I would be interested in hearing the Minister's explanation of the relevance of this section. Who would be likely to be taking or seeking a civil remedy and in what type of circumstances would this section come to be used. I note here also that where a company enters into a transaction, this transaction shall be voidable at the instance of the company unless restitution of any money or any other asset, which is to be the subject matter of the arrangement or transaction, is no longer possible. What does it mean to say that restitution is no longer possible? Does that mean no longer possible without borrowing money, for example, to make restitution, or no longer possible in the sense that no money is there at all and the company is bankrupt, in other words? What is the relevance of "no longer possible" and who is going to decide what is possible.
SECTION 34.
In this section, the situation is that the assets may be put into something like a car or a yacht and it is very hard to actually make it possible to make restitution in the way we would like it to be done.
Surely if that is the case a person can avoid the civil remedies under this section by buying a yacht and then claiming that he cannot sell it again for what it was worth.
You are actually caught by subsection (2) which actually gives a completely separate remedy. If the Deputy checks section 34 (2) (a) and (b) he will find that it actually outlines the procedure involved there. The section sets out the consequences in civil law of a contravention of the prohibition in section 31 on the making of loans, quasi-loans, credit transactions etc. The section broadly parallels the remedies in section 28 dealing with the civil consequences of prohibited substantial property transactions between a company and its directors. A quasi-loan, etc., would be voidable, not automatically void, at the instance of the company unless restitution is no longer possible or the company have been indemnified as provided in subsection 2 (b), or rights have been acquired by an innocent third party, subsection (1).
Also, as in section 28, whether or not the transaction has actually been voided the director and any connected person concerned, as well as any other director who authorised the transaction or arrangement, must account to the company for any gain and they are liable jointly and severally to indemnify the company, subsection (2). The director immediately concerned can escape liability if he can show that he took all reasonable steps to secure the company's compliance; any other director or connected person can likewise escape liability if he shows that at the time the transaction arrangement was entered into he did not know the relevant circumstances which constituted contravention, subsection (3). One important difference between the remedies in section 28 and this section should, however, be noted. Unlike section 28, this section will not allow a prohibited transaction to be ratified or affirmed after it has taken place, by shareholders at a general meeting. Section 35, following, deals with criminal penalties for breach of section 31.
A person who is liable under section 34 (2) will be liable to account to the company for any gain which he has made directly or indirectly. Under paragraph (b), if any loss has arisen to the company as a result of this illegal loan, the person who got the loan is liable to indemnify the company for any loss or damage. Should the directly or indirectly requirement be in there also? It seems to me illogical to distinguish between a gain which was to be accounted for directly or indirectly, and a loss which has just to be accounted for, presumably any loss arising directly. I have one other point before the Minister replies. On the question of a gain, if the company illegally lends money to a director and as a result he uses the money to purchase a house and the house rises in value, is that a gain for the purposes of section 34 (2)? Are we talking about a realised gain or an unrealised gain?
I will consider looking at the points made by Deputy O'Dea in relation to the Bill. They are relevant points of detail. They are aspects of the actual section which certainly are worth looking at. I am not giving any commitment however that we would put the words that are in (a), directly or indirectly, into subsection (b). We will have a look at the actual details.
Just for the record, the only point I was making is that it seems to me illogical to distinguish between the person who has to account for the gain and the person who has to account for the loss, in so far as the wording is concerned. Thank you for your commitment which I appreciate.
Am I correct in saying that as well as a civil action, if the circumstances as outlined in section 35 can be proved, a criminal action will also be taken? Here we have a situation going back to my days in Justice. We have a number of people serving sentences in prison when they should really be punished in a different way, other than finding themselves in jail. Surely in the case of company law, it is in the interest of the public that if people break the law they should be hit through their pockets, as distinct from clogging up the jails and then coming out to enjoy the fruits of their actions before they went in. It strikes me, that, in view of the points made by Deputy O'Dea, perhaps we should have a look at the way in which we penalise people under the civil law rather than depend on the courts to deal with them in a criminal fashion. I hope I am making myself clear to the members of the committee. What I am trying to say is that there are certain crimes which are best punished, not through putting somebody into prison at a cost of £600 a week to the taxpayer, but hitting him through his pocket in terms of relieving him of some of his assets to pay for the crime committed.
I would hate to think that the answer we will get from the Minister, when he has a chance of reviewing section 34, that criminal proceedings can always be taken. Too many of our laws depend on criminal action when people can find themselves in prison for a month, six months, a year or two years, at a cost to the taxpayer instead of a gain, which should be the case if they have broken the law and have created an asset for themselves.
Deputy Barrett will note that under section 202 the penalties for that offence can include a fine of up to £10,000. It is a matter for the Court's discretion, whether the judge wants to put them in jail or extract a sum of money of up to £10,000 from them.
The point Deputy Barrett raised in relation to criminal penalties for breach of section 31 could actually be discussed under section 35. It is not relevant to section 34. At least the Minister can anticipate the point on section 35 now.
I was going to say that under the civil remedies for breaches of the section, that is where they have civil rights, there are ways of going to the civil courts on this one. Section 35 deals with the criminal side as well. Both can be used to find a remedy to the problem. Section 34 has the remedy in place and quite a number of sections too, deal with the issue raised by Deputy Barrett. It is a fair point in relation to restitution to a company or to individuals. I think they can get support through section 34 of the Bill. The criminal penalties for breach of the section would also apply in section 35. I agree with the points made by Deputy Barrett, generally, in relation to restitution of people's funds and so on.
I move amendment No. 43:
In page 36, before section 35, to insert the following new section:
"35.—(1) If a company is being wound up and is unable to pay its debts, and the court considers that any arrangement of a kind described in section 32 has contributed materially to the company's inability to pay its debts or has substantially impeded the orderly winding up thereof, the court, on the application of the liquidator or any creditor or contributory of the company, may, if it thinks it proper to do so, declare that any person for whose benefit the arrangement was made shall be personally liable, without any limitation of liability, for all, or such part as may be specified by the court, of the debts and other liabilities of the company.
(2) In deciding whether to make a declaration under subsection (1), the court shall have particular regard to whether, and to what extent, any outstanding liabilities arising under any arrangement referred to in that subsection were discharged before the commencement of the winding up.".