Special Committee on the Companies (No. 2) Bill, 1987 debate -
Tuesday, 9 Jan 1990

SECTION 73.

Mr. O'Malley

I move amendment No. 93:

In page 69, subsection (1), line 17, after "issued" to insert "(but excluding any time before the commencement of this section)".

This amendment has been suggested to me by the accountancy bodies who argue, correctly in my view, that it should be made clear that the provisions of this section are not retrospective vis-�-vis the date the section comes into force. In other words, a public limited company should not be able to use the power of this section to investigate the state of their shareholdings at any time before the section itself came into effect.

Amendment agreed to.

Question proposed: "That section 73, as amended, stand part of the Bill."

Mr. J. Bruton

This section, as I understand it, relates to investigations by the company of the ownership of shares and the history of the ownership of shares in the company. The company, by notice in writing, may require a person they believe had at any time in the previous three years an interest in shares not only to give information about their own interests but to whom they disposed of those interests in the event that they did so in the intervening period. What I would like to know is if any civil sanctions might arise in the event that somebody to whom a notice of this kind was addressed made an error in the information they provided. Assuming that somebody is dealing a lot in shares, and assuming that he or she is asked about a share in a company which he or she sold or got rid of two-and-a-half years ago he or she may not have all the information that the company might require and may attempt to give information which turns out to be wrong. If the company make a mistake subsequently and it costs the company money on the basis of this wrong information will there be a civil liability imposed on the person who failed to give the correct information given that it is not necessarily information that people would keep if they had disposed of the shares?

Mr. O'Malley

In reply to Deputy Bruton, the primary sanction in this matter is criminal sanction under section 77. It becomes an offence under subsection (3) to fail to comply with the notice under section 73. There is indirectly an element of civil sanction in as much as the last phrase in subsection (1) of section 77 says that where such a notice had been served the company may apply to the court for an order directing that the shares in question be subject to restrictions under section 16. They would be restrictions in relation to dealing in the shares. You could impound them to a limited extent if the court agreed, or restrict dealings in them.

Mr. J. Bruton

If that is the case, suppose somebody had sold his shares and no longer had any interest in the shares, if section 77 (5) was applied that would apply to a new owner of the shares who would find that his shares were restricted because the previous owner had failed to supply certain information. That would hardly be equitable. Likewise I am wondering in what circumstances somebody who no longer had shares in the company and failed to provide information either negligently or because he did not have it, would suffer sanctions.

Mr. O'Malley

The circumstances would be a sale where the company did not think the sale was in the company's best interest, where somebody was trying secretly to build up a significant holding in the company and where the board or company as a whole felt that they should be aware of any such efforts. For that reason it would be open to the court, if it thought it equitable, to impose sanctions but obviously not otherwise. Under section 16, it is not compulsory on the court to put a restriction order on the shares. That would limit their voting rights, for example. Subsection (5) enables either the company or an aggrieved person, a person who claims he is aggrieved, by an order under section 16, to apply to the court for an order directing that the shares concerned shall cease to be subject to that order. The application would be made under section 16 and under section 77 (1). One could imagine circumstances where it would be equitable that the shares might be subject to restriction if they were sold to the present owner in circumstances which amounted to trying to conceal the real beneficial ownership from a company as a whole.

Mr. J. Bruton

This all smacks of making law that is extremely vague as to how and where it applies and then saying if the law works out to your dissatisfaction you can always apply to the court and then not giving the court any clear guidelines as to the basis on which they grant or deny relief in a particular case. Essentially we are saying we are handing over this area of company law to the courts, not only to administer but to legislate.

Mr. O'Malley

The obligation under this chapter to notify is a clear one in the interests of companies in general and these various provisions subsequent to section 59 relate only to cases where people have failed to give the necessary notifications. In the case of section 73 as applied by section 77 I do not think that any great injustice can apply because only a court has the power to make the order under section 16 and the court is given a general power to make such an order if it considers it equitable in all the circumstances. That is the best way to make law, not to be tying the court down to having to do particular things even if it felt that the justice of the situation did not really warrant it. It gives the court discretion, taking all the circumstances into account. These kinds of secret and semi-secret transactions relating to shares do not necessarily follow a pattern. They can vary a great deal from company to company and from shareholder to shareholder. For that reason it is better to give a general discretion to the court. The fact that the discretion is vested in the High Court and the High Court will exercise it only after it hears all the circumstances of the transaction is a reasonable safeguard.

Mr. J. Bruton

I do not agree with the Minister. My information is that recourse to the High Court at the moment is extremely expensive not just because of legal fees but because of huge and profiteering court fees which are set by the Minister for Justice where the Minister tries almost to make a profit on the court system on the administration of justice through the charges imposed. If we are going to create a situation in which the regulation of these matters and of company law — the law we are making here is not clear enough — are going to have to be resolved by recourse to the High Court for determination of this, that and the other, we are going to impose very heavy costs on the people involved. A very good axiom is that the more you can stay out of court the better. There is a better way of saying that, but the committee know what I mean. I have some doubts about this.

Mr. O'Malley

The circumstances are such as set out in section 77 (1), that if somebody does not comply with the requirements of the various sections here in terms of notification the company may apply — they do not have to — to the court for an order directing that the shares in question be subject to restrictions under section 16. Apart from that, it is open to the Minister to prosecute somebody but the simple fact of a criminal prosecution may not be enough to achieve the justice one wants to achieve if somebody is prepared to come along and say, "I am committing a criminal offence but I do not care, fine me £5,000, £10,000 or whatever, it does not matter, I still benefit by what I am doing". It is to prevent that situation arising that the civil aspect is brought in but it is open to a company to make application to a court if they feel they have been improperly treated by a shareholder who is trying to conceal his identity.

Mr. Bell

Could I ask the Minister for clarification? I understand section 16 (6) (b) to mean that the court or the Minister shall approve. What relevance has that to this section? Does it mean that somebody has to apply for approval to the court and/or the Minister?

Mr. O'Malley

No, to the court only in so far as sections 73 and 77 are concerned. Section 16 is wider inasmuch as it gives the Minister certain powers as well, but in regard to the matters we are discussing here, that arise in sections 73 and 77, it is the power that will be exercised only by the court. The Minister is not referred to in sections 77 or 73.

Mr. O'Dea

Is the Deputy making the point that if, subsequent to getting that notification, he sells the shares without complying with the notification the shares can be restricted in the hands of the person from whom the transferrer gets the shares?

Mr. J. Bruton

That is part of it. The other part refers to somebody who gets a requisition for information in respect of shares which he sold two or three years ago concerning whom he sold them to. That person would appear to be criminally liable if he fails to provide the information even though he no longer has an interest in the shares in the company. I was trying to ask the Minister about the liabilities of a person who was no longer involved with the company but who had been and who received such a request for information.

Mr. O'Dea

On the initial point made by Deputy Bruton, there would hardly be an incentive for the company to apply to have the shares subject to a restriction if they had already been disposed of.

Mr. J. Bruton

Presumably they would have been disposed of to another person who is now a shareholder in the company and who perhaps is building up a threateningly large holding in the company. I am worried about the situation of somebody who innocently sold those two years ago to this party, who no longer has any financial interest in the company but who could find himself technically in breach of the law by failing to have to hand the information required by section 73 (2) (b).

Mr. O'Dea

Before the Minister answers I would like to ask him another question. Section 73 (2) (a) deals with a requirement of a person to give particulars of his own past or present interest, etc. in shares. Subsection (3) states that the particulars referred to in subsection (2) (a) include particulars of the identity of persons interested in the shares. Is that requesting the person to identify himself?

Mr. O'Malley

It would be essential to identify the beneficial ownership of the shares, if he were a nominee for somebody else, for example. With regard to Deputy Bruton's query, section 73 (2) (c) specifies that where his interest is a past interest — as it is in the question he puts — the obligation on the former shareholder is to give (so far as lies within his knowledge) particulars of the identity of the person who held that interest immediately upon his ceasing to hold it. It does not necessarily expect that he will be able to comply with every precise query that is made of him. His obligation is to answer "so far as lies within his knowledge" which is not unreasonable. It would only apply to the immediately preceding three year period. It would not be some period in the dim and distant past.

Section, as amended, agreed to.