Special Committee on the Companies (No. 2) Bill, 1987 debate -
Tuesday, 3 Apr 1990

SECTION 135.

Mr. O'Malley

I move amendment No. 192:

In page 111, subsection (1), line 11, after "convicted", to insert "on indictment".

Section 135 of the Bill replaces section 184 of the 1963 Act by a much stronger provision dealing with disqualification of directors by the court. Having looked closely at the section again, however, I think that the section has gone too far in this respect. Under the 1963 Act provision a person could be disqualified if he was "convicted on indictment of any offence in connection with . . . . a company", whereas the current text of section 135 of the Bill would automatically disqualify for five years any person who was "convicted of any indictable offence in relation to a company".

The problem is that, while indictable offences may have been few and far between in the 1963 Act, being confined in the main to very serious offences, the structure of the Bill is such that many offences under it, even some fairly minor ones, are indictable. This is because, unlike the 1963 Act, the majority of offences in this Bill are subject to the general penalties provision in section 202, thus effectively making almost every offence under the Bill potentially an indictable offence. Of course, the vast majority of offences under the Bill would probably be proceeded with by way of summary prosecution with indictment proceedings confined to more serious cases.

While we would all wish to see the law fully observed, I think the Committee would agree at the same time that we would not want many of the minor offences in the Bill to carry with them the sledgehammer of disqualification from company management for at least five years. I propose in this amendment, therefore, to go back to the wording of the opening line of section 184 (1) of the 1963 Act which speaks of conviction on indictment rather than conviction of any indictable offence.

Amendment agreed to.

Mr. J. Bruton

I move amendment No. 192a:

In page 111, subsection (1), line 12, after "dishonesty," to insert "negligence or recklessness,".

This amendment is linked to the case we were making earlier. The Fine Gael Party are of the opinion that the best way of dealing with the Phoenix Syndrome is to disqualify people who have been actually convicted in the courts of an offence from becoming directors rather than to apply restrictions to all directors regardless of blame. We recognise that section 135 as at present drafted, which is the section that allows for disqualification, was and is too narrowly drafted to allow that approach to apply in all the cases where we believe it should.

We believe this disqualification approach should apply to the circumstances contained both in section 115 of this Bill, which relates to fraud and to the circumstances that arise in section 116 which refers to any person "knowingly a party to the carrying on of any business .... in a reckless manner" or carrying on the business in a fashion where the director ought to have known that his actions would cause loss to creditors of the company; in other words, a wider range of circumstances should be capable of being the grounds for disqualification. We put this forward because we believed that disqualification on specifically stated grounds of misconduct or omission should be the penalty, that directors engaged in what is known as the Phoenix Syndrome should suffer rather than have, as I have repeatedly said, penalties or restrictions apply to all directors, including those who are utterly blameless, simply because the company became insolvent.

The wording of amendment No. 192a perhaps is not ideal. We simply import the reference to negligence and recklessness into the reference here to indictable offences. It would probably be necessary to achieve our intention to use some other phraseology rather than simply importing these words. To achieve our intention one would probably have to have a reference to section 116 of the Act. I am not so sure there is much point in pursuing this amendment in view of the fact that the Minister and the majority of the committee have rejected the approach upon which it was predicated, that is, that there should be penalties for those who commit specific civil or criminal offences to deal with the Phoenix Syndrome rather than blanket restrictions on everybody whether they committed an offence or not.

Mr. O'Malley

I find it very hard to accept this amendment because I think the Deputy will acknowledge it runs into many difficulties. He proposes to insert the words "negligence or recklessness" after the words "Where a person is convicted of any indictable offence in relation to a company, or involving fraud or dishonesty". He proposes to have that read, "fraud or dishonesty, negligence or recklessness". You cannot be convicted on indictment or otherwise of negligence. You cannot be convicted on indictment or otherwise of recklessness. These are civil concepts. They are not criminal concepts. There is no criminal offence. There is no such thing, for example, as criminal negligence. It is a phrase that is used at times if something seems particularly blatant——

Mr. J. Bruton

It is used in political speeches.

Mr. O'Malley

And other imprecise occasions such as that. It does not form part of the criminal jurisprudence and, therefore, I think it cannot arise. It is trying to import into this a concept that is far too wide and would be unduly penal in my view.

Mr. J. Bruton

I had already acknowledged the Minister's criticism in my introductory remarks in the sense that the drafting here is not perfect. The intention, however, as I have explained, is to allow for the possibility of disqualification where people have committed civil wrongs involving negligence or recklessness. I ask the Minister, without pressing this amendment, what his view is about that.

Chairman

For the purposes of the debate the Deputy should raise these questions on section 139 when we will talk about civil conseqences.

Mr. J. Bruton

No, with due respect to the Chairman, section 139 only deals with the rather narrow question of the civil wrong committed by those who trade while disqualified. It does not deal with the grounds for disqualification in the first place. Probably this is the right place to raise it. I can deal with it on section 135 if you want to dispose of this amendment.

Amendment, by leave, withdrawn.

Mr. O'Malley

I move amendment No. 193:

In page 111, subsection (1) lines 16 to 22, to delete paragraph (a) and substitute the following:

"(a) he shall not be appointed or act as an auditor, director or other officer, receiver, liquidator or examiner or be in any way, whether directly or indirectly, concerned or take part in the promotion, formation or management of any company or any society registered under the Industrial and Provident Societies Acts, 1893 to 1978;".

Amendment agreed to.

Mr. O'Malley

I move amendment No. 194:

In page 111, subsection (2) (a), line 27, after "officer,", to insert "auditor,".

Amendment agreed to.

Mr. O'Malley

I move amendment No. 195:

In page 111, subsection (2) (b), line 30, after "officer,", to insert "auditor,".

Amendment agreed to.

Mr. O'Malley

I move amendment No. 196:

In page 111, subsection (2) (d), line 37, after "officer,", to insert "auditor,".

Amendment agreed to.

Mr. Rabbitte

I move amendment No. 197:

In page 111, subsection (2), line 48, after "fit" to insert "or may require him to carry liability for any outstanding debts to any new company".

This amendment relates to subsection (2). Under this section a situation is posited where if the court is satisfied in respect of a number of possible misdemeanours or more serious offences, the court may take specified action and may, of its own motion or as a result of the application, make a disqualification order against the person concerned. The purpose of this amendment is to do no more than establish an alternative whereby the court, instead of making a disqualification order, could require the person concerned to carry the liability or part of the liability from any outstanding debts to the new company.

It is especially galling to find that in the operation of this Phoenix Syndrome a company can spring up again and there is no way of making that new company liable for any of the debts that may not have been discharged. This would give the court the alternative of either disqualifying the person in the first instance or, depending on the facts of the case, permitting that person to go ahead but making him liable for outstanding debts or part of outstanding debts. This may, in many cases, recommend itself as a more effective solution to creditors.

Mr. O'Malley

I have listened with interest to the arguments made by Deputy Rabbitte in support of this amendment and I can understand the reasons for it. However, I have to say straightaway that I have basic problems both of principle and of practicality with the amendment and I would find it impossible to accept it. I will explain what are the difficulties.

Amendment No. 197 is clearly based on the philosophy that a person who has been involved in insolvency should repay the debts his company incurred before being allowed to start again. However, it seems that the underlying principle here is already provided for in those sections of the Bill which provide that a company director may be made personally liable for the company's debts in a range of circumstances. Thus, we have section 116, for example, which allows for personal liability where a director has been a party to fraudulent or reckless trading. That section will allow a liquidator, creditor and so on to pursue a director personally for his company's debts in appropriate cases. Indeed, where a director has been made personally liable in this way the court can go on to make a disqualification order against him as well as having made him personally liable.

There is also the point that new section 130, as inserted by amendment No. 176, will apply to the type of case that the Deputy has in mind. Section 130(2) provides that where the liquidator of an insolvent company thinks that the involvement of any of the directors concerned in another company, whether this is a new company or not, may put the interests of its creditors in jeopardy, he must inform the court of this and the court can then make whatever order it thinks fit. That provision is pitched in a deliberately wide way to allow flexibility to the court and we are not restricting in any way the kind of order the court can make here. I am not saying the court would make an order of personal liability against the director concerned under section 130 (2) but I could not rule it out either.

A further problem with the proposed amendment is that if a person were automatically to carry previous debts to a new company, I would expect the creditors of the old company to go after the new one immediately. The effect of this, of course, would almost certainly be to plunge the new company into insolvency straightaway before it had even started. There is also the problem that there would usually be more than one director of the old company involved here who might become involved in several different companies subsequently. There would be considerable uncertainty as to which of these companies should, as it were, carry the debts involved.

I have stressed all along on this Bill that what I am after is a balanced piece of legislation, one that responds to the abuses we all know exist but in a considered and measured way. This is as true of Part VII as it is of any other Part of the Bill. Thus, on the one hand, we have section 128 as replaced by amendments Nos. 174 to 177, which will enable the court to make a declaration restricting the right of anyone concerned in an insolvency to start up in business again without meeting a certain number of conditions. This will ensure a degree of protection for the creditors of any new company the person concerned will become involved with. On the other hand, we have the strong measures in Chapters 2 and 3 of this Part, which will deal severely with anyone who is disqualified by the courts from being a director and so on. A person who is disqualified will effectively lose his livelihood, at least as far as being involved in company management is concerned. I feel strongly, therefore, that the range of provisions we have here goes as far as it is necessary to go in countering the abuses we set out to tackle in the first place. As I said at the outset I cannot, for these reasons just given, accept the amendment.

Mr. Rabbitte

The Minister has referred to a number of provisions which we have had an opportunity to look at in detail but I am not sure they are necessarily inconsistent with the purpose of this amendment. It is not a situation that would invite people automatically to go after the new company. The amendment states that the court may require a person to carry the liabilities with him. I do not think there is any automatic possibility open to creditors to go after the new company. It may be that in consideration of the circumstances listed under subsection (2) from (a) to (f) the court may, in considering the situation, consider that this course is a more appropriate remedy rather than a disqualification order.

I think the Minister interpreted the amendment as meaning that somebody involved in an insolvency must discharge the debts before starting up again, but I do not think that is what the amendment provides. It provides that he would be required to carry the liability with him. It would not prevent him operating a new company or with a new company, but the new company would carry, if the court was so minded, the liability of the original company. It would not prevent the person concerned from starting up again, it would not be an automatic disqualification. Why does Deputy Bruton smile? I have listened patiently to the other point of view for days.

Mr. J. Bruton

The Deputy would want to clear this with some of his friends in other parts of the world, they are changing their views so rapidly.

Mr. Rabbitte

Deputy Bruton's friends in the same part of the world, if I recall my history correctly, were very intimately involved.

Mr. J. Bruton

They won the election.

Mr. Rabbitte

They were also involved in a coalition since 1945.

Mr. O'Malley

It is perfectly clear that the intent here is to try to get the person concerned to clear the debts before he starts again. It may not be a specific requirement as set out, it would be ideal if we could do it but it would really undermine the whole concept of limited liability to insist that somebody who was the director of a company could not become the director of another company until he had cleared all the debts. We have tried to meet them half, or quarter, way towards that eventuality because you destroy enterprise if you go to that extent.

Apart from the problems that I have already outlined in relation to this amendment the difficulty here is the definition of "any new company" . . . "carry liability for outstanding debts to any new company". . .". Is it a company which he forms or is it a company of which he happens to be a director? If he wants to avoid it, he can get his wife, mother, sister or associate to form the company for him. Then it is not, within the terms of the Deputy's amendment, "any new company". It is a company, on the face of it, that he has nothing to do with. Therefore, he would have avoided this provision straightaway. On drafting grounds as well as on grounds of principle I do not think the Deputy should pursue this one.

Mr. Rabbitte

On the net point of the Minister reading it as there being a requirement that the debts would be cleared before the new company — or the company that is envisaged here — gets under way or trading or whatever, I repeat that the requirement is that the liability would be carried with him. It does not mean that it must be cleared before he starts trading, or in the first year of trading. That would depend on a number of circumstances. Having regard to the——

Chairman

Sorry, workmen started drilling at 11.00 a.m. we asked them to stop and they said they would come back at lunch-time and keep going until 2.30 p.m. at which stage they may have a hole in the wall on the far side. They have allowed us to get on with our business so maybe we should let them get on with theirs now and come back at 2.30. Is that agreed? Agreed.

Mr. O'Malley

Will they be drilling in the afternoon? Leinster House is an enormous complex and surely it is possible for us to get some humble room where drilling is not going on, especially during a recess?

Chairman

I understand they will not be drilling when we come back but they will use their lunch break to do the drilling.

Progress reported: Committee to sit again.

Sitting suspended at 1.10 p.m. and resumed at 2.30 p.m.

Minister of State at the Department of the Environment (Miss Harney)

Until what time are we going to meet please?

Chairman

We will meet until 6 o'clock. Is that agreed?

Mr. S. Barrett

With respect, I do not know what authority the Minister of State has. We are moving into a Part of the Bill that certainly we would have an awful lot of reservations about as, I understand, have various people in the accountancy profession, that is the whole area of the examiner. I would not like to be in a position where we would not be able to get definite decisions taken on that. Maybe we should leave that Part until——

Miss Harney

That mattter arises later.

Mr. S. Barrett

We will reach it fairly quickly.

Chairman

We will see if we can make progress.

Mr. J. Bruton

I hope the Minister will make decisions, even if they have to be remedied on Report Stage.

Chairman

We adjourned on amendment No. 197. Has Deputy Rabbitte finished his contribution?

Mr. Rabbitte

I was attempting to respond to the points the Minister raised. As I understand it, there were really two net points: firstly, he read into the amendment an obligation that, in the case of the insolvency being described here, the person would be responsible for clearing all debts in advance of his participation in whatever capacity in a new company; and secondly, that it was insufficiently precise what kind of new company that person would carry the liability to. Is it a new company that he starts up or a company he joins which is already trading? My point is that the amendment does not require the person so liable to clear the debts in advance of trading. There is no such obligation. The amendment says that the court may require him to carry liability for any outstanding debts to a new company. The time schedule over which the debts could be repaid is not specified. It may be over a year of trading, five years of trading or whatever. It is merely a liability that is carried to the new company.

That interacts with the second question the Minister raised, which relates to the kind of new company. He seemed to think that it would threaten the principle of limited liability but I do not see how that is the case. We are talking here about an alternative remedy being open to the court. As the Bill stands, under any of the paragraphs of subsection (2),—from (a) to (f) — if the court is satisfied from the proceedings it may, of its own motion or as a result of an application, make an order of disqualification. All I am saying in the amendment is that there is an alternative remedy which presumably the court would decide based on the proceedings. It may, if it was so minded, decide that the liability should be carried. For example, a company can be established which carries on substantially the same business. We have had examples of this where, due to the ruse that we have been describing as the phoenix syndrome, a new company can spring up carrying on substantially the same business without inheriting any of the debts or liabilities. I am saying that in such a circumstance the court would make up its mind, based on the proceedings, and if it thought it was an equitable remedy it would, in those circumstances, impose a requirement that the liability would be carried forward.

Miss Harney

I do not think the Deputy is right in assuming that the Minister felt this concept was to be imposed in all cases. As the Deputy knows, limited liability applies to the share capital of a particular company and is restricted to that. If one were to move that liability onto a new company, it would breach the principle of limited liability as we know it. The points raised by the Deputy are covered under the existing provisions of the Bill. Subsection (2) of the new section 130, for example, provides that where a liquidator of an insolvent company thinks that the involvement of any of the directors concerned in another company may put the interests of the creditors in jeopardy, he must inform the court of this and the court can make whatever order it thinks fit. What we wish to do here is to give the greatest possible flexibility to the courts in these circumstances so that every case can be looked at individually. To force the debts to be moved onto a new company would first place any new company in a very difficult position and, secondly, there would be difficulties, as the Minister said this morning, in trying to decide to which new company those debts would apply. I think the underlying principles of this Bill, which give the courts considerable powers to make company directors in several situations personally liable, cover the points generally that the Deputy wishes to raise in the context of this amendment. I believe they go far enough and give the necessary flexibility to the courts. I do not think we should go beyond that.

Mr. Rabbitte

I think more is being read into the amendment than is warranted. There will be a number of concepts enshrined in this legislation when it is enacted which have not existed up to now. While the principle of limited liability is regarded as sacrosanct, we are talking about exceptional circumstances here. For example, subsection (2) (a), envisages that a person has been guilty of some form of fraud in relation to the company. My amendment suggests that the court may, on its assessment from the proceedings, decide that in such a circumstance it is proper that the company carry liability. I gave an instance where substantially the business was being continued by the same person or persons but under a new name, sheltering behind limited liability with no responsibility to creditors and others who were defrauded, and notwithstanding those circumstances, the new company has no liability at all. I do not think the provision is as all-embracing as the Minister seems to read.

Mr. S. Barrett

The difficulty with Deputy Rabbitte's amendment is that he is asking a court to take a decision at a time when the court is deciding whether somebody should be disqualified from holding a directorship in the future for a certain period or periods. If what Deputy Rabbitte is trying to achieve was dealt with when the person who had been disqualified was seeking to start up again, the court could decide, because the same directors were involved in the proposed new company, to impose this sort of liability on them. The problem of building it into this section is that you are asking that a court may impose that restriction at a time when they are only dealing with disqualification. You do not know what is going to happen five or ten years down the road. The problem with all of these matters is that these directors are being disqualified, leaving people carrying big losses and even if you put them out of business for five years, the chances are that those losses will never be recovered. If you do not let them set up again, you have no chance of getting anything from them. There is a balance here that has to be looked at. While one's immediate reaction would be that if somebody is convicted or found guilty of having behaved in a fraudulent fashion in relation to a company they were involved in, the automatic reaction would be to say they should never be allowed to trade again. That would be the immediate reaction of any member of the public, and it would be my immediate reaction.

We have spent the last meeting or two arguing about whether we should put heavy penalties into this section to deal with the phoenix syndrome, the gangster and the guy who should not be in business and who may be putting others into liquidation. I think we have missed the point in this Bill. I would be all in favour of supporting measures to deal with people who are engaged in fraud from day one. I would support the Minister if he could find a way of dealing with them at the appropriate time. All he will do is put somebody off the road for five years, but he does not know what they are going to do after five years. That is the problem as I see it. Perhaps we should be considering the possibility — perhaps this is what is in the Minister's mind — of putting a requirement on people to appear before a court to satisfy it that they have their act together before they are allowed to start up in business again. Perhaps Deputy Rabbitte's proposal could apply in cases where a husband and wife whose company has gone to the wall have to pay their outstanding debts before they are allowed to start up in business again.

Mr. J. Bruton

I understand Deputy Rabbitte's proposal to be an alternative to disqualification.

Mr. Rabbitte

Yes.

Mr. J. Bruton

It would mean that a judge would have greater freedom to manoeuvre and may decide not to disqualify somebody on the basis that it would be better for the creditors to let them get back into business, so long as he carried these responsibilities with him, because he had certain abilities that he could deploy.

Miss Harney

The points made by the Deputies are covered in the Bill. The court has the authority to make somebody personally liable for debts if it believes that it is appropriate in the circumstances. The court can exercise the more drastic measure of disqualifying somebody if they behave in the manner suggested by Deputy Rabbitte. If they are guilty of offences under section 135 (2) (a) the court can disqualify them, which I think would be a more appropriate measure than simply allowing them to start up in business again. I take the point that it might be one way that the creditors will get their money. The court has both options — it has the power to disqualify and make somebody personally liable, or it has the power not to disqualify but to make somebody personally liable. I think the kind of options and situations referred to by Deputy Rabbitte are covered in the Bill.

Mr. J. Bruton

There could be a problem here in that the individual who is made responsible for all the debts of the company might not be the most guilty person. How would Deputy Rabbitte feel about changing the wording in his amendment to read something like "or may require him to carry the liability for any or a proportion of the outstanding debts to any new company"?

Chairman

The amendment is as it stands and Deputy Rabbitte has explained it to us two or three times. Section 116 to which the Minister has referred can be invoked in exceptional circumstances where the company are not in a winding-up situation and where full personal liability can attach to a person if the court sees fit on the evidence. It is not a different concept to the extent that the person can be held responsible for the debts of the company. Deputy Rabbitte's amendment proposes to ensure that if a company become insolvent, where the evidence suggests it is necessary, a person would be held responsible for the liabilities of that company. Section 116 provides that any creditor can do that.

I do not think it will be helpful to the discussion or the amendment if we start arguing about whether it should be amended this way or that way. It is Deputy Rabbitte's amendment and it is up to him to press it or to come back on Report Stage with a different amendment as a result of discussion we have had here. The Minister's reply has pointed out certain relevant sections which, taking section 135 in isolation, would not have been apparent to anybody who wanted to bring forward amendments to the section as it stands. The best thing to do is to request Deputy Rabbitte to tell us what he wishes to do with his amendment.

Mr. J. Bruton

Deputy Rabbitte's amendment, as I understand it, is slightly different to section 116. Section 116 relates to the personal liability of a director for the debts. Under 116 his house and anything he owns can be taken in order to pay the debts. Deputy Rabbitte's amendment is different in the sense that it is an option short of personal liability where a director cannot set up another company without the company with which he will subsequently be associated taking on the responsibility. In a sense it is halfway between putting him on some sort of restricted list, which we were talking about earlier and to which I objected, and ordaining personal liability which would require a new company to meet his debts.

Chairman

That is correct. Before lunch the Minister adverted to that point and said he could not accept it in principle on the basis that the new company may become insolvent if we burden it with the debts of a director or owner of a previous company. In fairness, we must request Deputy Rabbitte to let us know what he wants to do with the amendment without putting any more provisos into it.

Mr. Rabbitte

Deputy Bruton has clarified an important point, which is that the amendment is not mandatory. The amendment deals with an either or situation. It may be more prudent, including commercially prudent, not to make an order for disqualification but to allow the new company to trade, to get off the ground and then to carry some of the liabilities previously incurred.

I take the point made that the liability being carried forward should only be for a proportion of the liability — I think the record will show that I made that very point in my introductory remarks. I take your point, Chairman, that this is not specifically included in the amendment but it seems that the section on which the Minister relied deals as Deputy Bruton pointed out, with a different situation. Under this amendment, the court will have the option, based on the proceedings, not to make an order for disqualification but to go down this road. This would depend on a lot of things — for example, the amount of the liability, whether the liability being carried forward will be a burden on the new company. It would also depend on other things such as whether the company are carrying on substantially the same business, etc.

Chairman

On a point of clarification in relation to section 116, what is to prevent any creditor bringing forward at any time in the civil liability period of six years an application to the court when the second, third or even the fourth company had been set up? It is not open to the creditor to bring an application to the court once it has been established that there are assets in the company from a director who previously was insolvent?

Mr. Rabbitte

That is the point; it may be a futile exercise.

Mr. S. Barrett

Section 135 (2) does not deal solely with directors. It deals with officers, liquidators and receivers.

Chairman

So does section 116.

Mr. J. Bruton

Section 135 (2) also deals with solvent companies, interestingly enough, in the sense that paragraph (f), for example, simply refers to people who have been failing to furnish returns.

Chairman

Section 116 is not restricted.

Miss Harney

The purpose of this legislation is to try to ground once and for all the phoenix syndrome. It seems that if you were to give the courts the power to allow them continue in business you would be fundamentally altering the principle underlying this legislation, and I do not think that would be desirable. In relation to those people who behave in the way Deputy Rabbitte has outlined, the disqualification procedure is the appropriate one. We should not simply allow them to continue, bringing their debts with them.

Mr. Rabbitte

The court would be the arbiter of that. I would like to press my amendment.

Chairman

Is the amendment agreed?

Miss Harney

No.

Mr. S. Barrett

There is some merit in what Deputy Rabbitte is trying to achieve. However it might prevent the setting up of a new company in the future.

Mr. Rabbitte

I honestly think it might facilitate the setting up of a new company in the future which is not facilitated by the section, as it stands.

Question put: "That the amendment be made."

The Special Committee divided: Tá, 5; Níl, 3.

Tá
Barrett, Seán.	Carey, Donal.
Bell, Michael.	Rabbitte, Pat.
Bruton, John.

Níl
Cowen, Brian.	Hilliard, Colm.
Harney, Mary.

Amendment declared carried.

Mr. Rabbitte

I move amendment No. 198:

In page 111, after line 48, to insert the following subsection:

"(3) A person having been an officer of a company, declared insolvent or wound-up without fully discharging its debts during the previous ten years, shall be required to make application to the court for a certificate of fitness prior to becoming an officer of any other company. The applicant must satisfy the court that his conduct as a company officer previously does not make him unfit to be concerned in the management of this different company.".

This amendment envisages the situation Deputy Barrett referred to in his contributions on amendment No. 197 when he said that maybe the person should be required to appear before the court before starting up a new business. When the amendment was put down the Bill was substantially different and we have discussed in detail the kind of restrictions that ought to be imposed on directors of insolvent companies in terms of paid up capital, depending on whether it is a public or private company, and of the ignominy or stigma attached to being on a list, but the view I have taken is that the person ought to be required to make application to the court for a certificate of fitness. The Minister has repeated that the purpose of the Bill is to ground the phoenix syndrome. This would be the most effective way of doing so. It would not be possible to get through the net if the person concerned had to make application for a certificate of fitness; the court that would make the decision.

Miss Harney

I cannot accept this amendment. My biggest problem with it is that it implies that, if a person has been involved in an insolvency, he is somehow guilty of something since otherwise he would not have to demonstrate his fitness to be a director again. We should not regard involvement in an insolvent company as a crime necessitating some form of absolution or indeed restitution. All we are saying in the Bill — and I want to stick to this — is that if a person is involved in an insolvency the court can be requested to make a declaration that any company with which the person subsequently becomes involved should have to meet a number of modest conditions, mainly to do with its capitalisation. I am talking here about the new section 129 of the Bill inserted by amendment No. 175.

The Deputies will now realise that by virtue of the amendments I have brought forward to section 128 we are now specifically providing a role for the courts rather than have the automatic restrictions applied to directors of insolvent companies as was originally proposed in the Bill. As mentioned, the court is required to make a positive declaration that the restrictions regarding capital and so on should apply to the director in question. Moreover, we have already provided in the Bill for the type of case where the director concerned is guilty of, for example, some kind of improper or dishonest behaviour. I am thinking here, of section 128 (8) and (9) — now new section 130 (2) and (3) — which requires the liquidator of an insolvent company to report to the court cases where he thinks the involvement of a director concerned in any other company might jeopardise the interests of that other company or its creditors. In such cases we are giving the court a very wide discretion to make whatever order it thinks fit to meet the circumstances of any case.

Mr. Rabbitte

I apologise for interrupting the Minister, but could she give me the new references?

Miss Harney

Section 128 (8) and (9), now new section 130 (2) and (3) and section 135 (2). This will allow the court to have regard to a person's conduct while a director and will enable the court to make a disqualification order against him where it thinks his conduct makes him unfit to be involved in a company. I should point out here that the court would not have to wait for a specific application to be made to it before being able to consider this. Subsection (2) clearly allows the court to make a judgment on the matter of its own motion in any proceedings before it.

To summarise, I think the Bill as it now stands following the amendments I introduced earlier already contains provisions which would deal adequately with cases where a director of an insolvent company was in some way culpable in connection with the insolvency. More importantly, however, the Bill does not regard involvement in an insolvency as something implying guilt in itself nor would I want it to.

Mr. J. Bruton

I regret to say, having agreed with Deputy Rabbitte on the last amendment, I cannot agree with him on this amendment. The basic principle being espoused here by Deputy Rabbitte is that if you are a director of an insolvent company you are guilty until proven innocent. That is not a principle accepted in our law. Essentially, what this amendment says is that if you are a director of an insolvent company you then have to apply to a judge to say you are fit to set up a new company. I could not agree with that. I would like to congratulate the Minister of State who is obviously speaking for the realistic wing of the Progressive Democrats on this occasion and advancing arguments that are diametrically opposite to those advanced by her colleague, the Minister for Industry and Commerce, Deputy Desmond O'Malley this morning in favour of his approach to other sections when he was prepared to see directors of insolvent companies blacklisted and put in a special category from the point of view of setting up new companies. I am glad the arrival of the Minister of State, Deputy Harney, has brought a significant improvement and enlightenment in the approach of the Progressive Democrats to company law and, I hope, to other matters too. I congratulate her on this. Her stand on this amendment does her credit, and perhaps she might take the opportunity to convey her more sensible views to the Minister when the opportunity arises.

Miss Harney

I do not think I need respond to that.

Mr. S. Barrett

When I spoke earlier I indicated if somebody behaves in such a way that brings about the liquidation of a company steps should be taken to either remove him from the scene or make it difficult for him to raise his head again. This amendment applies to all companies that become insolvent. It should have been worded in such a way that declared a company insolvent or wound up. If the courts found that this was as a result of fraud or something of that nature there might be a different approach to it. It is wrong to have this sort of obligation on somebody who, for genuine reasons, could have found themselves a director of an insolvent company.

Mr. Rabbitte

I do not know if this puts me into the liberal wing of the Progressive Democrats but I agree with the Minister of State that a company going into insolvency does not automatically make criminals of the directors. It is not automatically a crime. The purpose of the amendment was to try to make foolproof the provision whereby former directors, shareholders, owners or shareholdersdirectors can start up a company again with impunity. We have some celebrated cases. We had a recent very celebrated case where this happened but outside our jurisdiction. In that case the fact that it was outside the jurisdiction was purely a matter of commercial convenience. There is no good reason, having regard to the progress on that case, why it could not have been equally well within the jurisdiction. This amendment is merely to try to prevent somebody getting through the net. However, I take the points that have been made about the manner in which the amendment is constructed. I will withdraw the amendment and reserve my position to have a look at a tighter wording for Report Stage.

Amendment, by leave, withdrawn.

Miss Harney

I move amendment No. 199:

In page 112, subsection (4) (b) (i), line 21, after "officer,", insert "auditor,".

Amendment agreed to.

Question proposed: "That section 135, as amended, stand part of the Bill."

Mr. Bell

Before lunch I wanted to put a question about subsection 3 (a). The words used are "has been persistently in default". I am finding it difficult to see how that can be interpreted. What does it mean? Does it mean in default once, twice, ten times, 15 times or who decides on the persistency? What is the definition of that term. Perhaps, it is explained somewhere else in the Bill but I cannot find it.

Miss Harney

The subsection goes on to say, "where he has been in default for three or more defaults in relation to those requirements".

Mr. Bell

Where is that?

Miss Harney

It adds, "where it can be conclusively proved by showing that in the five years ending with the date of the application he has been adjudged guilty of three or more defaults in relation to those requirements."

Mr. J. Bruton

We have a problem here in that the Director of Public Prosecutions and, indeed, the enforcement arm of the Government in regard to company law, seems to be extremely weak. We have seen this in the recent celebrated case of Merchant Banking Limited where action has not been taken on a report furnished a considerable time ago. We are relying here for the operation of this section on the Director of Public Prosecutions making an application under subsection (2). It seems to me that the question must arise as to whether the Director of Public Prosecutions at the moment has the expertise in accountancy, and in knowledge of the financial complexities of what could be fraud, to be able to find out what is happening. That is one point I wanted to make. I notice that in paragraph (f) the Registrar of Companies may make an application to have somebody disqualified. That is, obviously, to uncover people who have been failing to furnish accounts on time and that sort of thing. I am wondering whether the Registrar of Companies, as somebody who is examining company accounts all the time and has ready access to computer produced data on company activities, should be included in paragraphs (4) and (6) of the section as a possible applicant in the sense that he has this degree of expertise.

Another point that Deputy Barrett mentioned this morning was in relation to the fact that in subsection (1) a person who is guilty of fraud shall be disqualified for no more than five years and in subsection (2) it states that a person who is guilty simply of not furnishing returns, which is a much lesser offence under paragraph (f), could be disqualified for ever from being a director of a company. That is going a bit further than we intend. Subsection (2) states that a disqualification order may be made against such person for such period as the court sees fit, without any limit, whereas a person who is caught on fraud can only be disqualified for five years. It seems to me that just as a prison sentence is for a limited period of time, with the exception of life sentences, a disqualification should also be for a limited period, even if it is one that is being decided upon by the court. We should insert after "sees fit" the words, "not exceeding five years". I do not think we should allow even the courts to disqualify people for ever on any of the grounds contained in subsection (2).

Miss Harney

In the case of somebody convicted of fraud it is true that the period of five years is referred to in section 135 (1). The section also goes on to say "or such other period as the court sees fit". Therefore, it could be for more than five years in relation to that. We are not anxious that the Registrar of Companies would be involved in policing this legislation. The Registrar's powers are being restricted to cases where somebody fails to make returns. The point made about Merchant Banking is covered under the new Central Bank legislation.

Mr. J. Bruton

In any event the problem is not just that. The difficulty in the case of Merchant Banking, as we all know, was that it was not just banking supervisory problems that arose. There are problems in regard to company law and the ethical conduct of business. I am not concerned about the adequacy of the law; I am sure that these provisions are going to be more than adequate on paper but the ability to enforce it. Have we got the staff with the expertise in either the fraud squad, who would feed in to the DPP, in the Minister's Department, or anywhere. This is the real problem on which we try to get some assurances. It really is a waste of time our passing extremely draconian legislation — containing all sorts of marvellous provisions on paper so that when our civil servants go off to colloquia in Brussels they are able to produce Irish company law as some sort of a model paragon of brilliant provisions and it looks great. But, when they return home to the reality of the Irish commercial world, they discover it is unenforceable because we have not the requisite expertise. That is a real problem. However, would the Minister not agree that there should be some sort of a limit on subsection (2), just as there is on subsection (1)?

Miss Harney

The Deputy is talking in relation to section 135 (2)?

Chairman

The position in relation to fraud is that it is five years or any other period prescribed by the court. It is dealt with in section 2(a) to 2(f) where it is said: "for such period as it sees fit". I cannot understand why we cannot impute a degree of common sense to the court in relation to returns.

Mr. J. Bruton

It is all a question of the law

Chairman

I know that, but we should not put on the court the onus of putting somebody out of business forever over returns. That is foolish. That is the clarification sought, anyway.

Miss Harney

I would like to be reasonable. I am not in a position to accept it now. Perhaps we could revert to it on Report Stage. I will ask the Minister to have a look at it.

Mr. J. Bruton

What did the Minister say?

Miss Harney

I will ask the Minister to have a look at the possibility of restricting it to not more than five years as the Deputy suggests.

Chairman

The Deputy is seeking the stipulation of a definite period.

Miss Harney

The Deputy is seeking the stipulation of a definite period in subsection (2).

Mr. J. Bruton

It is up to the members of the committee to ask for what we want.

Chairman

A reply has been forthcoming, Deputy. Unfortunately you were not in a position to listen to it on the first occasion.

Question "That section 135 stand part of the Bill" put, and agreed to.