 38 and 39 agreed to.
NEW SECTION.
Mr. Ryan
I move amendment No. 1:
In page 29, before section 40, to insert the following new section:
40.–Section 297A of the Principal Act (inserted by section 138 of the Companies Act, 1990) is hereby amended by the insertion after subsection (2)(a) of the following:
(aa) he was responsible for the failure by the company to have adequate employers' liability insurance in respect of any personal injury caused to any or all of its employees and for which the company has been or would have been held liable in damages; or'.".
This is an attempt to deal with auditors who are guilty of an offence. It provides for an individual "who is responsible for the failure by the company to have adequate employers' liability insurance in respect of any personal injury caused to any or all of its employees and for which the company has been or would have been held liable in damages" to be penalised. It seems perfectly reasonable that a company ought by law to have insured itself adequately. This raises interesting questions about the litigious Irish, the scale of damages and the peculiar judgments handed down by members of the Judiciary in regard to the proportionality of the damages for relatively minor offences. The cost of employer's liability insurance is an issue. The amendment attempts to ensure that people take their responsibilities to their employees seriously.
While I fully understand where the Senator is coming from in tabling this proposal, it isolates one aspect of the operation of a company and failure to comply with this would render the officers of the company guilty of reckless trading. Why specify this area as opposed to many others? The consequence of making this change would be to place the officers of the company in the winding up scenario on hazard of being held by the court to be personally liable for the debts of the company for injured employees because of the absence of employer's liability insurance. This would be a major burden to impose and is not one with which I agree.
On the broader issue of whether employer's liability insurance should be compulsory, the Senator will appreciate that important questions, such as cost and availability, arise. This issue would best be examined in the context of a successor to Partnership 2000 and it is open to the social partners to raise the matter at that forum. I understand that a report should be finalised shortly which should be of assistance in the debate on this issue. I refer to the special working group, under the chairmanship of Mr. Dan McAuley, which is examining alternative or complementary methods for delivering personal injury compensation in a more economic and equitable way. The intention is that the Government will consider the report's findings and recommendations in the first instance.
In a separate development, an agreement has recently been drawn up between the Irish Congress of Trade Unions and the Construction Industry Federation of Ireland to help improve safety on building sites in an initiative overseen by my departmental colleague, the Minister of State, Deputy Tom Kitt. These two bodies and the Health and Safety Authority are coming together to set up a new body, the construction safety partnership.
Is the amendment withdrawn?
Mr. Ryan
I am not sure because the Minister said it is a strange additional definition of what would constitute reckless trading. However, his point relates to a situation where a company decides not to take out employers' liability insurance and is then involved in a major case in which substantial and serious damages are awarded against it for personal injuries caused to any or all of its employees as in the case in my home town where the then asbestos factory and now renamed Tegral factory existed for many years and in which a significant number of people have been paid damages.
It is not good enough to say that it would not be fair to the directors of a company which does not have adequate employers' liability insurance. I could argue the toss about the scale of the insurance and if they were caught out for an exceptional charge, but I will not push this matter to a vote. However, a situation could be created where a minimum level of employers' liability insurance should be required, although perhaps not to deal with the occasional cases which involve horrendous figures which would terrify anybody. I disagree with the idea that a company could merrily carry on indifferent to the possibility that they have a responsibility to their employees, particularly as the privilege of limited liability means that even if the worst comes, the most they will have to do is perhaps liquidate the company. No personal liability will arise because they will not be convicted of reckless trading.
This is too much, and I am not in favour of imposing excessive burdens on small businesses. The greatest burden on small business is not the level of taxation but the amount of paperwork with which they must deal. I am a prime advocate of simplification of the regulatory regime if that was possible but that does not extend as far as indicating to people – I do not suggest the Minister intends it – by omission in the law that one of the things one can get away with, if one is short of money, is not bothering to take out proper employers' liability insurance. I must take out proper public liability insurance including insurance for anybody who is working in my house. There would be no sympathy for me if somebody fell from my top window, broke his or her neck and it was my fault but I did not have any insurance. There would be no sympathy for me even if it meant my family was impoverished and that is correct because it is my responsibility. I do not understand why the directors of a company should not have a similar responsibility.
The essential issue arising in the Senator's amendment is whether employers' liability insurance should be made compulsory. My point is that the matter raises wide ranging issues involving a wide constituency of interests. The Government and the Department would be an important group among those interests and the matter needs to be considered by the social partners in the first instance. It is a broad canvas and we must be sure that we make the right decision.
As I said, I hope the McAuley report, when it becomes available and has been considered by the Government, will be of assistance in helping to reach a decision on whether employers' liability insurance should be compulsory. That is the best way forward, particularly from the point of view of ensuring that such insurance is readily available at reasonable cost. It is available at present although it is optional. However, good companies are reasonably well run and they have this type of cover because of their managers' or auditors' ingenuity or their lawyers' advice but in some cases it is not up to the maximum level which would be necessary to cover the potential liabilities that could be incurred.
I accept Senator Ryan's comments in that regard but it would be premature and inappropriate at this time to include this area in this type of legislation. It is an insurance matter and it needs to be teased out and discussed. We are awaiting the McAuley report and we believe the social partners will respond to it. If a recommendation is then made that legislation should be introduced with regard to the requirement to have employers' liability insurance, the Government will give due consideration to it. As there is a working group and the social partners and the Government are awaiting the report, it is advisable to await the outcome of those deliberations.
Amendment, by leave, withdrawn.
Sections 40 and 41 agreed to.
SECTION 42.
Question proposed: "That section 42 stand part of the Bill."
Mr. Ryan
This section is of considerable importance. It states that a company shall not be formed and registered under the Companies Acts, 1963 to 1999, after the commencement of this section unless it appears to the Registrar of Companies that the company when registered will carry on an activity in the State being an activity that is mentioned in its memorandum. Does this mean that Ireland will cease to be a haven for dubious off-shore companies?
Yes, that is what it means. We worked assiduously on a package of measures which the Minister for Finance introduced in the last Finance Act which was passed earlier this year. That has been followed by the measures in this Bill and, as a result of the work done to date, there has been a reduction of 1,000 companies per quarter in the number of companies registered this year vis-à-vis last year. We are confident that the measures being put in place will create further impediments to people who are registering in Ireland. The thrust of the legislation is to ensure that a company once registered in Ireland is tax resident in this country and must fulfil its obligations to the Exchequer under Irish law.
We have taken account of European directives pertaining to the delivery of services and the right of mobility. On that basis, we have provided an option where a company can have a bond rather than a resident director. If it does not discharge its obligations, the bond can be cashed and the company struck off.
Question put and agreed to.
SECTION 43.
Question proposed: "That section 43 stand part of the Bill."
Mr. Ryan
This section deals with the bond to which the Minister referred. Bonds are not necessarily cash; they are guarantees and £20,000 is a small amount. These companies are not set up by small businesses. This section involves companies where the director would not necessarily be resident in the State. It does not involve small Irish enterprises trying to set up a company under the Companies Act. The section states that the provisions shall not apply in relation to a company if the company for the time being holds a bond to the value of £20,000. It involves non-resident directors and £20,000 is a small penalty for somebody if it is advantageous for them to set up a company in Ireland without any resident directors.
An eminent financier, who has some former connections with the former Leader of the Fianna Fáil Party, described a £75,000 loan to the former leader as insignificant. If a £75,000 loan is insignificant, £20,000 is a pin prick. That is the type of world in which we are operating in relation to company law, particularly in terms of the former off-shore paradise that was Ireland. The sum of £20,000 is low.
With reference to the personalities to whom Senator Ryan alluded, I am sure the Senator as a Corkman could understand the generosity of a fellow Corkonian.
Mr. Ryan
We would never claim it was insignificant though. We are very cute with our money, almost as cute as the Kerrymen.
Senator Ryan raised the issue of the bond as an alternative to an Irish resident director and said the amount should be increased from £20,000 to £40,000 or more. Let me explain briefly the reasons we would be reluctant to do this. For European Union treaty reasons we must have an alternative to the resident director and this is the clear legal advice received. The alternative chosen was a bond. Again for European Union treaty reasons this has to be a real alternative. As regards the size of the bond which must be put up we must remember the provisions of this Bill will apply to all companies once established. In pitching the bond at £20,000 we were conscious of the need not to impose an undue burden on reputable business concerns. This will be particularly important in the case of a European Union resident who wishes to set up a company here – we are pleased with the number operating in the IFSC in particular – but does not wish to use the Irish resident direct route. If the bond is pitched at too high a level they would more easily be able to argue that it constituted an undue discrimination by Ireland under the relevant treaty requirements governing freedom of establishment. Under the EU directive freedom of establishment is very important and is regarded as sacrosanct and we have to protect it.
In addressing the IRNR problem it is important to focus on the overall package of measures, which has been carefully drawn up by us, in assessing the effectiveness of the individual components of the package. The company law measures are designed to complement the very considerable changes already effected in the taxation area and that together will constitute a powerful weapon against abuse of Irish company structures for undesirable purposes in future. We are pleased at the reduction in the number of registered companies in the first nine months of this year. When the report for the end of the year is available I am confident the measures we have taken will have made a huge contribution in reducing the average number of registrations.
Acting Chairman
Is the section agreed?
Mr. Ryan
I am not satisfied yet. The Minister is being most agreeable. The idea that there could a company in the IFSC which would be affected by whether the bond was £20,000 or £50,000 is not a convincing one. There may well be small companies outside the State, with directors outside the State, who are setting up here but they are hardly in the IFSC. I still think a bond of £20,000 is very small because I do not believe a company that is seriously intent on doing business here would be deterred. This is by way of a guarantee, not necessarily a deposit of cash. They are taking on an enforceable liability and it has to be a bond that is in force in this State. They are not taking money directly out of the company's resources on the spot. I genuinely believe that a £20,000 bond is not a deterrent. Many of us take on potential liabilities of that order without think ing as much as we should about them, for instance, when we buy a car.
Question put and agreed to.
Section 44 agreed to.
SECTION 45.
Mr. Ryan
I move amendment No. 2:
In page 38, between lines 26 and 27, to insert the following new subsection:
"(14)In this section ‘appointment' includes a purported appointment and cognate words shall be construed accordingly.".
Section 45 deals with the limitation on the number of directorships and goes into great detail about appointments of directors. We are concerned – I am sure this point was raised in the other House – that the word "appointment" should not exclusively mean where somebody has been appointed under the provisions of the Act but should include where somebody is purported to be appointed. Therefore there should be no uncertainty about it.
This amendment has been debated on two occasions in the Dáil as it was tabled by Deputy Rabbitte on both Committee and Report Stages. I asked the parliamentary draftsman to examine the amendment and I have been assured that the sense of the existing provision, particularly subsection (9) which reads: "An appointment of a person as a director of a company made after the commencement of this section shall, if it contravenes subsection (1), be void", is sufficiently clear and this amendment is not necessary. In other words it would be superfluous.
Amendment, by leave, withdrawn.
Question proposed: "That section 45 stand part of the Bill."
Mr. Ryan
I am a little concerned in the other direction about the director of 25 companies. I can take guidance from the Minister on this matter. I am concerned about what many voluntary organisations do, which is they seek the assistance of people who are successful in the business world and they become the directors of limited companies, charities, which are not trading. I would be concerned that a provision which from the point of view of commercial companies would be sensible could perhaps inhibit people with a considerable expertise to offer in the areas of financial management, staff training, personnel management, etc., and who are directors of companies, from becoming involved in that type of organisation or else being exposed to personal liabilities if they became involved and were not covered by the provisions of limited liability.
We have been concerned too and are pleased, based on the appraisal carried out through the company law office – an efficient operation headed up by a great man with a great team – and the figures available, that we have pitched it very well. In the event that the number would impede persons from discharging their obligations or fulfilling other corporate requirements in which their company or subsidiary companies would be involved, there are certain exemptions under company law which allow persons to hold more than 25 directorships. They are strict exemptions and we are happy that 25 is a fair figure. It ensures nobody is discriminated against and that company or business development is not impeded.
Mr. Ryan
Am I right in surmising that this could inhibit a person from becoming a director of a charity?
The short answer is yes. If a person has exceeded the limit of 25 he or she could be precluded.
Mr. Ryan
Will the Minister give this matter further consideration? It would be a great pity if expertise was prevented unnecessarily from being available to the voluntary sector. A considerable amount of expertise is needed because the charitable section in this country is no longer a penny-ha'penny business. The voluntary organisation with which I am most connected in Cork spends £1 million a year and it needs to have a body of expertise on issues such as financial management, personnel management, insurance, etc. The people who can best provide that expertise, if they are available, are those in the business world. I know the Minister says there are checks and that there are very few people who would exceed 25. Perhaps we could look at the difference between registered charities and commercial trading companies.
It is highly unlikely that people of the calibre Senator Ryan would be seeking for the purpose of being a director of a charity would be any one of these puppets. The section, if I remember correctly from Second Stage, deals with the limitation on the number of directorships. It seeks to prevent these puppets, Irish residents, for non-Irish companies. I do not think that will arise. I said on Second Stage I had an abhorrence of the word "shadow" director and the fact that people would allow themselves to be used in a way where they take up multiple directorships. There is something shadowy about some of the figures in the past who have occupied such positions. I am inclined to accept the advice available to the Minister from the company law review group and from his own experts in regard to pitching this correctly at 25 directorships.
This was designed to deal with Irish registered non-registered companies. We wanted to ensure that the restrictions we were introducing would eliminate the proliferation of such companies and protect Ireland from becoming a safe haven for illegal or nefarious activities.
Senator Ryan raised the question of company directors being prohibited from holding directorships of charitable companies as a result of this provision. Most charitable companies are public guarantee companies. Under this section, such directors would be excluded and would not be affected by the provision if the charity was a public guarantee company. I do not think this provision will cause major difficulties. We will refer this matter to the company law review group and see what they have to say about it.
Senator Coghlan raised the situation pertaining to shadow directors. No distinction is made in company law between a director who would be classified as a nominee director, an executive director or a non-executive director. However, in specific provisions of the Act defences are available to those who may be accused on the basis that they considered other parties were discharging a particular responsibility. For instance, section 202(10)(a) provides that it should be a defence to prove that a director had reasonable grounds for believing and did believe that a competent and reliable person was charged with the duty of ensuring that the specific requirements in question – the keeping of books of accounts – had been handled by that person. However, it is often the case that people will try to disguise the fact that they have control of a company. In company law terms, this is dealt with by providing that in certain instances where directors operate in accordance with the directions and under the instructions of a person that person would be deemed to be a shadow director. Therefore, shadow directors are absorbed into the wheel of law.
Question put and agreed to.
SECTION 46.
Question proposed: "That section 46 stand part of the Bill."
Mr. Ryan
In an earlier debate about Iris Oifigiúil the Minister of State pointed out that in addition to publication in Iris Oifigiúil the notice had to be published in two newspapers. On reading section 46, no such requirement appears to apply where the registrar strikes companies off the register for failure to make returns. It reads, “...shall publish notice thereof in Iris Oifigiúil” rather than in a national newspaper. This is not how people will learn that companies have been struck off the register. It brings me back to my point about accessibility in terms of presentation and physical access of Iris Oifigiúil.
It is an extraordinary fact that companies can be restored to the register before the expiration of 20 years from the publication in Iris Oifigiúil of the notice. Twenty years is a long time. Why that long?
What is the Senator's question?
Mr. Ryan
Section 46(12B)(3) reads:
If any member, officer or creditor of a company is aggrieved by the fact of the company's having been struck off the register under section 12(3) or 12A(3) of this Act, the court, on an application made (on notice to the registrar of companies, the Revenue Commissioners and the Minister for Finance) by the member, officer or creditor, before the expiration of 20 years from the publication in Iris Oifigiuil of the notice referred to in section 12(3) or, as the case may be, 12A(3) of this Act, may, if satisfied that it is just that the company be restored to the register. . . .
I agree with the provision that if companies do not make annual returns for one or more years they may be struck off the register. I would like to hear what the Minister has to say on this matter. We are all aware that the Companies Registration Office was a shambles in the past. The registrar has struck off a number of companies which lapsed or failed to comply with the provisions. Following huge investment in modern technology at that office it is now as up to date as one would wish it to be.
Senator Ryan raised the matter of publicising in the national newspapers the names of companies being struck off the register. That would involve an enormous amount of money. We have struck 31,000 companies off the register this year. That is a huge amount and has been brought about as a result of changes made to the law. As Senator Coghlan said, a huge investment has been made in modernising the Companies Registration Office. It has its own headquarters in a very modern environment and is very much up to date and doing an excellent job.
We are obliged under the EU First Company Law Directive to publish in Iris Oifigiúil– the official journal of the member state – and we do so. Our company law conforms to that directive. It would not serve any purpose not to do so as many of the companies involved have ceased trading and if they are trading, chances are they are doing so out of Ireland. We are trying to get rid of such companies. They serve no purpose as they have no impact whatsoever on our citizens. The other companies involved would be indigenous companies which get into difficulties and are ultimately struck off. That information, by and large, often becomes available but once it is published in Iris Oifigiúil we are discharging our legal obligations under the EU First Company Law Directive.
Senator Ryan also raised the situation pertaining to the 20 year rule. It is a long time but we must be consistent within the law. Section 311(8) of the Companies Act, 1963 states:
If a company or any member or creditor thereof feels aggrieved by the company having been struck off the register, the court, on an application made (on notice to the registrar) by the company or member or creditor before the expiration of 20 years from the publication in Iris Oifigiúil of the notice aforesaid, may, if satisfied that the company was at the time of the striking off carrying on business or otherwise that it is just that that company be restored to the register...
It goes on to state the conditions under which a company can be restored, etc. The Bill is consistent with the 1963 Act and the European Union First Company Law Directive. This could also be considered in the context of the new director of corporate law enforcement but it would be unwise not to maintain the consistency between the two Acts.
Mr. Ryan
Companies have to register a company name. Does this provision mean that no other company can use that name for 20 years, even if the original company is struck off the register? How can the company be restored if the name is used by another person? What happens if a person tries to register a company under a name previously used but which has been struck off the register? It is a bit like the question about people who have been married four times and who they are married to in Heaven. Who will own the company name? An appeal can be made to have the company restored before the expiration of 20 years. Can somebody else take up that company name in the meantime? I do not wish to be awkward but these questions genuinely come to mind. If I wished to be awkward we would be here for a long time yet.
This section shows the great need for regulation in this area. Thirty-one thousand companies have been struck off this year. That shows a wanton disregard for law by the directors of those companies who enjoyed limited liability. It points to the need for vigilance in this area.
I concur with Senator Coghlan. Once a company is struck off, it becomes defunct. From my experience in dealing with the Companies Registration Office, I would say that the registrar would not register another company in that same name but that would be at his discretion, based on the information available to him. Of course there would be legalities to be taken into account and this is where the 20 year rule comes in. It could happen that a director, who may be out of the country or may not be resident in the country, would not be aware that a company had been struck off. The 20 year rule has been there to take account of the rights of people who may not be aware of what would be happening. It is something we will look at in the context of any new directive on corporate enforcement. It shows the contribution which Seanad Éireann makes to legislation when all these matters can be raised here.
Mr. Ryan
Given what the Minister has just said about the number of companies which have been struck off, the case that Iris Oifigiúil should be available on the website of the Department or the Houses of the Oireachtas seems to me to be overwhelming. That is the way to make large amounts of information available because one may search such websites. It could be done effectively. It would get over the possibility of pages of the newspapers being taken up, as the Minister of State said, but at the same time it would make information extremely accessible.
I agree with Senator Coghlan. What we now know about the behaviour of the Irish corporate sector, the possibility of an illegal bank being operated within one of the largest plcs, among other things, and the suggestions of strange misbehaviour by most of the banking sector in the 1980s, suggests to me that we need to be vigilant about how the corporate sector behaves and we need to make sure that there is maximum transparency. People should know what is going on. That is why I am a little unhappy with Iris Oifigiúil.
I concur with Senator Ryan. It is a slender area, so to speak, in which to legislate but it is a powerful document which has great force of law. On the point he made about the Government website, I hope the Companies Registration Office will be on the web in the coming year. All the necessary information will be available on that site. These are matters which the Department will take into account in any further consideration of company law. The Senator can take it that the activity of the Department, the Ministers and its excellent officials, in co-operation with the Companies Registration Office, in this area is geared to ensuring that there is absolute transparency, sustainability, rigidity and regularity in the regulatory environment in which company law operates. It is in response to the situations to which Senator Ryan referred that we are ensuring the law is modernised, operable and practical.
Question put and agreed to.
Sections 47 to 52, inclusive, agreed to.
SECTION 53.
Amendment No. 3 not moved.
Mr. Ryan
I move amendment No. 4:
In page 44, subsection (2), line 45, to delete ", in the opinion of the Minister,".
Section 53(1) states that information "which has been obtained under section 19 or 20 shall, without the previous consent in writing of that body, be published or disclosed, except to a competent authority, unless the publication or disclosure is, in the opinion of the Minister, required .". I dislike intensely the phrases "the absolute discretion", as the House will recall from this morning, or "in the opinion of", because opinion is not capable of being tested in court. The Minister's judgment is capable of being tested. Similarly, if the Minister "makes a decision" or "is satisfied", for instance – other phrases can be used – then one can test them in court, but an opinion in simply that. It is an opinion and he is entitled to have the most perverse opinion he wishes. I am certain the Minister would never have a perverse opinion about anything but the Minister is entitled to have a perverse opinion and it is still the opinion of the Minister.
The phrase "in the opinion of the Minister" is not capable of being challenged and, therefore, effectively the Minister may do what he or she wishes without any legal accountability. That is why I do not like the phrase. I would prefer if it was left out and, therefore, it would be left to the courts where there is a question of doubt to decide whether particular information should be published or not.
I am not familiar with the language of the law and the Minister of State will answer for himself. While I agree with Senator Ryan that the Minister could have any opinion, would it not be correct to assume that in this instance it might be like the Pope speaking ex cathedra? I do not mean to be in any way disrespectful. However, the Minister would be speaking with the full authority of his office and the advice, dare I say it, of the permanent Government. He would exercise due diligence before offering an opinion on a matter of law and he would have that backing in offering it. However, perhaps Senator Ryan is right and a Minister could overrule all advice, but I would be inclined to take it that this would be based on competent legal advice which would be available to the Minister. I would hate to think it would be otherwise.
I listened with interest to the contributions of the Senators. I appreciate the fact that they have given me a special dispensation, that my opinion would never be negative or anything like that.
On the suggestion that we should delete the words "in the opinion of the Minister" in the new section 21(1) being inserted by section 53 of the Bill, it has always been the practice in reality that the Minister took a decision as to whether or not information, books or documents on a report which had been obtained or compiled pursuant to section 19 or obtained under section 20 would be forwarded to any of the existing parties specified in section 21(1). We are now explicitly stating this in law. It is the de facto position, it operates and we want to enshrine it in law.
I should also explain that by virtue of the extensive addition to the parties who can be given information pursuant to section 21(1) of the Companies Act, 1990, it is all the more important that the fact that this information, book or report will be given where the Minister is of the opinion that this should be done, is explicitly stated and understood. Moreover, the new phrase will prevent any of the parties from asserting a right to be given the information against the Minister's wishes where this is her considered position. It happens naturally as a result of the evolution of office, the advice available and the law under which one operates, but it has not been enshrined in law until now. It is important that we do so because it is important that the Minister, as Senator Coghlan stated, has the full force and authority of her office, the Department and the Government. At the end of the day the Minister is discharging her obligations under the Constitution on behalf of the Government and, ultimately, the people. It is important that there is no doubt about what she does.
Mr. Ryan
I withdrew amendment No. 3 on the Freedom of Information Act, 1997, because, try as I might, I could not understand from where my party had got it. That said, if such books or documents are not published, what would be their status under the terms of the Freedom of Information Act, 1997? Could the material, which would be records in the Department, be published subject to the exemptions in the Freedom of Information Act, 1997? One accepts that personal privacy and commercial sensitivity would be covered but, subject to those aspects, would the report otherwise be covered by the Freedom of Information Act?
Under section 21 of the Companies Act, 1990, special reports, such as authorised officers' reports, are specifically excluded within the Freedom of Information Act.
Amendment, by leave, withdrawn.
Mr. Ryan
I move amendment No. 5:
In page 45, subsection (2), line 1, after "Companies Acts" to insert ", 1963 to 1999".
The section deals with situations under which the books or documents we have been talking about can be disclosed. One of those circumstances is the investigation or prosecution of an offence and the section lists a number of Acts, including the Central Bank Acts, 1942 to 1998 and the Insurance Acts, 1909 to 1990. Top of the list, however, are the Companies Acts, standing baldly with no reference to a time period. There may be a reason for this but it is not apparent to me. It appears that it ought to read, "The Companies Acts, 1963 to 1999", rather than leaving the dates undefined. There is obviously a legal reason why the Companies Acts are not referred to in the same way at the Central Bank Acts, the Exchange Control Acts, the Insurance Acts and the Taxes Consolidation Act.
While I appreciate the intention of Senator Ryan's amendment to paragraph (a)(i)(I), section 3 of the Companies Act, 1990, contains a specific definition of what the term "Companies Acts" means, as follows:
The Companies Act means the Companies Act, 1963, and every enactment, including this Act, which is to be construed as one with that Act.
Given that the present Bill will, by virtue of section 1, be construed with the earlier Companies Acts, it is not necessary to make the insertion proposed by Senator Ryan in this instance.
Mr. Ryan
I have a distinct recollection of similar provisions in other legislation saying that the Acts should be construed as one and, nevertheless, it was felt necessary to insert such an addendum. I have spent most of my political career arguing with the parliamentary draftspersons, and I have never been too pleased with them, so I will not be so now. It is a strange idea and I do not believe the argument of the Minister of State that it has universal application. I am convinced that other legislation has come through the House with phrases similar to those used in the 1963 Act. If we are saying the Companies Act, 1963, and all subsequent Acts are to be treated as one, then the term used should be singular, "the Companies Act". If it is the Companies Acts, we are admitting there is more than one and, if so, we should refer to the time period over which they were passed.
Section 3 of the Companies Act, 1990, states:
The Companies Acts [plural] means the Companies Act of 1963, and every enactment, including this Act, which is to be construed as one with that Act.
That is the way the courts operate as well in their interpretation of the law.
Amendment, by leave, withdrawn.
I thank the Senator for being so helpful to me.
Mr. Ryan
I move amendment No. 6:
In page 46, subsection (3), between lines 13 and 14, to insert the following new paragraph:
"(a) by the insertion after paragraph (a) of the following paragraph:
(aa) either House of the Oireachtas or a Committee appointed by either or both of such houses;'.".
The question of the designation of either House of the Oireachtas, or a committee appointed by either or both such Houses, or a number of variations thereof, as a competent authority, has been the subject of detailed con sideration by us at all levels and was debated at length in the Dáil on Report Stage. My decision in this instance, which repeats that on Report Stage in the Dáil, not to propose or accept such an amendment, is influenced by the manner in which use has been made of the existing provisions and the ongoing investigations under Part 2 of the Companies Act, 1990, at the present time. It is worth repeating the reasons which I advanced in the Dáil for not accepting this amendment. At present, sections 19 and 20 provide a statutory basis for intervention by the Minister to uncover on a confidential basis information relating to a company which can subsequently be used in company law, criminal or other investigations. They are purely information gathering mechanisms which enable the Minister of the day to make a more informed judgment on what action is appropriate to be taken in a particular case. There may be many persons named in such company information but unless the persons are past or present officers, or employees of the company, or have been in possession of the company's books and documents, an authorised officer appointed by the Minister under section 19 has no legal right to question such persons. Some of these persons may have a perfectly reasonable explanation for their association with the company, notwithstanding perceived illegality on the part of the company or its officers. Because of his limited powers, an authorised officer may be unaware of those explanations in presenting the information available to him to the Minister. The statutory prohibition on publication of this information enables this preliminary investigation process to remain intact because it shields potentially innocent parties from possible public opprobrium.
There is not even a legal requirement on an authorised officer under section 19 to advise the company or any of its officers of the content of the information available. Such a requirement may, however, arise after the Minister receives the information in question. If, for instance, the Minister decides to proceed with the appointment of inspectors, the High Court will order that the relevant documentation be transmitted to the company and other appropriate parties in order to allow them the opportunity to oppose the ministerial application. Similarly, if inspectors are appointed and undertake a wide-ranging series of interviews of persons named in the authorised officer's report, the persons involved will have a full opportunity at that stage to make known their association with the company's activities. It is possible to have such a restricted role discharged by an authorised officer without compromising procedural fairness because the information is not publishable and because the report, conclusions or opinions of an authorised officer have no legal status. Having assessed the information made available, it is the Minister who decides on the next steps. It is that decision that is recognised in law.
Amendment, by leave, withdrawn.
Mr. Ryan
I move amendment No. 7:
In page 46, subsection (3), between lines 16 and 17, to insert the following paragraph:
"(h)any court of competent jurisdiction or any tribunal of inquiry to which the Tribunals of Inquiry (Evidence) Acts, 1921 to 1998 apply.".
There are two elements to the insertion which the Senator is proposing to make in this amendment. The first proposal is the inclusion of a court of competent jurisdiction as a competent authority. Section 21(3) of the Companies Act, 1990, already includes at paragraph (f) any court of competent jurisdiction and accordingly this element of the new paragraph (h) is unnecessary. As I mentioned previously, section 53(2) of the Bill substitutes a new subsection (1) in section 21 of the Companies Act, 1990. This essentially expands considerably the number of parties that can be given information, books and documents that come to hand as a result of procedures under sections 19 or 20 of the Companies Act, 1990. One of the changes that has been made in section 21(1) is the addition of paragraph (c) to which the Tribunals of Inquiry (Evidence) Acts, 1921 to 1998, apply. Accordingly, the second element of the new paragraph (h) is also catered for and it is unnecessary to make the addition proposed. In the circumstances it is not necessary to make the amendments proposed by the Senator at this time.
Amendment, by leave, withdrawn.
Section 53 agreed to.
Section 54 agreed to.
First and Second Schedules agreed to.
Title agreed to.
Bill reported without amendment and received for final consideration.
Question proposed: "That the Bill do now pass."
I thank the Senators who contributed to the debate, especially the spokespersons – Senators Coghlan, Ryan and Cox – for their co-operation. I always enjoy working on legislation and interacting with this House. I will take on board the many recommendations made here today. I thank the House sincerely for its co-operation. I also sincerely thank my officials who have worked assiduously over a long period to ensure we have put in place the most up-to-date, modern company law possible.
Mr. Ryan
I thank the Minister of State for his patience. I was allocated this Bill at very short notice, so my comments were somewhat more speculative than I would have liked. It is always a pleasure to do business with the Minister of State on Committee Stage because he has the capacity to listen to people and respond. His method of dealing with matters could, perhaps, be copied by some of his colleagues. I compliment him.
I thank the Minister of State and his officials for their fine work today. I remind the Minister of State of his commitment to me on Second Stage in regard to the specific and important role played by recruitment agencies in company law and I ask him not to forget it.
I join with my colleagues in thanking the Minister of State for the explanations which he so courteously gave to the House. He has been patient with us and we have enjoyed being involved with him on this Bill. I look forward to all that will flow from the company law reform group.
Question put and agreed to.