I welcome the Minister of State, Deputy Sherlock.
Companies Bill 2012: Second Stage
Question proposed: "That the Bill be now read a Second Time."
My speech, along with the information pack containing supplementary documentation, has been circulated.
I am pleased to bring the Companies Bill 2012 before the Seanad today. The Bill as presented represents a landmark legislative project, which is the result of many years of detailed and comprehensive work by officials in the Department of Jobs, Enterprise and Innovation, the Company Law Review Group and the Office of the Parliamentary Counsel to the Government. It is the largest substantive Bill in the history of the State, spread out over 25 Parts, 17 Schedules and comprising 1,436 sections.
We got through this in two days on Committee Stage in the Dáil, and I hope that signals how it might be dealt with in this House. It was recognised at an early stage of the process that a mere consolidation of the existing Companies Acts would be too limiting in light of the reforms necessary to sustain Irish competitiveness with respect to company law. Instead, an overhaul and restructuring of the company law framework was embarked upon. The result is a Bill that provides a state-of-the-art framework for all businesses operating in Ireland, whether domestic or foreign and irrespective of size.
The principal objective of the Bill is to restructure, consolidate, simplify and modernise company law in Ireland and in doing so improve Ireland's competitive position as a location for business investment. This reform seeks to ensure a balance between simplifying the day-to-day running of a business, maintaining the necessary protections for those dealing with companies, such as creditors and investors, and putting in place an effective corporate governance regime to ensure compliance. Any modernisation and reform of company law must be viewed against the backdrop of the fact that limited liability itself is a concession by the State to business, and must therefore be tempered by robust regulation to protect creditors' interests.
In making company law more accessible, more coherent and more reflective of actual business practice, Ireland's international competitiveness will improve and ordinary businesses and companies throughout the country will find it easier to establish and operate. However, by simplifying the law and making it more intelligible, it is not intended to water down compliance. In fact if the law is more accessible, it is more likely to ensure respect and compliance.
It is important to bear in mind that the last major review and consolidation of Irish company law was in the lead-up to the Companies Act 1963, more than 50 years ago. Since then there have been 17 amending Acts and 15 statutory instruments, which are required to be read as one with the principal Act. In that time, Ireland has taken on EU obligations on the harmonisation of laws, and this has inevitably added to the volume and complexity of Irish company law. Therefore, the Bill seeks to break company law down into distinct principles and areas and to remove or lessen the administrative burdens where possible and appropriate, bearing in mind that the public interest will sometimes require the introduction of additional regulation. These developments will bring Irish company law into the 21st century and ensure Ireland maintains a competitive edge as one of the best places in Europe, and indeed the world, in which to do business.
The Bill is the culmination of 14 years of work by my Department and the Company Law Review Group, CLRG. The CLRG is a statutory body that was set up in February 2000 and includes all relevant stakeholder interests, with members from Departments, professional bodies representing solicitors, barristers and accountants, employer and trade union interests, and regulatory bodies. To date, the group has published 15 reports and these reports have been freely available on the CLRG website. By making these reports publicly available, the transparency of the CLRG's decision-making process is ensured and the reasoning behind any recommendations issued by the group can be analysed. Members of the public and interested groups have been free to make submissions to the CLRG and all such submissions are given due consideration.
In advance of publication of the Bill to the Oireachtas, Volume 1 was published in draft form on my Department's website in May 2011. This afforded an opportunity to all interested stakeholders to familiarise themselves with the proposed new legislation, to interrogate it from a technical perspective and to prepare for its introduction. Submissions were welcomed and a number of the proposals were adopted in the Bill as published.
Following publication of the Bill in December 2012, suggestions and observations regarding the Bill began to flow from company law users throughout the country. To date, in excess of 1,000 such suggestions have been received and each one has been subject to careful analysis by my Department. Many of these suggestions formed the basis of the amendments put forward during the Bill's passage through the Dail. In all, more than 400 amendments were carried during Committee and Report Stages. While this was a large volume, it is worth noting that these amendments did not seek to change either the policy or the structure of the Bill. The purpose of the amendments was generally to bring about technical and practical improvements. It is clear that the development of this Bill has, at every stage, involved extensive input from a wide variety of sources and I thank sincerely the members of the CLRG, as well as the many other individuals and groups, who have contributed to this hugely collaborative project.
Turning now to the Bill itself, one of the striking features is the general structure it has adopted. For the first time in Irish company law, the most common company type, the private company limited by shares, is placed at the core of the legislation as the default company. By adopting this structure the Bill acknowledges the practical reality that almost 90% of the companies currently registered at the Companies Registration Office are private companies limited by shares. In addition the Bill rectifies the anomaly in the current legislation that presupposes that the public limited company, PLC, is at the centre of corporate life in Ireland. In reality fewer than 1% of companies are registered as PLCs. The result is that the architecture of the company law code is now recalibrated to reflect the true landscape of enterprise in the State. There is world of difference between the one person private company formed by a tradesperson and the large publicly listed limited company. To ensure greater accessibility to the new company law code, the Companies Bill is made up of two volumes. Volume 1, containing Parts 1 to 15, inclusive, sets out the law applicable to the most common company type in the State, the private company limited by shares - the new limited company, as it were. In keeping with the objective of ensuring the law is clearly accessible, the Bill is arranged to reflect the life cycle of the company, starting with the incorporation of a company, followed by matters pertaining to its operation and finally providing for the company's wind-down.
Volume 2, which contains Parts 16 to 25, inclusive, and the Schedules, sets out the other types of company that can exist and how the law contained in Volume 1 is applied, disapplied or varied for each other company type. These other company types are the designated activity company, DAC, the public limited company, PLC, the guarantee company, CLG, the unlimited company, the unregistered company and the investment company. There are legitimate users of all the different company types set out in the Bill and it is imperative that Irish company law should facilitate all types of enterprise and the wider commercial community by making appropriate provision for these different company types.
Returning to the new model private limited company, the Bill contains a number of significant innovations and reforms for this company type. First, this company type will have the same legal capacity as a natural person. The current ultra vires rule does not apply to this new company type. The ultra vires rule is the legal doctrine whereby a company must have what is known as an objects clause in its memorandum of association. Removing the need for an objects clause will both ease the administrative burden on companies and provide certainty to third parties, such as lenders, who will no longer have to examine extensive objects clauses to determine whether a company is acting within its powers. This company type will be allowed to have only one director. Under the current law, a company must have at least two directors and even if one person wishes to establish a business as a company on his or her own, he or she needs to find an additional person to act as the second director. Removing this requirement will make it easier to start a new business. The new limited company can have a minimum of one member and a maximum of 149 members. The 149 member upper limit is linked to the requirements of EU prospectus law, which governs the offer of shares to the public. The new limited company will have a single document constitution, in contrast to the current law whereby every company must have two documents, a memorandum of association and separate articles of association. The new limited company will no longer be obliged to go through the formality of holding a physical annual general meeting, AGM, where all the members have to convene in one location at the same time on an annual basis. Instead the members will be able to hold a written AGM, whereby all the matters which must be dealt with at the AGM can be approved by written procedure.
The Bill contains a codified version of the fiduciary duties to which directors are currently subject by a combination of the common law and statutory provisions. This brings all of these duties together in a single identifiable place, making it easier for directors to understand their responsibilities and more difficult to deny their existence. This also addresses one of the recommendations of the Moriarty report on company law. The Bill contains what is known as a summary approval procedure, which is applicable to a number of activities, for example, the reduction of capital, which under the current law might require the company to undertake the burdensome and expensive process of securing court approval. The new summary approval procedure incorporates safeguards on directors' liability in circumstances where the procedure is used without proper justification. Additionally, there are a number of innovations which will apply to other company types. For example, Part 20 enables any company to convert from its existing company type to any other company type that can be formed under the Bill. This is in contrast to the current law which contains restrictions on conversions.
This provides flexibility and greater options to companies which face a change in their circumstances. For the first time, guarantee companies will be able to avail of the audit exemption. This innovation will be of significant benefit to the sectors which tend to use the guarantee company structure, for example companies in the voluntary sector, charities and residential management companies, while at the same time recognising the particular circumstances applying to guarantee companies in allowing a single member to object.
Moving on from the key innovations, I now turn to the amendments passed by Dáil Éireann. As I mentioned earlier, a large number of amendments have been passed and, due to the volume, it is not possible to cover each one. However, I will briefly touch on some of the more significant.
There is now an explicit prohibition on bearer shares. This will enhance Ireland's reputation as a country which is playing its part in the international movement against money-laundering. In a winding-up, company books and papers must be retained for six years, rather than three years, after the dissolution of the company. This brings Ireland in line with best practice internationally. It also makes it easier for authorities such as the Revenue Commissioners, or the ODCE, to investigate potentially fraudulent or criminal activity. There has been a significant increase in the minimum share capital thresholds for companies that wish to appoint restricted persons as a director.
In addition to those measures designed to reduce white-collar crime, other amendments have focused on the modernisation and efficiency of company law. Such changes include permitting companies to use cloud computing solutions for keeping records; modernising some provisions regarding service of notice; and clarifying certain powers of directors upfront in the Bill in order to avoid every company having to change their constitution individually.
I now turn to the substance of the Bill. Due to the unprecedented size of the Bill, it is not possible to give a detailed explanation for each of the 1,436 sections. Instead, I will give an overview of the 25 constituent Parts, along the way highlighting any significant changes to the law and explaining the policy behind these changes. The supplementary information provided to the Senators contains a more detailed overview at chapter-by-chapter level.
Part 1 consists of 14 sections and is largely devoted to housekeeping. It sets out the structure and defines terms which are used throughout the Bill. Part 2 makes provision for the incorporation and registration of the new model private company limited by shares - the new LTD company - and provides that any one or more persons may form such a company. The most significant aspect of this Part is the provision for the conversion of an existing private company limited by shares to a new model private company limited by shares. If the company chooses to opt for the new regime, Schedule 1 sets out a template to assist them. Companies that do not elect to opt into the new regime will not be able to avail of the many advantages associated with the new model private company limited by shares, such as the ability to have only one director, the one document constitution and the possibility to avoid having a physical AGM. However, the new limited company will not suit all business activities. Therefore, a company is entitled to opt out of the new regime and can do so by converting to a designated activity company, or other company type.
Part 3 consolidates all existing law relating to share capital, shares, and certain other instruments. At present, this law is set out across the three main Companies Acts. Many provisions from Table A of the First Schedule to the Companies Act 1963 are today commonly inserted into the articles of association of a company. Under the Bill they are incorporated into its text and will, therefore, apply unless the company's constitution provides otherwise. This will reduce the amount of detail required in the constitution of the company and make it more business-friendly.
Part 4 provides a framework for directors and other officers as regards their appointment, their interaction with the company and its members, and the ways in which the activities of the company are conducted on a day-to-day basis. This Part permits the new limited company to have a single director. It also allows such a company to dispense with holding an AGM, where agreed unanimously by the members. Provision is made for unanimous written resolutions, thus allowing a company to pass resolutions, including special resolutions, in writing.
Part 4 also sets out the new summary approval procedure which deals with restricted activities such as the giving of financial assistance for the acquisition of shares, making reductions in company capital, or for varying company capital. This reduces the burden and expense on companies who previously may have had to secure court approval for certain transactions. Additionally, it simplifies and streamlines the current methods of effecting such transactions. To ensure balance, it incorporates safeguards in relation to directors' liability if the procedure is used inappropriately. Greater detail on the summary approval procedure is provided in the Senators' handouts.
Part 5 codifies, for the first time in Irish law, all the duties of directors and other officers of the company. Up until now, these duties were to be found in the common law and in various statutory provisions. They are set out now, in their entirety, for the sake of clarity. It is expected that this innovation in company law will promote compliance with such duties by directors and company officers.
Also dealt with in this Part is the directors' compliance statement, which is now being introduced into law as recommended by the CLRG and approved by Government in November 2005. These provisions apply to the majority of public limited companies and to large private limited companies. It places on obligation on directors to make an annual statement, in their directors' report, acknowledging that they are responsible for securing the company's compliance with its relevant obligations. This provides that directors confirm that certain actions have been done, or where they have not been done, explaining the reasons why. Failure to prepare a director's compliance statement will constitute an offence under the Bill.
Part 6 contains provisions regarding the accounting records to be kept by companies, the financial statements to be prepared by them, the periodic returns to be made to the Registrar of Companies and the auditing of financial statements. It also covers other matters related to auditors, particularly rules governing the appointment of statutory auditors and their removal from office. To a large extent, these requirements are unchanged from existing law. However, the relevant provisions have been redrafted in order to make them easier to understand and in order to improve compliance.
Part 7 contains provisions regarding debentures and charges. It also introduces a number of changes to the current law, the purpose of which is to simplify the registration and de-registration of charges while clarifying the rules for the priority of charges. A new two-stage procedure for the registration of charges is proposed. It provides that an initial notice can be sent to the Registrar stating the intention of the company to create a charge, followed up by a further more detailed notification within 21 days of the creation of the charge, stating that fact. In this way, it is envisaged that lenders may be more willing to advance funds if they can achieve more certainty with regard to the priority of the secured assets. The rules governing the priority of charges have also been significantly changed. Where the priority of charges is not governed by other regulation such priority will be determined by reference to the date of receipt by the Registrar of Companies of the prescribed particulars.
Part 8 deals with receivers. It substantially re-enacts the current law on receivership as contained in the Companies Act 1963, as amended. There are, however, some new provisions that set out the powers and duties of receivers. The receivers are now given certain specific powers in this Part, in addition to those conferred on them by court order or the instrument under which they were appointed. Conferring statutory powers on receivers is intended to alleviate many of the problems which arise from poorly drafted debentures.
Part 9 contains provisions relating to the reorganisation, acquisition, merger and division of companies. The main innovation in this Part is the provision, for the first time in Irish law, of a statutory mechanism whereby two private Irish companies can merge. Therefore, the assets, liabilities and corporate identity of one, are transferred by operation of law to the other, before the former is dissolved. A further innovation is that a merger can be effected without the necessity for a High Court order. Where a merger meets the requirements of the legislation, it is proposed that the summary approval procedure can be utilised to effect the merger, which can be expected to result in a significant saving of time and money. The provisions dealing with divisions are also entirely new and have been drafted to mirror the corresponding provisions in this Part that deals with mergers.
Part 10 contains the provisions regarding examinership. It largely reproduces the existing law on examinerships as contained in the 1990 Act and the recent 2013 Act which allowed small private companies to go to the Circuit Court for examinership.
Part 11 reorders in a more logically coherent way the law relating to winding up. As a result, greater consistency has been introduced between the three different methods of winding up - members' voluntary, creditors' voluntary and court ordered. This is most evident in the changes to the court-initiated mode of winding up, which will reduce the court's supervisory role in favour of greater involvement for creditors. Further changes are the introduction of new professional indemnity insurance requirements for liquidators and the requirement for a person to be qualified before acting as liquidator of a company.
Part 12 combines into one Part the many diverse provisions of the current law regarding the strike off and restoration of companies. The new provisions set out the reasons a company may be struck from the register and the procedures for restoration to the register. The Director of Corporate Enforcement will be empowered to require the directors of a company which is being struck off to produce a statement of affairs. These directors can then be required to appear before a court and answer on oath any question relating to the statement.
Part 13 substantially re-enacts, without any significant amendments, the law regarding the appointment of inspectors to companies and seeks to codify all law relating to the investigation of companies. In keeping with the stricter approach to the enforcement of company law, Part 14 brings together the various compliance and enforcement provisions, a change which will provide greater transparency. If a director applies for relief from a restriction order, the Director of Corporate Enforcement must now also be included as a notice party in any application for relief. A new provision is inserted whereby a company is prohibited from utilising the summary approval procedure where that company has a restricted director. Additionally, higher capitalisation is now required for companies with a restricted director. A new four-tier categorisation of offences is introduced. It is proposed that, subject to a small number of exceptions in the case of the most serious offences, for example, prospectus and market abuse offences, all offences under the Companies Acts should be categorised according to this four-tier scheme. The Senators will find details of the scheme in their information packs. A further new provision has been introduced which provides that, following a conviction for an offence under this Bill, the court may order that the convicted person should remedy any breach of the Bill in respect of which they were convicted.
Part 15 contains provisions relating to the Registrar of Companies, the Irish Auditing and Accounting Supervisory Authority, IAASA, the Director of Corporate Enforcement and the Company Law Review Group. For the first time, the powers and duties of both the Minister and these bodies are brought together in one coherent group of legislative provisions.
I now turn to Volume 2 of the Companies Bill, which Senators will recall sets out the other types of company that can exist and how the law contained in Volume 1 is applied, disapplied or varied for each other company type set out in Parts 16 to 24.
Part 16 provides for a type of private company to be known as a designated activity company, DAC. There will be two types of DAC under the Bill - a private company limited by shares and a private company limited by guarantee, having a share capital. The primary defining feature of a DAC, although I do not know if DAC has worked its way into the popular parlance yet - we will call it a DAC-----
Give it time. One heard it here first.
There used to be a rat poison called DAC at one time.
Senators heard it here first. The primary defining feature of a DAC will be the continued existence of an objects clause in the constitution of the company. It is envisaged that entities which would welcome the DAC include special purpose companies, for example, those incorporated for joint ventures or for use in a financing transaction. However, the Bill does not restrict the availability of DACs to persons engaged in such activities.
Part 17 is concerned with public limited companies, PLCs. The key difference between public limited companies and private companies is that only PLCs will be permitted to list their shares on a stock exchange and offer them to the public. A PLC is now permitted to have as little as one member and there is no maximum number on the membership of such a company. A PLC must have at least two directors. A PLC is obliged to establish an audit committee, and corporate governance provisions for the majority of PLCs are set out in this Part.
Part 18 provides for companies limited by guarantee, CLGs, not having a share capital. Since guarantee companies do not have a share capital, they are a popular type of company for charities, sports and social clubs and management companies. A CLG may be exempt from the requirement to use such a suffix to its name, for example, if it has a charitable object. The audit exemption is now being extended to guarantee companies under the Bill, if it fulfils the criteria for a small company. It is expected that this will benefit the many guarantee companies that are charities or sports clubs, etc. However, to ensure probity, any one member of the company is entitled to object to the exemption and thus force a company to carry out an audit.
Part 19 provides for unlimited companies. This Part is structured in such a way that it covers both private unlimited companies and public unlimited companies. In this regard, three different types of unlimited companies are being catered for: the private unlimited company with a share capital, ULC, the public unlimited company with a share capital, PUC, and the public unlimited company that has no share capital, PULC. All three types of unlimited company exist already.
Part 20 provides for re-registration of companies. A company will generally be permitted to re-register as another type of company subject to complying with the requirements applicable to the latter company type. Re-registration will involve the passing of a special resolution and the delivery of certain documents, including a compliance statement, to the CRO. Additional requirements may apply depending on the type of company following re-registration.
Part 21 provides for the registration and disclosure requirements of external companies, also known as foreign companies or overseas companies, which have been formed and registered outside the State but which have a connection with Ireland. Existing law provides for both the concept of "place of business" and the concept of "branch". Under the Bill, however, the "place of business" is abolished and the law will provide only for the "branch" concept. By not retaining the concept of "place of business", it is hoped to remove the uncertainty in the current law and oblige external companies to register as a branch if appropriate and thus be required to file accounts.
Part 22 deals with unregistered companies and joint stock companies and the application of the Bill to companies formed or registered under previous Acts. It also provides a mechanism for an unregistered company to register as a PLC. The most important unregistered company in Ireland is the Governor and Company of the Bank of Ireland.
Part 23 contains the provisions relating to prospectus law, market abuse law, and transparency law. In particular, provisions are set out regarding the consequences of a breach of a measure forming a part of any of these, and requiring a company with traded securities to prepare a corporate governance statement. For the sake of clarity, these provisions are housed in a stand-alone Part rather than in Part 17 which deals with PLCs.
Part 24 provides for the establishment of companies as investment companies, currently provided for under the 1990 Act. To be permitted to operate, these companies must be authorised by the Central Bank. Such companies are a key constituent of the set of legal structures under which the international collective investment funds industry operates in Ireland. An investment company is a type of PLC.
The final Part, Part 25, contains miscellaneous provisions that do not naturally fit in any of the preceding Parts, such as foreign insolvency proceedings, the prohibition on partnerships with more than 20 members and certain public auditor requirements.
I am delighted with the significant benefits which the Bill will bring to all companies, big and small, throughout the country. It will make it far easier to run a business as a company and it will enhance Ireland's competitive position as a place to start and grow a business. I look forward to working with the Senators on progressing the Bill to enactment, and I believe it will bring significant benefits to companies and to business life in Ireland.
I commend the Bill to the House.
Fianna Fáil is generally supportive of this Bill, which is the outcome of tremendous work over the years by various Ministers and civil servants in the Department of Jobs, Enterprise and Innovation. Ireland was a different country when the first Companies Bill was introduced more than 50 years ago. We are far more complex now than we were in the 1960s. We never heard of the word "entrepreneurship" in the 1960s but now it is an everyday term. Greater transparency is needed to make it easier for companies to grow while knowing their precise legal position.
I shall make two points based on my personal experience. In regard to Part 10 of the Bill, which deals with receivership, it is disturbing and disheartening for a company to enter receivership. It is a personal blow to those who put so much effort into their businesses. Examinership is a far better way to proceed than receivership. When a case goes before the courts, it is too easy for judges to make a decision on receivership. Generally speaking, they have no understanding of the complexity involved in doing business or the owners' passion for holding on to their companies and helping them to return to sustainability. Approximately 1,000 jobs in small firms were saved through the examinership process in 2012, which is an increase of 67% over 2011. Anything that can assist in saving jobs is to be welcomed.
Part 5 of the Bill deals with another issue close to my heart, namely, the duties of directors and other officers. Part 5 codifies, for the first time in Irish law, all the duties of directors and other officers of a company. Heretofore, these duties were to be found in common law and various statutory provisions but they are now set out in their entirety for the sake of clarity and it is expected this innovation in common law will promote compliance. Part 5 also introduces a director's compliance statement into law, as recommended by the Company Law Review Group and approved by the Government in November 2005. This provision, which will apply to the majority of public limited companies and small and medium enterprises, places an obligation on directors to thoroughly engage with their companies and to understand the rules of corporate governance. It is about time this was put in place. Directors will be obliged to make annual statements which acknowledge their responsibilities for securing their companies' compliance with the relevant obligations and confirming that certain actions have been taken or, where they have not been taken, explaining the reasons for not taking them. Failure to prepare a director's compliance statement will constitute an offence under the Bill. This provision has not yet hit the public radar and only those who are on the inside track are aware that directors' responsibilities have changed. We have to get it into the public arena because directors will have to wake up and face their responsibilities or they will be in serious legal difficulties.
While we support the Bill in principle, the bottom line is that it has to be implemented. Anything that makes us more competitive, develops existing businesses and creates new opportunities for our little country is to be lauded. I thank the Minister of State, Deputy Sherlock, for taking the Bill.
I warmly welcome the Minister of State, Deputy Sherlock, to the House and thank him for his comprehensive overview of this Bill, which is fairly comprehensive itself. I got a fright when I saw the explanatory memorandum because it is nearly the same size as the Bill. I do not have much to say simply because I paid attention to the Minister of State while he was speaking and cannot disagree with anything he said. I recognise that many years of effort went into this Bill and that the Company Law Reform Group did great work over that period. It is a necessary consolidation measure which deals with the Companies Acts 1963 to 2013. It restructures and qualifies the law while maintaining compliance, standards and other necessary safeguards. It will make company law more understandable and simpler without removing safeguards. The inclusion of a coherent set of legislative provisions in one Act will beneficial for competition and for Ireland, as well as those who work in the various kinds of companies concerned.
The measures contained in the Bill have been subjected to rigorous examination over a prolonged period. Like many of my colleagues, I am familiar with private limited companies from my experience as a sole trader. I welcome that it will now be possible for private limited companies to operate with one director, who will not have to bother with a separate memorandum and articles of association. Equally, I welcome the Bill's provisions on companies limited by guarantee, which might be limited by £1 or €1 in the cases of charities, clubs and other such entities. The simplification that the Bill provides is necessary.
As the Minister of State noted, the rationale for the Bill is to improve Ireland's competitive position as a location in which to do business and to modernise and reform the law. It is also important for our reputation that the corporate enforcement regime ensures compliance with the law. As far as I can see, all the safeguards are in place but we will have an opportunity on Committee Stage to make further amendments. However, given that more than 400 amendments were made to the Bill in the Dáil, I do not think there will be much for us to do in that regard. The broad community of stakeholders in company law will greatly welcome this legislation. Its 1,400 heads and general scheme dealing with 17 separate Acts and older reforms will simplify the operation of company law while preserving sufficient safeguards for members and creditors. The Bill will bring tangible benefits to a broad range of ordinary businesses.
I welcome the introduction of a procedure whereby private limited companies will be able to convert to other forms of company, including in particular a public limited company. As public limited companies only form 1% of the overall sector, it is important that we give so much time and attention to private limited companies. We will consider these issues further next week and I do not want to delay the House further. I appreciate the Minister of State's efforts and the amount of time he has devoted to the Bill. I look forward to engaging further on Committee and Report Stage. I commend the Bill to the House.
The Minister of State is very welcome. It was a delight to listen to the range of views expressed. As Senator Paul Coghlan said, there were 400 amendments in the other House. We will probably only have 200 or 300 amendments when the Minister comes back to us on Committee Stage.
While I will propose a number of amendments on Committee Stage, I welcome the Government's efforts in this area. The Bill has the overall purpose of making company law simpler and, consequently, it will be easier for businesses to operate. I also hope it will set the conditions so that more foreign companies are encouraged to relocate here to do business.
I wish to raise a few issues which this Bill could incorporate concerning overall conditions for business, as well as some technical matters. First, I think the Bill should clear up the term "accountant" once and for all in order to provide better protection both for individual and business customers. The fact is that we do not have legislation regulating accountants. I am not sure if that would also include turf accountants, but certainly accountants in general.
I think they must be members of registered bodies.
Maybe so. There are a number of problems in this area, including the fact that a number of accountants have been expelled from professional bodies yet are still offering their services to the public. While there are strict standards within accountancy bodies, such as codes of practice, in essence they are voluntary.
There are also people operating outside the system. Even someone with a criminal conviction can set up a business and offer their accountancy service to the public. That is not a proper situation and Ireland is unlike many other EU member states in this regard. I am calling for some form of mandatory regulation within the Companies Bill covering the term “accountant” in order to provide better protection for the customer. Specifically, I strongly believe the term “accountant” should only be allowed to be used by those accountancy professionals who are supervised or authorised by the Irish Auditing and Accounting Supervisory Authority. The Minister of State mentioned them in his speech and that makes perfect sense.
There would be no cost involved with this measure but it would give more protection to businesses and individuals against fraud, deception and poor performance. I urge the Minister of State to address the area in the Bill which I believe would be simple and straightforward. I would really appreciate it if the Minister of State could address this problem as soon as possible - if not today, then on Committee Stage.
The Government should examine the possibility of not imposing the same burdens on small companies or SMEs, as those placed on a multinational company with thousands of employees. I note the Minister of State said that this Bill introduces a series of major reforms to reduce red tape. I think that this particular proposal would be very much in line with the Minister of State's goals. Should we impose the same legislation on a company the size of Google with thousands of employees and, for example, a small food company employing four people?
In France, many regulations come into force once firms employ 50 workers. We should consider doing something similar here. Has the Minister of State heard of this situation in France? Could we examine the French legislation and see if there is a chance we could somehow adopt or, if necessary, adapt it here?
It is unfair that massive multinationals are in some ways considered the same as SMEs. What are the Minister of State's views on this problem and could the Government do more to look at this area to help companies and SMEs in particular?
I attended the Springboard launch yesterday with the Minister for Education and Skills, Deputy Quinn, and the Minister of State, Deputy Cannon. It was interesting to meet some of those people at the launch, which Senator Mullins spoke about earlier. People such as architects, quantity surveyors or engineers may have ended up with degrees that are no longer of value to them. Such people, however, are now changing direction and taking on something else, usually in the high-tech or ICT sectors.
It is not fair that small companies should find it difficult to start up a business due to the amount of red tape involved. There should be one procedure, on one piece of paper, to set up a business. This tangible idea would reduce red tape and set the conditions to create businesses and jobs.
According to the World Bank's Cost of Doing Business Report 2014, it takes four procedures and as long as ten days to start a business in Ireland. I know the Minister of State disagrees with me and has said they have speeded that up, but the World Bank report is comparing us to all the other countries. In my opinion as a business person, this is simply too long. It is a real disincentive to establish a business if it takes so long to do so.
If it is made quicker and easier, it is a simple fact that more people will set up businesses, which is a good thing whether they succeed or fail. The New Zealand model is regarded as the best. There it takes just one procedure and half a day to set up a business at a cost of approximately €100. We should be aiming towards that benchmark. It should be possible to set up a business in Ireland with just one procedure in one day at a very low cost. We should examine how they do it in New Zealand. To the best of my knowledge, they do not have any big challenges there.
In Ireland, there are four specific procedures to set up a company: first, the founder of a company swears before a commissioner of oaths; second, they need to file necessary materials with the Companies Registration Office; third, they get a company seal; and fourth, they must register with the Revenue Commissioners for corporation tax, social insurance PAYE/PRSI and VAT.
My point is that these four procedures could be done on one piece of paper at a single location for a maximum once-off payment of €50. At the very least, it should be well under €100. Can the Minister of State say whether we are moving in this direction at all? We could do this on one simple piece of paper - ideally, electronically - so it would be super easy for a person to set up a business and give it a try. New Zealand has done it, so we can too. Let us at least set a target to get there by 2016, which is only two years away. Can the Minister of State comment on whether he would be open to setting this target? I have also put this point to the Minister for Jobs, Enterprise and Innovation, Deputy Bruton, so I hope there will be a response to it.
Could the Minister of State include something in the Companies Bill on reducing the number of procedures to start a company? If not, could he at the very least look at possibilities in this area, including best practice internationally? One of the issues that we should make a priority when discussing companies legislation, is reducing the amount of red tape so that it is easy to start a company. The more businesses we encourage to start the better it is. Whether they fail or not is not the issue; we should encourage the formation of businesses. Those bright people who got the benefit of Springboard are exactly the ones to do that.
I have also proposed to the Minister, Deputy Bruton, that the Government should pledge to remove legislation. This proposal is related to improving conditions for companies in Ireland. It means that the Government would make a pledge to remove a piece of legislation affecting business for every piece of legislation it imposes on business. I think it is a smashing idea.
I would like to raise a specific example that I have raised before. In the UK, they introduced a system called "One in, one out" whereby if the Government introduced one measure that affected business, it would have to take another one out. They have even moved that on now and the new system is called "One in, two out" whereby the Government pledges to remove two bits of legislation for every one introduced. It is claimed that these measures have saved UK businesses around £1 billion in burdens since 2010. We should be seeking to do this here also in order to save Irish companies millions of euro.
Could the Minister of State include something in the Companies Bill to this effect? If not, could he propose this idea at Cabinet level in order that the Government would pledge to remove one piece of legislation affecting business for every one it introduces? That is only half what the British are doing.
The Seanad could even be tasked with finding some piece of legislation to remove. It would be fantastic to consider this matter, both in the Bill and in the wider idea of improving conditions for business in Ireland.
Those are some of the ideas that I wished to put forward.
They are not related to the immediate issues addressed in the Bill. I will express further views on these matters on Committee Stage.
While the Bill is welcome, I ask the Minister of State to respond to some of my proposals for creating conditions in which companies will thrive. The concept behind the Bill is correct and aimed at achieving the outcome we all seek. I wish the Minister of State with well with it.
I welcome the Minister of State. As the largest substantive Bill in the history of the State, this is welcome legislation. Even carrying it to the Chamber took a little more work than the Bills we usually deal with. I also thank the Minister of State's officials for the helpful briefing they provided on 14 May and to which a number of Senators referred. I thank, in particular, Ms Elaine Cassidy and Dr. Tom Courtney who helpfully provided an overview of the Bill. The additional materials we received are also welcome.
This is seminal, codifying legislation. Reading through the text brought me back to the days before I specialised in criminal law when I used to lecture accounting technicians in the basics of company and business law. I did so as part of an exercise aimed at making highly complex legal provisions accessible to people who did not have a legal background. Studying to become accountant technicians, they needed to know how to work the provisions of the law. I recalled that we used always to start the series of company law lectures with the case of Salomon v. Solomon, a shoemaker case on the veil of incorporation and the separate corporate personality. For some reason, this case and the principle behind it resonates with people as it is a simple idea to grasp. It remains the core of company law with this legislation. Built around this Bill, however, are a web and network of different regulations, both domestic and European, that have become very hard for anyone to penetrate, including company directors, lawyers and accountants. It has become very difficult for company directors to find their way around company law.
Previous speakers referred to the many Acts dating back to the major codifying law of 1963 and including the 1990 Act, which was an attempt to bring together the newer provisions around criminal liability and so forth. That these and many more Acts have been brought together in only two volumes is a matter of great importance.
I am struck that one of the key changes in the architecture of company law following the implementation of the Bill before us will be the shift of focus to the private limited company or company limited by shares. As the Minister of State and others noted, such companies account for 90% of firms in this country. The law, however, has tended to focus on public limited companies, which account for only a small minority of companies here. To refer again to my experience in criminal law, it is a little like the teaching of criminal law where the focus is always on murder cases, despite the fact that they make up only a tiny proportion of criminal offences.
One of the issues that arises in respect of separate corporate personality and the veil of incorporation and one which has become current in recent weeks has been what is described as the phoenix syndrome, whereby companies in the restaurant trade, the Paris Bakery in Dublin, for example, shut down without carrying out orderly windings up. In some cases, they re-open under a new brand, leaving creditors and, in the case of the Paris Bakery, employees high and dry. While we all welcome the resolution of the Paris Bakery case through the intervention of the Revenue Commissioners, it is necessary to ensure in legislation that this type of abuse of the principle of limited liability is prevented. This legislation appears to be the appropriate Bill in which to do so.
I will now address the core Parts of the Bill. As previous speakers noted, the legislation has been more than 14 years in genesis. The process commenced in 1999 and in 2000 the Company Law Review Group took up the proposal from the then Department of Enterprise, Trade and Employment to start work on drafting a codifying Bill. The group produced a number of reports and in 2011 a soft copy draft of Parts 1 to 15 of the Bill was published and a consultation process commenced. A good deal of amendment has been made to the Bill and further amendment will be made on Committee Stage. We are seeing a finessing of reforms around the idea of ensuring there is a simple, accessible structure for companies and an architecture for their regulation.
Parts 1 to 15, inclusive, contain a number of welcome provisions to simplify law on private limited companies. Under the new model, these are known as private companies limited by shares, a description which does not exactly roll off the tongue. The new company will, as is currently the case, have the same legal capacity as a natural person. The abolition of the ultra vires rule is welcome, as is the removal of the need for an objects clause in the memorandum of association. This requirement has become a largely artificial exercise in any case as objects clauses have developed, for the most part, into a catch-all set of provisions and no longer have a real purpose. The old cases we used to consider have become somewhat redundant and the formal removal of this rule is welcome in the new model companies.
The provision that a second director will no longer be required is also welcome. This requirement was in many cases artificial as it resulted in a second person, whether a partner, spouse or relative, being found who was willing to add his or her name to the company. The move towards a one director company is welcome. Companies will also have a single document constitution and will no longer be required to go through the formality of holding a physical annual general meeting, AGM. Instead, provision is made for a written AGM, which will simplify matters for small businesses. Previous speakers, notably Senator Quinn, have spoken of the need to ensure simplification of procedures for small and medium enterprises. This is a very important measure as the obligation to hold a physical AGM was an artificial requirement for small family companies.
The Bill also contains a simplified and codified set of obligations - fiduciary duties - for directors and deals with the streamlining of offences under company law through the four categories. These are important measures. It features a large number of other innovations, including the possibility of merging two private companies and the simplification of the application procedures that must currently be made to courts. The new summary approval procedure is very welcome.
I propose to refer specifically to the transition provisions, whereby private limited companies may choose to opt in or out for a transition period of 18 months. Clearly, a good deal of briefing of company directors is under way on how they can operate the transitional 18 month period, which can, I believe, be extended by a further 12 months from commencement. During this 18-month period, the directors and members of the existing private companies can elect either to register as a designated activity company or DAC - this process may enter common parlance as "dacking" - or a company limited by shares. Some of the briefings from solicitors' firms and so forth indicate that private limited companies will be treated as DACs for the transition period of 18 months given that they will, during that period, still have their objects clauses in place. The position in this regard is not clear from a reading of the Bill. At the end of the 18 month period, companies which have not opted in and become DACs will be deemed to register as a new form company limited by shares. While they may choose to register, will there be a difference in this regard? Can such companies avail of the same benefits as a new model private limited company if they are simply deemed to be registered? The Companies Registration Office will still have the existing memorandum and articles of association. While I understand that the company will be deemed to have fulfilled the new provisions, they may still have to file a one-page constitution. Interestingly, there is some divergence of instruction for companies in the guides being provided by private firms as to how to operate the transition period. It is important, therefore, that the matter is clarified.
The Seanad earlier debated a much different Bill tabled by Senator Katherine Zappone on sexual offences, which proposes to end discrimination against persons with disabilities. The Senator produced a highly accessible guide to her Bill, which Senators found to be a model of good practice in that it allowed people without a legal background to see at a glance the issues addressed in her legislation.
Likewise, several very helpful guides to the content of this Bill have been produced. The transitional arrangements it sets out are of particular practical significance for company owners and directors, especially in the SME sector, who may not have access to their own legal or accounting advice and are relying on what is available on the Internet. It is important that these issues be clarified. The other Parts of the Bill, which deal with other types of companies, will be much less relevant to the vast majority of directors and shareholders. However, it is very important that we have this simplified architecture, which means that different company types will have their own dedicated provisions. For example, designated activity companies are dealt with in Part 16, public limited companies in Part 17, and so on. This will make the structure of company regulation far more accessible for everybody.
The legislation has received strong cross-party support. It is an important codifying Bill which can well be described as a one-stop shop for the regulation and governance of companies. It will provide a much more simplified structure for those who wish to start up their own businesses. There is unnecessary red tape at present and it is welcome to see a way of cutting through that. We must be careful, however, that the size of the Bill does not scare off people who might not believe us when we say that it provides for a simpler and more accessible procedure. How we disseminate the information about this Bill is critical in achieving the type of compliance we want to see. I presume we are aiming for a situation, at the end of the transitional period, where 90% or more of companies will opt for the new model of private limited companies set out in Parts 1 to 15, inclusive. It is vital that people understand how they can now benefit from these new procedures. That is the practical challenge in terms of ensuring the legislation beds down quickly in practice.
I welcome the Minister of State, Deputy Sean Sherlock, to the House. Presenting a Bill with 1,436 sections must be a record, certainly since I have been in the Seanad. I congratulate the Minister of State on his weight-lifting prowess in bringing it forward today. This is welcome legislation, its object being to reduce the cost of doing business in Ireland.
I agree with Senator Feargal Quinn's point regarding the need to define the term "accountants" in law. There are proposals circulating in this regard, some of which I am sure have reached the Minister of State. The regulatory agency for accountants has been stymied by court cases pending, as detailed in its annual reports. Some of those court cases have been resolved and we can look forward to much stricter regulation of accountants in the future.
Senator Quinn's one-for-two proposal - that one extra imposition in law on companies should be accompanied by two others being removed - is similar to a proposal that was made in respect of quangos by the well-known economist, Colm McCarthy. In making that proposal, the latter pointed to the pub licensing rule whereby the opening of a new pub required the extinguishing of two existing licences. Mr. McCarthy regarded pubs as much more important than quangos and argued, on that basis, that the establishment of any new quango certainly should require two existing bodies to be expunged.
The provision regarding the objects clause is important. We have had a tradition in this country of board membership being a badge of honour or representing inclusion in some type of club. These days, however, board members have a great deal of work to do, particularly in the financial sector where so many companies collapsed in 2008 or thereabouts. In future, directors will have to take a much stricter view of what is going on and the role that is required of them. I welcome the requirement for a statement of compliance with the objects clause. To turn directorships from an honorary role akin to membership of a club into a hard-working position is essential to the reforms the Minister of State is proposing.
I have some concerns regarding the provisions relating to annual general meetings. Sometimes at meetings useful facts can emerge, ideas can be exchanged and so on. Would there be an element of things going underground if AGMs were conducted in written form rather than taking the form of an actual meeting?
The provision regarding a directors' compliance statement is welcome, as is the proposal regarding statutory auditors and the procedures for removing them. There was a view in company law reform debate - a view that seems to have gone somewhat out of fashion - that some auditors were around too long and became part of the problem rather than the solution. The proposal was that there be a limit on the length of time an auditor can stay with any one company. Perhaps the Minister of State will consider some type of measure in this regard, such as a requirement to rotate auditors.
In his introduction to Part 15, which deals with the functions of the Registrar of Companies and advisory bodies, the Minister of State referred to the Irish Auditing and Accounting Supervisory Authority, the Director of Corporate Enforcement and the Company Law Review Group. The latter, under the chairmanship of Dr. Tom Courtney, has received universal praise. It is important to note, however, that the Irish Auditing and Accounting Supervisory Authority and the Director of Corporate Enforcement are both regulatory and enforcement bodies, and that enforcement function should be made clear in the legislation.
I support the requirement to establish an audit committee and would argue, moreover, that the audit exemption should be granted very sparingly. In fact, my view is that even entities whose dealings do not involve large sums of money - a small tennis club, for example - should prepare accounts. This is important in terms of training people up to be properly accountable. Perhaps the Minister of State will review that provision.
The provisions regarding directors' fiduciary duties and directors' statements represent welcome improvements in corporate governance. I have a query regarding section 195, which deals with majority written decisions. The note from the Minister of State's advisers indicates that this will eliminate the need for face-to-face shareholders' meetings and any inconvenience or cost associated with such physical meetings. The counterweight argument, however, is that these things should be done in public. I take my lead from Senator Ivana Bacik in pointing out that much of what is proposed in this legislation is effectively extending the openness and transparency of Parliament to the corporate sector, which is welcome. In the past, too much of what was happening was done in secret, until Parliament was required to step in when it all came off the rails in 2008. The response to the argument that it is too inconvenient or costly to have meetings is that perhaps it is too costly not to have meetings.
Finally, the note to which I referred raises a query as to whether these provisions will result in a significant divergence between the systems of company law operating on either side of the Border. Has any detailed consideration been given to that issue?
The Minister of State is moving in the right direction with this legislation. Its objects are ones we all share and the reforms he is proposing merit support. I thank the Minister of State's advisers for their help in working through this immense document. The presentation and note prepared by Mr. Brian Hutchinson and Dr. Noel McGrath were most helpful, and those learned gentlemen have assisted us greatly in coming to terms with these very complex proposals. I wish the Minister of State well in advancing the legislation. There is broad support for it in the House and his endeavour deserves to succeed.
One of the broad criticisms made when the crisis hit a number of years ago was that we did not have sufficient legislation on the books. That was true of financial and economic legislation, but our companies legislation was not codified correctly either, which to some extent is what this Bill is doing. The demerging of the common law and statutory legislation can only be welcomed.
It is crucial that this legislation does two things. First, it should make it easier to do business and, second, it should make it less costly. I speak as an employer of two staff. As the Minister said earlier, almost 90% of companies registering with the CRO are private limited companies, yet a huge quantity of the legislation deals with the PLCs.
I mixed up the explanatory memorandum with the Bill. It was suggested earlier that a simplified executive summary should be available, so that if somebody was interested in starting his or her company, he or she would be able to get to grips with the big-ticket items in the Bill very quickly. That would be helpful.
It would also be helpful, as was mentioned earlier, if we could have some form of a tiered system. I know that the legislation has to apply to all companies, but one cannot compare some of the blue chip companies that trade here internationally and at the level at which they do so, in billions of euro, with a small company that has one director. It is a good thing that it is now permissible to have one director rather than there needing to be two. One just cannot compare like with like. For small and medium enterprises - I think that 60% of people are employed in companies of three people or fewer - we should relieve the burden of red tape and excessive bureaucracy if that is possible.
I want to touch on two more issues. Senator Bacik referred earlier to phoenix companies. Many people in business in Ireland, whether small traders or trading as a small limited company, have a relationship of trust with those with whom they trade. They give credit in the expectation that, if they are owed, they will be paid. It is galling for anybody who is in business to see companies close down in an opportune manner and then start up again with the objective of doing out of money the people with whom they have traded, especially in the manner that Senator Bacik touched on earlier. Among a lot of people who trade, their word is their bond. A cheque is only as good as when it is paid, and people rarely if ever give out cheques if they are not to be honoured. I have a real issue with phoenix companies. There are too many people who bring into disrepute the reputation of good Irish business people by trading in that manner and the legislation should be harsh on them.
One point on which I agree with Senator Barrett - sometimes we agree; sometimes we do not - is in relation to auditing. We have spoken hard words on the record about the large auditing companies. These were the people who audited our banks and said that they were fine just a few months before they crashed. The auditing structure should not be easy and flexible. There should be strong auditing oversight wherever possible. I can only assume that somewhere within the Bill, which reminds in its size of one of the 01 directories that one would get many years ago, a strong auditing regime is provided for.
I welcome the Minister of State to the House. I know that he is a very busy man these days and wish him well in his hustings.
I have to catch a flight at 7 a.m. as well, so I thank the Senator for his indulgence.
I shall be honest and say that I have not read the Bill. I did not draw the short straw in my party; somebody else did. I got the job of reading the explanatory notes, which are themselves 402 pages long. It is one of the largest pieces of legislation in the history of the State. It has 1,429 sections, so the sheer scale and size of the Bill are causes for concern in terms of oversight and implementation.
The Bill consolidates 16 Companies Acts with the aim of simplifying and modernising company law for the purpose of making it easier to do business in Ireland. We would all support that and would all want to make legislation as simple for businesses as possible while also protecting the integrity of company law.
I turn to some of our points of concern. Work on this legislation began in 2000 and the bulk of its drafting was completed prior to the economic and financial crisis. The Irish Congress of Trade Unions has warned that, as no investigation has been carried out of the role that existing company law played in the crisis, the Bill is not sufficiently robust with regard to regulation or protection of the public interest. It is also the view of the Irish Congress of Trade Unions that the legislation's primary concern is business interests and that it does not adequately consider third parties such as suppliers to small businesses or employees. The legislation does not provide that a registered company be managed and controlled in the State; rather, a company need only "carry on an activity" to be formed or registered in this State. The provision for a directors' compliance statement excludes the majority of companies due the height of the monetary amount set for the annual turnover and balance sheet, thus rendering the measure ineffectual. Following the DIRT inquiry, robust legislation was passed in 2003 which would have ensured directors' compliance in the areas of auditing and accounting. However, not all provisions were commenced, despite concerns raised by Revenue and the Director of Corporate Enforcement. Directors' responsibilities to their employees have not been enhanced and remain vague. We have just heard about what happened to the Paris Bakery workers. I accept that Revenue has stepped in there, but workers were left in a state of limbo for many years because the company was not formally wound up or put into liquidation. There is no guarantee that that will not happen again, nor that, if it does so, Revenue will step in as it did in this instance. We need to correct those anomalies, which have an impact on workers' rights.
Currently, all companies have an objects clause which sets out the business that a company is allowed to perform, for example, entering into a contract. Such clauses are often lengthy, as they have to provide for every scenario. If a business engages in a transaction not provided for in the objects clause, it is considered to have gone beyond its powers and will find itself on the wrong side of the law. Businesses and their advisers have long complained about the objects clause and argued that it is obsolete in a modern business environment. In response, the Government has included a provision that gives companies full and unlimited capacity to carry on and undertake any business or activity, and to act or enter into any transaction inside or outside the state. As a consequence, as the Irish Congress of Trade Unions identifies, the Government has changed the legal persona of a company to that of a natural person, which in effect gives a company the same rights as an individual. This is a big shift in company law. Similar changes to legislation in the US have resulted in mischievous business owners engaging in anti-worker practices, arguing that it is their company's human right to do so. The objects clause is not fit for purpose, but there should be some middle ground. That could easily be achieved by amending the relevant section to state limitations on the right provided for. The Irish Congress of Trade Unions has called for the provision to be referred to the Irish Human Rights Commission, which I would support.
This Bill was an opportunity for the Government to deal with rogue employers who abused the insolvency provisions for a limited company, which I have just talked about.
While we will table amendments, if they are not accepted, it is proposed to initiate a stand-alone Bill to deal with this issue once and for all. The legal anomaly needs to be sorted out.
Currently a creditor can seek the winding up of a company for a debt to the value of €1,269. The proposed legislation increases this amount to €10,000, which effectively removes the ability for an employee to pursue court action for salary moneys owed. It allows for a group of creditors to pursue a debt worth €20,000, but this scenario would not be helpful to workers in a small business. With specific references to employees, it remains the case that they could pursue an employer for moneys owed through the High Court, the cost of which is obviously prohibitive. Legislation could provide an opportunity to address this by enabling such a case to be heard in a lower court.
The Bill provides a bond of €25,000 where there is no director resident in Ireland. Arguably this is an arbitrary figure and should be accompanied by a provision that ensures the bond amount is linked to turnover and the wage bill, which would ensure that unpaid salaries, redundancy and the minimum provision for creditors are covered. Concern remains that the Bill is not sufficiently robust to ensure auditors' compliance to provide a true and fair view of a company's position. This has been dealt with during the Second Stage debate in the Dáil when the role of auditors during the economic crisis was debated. As previous speakers in the Seanad said, a balance must be struck and we need to ensure auditing is not overly prohibitive while at the same time ensuring proper scrutiny and auditing of companies and business. We have seen in banking and other sectors that auditing processes have failed and let us down. We need to learn the lessons from that.
These are some of the concerns that not only my party but other organisations such as the Irish Congress of Trade unions have. We will debate some of those issues on Committee Stage.
I, too, welcome the Minister of State and thank him for his very comprehensive explanation of what is a very complex Bill. Having listened to Senator Cullinane, the thought struck me that parts of the Bill are geared very much to business. I tried to search for the elements that would protect the worker associated with the company. I am sure the Minister of State will take the opportunity to address some of the issues raised by the Irish Congress of Trade Unions. Having said that, I welcome the common thread running through the legislation that is making it relatively easier for somebody of an entrepreneurial bent to set up and operate businesses because there is less paperwork, red tape and less bureaucracy involved. I particularly welcome the fact that a second director is not required and that articles of association and double documents are no longer required. All of these measure were inhibiting factors. I am sure there are many other examples of measures throughout the Bill that make it relatively easy for companies. This is to be welcomed.
The Minister for Justice and Equality introduced changes to the period of bankruptcy. I, together with other Members, argued that three years was too long, when one considered that in the United Kingdom one could be discharged from bankruptcy after 12 months, which gave Irish citizens an opportunity to go there as tourists. We identified the need for the Minister to reconsider whether the bankruptcy period of three years was too long. I still believe three years is too much, especially in light of the recent revelation about personal insolvency arrangements between banks and individuals, where the banks are fast-tracking the process and reaching an arrangement with the client in a period of between three and six months. I know it is very early in the day to be asking to repeal that legislation, but it seems that the provisions of this Bill make it relatively easier for people to start a business and inevitably there will be failures. At the other end of the equation, if the failures lead to bankruptcy, then that entrepreneurial ability, and I use the word "ability", will be lost to the State. Many have given the American example that one is not successful in business unless one has failed at least once. There has been a stigma attached to people failing in business in this country but I would like to think that in recent decades, particularly in the past ten to 15 years, Ireland has greater awareness of the importance of creating business and that the entrepreneurs create jobs, which in turn contributes to the economy.
Senator Barrett has dealt with some of the issues I had wanted to raise. I found it rather interesting that the Bill rectifies the anomaly in the current legislation which presupposes that the public limited companies are the centre of corporate life in Ireland. I thought that was the case, whereas in reality fewer than 1% of companies are registered as PLCs. I am not so au fait with business that I understand the reason. Will the Minister of State explain how the other 99% are registered? Are they private companies with share capital or private companies where the public or the law have no access to them other than within the normal company legislation?
I agree with the expressions of concern about auditing. I understand the reason the Bill suggests exemption for charities, sports clubs and small companies. The point was made that any one member of the company is entitled to object to the exemption and thus force a company to conduct an audit. I presume that protects the rights so that, even if the majority say no to an audit, under the law any one member can object. It is not a case of the majority winning out.
Would the Minister of State comment on the decision not to retain the concept of place of business? It is hoped to remove the uncertainty in the current law and oblige external companies to register as a branch if appropriate and thus be required to file accounts. While I was reading this, I was thinking about the brass plate companies which operate in the country. Does this provision apply to them? Will it tighten up the regulation of those companies who have been using Ireland but have no legal obligation to file accounts in this country? Does this refer to large multinationals? Will the Minister elaborate on it because the impression I have - please correct me if I am wrong - is that this may tighten up a particular law in that regard in light of the discussion on corporation tax, inheritance tax and the issues raised by the Governor of California last week, which I thought was bad mannered if nothing else? Perhaps he should look into his soul in respect of American tax law before he starts commenting on Irish tax law. My understanding is that the Americans are as much responsible for not getting tax from their own companies as any other country's tax regime. I would like to know the context of the external companies tax regime.
This is welcome and I applaud the Government for introducing this Bill. I wish the Minister of State every success in progressing it.
I thank Members for the very precise nature of the points raised in their brief contributions. I will endeavour to answer all the points but if I do not do so tonight, I hope they will indulge me to respond to them on Committee Stage when I will have comprehensive answers.
I thank the Senators for their valuable contributions to the debate on the Companies Bill 2012. I welcome the general expressions of support for the Bill. There were many positive contributions spanning across a range of issue in respect of the legislation, in particular with regard to the collaborative approach taken throughout the development of the Bill.
Senator White referred to the importance of ensuring awareness of the new legislation and providing education to the business community on the changes and new requirements. The Companies Registration Office, CRO, will have a particularly pivotal role to play in the implementation phase of the new Bill and considerable progress is already under way in this regard.
This includes company owners, formation agents, company secretarial software vendors and legal and accounting practitioners to name but a few that would be impacted by this reform in the corporate code. They have been identified and specific and relevant communications and updates in preparation for implementation will be targeted by the CRO to each of these groups. In particular, the CRO is working with representative bodies for major stakeholders, such as the accounting and auditing professional bodies, to ensure that clear and early information on this new code is available.
Senator White also referred to receivership and examinership. The Government is supportive of the examinership process and brought forward legislation last year to give more small companies access to it and try to save as many jobs as possible.
Senator Quinn raised concerns about the regulation of the title "accountant". In 2007 the Company Law Review Group, CLRG, recommended the regulation of this title in the interests of consumer protection. On foot of this the Department considered the matter and noted the views of the Office of the Director of Corporate Enforcement and the Competition Authority. The Competition Authority took the strong view that there was no clear public interest case that would warrant the legal protection of the term "accountant". The authority noted the statutory regulation of a title automatically creates barriers to entry and market rigidity that can have negative impacts for service users. Based on this consideration, the fact the title is not protected in the UK, with which we are closely associated in all matters relating to accounting, the lack of data quantifying the detriment to the consumer and the ongoing discussions of the EU professional qualifications directive, it was considered that the evidence does not support the regulation of the term "accountant". While it is clear that there is a benefit to consumers in knowing that professionals are fully qualified and hold appropriate levels of indemnity insurance, consideration must also be given to the potential for adverse consequences such as added cost to business, increased cost of regulation and compliance, barriers to entry and to competitiveness, inhibition of the market and a threat to the continuing existence of good practitioners that do not meet the new requirements.
The Government is also obliged to consider the principles of better regulation and the Competition Authority considered the issue specifically in light of the principles of necessity, proportionality and effectiveness. Under each of these headings the authority found that the proposal did not meet the requirements of better regulation. However, in light of the concerns expressed by the accounting bodies the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton, has asked officials in our Department to undertake an assessment of the issues by consulting with key stakeholders such as professional bodies, consumer representatives, small business representatives, regulators, the Revenue Commissioners, the Companies Registration Office and other official bodies with an interest in this matter. Members of the Oireachtas have also met the Minister to discuss this issue.
Senators Quinn and Michael D'Arcy spoke of making life easier for small businesses. We all wholeheartedly support this and the Bill is intended to do exactly that. In terms of reducing administrative burdens the Bill will implement a number of reforms on red tape that will make it easier and cheaper to run a company in Ireland and this will make a real difference to our international competitiveness. The Bill will make company law more accessible for the end user and reduce the complexity of doing business with companies. The main savings will come from the ease of setting up a company, the written AGM, the streamlining of corporate governance procedures and reduced professional fees. For example, the provisions relating to examinership allow small private companies apply directly to the local Circuit Court, rather than the High Court.
Senator Bacik spoke of redundancy payments and they are now managed by the Department of Social Protection under the insolvency scheme. However, officials from my Department are working with that Department to find a solution in cases where employees are abandoned by a company that does not formally wind up. This work is ongoing and we all share the concerns raised here relating to the Paris Bakery, though this issue goes beyond that business and applies on a wider scale.
Senator Bacik also raised the matter of the deeming provisions and it is correct that a private limited company will be a DAC during the transition period. It is also correct that such a company will be able to benefit from the new limited structure, even if it does not actively change to allow itself to be deemed at the end of the transition period. I hope that answers the question.
Senator Barrett expressed concern about companies not having a physical AGM. It is worth noting that a company can, of course, hold an AGM and there is no barrier to doing this. It is up to the company whether the AGM is in writing or in person and it is a private matter for the members of a private company.
Senator Cullinane referred to the financial crisis, as have other Senators, and asked what actions have been taken to deal with its effects. The drafting of the Companies Bill began before the financial crisis but it has not been a static process. The CLRG has produced 15 reports since 2000 and its recommendations are generally reflected in this Bill. Most recently action was immediately taken on foot of a recommendation that small companies be permitted to initiate examinership proceedings in the Circuit Court as a less costly way to facilitate small companies in difficulties. The Bill also incorporates the 2009 Act, which increased and clarified the powers of the Director of Corporate Enforcement and increased the disclosure requirements relating to loans made by companies to directors. These are just a few examples of how the Bill has been adapted to take account of current economic circumstances. I want it to be on the record of this House that the Irish Congress of Trade Unions, ICTU, was included in the deliberations of the CLRG. If a document is to be quoted verbatim on the record of this House I would like to know what it is. Perhaps it could be circulated to all of us.
Hear, hear.
Senator Cullinane is concerned that the full rights, powers and privileges of a company under section 38 of the Bill will confer human rights on companies to the detriment of workers. That is wonderfully rhetorical, if I may be so bold as to say so. The full and unlimited capacity referred to in section 38 has been included because under existing law a company has no capacity to carry on business except in so far as its constitution allows. This rule has resulted in enormous objects clauses that named every activity conceivable to its drafters. It has proved ineffective in protecting the rights of creditors and members. As a result it has been abandoned in other common law jurisdictions, most notably the United Kingdom.
Under the Bill, although directors can still be made liable for participation in certain activities by the Constitution, section 38 means that all contracts properly made on behalf of the company will be binding. It does not give a company human rights such as the unlimited capacity to enter into civil partnerships, adopt children, to be elected to public office nor even become the sole director of another company. All of these things are reserved to human persons. In terms of rights, it is well established jurisprudence of the European Court of Human Rights that human rights may be engaged with regard to the activities of companies. For example, it has held that the right to free speech under Article 10 of the European Convention on Human Rights protects advertising, including advertising by companies. Rights to privacy, property and fair trial have also been successfully argued for companies at the European Court of Human Rights. These rights are now well established and are unrelated to changes in this Bill.
Senator Mooney asked which companies were the non-PLCs. They are mostly small private companies limited by shares and a smaller portion are companies limited by guarantee, CLGs, which are mainly sporting clubs and charities. Regarding getting rid of the "place of business", it is intended that this provision will tighten up matters as companies will not be allowed operate without making appropriate annual returns - they will be required to do so.
The issue of multinationals and tax minimisation schemes has been raised today.
While I understand the genuinely held concerns of the Senators, this is a matter that is best addressed within tax law.
My colleague, the Minister for Finance, is very clear on his objective of making Ireland part of the solution to global tax challenges, and not part of the problem. International companies are in a position to avail of the differences in tax law between jurisdictions in order to minimise their taxes to the greatest extent possible. Therefore, the most effective way to address this international issue is for countries to work together. Ireland is playing an active role in the OECD base erosion and profit shifting process, BEPS, and is fully supportive of international efforts in this regard.
I am aware that the drafting of this Bill has involved a hugely collaborative effort to date and I know that we can maintain that approach as it moves through the House. To return to Senator White's point, the legislation has transcended many mandates, political parties and stakeholders. I am not saying that it is apolitical but there has been a degree of collegiality about the approach. I look forward to that further collegiality in terms of listening to the Senators' amendments when they bring them forward.
I thank the Senators who contributed to this debate. I look forward to engaging again with them on Committee and Report Stages.
Question put and agreed to.
When is it proposed to take Committee Stage?
Next Tuesday.
Is that agreed? Agreed.
Committee Stage ordered for Tuesday, 17 June 2014.
When is it proposed to sit again?
At 10.30 a.m. tomorrow.