Is there any practical objection to amending the section so that it would read that nothing in this Act shall require a person who has acted as solicitor for the company or any person—you can leave out those words if you like—to disclose any privileged communication made to him in that capacity? In other words, is there objection to preserving the law as it is at the moment? This would also relate to Section 173, a saving provision for solicitors and bankers. Section 388 of the previous print provided that where proceedings were instituted against any person, a solicitor acting for the defence could not be obliged to disclose information given to him and this has now been changed. It is doubtful if the section has any application to Section 245. So far as Section 299 is concerned, it is a solicitor for the company who has to give all assistance possible in connection with the prosecution who needs protection. Under this section there is an improvement, but I submit it still leaves doubt as to the position. I wonder what exactly is the practical objection to allowing the procedure and privilege for a solicitor to stand as it is in accordance with common law?
SECTION 387.
This was debated at great length in the Dáil Committee and was subsequently discussed with the Incorporated Law Society. It was debated again in the Dáil and the draft, as it now emerges, seems to have reasonably satisfied everybody concerned. Generally speaking, a solicitor acting for a company acts for all the company in the best interests of the company. It could happen, however, that a solicitor, as well as acting for the company, could act for a director in his private capacity. A particular director might have sufficient influence over his company, to get it to claim privilege in circumstances which would defeat proceedings against him for fraudulent activities. That is the reason why the provisions dealing with privilege are drafted as they are, and, as I said, drafted with the general agreement of everybody concerned.
I raised this point earlier. In the definitions the word " the " refers to everyone except the secretary. Is there any significance in that? Should we not have " the secretary " for the sake of uniformity?
For the sake of perfection, perhaps, yes. The difficulty now might be one of printing. Does the Senator want to insist on this?
I do not want to insist. I raise it only because it hurts my eye. As far as printing is concerned, would it mean anything more than two lines?
Perhaps we could look into the point and leave it to the Dail Office to amend if necessary.
The specimen memorandum of association comes in here. Has the Minister considered the advisability of abolishing memoranda of association altogether? In 1945 the Cohen Commission recommended abolition. They regarded them as obsolete. The original reason for having a memorandum of association was for the protection of shareholders and creditors against unknown investments. From the practical point of view now it really does not mean anything; because of the present form of drafting that reason does not exist any longer. I am wondering if the Minister had something specific in mind when he provided for the retention of the memorandum of association.
This question of the memorandum was adverted to, generally, by our own Committee on Company Law Reform. They made no recommendation for a change of the kind the Senator has in mind.
When they dealt with it, I think, subject to correction, they assumed there were strong reasons why the British Parliament could not adopt the recommendation of the Cohen Commission and I am wondering on what the assumption was based.
Section 8 deals largely, I think, with the point the Senator has in mind. Section 8 modifies the ultra vires rule to a very substantial extent and that was intended to deal with the main difficulty associated with memoranda of association.
It makes a practical modification, but I am wondering why the memorandum was not abolished altogether. We all know that today the simplest company provides for all sorts of things—the building of railways, ships, etc.—with nominal capital. The thing seems both absurd and impracticable. It reminds me of the old days, long before my time, when you had to draw certain types of deeds with John Doe and Richard Roe. The retention strikes me as being impracticable and out of date.
The purpose, in effect, is to provide some basic document about the constitution of the company to which people might refer to ascertain its status, functions and purposes. The objects are set out in this document. It is designed to assist innocent third parties and also the members of the company itself. I think it should be obligatory, therefore, on a company which gets the protection, and it is a substantial protection, of limited liability that third parties with whom the company deals should have full knowledge of what the objects of the company are or what generally the company is supposed to do. As well as that—this may not be a very important point, perhaps, to a practising lawyer—we have volumes of case law built up on the status quo and therefore, unless it was absolutely necessary to change, I think it would be undesirable to do so and perhaps cast doubts on existing legal decisions, or have another lot of case law built up in order to ensure that justice is done as between companies, their directors, members, customers and creditors. There is also the point that the Committee on Law Reform did not make any recommendation for the abolition of the memorandum.
It struck me as rather strange that they did not because the case law built up relates for the most part to actions where, through an oversight really, lawyers and drafters of memoranda of association did not make them wide enough. In the ordinary course, you have one specific object of a company but many other objects are then set out, so many that the company can really do anything in the world—own hotels, run ships, manufacture anything it likes. Invariably now it goes wider still. You have a controlling company in which somebody holds the shares of all these companies. As memoranda of association are drawn today, I do not think they are a practical protection. What did surprise me was (1) why the Committee made no reference to it and (2) for some time since their report I thought, perhaps, they would be omitted from the Bill and I was surprised they were not. It would be more up to date if they were abolished.
Unless we are prepared to start the exercise of the preparation of the Bill all over again, I should not like to undertake the abolition of memoranda of association at this stage.
I just draw attention to it because it struck me as rather strange, seeing it is impracticable, that the memoranda of association had not been abolished.
They provide a useful exercise for the ingenuity of the legal profession.
I should like to know from the Minister the provisions made when there are not sufficient assets to meet all liabilities. There might not be sufficient to pay the shareholders. Is the Minister satisfied that the shareholders are reasonably safeguarded in all cases just as well as the creditors? The Minister has brought in a very good Bill and he has administratively improved the whole position. This has been confirmed in the Dáil and in our opening session in the Seanad. I am sure, however, members of both Houses will be concerned about the point which worries me.
Are we properly safeguarding all creditors and shareholders? Members of the public might put capital into a company in which they were interested. The company might go considerably well for a while and when things get difficult it might not wind up in time. The creditors are generally people trading with a firm and they may be reasonably safeguarded. The shareholders put their capital—in some cases perhaps very little—into a company and they are interested in the welfare of the company. Have we sufficient safeguards for them? What I had in mind was whether we could divide the assets equally between the creditors and the shareholders. In other words, to ensure that everybody who trades with the company, and who did very well for a long number of years, are still safeguarded on winding up. The shareholders may finish up with no assets for them. They should be regarded as creditors too. Is all that sufficiently safeguarded?
The last point made by the Senator is not safeguarded because it would not be feasible to provide for an equal share-out on the winding up of a company. Among other things I think it would inhibit the operations of a company, especially a company seeking an overdraft from a bank. In many cases too, the arrangement would be quite inequitable. I may say by way of general reply to the Senator's remarks that the main purpose of the Bill is to protect a company's members, its creditors and the public generally. We tried to provide for this in the manner in which information about the operation of the company and its officers must be given, and by a variety of other provisions, and we have gone much further than has been the practice hitherto and much further than is the case under existing law in neighbouring countries. I think I can assure the Senator in saying that we have provided all the possible safeguards within the reasonable functions of legislation that can be provided in this Bill for shareholders, creditors and the public.
Creditors get the preference against the shareholders all the time.
If the shareholder feels that his investment is not safe, he can in certain circumstances move to have the company wound up before the point of jeopardy actually arrives.