SELECT COMMITTEE ON ENTERPRISE AND SMALL BUSINESS debate -
Wednesday, 2 May 2001

Vol. 4 No. 6

Company Law Enforcement Bill, 2000: Committee Stage (Resumed).

SECTION 57.

Tánaiste and Minister for Enterprise, Trade and Employment (Ms Harney)

I move amendment No. 65:

In page 35, line 22, to delete "The annual return" and substitute "Subject to subsection (3), the annual return".

This amendment relates to section 57 which repeals and substitutes section 127 of the 1963 Act and introduces a new annual return date regime for the filing of annual returns. It inserts three additional subsections into section 127 to provide a mechanism whereby a company which cannot file its annual return within the time provided under the section, that is, 28 days from the annual return date will apply to the court for an extension of the time allowed. There are provisions within the replacement section 127 whereby a company may alter or extend its annual return date. I am influenced, however, by the fact that in a huge number of cases flexibility with regard to the annual return date may not satisfy the requirements of a company for extra time to file its annual return. It is, therefore, proposed to offer this additional facility whereby an extension of the time allowed may be granted by the court. Where a time extension is granted by the court a company will be required to file a copy of the relevant court order with the Registrar of Companies as soon as practicable thereafter and if it fails to do so, each and every officer of the company in default will be guilty of an offence. It is important to indicate that an order under subsection (3) will only affect the time within which a company is required to file its annual return in the particular year to which the order relates. It will not have the effect of altering the company's annual return date for that or subsequent years. This is a technical drafting amendment which is consequential on amendmentNo. 67.

Amendment agreed to.

Ms Harney

I move amendment No. 66:

In page 35, to delete lines 29 to 32 and substitute the following:

"(b) in any other case - not later than 28 days after the annual return date, unless it is made up to an earlier date in which case it shall be delivered to the registrar not later than 28 days after that earlier date.".

This amendment corrects a drafting error in section 57. In paragraph (b) of subsection (2) of the replacement section 127, the text on line 29 beginning "unless it is made up to an earlier date" should refer to the preceding paragraphs (a) and (b) and should, therefore, be on a separate line to paragraph (b). The amendment rectifies this.

Amendment agreed to.

Ms Harney

I move amendment No. 67:

In page 35, between lines 32 and 33, to insert the following:

"(3) The court, on an application made (on notice to the registrar of companies) by a company, may, if it is satisfied that it would be just to do so, make an order extending the time for the purposes of paragraph (a) or (b) of subsection (2) in which the annual return of the company in relation to a particular year may be delivered to the registrar of companies.

(4) As soon as practicable after the making of an order under subsection (3), the company to whom the order relates shall deliver an office copy of the order to the registrar of companies and, if the company fails to do so, the company and every officer of the company who is in default shall be guilty of an offence.".

Amendment agreed to.

Ms Harney

I move amendment No. 68:

In page 35, lines 38 and 39, to delete "day 6 months after the first date after the commencement date" and substitute "first day after the commencement date that is 6 months after the date".

This amendment corrects a drafting error in section 57. Subsection (3) of the replacement section 127, as published, specifies the method of calculating the annual return date for companies incorporated prior to the commencement of the legislation. In respect of companies incorporated prior to commencement and which have not yet filed an annual return, the annual return date should be the first day after commencement, that is, six months after the anniversary of incorporation. This is in line with existing arrangements for such companies whereby they are required to file their first annual return within 18 months of incorporation. A drafting amendment of the wording in subsection (3) is proposed to achieve the desired effect.

Amendment agreed to.

Mr. Rabbitte

I move amendment No. 69:

In page 36, to delete lines 1 to 5.

I tabled this amendment for the purpose of ascertaining the thinking behind not having to append the accounts to the first return in subsection (5).

Ms Harney

One of the features of the new annual return filing regime is that companies will be required to file their first annual return within six months of incorporation. Subsection (5) of the replacement section 127 provides that a company incorporated on or after the commencement date does not have to annex accounts to its first annual return. A company does not have to submit an annual return with accounts attached until 18 months after incorporation. This requirement will be unchanged notwithstanding the introduction of the new annual return filing regime.

The deletion of subsection (5), as proposed by Deputy Rabbitte, would have the effect that companies would be required to annex accounts to the first annual return they file with the registrar which would have to be filed within six months of incorporation. This would result in companies having to make up accounts for periods of less than six months. This would represent a major burden, particularly on small companies, requiring them to make up accounts within a reasonably short period. The accounts in question would reflect no more than the first couple of months of a company's trading life.

The process of having to file the first annual return within six months is to designed to have to have the names of company's registered officers, secretary and directors, listed on its registration instead of those of the company formation agents listed when the company was established. It is to facilitate knowing who the directors of the company are in the registrar's office. That is the reason I am bringing the date forward to six months. It would not be realistic to expect accounts for a trading period as short as six months to be presented.

Mr. Rabbitte

I am persuaded.

Amendment, by leave, withdrawn.

Chairman

Amendments Nos. 70 and 71 are cognate and may be discussed together by agreement.

Ms Harney

I move amendment No. 70:

In page 36, line 14, to delete "section" and substitute "subsection".

These amendments correct drafting errors in section 57. Minor changes to subsections (7) and (9) of the replacement section 127 are required. References to those subsections should read as references to the subsections, not the section generally.

Amendment agreed to.

Ms Harney

I move amendment No. 71:

In page 36, line 31, to delete "section" and substitute "subsection".

Amendment agreed to.

Section 57, as amended, agreed to.

Sections 58 to 61, inclusive, agreed to.

NEW SECTION.

Ms Harney

I move amendment No. 72:

In page 38, before section 62, to insert the following new section:

"62.-Section 17(1) of the Companies (Amendment) Act, 1986, is amended by the insertion in paragraph (a), after 'the end of that financial year' of ', or on the next annual return date of the company after the end of that financial year, whichever is the earlier'.".

This amendment provides for the insertion of a new section amending section 17 of the Companies (Amendment) Act, 1986 which for provides an exemption in respect of companies which are subsidiaries of parent companies established under the laws of an EU member state from the obligation under section 7 of the Act to annex accounts to their annual returns. One of the requirements is that all shareholders of the company declare their consent to the exemption on the day of the holding of the next annual general meeting after the end of the financial year.

The necessity to amend section 17 of the 1986 Act as proposed in the amendment arises from the introduction of the concept of an annual return date provided for in section 57. With the introduction of an annual return date it is possible that a company might hold its AGM after its annual return date and after it has submitted its annual return. In such a case the company would not be able to comply with the exemption requirements of section 17 as it would be unable to declare the consent of the persons who were the shareholders on the date of the holding of the AGM. My amendment to section 17 of the 1986 Act is required to remedy this situation.

Amendment agreed to.

Section 62 agreed to.

SECTION 63.

Question proposed: "That section 63 stand part of the Bill."

Chairman

Does Deputy Rabbitte wish to comment?

Mr. Rabbitte

This section provides that the Probation Act does not apply to summary offences under the Companies Acts. Perhaps I am misreading it, but this seems penal. I do not want to vacate the left-wing territory to the Tánaiste, but I am concerned that we seem to have moved to a situation where one cannot apply the Probation Act even to a minor offence. I presume I am correct in saying that one could find oneself before the courts on a summary charge relating to a relatively minor matter. It seems the fact that one may not apply the Probation Act means the court will have no choice, there must be either a fine or imprisonment. I am in favour of enforcing the code, etc., but that seems a bit draconian. Also, it runs counter to the Whitaker report. Whitaker went out of his way to recommend a range of alternative options to prison, and we seem to be doing the opposite here. My fear is that once we make such provision in this Bill the lesson of jurisprudence in the House is that some other Minister will include a similar provision in another Bill and will argue that Fine Gael and the Labour Party allowed such provision to be included in the Company Law Enforcement Bill. On the face of it, unless the Tánaiste has news for me, it seems unnecessarily restrictive and prescriptive to say to the court it cannot apply the Probation Act, and I am a bit worried about it.

Mr. Flanagan

I share the concern already expressed on this matter. What other law can the Tánaiste cite in terms of precedent for legislation which specifically excludes the application of the Probation Act? It seems to represent a measure of interference with the courts which I am not sure is warranted. I assume there is a certain measure of reasoning behind the section and await the response of the Tánaiste.

Ms Harney

I said to my officials earlier when I was discussing the legislation that it is normally the other way around. The suggestion here came from the company law enforcement group and we subsequently had correspondence from the Attorney General strongly advocating we make such provision. I will not read out the long note, but such provision does exist in other legislation - I have a long list of such Acts. For example, it exists in relation to offences concerning excise duty under section 78 of the Finance Act, 1984, while section 181 of the Social Welfare Consolidation Act, 1981, provides that the court may not apply the Probation Act in the case of an offence by an employer on failure to pay contributions unless the arrears of contributions have been paid. The Attorney General mentions other cases where it does not apply.

On balance, I accept the arguments put forward by Deputy Rabbitte. However, in order to disqualify a director a court can take into account a number of previous convictions. Therefore, if somebody had a bad track record, extra time might be necessary to argue in court that the person has a record of breaking the law. I would prefer to see the laws we have being enforced. We have reasonably tough laws and they will be tougher after this Bill is passed. The court is free not to impose a fine or penalty, but a conviction for something relatively minor is serious, and I think that in the context of a first time offence or an offence which is relatively minor it is reasonable to give discretion to the court. Therefore, I will accept, subject to correct drafting, the gist of what Deputy Rabbitte is suggesting. If withdrawing the section does other damage we can return to it on Report Stage.

Chairman

That is good news.

Ms Harney

I wish to clarify that if necessary we will return to this on Report Stage. Obviously provisions cannot be introduced on Report Stage which have not been mentioned here, but I am sure the committee will understand if accepting the amendment results in any consequential problems.

Mr. Rabbitte

I understand the Social Welfare Act provided for a situation where, for example, a contract cleaner employed people in the black economy, etc., and in such circumstances it seems perfectly reasonable that such an employer should be required to pay back taxes before a court would decide to allow him go scot free in terms of a conviction and in the context of applying the Probation Act. However, I do not think the situation about which we are talking is exactly analogous. I do not want to delay the committee. The Tánaiste has graciously accepted my point. Other than advising us of other legislation which includes such provision, I am curious as to the substantial argument put forward by the Attorney General.

Ms Harney

An argument was put forward - I am not saying it is definitive - along the lines that a person who is a director of a company and is an upstanding and good citizen is entitled to the benefit of the doubt almost no matter what the first offence is, and to the Probation Act. However, it is equally the case that a person under the new regime, which will involve an independent office and resources for enforcing the law, might get a conviction for a relatively minor offence, something I do not want to see happening. Therefore, on balance I am prepared to accept the argument. According to a letter from an official of the Attorney General, he is "strongly of the view that persons who infringe the Companies Act should in every case be convicted", and that is what application of the Probation of Offenders Act to summary offences will achieve.

Mr. Rabbitte

There would be more spent on building prisons than on the "Bertie bowl" if that was the case.

Ms Harney

I wish to make the point it would not be unconstitutional.

Section 63 deleted.

Sections 64 to 67, inclusive, agreed to.

SECTION 68.

Mr. Flanagan

I move amendment No. 73:

In page 40, subsection (1), line 39, after "year" to insert "and the Minister shall cause a copy of the report to be laid before each House of the Oireachtas within a period of 2 months of receipt of the report".

The amendment is self-explanatory. After the report is given to the Minister it provides that within two months it will be laid before the Houses of the Oireachtas. I think in the circumstances the amendment is entirely reasonable.

Ms Harney

I am always against statutory requirements because sometimes we only fulfil our statutory requirements while many other things do not happen. On balance I accept the amendment. However, I would like to return to it on Report Stage.

Amendment, by leave, withdrawn.

Section 68 agreed to.

SECTION 69.

Chairman

Amendments Nos. 74, 76 and 80 are related, amendment No. 75 is an alternative to No. 74 and No. 77 is an alternative to No. 76, so amendments Nos. 74 to77, inclusive, and 80 may be taken together by agreement.

Ms Harney

I move amendment No. 74:

In page 41, line 20, to delete "within 7 days of the demand" and substitute "within 21 days of the demand, or such longer period as the Director may allow,".

I am happy to take on board the suggestion made by Deputy Rabbitte to extend the period from 21 to 30 days subject to accepting our wording.

Amendment agreed to.

Amendments Nos. 75 and 76 not moved.

Mr. Rabbitte

I move amendment No. 77:

In page 41, line 25, to delete "7" and substitute "30".

Ms Harney

I accept the change to 30.

Amendment agreed to.

Ms Harney

I move amendment No. 78:

In page 41, line 31, after "subsection (6)" to insert "or (7)".

Amendment agreed to.

Mr. Rabbitte

I move amendment No. 78a:

In page 41, line 31, after "evidence" to insert ", until the contrary is shown".

This is an old dispute between the Tánaiste and me in terms of safeguards and drafting where the phrase "until the contrary is shown" ought to be inserted. Section 69(13)(a) reads, "Where a person is the subject of a prosecution under subsection (9) for a contravention of subsection (6), it shall be sufficient evidence. . . ". I wish to include "until the contrary is shown". I am advised this is better law and a normal safeguard which ought to be included.

Ms Harney

I will table an amendment on Report Stage.

Amendment, by leave, withdrawn.

Mr. Rabbitte

I move amendment No. 79:

In page 41, to delete lines 42 to 48.

Under the section, if one is to contest their disqualification, they are required to give seven days notice to the prosecutor. It seems highly unusual that the defence is obliged to give notice in a criminal issue in advance in this fashion and a departure from normal procedure. There may be something in the company law code which makes this different or desirable. I am advised it would be contrary to normal practice in the courts, for example, that in circumstances such as this the defence is required to advise the prosecutor in advance, to give notice of the case in advance.

Ms Harney

This is being done to allow the prosecution time to arrange attendance in court of a representative of the body in question, several of which are located outside the State. This, therefore, is a vital element of the proposed system whereby certificate evidence in relation to a person's non-membership of a recognised body of accountants may be presented in court. This is reasonable if one wishes to facilitate the appearance by someone to contest a membership. I do not know whether Deputy Rabbitte is arguing the time is too short or the principle is wrong.

Mr. Rabbitte

Yes, the principle——

Ms Harney

How else does the prosecution get someone from the body to attend, some of whom are outside the State?

Mr. Rabbitte

Is that not the problem of the prosecution? I am aware that what we are about here is trying to enforce the company law code, which I fully support. However, that does not mean people are deprived of all rights as a result of a properly more strict regime. Is it not the task of the prosecutor to deal with that issue? Have the professional bodies concerned assented to this?

Ms Harney

Yes. In most cases the defendant will not contest the fact that he or she is not a member of a particular body. It would be extremely wasteful of resources to require the attendance in court of representatives from various bodies who are likely to be called to give evidence. Where a person claims membership of a particular body, the Bill provides a simple mechanism whereby the fact can be properly examined and the rights of the defendants are not in any way affected.

Amendment, by leave, withdrawn.

Ms Harney

I move amendment No. 80:

In page 41, lines 45 to 47, to delete "written notice thereof to the prosecutor within 7 days" and substitute "written notice thereof, served by registered post, to the prosecutor within 21 days, or such longer period as the court may allow,".

Amendment agreed to.

Section 69, as amended, agreed to.

SECTION 70.

Ms Harney

I move amendment No. 81:

In page 42, line 7, to delete "it" and substitute "the body".

Amendment agreed to.

Ms Harney

I move amendment No. 82:

In page 42, line 12, to delete "a disciplinary committee or tribunal" and substitute "a body".

Amendment agreed to.

Ms Harney

I move amendment No. 83:

In page 42, lines 14 and 15, to delete all words from and including "each" in line 14 down to and including "offence" in line 15 and substitute "it, and every officer of the body to whom the failure is attributable, shall be guilty of an offence".

Amendment agreed to.

Section 70, as amended, agreed to.

SECTION 71.

Chairman

Amendment No. 83a is consequential on amendment No. 85, therefore, the amendments will be discussed together.

Ms Harney

I move amendment No. 83a:

In page 42, line 45, to delete " ', (5) or(6)' " and substitute " 'or (5)" '.

The amendments relate to section 71 which provides for a number of amendments to section 194 of the Companies Act, 1990. In particular, paragraph (e) of section 71 provides for the insertion of three new subsections into section 194, imposing a statutory requirement on auditors to notify the Director of Corporate Enforcement of apparent offences committed by their client companies. Amendment No. 85 provides for the deletion of the proposed new subsection 6 of section 194 of the Act. This subsection requires a company's auditors to report to the Commissioner of An Garda Síochána and to the Director of Corporate Enforcement where they suspect a company is being used for a fraudulent purpose or a director or directors of the company may have defrauded the company, its creditors or other persons.

The removal of this subsection is proposed on the basis that the matters required to be reported under it are adequately covered by section 57 of the Criminal Justice Theft and Fraud Offences Bill, 2000. The latter Bill deals with all aspects of fraudulent criminality and, in relation to corporate fraud, imposes a very specific reporting obligation on the auditors of companies. Reports are to be made to the Garda which is the appropriate authority to investigate fraud offences.

Amendment No. 83a is a technical amendment to section 71, paragraph (d) and is consequential on amendment No. 85.

Amendment agreed to.

Ms Harney

I move amendment No. 84:

In page 43, paragraph (e), line 1, after "Where" to insert ", by reason of their carrying out an audit of the accounts of the company or having completed such an audit,".

This amendment relates to section 71 of the Bill which provides for the amendment of section 194 of the Companies Act, 1990. Section 194 proposes an obligation on the auditors of a company to notify the Registrar of Companies if they form the opinion that the company is failing to keep proper books and accounts. Section 71 of the Bill as published extends the reporting obligation on auditors to include an obligation to report to the Director of Corporate Enforcement where there are reasonable grounds for believing that a company, its officers or agents may have committed any offence under the Companies Acts. The working group on company law compliance and enforcement recommended that such an obligation should attach to auditors in order that information relating to apparent breaches of the Companies Acts might be transmitted to the Director of Corporate Enforcement for investigation by the director as part of the performance of his statutory functions.

Since publication of the Bill, I have received strong representations from professional bodies of accountants whose members are qualified to act as auditors to the effect that this element of section 71 would place an onerous and unreasonable burden on auditors. They argued that the proposed new subsection (5) of section 194 of the 1990 Act would require auditors to undertake extensive additional work over and above that required for the performance of the audit in order to be satisfied that there are no grounds for believing a company may have committed any of the approximate 300 offences under the Acts. They point out that many of these offences will be unrelated to the accounts of the company and would be unlikely to be discovered in the course of the audit. Their concern is compounded by the fact that failure on the part of the auditor to make the report required by the section constitutes an offence.

It was never intended that the reporting obligation imposed on auditors by this new provision would be such as to greatly increase their workload or to penalise an auditor who had honestly and responsibly undertaken his or her duties in a professional manner but had not become aware of some failure on the part of a company to meet all the requirements of the Companies Acts. Rather, the provision was intended to ensure that where an auditor suspected, on the basis of information available to him or her, that a company or an office of the company had committed an offence under the Companies Acts, then the auditor should report that suspicion to the Director of Corporate Enforcement. In the light of the strong representations that were received I have asked my officials to look again at the provisions in consultation with the Attorney General's office and the Parliamentary Counsel.

The revised text differs from the published version in some significant respects. First, the reporting of a date will only apply where the information suggesting that an offence has been committed comes into the possession of the auditor. The effect of this will be to recognise that there can be no obligation to report where the relevant information does not come before the auditor. Second, the question of whether there are reasonable grounds for believing that an offence has been committed is to be subject to the opinion of the auditor in any given case. This clarifies that it is the auditor must decide on the basis of the information available to him or her whether an offence appears to have been committed and that the reporting obligation only applies if the auditor determines accordingly.

Finally, the reporting obligation is to be limited to cases in which an indictable offence under the Companies Acts appears to have been committed. These, by definition, are the most serious offences under the Acts and are the offences about which the Director of Corporate Enforcement will be interested to have information. Any auditor may become aware of an apparent commission of a summary offence by his or her client company and may refer the matter to the Director of Corporate Enforcement but there will be no statutory requirement to do so. This will eliminate the likelihood of a plethora of reports relating to relatively minor infringements being received in the director's office. The revised wording for the proposed new section 194(5) improves the provision and more fairly reflects the intent of the recommendation of the working group. It will ensure that the relevant information, communicated to the Director of Corporate Enforcement, imposes a reporting obligation that is reasonable, proportionate and practical.

We will also have new legislation for the auditing profession as a result of the report on foot of the work of the Committee of Public Accounts. That will clearly define the responsibilities and duties of auditors.

Mr. Flanagan

On a point of clarification, do I take it from the initial part of the Minister's reply that this is not necessarily her final word on the matter? I understand a number of meetings took place between the professional representative bodies and her officials quite recently. Is she saying this is the final position of the Department or is she open to further representations between now and Report Stage on the basis of ensuring that auditors are not placed in a position of undue difficulty? I accept the fact that since publication of the Bill obviously her amendment represents something of a bridge between the two positions; I understand that there is a significant bridge there. I assume she is open to representations between now and Report Stage and that this is not necessarily her final word.

Mr. Rabbitte

I too picked up the remark in the Tánaiste's comments to the effect that she has had representations and that she is still considering this, whatever the phrase was she used. I do not know if that related to the earlier section rather than to the amendment now before us and one could read her later remarks as meaning she has done all that and been through that process and that this new amendment has emerged as a result to substitute for the relevant section. It has to be said that this section is hugely important and that this is a courageous stand by the Tánaiste.

I have looked at the representations by the CCABI and I have obviously met with people in the profession and so on and I was concerned with the breadth of section 71. In fairness, it is quite a transformation from what was the situation until now to what would be the new situation. Having said that, I could not pretend that my attitude has not been informed by a number of experiences I have had in parliamentary life, including most recently the DIRT tax evasion examination and how auditors came out of that. I do not want to put it any stronger than that. I am also mindful of having spent three days in the witness box at the beef tribunal, where to this day I have never been able to understand how accounts that had a £550 million deficiency were signed off on some months before the balloon went up. There have been a number of other mysteries in this area that I have been unable so far to understand. In that sense I find it hard to argue with the Tánaiste's refined version of section 71. I appreciate that the professional bodies are still concerned about it being clear that the first duty lies with the directors. I do not know whether it would emasculate this refined version if it somehow incorporated the notion that directors are in the first instance liable.

The Tánaiste's amendment does restrict the grounds where an auditor would be required to exercise this power. It seems that the auditor would have to know of an offence being committed and there would have to be reasonable grounds, or the test of reasonable grounds would have to be met, to prove that the auditor had that knowledge. In those circumstances I find it difficult to oppose the new amendment. The recent history of so many public cases to some extent comes back to the door of the auditors. The compliant taxpayer in the street must be left scratching their heads and asking how x or y was allowed to go on. This is a confidential imposition. I do not think it is nearly as onerous as section 71 as it stands and I would like to hear the Tánaiste on the director in this.

Suppose the offence was relatively minor or committed unknowingly and the auditor brings it to the attention of the Director of Enforcement; presumably the director can exercise his discretion in terms of what he does with that. Is there a compulsion involved here? Is the director compelled to initiate proceedings based on all information that might come from this? In other words, is there discretion to make a judgment? Clearly if a serious offence was brought to the attention of the director by the auditor the director would have to act on that but suppose it was relatively trivial? What would the director be required or expected to do?

Mr. Perry

Regarding a false claim being made, if an auditor had a disagreement, could the Freedom of Information Act cover a director's right to see the complaint? Deputy Rabbitte made a good point regarding the compulsion to notify the director. What would be the follow-up? This section is wide open to interpretation from the point of view of enforcement. From what the Tánaiste has said, it is clear that on the one hand she hopes to have reports while on the other she hopes she will not get them. What rule of thumb will auditors get to indicate what they should and what they should not report? Will the Department give guidelines to the profession stating what should be reported, that is, what would constitute a crime in the opinion of the Minister?

Ms Harney

There are many things on which I would like auditors to report but I am afraid my opinion will not be enough. It must be an indictable offence under the Companies Acts in the first instance. Second, the director of company law enforcement will have the discretion to decide to do something about it. If he is to do something about it, he must carry out his own investigation.

The purpose of the amendment is obviously to make the legislation more practical. Auditors have huge privileges but they also have responsibilities, and Deputy Rabbitte made some valid points. Much of the wrongdoing which has come to light in recent times perhaps could have been nipped in the bud if auditors had these kinds of responsibilities. This is, in effect, a whistleblowers' provision but it is more practical and it is fairer. A person who honestly carries out a professional audit and does not become aware of something should not have duties or responsibilities placed on them. The amendment is much more effective and fairer than the initial provision.

Shortly we will introduce legislation on foot of the report on the auditing profession. Senator O'Toole chaired that group. Recently the interim oversight board was appointed on an interim non-statutory basis pending the introduction of the legislation. That again will place huge responsibilities on auditors and responsibilities to report matters to directors, shareholders, etc., and to make information available in the annual report. I see all of that as positive.

On the Companies Acts, what we are saying here is that where an auditor becomes aware in the course of an audit of information that a director is, or directors are, in breach of the Companies Acts and that those breaches constitute or could constitute an indictable offence, then the auditor will have a duty to report that to the director of company law enforcement.

Mr. Perry

When this Bill is enacted, will the Companies Office circulate all companies of the obligations involved and of the changes? Clearly some of the professional bodies may inform their clients but in certain cases they do not do so. It is important that information on changes which the Minister is introducing would be freely available and that people would be aware of the changes.

I could see a situation where people, when they set up a company, might decide to set up as a sole trader rather than as a limited company because they may see there is a difficulty in being in a company due to the changes. Clearly people would want to be fully aware of their responsibilities when they set up a company with partners in that situation.

I see that in a different section the Minister is proposing to drop the use of the word "limited" also? Is that the case?

Mr. Rabbitte

I think the Minister's answer to my question is that since it applies to indictable offences under the company law code, by definition it does not apply to trivial matters and that therefore it is a serious matter and the director of company law enforcement still has the discretion to require the company to put right such a matter or otherwise act as he thinks fit.

Ms Harney

Yes. Obviously all the shareholders in the company rely heavily on the audited accounts, and so do potential investors, the Revenue authorities and so many others. Therefore auditors do have enormous responsibilities.

To respond to Deputy Perry, clearly the Companies Acts only apply to companies but there is no suggestion here that the auditor would be running off with every minor matter he or she comes across in the course of an audit.

On informing people, no doubt the professional bodies representing the auditing profession are well aware of this legislation. In fact, I have met quite a few auditors in the past couple of weeks who perhaps are more aware of it and more familiar with its implications than I am. Reasonable points were made and I hope we have responded in a fair and reasonable way, bearing in mind all of our responsibilities here.

Mr. Flanagan

On a point of clarification, it has been suggested that there are indictable offences under the Companies Acts which might not be directly related to the carrying out of an audit. These are circumstances where there may well be a breach but it might not become apparent to the auditor whose function may well be to carry out the annual audit and sign-off on the accounts. Is the Minister absolutely satisfied that this does not place a burden on the part of the auditor which might cause problems in circumstances where there may be an apparent breach but it might not have anything to do with the role and function of the auditor?

In addition, I cannot find where the penalties for this section of the Act are contained. What are the penalties for non-disclosure? What penalties are imposed in the event of a breach having been committed in circumstances where the auditor did not report to the director? What part of the Act contains the penalties?

Ms Harney

These are offences under section 240 of the Companies Acts, which we have up-dated. The penalty is £1,500 on a summary offence. Section 95 is amending section 240 of the Companies Acts which is up-dating the penalties for a summary offence. The auditor, first, must get the information and, second, must form the opinion.

Mr. Flanagan

Is this the Minister's final word on the actual wording of this amendment?

Ms Harney

We have made a reasonable effort. I am never one to say anything is final because we all learn things every day, but I do not intend to change it on Report Stage, if that is the question.

Amendment agreed to.

Ms Harney

I move amendment No. 85:

In page 43, paragraph (e), to delete lines 8 to 17.

Amendment agreed to.

Section 71, as amended, agreed to.

SECTION 72.

Chairman

Amendment Nos. 86 and 87 are consequential on amendment No. 88. With the agreement of the committee, we will discuss amendments Nos. 86, 87 and 88 together. Is that agreed? Agreed.

Ms Harney

I move amendment No. 86:

In page 43, to delete lines 27 and 28 and substitute the following:

"72.-Section 25 of the Act of 1990 is amended by the insertion of the following after subsection (3):".

These amendments relate to section 72. Section 72, paragraph (b), inserts a new subsection (9) into section 25 of the Companies Act, 1990. The effect of this new subsection (9) is to limit the application of the provisions of Part III of the 1990 Act to limited companies only.

Part III of the 1990 Act provides, among other things, that a company may not make loans or enter into credit transactions or guarantees in favour of its directors or persons connected with those directors except where these arrangements are within certain specified limits. This is intended to prevent the depletion of the company's assets to the extent that members' or creditors' interests are prejudiced. The insertion of a new subsection (9) into section 25, as provided for in this section of the Bill, was intended to exempt unlimited companies from the remit of Part III of the 1990 Act. This was on the basis that the depletion of a limited company's assets would not be prejudicial to the interests of its creditors as the members' liability towards its debts would be unlimited in the event of the company being wound up insolvent. This will not, however, take account of the interests of the members themselves who would certainly be affected if the company's assets were depleted through loans, etc., to its directors.

Furthermore, the members of an unlimited company could themselves be limited liability companies and the extent of their liability towards the debts of the limited company would, in reality, be limited to the assets of the limited company. This, in turn, could give rise to a situation where the depletion of an unlimited company's assets would result in loss to its creditors as well as its members. Accordingly, amendment No. 88 provides for the deletion of paragraph (b) of section 72 in order to remove the exemption for unlimited companies. Arising from this, some consequential drafting amendments, Nos. 86 and 87, are required.

Chairman

As the amendments relate to an Act and on the basis of the information provided by the Minister, I take it that the amendments are agreed to.

Amendment agreed to.

Ms Harney

I move amendment No. 87:

In page 43, paragraph (a), line 34, to delete "company.', and" and substitute "company.'.".

Amendment agreed to.

Ms Harney

I move amendment No. 88:

In page 43, lines 35 to 38, to delete paragraph (b).

Amendment agreed to.

Section 72, as amended, agreed to.

Sections 73 and 74 agreed to.

SECTION 75.

Chairman

Amendment Nos. 90 and 91 are related to amendment No. 89 and all three may be discussed together.

Ms Harney

I move amendment No. 89:

In page 44, line 35, to delete "a security" and substitute "any security".

These are technical amendments correcting minor drafting anomalies to the text of the section which provides for the repeal and replacement of section 34 of the Companies Act, 1990. The new section 34 provides a mechanism whereby companies may enter into guarantees and provide security in connection with loans, etc. made in favour of their directors, notwithstanding the general prohibition in section 31 of the 1990 Act. These minor textual amendments of the replacement section 34 are provided to ensure the wording accords exactly with that used in section 31 in order that there will be no doubt that what is permitted under the section 34 exemption procedure is that which is prohibited by section 31. They make no substantive difference to the effect of the section, but are proposed out of a degree of caution lest there be any confusion as to the relationship between the new section 34 and the existing section 31 of the Act.

Chairman

As the amendments seem to further enhance the Act, I presume they are agreed to.

Amendment agreed to.

Ms Harney

I move amendment No. 90:

In page 44, line 37, to delete "to" and substitute "for".

Amendment agreed to.

Ms Harney

I move amendment No. 91:

In page 44, line 38, to delete "to or".

Amendment agreed to.

Chairman

Amendment No. 93 is related to amendment No. 92 and both may be discussed together.

Ms Harney

I move amendment No. 92:

In page 46, line 21, to delete "(11)" and substitute "(10)".

These are technical amendments to the text of the section which provides for the repeal and replacement of section 34 of the Companies Act, 1990. The new section 34 contains 11 subsections, some of which contain internal cross references. The amendments correct certain cross-reference drafting errors in the text.

Chairman

As the amendments relate to a section which provides for the repeal and substitution of a section of the Act, I presume they are agreed to.

Amendment agreed to.

Ms Harney

I move amendment No. 93:

In page 46, line 25, to delete "(9)" and substitute "(8)".

Amendment agreed to.

Section 75, as amended, agreed to.

SECTION 76.

Question proposed: "That section 76 stand part of the Bill."

Mr. Rabbitte

It is high time that something was done to consolidate company law. Taking account of the number of cross references, it is getting to the stage where it is difficult to follow the legislation. We slid over this matter earlier. The Minister placed the company law review group on a statutory footing, the detail of which we did not tease through. I acknowledge that it is a question of judgment. That is an onerous statutory provision on the Minister as there are a number of areas where the company law review group could bring forward proposals for necessary legislation.

I held the portfolio for the area in question for two and a half years and put through seven Acts. I ought to have put through a further seven. Any Minister who puts through seven Acts in two and a half years, probably, should not be Minister as it is the most unproductive work in which to be engaged from the point of view of an electoral dividend. I envisage the permanent establishment of the company law review group will be onerous in terms of the Department being able to keep pace with what are likely to be the recommendations for renovation of the law.

Chairman

The Deputy expressed that point in the past.

Mr. Perry

Section 75 is a large section which I have not studied in detail. The Minister is in favour of the protection of creditors, with which I fully agree. It is important that the Bill supports directors as in quite a number of genuine cases, directors have lost everything. It is important that the Bill provides for balance in this area. In cases where companies go to the wall and creditors meetings are organised, it is important that directors are not classified as being totally criminal - I am not saying that they are by the interpretation given in the section - but they should be dealt with in a fair manner.

Chairman

The Minister might comment on the consolidation of company law and the other issue I brought to her attention. I received a detailed response from her on the liquidation of companies and those who may be appointed to deal with them. On reading through it, I consider this to be a grey area to which there are unsatisfactory aspects.

Ms Harney

I agree that we need to consolidate our law generally. When dealing with the minimum wage legislation I may have commented on the number of cross references to legislation enacted a long time ago. We, therefore, need to consolidate our laws. This will be one of the main priorities of the company law review group which, as Deputy Rabbitte acknowledged, has been placed on a statutory basis. While it will exert pressure on the political system, it is right that every two years, as a matter of form, we will have new company law legislation. I look forward to the day when it will be consolidated or codified, whichever route we take, and easy to follow as it is in the United States.

The issues to which the Chairman referred to me are also with the company law review group, some of which have major policy implications while others are merely technical or complex company law issues. The review group recommended that a dedicated group with statutory responsibility should examine the law, report on it every two years and have it amended. We have a good group chaired by Mr. Tom Courtney working on the matter. It is making a major input and taking its task very seriously.

In relation to directors, I am a strong supporter of enterprise - public enterprise, private enterprise and community enterprise - particularly those who have the courage and determination to create opportunities for themselves and others. That is what I want to support through our regulatory system, tax code and the norms that apply in society.

There is a view in recent times that everybody involved in business in on the take. I do not share this view, which I strongly contradict. Too many were, but still relatively few in number. Many take on the responsibility of being directors of companies without considering the consequences. Under company law - it is right that this should be the case - non-executive directors have the same responsibilities as executive directors; yet, quite a few, many of whom who are quite busy, take on a large number of directorships to which, perhaps, they do not give a great deal of thought, particularly if it is a directorship in what is called a bluechip company. That can no longer continue to be the case. Some of the new responsibilities that will be placed on directors, through the auditor review group's review and the legislation that will follow, will make people sit back and think before they say "yes" to signing on as a director of a company, in many cases, for a relatively small fee. It works both ways.

I share Deputy Perry's view on those involved in business. Sometimes, if a company fails here, we write off forever those associated with it as failures. This does not happen in other countries.

Mr. Perry

They are given a second chance.

Ms Harney

Exactly. I would like there to be a regime whereby those who fail on the first, or even second, occasion are given a chance to start again.

Mr. Perry

That is very important.

Ms Harney

We should support such a culture.

Chairman

Deputy Rabbitte was able to derail us a little from our stride. We are moving towards the heading "miscellaneous". Let us get back on track.

Question put and agreed to.

SECTION 77.

Ms Harney

I move amendment No. 94:

In page 46, lines 46 to 48, and in page 47, lines 1 to 11, to delete subsections (3) and (4) and substitute the following:

"(3) A memorandum or articles of association may contain a statement that it is to incorporate the text of a document previously registered with the registrar pursuant to subsection (1), which document shall be identified by the reference number assigned to it by the registrar.

(4) Where a memorandum or articles of association contains a statement as referred to in subsection (3), it shall be deemed for all purposes to incorporate within it the text of the relevant document filed with the registrar pursuant to subsection (1), so that it shall form and be read as one entire document, and where such a memorandum or articles of association has been registered by the registrar and is inspected by any person, the registrar shall also make available for inspection the related document filed with him or her pursuant to subsection (1) .".

Amendment agreed to.

Section 77, as amended, agreed to.

SECTION 78.

Ms Harney

I move amendment No. 95:

In page 47, lines 13 and 14, to delete "and be delivered to the registrar".

Amendment agreed to.

Section 78, as amended, agreed to.

SECTION 79.

Ms Harney

I move amendment No. 96:

In page 47, line 17, to delete "and be delivered to the registrar".

Amendment agreed to.

Section 79, as amended, agreed to.

SECTION 80.

Ms Harney

I move amendment No. 97:

In page 47, line 21, to delete "register" and substitute "registrar".

Amendment agreed to.

Section 80, as amended, agreed to.

SECTION 81.

Mr. Flanagan

I move amendment No. 98:

In page 47, between lines 32 and 33, to insert the following:

"(b) by the insertion of the following definition:

' "creditor" includes a person or a body to whom a debt is payable, an employee seeking to enforce a right or a person seeking to enforce a property right;',".

Acceptance of this amendment would allow a contingent creditor to make an application under the 1999 Act to have a company restored to the register and proceed with a cause of action or seek some other remedy against the dissolved company. The inclusion of a definition of "creditor" which extends to an employee would fill a gap in the law.

Ms Harney

The amendment relates to section 81 which amends section 2 of the Companies Act, 1963, and relates to the definition of certain terms used in the Act. The amendment seeks the inclusion of a definition of the word "creditor" for the purposes of the Act. The word is commonly understood to mean a person to whom a debt is owed. The proposal would extend the definition to include not only a person to whom a debt is owed but also an employee seeking to enforce a right or a person seeking to enforce a property right. This raises policy issues which extend way beyond the remit of the Companies Acts. The implication of providing that employees or other persons seeking to enforce rights against a company should be defined as creditors for the purposes of the Companies Acts would require further consideration. Creditors may, for example, apply to have a company wound up or have a receiver or examiner appointed.

I do not see it as necessary or appropriate to provide a definition of the word "creditor" for the purposes of the Companies Acts which would extend its meaning beyond what it is normally understood to mean. Under the Companies Acts, in the event of a company being wound up, a whole host of parties have priority in regard to debts. If an employee is owed money in respect of his or her labour, holidays or PRSI, it will have to be paid and qualifies as a debt that is owed. An employee's rights in regard to wages, salary and so on are covered. It is only right that that should be the case. We should not move towards wider issues which have more to do with other rights than the ones we are seeking to assign or the circumstances we are trying to cover under the Companies Acts.

Mr. Flanagan

Given the extensive nature of the company law code, particularly in the past ten years, it is extraordinary that there is no statutory definition of the word "creditor".

Amendment, by leave, withdrawn.

Section 81, as amended, agreed to.

Sections 82 to 85, inclusive, agreed to.

NEW SECTION.

Ms Harney

I move amendment No. 99:

In page 50, before section 86, to insert the following new section:

"86.-Section 60 of the Act of 1963 is amended-

(a) in subsection (2), by the substitution of the following for paragraph (b):

'(b) the company has forwarded with each notice of the meeting at which the special resolution is to be considered or, if the procedure referred to in subsection (6) is followed, the company has appended to the resolution, a copy of a statutory declaration which complies with subsections (3) and (4) and also delivers, within 21 days after the date on which the financial assistance was given, a copy of the declaration to the registrar of companies for registration.',

and

(b) by the substitution of the following for subsection (6):

'(6) The special resolution referred to in subsection (1)(a) may be passed in accordance with section 141(8),'.".

This amendment is designed to remove procedural anomalies between section 60 of the Companies Act, 1963, and section 34 of the Companies Act, 1990, which provide mechanisms whereby a company in certain specified circumstances provides financial assistance either in connection with the purchase of its own shares or for a director of the company or persons connected with such director. Notwithstanding the statutory prohibition, it is envisaged that section 60 and section 34 procedures will frequently have to be complied with by companies in relation to the same transaction. It is appropriate, therefore, that the procedures be similar in all aspects. Section 60 of the Companies Act, 1963, prohibits a company from giving financial assistance for the purchase of its own shares. It also provides, however, that this prohibition will not apply where the financial assistance is given under the authority of a special resolution of the company and the directors of the company have provided the members with a statutory declaration as to certain matters concerning the assistance being provided. This is a validation procedure whereby the company may resolve to do something that it is otherwise prohibited from doing. A similar validation procedure is provided for in section 34 of the Companies Act, 1990. In this instance the company may resolve by special resolution to enter into a guarantee or provide security in connection with the loan or other credit facility made by a third party to a director of the company, a director of its holding company or a person connected with such director. The amendment provides for the insertion in the Bill of a new section amending section 60 of the 1963 Act to bring the validation procedure set out therein into line with that provided for in section 34 of the 1990 Act.

The amendment of section 60 of the 1963 Act will have two effects. The time within which a company will require to file a copy of the required statutory declaration with the Registrar of Companies will change. The existing requirement is that the declaration be filed with the registrar on the same day that notices are issued convening the members' meeting at which the special resolution is to be considered. This will change to a requirement to file the declaration within 21 days of the provision of financial assistance. The amendment will permit the use of the procedure set out in section 141(8) of the 1963 Act for the passing of the special resolution.

Amendment agreed to.

SECTION 86.

Question proposed: "That section 86 stand part of the Bill."

Mr. Perry

In regard to the balance sheet, does the Minister expect directors to include information on the steps being taken to ensure compliance with the requirements? Is this also a requirement for small companies? In regard to enforcement, will a duplicate of the document be available in the Companies Registration Office? Will the Companies Registration Office have to be notified about the location of books and accounts? Is not the notification of this additional documentation a duplication of the auditor's report? If one employs an auditor to prepare a final report on one's accounts, does the Minister expect each director to prepare a report to be attached to the auditor's report?

Ms Harney

No. The auditor will receive the report before he signs off the accounts with which it will be included.

Mr. Perry

Is the Minister not seeking a second report from each director?

Ms Harney

No.

Mr. Perry

From my reading of it, that appears to be the case, provided that the director's report is expanded to include information on the steps taken to ensure compliance with the requirements of section 202 of the relevant Companies Act.

Ms Harney

I am advised that it deals with the provision of a loan for a director.

Mr. Perry

From the company.

Ms Harney

Yes.

Mr. Perry

It will be attached to the accounts.

Ms Harney

Yes.

Chairman

I thank the Minister for clarifying the matter.

Question put and agreed to.

NEW SECTION.

Ms Harney

I move amendment No. 100:

In page 50, before section 87, to insert the following new section:

"87.-Section 195 of the Act of 1963 is amended-

(a) by the insertion of the following after subsection (7):

'(8) Without prejudice to subsection (7), if the notification to be sent to the registrar of companies pursuant to subsection (6) is a notification of the appointment of a person as a director of a company and that person is a person who is disqualified under the law of another state (whether pursuant to an order of a judge or a tribunal or otherwise) from being appointed or acting as a director or secretary of a body corporate or an undertaking, that person shall ensure that the notification is accompanied by (but as a separate document from the notification) a statement in the prescribed form signed by him specifying-

(a) the jurisdiction in which he is so disqualified,

(b) the date on which he became so disqualified, and

(c) the period for which he is so disqualified.',

and

(b) by the insertion of the following after subsection (10):

'(10A) Any member of a company or other person may require the company to supply to him a copy of the register required to be kept under this section, or any part of the register, on payment of 15p, or such less sum as the company may prescribe, for every hundred words or fractional part thereof required to be copied. The company shall cause a copy so required by a person to be sent to the person within 10 days of the receipt by the company of the request, and if it fails to do so it shall be guilty of an offence.'.".

Amendment agreed to.

Section 87 deleted.

NEW SECTIONS.

Ms Harney

I move amendment No. 100a:

In page 50, before section 88, to insert the following new section:

"88.-Section 201 of the Act of 1963 is amended by the insertion of the following after subsection (6):

'(6A) For the avoidance of doubt, nothing in this section or sections 202 to 204 prejudices the jurisdiction of the Irish Takeover Panel under the Irish Takeover Panel Act, 1997, with respect to a compromise or scheme of arrangement that is proposed between a relevant company (within the meaning of that Act) and its members or any class of them and which constitutes a takeover within the meaning of that Act and, accordingly, the said Panel has, and shall be deemed always to have had, power to make rules under section 8 of the said Act in relation to a takeover of the kind aforesaid, to the same extent and subject to the like conditions, as it has power to make rules under that section in relation to any other kind of takeover.

(6B) The Irish Takeover Panel, in exercising its powers under the Irish Takeover Panel Act, 1997, and the High Court, in exercising its powers under this section and sections 203 and 204, shall each have due regard to the other's exercise of powers under the said Act or those sections, as the case may be.'.".

This amendment provides for the insertion in the Bill of a new section amending section 201 of the Companies Act, 1963, which deals with a compromise or scheme of arrangement between the company and its members or creditors and under which schemes of arrangement can be proposed

which can bring about a change in the control of companies. These schemes typically involve an arrangement between the target company, its shareholders and the acquirer which, if approved at a shareholders' meeting by a majority in number representing 75% in value of the shareholders voting at the meeting and if subsequently sanctioned by the High Court, will bind all shareholders.

The Irish Takeover Panel Act, 1997, brought takeovers of a certain category of public limited companies within the remit of that Act and thus under the supervision of the Irish Takeover Panel. These are essentially all Irish registered companies listed on the Stock Exchange. Since enactment of the Irish Takeover Panel Act, 1997, a number of schemes have been arranged involving quoted companies have been proposed and the takeover panel believes such schemes are likely to become more commonly used as a means of acquisition of Irish public companies. Some doubt has been raised in legal advice obtained by the Irish Takeover Panel as to the respective roles and responsibilities of the court under section 201 of the Companies Act, 1963, and that of the Takeover Panel under the Irish Takeover Panel Act, 1997. I am satisfied that the two roles should not be exclusive of each other. Individual shareholder protection is best served and maximised by the regulation of takeovers undertaken by way of a scheme of arrangement by the Irish Takeover Panel, followed ultimately by court approval. Amendment No. 100a is designed to bring this about and to remove any doubts that might exist.

Amendment agreed to.

Chairman

Amendment No. 101 is in the name of the Minister. Amendments Nos. 102 and 105 are related. Amendments Nos. 101, 102 and 105 may be taken together by agreement.

Ms Harney

I move amendment No. 101:

In page 50, before section 88, to insert the following new section:

"88.-Section 213 of the Act of 1963 is amended-

(a) in paragraph (f), by the insertion after 'company' of ', other than an investment company within the meaning of Part XIII of the Companies Act, 1990, or the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 1989 (S.I. No. 78 of 1989),', and

(b) by the insertion of the following after paragraph (f):

'(fa) the court is of opinion that it is just and equitable that the company, being an investment company within the meaning aforesaid, should be wound up and the following conditions are complied with-

(i) in the case of an investment company within the meaning of Part XIII of the Companies Act, 1990-

(I) the petition for such winding-up has been presented by the trustee of the company, that is to say, the person nominated by the Central Bank of Ireland under section 257(4)(c) of the Companies Act, 1990, in respect of that company;

(II) the said trustee has notified the investment company of its intention to resign as such trustee and six or more months have elapsed since the giving of that notification without a trustee having been appointed to replace it;

(III) the court, in considering the said petition, has regard to-

(A) any conditions imposed under section 257 of the Companies Act, 1990, in relation to the resignation from office of such a trustee and the replacement of it by another trustee; and

(B) whether a winding-up would best serve the interests of shareholders in the company;

and

(IV) the petition for such winding-up has been served on the company (if any) discharging, in relation to the first-mentioned company, functions of a company referred to in conditions imposed under section 257 of the Companies Act, 1990, as a "management company";

and

(ii) in the case of an investment company within the meaning of the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 1989, such conditions as the Minister may prescribe by regulations;'.".

Amendments Nos. 101, 102 and 105 relate to investment companies which are provided for in Part VIII of the Companies Act, 1990. Part VIII investment companies are essentially collective investment or mutual funds products which use the company structure provided in the Companies Acts. These products, which are provided for at the behest of the IFSC funds industry and are also available to the domestic funds industry are authorised and regulated by the Central Bank.

Part VIII gives the bank power to apply whatever conditions are necessary to achieve effective regulation. Collective investment products first became available in a meaningful way in 1989 with the introduction of regulations transposing a 1985 EU directive relating to undertakings for the collective investment and transferable securities, or UCITS as they are commonly known. As well as establishing the supervisory regime, the regulations place constraints on the way UCITS can invest their funds, particularly as regards the nature and spread of investments. Following the introduction of the regulations, the IFSC funds industry subsequently identified the need for a UCITS product which could operate outside the UCITS regulations. The specific product identified was an investment company with variable capital and it is this product which is provided for in Part VIII of the 1990 Act.

Amendment No. 105 provides for the disapplication of the prospectus provisions of the 1963 Act in respect of an open ended investment company through an amendment to section 258 of the Companies Act, 1990. Close ended companies are excluded from this amendment as, unlike open ended companies, they are subject to the relevant EU directives and to the provisions in the regulations transposing these directives into Irish law.

Amendment No. 101 provides by way of an amendment to section 213 of the Companies Act, 1963, that the trustee of a Part VIII investment company may apply to the court to have the company wound up in situations where the trustee has notified its intention to resign and a replacement cannot be found.

These amendments also incorporate an enabling amendment to allow similar provisions to apply to UCITS, the details of which will be set out in an amendment to UCITS regulations.

Amendment No. 102 is a consequential amendment to amendment No. 101 and provides for the persons referred to in the amendment of section 213 provided for in amendment No. 101 shall apply for the winding up of an investment company.

Amendment agreed to.

Ms Harney

I move amendment No. 102:

In page 50, before section 88, to insert the following new section:

"89.-Section 215 of the Act of 1963 is amended-

(a) by the deletion of 'and' where it occurs immediately before paragraph (f),

(b) in paragraph (f), by the substitution for 'companies.' of 'companies; and', and

(c) by the insertion of the following after paragraph (f):

'(g) a petition for winding-up on the grounds mentioned in paragraph (fa) of section 213 shall be presented by the person referred to in subparagraph (i) of that paragraph or, as the case may be, the person specified in that behalf by regulations under subparagraph (ii) of that paragraph.'.".

Amendment agreed to.

Sections 88 to 92, inclusive, agreed to.

NEW SECTIONS.

Ms Harney

I move amendment No. 103:

In page 51, before section 93, to insert the following new section:

"93.-The Companies (Amendment) Act, 1982, is amended by the insertion of the following after section 3:

'3A.-(1) If any of the persons named in the statement to be delivered pursuant to section 3 of this Act as directors of the company concerned is a person who is disqualified under the law of another state (whether pursuant to an order of a judge or a tribunal or otherwise) from being appointed or acting as a director or secretary of a body corporate or an undertaking, that person shall ensure that that statement is accompanied by (but as a separate document from that statement) a statement in the prescribed form signed by him specifying-

(a) the jurisdiction in which he is so disqualified,

(b) the date on which he became so disqualified, and

(c) the period for which he is so disqualified.

(2) This section is without prejudice to section 3(3) of this Act or the requirements of any other enactment with regard to the registration of companies.'.".

Amendment agreed to.

Sections 93 to 95, inclusive, agreed to.

SECTION 96.

Mr. Rabbitte

I move amendment No. 104:

In page 52, to delete lines 22 and 23.

This section amends the 1990 Act and I am merely interested in the thinking behind the provision that the court action pertaining to a person accused or who has been arrested may be heard where the person was arrested as distinct from where the offence was committed or where he is resident. I would like to hear the Tánaiste's comments as I think the normal rule in such a situation is that the case is heard for the convenience of the defendant. If I am accused of an offence committed in Galway, for example, I would normally be entitled to have it heard in Galway, depending on the court, but here we are making specific provision that if I was arrested on the boat at Dún Laoghaire it may be heard in County Dublin.

Ms Harney

The amendment relates to section 96 which provides for the court area in which summary proceedings for certain offences under the Companies Act may be brought. Section 96 is intended to address a difficulty which has arisen in relation to the prosecution of offences under the Companies Acts where the relevant sections of the Acts provide that the company and every officer of the company is guilty of an offence in the event of a default under the section. Under the rules of the District Court, proceedings must be brought either in the court area where the accused resides, where the accused has been arrested, or where the alleged offence was committed. For certain offences under the Companies Act it is not always possible to identify the place where an act or omission occurred, and the practice has been to issue proceedings against company directors in the court area of their home addresses and against companies in the court area of their registered offices. Where the offence in question relates both to the directors and the company equally and jointly, this leads to unnecessary duplication of work and is wasteful of court time.

The new section restates the provisions of the relevant rule of the District Court in its entirety, but includes an additional paragraph (e) which is not contained in the rule in question. This paragraph provides that proceedings for an offence in which the company and the officers of the company are charged may be taken in the court area in which the registered office of the company is situated. The proposed amendment provides for the deletion of paragraph (b) of section 96, which provides that proceedings may be taken against a person in the court area in which he or she is arrested. This is an existing provision of the relevant District Court rule in respect of summary proceedings generally and may be useful and applicable in a given case of an offence under the Companies Acts. Where, for example, an officer of a company is arrested in respect of an alleged offence it may be desirable that the case be heard in the court area in which the arrest took place. The removal of paragraph (b) of section 96 as proposed by Deputy Rabbitte would rule out this possibility and the amendment, therefore, is opposed. The provision in relation to (b) is already part of the rules of the District Court.

Amendment, by leave, withdrawn.

Sections 96 and 97 agreed to.

NEW SECTION.

Ms Harney

I move amendment No. 105:

In page 52, before section 98, to insert the following new section:

"98.-Section 258 of the Act of 1990 is amended-

(a) by the insertion after '63,' of '72(3),', and

(b) by the insertion after 'investment company' of ', or, in the case of the said Regulation 72(3), such a company other than one to which section 253(2A)(a) applies,'.".

Amendment agreed to.

SECTION 98.

Chairman

Amendment No. 107 is related to amendment No. 106, and both amendments may be taken together by agreement.

Ms Harney

I move amendment No. 106:

In page 52, subsection (1), lines 43 to 46, and in page 53, lines 1 to 5, to delete paragraphs (b) and (c) and substitute the following:

"(b) that the person to whom the notice is delivered may during a period of 21 days beginning on the date of the notice-

(i) remedy as far as practicable to the satisfaction of the Director any default that constitutes the offence; and

(ii) make to the Director a payment of a prescribed amount which shall be accompanied by the notice; and

(c) that a prosecution of the person to whom the notice is delivered in respect of the alleged offence will not be instituted during the period specified in the notice or, if the default is remedied to the satisfaction of the Director and the payment specified in the notice is made during that period, at all.".

Section 98 provides for the imposition of on-the-spot or fixed charge fines by the Director of Corporate Enforcement in respect of offences under the Companies Acts. The section as currently drafted provides that a prosecution of an alleged offence will not be instituted if the alleged offender pays the prescribed fine. The section does not, however, require the alleged offender to make good the defaults which occasion the offence. This deficiency is remedied by the amendment. Examples of offences under the Companies Acts that would be capable of being remedied by a company will include the failure to keep registers required by the Acts or to provide copies or extracts of those registers to persons entitled to receive them. The required changes in section 98 are in subsection (1)(b) and (c) and subsection (2)(c). The relevant amendments will ensure that an alleged offender will not only be required to pay the prescribed fine but also to remedy in so far as is practicable the default which constitutes the offence to the satisfaction of the director.

Chairman

An on-the-spot fine?

Ms Harney

Yes.

Mr. Perry

What is the maximum fine envisaged in that situation?

Ms Harney

Up to one-third of what can apply, £500.

Mr. Perry

The Director of Corporate Enforcement will be very busy given the additional powers. Will additional staff be recruited to carry out the huge mandate he has been given?

Ms Harney

Absolutely. Up to now one and a half people were involved in this area. It is envisaged that 36 staff will be required, including seven members of the Garda Síochána and a number of professional staff such as accountants and lawyers. The director has been appointed on an interim basis pending the enactment of the legislation and the recruitment of staff is under way.

Mr. Perry

Will there be regional structures?

Ms Harney

I hope the director will carry out his duties efficiently, However, if there is a need for facilities in a particular location, perhaps they will be provided in time. Is the Deputy making an application for an office in his constituency?

Mr. Perry

No.

Amendment agreed to.

Ms Harney

I move amendment No. 107:

In page 53, subsection (2), lines 13 and 17, to delete paragraph (c) and substitute the following:

"(c) a prosecution in respect of the alleged offence shall not be instituted in the period specified in the notice and, if the default is remedied to the satisfaction of the Director and the payment specified in the notice is made during that period, no prosecution in respect of the alleged offence shall be instituted at all.".

Amendment agreed to.

Section 98, as amended, agreed to.

NEW SECTION.

Chairman

Amendment No. 108 and amendment 1 to amendment No. 108 are related and will be discussed together.

Ms Harney

I move amendment No. 108:

In page 53, before section 99, to insert the following new section:

"99.-(1) In a trial on indictment of an offence under the Companies Acts, the trial judge may order that copies of any or all of the following documents be given to the jury in any form that the judge considers appropriate:

(a) any document admitted in evidence at the trial,

(b) the transcript of the opening speeches of counsel,

(c) any charts, diagrams, graphics, schedules or summaries of evidence produced at the trial,

(d) the transcript of the whole or any part of the evidence given at the trial,

(e) the transcript of the trial judge's charge to the jury,

(f) any other document that in the opinion of the trial judge would be of assistance to the jury in its deliberations including, where appropriate, an affidavit by an accountant summarising, in a form which is likely to be comprehended by the jury, any transactions by the accused or other persons relevant to the offence.

(2) If the prosecutor proposes to apply to the trial judge for an order that a document mentioned in subsection (1)(f) shall be given to the jury, the prosecutor shall give a copy of the document to the accused in advance of the trial and, on the hearing of the application, the trial judge shall take into account any representations made by or on behalf of the accused in relation to it.

(3) Where the trial judge has made an order that an affidavit mentioned in subsection (1)(f) shall be given to the jury, he or she may in an appropriate case, with a view to further assisting the jury in its deliberations, require the accountant who prepared the affidavit to explain to the jury any relevant accounting procedures or principles.".

This amendment provides for the insertion in the Bill of a new section relating to the provision of information to juries in the trial and indictment of offences under the Companies Acts. The section is modelled on section 54 of the Criminal Justice Theft and Fraud Offences Bill, 2000. The section provides that in a trial on indictment of an offence under the Companies Acts the court may order that copies of a range of documents may be provided to the members of the jury. The documents include any document admitted in evidence, transcripts of the opening speeches of counsel, testimony given by witnesses and the judge's charge to the jury, as well as any charts, diagrams, graphics and summaries of evidence produced at the trial. In particular, they may include an affidavit of an accountant summarising any transactions by the accused relevant to the alleged offence. The purpose in providing that copies of such documents may be given to the members of the jury is to facilitate the jury's assimilation and deliberation on the issues before the court which in many cases may be quite complex or complicated.

Provision is contained in the section to ensure that where the prosecution proposes to apply to have a copy of a document given to the jury, it will first have to provide a copy to the accused who may make representations to the court as to whether the document in question should, in fact, be provided to the jury. In addition, the court may order in the case of an affidavit of an accountant that the person making the affidavit attend and explain to the jury any relevant accounting procedures or principles.

Offences under the Companies Acts may be proven by a reference to company accounts and other documents which the lay person may find difficult to comprehend without the assistance of an expert to summarise and explain the transactions evidenced by the accounts. The inclusion of the provision along the lines proposed will facilitate the proper and complete consideration of complex evidence by juries in trials of offences under the Acts.

Mr. Rabbitte

I am sure the Tánaiste will appreciate that I do not stay awake at night concerned about court practice. I have every confidence in members of the Bar library to be able to look after that kind of thing. However, this is a pretty dramatic change. We are enshrining a section that will ensure juries are given all kinds of everything. The argument being advanced by the Tánaiste is that this could be quite complex and it must be made intelligible to juries to facilitate their understanding and so on, which is quite laudable. It is a radical departure from normal criminal process. For example, the Tánaiste instanced the question of transcripts of counsel's opening speeches. My understanding - Deputy Flanagan may be closer to this - is that there are no transcripts of counsel's opening speeches. I do not believe they exist at present; therefore, I am not sure how one can give transcripts to the jury in this case. There is an all-embracing phrase somewhere whereby any other document that in the opinion of the trial judge would be of assistance to the jury and so on.

I can see the sense in trying to make the matter as intelligible as possible for members of the jury. Did the Tánaiste have any discussions with officials of the Courts Services Board, practitioners, organisations in the courts and so on? This issue will raise an eyebrow here or there. I am not sufficiently close to the matter to argue that just because things happened in a certain fashion in the 17th century they should continue to happen in that fashion in the 21st century. These are fairly substantial changes, not to mention the unfortunate jury whose is empanelled on a case like this and ends up weighted down with documents that they will hardly be able to carry into the jury room. It might be just as well if they made their decision as 12 good citizens and true listening to the evidence. I presume a lot of thought has been given to this aspect and I would like to hear the Tánaiste's views on it.

Ms Harney

This section is modelled on section 99 of the Criminal Justice Theft and Fraud Offences Bill, 2000. A provision providing for a report by an accountant to a jury was recommended by the Law Reform Commission in its 1992 report on the law relating to dishonesty. The commission recommended, among other things, that the prosecution should be entitled to call as a witness an accountant who would have given evidence explaining accountancy procedures to the jury. His or her function would be fairly educational, explaining what would be an unknown discipline for most jurors.

At one level this will add huge bureaucracy to trials but, at the end of the day, it is up to judges. I believe that, by and large, they perform their functions with great practicality and fairness. The only purpose of this measure is to make it easier for juries because company law is very complex. I am certain those who will be tried for serious offences under the Companies Acts will have available to them, as they are entitled, the best expertise. One would hope not to overly confuse the jury.

If we could leave it for now, I could come back on Report Stage after talking to the Attorney General and perhaps getting other advice on it.

Mr. Rabbitte

This is not a matter on which I have a hard and fast view. I put the amendment down in order to elicit this response from the Tánaiste. I am not spokesperson for Justice and I am not aware if Deputy Flanagan - what is the correct title of the Act?

Ms Harney

The Criminal Justice Theft and Fraud Offences Bill. I am advised that the thinking behind this is that for a lot of serious offences under the Companies Acts, the cases tend to run for months and are very complex because apparently there have never been successful convictions in the UK for insider dealing. The documents can help the jury to come to terms with the issues. I will consider this and come back on Report Stage.

Mr. Flanagan

In the context of the Tánaiste's deliberations, as Deputy Rabbitte said this will have consequences and significance for the working of the courts system. For example, he cited the case of the opening transcript of counsel. That does not exist to any great extent and my understanding is that one could be waiting weeks for a transcript in cases where there is a transcribing team present. In many cases there is not. It might be no harm to get a view of the Courts Services Board because it will add considerably to the bureaucracy. As the Tánaiste said, there is a need to ensure there is some common sense so that in cases of a technical nature, where there is quite an elaborate scheme of documentation, it might be no harm if the judge allowed the jury to look at documents. From that point of view I would welcome this but in terms of working I hope it can be done, given the increase in bureaucracy that will occur.

Mr. Perry

On a point of clarification regarding the Freedom of Information Act, some information would not be available under this Act, or would all information pertaining to a case be available through that mechanism? Does it apply here also to enable people to get documents?

Ms Harney

For those documents? No.

Mr. Perry

Then there is a contradiction.

Ms Harney

All court proceedings are public. What we are talking about here is the evidence.

Mr. Perry

Yes.

Ms Harney

What we are talking about here is providing transcripts of the case: opening comments of counsel and documentary evidence mentioned in court to support the prosecution case.

Mr. Perry

Is information that can be had under the Freedom of Information Act excluded from evidence? Are documents that cannot be got under that Act unavailable?

Ms Harney

I do not understand the Deputy.

Mr. Perry

The Freedom of Information Act cannot be applied in certain court cases.

Chairman

Is the Deputy referring to documents being produced in court as evidence?

Mr. Perry

Yes. Those cannot be sought. They are excluded, are they not?

Ms Harney

Yes, they are——

Mr. Perry

They are excluded.

Ms Harney

——about the jury, but——

Mr. Perry

Deputy Rabbitte referred to the jury having a wealth of information that would be——

Ms Harney

I think we would all find ourselves in circumstances where someone is talking to us about something and the existence of back-up documentation can be invaluable. That is what we are talking about.

Mr. Perry

If they were edited down, all the transcripts could be condensed down.

Ms Harney

We are not talking about company law cases. We are saying that the prosecution could put the case to the trial judge and that he would like, in those particular circumstances, perhaps because of the complexity of the case, to assist the jury with documentation. It would be up to the judge. I agree with Deputy Flanagan that if it were to happen in new cases it would have resource implications for the Courts Service. I envisage this as being an exceptional situation but I will consult the Attorney General.

Mr. Perry

Is the Tánaiste saying that as regards the main summary points of a submission it would be of benefit?

Ms Harney

That is what the conditions provide for, not every single back-up document.

Chairman

Regarding Deputy Flanagan's question about the additional workload this may impose on the Courts Service office, I suggest we discuss the matter on Report Stage.

Ms Harney

I will seek the view of the Attorney General.

Chairman

I have no doubt that Mr. P. J. Fitzpatrick will be able to assist us.

Amendment No.1 to amendment No. 108 not moved.

Amendment agreed to.

Ms Harney

I move amendment No. 108a:

In page 53, before section 99, to insert the following new section:

"99.-The Freedom of Information Act, 1997, is amended-

(a) in section 46(1), by the insertion of the following after paragraph (b):

'(ba) a record held or created under the Companies Acts, 1963 to 2000, by the Director of Corporate Enforcement or an officer of the Director (other than a record concerning the general administration of the Director's office),', and

(b) in the First Schedule, by the insertion in paragraph 1(2) of 'the Office of the Director of Corporate Enforcement,'.".

This amendment relates to section 99 which excludes records held or created by the Director of Corporate Enforcement from the provisions of the Freedom of Information Act. The provision of the Freedom of Information Act provided for in section 99 as published is to be repealed and a further amendment is now proposed. This further amendment of the Freedom of Information Act is to insert the office of the Director of Corporate Enforcement into the list of public bodies in the First Schedule of that Act. This is the list of public bodies to which the provisions of the Act generally apply. Including the Director of Corporate Enforcement as a public body within the meaning of the Act has two effects: first, it will give meaning to the proposed amendment of the Freedom of Information in section 99 as published, providing for an exemption from the provisions of the Act in respect of the director. That only applies to public bodies listed in the Schedule and it would be incongruous to amend it or to exempt the Director of Corporate Enforcement without first including the director of a public body for the purposes of the Act. Second, the inclusion of the Director of Corporate Enforcement as a public body in the Freedom of Information Act will require the director to produce an annual report as required by sections 15 and 16 of the Act. These relate to the administrative structure of the office and put procedures in place for the handling of queries and complaints and for making decisions, etc. The release of public information documents that will not impact on the confidentiality of records held by the Director of Corporate Enforcement will facilitate members of the public in their dealings with the office.

We previously discussed two amendments tabled by Deputy Rabbitte on Committee Stage. Amendment No. 40 sought to improve section 21 of the Companies Act, 1990, in the Third Schedule of the Freedom of Information Act. Amendment No. 40 sought to include the Oireachtas or a committee of the Oireachtas under section 21(2) of the 1990 Act. I stated at the time that I was not disposed to improving section 21 of Freedom of Information Act but that as I wish to see the role of the Oireachtas committees enhanced, I agreed to consult with the Attorney General on that issue and to report back to the House on the matter. These consultations are ongoing and I am not in a position to give a definitive reply.

Mr. Rabbitte

Is the effect of this to make the Director of Corporate Enforcement not liable to the provisions of the Freedom of Information Act or is he in with the second category of document? Is that the practical effect of this?

Ms Harney

The inquiries and investigations are outside the remit of the Act but obviously the operation of his office - how the office is run, staffing and other issues - are——

Chairman

That clarifies the position for Deputy Rabbitte. The question is: "That amendment No. 108a be agreed and that section 99 be deleted".

Amendment agreed to.

Section 99 deleted.

Sections 100 and 101 agreed to.

Amendment No. 109 not moved.

Schedule agreed to.

Title agreed to.

Bill reported with amendments.

Tánaiste and Minister for Enterprise, Trade and Employment (Ms Harney)

I thank the members of the select committee for their co-operation in taking the Bill and, as required, give notice of a new area where I intend to introduce an amendment on Report Stage. I intend to introduce an amendment to the Companies Acts to deal with a particular difficulty which has been brought to my attention. It concerns the purchase by a subsidiary of shares in its parent company where the subsidiary is a professional dealer in securities. The Companies Acts provide for certain exemptions from the general prohibition on subsidiaries holding shares in their parent company. There is uncertainty, however, as to the scope of the exemptions and whether they can be availed of by all participants in the market.

The issue is one of the changing role of stockbrokers, which is changing from one of acting as agent to one as acting as principal. They now will buy and sell shares on their own initiative and in their own name. Certain stockbroking firms are subsidiaries of the two main banks and there is a degree of uncertainty as to whether it is permissible for such companies to hold the stock of their parent company. Accordingly, it is necessary to introduce an amendment to clarify the scope of and extent to which exemptions are available. I propose to introduce such an amendment on Report Stage to deal with the matter.

Chairman

I thank Minister for that notification. We look forward to dealing with the matter in greater detail on Report Stage. I also thank her for sharing the note with members of the select committee to whom it will be helpful.

I thank the members of the select committee, in particular, Deputies Flanagan, Perry andRabbitte, for dealing with this complex Bill relatively speedily and with efficiency. I also thank the Tánaiste and Minister for Enterprise, Trade and Employment, the Ministers of State at her Department who attended on her behalf, and her departmental officials and support staff for guiding and steering us through the Bill with their expertise and knowledge. I further thank the clerk to the select committee and other support staff for their assistance.