This is a re-enactment of Section 8 of the Companies Act, 1959 which was designed to implement one of the recommendations of the Company Law Reform Committee. That Act contained a few provisions that were dealt with as a matter of urgency before a comprehensive Bill was put before the Oireachtas. The purpose of the section is to ensure that a small minority who may not have the best interests of the company at heart will not be able to defeat an acquisition of shares by one company in another. We have had some examples of that here.
SECTION 204.
Question proposed : "That Section 204 stand part of the Bill."
How has the provision under this section worked out since ? I know it is a very short time since its enactment originally.
I might say that representations have been made to us that this section should be made retrospective in order to facilitate the acquisition of the shares of a three per cent minority of one very reputable company by another very reputable company arising out of an offer made before the 1959 Act was passed. That was not provided for in the 1959 Act but now it is sought to have a provision inserted at the end of this section to enable such acquisition to be made. Provision of this kind was, in fact, made in the law in Britain and the Six Counties.
How can the three per cent block ?
It cannot block. The minority refuses to sell.
What is the effect of three per cent ? How can they be critical ?
A small minority can be awkward, particularly at meetings. People acquiring shares in another company dislike leaving a small minority behind them because it could be a thorn in their side for evermore. Before the Act of 1959, a number of amalgamation schemes which might have taken place were not proceeded with because there were no compulsory powers of acquisition of dissentients' shares.
Is that the only difficulty caused? They go to a meeting and ask the chairman questions which he may naturally dislike. There is nothing immoral about that, of course. I think it is a healthy sign in a live company—that the shareholders can ask the chairman how the company is doing and that they should expect from the Chairman a fairly comprehensive account of his stewardship. It may be a nuisance to the Chairman who may want to get away from the meeting in a hurry.
If the questions were for a bona fide purpose, nobody could take great exception, but it often happens that such a minority might be representing other interests which could be adverse to the company.
I knew a person who held high office and had a small number of shares in different companies. He turned up annually and made a nuisance of himself with a beneficial object in view for himself. Many of the people who came into prominence in commercial life in Britain started in organising shareholders' protection associations and after a few years were on the boards of companies.
This applies, as I read it, to companies where there is a contract which a strong majority of the shareholders want and the holding out of a minority will defeat this contract. There is no question of what Deputy Norton says.
A group of us here decide that we will establish a company. We take up shares. The company runs for 20 or 50 years. Then someone comes from America and he wants to buy us all up. Two or three say: " No; this is our life's work and our job here."
You are up against the question of what is a majority of the company, and the interest of a company. It is the same thing as liquidation—if there is voluntary liquidation and five-sixths of the company wish to go into liquidation. Say the Deputy represents a one-sixth. Does he maintain that he should be able to override the majority ?
No. I maintain that we bought shares in certain circumstances and that we are entitled to hold them.
It is not proposed to legislate you out of the company as such. Supposing we are the Deputy's company. The Chairman comes in here with another company and he makes us a take-over bid and we deem this to be to our advantage in the company here. The five-sixths majority say this is the right thing to do and is beneficial to the company as it stands and to us. The Deputy stands up and because of his opposition, that beneficial offer will not be taken up. This is a specific thing about which we are talking.
Surely Deputy Norton's point is covered by subsection (5) which refers to an application to the court by the dissenting shareholder ? Does that not mean that a dissenting shareholder whose shares are about to be taken up can apply to the court for a direction that they shall not be taken up ?
It is under subsection (1) that the court has power to consider the terms.
This does not give an absolute right. It is subject to the court to the extent that if the court feels that the dissenting minority is suffering discrimination unreasonably it can disallow the acquisition.
You are at the difficult point of the borderline between strict law, personal equity between the parties and commercial practice. Experience had shown it to be necessary in the 1959 Act and experience since has been favourable, as it deals with specific circumstances, I do not think Deputy Norton's objection arises. On Deputy Norton's point in general terms as regards meetings, I think it is very valuable that every shareholder shall be able to voice his opinion, but this provision applies only where a definite contract virtually for take-over is involved. It is only in that specific case that this holds.
It is in our law at present, and the reason I elaborated on it at all was that representations were made to us by a particular company. The amalgamation scheme—or whatever you like to call it—will have to be fair. Otherwise, the minority shareholders have a right to go to the court so that no hardship will ensue.
The main thing is that the minority shareholders will have easy and non-costly access to the court. Once that is provided, I think it is fair.
I think the main value of a minority shareholder is that he may be a sore thumb at an annual meeting and critical of the chairman during the year. Compensation may not satisfy the minority shareholder. A small man may say : " I put my money in this. I believe it is a good proposition and I have a natural right to hold on to it so long as I do not offend the common good." I would not look on the common good as being the interests of 50 people, but the public good.
I think we have been prejudiced a bit by an unfortunate reference to a man being a sore thumb at a general meeting. That is not what was in the mind of the drafters of the original law or of this subsection. It is just a provision to renew the law as it stands, that where absolute unanimity is essential, one small minority may not act unreasonably in blocking it.
You say " absolute unanimity " is necessary. Everybody who wants to get his own way in life believes that it is essential that he should get his own way one hundred per cent. Unanimity, in a sense, can represent the characteristics of the persons involved. There is no necessity for unanimity at all.
Surely a court of law is not going to stand for anything unreasonable ?
A man is entitled to hold shares. Before being deprived of them, he should be able to go to court.
This is not a situation where a company can take over. A minority shareholder can hold out—it has been very cleverly developed in this country—and he can benefit five, six or tenfold.
Take the battle of last year between ICI and Courtaulds. Anybody holding shares in Courtaulds has done much better out of it.
You must have some provision to deal with those cases. It is only those cases we are legislating for. The other points do not arise on the section at all.
The majority suffer to protect the whim of a minority.
Prior to 1959 a 20 per cent dissenting minority was sufficient to control the company, to all intents and purposes.
Were there any cases under the 1959 Act ?
There have been some.
Did they go to the courts ?
None that we are aware of. There might well have been cases. I should like to mention that when this section was recommended originally in Britain, the Committee concerned pointed out that amalgamation schemes which might otherwise be desirable had fallen through because of the intransigence of small minorities. They said that the action of such a minority constituted an oppression of the majority. They recommended that the law should rectify that situation. It is a very good way of putting it: the minority oppressing the majority. Normally you think of it the other way round. It is the majority who will be oppressed if a scheme falls through—unless you have provision for compulsory acquisition of dissentients' shares.
I cannot see how they impose self-torture on themselves.
What Deputy Norton is saying arises under the section where full protection is given to minorities. They can get protection in this if the take-over bid is oppressive. The next section in the Bill provides the safeguards. That is my reading of it, that Section 205 will provide the safeguards.
It has a very wide application.
Question put and agreed to.