Select Committee on Enterprise and Economic Strategy debate -
Wednesday, 19 Jul 1995

SECTION 5.

Mr. O'Malley

I move amendment No. 7:

In page 5, between lines 41 and 42, to insert the following subsection:

"(3) Any subsidiary formed and registered under this section shall not have any greater or wider powers than the Industrial Development Body of which it is a subsidiary and shall be subject to the same limitations and administrative directions as its parent company.".

The phrase "Industrial Development Body" should not have capital letters.

I am not totally happy with the idea of the establishment of subsidiaries to carry out any or all of the activities of an industrial development body. The history of dealing with subsidiaries, as some of the departmental officials will know, is unhappy. There were instances with one company where it was especially unhappy.

I note the definition of "industrial development body" in section 5 includes only Forfás, the IDA and Forbarit and that is a good idea. However, it is necessary to have a provision such as I suggest in this amendment because in the past some of these bodies, to circumvent the rules that applied to them, formed subsidiaries which were not subject to these limitations and administrative directions. It was some years before it was noticed.

In one case, the incongruous situation arose whereby the chief executive of a small subsidiary was earning significantly more money than the chief executive of the parent body. Arrangements of all kinds were made in aid to the then chief executive of the small subsidiary which could never have been made in respect of the chief executive of the parent body. That seemed wrong to me and I took steps at the time on an administrative level to try to ensure it would not happen again.

However, more is needed. The matter must be set out in law and this is an opportunity to do so. If it is not set out in legislation one or other of these bodies may try the same manoeuvre again at some time in the future. It caused a lot of difficulty and loss because payments for spurious pension and insurance purposes were made to an individual and never recovered.

This amendment is necessary. It should be self-evident that a subsidiary would not have greater powers than its parent company but that has proved not to be the case in the past. The legal principle that would normally apply is nemo das quad not habit but that is not the case as it appears in company law. One can form a subsidiary with greater powers than its own parent but in terms of public administration that is undesirable. I have detailed knowledge of why this amendment is necessary and I ask the Minister to accept it.

Mr. R. Bruton

I am sympathetic to the Deputy's point of view. It is my intention that there would be directives to any agency establishing subsidiaries to the effect that it could not grant any powers to the subsidiary it did not have itself. I am advised by the parliamentary draftsman that the way in which we have drafted this legislation, indicating clearly that the subsidiary will only be performing any of the functions, services or activities of the said parent, secures what the Deputy is seeking.

I will get an assurance that is copperfastened. I am determined there will not be a repeat of the unhappy experience Deputy O'Malley described. I will seek such assurances to be satisfied the Deputy's amendment is unnecessary and, pending that, I would be happy to reconsider the issue on Report Stage and provide the Deputy with the necessary assurances.

The Deputy made the suggestion that company law permits these wider powers to subsidiaries, our advice is that the way in which this is drafted deals adequately with the issue.

Mr. O'Malley

If I could be sure it is right it might be acceptable but I cannot be sure. I take it the Minister is referring to the phrases in subsection (1): "... perform any of its functions, provide any of its services or carry on any of its activities through a subsidiary... which is wholly owned by that body..."

In the case I mentioned the subsidiary was not performing one of the functions, providing one of the services or carrying on one of the activities of the parent. It was involved in a new activity which had not been envisaged when the Shannon Free Airport Development Company Limited Act, 1959, was passed. That company now carries on a lot of functions that would never have been envisaged in 1959 under the Act. Where it has undertaken these new extra mural functions, it has always done so through a subsidiary.

Even if a subsidiary is formed under the provisions in sections 1 and 5, there is nothing to stop it being formed with powers and functions outside those relating to the Act of the parent company.

Amendment, by leave, withdrawn.

Question proposed: "That section 5 stand part of the Bill."

Mrs. O'Rourke

My colleague, Deputy O'Keeffe, and I oppose this section. Our opposition is more precise than Deputy O'Malley's, although I understand the matter about which he has spoken. This section provides for subsidiaries but it is not necessary to create further duplication and bureaucracy. We oppose this section because we do not know why the industrial or development agencies want the power to create further subsidiaries given the large number of developmental agencies.

We debated this issue on Second Stage in the Dáil and we will again deal with it when we discuss the county development boards. It is unnecessary to create more bureaucracy and this section was devised because the industrial agencies cannot wait to get their hands on more powers and ways in which their authority can be further extended. There is already a patch war in each county between the Leader programme, back to work schemes, area development schemes, the county enterprise partnership boards and the other agencies. The last Government was involved in that proliferation exercise and while they all perform good tasks, the situation is like a jigsaw which cannot put together.

By providing for subsidiaries, we allow these agencies to multiply and grow because they have our permission through legislation to set up subsidiaries. Rather than getting into the admirable reasoning which Deputy O'Malley used, our amendment does not allow for subsidiaries to be formed. Agencies should stick to their remit when doing business. If an agency is carrying out its business correctly, it would not need to set up subsidiaries. We seek deletion of this section.

Mr. E. O'Keeffe

I support my colleague, Deputy O'Rourke. I do not see any merit in providing the right in legislation to set up subsidiaries which may be put under many headings, including joint ventures and partnerships. Deputy O'Malley referred to a State company which had a plethora of subsidiaries and we are all aware of the mischief, mistrust and agony which that created for many people in Government and in the company.

It is not easy to make subsidiaries accountable. They are an excuse for mischief and duplication and they open the door for consultants, etc. Agencies should be kept simple to avoid getting into difficulty. The Minister said there is no proposal to set up specific subsidiaries at present. If a board has an open door when it is set up, it will look at ways of doing this. They will not want to disclose information because of confidentiality. The history in this regard is not good. This provision is not necessary for State agencies involved in job creation and industrial development and I support what has been said.

Mr. Leonard

I also support previous remarks. At present there is a plethora of agencies and sub-agencies. Deputy O'Rourke mentioned the county enterprise partnership boards, the ADMs, the Leader programme. There is no co-ordination between them. We must curtail the establishment of additional bodies, subsidiaries and otherwise. I agree with Deputy O'Rourke in her opposition to this section.

Mr. R. Bruton

A key difference in the case Deputy O'Malley described, which related to SFADCo, was that it was a company, not a body, of the type described. It derived its authority from a lot of general legislation. Essentially, legislation was loose in relation to SFADCo and it allowed it general powers. In this case the only source of legal authority for IDA-Forbairt is derived from legislation. It is, therefore, watertight. When we say that the subsidiaries can only perform the functions proper to the parent that means they cannot extend their remit, as Deputy O'Rourke suggested, or go beyond that of the parent body. I have an assurance that the legislation, as drafted, deals adequately with that. In view of Deputy O'Malley's concern and the previous case to which he referred, I will be happy to come back on Report Stage and provide him with the necessary chapter and verse and citations so he can have the same assurance we were offered.

As regards the wider issue raised by Deputy O'Rourke, I cannot accept her rejection of this section. Forbairt is an agency charged with development of the indigenous industry section. It has a number of roles which do not all refer to a developmental one. It has, for example, commercial services, for which it tenders in the market place and environmental and energy services, which date from its old EOLAS brief. It has regulatory obligations, for example, in the area of metrology, also dating from its EOLAS brief. It is important that Forbairt focuses on its core objective which is developmental and that it has the opportunity to deal with these other services in a way which would not present a conflict of objectives. It is common for banks which offer different packages of services to form subsidiaries so they can have separate focuses and be run separately, which is a sensible structure. There are potential conflicts in that the same agency would provide financial support and try to sell services to the same company. It is better that there is a possibility of subsidiaries. If these are essentially commercial functions, it would ensure that a greater focus is placed on the commerciality of running an environmental or energy support service to industry from the developmental aspect. The same applies to the regulatory role it might play. The subsidiaries should stand alone because they essentially ensure that companies comply with appropriate legal standards.

It is not fair to view this as an attempt to widen the franchise. As I said to Deputy O'Malley, there is no power for these subsidiaries to widen their franchise. These franchises were held by the previous bodies, such as EOLAS and the indigenous section they inherited. They are engaging in a process of reorganisation to ensure that they have a good focus on their different tasks. The establishment of subsidiaries, which will be at arm's length although they will be fully obliged to report on their activities and be as transparent as the parent company, is a sensible and reasonable way to proceed.

Mrs. O'Rourke

I thank the Minister for his reply but the parent company is not sufficiently transparent. It is inviting multiplicity and duplication to allow subsidiaries to be set up. There is already much needless duplication in this area and it is an open invitation for further criss-crossing in the industrial and developmental area.

The Minister said he will come back on Report Stage with some form of legal copperfastening of the section's wording and in so doing, seek to allay Deputy O'Malley's concerns. The only way my concerns would be allayed is if the provision allowing the establishment of subsidiaries was not in the Bill. May I reserve my position for Report Stage, given that the Minister intends to come back with something then?

Chairman

I do not think that would present any problem.

Mr. O'Malley

In view of the Minister's assurances regarding the topic covered by my amendment and that he intends to come back on Report Stage with whatever information or amendment is necessary, I will not press my amendment. However, have the moneys which were paid, in the circumstances I described earlier, to the chief executive of an illegally formed subsidiary company been recovered or will they be recovered from the individual concerned, whom I understand is now back with the parent company? The money was improperly paid to him. It was public money and he is not entitled to retain it. If he is in public employment, that money should be recovered from him.

Mr. R. Bruton

I am not fully briefed on the question raised by the Deputy. However, I understand legal advice was sought and that it was not possible to recover the moneys to which the Deputy referred.

Mr. E. O'Keeffe

The Minister outlined the subsidiaries which exist and their role. Is it possible to include those in the Bill, given that many of them are necessary? For example, EOLAS was a fine agency although it is now the responsibility of Forbairt. I fear that new subsidiaries will be created through joint ventures or partnerships. The history of semi-State organisations is not great in that regard and there have been abuses. Deputy O'Malley correctly pointed out the difficulties which arose in another area and the failure at times to recover funds which were lost as a result of mischief or mistakes. There is a plethora of agencies within the remit of Forbairt, some of which are subsidiaries dealing with development while others are necessary for industrial and environmental situations. Is it possible to name those in the Bill?

Mr. R. Bruton

I do not think that is possible because circumstances change. It might be decided that only these should be included in the Bill but it could then be discovered that another successful service is being developed which should be in a subsidiary. Every eventuality cannot be foreseen but we want Forbairt to develop in a focused way. The potential conflict between its role as a regulator in some areas, a commercial provider of services in others and as a development agency should not lead to a blurred focus on each of its different remits.

There is no trigger happy desire on my part as Minister for Enterprise and Employment or that of the Minister for Finance to see the growth of many subsidiaries which might do the type of things feared by the Deputy. There are two locks and keys contained in the Bill. The approval of the Minister for Finance and the Minister for Enterprise and Employment is required for the establishment of a subsidiary and its memorandum and articles of association. The Deputy can be assured that we have a very tight grip on the establishment of subsidiaries. There is no question of the organisations running away with themselves in relation to creating many new agencies.

A number of Deputies expressed concerns on Second and Committee Stages about other agencies such as county enterprise boards and ADMs. However, the development of those agencies has nothing to do with the core brief of Forbairt or what it is now doing in terms of developing an approach to its organisation which is effective and focused on its tasks. While Deputies might have concerns about Leader, ADMs, county enterprise boards, etc., and the plethora of agencies, I assure them there is no intention to embark on the creation of agencies or expand the brief beyond what is reasonable. Essentially, we are given a power to ensure focus where we feel there is a justifiable case for hiving off certain activities to subsidiaries — just as banks or others might decide to do so in the context of their business.

Mrs. O'Rourke

There is much jostling and pushing in some quarters between the various agencies, including Forbairt, which set themselves up or which were set up for the promotion and encouragement of enterprise, job creation and job maintenance. The establishment of the county enterprise boards has ensured, quite properly, that a one person operation gets some attention in terms of what might have been seen in the past as too small a project for Forbairt — or the IDA as it was then — to get its teeth into or develop. I fear that Forbairt is attempting to grab a slice of the action which has been transferred to county enterprise boards.

Amendment, by leave, withdrawn.

Question proposed: "That section 5 stand part of the Bill."

Mrs. O'Rourke

What is the position in relation to the section? Is the Minister coming back on Report Stage?

Mr. R. Bruton

I will come back on Deputy O'Malley's point and I understand the Deputy is reserving her position to oppose the section on Report Stage.

Mrs. O'Rourke

That is fine.

Question put and agreed to.