The debate was adjourned on amendment No. 133 in the names of Deputy Bruton and Barrett. Deputy Bruton had moved the amendment and the Minister was in the process of replying. Before calling on the Minister to resume the debate, for the information of members, there was a query at the second last meeting in regard to when the debates of the Special Committee would be published. There has been some delay, but I am informed that the debates of the first four meetings of the Special Committee, up to 12 December 1989 have been sent to the printers for press and will be available this week. Subsequent meetings are at present being proofed in a preliminary form and are being checked. The first four debates will be available to Members this week.
NEW SECTION
NEW SECTION.
Debate resumed on amendment No. 133:
In page 89, before section 104, to insert the following new section:
"104.—Section 231 (2) (a) of the Principal Act is amended by the addition of the following words at the end of the subsection:
‘save that he shall not have power, without the consent of the court, to sell any real or personal property, or other interest belonging to the company, to a former director of the company or to any person connected with a former director of the company within the terms of section 25 of the Companies Act, 1989'.".
—(Deputy J. Bruton.)
The amendments by Deputies Bruton and Barrett will effectively prohibit a liquidator from selling the property of the company to a former director or a person connected with a director without the approval of the court. Section 231 of the Principal Act, which the Deputies want to amend, specifies the powers of a liquidator in a winding up by the court. Subsection (1) lays down the powers which a liquidator can exercise with the sanction of the court, or the committee of inspection. These relate to such matters as carrying on the business to facilitate the orderly winding up of the company. It would also enable the liquidator to pay creditors in full or enter into a compromise with creditors.
On the other hand, subsection (2) does not require a liquidator to have the sanction of the court for other actions which he may carry out in the course of the liquidation. In this regard, paragraph (a) will enable him to sell real and personal property of the company by public auction or private treaty, and so on. Under subsection (3) of section 231 all the powers conferred on the liquidator by the section, including the power given to him under subsection (2), to sell the company property, are subject to the control of the court and any creditor or contributor may apply to the court in relation to the exercise of his powers in this respect by the liquidator. At the same time, I am aware that from time to time complaints have been expressed in regard to sales by liquidators to the former directors of companies in liquidation, or persons connected with such directors. However, it is difficult to give any precise measure as to the magnitude of the problem.
I am not convinced by the arguments that the Deputy has advanced that it would be necessary to intervene in as drastic a manner as this amendment would entail. I would be concerned that requiring recourse to the court in every situation where a liquidator proposed to sell assets of a company to a director, or a connected person, would be introducing an element of over-kill in an effort to counteract any perceived deficiencies in the present system. I know that is the kind of thing the Deputies agree we should avoid as far as possible. I am thinking of the impact this would have on the perfectly reasonable practice of management buy-outs which are often arranged at short notice where a company fails.
I should also point to section 108 of the Bill which considerably tightens up the existing position regarding the exercise of his powers by a liquidator appointed by a company in a creditors' voluntary winding-up. That section provides that in the interim between his appointment by the company and the holding of the creditors' meeting, he will require the sanction of the court for the exercise of any of his powers under section 276. This will prevent undersirable transactions being undertaken. Bearing in mind that a liquidator is always subject to the control of the courts, I do not think this amendment is necessary or desirable. Indeed, I think it would be counter-productive.
The problem is that in a lot of cases there are assets in a company which goes into liquidation, which is insolvent, and ordinary creditors are not going to get all their money back. The director, because of his knowledge, may be able to buy these assets back from the liquidator at a very favourable price because there will not be genuine competition for them.
We can have a situation where everybody loses except the director of the company, who gets his assets back and is back in business quite soon afterward. This amendment strikes at the very heart of what is known as the "Phoenix syndrome": the same directors arising under a new name, with a new company doing the old business and meanwhile those who suffered from the collapse of the old company are left without all or part of their money.
I am disappointed with the Minister saying he was not convinced by the arguments I made. I assumed that he was reading from notes that had been prepared before I made any arguments. Perhaps that might take somewhat from the strength of what he was saying, but that may not be so. In any event, this is a valuable addition to the powers that are being given. If I wished to, I could make some suggestions as to how this amendment could be improved. One could, for instance, exclude from its remit former directors of a company who had ceased to have any connection with the company, say, over three years ago. Recent former directors should not be in a position to be able to buy back the assets of the company from the liquidator if that company is insolvent and if ordinary creditors are not able to be paid in full.
While the Minister has made a valid point about the fact that you do not want to be going back to court all the time about relatively innocent transactions, in the case of companies that are insolvent where the creditors are not going to be paid, the Minister should have a provision such as this. I am sure Deputy Barrett would joint me in saying that we would be quite willing to see our amendment made more restrictive if it is going to cause problems in its present form. I do not think the Minister is right, if this is what he is going to do, to throw out the idea altogether.
Would it not be true to say that the liquidator acting as a professional would seek to get the best possible price for any assets he was disposing of in any direction? I would expect no less from a liquidator than that he should have some understanding of the liquidation he was carrying out and of any equipment or assets that might be available.
The second point I would make is that in ruling out an option by a director to acquire any of these assets being disposed of by the liquidator, all directors are not necessarily responsible for causing the liquidation of the company. Many companies have gone under because of outside influences, such as debts which have not been honoured, contracts which have gone wrong for a variety of outside reasons.
The line is clear in the division between the liquidator and the directors of the company. In expecting the liquidator to act professionally I do not think that the entitlements of the creditors are necessarily weakened by virtue of the fact that it would be a former director who might be offering to purchase the equipment. In some cases, assets are only useful to those with a specific knowledge, when we are talking about equipment in specialised industries; in some cases directors in a buy-out situation or where a liquidation has taken place are the only people who can reasonably come forward to take up the assets and skills and so on that are associated with assets. In that way, a director is helping in some way the creditors who are due payment of outstanding debts.
I am quite clear about our situation from the comments made at the previous meeting and which were available to us. The original Act, which is the Companies Act, 1963, in section 231 (3) says that the exercise by the liquidator in a winding-up by the court of the powers conferred by this section shall be subject to the control of the court and any creditor or contributor may apply to the court in relation to any exercise or proposed exercise of any of these powers.
Deputy Flood has spelled out the situation very clearly. I have no hesitation in saying that the amendments are unacceptable and could, in fact, be damaging to the creditors, because in many cases there could be a director-buyer of the company and he could preserve the jobs involved. If this amendment became a reality, from the advice available to me it would be very restrictive on the liquidator and could lead to job losses in certain situations. I accept the point made by Deputy Bruton in relation to the view of the general public about the "Phoenix syndrome". Nevertheless, I am not in favour of accepting this amendment which could have a detrimental effect on job preservation in certain situations. We should oppose the amendment.
Every time I come in here I get totally confused. I understood there was agreement on all sides of the House that one of the main purposes of this Bill was to deal with rogue directors and people who deliberately go into liquidation leaving creditors high and dry, perhaps, affecting genuine business people and, indeed, a serious number of jobs.
Both Deputy Bruton and I have put down numerous amendments to try to improve the Bill. People may disagree with some of them, but that is democracy. We are genuinely trying to strengthen legislation to prevent people going into liquidation and then buying back property from the original company. Alternative suggestions are not coming from the Government side. Perhaps the wording as it stands is not ideal, perhaps it is too wide, perhaps we should put a time limit in respect of bona fide cases, and perhaps we should have a monetary limit of, say £5,000. Perhaps we should also have a number of suggestions from the Government side. But to come in here week after week and blandly throw out every genuine suggestion being made on Committee Stage to strengthen this legislation is unacceptable.
We are supposed to have a common ideal on all this, and surely we can discuss the rationale of the amendment in the names of Deputy Bruton and myself. The Minister could say that, as it stands, it is far too wide, that it could affect day-to-day business and so on, but maybe there is scope to look at a time limit for bona fide cases, to look at a monetary limit of £5,000 and so on. Can we not at least have some sort of rational debate and maybe the Minister on Report Stage could come forward with some alternative wording or, perhaps, a less restrictive amendment than the one tabled here? By throwing it out altogether, we are just wasting our time here. There is no point in saying we are all here to deal with rogue directors without answers from the Government side when we point out weaknesses.
I refute what Deputy Barrett says because the Government side have been as co-operative as possible on this Bill. It is a very complex Bill. I would have no hesitation whatsoever in accepting reasonable amendments from Opposition members. I understand that last week such an amendment was put forward and agreed by the committee. But in relation to this amendment, I am clear that it is far too restrictive and that it could be damaging to job retention. The liquidator's powers are controlled by the courts under section 231 (3) of the 1963 Act. In fairness, we are co-operative and agreeable to reasonable amendments. We have agreed to amendments put forward here by Deputies on both sides, because we are trying to get the best possible Bill enacted. I have no hesitation whatsoever in accepting amendments which would improve the Bill.
I agree with the Minister. I have been here since the beginning, and the Government side have accepted quite a number of suggestions and amendments from the Opposition. There were some instances in which the Minister agreed to take some Fine Gael amendments away and have another look at them. I appreciate the point that Deputy Bruton is making, but we have to bear in mind that under section 231 (3) of the 1963 Act, as the Minister pointed out, and also under various sections of this Bill, there is sufficient control on the exercise of his powers by the liquidator. He has to act from start to finish in good faith. There are substantial sanctions there if he does not act in good faith.
Deputy Flood made a very good point in that the ex-directors or directors of a company which is in liquidation may be the only people, because of their expertise or the nature of the equipment, who can properly use the assets in question. Deputy Barrett said he is making suggestions to deal with rogue directors. The Bill is full of suggestions to deal with rogue directors. We have already dealt with some of the sections dealing with this and we will be dealing with more. In talking about liquidators' powers and rights and how he can dispose of assets, this is not the proper place to deal with rogue directors. The directors who might buy back the equipment in question, might be the most innocent directors in the world. Deputy Bruton made the point that directors should not be put in a position of unfair advantage vis-�-visother people, in the sense that there might be no genuine competition, but if there is no genuine competition there will be no market, nobody to sell the assets to, and that can hardly be to the benefit of the creditors.
While I accept some of the arguments put forward by the Minister and the last speaker, the question to be asked is whether the public and companies, who may well be the victims in liquidations, are quite happy at the present time in relation to the way liquidations are handled and the powers that a liquidator has.
Reference was made to the fact that the liquidator acts in good faith and so he or she does, but the question may well arise too, for instance, that creditors of the company may find themselves in an invidious position as a result of the disposal of assets to a director who might be about to operate in the "Phoenix syndrome" fashion, which has already been referred to. Reference has also been made to the protection of jobs. It should be remembered that there could be jobs involved where creditors are concerned as well, and their future is equally entitled to be protected. There is some room for change and improvement in the present structure.
From people I have spoken with and from the number of cases I have occasion to deal with on behalf of constituents, there seems to be some need for an improvement to ensure that the assets of the company are disposed of in an absolutely fair fashion with due regard to the maintenance of jobs both in the company concerned and, also, in companies who might be creditors. The jobs of those people are equally as important. There is some need for improvement along the lines of the amendment put forward by Deputies Bruton and Barrett, but it should not become an issue as to whether the Government have conceded on a number of amendments. The issue should be whether there can be an improvement on the present legislation.
I should like to draw the committee's attention to the provisions of section 128 of the Bill and also to amendment No. 175 in the name of the Minister. Section 128 applies where the liquidator of the company certifies the company is unable to pay its debts. Amendment No. 175, which goes in there in the same area, says that a person who has been a director of such a company shall not be entitled to form a company for a period of five years or be appointed to act in any way, whether directly or indirectly, as a director or secretary of a company, unless it can be proved that he acted honestly, etc.
These are all very laudable provisions in regard to restricting a director of an insolvent company, unless certain qualifications are satisfied, from forming a company. But here we have a situation where the same person, it would appear, is entitled to buy the assets of the company from the liquidator and continue to use those in his own personal capacity — of course he cannot form a company with them because he would be caught by section 128 — but so long as he buys the assets and continues to operate them himself he can go on doing it as a sole trader. In one part of the Bill, the Minister is saying to a person, "if you are the director of an insolvent company, you may not set up another company for five years" and there are all sorts of other matters — the nominal value of allotted share capital of the company would have to be such-and-such, all this sort of thing.
Those are all very tough sanctions if he wants to set up a company. But if he simply buys the assets from the liquidator — and under existing legislation it is quite possible for the liquidator to sell these assets to him by private contract, there is no requirement of an auction, it can be done by private contract — he can go on operating those assets as a sole trader. I would say to the Minister that there is a certain amount of inconsistency here: on the one hand, putting all sorts of obstacles in the face of this person — the director of an insolvent company — if he wants to set up a new company but saying, on the other hand, "fire ahead you can buy the assets from the liquidator and operate them and go ahead and operate them otherwise".
I am interested in what the Minister had to say in response to the points we were making. He drew our attention to section 231 (3) which states that the exercise by the liquidator in a winding-up by the court, of the powers conferred on him, etc., shall be subject to the control of the court. He sought to say that that more or less would remove any worries we might have about the powers of the liquidator under subsection (2), that is where he might sell assets by private contract. My understanding of this is that the liquidator is not going to go to the court every time he decides to sell assets. In fact, the control of the court in such a situation — perhaps the Minister can clarify this — will be very much ex-post facto, that the court will sort of retroactively sanction things that the liquidator has done and unless the liquidator has done something appalling there is nothing much the court can do to unscramble the egg. It may well be that the liquidator has gone and, as Deputy O’Dea said, sold the assets back to the director of an insolvent company who will be merrily operating those assets and meanwhile creditors have been left unpaid.
Deputy Barrett and I have both stated, and I repeat this, that we are not dogmatic about our amendment. We would be prepared to accept that the period during which this restriction would operate would be, for instance, the period of five years referred to by the Minister in his own amendment, No. 175, or a shorter period, three years. Alternatively, we would be prepared to say that the restriction would only apply, say, in respect of assets where the value was in excess of say, £20,000 or even £30,000, that if there was something small, a company car for instance, or something like that, for which the liquidator wanted to get cash quickly, he would be able to sell that to the former director without having to get the consent of the court. I would accept such a restriction because we do not want the court having to adjudicate on minor transactions. But if, for instance, the main property of the company — something to the value of say, £200,000 — is being sold on by private contract to the director, as it may be under section 231 (2) of the Principal Act, in those circumstances the court should be involved and our amendment should apply. We should not be relying, in those circumstances at least, on subsection (2).
Would the Minister consider accepting the principle of our amendment subject to a time restriction on this disqualification applying in the case of directors who have discontinued their connection with the company prior to its going into liquidation and subject to a reasonably generous monetary threshold below which the restriction would not apply? If those two qualifications were incorporated in the amendment, the problems to which the Minister refers, which are not invalid, would disappear. I ask the Minister to consider that suggestion favourably.
It strikes me that in his last contribution Deputy Bruton has defeated the whole logic of his approach. First, he has accepted the principle that directors, whether they are rogue or not, could acquire some of the assets although subject to a maximum ceiling. The second point Deputy Bruton made was that perhaps there should be some time limit, although it is very hard to see how assets could stay on the market for four or five years or whatever and then be of any use to anybody. I can understand the point being made by Deputy Bruton and I have sympathy with it. Perhaps if Deputy Barrett expressed himself less pugilistically he would actually have much more chance of getting his point across. The point he is making, of course, is that the public are offended where it is evident that people who have behaved in a disgraceful manner can simply grab hold of assets and go back and use those assets to behave in a disgraceful manner again. That is basically the point here. That point is primarily taken on board by the overall principle of the legislation before us, that is, that a rogue director will not be allowed to reincorporate and cover himself with the benefits of incorporation. It struck me that if a person like that goes back and starts operating as a sole trader, then we should be quite happy.
If you are going to take the route the amendment suggests you should either go that route in all or not at all. I can see that there would be great difficulties because the real problem is that not every director who has been associated with the company will be a rogue director. The second point that strikes me is that — if you decide to set limits, you are invalidating your principle——
(Interruptions.)
You are all so pleased to see Deputy Roche back. The prodigal returns.
This particular prodigal has been at every one of these meetings, bar one. The only meeting I missed was where a company in my constituency was going down the tube. I make absolutely no apologies for going to see various members of the Government and various public authorities on that occasion. I would think less of the Deputy if he did less on such an occasion should it arise in his constituency. The sort of snide innuendo that the Deputy is trying to get across here serves no purpose at all. It certainly does not irritate me or put me off and it certainly does not win me over to the Deputy's point of view. It gives me the opportunity, however, to put on record that my sole absence was when I was actually looking after the interests of my constituents. The point I am making is——
A Deputy
Deputy Joe Jacob was your assistant.
Deputy Jacob is a very good assistant in looking after the constituency, too.
That puts Joe on the record.
Look how well we did with the flood damage last week.
(Interruptions.)
Deputy Roche, without interruption.
The rogue director phenomenon is primarily dealt with in the main thrust of the Bill. The sort of thing that is suggested here would be worth considering if there was some way of confining the limitation to people who are clearly rogue directors. It would be wrong if there was a global prohibition which prohibited all directors from taking over assets. I do not think the public interest would be served by that because there might be nobody else in the market for the assets. It is something worth considering but I can see that there are as many cons as pros for the argument.
I understand the point Deputy Bruton is making, that public sensibility might be affected if a person who is a rogue director, within the meaning of the Bill before us, purchased the assets from the company and set up on his own as a sole trader. I would put it to Deputy Bruton that the liquidator must act in the interests of the creditors. If the liquidator gets a fair price from the director, whether he be a rogue director or otherwise, if it is the best price he can get in the available market, which includes this individual as things stand at the moment, are the interests of the creditors not best served by that?
I want to take Deputy Roche's argument a bit further. He mentioned something which could be quite useful in this context. Section 128 (1) states: ". . . if at any time during the course of its winding up the liquidator of the company certifies that it is unable to pay its debts and has proved to the satisfaction of the court that the company is unable to pay its debts . . .". Would the committee agree that in those circumstances at least, if not in every circumstances, the restriction suggested in our amendment, subject to a monetary limit, should apply? I should explain to Deputy Roche that when we refer to time limits we are not referring to time limits in regard to the sale of the assets; we are referring to time limits in regard to the length of time the director has ceased to be a director of the company prior to the liquidation. There would be no delays involved in that. It would simply say that the disqualification would not apply to people who had disconnected themselves from a company, so to speak.
A bona fide case.
Yes. The Minister has made a slightly inconsistent point. He says that the exercise by the liquidator of his powers is subject to the court, but he objects to our amendment which simply says that any sale of assets to a former director shall be subject to the court. I cannot quite see why the Minister is saying there is such a great bureaucratic problem caused by this if subsection (3) means anything.
I do not think we can go along with Deputy Bruton's suggestion that his amendment should be taken on the basis of a company being unable to pay their debts. As far as I can understand, many companies have been unable to pay their debts, not because of poor management but because of outside influences. Half the companies in this country and half the businesses which were rescued were rescued on the basis of directors acting to the best of their ability, taking on and dealing with the outside influences that brought down the companies, of which they were directors. I do not think we can go along on that restriction alone. In the amendment Deputies Bruton and Barrett refer to the fact that "he shall not have power without the consent of the court." Are we then asking the court in the context of this amendment to decide on the bona fides of a director and to determine whether a director is a rogue director or a straight director? In such circumstances there would be very great difficulty anyway.
That is what I am trying to do.
I appreciate that but, at the same time, I accept that the disposal of assets to former directors can leave a very sour taste in the mouths of many, including workers, etc. I do not think this legislation will be strengthened if it is going to be based on a kind of PR exercise to the public. I am not suggesting that is the case in this amendment but it has been referred to once or twice in the debate across the floor. There may well be something in what has been said. Having heard the debate and the argument on both sides, perhaps the Minister may decide to have a look at the matter again in an overall context. The points have been fairly put. I would not go along with Deputy Barrett when he says we are against everything because that is not the case. We are all putting our points of view here and we are all interested in this legislation. We are keen to see it through but if we carry on as we have for the last ten minutes we are not going to make too much progress.
Let us enjoy it.
Of couse we will enjoy it and we might learn something too.
(Interruptions.)
That was an unfair comment from Deputy Barrett. We are not seeking instructions from anybody. We are here participating and some of us are being educated by the comments and contributions from the Deputy's side of the House.
I was only joking.
I wonder how would Deputy Bruton respond to the point as to whether the public interest would be better served if, for example, a disqualified director was the highest bidder for assets? Clearly if that was the case the better interests of the creditors and the people who are to benefit from the liquidation would not be served if we were to disqualify such a person. It is a difficult problem to resolve.
I think the problem is that as long as you have the sort of preferences that exist in regard to liquidations the situation can arise where it suits the former director and the principal creditor, which may be the banks, to have the assets sold to the former director because the bank will get their money. It may not suit another crowd of people, the ordinary, unsecured creditors who would not benefit from the proceeds of the sale, if this former director gets back into business so quickly. These people, or others in the same position, would be liable to be caught again by the same individual. That is why we are suggesting that simply before assets of a substantial kind are sold to a former director of an insolvent company, the court should have a look at it. We are not saying they should not be sold in any circumstances; we are simply saying the court should have a look at it before that happens.
Deputy O'Dea and Deputy Flood have acknowledged — and they are right — that there is an element of justice being seen to be done or public opinion involved in this and that is no harm. It is very necessary that the legislation should have the confidence of the ordinary public and the involvement of a judge would be good. Because this is a small country there would be a suspicion — and accountants would be very annoyed if that suspicion was rejected — that the liquidator would know the banker and the director and therefore these matters would be settled between them. I do not think that actually happens to a great extent but that suspicion will be there. On the other hand, there would not be a suspicion that judges are in the same social milieu and therefore the involvement of a judge in rubber stamping or approving any large sale to a previous director — I accept the smaller sales could be left out because it is not a matter of absolute principle; it is a matter of practical justice — would be good in terms of the integrity of the legislation.
I will not press this matter to a vote if we can get some indication that the Minister will respond somewhat constructively to it. I feel that members of the committee on the other side, while they are not agreeing with me, see some point in what Deputy Barrett and I are saying.
Deputy Bruton may have selected the wrong evening not to push it to a vote. I do not want to create any further risibility on the Fine Gael benches but I am disposed towards supporting this amendment, and he is not a rogue.
(Interruptions.)
I am surprised it took so long to sink in. I was not present to hear the Minister's reasons for opposing the amendment. It seems that a case has been made, that I have personally experienced in circumstances where the liquidation process is set in train, that on some occasions there are reasons to be suspicious about the train of events that occurs after such a liquidation.
The liquidation process, as it operates at the moment, does primarily protect the situation of the financial institutions and other than in the case of workers who are owed wages, where they are preferential creditors, unsecured creditors and others are not protected. We should apply equality of remedy so that the court could have a look at the situation. Former directors, and they need not necessarily be rogue directors, have access to internal information that others on the open market do not have. It can lead to a situation, for example, of plant being sold off at preferential rates, or merely plant being sold off because it suits that particular director but it actually kills any prospect of the enterprise being revived as an enterprise for the process that it was engaged in initially. Deputy Bruton should believe that hope springs eternal. Unless the Minister has very good arguments — I do not know what the Fianna Fáil Whips situation is like today — I am disposed towards supporting the amendment.
I am impressed by the debate. It has teased out on all sides, all aspects of this amendment and I see the point involved. However, it is rather an attack on the integrity of the liquidator involved, in that the liquidator would be under the control of the courts and would have to bear in mind the effects of taking such drastic action of selling the actual assets to an ex-director — if he or she was a rogue director it would be totally unacceptable, in this case—and the creditors could exercise their powers to object in the courts to the sale. There are quite a number of controls in this. It is not a black and white situation.
Section 147 (1) of the Bill provides that a receiver in selling property of a company should exercise all reasonable care to obtain the best price reasonably obtainable for the property at the time of sale and a similar requirement for liquidators could be considered. That would be a strengthening of the legislation. It may not go the whole way to satisfy Deputies Bruton and Barrett, but I would be prepared to consider that point of view which would allow for the points made by all the Deputies in relation to this issue, which are reasonable.
The liquidator needs to be very conscious of his or her responsibilities under this Bill. This would be an additional pressure on the liquidator to exercise very carefully his discretion in relation to the sale or disposal of assets to a former director of the company. I would suggest that, as a possible compromise, this would be considered.
I appreciate that the Minister is trying to meet us on this. I am reluctant to look any gift horse in the mouth, but I do not think that is much of an advance. It would appear that it is already the responsibility of the liquidator and that in selling the assets to a former director a liquidator would probably be able to convince the court he had done this and got the best price available. In any event, who is to contradict him at that stage once the assets are sold? I would have thought that the Minister should have had a look at the wording of our amendment and see how it could be limited or restricted so as not to cause the constant recourse to court that he was worried about, and make it apply only in exceptional cases but at least maintain the basic principle of an obstacle to the sale to a former director being there. The Minister's suggestion is addressing another problem, it is not really addressing the problem we are trying to solve. I am afraid it is not enough.
I can see the logic in much of what Deputy Bruton is saying. I was going to make that suggestion to the Minister, that he expand section 147 to replace the word "receiver" with "liquidator". Having done that, the Minister is going a very considerable way along the road. Much of what Deputy Bruton has been arguing for the past 20 minutes is based on one hypothetical situation, namely, where there is a large financial institution as a preferential creditor, a secured creditor, and the proceeds of the assets of the company, of the machinery, will be sufficient only to pay off that secured creditor and there will be nothing there for the unsecured creditors. That is only one of a number of many possible situations. I would like to ask Deputy Bruton to think about this again, because we want to ensure that in so far as possible unsecured creditors will be satisfied, at least partially. We will not help that by having the assets of the company further depleted in expensive High Court cases. Chancery lawyers do not come cheap.
There must be some way of importing into this section the notion of the reasonable person we have been talking about since we started on this Bill to prevent resort to the court being used frivolously — where there are reasonable grounds to suspect that it is not in the interests of unsecured creditors or in the interests of the former workforce, that part of the assets ought to be disposed of to a former director.
I am concerned about the kind of situation, in addition to what Deputy Bruton has said, whereby for reasons of the dictates or requirements of a major financial institution an enterprise can be broken up, because it is the most convenient way for the major bank involved to have its debt situation cleared. Sometimes it can be more profitable to have the particular enterprise developed for reasons other than in the case of a manufacturing plant going into liquidation. There must be some visa media here where it is possible to achieve the purpose of the amendment without allowing everyday, frivolous resort to the courts.
Can I just ask Deputy Bruton who does he envisage, if the amendment is accepted, would have the right to apply to the court for its opinion as to whether or not the assets should be sold to a former director?
The liquidator.
Under the legislation as it stands, namely, section 231 (3) of the 1963 Act, any creditor or contributor can apply to the court in relation to any of the powers exercisable by the liquidator.
The point here is a general one. We are not saying that in every case the creditors might wish to apply, but as a general principal we think it is unhealthy, without some special control existing, for assets to be sold back to the former directors of an insolvent company. That is the point we are driving at, but what Deputy O'Dea says is, of course, correct.
Surely the relevant legislation which is not much used would, in fact, achieve the purpose the Deputies wish to achieve by their amendment? I do not understand why the answer is "no" because if it gives effectively a wider audience, or a wider group of interests, the right to refer items to the courts, including perhaps the sale of an asset — something which is not only infrequent but rare indeed — where is the necessity to import an additional amendment in here, particularly if it would have, for example, the potentially negative impact of, among other things, preventing the sale of an asset that may have no other market?
The worry we have is about the liquidator selling assets by private contract; the creditors might not know about this and, therefore, might not apply to the court in time. If, however, there is a general limitation on the liquidator selling to a former director, the liquidator would then be in a position where he had to take responsibility to apply. That would be easier for him. If there is any way in which the procedures for making such an application can be rendered as inexpensive as possible that would obviously be something we would favour. What we do feel, however, is that the court should be involved in major sales of assets to former directors.
I think there may be a solution here. I wonder would circulating notification of an intention of the sale of assets to the creditors, among others, not achieve the same purpose, particularly as those creditors would have the right, under existing law, to refer the activities of the liquidator to the courts? Would that be a better and less cumbersome way of achieving the same thing? I accept the point that these things can be done very quickly and very effectively behind closed doors and that may be the issue here. It may be an improvement if there was some requirement that persons who had an interest in the liquidation would be notified prior to the actual selling of assets. Perhaps the Minister and his officials could consider that. I do not think that would be a particularly cumbersome or costly way and I do not think it would necessarily impede an orderly liquidation. Would that be a different way of achieving the same purpose?
I did not readily appreciate the last contribution from Deputy Bruton, that it was the opinion of the liquidator that would cause a referral to the courts. I thought the amendment provided for a situation where any creditor who had reasonable cause to be concerned about this could make such referral to the court. I have seen a situation on more than one occasion where the liquidator was the former auditor of the company in question. In fact, I do not know what the norm would be, but it is not unusual that the liquidator would be the company's auditor. It is na�ve, except in cases where there is fraud or other things suspected, to think that there is not a relationship between the managing director or directors of a company and the company's auditors and that their word really carries a lot of weight with the liquidator in the subsequent execution of his duties, notwithstanding how the powers of the liquidator might be circumscribed or what we consider his responsibilities to be. On more than one occasion we have seen a situation where the former workers of a particular plant have a point of view which they are powerless to do anything about if the liquidator decides to act.
When indicating support for the amendment, and I still think the thrust of it is worthy of incorporation in the Bill somehow, I envisaged a situation where, for example, the former workforce in so far as they would be unsecured creditors could make such a referral, for example, if there was reasonable cause.
To understand the reason for the answer one needs to look at the actual place where this amendment is to be inserted in the Principal Act. It is in a section dealing with the powers of the liquidator and in subsection (2) of that section it says: "The liquidator in the winding up by the court shall have power to sell" etc; and it goes on to say what he may have to sell. Then we are adding in the words "save that he shall not have power, without the consent of the court" etc. to sell to a former director.
But it does not say who shall make the application.
I think it is normal that if it is in a section dealing with his powers and he wishes to exercise them and there is a barrier placed in the way of him exercising them in a particular way, he would be the person who would make the application in those circumstances because it is only he who can bring it to that point.
Is there not a weakness there in that if the very type of cosy arrangement which we wish to avoid happening were happening, the liquidator would be hardly likely to utilise it unless one actually puts a specific limit whereby he has to go to the court? I still think it would be worth considering the necessity to say how the assets are going to be disposed of over a certain limit, and to put creditors on notice might be a better way. In fact, at the same time it will bring their attention to the fact that they have certain rights if they feel that something incorrect is occurring, that they have existing rights in law that they could use and depend on. I think that might be a better way of achieving the same objective.
In regard to Deputy Rabbitte's point in relation to the possible appointment of an auditor as the liquidator, under section 124 it is not possible. The auditor of a company cannot become the liquidator so that would cover the point in relation to the Deputy's difficulties with the cosy arrangement between the former auditor and the managing director and the directors. Under section 124 that would be prohibited.
In an effort to bring what has been a good discussion to conclusion, could the Minister indicate precisely the position of the Department and his position in relation to the discussion that has taken place as to whether there is to be an amendment to an amendment or a referral to Report Stage?
I have stated already that we are prepared to look at that section in relation to putting forward a suitable safeguard that would give certain protections and try to prevent the type of abuse that could arise. I accept the bona fides of the Deputies on all sides in regard to their remarks on this matter. We want to prevent this happening, but we feel that under the section 231 (3) of the Principal Act there is provision to prevent that by the actual creditors having certain powers. We would put certain requirements on the liquidator under the proposal I made already to the committee.
What is the position in relation to the notice of intention to circulate the compromise that was also put forward, so that everyone will know where we are; otherwise we are going to be here all evening talking about the same thing.
We are prepared to look at this section in relation to my own suggestion.
I would suggest to the Minister that Deputy Roche has made an interesting proposal which does not require a whole lot of change to our amendment. If the Minister were to consider putting in "without 14 days notice to the creditors" instead of "without the consent of the court", that would be more or less what Deputy Roche is suggesting and it would mean that the people concerned could exercise their powers under subsection (3) of the Principal Act. In time, they would have the information to do that.
To conclude on that, I do not think it is necessary to do what Deputy Bruton is saying. Just having the 14 days notice, you do not need to have the rest of the amendment because what you are doing in the rest of the amendment is giving the power to sell or restricting his power to sell to former directors. That is one of his powers which is already restricted under section 231, anyway. It is, to sell any assets of the company. Selling the assets of the company is one of his powers.
What I took Deputy Roche to be suggesting was that in the case where there was an asset being sold to a former director, as distinct from just a normal sale, there might be notice in those situations to all the creditors in case they wanted to object.
How can you do that?
I take the point that it does not, but if it is a public auction and there are bids and a former director bids the highest amount, you come back to the problem I posed earlier on. Where is the public good served by prohibiting the highest bidder from buying or where is the interest of the creditors served by prohibiting the highest bidder buying? That is a conundrum you have to answer. I appreciate the anxiety to prevent the public being scandalised by what they regard as cosy background deals. That is the real issue we want to stop here because the public have to have confidence in the way the law operates. But if there is a public auction of assets and a person who is now going to be prohibited from incorporation, from doing another Lazarus job at some stage in the future, buys assets and goes out and starts to operate as a bona fide citizen who happens also to be a sole trader, I would be less concerned than I am now. That is not really the thing you need to address. What you need to address is precisely the point that Deputy Bruton is making, that these things do smell and the public is concerned about them. If the Minister and his officials keep this in mind and work out something on the notification strategy it may well achieve the purpose we all want.
I think if the Minister wished to do it it could be done here and now, simply by incorporating the words "without 14 days' advance notice to the creditors" into the amendment as it stands. I hope the Minister is able to do that.
As I understand it, the suggestion is that notification is to be given by the liquidator that he intends to dispose of the assets to a former director. Is that not what really is emerging? It has some merit in it, but I think it is going to draw every argument out into the open. It is certainly going to make a field day for the legal people because anyone with a grudge of any kind, large or small, as a creditor, will probably use that as an attempt to frustrate the disposal of the assets which, after all, would probably be carried out by the liquidator at that time in the best interests of the creditors.
(Interruptions.)
I have listened to about 14 different arguments and I think really what Deputy Bruton, Deputy Barrett and, indeed, all the other contributors have exposed for us is a very complex area. I know Deputy Barrett says let us sort it out now, but I think it would be unfair, having had a very good debate and having listened to the arguments made by the two Deputies opposite, to ask that we solve it here now. I would use the analogy, why use a JCB if you can use a shovel? That is what we are talking about.
I would ask the Minister to take on board the views expressed here and to come back on Report Stage. The Minister has been very reasonable. Deputy Roche has mentioned another way out. But when I hear all these proposals coming from different directions I think the most reasonable thing — and we have to proceed with this, let us face it, and try to make some progress - is to ask the Minister to try and come at it from another direction. As I said, hopefully, a shovel rather than a JCB might suffice on this occasion.
I appreciate what Deputy Bruton is trying to do but he may be coming down too heavy on an issue that can be resolved a little bit more directly from a different approach.
I would say that far from producing a JCB, Deputy Kitt's colleague Deputy Roche has produced a most elegant silver trowel to deal with this problem. I think it is simply a question of the Minister having the courage to grasp what Deputy Roche has offered him as a solution to this problem. While I prefer our amendment, I think Deputy Roche's formulation is actually very reasonable. At least it gives us a sense that we are doing something here and that we can see a result of it and not be told that it is going to be considered by the Department and when the matter arrives on Report Stage — God knows when — we might or we might not, if we can remember, see an amendment coming forward. It would be better from everybody's point of view, given that we have spent a lot of time at it, and the arguments are fresh in our minds now, if we could decide it now.
We cannot really decide it now. What Deputy Kitt said is quite correct. There are quite a lot of useful suggestions being made here by Deputy Roche and other Deputies in relation to this matter. In fairness to the Department, and Deputy Bruton knows this quite well, any suggestions made here would be very seriously considered and would not just be ignored. I put forward a reasonable compromise, but nevertheless there have been very good suggestions made here. In the circumstances, it is a very important section and we will have to consider the points being made for Report Stage.
We are here as legislators.
As Deputy Kitt said, we are not in a position to draft, if we have decided to draft, a suitable amendment here at this stage. I put forward what I suggest is a reasonable point of view, to have certain constraints on the liquidator. The points put forward by Deputy Roche have merit but they could also be very restrictive and they may even be to the detriment of the creditors. Those are the people we are concerned about. Opportunities could arise, could then go away, and not be there again and the creditors would be the losers. I will have to do very serious, deep thinking on this issue with my officials, before Report Stage. That is all I can say at this stage.
Question put: "That the new section be there inserted."
The Special Committee divided: Tá, 6; Níl, 6.
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Tá |
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Barrett, S. |
Durkan, B. |
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Bruton, J. |
Rabbitte, P. |
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Carey, D. |
Reynolds, G. |
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Níl |
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Cowen, B. |
Leyden, T. |
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Flood, C. |
O'Dea, W. |
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Kitt, T. |
Roche, D. |
Standing Order No. 175 provides that in the event of an equality of votes in Special Committees, the question shall be decided in the negative. Therefore, the question, "That the new section be there inserted" is negatived and the amendment is lost.
Amendment declared lost.
I believe that when there is a tied vote we have an automatic entitlement to resubmit amendments on Report Stage.
That is correct.