We will be taking amendments Nos. 218a, 218b, 219, 220 together by agreement. Is that agreed? Agreed. Deputy Bruton to move amendment No. 218a.
I move amendment No 218a:
In page 121, subsection (1) (a), line 13, to delete "or is likely to be unable" and substitute "able but is likely to become unable".
This outlines the conditions on which an examiner may be appointed. It says that where a company is unable to pay its debts but is still trading, an examiner may be appointed. I believe that is inconsistent with other parts of the Bill. We have made it quite clear in section 116 (2) (b), which is already passed, that if a person, i.e. a director of a company was a party to the contracting of a debt, in other words, he was carrying on the business of a company — companies are contracting debts every minute they exist even if it is only running up a telephone bill — and did not honestly believe, on reasonable grounds, that the company would be able to pay its debts he is trading in a reckless manner. He is, therefore, personally liable and responsible without any limitation of liability, for all or any part of the debts or other liabilities of the company as the court may direct.
Essentially, if we allow this section to remain as it is and allow companies which are unable to pay their debts to apply, what we are saying is that people who are already trading recklessly within the terms of section 116 (2) (b) are going to be the prime subjects for this form of protection. It is inconceivable and inconsistent, to my mind, for one Part of this Bill to say that such people in that condition are reckless and should have their houses taken from them in order to penalise them and in this Part of the Bill to come along and say we are going to appoint an examiner to save them, so that they can stay on running the company. It seems to me there is a complete conflict here between these two concepts. One part of the Bill is saying we want to preserve these people in aspic so that they can continue running their companies and have them there afterwards at great public expense, time and so on. In another Part of the Bill we are saying we should throw the book at them.
What we are proposing in this amendment is to remove from the category of companies that can be the subject of this, those that are unable to pay their debts. What we are proposing in the amendment is that the only people who would be eligible are companies who are at the time able to pay their debts but are likely to at some future date be unable to pay their debts. Those companies are the sort we are talking about, companies that are not yet over the line but are heading towards it. We want to put a mechanism in there to prevent them going over it.
They are a legitimate object of the concerns of Part IX, but not companies that are already unable to pay their debts. As I have said already, if a director rings up his solicitor to ask for an application to be made under section 155 on the basis that he is unable to pay his debts he is, by definition, in making that phone call, trading recklessly; he is contracting a debt, i.e. the phone bill, knowing that his company is unable to pay it, and the very act of actually applying for protection, if the company is already unable to pay its debts, is contrary to section 116, is regarded as reckless trading. I do not really think that, therefore, we can include within this section at all, if we are to be consistent, companies that are already in a position of not being able to pay their debts. That is why I propose that we move one of the amendments, as they are alternatives. Amendments Nos. 218a and 218b are alternative amendments. In one of them we are simply proposing to remove the words "is/or" so that the Bill would now read: "that where it appears to the court that a company is likely to be unable to pay its debts".
I can see a certain force in Deputy Bruton's arguments and, indeed, in his proposal but if he is concerned to allow companies who are able to pay their debts to appoint an examiner, those companies are already covered in the section. The section covers a company that is likely to be unable to pay its debts and, by definition, that is a company that is at present able to pay its debts. The question then comes down to whether we should extend it to companies who, for whatever reason and however temporarily, are unable to pay their debts. I do not necessarily equate a situation where a company has a temporary cash-flow problem, with a situation where the management of that company is guilty of trading recklessly. For instance, the company's assets might exceed its liabilities. The company might be unable to pay its debts just today, because they are waiting for the proceeds of the sale of stock or assets to come in. I do not think that it would be reasonable to confine the legislation on examiners so narrowly that those companies, in that very temporary cash-flow situation, should be totally excluded from the scope of this Part of the Bill.
Look at section 116 (2) (b). It is trading recklessly for somebody to contract a debt if he believes, on reasonable grounds, that the company would be unable to pay the debt when it falls due for payment. What we are saying here is that somebody who is unable to pay his debts — that is one of the two alternatives — and that presumably means to pay them when they fall due, is eligible for this form of assistance. There is a direct inconsistency.
The section the Deputy has quoted refers to the management of a company contracting other debts, when he is already unable to pay the debts it has.
Making a phone call is contracting a debt.
Maybe so legally, but the position is that you can have a situation and, I think Deputy Bruton will concede this, where a company is temporarily unable to pay its debts. If that company does not contract other debts, which it genuinely believes it will be unable to pay, I do not think the management of that company would fall within the ambit of reckless trading as I understand section 116. While I see a certain force in Deputy Bruton's argument, it would narrow the legislation to such an extent that the efficacy of the proposal would be very seriously reduced and curtailed.
Under the section as it stands there is no limitation placed on the extent to which a company may be insolvent and still apply. A company could be in a situation where it had assets that were only half its liabilities and was still trading, and it would still be eligible under this. It is quite clear that directors of companies who would be found to be reckless within the meaning of section 116 (2) (b) are eligible to use this section. It seems to me to be inconsistent on the one hand to throw the book at them and on the other hand to offer them a form of assistance.
The Deputy is overlooking the fact that what section 155 is dealing with is the right of a person to apply to the court. It is the court which must decide whether an examiner is to be sent in, and in the situation mentioned by Deputy Bruton, of course the court would not decide to send in an examiner. But I would suggest to Deputy Bruton, with all due respect, that in the situation suggested by me the court would on occasion decide to send in an examiner or allow the company to take an examiner on board. The more Deputy Bruton argues the more I am persuaded that his proposal would confine the legislation too narrowly.
The more Deputy O'Dea argues the more obvious it becomes that he is again, as throughout this Bill, saying that the judges will decide and it does not really matter what sort of legislation we make.
My amendment No. 219 reads:
In page 121, subsection (1) (a), lines 13 and 14, to delete "(within the meaning of section 214 of the Principal Act)".
In discussing this amendment and No. 220, which are related, I would like to respond to some extent to Deputy Bruton's statements although I must say that Deputy O'Dea and Deputy Flood have assessed the situation very well. I do not accept that there is a conflict between section 116 of the Bill and the provisions of Part IX. The purpose of Part IX is not to preserve the management but to preserve the company. Do not forget that in the appropriate circumstances the court can give the examiner power to run the company and indeed the examiner might well conclude later that the management ought to be removed, particularly under amendment No. 233 which we will discuss later.
In relation to amendments Nos. 219 and 220, which are related, they are intended to widen the scope of Part IX generally by including more companies in the case of which applications may be made to the court for protection orders. Taken together what they do is to expand for the purpose of Part IX the circumstances in which a company will be regarded as unable to pay its debts. Under the present text of section 155 (1) (a) an application can be made if it appears to the court that a company is, or is likely to be, unable to pay its debts within the meaning of section 214 of the 1963 Act.
Section 214 sets out three tests as to when a company is deemed to be unable to pay its debts. The first two of these tests are straightforward enough and indeed are specifically referred to in paragraph (c) of amendment No. 220. The third test in section 214 however poses a problem in the context of section 155 of the Bill. Section 214 (c) requires it to be proved to the satisfaction of the court that a company is unable to pay its debts whereas section 155 (1) of the Bill currently talks instead of it appearing to the court and so on. If you have this conflict paragraph (b) of the proposed new subsection (3) simply provides that a company will be unable to pay its debts for the purposes of Part IX if its assets are less than its liabilities including contingent and prospective liabilities. Paragraph (a) of the new subsection (3) would add another possibility. In other words, where the company cannot pay its debts as they fall due, this would be a wider test of insolvency than paragraph (b) and would enable more companies to avail of the rescue mechanism in Part IX. All in all, these two amendments by widening the definition as to when a company is to be regarded as unable to pay its debts, would extend the scope of Part IX to enable more companies to avail of opportunities for restructuring and I commend them to the Committee.
Would the Minister accept an amendment which added "provided that the directors were not acting in a manner contrary to section 116"?
No, I could not accept that because it would require a detailed examination by the courts which would delay the whole procedures and it would affect the whole philosophy behind Part IX of this Bill.
Surely it is inconsistent to have the courts on the one hand rescue a company and at the same time decide that the people who have applied have been behaving recklessly?
You have covered that point in moving your amendments. You have pointed out that inconsistency as far as you are concerned and the Government side would seem to claim that they do not see conflict between section 116 and this section. If those are the positions being taken by both sides, I do not see it being resolved if the Minister wants to push his amendments and you wish to push yours.
The Minister has not actually dealt with that particular point.
The first of these amendments, 218a, proposes to revise the introductory clause of subsection 155 (1) (a). While the actual changes appear minor they would involve significant changes in regard to the application of Part IX and they would have the effect that the Part could only apply where a company is able but is likely to become unable to pay its debts. That Part would no longer apply where a company is actually unable to pay its debts at the point where the application to court is made.
I am aware that to introduce this amendment would have the effect of concentrating the minds of those who can apply further relief available under this Part to move early at a stage when the alarm bells are ringing before the point of default has been reached. However, on the down side, it would have the unintended effect of precipitating unwarranted applications under this section of the Bill. For example, people outside existing management could find it very difficult to know if a company is technically approaching, or beyond, the point where it is able to pay its debts and to avoid being denied the right to petition the court they would actually move too soon. On top of that if we were to narrow the right to apply for protection to a stage when, in the words of the proposed amendment, the company is able to pay its debts but is likely to become unable to do so, we could, I suggest be denying access to the protection of this Part to the very companies and people who could most benefit from it. It would, in fact, be moving in the opposite direction to the one I am proposing in my amendments.
As with so many other provisions in company law, the necessity to strike a balance has to be considered. I am satisfied that access to Part IX should be available not only to the companies which are able to pay their debts and know that they are heading into trouble but also to those which are actually unable to pay their debts when the application is made. I feel that this is an excellent provision. If passed by this Committee and by the Houses of the Oireachtas I believe it will be a very worthwhile provision in this Bill and I certainly commend my amendments to the Committee.
I think that is a very valid theoretical point Deputy Bruton is making, but he must appreciate that, assuming a satisfactorily run company incurs a bad debt through the failure of a substantial debt due to it and the responsible directors in that case realise now that they are trading insolvent, they have to make those preliminary moves to apply to get the mechanism put in place. Maybe they make the telephone call and they are incurring the debt of that telephone call when they are insolvent but they have to take the action, because if everything was in order we would not be needed, or the courts or whoever is going to rescue or oversee would not be needed. If the examiner discovers that the company that was in need of some form of overviewing had very inept management, obviously at that stage he is going to identify that and will have to recommend action.
The fact that companies sometimes get into trouble through no fault of their own means they have to take action. Most companies fail because of other company failures. They trade illegally into substantial debt and later that is assessed and found to be the case when a receiver or anybody else goes in to analyse the workings of a company. I appreciate the theory of what the Deputy is saying but in practice this is the mechanism by which companies that get into difficulties have to endeavour to get some sort of management and assistance to get out of it.
There is nothing theoretical about section 116. If you go over the line you can have your home taken from you.
Everybody here would be delighted if we could find ways and means of saving more companies, but I would like to ask the Minister if he could give me a definition of what the original intention of the receiver was, as distinct from the practices today. The more of these animals we introduce, with respect, the more costs are involved at the end of the day. What I am concerned about is that this mechanism can be used to postpone the evil day. Somebody else is going to draw from the pot which means that by the time the receiver or the liquidator comes in, there is less money to distribute to the unfortunate creditors who are the real sufferers in all this. As far as I can see, going through this Part of the Bill, you are appointing somebody who is depending on the goodwill of financial institutions to come to his rescue. Who in his right mind is going to give money to an ailing company where the person who has been put in is really there postponing the evil day? Who is going to do it? Who is going to continue trading with that company? Who is going to continue giving goods and credit to that company?
These are the practical day to day problems that any receiver or anybody in this situation is going to face. We are making an attempt to do something here but not giving the individual the real power of making finance available to him to be able to carry out the sort of rescue package that is necessary in most ailing companies. It is not a question of trying to find loopholes for the sake of doing it or opposing for the sake of opposing, I would like to get really practical suggestions from the Minister as to how this can really work. All the advice I have been given by people who, I feel, would be in a similar position to most of us around this table, and who are anxious to see business succeed, is that this is just another mechanism to postpone the evil day. It is going to take more money out of the company because of court costs, the costs of the individual examiner and so on and, at the end of the day, what is going to be achieved? Can we not look at the receiver and see what can be done to try to strengthen the current position? Even if we had Fóir Teoranta operating in conjunction with this individual, the examiner, maybe he could go to Fóir Teoranta and recommend that the State provide some sort of rescue package. As far as I can see, this individual will have no real power to put a package together. He will depend on the goodwill that will not be forthcoming because of the real problems of today's world of business.
We have consulted with a wide spectrum of business, involved directly and interested in this field, and we are quite satisfied that they support the idea of this Part IX. I accept what Deputy Bruton and Deputy Barrett are trying to do on a very complex Bill, that is to see if there is any way of making this more workable in reality.
Deputy Bruton, as a former Minister for Industry and Commerce, knew that this Bill existed. We are endeavouring to make it a good workable Bill. I am satisfied beyond reasonable doubt that Part IX is necessary. I have been advised by my officials and by outside interested bodies who feel this is a very good and workable provision. I feel we owe it to this Bill to have it passed and this examiner provision is a very reasonable one. I would much prefer — and I speak as a Minister and a constituency TD — if a company in my constituency — or anywhere else in this country — had certain difficulties that the opportunity would be there for the court to appoint an examiner. I would prefer that the company would be maintained for a three month period and that the examiner would recommend certain actions that would have to be taken. But the debts would be frozen and there would be a way of preserving that company to maximise the potential for the retention of the employees. That is a far better provision. Part IX allows the examiner to go in, as the doctor would go to examine a patient, to diagnose the difficulties and see what action should be taken to save the company, to save the patient. That is what our ambition is. It is not at a cost to the State——
That is how we see it. I say this sincerely. I know Deputy Bruton can say now that he is no longer in Government, that he is an Opposition Member of the Dáil, but nevertheless, he was in Government for about four and a half years as Minister for Industry and Commerce and Minister for Finance. At this stage this Bill has gone through six Ministers, and it is still here. Why is there opposition to this section today when that opposition is not evident from what I have here on my files? I regard it as being a reasonable and practical provision and I would recommend that this amendment be accepted.
Deputies, we are not going into the area of repetition. We have discussed this matter at length. I will not use the Latin term, as it would not be as good, but we are here. I remember Deputy Mac Giolla saying that we are averaging nine sections per meeting. This is our second section.
I have to put the question at this stage, and we cannot discuss this any further. The Minister has outlined his position and it will be up to Deputy Barrett to take his position on the Minister's amendments if he is dissatisfied with the explanation he is getting in the amendment or on the section. I am now putting the question as I think it is the reasonable thing to do.
I move amendment No. 219:
In page 121, subsection (1) (a), lines 13 and 14, to delete "(within the meaning of section 214 of the Principal Act)".
I move amendment No. 220:
In page 121, between lines 26 and 27, to insert the following subsection:
"(3) For the purposes of this section, a company is unable to pay its debts if—
(a) it is unable to pay its debts as they fall due,
(b) the value of its assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities, or
(c) section 214 (a) or (b) of the Principal Act applies to the company.".
I move amendment No. 221:
In page 121, between lines 26 and 27, to insert the following subsection:
"(4) In deciding whether to make an order under this section the court may also have regard to whether the company has sought from its creditors significant extensions of time for the payment of its debts, from which it could reasonably be inferred that the company was likely to be unable to pay its debts.".
The amendment reads:
. . .significant extensions of time for the payment of its debts, from which it could reasonably be inferred that the company was likely to be unable to pay its debts.
Is that a reasonable inference?
An amendment along the lines of amendment No. 221 was suggested to the Department by various interested parties. The suggestion was that this should define inability to pay debts as including requests by a debtor for a significant extension of time in which to pay creditors, the argument being that this would be a typical indicator that the company concerned was, or was about to become, insolvent.
While I would not want to go as far as including this kind of concept in a definition of inability to pay debts, primarily because of its very subjective nature, for example, as to what is significant or substantial, I do see merit in drawing the court's attention to the matter before it comes to a conclusion as to whether an examiner should be appointed. This is what this amendment provides.
Does this mean that a company which has gone to the trouble of at least telling its creditors, "I am sorry, we are not able to pay you. Would you mind agreeing that we do not pay you?" is in one category, but the company that does not bother and does not pay is going to be in another category? Surely the provision should be "any company that is late in paying its debts" whether they have asked for permission or not.
Am I correct in assuming that this item is put into the Bill merely to draw the court's attention to the fact that the company made special arrangements with regard to the discharge of some of its debts or a debt which has fallen due, that it is only intended to bring the court's attention to that fact, and may help the court to make a decision with regard to the appointment of an examiner?
I think the Minister's answer to Deputy Flood will be in the affirmative. This is just one of the factors which the court has to take into account. It is not necessarily conclusive. It is merely an indicator which the court will take into account in deciding whether the company is unable or able to pay its debts within the meaning of the subsection.
As I am on that point I would like to ask the Minister a question in relation to amendment No. 220. There are three criteria laid out there for a company being unable to pay its debts. It says (a), (b) or (c). Can each alternative, stand on its own? Will a company be unable to pay its debts within the meaning of the section, for instance, if the value of its assets is less than the amount of its liabilities taking into account contingent and prospective liabilities? It would seem a bit harsh that a company would be unable to pay its debts in a case like that, because a contingent liability is a liability that might never arise, it depends on the contingency.
We will consider Deputy O'Dea's point.
We could put in the conjunction "and", or "or". Is that what the Minister is going to consider?
The question was, were they alternatives or did each condition have to be fulfilled.
It is not clear. They are alternatives. The word "or" should be inserted.
It is actually (a), (b) or (c).
My understanding is that when the court appoints an examiner, there is a three months freeze and no proceedings can take place. The section as I understand it does not address what happens to leased assets or goods sold under retention of title clause. Suppose a supplier says these are his goods and he wants to take them away, does this section address this? I would appreciate if the Minister could come back to me in due course.
The Deputy might be anticipating a further amendment No. 223a.
Is there a question here about amendment No. 221 which we are now discussing?
I also have a question on amendment No. 221. What does "significant extensions of time" mean?
It would be a matter for the court to decide what "significant" would be in the circumstances. We have to give freedom to the courts. If we are putting a case to the courts to appoint an examiner, there has to be a certain amount of flexibility in relation to their decision in that regard.
Would the Minister be happy to accept the insertion after "sought" in this amendment of the words "or taken"? In other words, the amendment would then read "where a company has sought or taken from its creditors significant extensions of time for the payment of debts from which it could be reasonably inferred that the company was unable or unlikely to pay its debts". It seems to me that it is really irrelevant whether they have asked permission or not. If they are not paying their debts on time, then the inference could be equally reasonably drawn——
No, I am not accepting the suggestion from Deputy Bruton.
It is very easy. "No" is an even shorter word than "yes" and the Minister can get it out of his system even more quickly. He might, without being long winded, or going back to my record as Minister for Industry and Commerce, or even back to the Treaty Debates or anything like that, explain why?
There are many scenarios being painted here. Deputies keep raising these hypothetical situations. I am satisfied that what I am putting forward here is reasonable and I am not going to respond to every sort of hypothetical case put forward.
The Minister is not treating this seriously. We could all be doing other things. I do not raise this question out of any desire to waste the Minister's time or anyone else's time. The Minister asked us to accept amendment No. 221, which is what we are discussing, and he is saying that a court may infer that a company is unable to pay its debts from the fact that it has sought extensions of time. I am asking if it is not equally reasonable that the court should make the same inference from the fact that the company has simply not paid even though it has not sought such permission. Why not amend the amendment to include both circumstances if the amendment in itself is valid? That is a question that is not unreasonable for the Minister to simply have the courtesy of answering.
Deputy Bruton is putting forward different aspects of the relationship between companies and their creditors. It quite often happens that a company is a late payer of debts but that does not prove anything. It does not prove that it is insolvent or in any great difficulties, that happens regularly. In the other cases where they contact the suppliers and make a case that they have certain difficulties but are endeavouring to resolve them, that is different and that is what we are trying to make provision for in this Bill.
Remember, it is open here to any creditor to apply to put a company into examinership.
A member of the company will do it, not a creditor, he would have to be stone raving mad to do it.
True, but on the other hand under section 156 (1) (a) a creditor may do it, and has the power to do it. It seems to me that if the creditor was to draw any inferences in making such an application he could just as easily draw the inference if the company was unable to pay its debts, and the fact that it was not paying on time, as from the fact that it had sought an accommodation.
Deputy Bruton is putting forward different angles on this issue. We are satisfied that if there is a delay, that does not necessarily mean the company has any difficulties. If that were the case, there would be many companies in trouble at this stage. I do not accept the point the Deputy is making.