This section widens the scope of section 194 of the Companies Act, 1963 which covers disclosure to the board by a director of his interest in contracts to which the company is a party. The board will need to know of the interest of individual directors in the transactions described in section 31 of this part. Section 194 of the 1963 Act, therefore, requires amendment so as to cover such transactions and to cover connected persons. Therefore, the disclosure required by section 194 is extended by this section to cover any transaction or arrangement of a kind described in section 31 which is entered into after this section comes into effect. Section 42 also extends the possibility in section 194 for a director to give a general notice to the other directors that he is to be taken to be interested in any contract which may come up in relation to any other firm in which he has an interest. This option to give general notice to the company is now being extended to cover general notice as regards any contract which may be made between the company and a person who is connected with that director.
SECTION 42.
Could the Minister explain if this section refers also to associated persons, a spouse or a minor?
We have defined the connected persons in amendment No. 29 to include spouse, parent, brother, sister or child and lots of other corporate relationships which are dealt with in section 25 (1). It is pretty comprehensive in relation to connected persons. We agreed at last week's meeting to look at the question of the spouse and child and different variations of the theme which may create certain difficulties at this time. Things have moved so fast in relation to this Bill that we now have changes in the system that we have to take into account. We are prepared on Report Stage to refine, define, enlarge and elaborate on whatever is required to ensure that there is no misunderstanding about the word "spouse", "child" or otherwise.
Is this really practical in terms of an obligation on the director to disclose? There are various circumstances where this is not practical, where the director may genuinely not know. Are we covering this sufficiently?
Yes. Section 194 deals with a situation where a director is interested in a contract with a company. This is expanding that in two ways. First, it is covering arrangements other than contracts as strictly understood, and it is extending it to arrangements with people connected with the director. But there is a provision in section 194, in that he has to disclose only arrangements of which he has knowledge.
That is not quite clear in this section.
It is amending section 194 which provides for actual knowledge. Section 194 provides that the director so far as he is aware of the situation discloses it.
Basically, it is an elaboration of section 194 of the 1963 Act. As Deputy O'Dea said, one has to refer back to section 194 to clarify the details of the disclosure, and what are the requirements under the original 1963 Companies Act which are relevant. Subsection (3) of this new legislation allows him to give general notice of his connection or involvement.
Would the Minister tell us what exactly is in section 194? Does it say "actual knowledge"?
It is a very long section. In this Bill it is only fair that there should be safeguards in relation to disclosures. It is vitally important, that any contract which comes before the board and any director who has a vested interest in such contract would inform the board of his involvement.
People would not have any difficulty with that but we are now extending this to associated persons. Are the interests of a director safeguarded enough by the existing wording, if a genuine case arises, where he perhaps may not know that a relation is associated with the company in question? Is the wording in section 194 of the 1963 Act as Deputy O'Dea expressed? Deputy O'Dea said he thought that was the case; I am asking if that is the case so that we know adequate protection is provided.
Section 194 (1) of the 1963 Companies Act, says:
It shall be the duty of a director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company to declare the nature of his interests at a meeting of the directors of the company.
The relevant words are "directly or indirectly", and they are in the 1963 Act. What we are doing here is elaborating and refining the connected persons.
You are not. Deputy O'Dea used a formula of words that would be acceptable to me if there was actual knowledge, but we are extending this obligation to a director in respect of the spouse and all the other individuals listed, and he may not genuinely know about them. Can we not put in this new section "if he has actual knowledge"? I have no difficulty with imposing an obligation of disclosure where the information is genuinely known. In fairness, we owe it to the public not to introduce a section which would impose an obligation on somebody when they may genuinely not know.
It would be very hard to police that, in fairness to the director concerned. The family could be involved in other businesses, and down the line there could be a connection, but unless he spent all his time scrutinising the business activities of his family, spouse or whatever, he would be leaving himself open to enormous risk. That should be tightened up. It is unfair——
Would not the ordinary interpretation of the wording in section 194 imply that the person has to know? One cannot impose an obligation on a director to disclose something he does not know about.
Then why not put it into the Act.
It is clear as a bell that one cannot disclose something one knows nothing about. We cannot impose an obligation on somebody to do the impossible.
That is the gist of what it says.
Some of the members who are members of local authorities know that under the Planning Acts, disclosures are made in advance giving an outline of one's involvements. I would not be worried about people not knowing of the connected persons' involvement in companies. I am not anxious to see this section watered down in any way, and I do not want to see it abused, but I am certainly prepared to look at a refinement of this section on Report Stage. At this time I am quite satisfied with referring to section 194 of the Companies Act, 1963, and the refinements. A person should be well aware of the involvements of connected persons within this Act. I am not overly impressed by this innocence about the whole situation, which could be used as a way out for non-disclosure.
When the 1963 Act was drawn up it referred specifically to a director. I agree that each director should know what involvement he has in any given matter, but when one starts extending that Act to connected persons, it is a different ball game. In relation to the connected persons, it is only reasonable that the director should have actual knowledge, and if he then fails to disclose it, it should be an offence. I do not see how we can impose an obligation on somebody to disclose something about a brother, spouse or a connected person whom he may genuinely not know anything about. I am not trying to let anybody off the hook. I am just saying that it should be written into the Act so that there is no doubt about it.
I would have thought that Deputy Barrett's position would be met in that in any subsequent adjudication it would be quite clear whether the director concerned was in a position of knowledge. The Minister has undertaken that the relationship involved will be specified, if it is not already specified to everybody's satisfaction. We all know there are wheels within wheels and if this Act is to stand the test of time, it will deal with some of the loopholes in the 1963 Act. I agree with Deputy Barrett; I do not think it is possible to impose an obligation or a duty on somebody to disclose information of which they have no knowledge, but it is stretching it a bit, in the context of Irish society, to suggest that the business involvement of an immediate member of the family would not be known to the spouse, the director in this case. This would be seriously open to abuse if the condition was not here. I am dubious about any alternative wording being capable of improving that protection.
We have discussed it in detail.
Will the Minister agree to come back to that on Report Stage?
I will think about the point put forward. I have experience of this area; I have seen it at local authority level. We are all involved in this. A member would regard membership of a local authority as being a particularly sacred affair. I believe all of us would disclose as far as possible our direct involvements. At local authority level, for instance, one should know if one's brother is the owner of a company or if a contract was submitted by a company of which one is a director. We are a very closely knit community and one knows as much about one's neighbour as one's brother. Therefore I would not be too worried about the innocent part. Maybe we should make it stronger, but I am not giving any commitment at this stage. I will think about this and get my officials to look at it — and I will ask the Minister to look at it — before Report Stage. I am not giving any commitment to water it down in any way at this time. I feel very strongly about this section.
My interpretation of section 194 is that what is necessary there is constructive knowledge. The Minister has to consider whether he goes further and makes actual knowledge the criterion. On balance, I believe it would be the majority view of the committee that constructive knowledge should be sufficient. It might be necessary to write that in but it is my view that it is not necessary to do so.
Tá
- Cowen, B.
- O’Dea, W.
- Flood, C.
- Rabbitte, P.
- Kitt, T.
- Roche, D.
- Leyden, T.
Níl
- Barrett, S.
- Durkan, B.
- Carey, D.
- Reynolds, G.