I move amendment No. 33:
In page 28, subsection (2), line 2, to delete "39 (6)" and substitute "39 (8)".
All the Governments amendments — Nos. 33, 34, 55 to 57 inclusive, 59 to 61, inclusive, and the Fine Gael amendments Nos. 54 and 62 — concern the disclosure requirements in relation to banks. The committee will recall that under the revised proposals which we discussed earlier, all companies duly placed will now be able to lend up to 10 per cent of their relevant assets to directors and the connected company. In the case of banks, however, recognising that their business is to lend money anyway an exemption is also made for lending on a normal commercial basis and there will be disclosure in companies' accounts of such loans.
Turning now to the disclosure in a company's accounts of such loans as are made, section 36 lays down the information that must be contained in a company's annual accounts about transactions with directors. However, section 36 (6) recognises the special position of banks, vis-�-vis lending operations and disapplies the normal disclosure requirements for licensed banks. Instead the Bill makes special provision for them in sections 38 and 39. To complete the background the committee will be aware that when we refer to the prohibitions in Part III on the making of loans, we speak mainly of directors and not about other officers. Under the Bill at present, companies are free to provide loans to such other officers. We will be talking mainly here about the secretary of a company who is included within the definition of officer in the Companies Acts. While there is no prohibition on making loans to such people it is reasonable that where such loans are made this fact be disclosed in the accounts. This is the basic thrust of section 38 (2). Again however, recognising the special position of banks, section 38 (4) disapplies the disclosure requirements regarding loans made to officers, other than directors, in so far as banks are concerned.
As I mentioned, the basic prohibition in section 31 on the making of loans to directors does not apply to banks where the transaction is made in the ordinary course of business and the amount of the loan is no greater and its terms no more favourable than the bank would give to someone of similar financial standing outside the bank. In other words, lending on normal commercial rates by banks to directors does not concern us. At the same time, I think certain information should be disclosed in the accounts of banks in the same way as loans to officers of other companies will be disclosed. This is provided for in section 38 (5) which provides that the aggregate amounts outstanding in relation to loans to directors of banks and their connected persons, should be disclosed in the annual accounts.
When we looked at the proposals in this Part again, however, we recognised that disclosure, even of aggregate lending by banks to persons connected with directors, could prove very difficult to establish, particularly where such lending was on a normal commercial basis. In the circumstances we consider that disclosure should only be necessary where the provision of the loan is on other than normal terms. Therefore, amendments Nos. 55 and 56 would qualify subsection (5) in so far as connected persons are concerned in that only lending on other than normal commercial rates to such persons would require disclosures.
However, in so far as directors are concerned, the total aggregate amount of lending to them will still be required. Whereas section 38 dealt with disclosure in the annual accounts of a company and had particular requirements in relation to banks, section 39 deals solely with banks. I am proposing to make a number of amendments to this section but rather than make these amendments piecemeal I felt it would be more convenient to replace the entire section. I now outline the proposed changes by reference to the various subsections of the proposed new section.
The change I propose making to subsection (1) is to include the words in brackets "but excluding years prior to 1989". The intention here is to avoid this section having a retrospective effect when it comes into force. I think it would be unreasonable to expect banks to immediately set about creating a register of their directors transactions of the previous ten years. Thus, under the new subsection (1), 1990 would probably be the first year in which they would have to keep the register and they would be expected to build it up as the years passed so that by the end of the decade they would have a full ten year register.
Subsection (2) in amendment No. 61 is new. The reason for its inclusion is basically the same as that for the insertion of subsection (6) into section 38 which I have just described. In other words, given that the normal business of a bank is to lend money, the information that we will be requiring to be kept on the register in relation to connected persons would only be loans made on other than normal commercial rates.
The new subsection (3) is identical to the present subsection (2). Whereas subsection (1) dealt with the keeping of a register, the new subsection (4) would require the licensed bank to prepare a statement containing details of transactions, arrangements and agreements between the company and its directors and connected persons and make this statement available for its shareholders prior to, and at its AGM. However, rather than require the disclosure of all such transactions in this statement, subsection (4) would now limit the disclosure requirements in subsection (3) to detailed disclosure of every individual loan made to a bank director or connected person on other than normal commercial terms. This provision is included having regard to the fact that aggregate disclosures of all directors' loans must be made in the annual accounts of the company under secton 38 (5).
Subsections (5) to (9) of the revised section would be identical to the present subsections (3) to (7), with the references suitably amended. As a consequence of Government amendment No. 29, which simplifies the definiton of "connected person" for the purposes of Part III, there is no necessity to repeat this subsection and accordingly I propose to omit it from the new section 39.
Amendment No. 33 to section 26 (2) is purely consequential on the amendment to section 39. Section 26 (2) currently refers to section 39 (6) but, by virtue of amendment No. 61, what was section 39 (6) will now become section 39 (8). Amendments Nos. 54 and 62, tabled by Deputies Bruton and Barrett, would effectively move subsection (5) of section 38 to become subsection (7) of section 39. The purpose of this seems to be a tidying up process to have all the provisions relating to banks in the one section.
I have already outlined the reasoning underlying our revised disclosure proposals in so far as they will apply to banks. Banks are exempted from the prohibition in section 31 on making loans to directors provided the transaction is made "in the ordinary course of business" and is for no more money, and on no more favourable terms, than the bank would give to some one of similar financial standing outside the bank. At the same time, I think it is reasonable that the total exposure of banks to directors should be disclosed in their accounts, the same as in respect of loans to officers of other companies. This is the reason subsection (5) is included in section 38.
The disclosure provisions in section 39 for recognised banks, on the other hand, relate more to information that must be kept in internal registers and made available to shareholders of the bank rather than for inclusion in the annual accounts. Given that the banks are in the business of lending money anyway, I think that this is the most reasonable approach. The maintenance of internal registers of all transactions made to directors and connected persons will give shareholders the necessary information to examine, comment on and make judgments with regard to the banks lending to its directors. All told, I do not think that in these circumstances, the Deputies' amendments are necessary.
