I welcome the Minister of State, Deputy Kathleen Lynch.
Companies (Miscellaneous Provisions) Bill 2013: Second Stage
I am pleased to bring the Companies (Miscellaneous Provisions) Bill 2013 before the House on behalf of the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton, and thank Senators for facilitating an early debate on the urgent issues it addresses. This is the second Bill which has been introduced this year to amend the Companies Acts. It focuses on making a small number of immediate and targeted changes to company law which are necessary to continue to allow us to respond dynamically and flexibly to opportunities and challenges arising from changes in our operating environment.
Senators will be aware that the full suite of existing Companies Acts - amounting to 16 in all - was the subject of a major reform and consolidation exercise in recent years. The Companies Bill 2012, a landmark legislative project, introduced to the Dáil in April this year, not only consolidates the corpus of company law since 1963 but also overhauls and restructures the legislative framework. The Bill consolidates, simplifies and reforms company law to provide a state-of-the-art framework for all businesses operating in Ireland, whether domestic or foreign. It brings coherence, structure and accessibility to the canon of company law which will greatly assist businesses and others with an interest in these matters. It is the product of a lengthy period of collaboration between officials in the Department of Jobs, Enterprise and Innovation, the Company Law Review Group, CLRG, and the Office of the Parliamentary Counsel.
The CLRG is a statutory body that was set up in February 2000 and its role is to advise the Minister for Jobs, Enterprise and Innovation on the reform and modernisation of company law. The group includes all relevant stakeholder interests, with members from Departments, professional bodies - solicitors, barristers and accountants - employer and business interests, regulatory bodies, trade union interests and individual legal and finance practitioners. The Companies Bill 2012 completed Committee Stage in the Dáil on 6 November. I assure Senators that the provisions in the Bill before the House will also be incorporated into the consolidation exercise.
It may seem somewhat unusual that another Bill from the company law stable is being brought forward while the Companies Bill is still before the Houses. However, given the priority the Government attaches to supporting businesses, it was decided to expedite the measures relating to Circuit Court examinership, as well as a small number of others that are included in the consolidation Bill. In the view of the Minister, it is imperative that these be progressed more speedily than would be the case if they were part of a very large Bill requiring a great deal of consideration on the part of the Oireachtas and which would, as a consequence, be required to be dealt with at a more measured pace. These measures are set out in sections 2 to 5, inclusive, of the Bill before the House and I will outline them in more detail shortly.
The additional measures in sections 6 and 7 are significant in terms of the improvement of audit quality. These will strengthen oversight of the audit process and should provide better protection for shareholders, investors and creditors. It is important that they be progressed at this time, particularly in the light of the focus on audit in the aftermath of the financial crisis. The imposition of a levy on relevant statutory auditors and audit firms, auditing public interest entities will enable the Irish Auditing and Accounting Supervisory Authority, IAASA, to defray the costs of carrying out quality assurance on them once this function has been transferred from the recognised accountancy bodies to IAASA. The transfer of the quality assurance function implements an EU recommendation on this matter. Separately, the implementation of the member state option in a Commission decision will enable the competent authority to apply its investigation and penalty systems to a particular cohort of third country auditors. I will now explain what each of the provisions in the Bill is designed to achieve.
The provision on examinership arises from a recommendation made by the CLRG that the Companies Acts be amended to allow small private companies, meeting the criteria which define a "small company" in company law, the option to apply directly to the Circuit Court for examinership.
A "small company" is one that meets two out of the following three criteria - turnover of a maximum of €8.8 million, balance sheet of a maximum of €4.4 million and 50 or fewer employees. The Companies (Amendment) Act 1990 allows the remission of an examinership from the High Court to the Circuit Court subject to certain criteria. However, the provision in section 2 eliminates the requirement for any High Court involvement with the associated costs pertaining to this. It is hoped the immediate impact of this change will be lower costs and greater accessibility for small private companies to the examinership process. This means, for example, that companies based outside Dublin will be able to apply for examinership to their local Circuit Court, thus reducing costs and travel time.
Access to a more affordable mechanism for restructuring makes it more likely that more small companies will avail of examinership, thus providing them with a greater chance of economic survival. In particular, businesses with potential for growth and job creation which are being held back by legacy debt problems, are expected to benefit. This, in turn, should feed into an improvement in the general employment and economic situation within the State.
Sections 3 and 4 deal with electronic filing and provide another measure which is being proceeded with ahead of the Companies Bill 2012. This will facilitate the electronic filing of the documents with the Companies Registration Office relating to the financial statements of a company, which a company is required to file with the Companies Registration Office as part of its annual return. Each of the two sections caters for the obligations of a different category of company, as regards their filing of annual return obligations.
Electronic filing of annual returns has, in a sense, unintentionally, been hampered by the need to file a copy of the accounts related documents which has been certified as a true copy or a true written copy and which contain copies of the signatures of the two directors who signed those accounts. Currently, if a company wishes to file these documents electronically it must manually scan in every page of the hard copy of those documents in order that there will be a copy of the signature of the two directors. In the experience of the Companies Registration Office, this discourages electronic take up of company filing.
The amendments proposed provide that a "copy" can now include a document which is signed using typeset signatures, that is typed names of the directors which means that the entire document can be created electronically and which should facilitate a far larger uptake of electronic filing. The proposed amendments also provide for the safeguard that in the case of such submissions, the copy documents must be accompanied by a certificate signed by a director and the secretary of the company stating that the copy of the accounting documents is a true copy of the originals except for the signature. This certificate can be signed either manually or using an electronic signature.
The provision in section 5 on the disclosure of information to the Office of the Director of Corporate Enforcement, ODCE, relating to offences under the Companies Acts by certain regulatory authorities is the final one extracted from the 2012 Bill for more rapid consideration here. It deals with exchange of information between regulatory bodies regarding suspected breaches of legislative provisions and is an essential element to a properly functioning regulatory environment. Under section 18 of the Company Law Enforcement Act 2001, CLEA, the Revenue Commissioners, the Competition Authority and the Garda Síochána are entitled to disclose information to the Director of Corporate Enforcement or an officer of the Director of ODCE, which "may relate to the commission of an offence under the Companies Acts".
However, section 77 of the Finance Act 2011 inserted a new section, section 851 A into the Taxes Consolidation Act 1997 which has impacted adversely on the enforcement activities of the ODCE in that it has unintentionally affected the utility of information exchanges from Revenue to the ODCE. This provision has served to restrict the amount of Revenue information which the ODCE can properly obtain and use; in particular, it is an obstacle to the ODCE in its use of such information in support of its investigative and civil enforcement work under the companies Acts. The impact of the provision in the Finance Act is taken sufficiently seriously to warrant inclusion of this remedial provision in this Bill. The opportunity is being taken in section 5 also to further clarify that information may be disclosed to the Director which would assist the ODCE in investigating whether the grounds for bringing disqualification proceedings against a person, who was a company director, existed at the time the company was struck off the register for failure to file its statutory returns.
Section 6 refers to the levy on statutory auditors-audit firms of public interest entities, PIEs, to defray the costs to the Irish Auditing and Accounting Supervisory Authority, IAASA, of carrying out the functions of external quality assurance in respect of these PIEs The term "quality assurance" is given to the process of inspection, on a regular basis of statutory auditors and audit firms to ensure that systems are in place that will allow for consistently high quality audits. The scope of inspections includes an assessment of auditors' compliance with applicable auditing standards and independence requirements, a review of the internal quality control system of the audit firm and the testing of selected audit files.
International best practice as regards the external quality assurance of audits, in particular of those companies classified as public interest entities is that this should be carried out by the public oversight bodies for audit and not by the recognised accountancy bodies of which these audit firms are members. Public interest entities are, in broad terms, "systemic entities" - credit institutions and insurance undertakings, in combination with listed companies. While it is not required by current EU legislation that this scrutiny is an obligation, this matter is being considered under audit proposals at present at EU level.
The Government has decided that Ireland should move to the model of independent inspection of the audit of public interest entities based on the model set out in an European Commission recommendation in the matter. It was also decided that the Irish Auditing and Accounting Supervisory Authority, IAASA should carry out these functions, instead of the recognised accountancy bodies, so called "RABs". The RABs operate these functions under the powers vested in them by the regulations transposing the latest EU audit directive. The Commission recommendation referred to specifies that quality assurance inspections must be executed by a public oversight body, either exclusively or together with another appropriate body that is accountable to the public oversight body. Accordingly, it is necessary to provide, through primary legislation, for a levy on the relevant statutory auditors and audit firms auditing public interest entities in order to defray the costs to IAASA for carrying out these functions. Additional functions are proposed to be conferred on IAASA in the Companies Bill 2012, while the balance of the related functions can be provided to IAASA by amendment to existing regulations. The transfer of the important quality assurance function to an independent oversight body such as IAASA will strengthen oversight of the audit process in Ireland as regards these public interest entities.
The transfer of the function to IAASA is to be fully funded by the relevant statutory auditors and audit firms with no cost to the Exchequer, apart from once-off start-up costs. This is a very worthwhile project which should greatly assist with raising the calibre, independence and rigour of the audit process and enhance confidence in it and audit reports in relation to public interest entities, and significantly improve Ireland's reputation in this area.
Section 7, the final item, relates to the application of investigation and penalty systems to certain third country auditors and audit entities which carry out the audit of companies incorporated in specific third countries and territories whose transferable securities are admitted to trading in the State.
The provision is audit based and quite technical. It relates to regimes drawn up by the Commission based on evaluations carried out by it on the public oversight, quality assurance, and investigation and penalty systems for auditors and audit entities of particular territories. The evaluation has caused the Commission to draw up two lists in respect of certain countries outside the European Union that are deemed equivalent to corresponding EU audit oversight systems and those that are deemed not to be equivalent at the moment but may be deemed so at some future date. On foot of this, the Commission goes on to prescribe in Commission decisions, specific treatments by member states in respect of each of the two categories in question. For the record, the references to these decisions are Commission Decision 2011/30/EU, as amended by Commission Decision 2013/288/EU, that set out regimes to be applied by member states to the auditors, and audit entities, that carry out audits of the annual or consolidated accounts of companies incorporated in certain third countries, whose transferable securities are admitted to trading in the State.
The category of exclusive relevance in the present context is that relating to countries whose audit oversight systems, arising from the European Commission's exercise, are deemed not to be equivalent to those of the European Union. The treatment of these by member states is referred to as a "transitional period" regime and applies for the periods specified in each of the two Commission decisions. The countries subject to this are Bermuda, Cayman Islands, Egypt, Mauritius, New Zealand, Russia, and Turkey. A member state option is provided in these Commission decisions and the present provision proposes that this option be availed of. Taking the option will allow the competent authority in Ireland responsible for implementing these Commission decisions to apply its investigation and penalty systems to the third country auditors and audit entities that are subject to the transitional period regime.
The audit oversight regimes of the countries in question, based on evaluations carried out by the European Commission, are not equivalent to that in the European Union. Accordingly, the audits of undertakings from third countries that are admitted to trading in Ireland may not be as robust as an audit carried out in Ireland or another member state operating under higher quality oversight systems and practices. This means that for persons investing in, or contemplating such investment in such entities, a greater degree of risk is entailed. Conferring such powers on the competent authority would enable it to pursue the auditors in question and subject them to its investigation and penalty systems, and indeed the prospect of this may focus these auditors on producing high quality audits to avoid the consequences of the application of these powers. That is why it is considered prudential to take this option.
The measure also proposes to provide that where future European Commission equivalence evaluations are undertaken, that result in a differing set of countries being provided for under a future Commission transitional period decision, the Minister should have the power to adjust the list as currently constituted, thus enabling the competent authority to apply its investigation and penalty systems in line with the revised list of transitional period countries. This is considered a prudent measure that avoids the need for recourse to primary legislation each time the Commission draws up a new decision resulting in a change in the composition of the lists.
The Minister for Jobs, Enterprise and Innovation intends to make regulations to confer the role of competent authority to the Irish Auditing and Accounting Supervisory Authority. He considers that it is entirely appropriate for IAASA to be enabled to employ its powers in these instances, thus affording safeguards to parties placing reliance on the audit reports in question.
The approach taken in sections 6 and 7 is consistent with the developments on audit at EU level. The oversight of the audit process in Ireland as regards public interest entities will be strengthened with the transfer of the important quality assurance function to an independent oversight body such as IAASA. Also, it is critical to give greater international credibility to Ireland's audit process, particularly regarding entities that participate on the global stage. Overall, the effect of the two sections is that audit quality and confidence in audit reports will be enhanced.
As I mentioned, company law must remain dynamic and responsive to meeting emerging opportunities and challenges. In order to meet that goal, I wish to inform Senators that the Minister for Jobs, Enterprise and Innovation intends to bring forward another important proposal on Committee Stage. The amendment will provide for an officer of the director of corporate enforcement to take over the statutory duties set out under section 20(2F) of the Companies Act 1990, in circumstances where the incumbent designated officer is no longer in a position to carry them out. The duties, under section 20(2F), arise if a named officer of the director has been issued with a section 20 search warrant under which "extended powers of seizure" are exercised. It is proposed that the new section will provide that if a designated officer named in a search warrant has ceased to be an officer of the director of corporate enforcement, or is otherwise unable to act, another designated officer may apply to a judge of the District Court for an order that his or her name be substituted for the original designated officer's name on the search warrant. The section is contained in the Companies Bill 2012 but is being brought forward to ensure the process is in place should the need for it arise.
I also wish to inform Senators that the Minister intends to bring forward a small number of technical amendments to the Personal Insolvency Act 2012 and the Bankruptcy Act 1988, designed to improve the operation of those Acts. The amendments are at the request of the Minister for Justice and Equality and are being prepared by the Office of Parliamentary Counsel.
That brings me to the end of this overview of a package of very important measures that the Minister for Jobs, Enterprise and Innovation wished to expedite due to the significant positive and immediate impact they will have for business and the enforcement of company law. There is also scope for the measures to contribute to the enhancement of audit quality in Ireland. I commend the Bill to the House.
Go raibh maith agat a Aire.
I welcome the Minister of State and thank her for representing the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton. She has a mega portfolio. I congratulate her on the energy and passion she has shown for her wide range of responsibilities.
In late 2012 the Minister announced his intention to proceed with legislation to allow small private companies to apply to the Circuit Court for examinership. The provision to give this effect was included in the Companies Bill 2012. Therefore, it was clear that due to the technical and complex nature of the Bill it would take time before the enacting process would be completed.
First, I commend the Minister for bringing forward the Companies (Miscellaneous Provisions) Bill 2013. It fast-tracks the provisions of the Companies Bills 2012 regarding Circuit Court examinership, as well as a number of other provisions highlighted in this Bill. It is clear that such provisions, outlined in this Bill, are of great importance in supporting business, particularly for smaller companies.
The Companies (Miscellaneous Provisions) Bill 2013 is part of a once in a generation piece of legislation, that is, the Companies Bill 2012. The Companies Bill 2012 will make company legislation fit for purpose in this modern era. It is also important to point out that an extensive amount of research, consultation and hard work was conducted by the previous Government in the drafting of the Companies Bill 2012.
I support the Companies (Miscellaneous Provisions) Bill 2013 in principle. However, I have some concerns that I shall raise with the Minister. I support section 2 that will amend existing examinership provisions to provide for the option to allow small private companies to apply directly to the Circuit Court to have an examiner appointed, instead of having to apply to the High Court, as is currently the case. The elimination of the need for High Court involvement will immediately lower costs and provide greater accessibility for small private companies to the process of examinership.
The Department of Justice and Equality has estimated that examinership in the Circuit Court, as opposed to the High Court, will save companies 30% in legal fees alone and there will be potential for further savings. The importance of accessibility cannot be underestimated when one considers that roughly 2,000 companies per year go into insolvency, yet only 30 or so enter the process of examinership.
Increased accessibility to examinership will give more companies the opportunity to restructure their debts and have a fighting change at survival, as opposed to going straight into liquidation. Allowing smaller companies the option of applying directly to the Circuit Court rather than the High Court is a measure that works in theory but may not be as straightforward in a practical context. Judges, solicitors, barristers and accountants will have to be committed to the new process. Practitioners will have to be specifically trained in examinership law and work together in a cohesive system in order for this process to work. I am interested in hearing the Minister of State's thoughts on this aspect of section 2.
Sections 3 and 4 relate to the electronic filing of accounts with the Companies Registration Office and will simplify the process of e-filing annual returns. This will provide for more efficient electronic filing of accounts with the CRO, thereby reducing the associated administrative burden. I welcome this provision, which has the potential to reduce the cost of compliance by making it easier for businesses to file statutory accounts online.
I have concerns about section 6 which allows for a levy on statutory auditors and auditors of public interest entities in order to defray the cost to the IAASA of carrying out functions of external quality assurance in respect of these public entities. Subsection (2) states "the Supervisory Authority may impose, with the Minister’s consent and subject to subsections (4) to (6), one or more levies in each financial year of the Supervisory Authority on statutory auditors and audit firms auditing public-interest entities." Regular inspections of statutory auditors is, of course, important to ensure systems are in place that allow for consistently high quality in audits, but I ask for clarity on the amounts to be levied and whether a limit will be set in this regard. I also ask for clarity about who will be responsible for paying this levy. Will it be imposed as a burden on the taxpayer?
Section 7 provides for the application of investigation and penalty systems to certain third country auditors. I welcome this section because it will bring us up to scratch with EU standards. No international auditor with an Irish subsidiary should escape reprimand for malpractice simply because it is headquartered in a different jurisdiction.
Fianna Fáil supports the Bill in principle and we commend the Minister for Jobs, Enterprise and Innovation for facilitating its expeditious introduction in order to reduce the costs associated with examinership for small businesses. We must support businesses that have potential for growth, exports and job creation but are crippled by legacy debts as a result of the financial crisis. Small businesses are central to the growth of our economy because they employ 33% of the people who are at work in Ireland. Approximately 200,000 small businesses employ more than 650,000 people. Allowing small companies to apply directly to the Circuit Court for examinership will make it cheaper and easier for businesses to restructure their debts. If smaller companies are given the opportunity to survive their current difficulties, more jobs will be saved.
I welcome the proactive approach that the Department has taken in preparing this Bill by taking a small number of measures out of the main companies legislation and fast-tracking them in order to help the many small businesses that are in trouble. The Bill is aimed at small businesses with balance sheets smaller than €4.4 million, turnover not greater than €8.8 million and fewer than 50 employees. This sector is facing a difficult trading and economic environment. Their stories have been well aired. The examinership provisions will allow cases to transfer to the Circuit Court, thereby making it easier for small businesses to access this type of solution. The Bill will help viable businesses that have the potential to survive by giving them breathing space and putting them into an examinership process in order that a solution can be worked out. They will have space from their creditors. Currently, the only option for companies is examinership in the High Court, which is an expensive process.
The Companies (Amendment) Act 1990 introduced the current law on examinership under the High Court. The process currently requires a high level of court involvement and can be complex and lengthy. The Department of Justice and Equality has estimated that Circuit Court costs will be 30% lower. It will be interesting to see the impact on businesses. Section 279 of the Companies Act 1963 allows companies to restructure with their creditors or stakeholders under court supervision, but that provision has rarely been used. Individuals can become bankrupt but companies cannot under the Bankruptcy Act 1988. The introduction of the insolvency schemes will make a difference in this regard. The programme for Government stated that legally binding and voluntary debt measures under the supervision of an insolvency expert would be introduced to allow for non-judicial resolutions of debt. The Company Law Review Group stated: "[S]ubject to establishing that the Circuit Court has the necessary resources available to it and the policy agreement of the Department of Justice, the Review Group believes that there is no other reason why the changes proposed to permit all SPCs to bring application directly to the Circuit Court cannot be quickly progressed."
Our focus should be on protecting jobs. A receivership or insolvency arrangement will not prioritise jobs in the same way that an examinership can. There are approximately 200,000 small businesses, employing 650,000 people, in Ireland. Some of them have the potential to survive and this is what the examinership process will establish. Figures from Hughes Blake on High Court examinerships for SMEs show that 716 SME jobs have been saved in the first three quarters of this year alone. Companies that have made media headlines for successfully exiting receivership in recent months include Trifix Forklift in Kildare and Dublin Gazette Newspapers. Barna Waste managed to save 270 jobs when it emerged from examinership. The examinership process plays an important role in saving jobs.
Small family businesses tend to have a strong business sense, a good track record and loyal customer support but, for various reasons, many of them are in difficulty. They may have been involved in property or they may face a difficult trading situation. They need to be supported in their return to the point at which they can once again become viable businesses that employ people.
The new process has been welcomed by Retail Excellence Ireland and the Small Firms Association. There is an acknowledgement, at the same time, that for some small businesses it might be coming too late. Nevertheless, we need to move forward, and what is proposed here is supported by most business people. The data show that three out of four examinerships are successful. Companies that get to that point have generally tried everything. They have considered selling non-core assets, examined their cost base, restructured debt and payments and sought more credit from creditors. For many, however, all of that is not enough and they need access to the examinership process.
Leases and high rents are an issue for many businesses. In that regard, the recent decision by the Property Services Regulatory Authority to put its commercial lease database online is most welcome because it gives us an idea of exactly what is happening. I was interested to note that only one lease has been issued on Grafton Street since 2010 and only two on Henry Street, which is the busiest shopping street in the country. Elsewhere in the State, no leases have issued on Patrick Street in Cork, as the Minister of State will be aware, or in Galway. It is estimated that 45 Grafton Street is now seeking a rent of €305,000 annually, compared with an estimated €445,000 some years ago. The former HMV business on the same street is now being let to Massimo Dutti, a subsidiary of Zara and a very popular retail outlet. At the height of the boom the rent charged on that premises was estimated at €1.7 million; now we are hearing a figure of €865,000. It seems that sense is finally prevailing in this area. There is no doubt that crippling rents were a major factor in significant numbers of viable businesses going under.
I also welcome the Bill's provision for the simplification of the process of e-filing and the disclosure of information to the Office of the Director of Corporate Enforcement under section 5 of the Company Law Enforcement Act 2001. As it stands, there is no obligation to disclose information to that office. That change is welcome and will give useful additional powers to the director.
The Bill also deals with the issue of statutory audits. There was a very useful discussion on this issue at the Joint Committee on Jobs, Enterprise and Innovation, of which I am a member, at the end of last year. The chairman of the Irish Auditing and Accounting Supervisory Authority, IAASA, raised the question of whether there is a need for direct regulation of the auditors of private interest entities. That discussion came against a background of developments in the area of audit reform at a European level, as the Minister of State mentioned. We must ensure we have independent auditing of our accounting services. We must send a message to people who might choose to invest in this country that company law is being adhered to in a transparent way. That is the driving force behind all these changes.
On the whole, I welcome the Bill. There are advantages for small businesses in having a cheaper and more accessible examinership process. It will remain the case, however, that the courts will need to be satisfied that there is a reasonable prospect of a company's survival. It is all about protecting viable companies. There will always be a number of businesses that fail, and examinership should not be used to prop up such companies. There is a balance to be struck here. In some cases, a successful examinership process will mean a reduction in payments to creditors, which will have a knock-on effect. In general, these provisions are a very welcome development and their fast-tracking is to be commended.
The Minister of State is very welcome, as always. I thank my colleagues, Senators Mary White and Deirdre Clune, for their contributions. Senator Mary White pointed out that going to the Circuit Court could result in a saving of 30% on legal costs as compared with proceedings in the High Court. All such savings are very welcome. I echo Senator Deirdre Clune's comments regarding the reduction in rents on Grafton Street premises. I had the honour of seconding Senator Feargal Quinn's Bill on upward-only rent reviews, which will be coming forward again in due course. As Senator Deirdre Clune observed, the new examinership process will save jobs. The criteria regarding a turnover of €8.8 million, a balance sheet of €4.4 million and a payroll of 50 employees or fewer are welcome.
Much of the remaining content of the Bill is seeking to deal retrospectively with issues that have arisen in recent years. There is a sense of locking the stable door after the horse has bolted. In terms of giving additional powers to the Office of the Director of Corporate Enforcement, many people might reasonably ask where that office has been for the past five years. In regard to auditing, the Bill proposes to transfer powers from the recognised accountancy bodies to a statutory body, namely, the Irish Auditing and Accounting Supervisory Authority. We, as a society, bought several banks on the basis of accounts that were prepared by people who are still walking around. If we are transferring powers from one body to another and the latter has not been particularly active in pursuing the dreaded things we have all had to cope with in this country since 2008 - problems this Government has inherited and in the resolution of which every Senator has tried to assist - then the question arises of whether we have been too mild in putting our faith and confidence in bodies that have done very little to justify that faith and confidence.
There is a serious question mark. We must ask ourselves why the recognised accountancy bodies failed to identify what was going on among their members. Are the big four accountancy firms beyond rebuke? The State is now taking on the burden of a profession that did not regulate itself. There is a huge moral hazard in that, in the sense that there were no consequences for those bodies for their failure to self-regulate. In cases such as that of Enron, or the Paul Coulson case in this country, in which private companies made acquisitions on the basis of accounts that proved not to be a true and accurate reflection of the entity in question, substantial damages were retrieved by the private companies engaging in those purchases. I ask how much the State might be owed in this context. The former Minister, the late Brian Lenihan, and both Houses of the Oireachtas were told of very low levels of losses in the banks, on which basis we acquired them. As we subsequently discovered, the stated losses proved to be only a fraction of what was eventually imposed on the State.
I support the move away from the recognised accountancy bodies because, as I said, they failed to do their job. The fact remains, however, that we are letting them off the hook very lightly indeed. My experience at the Joint Committee on Finance, Public Expenditure and Reform is that when people from that sector present at meetings, they do not accept liability for having failed to do the job with which they were entrusted. In fact, I suspect they would mostly do the same all over again. The Government must be far stricter in not letting the recognised accountancy bodies off the hook. We must ask the IAASA where it was when all of this was going on. Did any alarms sound?
I will support the Bill, with the caveat that we must see certain people pulling up their socks and performing far better than we have seen them do heretofore. That includes the Office of the Director of Corporate Enforcement, the recognised accountancy bodies and the IAASA.
And the Central Bank.
Indeed and bankers in general.
The lack of standards in banking is something every member of the Joint Committee on Finance, Public Expenditure and Reform sees every time representatives appear before it. The Government has had to ask the same questions about Newbridge Credit Union this week. The figure amounts to €54 million, as if the taxpayer is a bottomless pit. Who are the accountants in Newbridge?
From the wider perspective, the Government of the day paid a massive price, with one party being reduced from having 82 seats to 19, while the other which had six was left with none, but it was not a question of political responsibility alone; others must bear responsibility. We are with the Minister of State in reposing trust in bodies that they will perform far better than we have seen heretofore.
I support the Minister of State on the issue of electronic filing, referred to in sections 3 and 4. We are wondering about what electronic filing means and the standards that will apply. We have high standards in both Houses of the Oireachtas, but we are often not given credit for this. Politics is held in low esteem. Some of the other people spoken about have done far greater damage to the country and we must regulate them in the interests of wider society.
Do we have enough strength in quality assurance, referred to in the contribution of the Minister of State? Will we expel people from the accountancy profession if we have a recurrence of what happened in the past five or six years? How good is the public oversight body? We have many such bodies captured by the sectors they are supposed to regulate. We need public interest lawyers and economists rather than insiders in determining these matters. The Minister of State has noted the remarks of EU judges that standards in Bermuda, the Cayman Islands, Egypt, Mauritius, New Zealand, Russia and Turkey are not up to what we regard as appropriate. The Minister of State is taking steps to deal with third country auditors. How do Irish accountants compare with those in New Zealand? This goes back to the point on how easily people have been let off the hook.
Section 5 deals with the disclosure of information. Notwithstanding any other law, the Competition Authority, a member of the Garda Síochána, an officer of the Revenue Commissioners, the Irish Takeover Panel or such other authority or other person as may be prescribed may disclose material to the Office of the Director of Corporate Enforcement. Is there a conflict of interest in this regard? Will the Competition Authority state it is trying to promote competition and has a duty to blow the whistle on what it finds? The Revenue Commissioners jealously guard their secrecy. If they are on board, there may be no conflict, but I raise the point that they may not prove to be useful allies in the work the Minister of State is attempting to do.
I welcome the Minister of State and the legislation, which is necessary. It has just been announced in the Dáil that we are exiting the bailout programme. As part of the reform agenda, we must look at some of the other reasons this country got into trouble. Some relate to the bodies to which the Minister of State is giving extra powers. My verdict on their performance heretofore is that they must do better next time.
Like other speakers, I welcome the Minister of State, Deputy Kathleen Lynch. She is a woman with many talents which extend beyond her ministerial remit. I look forward to reviewing the Companies Bill 2012. The legislation is long overdue and vital in terms of having a robust company legal structure. I understand the complexities and that it will be 2014 before we can bring the legislation to fruition. I welcome the decision of the Government to bring forward certain provisions of the Bill for practical reasons. I refer, in particular, to the provision whereby small private companies can apply to the Circuit Court for what has loosely been called examinership-lite. The Bill is trying to facilitate low-cost Circuit Court examinership for small businesses. The examinership process can only be accessed through the High Court. I have heard many estimates of the cost of appearing in the High Court for one day and it extends to between €15,000 and €30,000. It is an expensive process.
This is an important day to have the debate. I was struck by the fact that Pamela Scott, a company that exited examinership in May, had opened its fourth new shop on Henry Street. One of the directors of the parent company, Flairline Fashions Limited, noted that it had entered examinership because of the need to bring its cost structure to a sustainable level. Examinership was obviously very successful but also a very expensive process. The director said he welcomed a cheaper, faster option for smaller companies. That is what we are trying to achieve.
In understanding what examinership is about I emphasise that we are talking about small companies the creditors of which are other smaller companies. It is important not to prioritise one category of business to the detriment of another. It is important to emphasise that examinership is a process whereby a company must establish its viability. We are not giving a blanket to a business with no prospect of survival, where granting examinership will only bring other small creditors and businesses to their knees. We are trying to make available to smaller companies a process that has been very effective.
I thank the Library and Research Service for the digest it has prepared on the Bill. I was struck by the statistics for examinership for the period 2008 to 2012. Of the companies that went into examinership, over 50% returned to normal status and are operating as normal. In the period 2008 to 2012 very few companies went into liquidation and a reducing number are still in examinership. We are not talking about an unproven process but one that has been well received by Irish companies. We must acknowledge that one of the significant disadvantages of the process is the cost. There was a commitment in the programme for Government to introduce a legally binding voluntary commercial debt plan structure to allow small businesses to restructure debts without recourse to expensive court procedures. It is important to ask why we did not do this and why we did not go down the non-judicial route rather than working within the court structure.
It is important to acknowledge the work of the Company Law Review Group which in 2012 published a report on reducing the cost of rescuing viable small private companies. It advice to the Government was that, given that the non-judicial processes available were evolving, having the insolvency service involved in the process administratively was not something it recommended. In contrast, it recommended using the Circuit Court as a means of providing recourse for small companies.
It was concluded that there was no reason the envisaged changes could not be proceeded with through the Circuit Court.
Anything that the Government puts forward should be subject to review and I am aware that although many people have welcomed this proposal, others have questioned whether it would bring about the savings we are trying to achieve or the viability we would like to see for small private companies. I ask that the following matters be kept under review in this process. After a particular period there should be a review, as enshrined in either the legislation or our own minds, to see if the Circuit Court is delivering for small, private companies what we hope it will. I am very concerned that costs should be kept under review as there have been a number of arguments that legal costs will not determine whether the process will be successful. I am also very concerned about keeping the prospect of a non-judicial option under review, including the capacity of the Insolvency Service of Ireland and particularly its evolving expertise in insolvency that is being rolled out pertaining to personal insolvency rather than commercial and business insolvency. Its capacity to deal on a non-judicial basis should be kept under review.
As a solicitor, I have had personal experience of people going through the examinership procedure. There is much expertise within the High Court relating to establishing whether companies have the capacity to remain viable and I wonder how we can ensure the Circuit Court can be geared to the same function and, as the Company Law Review Group has indicated, is properly resourced to ensure it is capable of delivering this service.
Fortunately, we are exiting a tough time in Ireland, and there is good reason to believe we are seeing more than green shoots. Many of our export companies are small private companies and 80% of them are predicting that they will expand their businesses quite significantly over the next period. As Senator Sean D. Barrett has noted, we cannot because we are seeing green shoots walk away from change and what went wrong in the past. We cannot put these issues behind us. This country will have to consider why bodies such as accountancy experts, for example, did not deliver the kind of service they should have for the country.
I welcome what has been proposed, but it must be kept under review. We must look back after two years to see if the Circuit Court is delivering what we would like it to for the country.
I welcome the Minister of State who must be getting fond of us in this House. I am delighted to see her back here again wearing a hat that is different from her normal one. I welcome the basis of the Bill, and the most interesting figure given today is Senator Mary White's claim that Circuit Court costs are 30% less than High Court costs, which means a lot to small businesses ending up in court.
I will examine a little more closely any legislation that is hindering the development of business. Electronic filing for court cases is great, but I wonder if we could do much more in this respect for small and medium enterprises. The Bill aims to provide a more efficient electronic filing of accounts with the Companies Registration Office, but we must consider electronic filing for court documents in order to lessen the burden on business. We know court cases are an extreme burden on business, as Senator Aideen Hayden mentioned a few minutes ago, and this applies in particular to small and medium enterprises, as costs could easily put them out of business.
How could we make the system easier to navigate? The World Bank has raised the case of South Korea, which in 2010 launched an electronic case filing system that enables electronic submission, registration, service notification and access to court documents. In 2012, lawyers filed just over a third of almost 1 million cases electronically. Every month more lawyers are using the new system as they are attracted by its convenience and although we have a long way to go, we can now work much more efficiently than we did in the past. It is said that so called electronic courts, or e-courts, include cost and space savings, increased security, greater transparency and expanded access to justice, with round-the-clock filing and remote access, as people can file documents without having to go to a particular building. Savings from the implementation of an e-court system can be substantial and result in a reduction in the use of paper. I have a hang-up about the outrageous waste of paper in these Houses, as the Order Paper is delivered to us every day in an envelope. We could do much to lessen paper usage here and in business.
The time spent in court, the need for storage space and archiving of documents can be streamlined and made much more efficient than in the past. Data indicates that contract enforcement in economies with e-filing is of great benefit in protecting companies that have run into difficulty. Has the Minister of State comes across that issue? Such a measure would help make things easier and faster for businesses in court cases and give them added protection. It would be worthwhile considering that point and although I do not expect an answer today, we should examine the matter.
The Minister for Justice and Equality may be more involved in this than the Minister for Jobs, Enterprise and Innovation as the issue relates to company law, although it could be expanded at a later stage. Surely an examinership process, for example, would be easier with e-filing. Will the Minister of State indicate if we could include an amendment that would allow the Minister to consider the issue of e-filing of court cases with the aim of reducing the burden on businesses? That amendment might help, but it would not tie anything down.
We should also reduce the number of procedures required to set up a business. We need to learn from the best when it comes to reducing red tape and the burdens that imposes on businesses that are being set up. We should make it as easy as possible to set up businesses as if we can encourage that, we will go a long way towards creating employment. According to the World Bank's cost of doing business report in 2014, it takes four procedures and as long as ten days to start a business in Ireland, whereas in Singapore it takes just three procedures and two and a half days, at a cost of approximately €400. New Zealand is even better, taking just one procedure and half a day to set up a business. All a person has to do is register with the companies office on-line, which costs less than €100. That is even better than in Panama, where I visited some years ago. People there told me they were setting out to be the easiest country in which to set up a new business, aiming to do it in seven hours. The country is not in the report as being at that level yet but it has recognised that if it is to create business in Panama, it will have to follow New Zealand and Singapore. We should be learning from that by using e-filing and doing what we can through electronic means, which are now much more secure than they have been.
I thought such means were very secure until this week.
By the sound of it, the company in County Clare has ended up with a huge disaster in terms of their reports because they had such an amount of information and somebody has been able to hack into it. I do not think that should upset us to the extent of saying that we will think twice. It is possible to solve the problem and we must do something about it. If we can make Ireland a better and easier place to set up a small business, remove red tape and make it attractive in the way we have done with foreign direct investment then we could create a revolution in small business start-ups.
I have travelled around the country a lot in recent years and observed small businesses. Sometimes there is almost a death wish. They think it is very difficult to set up a new business. They have almost got to the point of saying it is no good going to the bank to get money because it will not give it to them, yet on the other hand, when they do make a good case, the banks have money to lend. We keep hearing it is the other way around, but to a great extent many small businesses are inefficient at making the case for themselves. The Bill, which I welcome, will ensure there is only one step. I also welcome the Minister of State, Deputy Kathleen Lynch.
I welcome the Minister of State, Deputy Kathleen Lynch, and support the Bill.
Company Bills are a bit like buses. One can wait for hours and no bus comes and then two come at the same time. The more substantial companies Bill, which I also support, is working its way through Committee Stage currently. I must refer to the different approach being taken by the Government to its programme for Government commitments. I accept that this area is not the portfolio of the Minister of State, Deputy Kathleen Lynch, who is deputising for the Minister for Jobs, Enterprise and Innovation. However, I wish to make the point that items of legislation to protect workers that are in the programme for Government have not yet been presented to this House - most notably, the reforms in workplace relations. Changes to joint labour committees, JLCs, saw the end of the Sunday premium for low-paid workers. Lots of other issues affecting workers arise on which the Government must legislate, including the need for collective bargaining and trade union recognition. I support the Bill which deals with an important issue, but I appeal to the Government to consider the introduction of legislation that deals with workers’ rights also, especially in the context of the anniversary year of the 1913 Lock-out.
In business as in life we must learn from our mistakes and failures. Not all businesses succeed and many need support at some stage during their establishment and development. That is why we need legal provision for examinership, which is preferable to closure. I welcome the measure in the Bill to make examinership a viable option for SMEs. It is something that will be beneficial to them in the future. While the legislation will ease the process and might reduce some of the legal costs, there are still significant accountant and professional fees associated with the process. I urge the Minister of State to outline the steps the Government will take to address them because they are also important and have an impact on businesses.
There has been increased use of examinership by large retailers as a way to address the upward-only rent scandal and force a write-down. It is a risky strategy because it can result in forced closure and job losses. I caution the big retail companies against using examinership in that way. It would have been better for the Government to make good on its pre-election and programme for Government commitments and bring an end to such clauses, which are resulting in the closure of businesses and costing jobs. Will the Minister of State provide an assessment of the impact of the new rules on pay and conditions for workers? Will a rush to examinership, for example, force a reduction in the terms and conditions of workers?
The Bill also provides for electronic filing of returns to the Companies Registration Office. That is a common-sense approach that brings practice up to modern standards, and it is something we support. Section 5 deals with disclosure to the Director of Corporate Enforcement of information that might relate to an offence by a company director. Again, that is to be welcomed as it provides additional clarity and promotes compliance and transparency for business, which one must admit was sadly lacking in some companies during the height of the Celtic tiger years. Will the Minister of State consider, in addition, requiring company directors to make a full disclosure to ensure companies are fully compliant with tax provisions and obligations but also with environmental obligations and labour laws, particularly the latter? Many companies apply for grants from the State and I am a firm believer any company in receipt of such a grant should be fully compliant with labour law and employment law. It would be a help if compliance had to be proved.
Section 7 relates to the auditing of companies registered in non-EU countries. Will the Minister elaborate on the issue? Will it address the full auditing and reporting of the infamous Irish-registered but non-resident companies, which has been a source of contention in recent times? I am disappointed that other legislative measures on workers' rights that are under the remit of the Minister seem to be stuck in the legislative process or have not been developed. I ask the Minister of State to pass on my concerns to the Minister in order that he can progress such legislation. I support the Bill.
I apologise for not being in attendance for the presentation of the Minister of State. Unfortunately, the Joint Committee on Health and Children was meeting to deal with end-of-life issues in the last of a series of such meetings. In this regard, we are dealing to an extent with the end of life of companies.
I welcome the Bill. One of the problems we have had with commercial law in this country is that it has tended to move completely to Dublin because company liquidation, examinerships and receiverships are all based in the High Court. This is a welcome change which will mean that commercial law does not need to be centralised in Dublin. That in itself is a welcome development.
It is also important that the legislation introduced this morning sets out that the number of companies for which it caters is large. That is an important development. The other issue relates to reducing overall costs. Allowing companies to make the applications in a Circuit Court in the immediate area is a welcome development, because costs will be greatly reduced. The cost of going to the High Court includes the costs of going to Dublin and employing senior and junior counsel, and the change will mean greatly reduced costs.
I also welcome the change with regard to electronic filing of accounts which is long overdue. We have moved to an electronic age and it is important that companies are able to use such a process. It is about reducing costs and getting the work done in a timely manner. The legislation is welcome. I accept that the Companies Bill 2012 which is being processed represents major reform in terms of consolidating company law in this country, which is welcome. Company law is a complex area, but business moves faster now and the Government must respond accordingly. The current process is moving in the right direction. I hope the consolidated companies Bill will be enacted in a timely manner because it is something we need to encourage and help businesses, but it will also ensure there are a clear set of rules and criteria for how business is carried out in this country. That is a welcome development. I thank the Minister of State for introducing the Bill.
I thank everybody who made a contribution to today's debate. I have a speech in front of me dealing with what was said by Senators yesterday. I am always amazed at how that can happen. It shows how good the Civil Service actually is.
It was very interesting to listen to the various contributions from the eclectic mix of people in the Seanad. It was very interesting, particularly after the convulsions the House has gone through so recently. Senator Mary White clearly has an insight into how businesses are set up, developed and run. Senator Feargal Quinn has similar knowledge but on a larger scale. Senator Sean D. Barrett comes from the purest of places, the untainted grounds of academia and economics. Senator Aideen Hayden has a legal background, Senator Deirdre Clune has an interest in business development, while Senator Colm Burke also has a legal background. I found his views on the question of business flowing out from Dublin and into the regions particularly interesting. Senator David Cullinane spoke from the perspective of workers' rights and so forth. It was very interesting to listen to the variety of perspectives on this legislation.
I will deal with some of the points raised during the debate. Senator Mary White referred to the question of fees. The companies referred to in this legislation are paying fees to accountancy firms.
Such fees are often very high.
It is intended that the fees will be utilised better, although I am not saying that accountancy firms do not utilise their fees well. This is as much about small firms in this country as it is about our reputation abroad, which is very important. I heard a BBC reporter interviewing John Bruton recently and suggesting that Ireland's tax compliance was not what it should be. Mr. Bruton put up a very robust defence and our reputation abroad, in the context of those considering investing here, is hugely important. In that sense, this legislation is as much about that as anything else. The fees and cost structure have not been worked out yet, but that is normal in this context. This is all about our reputation abroad and it is better to be in the club where things are good. I recognise that some countries do not have as robust a system as we do-----
What about Royal and Sun Alliance? It has brought unwelcome attention to Ireland again.
There will always be such issues, but the good thing is that the problem was spotted very quickly by RSA's own internal accounting system.
The fact is that RSA is an English company, not an Irish company.
Yes, but things are happening quicker than was the case in the past.
This legislation is about ensuring that small firms know that they can work their way out of whatever crisis they are in. Crises can happen, regardless of whether the economy is buoyant or in a downturn. It is important that companies know that they can have the comfort of the protection of examinership. That is what this is all about. The news about Pamela Scott was particularly interesting in that regard, as Senator Aideen Hayden mentioned. Access to the protection of examinership should not be so difficult as to result in companies not even trying. That is enormously important.
It is always nice to be able to agree with someone who comes from the rarefied atmosphere of economics and I do agree with Senator Sean D. Barrett. However, this is not rocket science. If one is paying the piper, one can usually call the tune. What is important is that there is now an oversight body that will be held to account and which is charged with ensuring those who engage in the type of accounting practices we saw in some cases in the past will be brought to book.
It is important that information is shared because the lack of information sharing in the past is what contributed to our situation. Organisations cannot operate in silos and must share relevant information. It could be argued that we are getting better at that, mainly because of the appalling situation we found ourselves in. It is not that we suddenly woke up one morning and decided that we were all going to be very good. We have been forced into this position in some respects but hopefully we will learn from all that has happened. One of my concerns, once we start to emerge from the current crisis, is that we might look back and decide that it was not so bad. That worries me and for that reason we must put a structure in place so that when the alarm bells go off, someone can step in and take charge. Suspected breaches of company law in the past are being investigated, by the way, and the people involved will be held to account. That is as it should be and the debate was interesting from that point of view.
I was smiling when Senator Feargal Quinn was talking about electronic filing in the context of the justice system because I believe part and parcel of the administration of justice in this country is the public shaming of wrongdoers. The accused must appear in court and either take the dressing down or be vindicated. There is a section in the Companies Bill which deals with electronic filing. When people become more familiar with such systems, they will become the norm. However, electronic filing is not mandatory but is being encouraged. In the event that it becomes the norm, it could be made mandatory at some future date.
I agree with Senator Aideen Hayden's comments on reviews. It is always good to take a look back after a year or two to determine what works and what does not. We are doing that already in certain areas in the context of the budgetary process. I will relay the Senator's suggestion to the Minister. Perhaps we need to do something else or perhaps a certain area needs to be tweaked. No one person is the holder of all knowledge and situations and circumstances change. Senator Deirdre Clune's expertise in this area, having grown up in a business environment, is well known. It is a good day for small business and a good day for our reputation abroad in the context of how we conduct business in this country. That is as important as red tape and other issues.
I commend the Bill to the House and thank Members for their attention.
When is it proposed to take Committee Stage?
Next Tuesday, 19 November.
Sitting suspended at 1.20 p.m. and resumed at 2 p.m.