I move amendment No. 50:
In page 40, subsection (1) (b), line 8, to delete "agreements" and substitute "arrangements".
Amendment No. 50 is just a minor drafting amendment and would simply align the wording at the end of paragraph (b) of subsection (1) with that of the other two paragraphs in the subsection.
Is that agreed?
If I may make a general point, with your permission, Chairman, about all of these things we are discussing in relation to companies, I have had various representations made to me and I would like to ask the Minister to bear in mind the effects of some of these changes, both in the 1986 Act and what we are discussing here now, so that as we progress through the Bill we take into account the changes that have already been made in the 1986 Act which obliges companies to produce accounts each year and to make them available for public inspection. I do not think any of us would disagree with that concept.
As you know, it arose from a directive of the EC but, unfortunately, it is now turning out that more and more companies are either becoming unlimited companies or are setting up abroad and this can lead to a total imbalance in relation to the remaining Irish limited companies in so far as we can face a position in the near future where we are going to have information being made available to competitors who are finding their way around the existing legislation and the amendments which we are putting into this Bill and they will not be in the interests of Irish companies. I am just asking that that would go on the record and that the Minister would be aware of what is actually happening out there in the marketplace.
I do not want to go into a long submission I have here, but it is quite frightening when you read of the loopholes that are occurring and what is likely to happen. All I am saying is that we should bear this in mind in relation to this section and, indeed, other sections of a similar nature that we will be dealing with in the future.
The Department actually is aware of the situation with regard to the Companies (Amendment) Act, 1986, but for the purposes of this Bill it does not actually affect this Bill itself, so in fairness we have to take the two things separately. The points made by Deputy Barrett have been taken on board but, quite frankly, we have to get this Bill through at this time.
You are putting a lot more restrictions on private limited companies here now.
I move amendment No. 51:
In page 40, subsection (2), line 15, to delete "sections 150, 151 and 152" and substitute "section 150".
Amendment No. 51 is another minor amendment. The reference in the second line of subsection (2) should merely be to section 150 of the 1963 Act and not also to sections 151 and 152. A similar wording appears in the third line of subsection (5) of this section.
Amendment No. 63 is related to amendment No. 52 in the name of the Minister. Is the committee agreeable to take amendments Nos. 52 and 63 together? Is that agreed? Agreed.
I move amendment No. 52:
In page 40, subsection (3), line 35, to delete "�2,500" and substitute "�1,000".
Both of these amendments arise from the fact that I am proposing to make substantial changes to the basis on which transactions can exceptionally be entered into in respect of loans, quasi-loans and credit transactions. Members will recall that under amendments which we discussed earlier we are increasing a company's flexibility to make advances to the directors and so on. When it comes to disclosures, however, we want to avoid a situation arising where every small transaction between a company and its directors or employees must be disclosed and this is achieved in section 40 of the Bill by specifying certain minimum thresholds under which disclosures would not be required.
However, because of the proposed new arrangements I think the present exemptions in section 40 need some adjustment. Under section 40, as it currently stands, subsections (1) and (2) exclude from the duty of disclosure credit transactions made for any one director plus his connected persons which together amount to less than �5,000 in any one year. Subsection (4) excludes from the duty of disclosure loans, quasi-loans and credit transactions made by a bank for a director or connected persons which together amount to less than �1,000 in any one year.
What I propose in the new subsection (1) is to have one exemption from disclosure for banks and other companies alike in relation not just to credit transactions but to all transactions covered by the basic restrictions and prohibitions. The limit I propose is �1,000. The effect of this is that if the aggregate of the values of each transaction arrangement made for a person less the amount by which those liabilities have been reduced, did not exceed �1,000 at any time during the relevant period they can be discarded for the purposes of disclosure.
Subsection (2) of the amended section would repeat what is currently subsection (3). This subsection provides a threshold limit for the disclosure of the residual category of transactions described in sections 36 (1) (c) and (2) (c). These are transactions which do not quite fit within the loan, quasi-loan or credit transaction categories, but in which a director of a company or of its holding company has directly or indirectly a material interest. These are mainly property transactions involving the transfer of non-cash assets. In the case of this particular subsection, the minimum figure below which such a transaction will not require to be disclosed is flexible. In the first place if the aggregate of all transactions involving the directors and connected persons did not exceed �1,000, then for all sizes of companies they would not have to be disclosed. For larger companies, however, the minimum figure will be �5,000. Finally, for companies whose net assets are between �100,000 and �500,000 disclosure will be required only if the aggregate figure involved exceeds 1 per cent of the company's net assets.
Could I ask the Minister, while we have made changes in other sections why do we have to reduce the amount in this particular instance? We are talking about small money, from �2,500 to �1,000. I will repeat, please do not make it very difficult for people in private limited companies to operate without feeling that they are guilty and breaking the law and becoming criminals.
My own feeling is that I could not understand the point of reducing it from �2,500 to �1,000. I would like to know the reason and rationale of it. I am inclined to agree with Deputy Barrett; if you could have picked a figure, why pick that figure at all?
I feel we are being more liberal in the allowances for lending in the actual Act itself, so we are anxious to have disclosures over a certain amount. I would not be too worried about the amount, whether it is �1,000, but it is an amount I feel would be fair. If committee members feel it is inadequate, that it should be a little higher, I request that members put forward their suggestion as to what they would feel as being the required sum. I accept �1,000 in 1989 is rather restricted to say the least, but this is for non-disclosures, over �1,000 they could still get a loan but it has to be disclosed. That is the difference.
Fair enough, but as I cannot see the relevance or the necessity to reduce from �2,500 to �1,000, why the necessity for bringing in an amendment of that nature? It is hardly worth any great deal of discussion but, at the same time, if you are fine-combing the legislation to that extent, then we would want to proceed a lot slower with the entire Bill in order to fine-comb the whole Bill to the same extent.
I take it that it is each category of transaction that has to be disclosed in so far as the aggregate of each category exceeds �1,000; in other words, he could have quasi-loans, loans credit transactions of up to �1,000 under each category. Is that correct?
Yes.
What is the situation where at the start of the financial year he has part of a loan which he took out during the previous financial year outstanding? Is that added on?
It is the amount outstanding at the end of each financial year that is applicable to the accounts.
The amount outstanding?
Yes, the amount outstanding on the loan at the end of the financial year.
I do not agree with that interpretation. It is the amount outstanding in relation to transactions in which the director is interested.
It is clear enough in regard to the total amount that is being given to any one director over a period of one year. If it is over �1,000 it has to be disclosed. The amount seems to be small but we are being more flexible in the loans we give in this Bill so we feel that we have to have restrictions as far as non-disclosure is concerned.
If somebody was running a credit card or something like that, would that be affected by it?
A credit card is a quasi-loan if it is a company card.
Suppose somebody had a loan of �100,000 on the basis of the back of his credit card and all he did was clear it for two days before the end of the year and then head back off again spending the money the following year, what is the point if that is the way? He could arrange to get short-term funds to clear the thing a few days before the accounts were due.
We cannot anticipate the ways accountants will use this Bill. We are trying to make it as foolproof as possible. Any Act, as you know, will be used a certain way. Deputy Bruton is putting forward a hypothesis that could arise within the accounting. I would not agree with that company's operation in the circumstances.
With due respect to the Minister that is so obvious a means of evasion that it is not hypothetical, it is actual. People will, of course, clear their liabilities or get them down below the disclosure limit for a few days and then push them back up again. That should be no difficulty for them. All they have to do is to arrange with some other credit institution to lend them the money for a short term which makes me question what is the point of this disclosure if it can be availed of that easily?
Amendment 63, section 40 (1) reads: "... if the aggregate of the values of each arrangement so made for that director or any person connected with him, less the amount (if any) by which the liabilities of the person for whom the arrangement was made has been reduced, did not at any time during the relevant period exceed �1,000". Over that period under this Bill it must be kept below �1,000 for non-disclosure.
For argument's sake, what happens in a legitimate case where a director may owe, say, PAYE under normal trading practice and the normal thing is that at the end of the year the account has to be settled by the director? It is not a deliberate loan or a means of getting cash; it is simply a mechanism of doing business. The company in question may not have deducted the correct amount of PAYE or they may have made a payment which should not have been made and it is picked up by the auditors and goes into the director's account. These things happen on a regular basis and to start talking about �1,000 there could mean disclosure all over the place for every small sum of money. I propose it be left at �2,500.
To avoid repetition, as we are getting to a stage now where everyone is thinking of hypothetical arrangements——
That is a fact, it is not hypothetical.
It is not a fact, it is hypothetical in that you have just made it up. You have given an example. It is hypothetical. There is non-disclosure up to �1,000; is there a proposal to increase that? Let us have a figure and have it out of the way.
I am asking the Minister to withdraw the amendment.
I cannot agree to withdraw the amendment. It would be absolutely farcical if the company had to provide funds to pay their PRSI liabilities or any other tax liabilities. That is not on, that is simply out of the question.
Any accountant will tell you that it is a regular trading practice that a director would not know that he owed the company a sum of money. Am I correct or am I wrong?
Generally speaking the Deputy is correct. If some of the members wish to put forward a revised sum I certainly will consider it. Is the Deputy suggesting that under �2,500 there should be non-disclosure, over �2,500 disclosure.
For practical purposes �2,500.
Will the Minister look at that?
I certainly will; I am flexible as far as these amounts are concerned. With respect to my good officials here, �1,000 sounds pretty low and I know from dealing with small trading companies of——
Fix a figure for yourself.
I will consider a proposal for an appropriate amount.
I say �2,000.
I would accept that.
I propose �2,500.
A proposal has been put forward by Deputy Bruton——
We should settle it now. My concern is that we should not have the Minister going back and consulting about this and coming in with an amendment on Report Stage and wasting time.
I know it was only a proposal put forward by Deputy Bruton but it seems a reasonable amount. We will not hassle here about it. I will accept �2,500, a sum mentioned in the Bill. We will amend amendment No. 63 and put in �2,500 instead of what is there. With the permission of the Chair and the committee, we could dispense with this matter at the moment, by changing �1,000 to �2,500. Are the Chairman and the committee agreeable to that?
Will the committee kindly agree that figure and let us move on? Is that agreed? Agreed.
I am withdrawing amendment No. 52.
I move amendment No. 53:
In page 40, subsection (4), line 37, after "arrangement" to insert "or agreement".
Again, this is just a minor drafting amendment. The words proposed to be inserted by the amendment were inadvertently omitted from the text of the Bill on its publication. In Part III we generally tend to talk in the one breath about transactions, arrangements and agreements in the various provisions involved, for example, subsections (2), (3) and (5) of this section. This amendment will simply ensure consistency in the drafting in this respect.
I move amendment No. 54:
In page 40, lines 39 to 54, to delete subsection (5).
This is a drafting amendment from the Opposition. Subsection (5) relates to licensed banks. It would be better to put the provisions which are in subsection (5), which stand on their own anyway, into section 39 which is the section dealing with licensed banks rather than have them in here in this general section 38.
That amendment has already been discussed with amendment 33. We did not accept amendment No. 54. It was discussed the last day but we did not accept it.
We have already gone into it fully so I am not going to rehash what occurred at the last meeting. It has been already discussed.
I move amendment No. 55:
In page 40, subsection (5), line 49, to delete "or were connected with a director of the company".
I move amendment No. 56:
In page 40, between lines 54 and 55, to insert the following subsection:
"(6) (a) The statement referred to in subsection (5) shall also separately contain the like information as is referred to in that subsection in relation to transactions, arrangements or agreements made for persons who at any time during the relevant period were connected with a director of the company.
(b) A transaction, arrangement or agreement to which paragraph (a) applies need not be included in the statement if—
(i) it is entered into by the company concerned in the ordinary course of its business, and
(ii) its value is not greater, and its terms no more favourable, in respect of the person for whom it is made, than that or those which—
(I) the company ordinarily offers, or
(II) it is reasonable to expect the company to have offered, to or in respect of a person of the same financial standing but unconnected with the company.".
I move amendment No. 57:
In page 40, subsection (6), line 55, to delete "subsection (2) or (5)" and substitute "subsection (2), (5), or (6)".
I move amendment No. 58:
In page 41, lines 1 to 5, to delete subsection (7).
I move amendment No. 59:
In page 41, subsection (8), line 8, to delete "subsections (2) and (5)" and substitute "subsections (2), (5) and (6)".
I move amendment No. 60:
In page 41, subsection (9), line 11, to delete "Subsections (2) and (5)" and substitute "Subsections (2), (5) and (6)".
In section 38 and section 36 I now see that a certain degree of confusion could arise as to the precise meaning of the phrase "the relevant period", in particular the date from which the disclosure of provisions in both sections will apply. In these circumstances I will table amendments on Report Stage to clarify the situation.
I move amendment No. 61:
In page 41, before section 39, to insert the following new section:
"39.—(1) Subject to section 40, a company which is, or is the holding company of, a licensed bank, shall maintain a register containing a copy of every transaction, arrangement or agreement of which particulars would, but for section 36 (6), be required by subsection (1) or (2) of that section to be disclosed in the company's accounts or group accounts for the current financial year and for each of the preceding ten financial years (but excluding years prior to 1989) or, if such a transaction, arrangement or agreement is not in writing, a written memorandum setting out its terms.
(2) Subsection (1) shall not require a company to keep in its register a copy of any transaction, arrangement or agreement made for a connected person if—
(a) it is entered into in the ordinary course of the company's business, and
(b) its value is not greater, and its terms no more favourable, in respect of the person for whom it is made, than that or those which—
(i) the company ordinarily offers, or
(ii) it is reasonable to expect the company to have offered,
to or in respect of a person of the same financial standing but unconnected with the company.
(3) Subject to section 40, a company which is, or is the holding company of, a licensed bank shall before its annual general meeting make available, at the registered office of the company for not less than the period of 15 days ending with the date of the meeting, for inspection by members of the company a statement containing the particulars of transactions, arrangements and agreements which the company would, but for section 36 (6), be required by subsection (1) or (2) of that section to disclose in its accounts or group accounts for the last complete financial year preceding that meeting and such a statement shall also be made available for inspection by the members at the annual general meeting.
(4) Subsection (3) shall not require the inclusion in the statement of particulars of any transaction, arrangement or agreement if—
(a) it is entered into in the ordinary course of the company's business, and
(b) its value is not greater, and its terms no more favourable, in respect of the person for whom it is made, than that or those which—
(i) the company ordinarily offers, or
(ii) it is reasonable to expect the company to have offered,
to or in respect of a person of the same financial standing but unconnected with the company.
(5) It shall be the duty of the auditors of the company to examine any such statement before it is made available to the members of the company in accordance with subsection (3) and to make a report to the members on that statement; and the report shall be annexed to the statement before it is made so available.
(6) A report under subsection (5) shall state whether in the opinion of the auditors the statement contains the particulars required by subsection (3) and, where their opinion is that it does not, they shall include in the report, so far as they are reasonably able to do so, a statement giving the required particulars.
(7) Subsection (3) shall not apply in relation to a licensed bank which is for the purposes of section 150 of the Principal Act the wholly owned subsidiary of a company incorporated in the State.
(8) Where a company fails to comply with subsection (1) or (3), the company and every person who at the time of that failure is a director of the company shall be guilty of an offence and liable to a fine.
(9) It shall be a defence in proceedings for an offence under subsection (8) for the defendant to prove that he took all reasonable steps for securing compliance with subsection (1) or (3), as the case may be.".
