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Seanad Éireann debate -
Wednesday, 6 May 2009

Vol. 195 No. 5

Companies (Amendment) Bill 2009: Second Stage.

Question proposed: "That the Bill be now read a Second Time."

I thank the Members of this House for facilitating the early discussion of this legislation. I am very pleased to bring the Companies (Amendment) Bill 2009 to the House. Irish company law is a significant part of the infrastructure underpinning the development of Irish business. It provides the framework that governs how Irish companies conduct their business, communicate with shareholders and other investors and deal with creditors. To remain fit for purpose, company law has to be, and has been, updated and refined regularly since 1963 in response to dynamic changes in the Irish and international corporate environment. The Bill being introduced in this House today is the latest proposed revision of the sophisticated and interrelated suite of Acts and regulations that make up the Irish companies code. Arising from recent experiences in the enforcement of company law in the banking sector in particular, I consider it necessary to introduce a small number of important changes to company law.

As the House is aware, a wide-ranging analysis of current company law is well advanced and it is my intention to publish very significant legislation containing 1,250 sections next year. In the meantime the intention of this short Bill is to provide in primary legislation a framework to support the Director of Corporate Enforcement in his efforts to enforce compliance with company law by ensuring he has the range of powers required to support him in this task. It will improve the transparency of loans made by companies that are licensed banks to their directors and to persons connected with them. It will amend certain existing provisions relating to Irish registered non-resident companies to meet European Commission concerns.

On my initiative, extensive consultations took place with the Director of Corporate Enforcement in drawing up the amendments contained in this Bill. His experience of the operation of company law on the ground and of the issues that arise when carrying out investigations of possible breaches of these laws are a source of vital and practical feedback. Recent experience has shown that compliance with company law could be enforced more effectively if a number of targeted amendments were made to existing company law.

I will explain each of the amendments proposed in the Bill in greater detail later but, in summary, the Bill will improve overall enforcement of compliance with company law by, inter alia, providing for the ODCE’s right of access to certain company and third party records and allowing for extensions to search warrants granted to the office. It will introduce a mechanism, together with appropriate safeguards, for an extended power of seizure so that large volumes of paper or electronic information that may contain relevant material can be removed for later examination. It will lighten the evidential burden on the Director of Corporate Enforcement when taking action against companies in default of existing provisions regarding loans to their directors and will amend existing requirements relating to the disclosure of loans to directors in the annual accounts of licensed banks.

One of the issues the Bill addresses relates to the large amount of documents and computer records seized by gardaí as part of the ODCE's investigation into Anglo Irish Bank on the bank's premises. This issue has general application and could be relevant to any large investigation. Before examining the seized material, its legal professional privilege status must be determined. To this end, on 13 March last, the ODCE applied to the High Court for its approval of a mechanism agreed by the parties whereby such privilege could be decided.

While the High Court judge stated that the method of resolving difficulties in the manner outlined to the court was "eminently sensible", he did not believe that section 23 of the Act as it stands provided the court with a statutory authority to outsource a function currently reserved to it. The judge therefore could not approve the proposed procedure. As I will be explaining shortly, section 6 will give legislative underpinning to an appropriate mechanism similar to the one proposed to the High Court.

The ODCE reports that the Anglo Irish Bank investigation is the largest and most complex investigation it has undertaken since the office was established in late 2001. According to the director, a substantial amount of further work needs to be done to complete the examination which he proposes to conclude by the end of this year. While company law governs the disclosure of directors' loans in the annual accounts and elsewhere, it does not extend to regulating bank lending and other banking activities. This task falls to the Financial Regulator which is also empowered under the Central Bank Acts to make rules to change conditions attaching to bank licences. The Financial Regulator is proposing to amend its rules on disclosure of loans by banks to their directors and connected persons — areas that are also covered by the Companies Acts. My proposed changes to the Companies Acts take account of the rule-changing powers of the Financial Regulator but do not seek to duplicate its role in determining how best to oversee prudential supervision of the banks.

I turn now to the provisions of the Bill and explain what each is designed to achieve. Section 2 affects the generality of companies and not simply the small number of companies that hold banking licences issued by the Financial Regulator. Subject to certain restrictions, existing company law allows a director legitimately to have a private interest in contracts or proposed contracts with his or her company. However, a director must declare any such interests to his or her fellow board members. Failure to do so could make him or her liable to a fine and to have to account to the company for any profits gained.

The company is obliged to keep a record of directors' declarations of interests in a book that is kept for this purpose. The amendment being proposed in section 2 will give the Director of Corporate Enforcement a specific right of access to this book. It will also provide a sanction in any case where a company fails to allow the Director of Corporate Enforcement to access this information. This will assist in enforcing compliance with the Companies Act provisions.

Sections 3 and 4 are linked and deal with the powers of the Director of Corporate Enforcement to require the production of records from a third party where these records relate to a company under investigation. This power is vital to the Director of Corporate Enforcement when he is investigating companies whose books are incomplete for whatever reason. The third party might typically be a director, auditor or employee of the company being investigated. However, it may be the case that other individuals possess the relevant documentation and, if so, this provision could be relevant to them. The right of the Director of Corporate Enforcement to access third party records has already been provided through section 19(3) of the Companies Act 1990 and the director has informed me he has already used it successfully in a number of cases. However, he has requested that the provision be reworded to provide greater clarity and to avoid doubt in the future about what records can be sought from third parties.

With regard to the avoidance of doubt, the Bill stipulates that the clarification being introduced here will not invalidate any previous requests for access to third party records. This would be important for the continuity of any ongoing investigations that relied on material discovered through the use of the existing powers.

Section 5 is another provision with general application. It deals with the entry and search of premises by the director or authorised officers of the Office of Director of Corporate Enforcement on foot of a search warrant issued by a judge of the District Court. At present, the Companies Act 1990 provides a limit of one month on the lifetime of such warrants. Although this can be sufficient in some investigations, it may not allow sufficient time to conduct large and complex searches, or where substantial amounts of information are contained in electronic format. The amendments in the Bill provide for situations where an extension of the period of a search warrant can be sought from and granted by the court. This will allow the court to take account of the grounds given for seeking an extension and to use its discretion in deciding whether to allow the extension.

The Bill also provides for the removal of paper and electronic information from premises being searched, for subsequent examination elsewhere, to determine their relevance to the matters under investigation. This is referred to in the Bill as "extended power of seizure". Appropriate detailed safeguards are also provided in the Bill to ensure that this extended power is used only when appropriate. For example, the Bill stipulates the issues that should be taken into account by the director in deciding whether it is reasonably practicable to determine the relevance of something on the company's premises. It also provides for the arrangements he must put in place before the extended powers of seizure can be used. These include the maintenance of confidentiality of seized information and granting the owner reasonable access to it. The Bill also provides for arrangements to be adopted in cases where the director believes it necessary to avoid possible concealment, falsification, destruction or disposal of relevant material. It requires the director to deal as expeditiously as possible with the material seized and to return any material that proves not to be relevant to the owner as soon as possible. In drafting the Bill, every effort was made to provide for all situations that might arise during the course of an extended search. However, should any new or unforeseen issue arise, the Minister for Enterprise, Trade and Employment is being empowered to make appropriate regulations.

Section 6 makes a number of amendments to section 23 of the Companies Act 1990 which protects a person from having to disclose certain information under Part II of the Companies Act 1990. The explanatory memorandum inadvertently referred to this as Part III. The protected information in question in Part II is that which, in the opinion of the court, the person would be entitled to refuse to disclose on grounds of legal professional privilege.

Although the 1990 Act allowed for a blanket prohibition on the seizure of such material, the Director of Corporate Enforcement reports that there are sometimes difficulties in deciding during a search whether privilege pertains to specific documents. The situation becomes even more problematic given the prevalence of electronic data storage. A legal solution is necessary which recognises the inevitability of legal privileged data being mixed up with information not enjoying that privilege. The arrangement provided for in this Bill will permit the seizure of information, whether privileged, on a sealed basis. It will then be a matter for the court to decide on matters relating to privilege. Application to the court for such a ruling must be made by an officer of the Office of the Director of Corporate Enforcement or a court-appointed inspector. It may also be made by any person from whom disclosure is compelled or material taken.

The amendments also provide for the introduction of a mechanism whereby the court can be assisted by the appointment of an independent person with suitable legal qualification to examine the information and prepare a report with a view to assisting or facilitating the court in making its determination. This amendment addresses the concerns that were expressed by the High Court during the hearing on 13 March 2009, to which I referred.

To preserve confidentiality of sensitive information, the Bill provides that the court hearing can be held otherwise than in public. Section 7 relates to the very important provisions contained in section 31 of the Companies Act 1990. This prohibits companies from making loans to their directors, except in certain defined circumstances. This limitation on the personal use of a company’s assets by directors and persons connected with those directors is to ensure that the company has the available resources to pay its creditors as their debts fall due. This prohibition is a very important safeguard in company law and it is applicable to all 180,000 companies incorporated in Ireland. For this reason, breaches of the provisions have been a particular focus of the work of the Office of the Director of Corporate Enforcement, ODCE, since it was established in late 2001. Concerns were expressed that the success in prosecuting offending directors or companies might be affected by the current wording of section 40 of the Companies Act 1990 which puts an onus on the Director of Corporate Enforcement to prove that a company director was aware he was in default of the company law prohibition on loans to directors.

Section 7 of this Bill therefore substitutes section 40 of the Companies Act 1990, which sets out the penalty for breaches of section 31 of 1990 Act. The substituted provision will provide, in future, that if a company enters into a transaction or arrangement that contravenes section 31, every officer of the company who is in default will be guilty of an offence. This aligns the offence with numerous similar offences under the Companies Act and replaces the existing requirement for a successful prosecution to effectively prove wilful default.

Section 8 amends sections 41 and 43 of the Companies Act 1990 and deals with the disclosure in the annual accounts of loans, namely, transactions, arrangements or agreements, made by a company to its directors and to persons connected with them. To remove any doubt, the amendments include appropriate penalties for failure to disclose such loans and defences that can be made. Section 8 also makes some amendments that relate solely to companies that are licensed banks. As section 9 also deals with this subject I intend to address both sections together.

In providing for a disclosure regime for company loans to their directors and to those connected with them, the Companies Act 1990 treated companies that are licensed banks differently from the generality of companies. Most companies must disclose such data on an individual named basis in their annual accounts but the accounts of companies licensed as banks require a lesser degree of disclosure. This was supplemented by a requirement to keep a register of relevant loans, details of which had to be disclosed to shareholders in advance of the banks annual general meeting. This different disclosure regime took account of the fact that lending is part of the day-to-day operations of a banking company and, unlike most other companies, the business of the banking sector was regulated and supervised.

The generality of companies must disclose in their annual accounts prescribed details, as set out in section 42 of the Companies Act 1990, of all such loans to named individuals. To date, the annual accounts of companies that are licensed banks were obliged to disclose aggregated data on such loans, where amounts were still outstanding at the end of the financial year. Given this different disclosure regime, companies which are licensed banks are also currently obliged to keep a statutory register of loans to named directors and connected persons. Particulars from the register are also included in a pre-AGM statement.

The Companies (Amendment) Bill 2009 changes the disclosure requirements for the banks in the following ways. The Bill provides that in future loans to directors of companies that are licensed banks will be treated in the same way as non-banking companies. Specifically, all loans above a de minimis threshold to each individual named director will have to be disclosed separately in the annual accounts, as opposed to in aggregate format. The maximum amount outstanding during the year will also be disclosed and not simply the amount outstanding at the end of the financial year.

In so far as connected persons are concerned, the Bill provides for additional disclosure but this is not as detailed as is required for directors. It retains the existing aggregate disclosure of favourable loans in the case of connected persons, but provides that the maximum amount outstanding during the year will also have to be disclosed.

The Bill recognises that licensed banks may be required to make more detailed disclosures in their accounts under rules, directions or requirements imposed by the Financial Regulator.

The Bill retains the requirement for the statutory register because of its value as a source of up-to-date data on current loans. However, it provides that information which will, as a result of the Bill or other requirement such as the Financial Regulator's rules, be required to be published in the accounts, need not also appear on the pre-AGM statement.

The Bill provides a specific right to access for the Director of Corporate Enforcement to the statutory register of loans to directors and connected persons, so that he can take enforcement action if necessary.

Section 10 amends sections 43 and 44 of the Companies (Amendment) (No. 2) Act 1999 to meet the concerns of the European Commission that certain elements of the current provisions are not compatible with the EC treaty. A company law amendment introduced in 1999 sought to deal with Irish registered companies that were controlled and managed from abroad and were treated as non-resident for tax purposes. The 1999 Act required a company wishing to register in Ireland to have a director resident in the State, or alternatively through a process involving the Revenue Commissioners and the Companies Registration Office, to show it has a real and continuous link with economic activity that is being carried on in the State. The amendment proposed in the Bill replaces the necessity to have at least one Irish resident director with a requirement that one director must be resident in the European Economic Area.

The Government is committed to supporting the work of the Director of Corporate Enforcement in every possible way, including through the provision of appropriate statutory powers and resources to that office. My objective in proposing these legislative changes to the Government and the Oireachtas is twofold. As I observed recent events unfold in the banking sector, I was anxious to ensure that the Director of Corporate Enforcement had available to him or her an up-to-date suite of enforcement powers that were fit for purpose. I wanted to ensure that from a business perspective our body of company law was relevant, transparent and proportionate as regards the facilitation of the conduct of business in Ireland and for reasons of good governance and penalties. Having a strong, transparent and proportionate legal framework is critical to our competitiveness and to our international reputation as a place in which to invest and conduct business. On that basis, I commend the Bill to the House.

I welcome the Tánaiste to the House. It is the role of Opposition to forensically analyse the actions of Government and point out shortcomings in its performance. Our people place great faith in the Opposition's ability to carry out this role on their behalf. To retain real credibility in carrying out this duty it is important that those in opposition acknowledge and support a positive step in the right direction by any Government. This Bill is one such positive step. It is a legislative response to the recent events in our banking system that have shattered confidence in our financial institutions, not alone nationally but internationally.

In April 2005The New York Times described Dublin as the “Wild West of European Finance”. Perhaps that description was a little on the sensational side for a normally sober publication, but it gave a number of warning signals to the effect that something was not quite right in our financial services sector. Four years later our faith in the financial institutions and in those who manage and regulate them has suffered massive damage. I sincerely hope that this legislation will go some way towards restoring that faith. We must acknowledge, however, that if the provisions contained in the Bill had been in place some years ago, Ireland might have been a very different place financially. Unfortunately, this Bill cannot make up for the past few years of questionable regulation of the financial sector. Serious questions still remain for the former Financial Regulator and his staff to answer as regards how they allowed dubious actions in the banks to proceed without raising objections or taking strong action. Not alone did the regulator not raise any objections, he seemed at times to be party to some of these actions. The furtive exchange of funds between Irish Life & Permanent and Anglo Irish Bank, euphemistically described as balance sheet management, and allegedly done with the blessing of the regulator, must have been the low point in deceiving not only the shareholders of both institutions but also the Irish people. The only regulatory response to such balance sheet management seems to have been the by now infamous phrase, “Fair play to you, Willie”.

Running alongside these dubious activities was another altogether more disturbing exchange of funds where directors of certain banks took out massive personal loans. In Anglo Irish Bank alone, the figure for loans to directors ran to €179 million. This activity was ongoing while the bank's annual report painted a completely different picture. The following words contained in the 2007 annual report of Anglo Irish Bank now have a very sickening hollow ring to them:

We operate to the highest ethical and governance standards as we aspire to be a model corporate citizen. For this reason we invest heavily in the development and training of our staff, as well as maintaining the highest levels of integrity in our relationships with our stakeholders.

Unfortunately for those stakeholders and for our taxpayers, integrity was not a priority for those at the helm of this bank and indeed many others. The Bill seeks to give extra powers to the Director of Corporate Enforcement so that such an abuse of power and downright greed will not be allowed to happen again. It will in particular place a duty on a director of a company to declare any interests he or she may have in contracts or proposed contracts. It also requires the full disclosure in the annual accounts of loans, described as transactions, arrangements or agreements, made by a company to its directors and to persons connected with them.

The considerable extra powers bestowed on the Director of Corporate Enforcement in this legislation, while late, are very welcome, indeed. The Bill will clarify and enhance the power of the Director of Corporate Enforcement to require the production of records from third parties where these relate to the business of a company under investigation. It will give an extension of the period of a search warrant which can be sought from and granted by the District Court to the Director of Corporate Enforcement to enter and search of premises. The value of giving the director unfettered access to company records is also acknowledged as the Bill allows for the removal of paper and electronic information from premises being searched for subsequent examination elsewhere.

The Bill includes major disincentives for those company directors who might be planning to engage in creative loan arrangements in the future. It proposes that if a company enters into a transaction or arrangement that contravenes the Companies Act 1990, every officer of that company who is in default will be guilty of an offence. This aligns the offence with numerous similar offences under the Companies Acts and places a serious onus of responsibility on all officers of a company to ensure that all its activities are legal and fair. Simply turning a blind eye to dubious practices will not be a sufficient defence in the future. For the taxpayer, probably the most galling aspect of the recent financial debacle was the way in which some directors were able to award themselves substantial loans at very attractive rates. They also managed to deceive their shareholders, customers and the public by not disclosing details of these loans. This Bill hopefully will address that problem in that it requires all banks to disclose in their annual accounts details of loans to directors above a minimum threshold. This disclosure will include the maximum amount outstanding on these loans during the period covered by the accounts. It also requires the disclosure in the annual accounts of loans made to persons connected with directors. Banks will be required to have a register of loans to directors and the preparation of a statement, based on information in the register, is to be made available prior to a company's annual general meeting.

As I mentioned at the outset, the Bill goes a long way towards protecting the shareholders and taxpayers of this country from being subjected to dishonest and sharp practices. However, there is one omission and that is a provision that might seek to address the anomaly of the building societies and perhaps credit unions, which are not covered under the Companies Acts, for the purposes of investigations by the Office of the Director of Corporate Enforcement. My colleague, Senator Paul Coghlan, recently published a Private Members' Bill, the Credit Institutions (Financial Support) (Amendment) Bill 2009, that aims to resolve this anomaly and Fine Gael will be seeking to amend this legislation to reflect our Bill. I sincerely hope that the support we are giving the Government in bringing forward this new Bill will be reciprocated by an acknowledgement on its part that the Fine Gael proposal to include all financial institutions in the legislation is a wise one. The last thing we need is another flawed item of legislation that continues to leave our people open to the type of greed-fuelled abuse they have suffered in recent times.

I extend a warm welcome to the Tánaiste, particularly in so far as she is here in connection with this legislation.

My understanding is that this Bill is robust in its accommodation and has certainly been activated by the proactiveness of the Tánaiste in recognising the need to have thorough and tough legislation in this area. I congratulate her on her approach to the Office of the Director of Corporate Enforcement in seeking what legislative improvements are required in the company law area, her sphere of responsibility. I am delighted to note the Bill deals with three such aspects, one of which is the transparency of loans by a company that is a licensed bank to its directors and those connected with them. It recognises that in this regard the current situation differs, regardless of whether it is a licensed bank. The Bill provides for disclosure requirements, as the Tánaiste outlined, concerning directors, connected persons and other disclosures in the accounts and in the pre-annual general meeting statement. The legislation also provides a specific right of access by the Director of Corporate Enforcement to the statutory register of loans to directors and connected persons so that he can take enforcement action if necessary. All in all, that principle, which is contained in detail in the Bill, is merited and welcome.

The second principle contained in the Bill is strengthening the enforcement of company law. The Tánaiste has gone into great detail in outlining the relevant sections of the Bill that will assist in that regard. They make it an offence for directors not to comply with the Bill's disclosure provisions regarding loans to directors and connected persons, and regarding material interests of directors in company contracts. The Bill modifies a number of the existing provisions of the Companies Act 1990. The Tánaiste's speech specified the reasons for the various measures. I welcome the robust nature of the legislation, but one must express a certain amount of caution that we are not going too heavily or too far.

Come on, go easy now. I do not think the Senator's party wants to hear that.

A lot of good, law-abiding citizens are involved in companies who take risks. On occasion, however, because of one or two bad eggs, we use a sledgehammer instead of a simple hammer. This matter should be left to the Tánaiste together with the various professionals, researchers and other authorities that are available to her, including people such as the Director of Corporate Enforcement. I would like to think that they are taking a balanced approach to this legislation. Sometimes, however, we go a little bit too far in introducing legislation and giving powers to an individual, particularly with regard to search warrants and other such powers. I certainly concur with the Tánaiste's view on the basis that this is being done in conjunction with other authorities, agencies and all the other supports available to her Department through this appropriate and balanced legislation.

The third main part of the legislation seeks to make non-resident companies here compatible with the EU's companies code. This was the last point referred to by the Tánaiste.

The Bill responds to the lack of disclosures by directors of financial institutions in the past, which has come to light much to the public's dismay, disquiet and frustration. The former chairman of Anglo Irish Bank, in particular, seems to be public target number one as the person allegedly responsible for all the ills of the Irish banking sector and the current recession. To be fair, however, the former chairman is not responsible for all the ills of the Irish financial institutions or, indeed, for the global recession. I do not want to do anything that would pre-empt some of the current investigations and likely follow through arising from those investigations, other than to say that there is a public view — I think the Tánaiste is aware of it — of the activities of some of these individuals who have rocked the foundations of Irish financial institutions. They have caused considerable losses to the institutions and their shareholders, as well as affecting international confidence. It is necessary, therefore, for the Government to put in place the appropriate legislative measures to prevent a recurrence. Equally, the public wants to see those who have breached and abused their positions in financial institutions being held accountable.

Everybody is being bombarded by what is happening in the Irish financial sector and the economy generally, which is compounded by the world recession. We are getting lost in all the figures. At the end of the day, however, the public will welcome the Tánaiste's proactive stance in dealing with the Director of Corporate Enforcement and putting this legislation before the House. They may ask those of us who will be knocking on doors in the coming weeks why this was not done before now. I listened to the previous speaker, Senator Cannon, who was the leader of a political party in government for the past couple of years, and he posed a similar question. Equally, the public will ask him why he did not deliver and do something when he was in that position. They will be asking me the same question because people are frustrated and annoyed. The public wants to see the people concerned being brought through due and fair process. There is a view that there have been abuses, but we must await the outcome of that due and fair process. At that stage, appropriate action can be taken which is similar to and as robust as this legislation.

While one may have concerns about certain aspects of the Bill, the public would like to see the same type of appropriate legislative response concerning the penalisation of those held accountable for creating the need to bring such legislation before the House.

There is one other area with which we are all concerned and that is disclosure about connected persons. It is a very sensitive area and one of which me must be conscious. We must ensure that we have the appropriate consensus as we approach this issue. While I appreciate the proactive approach the Tánaiste adopted with regard to the Director of Corporate Enforcement, will she indicate what other representative groups she consulted on the legislation? Is she open to proposals or recommendations being made before Committee Stage by representative bodies or organisations which have an interest in the Bill?

In referring to connected persons I had intended to raise an issue connected to directors' loans as well as the matter of the so-called "golden ten". While I accept company law is the Tánaiste's area of responsibility, will she clarify issues relating to financial services? If one was to ask what prompted the introduction of this legislation, the words "Anglo Irish Bank" would immediately spring to mind. Issues connected to that bank are a cause of concern. For the purpose of the debate and to assist those who may be following it, will the Tánaiste indicate the reason for the Bill's current focus?

I have great admiration for the work being done by the Tánaiste and her team of officials in what must be the most turbulent period in the history of the Department. I congratulate the Department on taking a proactive approach to addressing the issues with which it must contend daily, while at the same time proactively seeking to secure foreign direct investment. I understand the Minister was engaged in such work last week.

The Director of Corporate Enforcement and acting Financial Regulator are also in turbulent, choppy and uncharted waters. I have great admiration for the acting Financial Regulator, Ms Mary O'Dea. Having been thrown in at the deep end, she has shown she has a firm grasp of the issues. I wonder why she was not appointed Financial Regulator much earlier.

In February this year, the Financial Regulator decided to require all banks to report directors' loans, including connected lending, in their annual accounts and establish a register of such loans which would be made available for view to the shareholders of the institutions in question. In accordance with the law, the banks had 21 days to make representations to the regulator on the proposals. These representations are being considered by the Financial Regulator and it is expected the new requirements will become effective by the end of May 2009.

While the Bill and the Financial Regulator's requirements will require the same disclosures regarding loans to directors, the latter's proposal differs slightly from that of the former regarding lendings to entities and persons connected to directors. Whereas the legislation only requires the disclosure of loans to connected persons granted on favourable terms, the regulator's proposals require disclosure of all loans. Its requirement that companies maintain a register is over and above company law requirements.

A great deal of good work is being done by the Tánaiste in the area of company law and by other authorities and bodies in related areas. I congratulate the acting Financial Regulator and everyone in her office as well as the Tánaiste and her officials on the work they are doing. I hope appropriate and strong legislative measures will be implemented to address the ills of which we have recently been aware.

I welcome the Tánaiste and Minister for Enterprise, Trade and Employment to the House. She is responsible for a difficult and complex Department. From years of experience in this area, I am aware she has excellent advisers at her disposal. The important legislation before us enjoys my full support, although I propose to refer to a number of issues the Bill omits to address.

As a member of the Irish Auditing and Accounting Supervisory Authority, I declare an interest in this debate. I am also in a position to answer some of the questions Senator Callely raised and outline the reason the proposals before us were not implemented in previous legislation. When the then Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Harney, introduced the Companies (Auditing and Accounting) Bill in 2003 directors' compliance statements were addressed in a clear and direct fashion. It was subsequently decided, however, to avoid excessively burdening the captains of industry who were ripping us off left, right and centre by ensuring the legislation became what is known as "light touch". Senator Callely's remarks on this matter were made with the best intentions but they angered me because the light touch regulation he calls for is precisely what caused the current trouble. The Senator is nevertheless correct that no one wants to put pressure on honest people.

The Companies (Auditing and Accounting) Bill introduced in 2003 by the then Minister and her advisers, some of whom are in the Chamber, included a provision requiring a clear and unambiguous director's compliance statement which had to be signed off by the company's auditors. Members on the Government side of both Houses as well as a number of Opposition Senators did not like this provision and considerable pressure was brought to bear on the then Minister. Against her own best judgment, the Minister softened the original requirement. In recent months, she has not been given credit for her initial position on the issue.

What difference did the change make? Although I do not propose to dwell in detail on developments in the bank to which Deputy Callely referred, when this stuff hit the fan a couple of months ago many people asked the reason senior banking officials were not before the courts. It is my view, and only time will tell whether it is correct, that the reason they are not before the courts is that the companies legislation does not clearly state where the law was broken. If the original provision in the 2003 Bill — I believe it was section 45 — had been passed, it would have required all company directors to disclose any matters material to the annual report. As such, the individuals involved in recent cases would have been in breach of the legislation if the relevant section had been passed. Perhaps the Tánaiste will indicate whether the section has been commenced because the last time I checked it had still not been commenced. The reason for the change in the Bill was the pressure brought to bear on the Minister. It is not easy to introduce strict requirements in this area because powerful vested interests prevent the Government from taking the action required.

I served on a board with the acting Financial Regulator, Ms Mary O'Dea. Having known her for many years, I hold her in the highest regard. The legislation establishing the Financial Regulator was also softened following its introduction. In recent times, I have listened to cynical and dishonest statements by Members of both Houses as they berated the Financial Regulator for failing to prevent 110% loans being given to borrowers. This practice was not stopped because the Legislature did not provide the Financial Regulator with the necessary powers to intervene. That is the simple, black and white reason. Notwithstanding that, I accept the Financial Regulator failed to intervene in areas in which he should have acted. I can cite examples of areas in which inaction on the regulator's part was due to the decisions of legislators. It is something we need to look at.

Where does all this come from? I will give a brief history lesson. At the time the offshore accounts and the mess involved with them came to light in the late 1990s, which was our last banking crisis, and which also involved an issue about taxation, the Committee of Public Accounts, rather than a tribunal, conducted the investigation into these matters and did so extraordinarily effectively under the chairmanship of the late former Deputy Jim Mitchell. The committee comprised a number of people from both sides of the House, including Deputies Pat Rabbitte and Bernard Durkan and a number of other people. The committee asked at the time for a review of the whole auditing system. In 2002 the then Tánaiste asked me to chair the audit review group. She wanted to get somebody who was seen to have no connection to her areas. We produced a report which was presented by myself and the then Tánaiste to the Committee of Public Accounts in 2002, two weeks after the deadline it had given to us. The report was accepted by the Committee of Public Accounts. I understand the Tánaiste's adviser may have been there on the day.

We went through the report on the day and an important aspect was we managed to change the viewpoint of the Committee of Public Accounts. I will tell the Tánaiste how. Its view at the time was there should be no self-regulation among the accountancy profession and auditors and they should be regulated by the State centrally in some way. We changed that by making a proposal, having a long argument and the committee accepting it on the basis of what the then Tánaiste and I argued, namely, that this was something we should try. It is now what is in place and one of the groups that is investigating. Another major aspect was the director's compliance statement. It was also accepted by the Committee of Public Accounts. The two central issues of the report were accepted by the committee and on that basis, the Department of Enterprise, Trade and Employment produced the Companies (Auditing and Accounting) Act 2003. When it was brought in it was softened and diluted.

I want to take the connections further. In one of the coincidences which life throws up, the secretary of my secretariat when I chaired the group is now the Director of Corporate Enforcement and knows very clearly what is involved. Some time after that the Department of Enterprise, Trade and Employment or the Department of Justice, Equality and Law Reform, I am not sure which, set up the company law review group which recently produced a report. Within the group were all the people Senator Callely was hinting at when he asked who was spoken to. I have listened to the Tánaiste discuss the Bill and I support it. I listened to her argumentation, I support it and I support very much the point she made about the Office of the Director of Corporate Enforcement.

Appendix B to the recent report of the company law review group deals with section 45 of the Companies (Auditing and Accounting) Act 2003. The Office of the Director of Corporate Enforcement, which we all support, produced a minority report and did not agree with what was proposed in the review. Three groups opposed it and I want to put two on the record formally. One is the Office of the Director of Corporate Enforcement and the other is the Revenue Commissioners. I want the House to know this because I will table an amendment to this Bill, which will be an addendum as opposed to a change. I am taking the proposal of the Office of the Director of Corporate Enforcement, which is appendix B and which goes through section 45 of the Companies (Auditing and Accounting) Act 2003 with an entire section of changes.

In the appendix, the director records his reservations and states that as the body responsible for encouraging compliance with company law — it is important to listen to these facts and to move away from a light touch — including the preparation of books of accounts which give a true and fair view of a company's state of affairs, the Office of the Director of Corporate Enforcement finds unacceptable a proposal which omits reporting on obligations which may materially affect the company's financial statements. That is what I want to put into this Bill so Senator Callely does not ask in a year's time why we waited until now.

I do not want the Tánaiste to come back and say she is adding another section to the 1,230 sections in the Bill proposed for next year to deal with this issue. I want her to accept I am putting this forward in good faith. It is not my proposal but is one which has been well tested over the ground. In his reservation, the Director of Corporate Enforcement states the provision for auditor review of the director's compliance state has been entirely deleted. I want this on the record because people in this House stand up and ask what the auditors were doing. They were doing what we asked them to do and if we ask them to do less, they do less so let us get it right.

This was a key recommendation of the auditing review group, of which I was chairperson some ten years ago, in enhancing the public interests of auditors. I will table an amendment to this Bill and I am outlining it so the Tánaiste will know what it is before she sees it. It is a proposal to amend section 45 of the Companies (Auditing and Accounting) Act 2003 in line with what was proposed by the auditing review group of which I was chair and which was recently proposed by the Office of the Director of Corporate Enforcement to ensure matters which are material to the report are required to be reported by the directors and also that the auditor is required to sign off on that. It is entirely reasonable. I will come back with that amendment.

I ask the Tánaiste to take an issue on board. When she deals with this matter in the future I ask her to remember company law is based on common law and civilisation. When people started to trade in financial institutions in places such as Genoa and Barcelona, if one did not meet one's liabilities, one was hanged outside one's shop door, which was the case until the Middle Ages. I make the point because, as a civilised people, we thought that was the wrong way to do it. We create a privilege and a gift to people in business and financial institutions which is called limited liability.

I say this because the next time the Tánaiste speaks to a group of business people I would like her to say we have given them this, which is a gift — a treasure — of significant importance so businesses can take the kind of risks Senator Callely referred to without people losing their houses and homes. It is a gift which is not to be abused and which can be taken back at any time by a democracy. It is a fairly basic tenet. The Tánaiste could throw away the script, stand up and ask ordinary people how they are honouring it or whether they are aware of it, because generations have grown up feeling this is a right. It is not. It is a privilege awarded by the State under the strictest of rules and regulations requiring us to ensure ordinary citizens are treated properly, fairly and equitably. That is why the problem exists today.

In the first version of the audit review group, when I asked we propose the directors of a company sign off on a statement which more or less said they were in compliance with the law of the land, I thought, in my innocence, that was not raising the bar one inch. I thought any director of any public or private company had at least such a level of responsibility and duty to the shareholders, traders, people with whom they dealt and the State. It did not appear to be the case. The accounting bodies lined up to say how this could not be done and such a burden could not be placed on people.

When I hear the word "burden" in business, I think of the last person who challenged me publicly on this issue when addressing a conference, namely, the man referred to earlier by Senator Callely and the then chairperson of Anglo Irish Bank, who talked about the burden and difficulties of regulation. We know all about that now.

The Tánaiste receives significant criticism. It is a most complex and difficult Department to deal with. I have been of the view for many years that it should be restructured. Its remit is too broad. One need only consider the number of external bodies that report to it to see the degree of complexity.

We must introduce the necessary legislative provisions to ensure those who do not act honourably are in breach of the law. I propose to support the legislation, with the minor caveat that it is almost too rules-based. I come from County Kerry, as did Daniel O'Connell, and when I see a particular descriptive word in a Bill, I know I can find another word to serve precisely the same purpose. There are well paid accountants and others who will manage to do exactly the same in regard to the definition of a loan and who will be able to allow their clients to squeeze out from under this legislation. That is inevitable. I seek a principles-based approach, whereby people are required to act honourably, comply with the law and do what is expected by us as legislators, by customers and by shareholders and stakeholders. I ask the Tánaiste to support my proposals in this regard.

This welcome legislation is a reaction to the sad events that have occurred in Irish business, banking and commercial life in the last year. As a direct response to the types of abuses we have seen it is, by definition, narrow in focus. I accept Senator O'Toole's argument that there are broader areas to examine. There will be an opportunity to examine some of them in the course of the further consideration of the Bill in this and the other House. There is also the opportunity of the wider review of company law legislation that the Government proposes to undertake in the coming years. In the current climate, we must take every opportunity to ensure the standards that have applied in the past can no longer apply. In this regard, I agree that other actions are required to be taken.

Nevertheless, much of what is proposed in this legislation is eminently acceptable. The increase in powers for the Office of the Director of Corporate Enforcement is particularly welcome. The ability of that office to take a more proactive approach will help to pre-empt the types of scandals we have had to endure in the last 18 months. Its enhanced function in regard to disclosure and public information will help to avoid such activity as the moving around of company and banking assets to the betterment of individuals that has been far too long hidden from public view. The threat of disclosure must be greater so we can avoid these practices of the past.

I also welcome the provisions in regard to the disclosure of director loans within companies and financial institutions. I would go further, either in this Bill or in future legislation, by allowing questions to be asked about the nature of director loans themselves. We must be far more prescriptive about the fact that they exist in the first place and we must list the circumstances in which they can be used. The most obviously scandalous use we have witnessed was for the bolstering of the share prices of the companies and institutions concerned. I suspect that, far too often, the practice of director loans has been for the self-enrichment of the individuals concerned rather than for reasons of business advancement and the good of the company.

When loans are available and availed of to such an extent, there is an issue of morality that must be addressed. There is an attempt to do so in this Bill. I hope it will be successful but I expect we will have to go further in the future. For instance, in regard to the access to and involvement of others in the business of the taking of and granting of director loans, there is reference to the spouses of the company directors involved but no mention of siblings, children or other relatives. In the close society in which we live — I refrain from using the word "incestuous" because it has been mentioned so often in reference to the political and business scandals we have witnessed in recent years — we must tighten every possible legislative loophole. This Bill is a response to the abuses of which we are aware. The role of any legislation, and our role as legislators in this House, is to pre-empt any difficulties that may occur in the future. Unfortunately, our attitude to some in business, commercial and financial life is that if an abuse can be taken, it will be taken. Future legislation in this area should be used to ensure we tighten every possible loophole.

The other provisions in this Bill are technical in nature, including some changes to how the Office of the Director of Corporate Enforcement can do its job. Our objective in introducing legislation of this nature is to make tangible changes in the culture of corporate life in this State. We must be as open and honest as possible in these debates so we can put as much distance as possible between the political system and those practices in corporate life which, if they ever were acceptable, can never again be so deemed. On those grounds, I welcome the legislation and look forward to the debate that will take place on amendments and so on. I am confident the thrust of this Bill and of future initiatives in regard to companies legislation sets us in the right direction in terms of making the necessary changes. I look forward to closing as many as possible of the existing loopholes via the proposed consolidated companies Act.

I welcome the Tánaiste and Minister for Enterprise, Trade and Employment. As she said, this Bill is introduced just a short time after it was suggested in the High Court that the investigation by the Office of the Director of Corporate Enforcement into the affairs of Anglo Irish Bank was being frustrated by outdated company law. The Labour Party welcomes the broad thrust of the Bill.

Whatever powers are required by the Office of the Director of Corporate Enforcement to do its job must be provided. I welcome the provisions to enhance further the powers of that office and to improve the transparency of loans made by banks to their directors. The Bill also improves the transparency of transactions between companies and their directors and amends the requirement for companies incorporating the State to have Irish-resident directors. In addition, the Bill changes the scope and effect of legal professional privilege in certain circumstances. All these changes are to be welcomed. I hope they are comprehensive enough to provide solutions to the problems encountered by the Office of the Director of Corporate Enforcement.

The Bill addresses a deficiency in the Companies Act 1963 by affording the Office of the Director of Corporate Enforcement the right to inspect and take copies of the required register of all declarations of interest by directors in contracts or proposed contracts. There is no legislative point in requiring such a register to be maintained if it is not open to inspection. In addition, powers to seize information found on a premises entered into on foot of a search warrant have been extended. The Bill will allow an officer of the Office of the Director of Corporate Enforcement to remove information and other materials from the site of an investigation pending a determination of the appropriateness of such action. The duration of search warrants issued to the Office of the Director of Corporate Enforcement, which are currently valid for no more than one month, may now be extended on application to a District Court judge.

Section 23 of the Companies Act 1990 allows a person to refuse to disclose what he or she considers to be privileged information to the Office of the Director of Corporate Enforcement. The Bill will change that and enable the director to seize privileged information, provided it maintains the confidentiality of the information until such time as a court determines if the information is, in fact, protected by legal privilege, and allow for the appointment of a suitably qualified independent person to prepare a report on the disputed information if it is so disputed.

Debate adjourned.