Special Committee on the Companies (No. 2) Bill, 1987 debate -
Thursday, 17 May 1990

SECTION 156

Mr. Leyden

I move amendment No. a221a:

In page 121, subsection (1), line 27, to delete "A petition" and substitute "Subject to subsection (2), a petition".

The provisions of the Insurance (No. 2) Act, 1983, and the Central Bank Act, 1989, deal among other things with rescue situations in the case of insurance companies and licensed banks. These provisions are specifically tailored to the circumstances of each of the sectors concerned. In these circumstances, consideration had to be given as to whether and if so to what extent the more general provision of the Companies Bill relating to company rescue should apply to insurance or banking areas. I am satisfied that the facility to appoint an examiner to companies in both these areas could be useful, provided certain safeguards are also installed. What I propose, therefore, is to limit the right to petition the courts, in the case of insurance companies, to the Minister for Industry and Commerce and, in the case of licensed banks, to the Central Bank. I consider that restricting the potential use of Part IX in this way will avoid undesirable situations arising if the other parties specified in section 156, could petition the courts — such application by other parties could, of course, cut across the exercise by the Minister or the Central Bank of the respective supervisory roles under existing legislation.

Amendment agreed to.

Mr. Leyden

I move amendment No. b221a:

In page 121, between lines 39 and 40, to insert the following subsection:

"(2) (a) Where the company referred to in section 155 is an insurer, a petition under that section may only be presented by the Minister, and subsection (1) of this section shall not apply to the company.

(b) Where the company referred to in section 155 is the holder of a licence under section 9 of the Central Bank Act, 1971, a petition under section 155 may only be presented by the Central Bank, and subsection (1) of this section shall not apply to the company.".

Amendment agreed to.

Chairman

Amendment 221a in the names of Deputies Bruton and Barrett is on the list of additional amendments, dated 3 April. In the circumstances, maybe the Deputies could outline the reasons for their amendment.

Mr. Bruton

I move amendment No. 221a:

In page 122, subsection (5), lines 23 to 25, to delete all words from and including "the subject of" down to the end of the subsection.

This amendment seeks to delete all words between lines 23 and 25. I cannot recollect the purport of this amendment which was put down a while ago. The amendment relates to lines 23 to 25 which are in section 155 not section 156.

This is the section where the court shall not give a hearing to a petition under section 155 if a receiver stands to be appointed to the company. That is the way it would read if our amendment was put in. The present wording is the "court should not give a hearing to a petition under section 155 if a receiver stands appointed to the company, the subject of the petition and such a receiver has stood so appointed for a continuous period of at least 14 days prior to the presentation of a petition".

The reason for this amendment is a technical one. Representations have been made to me by people who are petitioners in this area. The allowing of a receiver to be in existence for a period of 14 days, with the possibility of somebody appointing an examiner hanging over him for that 14 day period, would make all receivers provisional for the first 14 days of their appointment. In many cases a receiver has to act very quickly to make disposals in regard to a company. If he thought there was a possibility, as the present legislation would allow, that he could be the subject of a petition at any time within the 14 day period, he would not be able to get on with his work. That is the purpose of this amendment.

Mr. O'Dea

I would be opposed to this amendment. If Deputy Bruton's amendment is taken on board it would mean, in effect, once the receiver is appointed nobody can petition for the appointment of an examiner. It would seem that the effect of that would be to give some of the creditors, not necessarily all of them, the power to make a pre-emptive strike, as it were, to the detriment of the other creditors or of the other interested parties who can petition. The period of 14 days is short. It is very reasonable that within 14 days of a receiver being appointed any of the other interested parties or, perhaps one of the minority creditors, could petition the court. That would be to see if, in its wisdom, the court would appoint an examiner, on the basis that the company could be turned around. I would not agree at all with the logic of that amendment.

Mr. Leyden

The net effect of the amendment proposed by Deputies Bruton and Barrett would be to rule out the appointment of an examiner where the receiver has already been appointed to a company. The introduction of subsection 156 (5) was one of the changes made to this section by way of amendment in the Seanad. It was introduced to bring some certainty for receivers who were appointed to a company, whereas under Part IX, as originally published, the court could appoint an examiner at any stage after the appointment of a receiver to a company.

Under subsection (5) the court is prohibited from hearing a petition for the appointment of an examiner if a receiver stands appointed for 14 days or more.

This is another aspect of the Bill where the differing interests of various parties had to be considered and a balance struck. In this case the interest of those with the right to appoint a receiver, as well as a receiver himself, had to be balanced against the right to have an examiner appointed, under Part IX, where a receiver was already in place. Having reflected further on the matter I believe that the approach contained in subsection (5), whereby the court cannot hear a petition after a receiver has been appointed to a company for 14 days, represents a reasonable approach. I would be very concerned if the appointment of a receiver were to absolutely preclude the appointment of an examiner.

This means that in future every receiver on appointment would be aware that during the first 14 days of his appointment an application may be made for the appointment of an examiner. However, I do not see that this would prevent the receiver discharging his responsibilities in the meantime. It also has to be remembered that the court is given the guidance of section 155 (2) — that the appointments of examiners should only be made where it is considered likely to facilitate the survival of the whole or part of the company as a going concern and that they will not make any appointments without good reason. In the circumstances, I cannot accept the amendment. I think that on reflection Deputies Bruton and Barrett will also agree with the points made by myself and Deputy O'Dea in this case.

Mr. S. Barrett

Does this not place a receiver in possible legal difficulties with a conflict of obligations resting on the receiver? The advice I have been given is that if this is allowed to continue, when a receiver is appointed he will stop trading straightaway. He will also terminate employment in the company to avoid the possible legal difficulties that can arise later if he and an examiner are in conflict with each other. This is more of the nonsense that we were talking about; we do not really know what the power of the examiner is and what he is going to do. This could force a receiver, in order to avoid possible legal difficulties, to cease trading and to terminate employment.

Chairman

The Minister can reply. I use the system that we move from side to side, and maybe the Minister could deal with all points together.

Mr. Leyden

I cannot dictate who is called to speak in this case. I was ready to speak on this. It is a matter for you to decide. I respect the position of the Chair to decide who is called.

Chairman

No problem.

Mr. O'Dea

In relation to Deputy Barrett's point, section 159 contains detailed provisions for the court to make any order it wishes. The court has total discretion to make any order it wishes to regulate the relationship between the examiner and the receiver if a receiver has been appointed — if they are simultaneous. The court has full powers and total discretion to regulate the relationship. That seems to meet the point Deputy Barrett made.

Mr. Lawlor

Could the Minister deal with the possibility that in the 14 days the receiver will not decide to take some rather drastic disposal actions which will make the turning around and rescuing of the company as well the examiner's work all the more difficult? Normally the appointment is by banks, and their interests or those of other substantial financial institutions would not be the same as the examiner who wants to rescue the business. I would like to know the Minister's comments on how that will be covered and the role of the examiner vis-�-vis the receiver.

Mr. Leyden

We are talking about the outer period of 14 days. The examiner can be appointed within 24 hours of the receiver, that would be the most logical step. If I was in a position to go to court and invite an examiner to be appointed, I would do it within hours of a receiver being appointed to ensure the rescue of that company or to try to protect the other creditors. The Deputy thinks we must wait two weeks. In fact what we are saying is that after two weeks an examiner cannot be appointed but within two weeks an examiner can be appointed. I would suggest to the Committee that we reduce that period to seven days but that is maybe too short a period to allow for people to reflect on the situation. A receiver at least knows the limits when an examiner can be appointed. We could leave it open-ended for six months, but it would be very unsatisfactory indeed. We can limit it to seven days if the Committee so decide. We are suggesting 14 days as a reasonable amount of time for the examiner to be appointed by the courts.

I believe we would certainly encourage the appointment of an examiner as opposed to a receiver. That would be my general recommendation to rescue a company, to have an opportunity to have the matters examined before one of the creditors appoints a receiver to the company. I feel that it is a reasonable provision. The receiver would be conscious of his position and would accept that if a a person waited until the thirteenth day certain steps may have been taken by the receiver, and all those steps would be quite legal and within the law and the receiver would act in that period as a receiver of that company. I would say that 13 days would be far too long as far as I am concerned.

It is very hard to answer every point Deputies are making on this section. They are concerned about the receiver's role for 14 days. What I am saying is a receiver may not be in power for seven hours because the court could appoint an examiner within that period. The outer regions are 14 days. If this Committee — and I am open to suggestion on this — feels that within seven days an examiner has to be appointed I will certainly consider it. Maybe I could do it straightaway. If the Committee feel it would be more satisfactory that the receiver's position would be quite clear within seven days, that nobody could put in an examiner then, I am prepared, with the permission of this Committee, to make this amendment here and now — to reduce the period from 14 days to seven days.

Mr. J. Bruton

The problem is that in the initial period receivers will not know whether this is likely to happen, that an examiner would be appointed because the grounds on which an examiner may be appointed are unclear. If we look at section 156, a petition to appoint an examiner shall be accompanied by a number of things — the name of the examiner, his consent, etc., and be supported by such evidence as the court may require for the purpose of showing that the petitioner has good reason for requiring the appointment of an examiner. That is as near as we get to the criteria for appointing examiners — good reason in the eyes of a judge.

For the first two years of this provision there will be no well established case law as to what is likely or not likely to be accepted as good reasons for appointing or not appointing examiners. I think the problem will be quite considerable in the early period. If, in the section itself, the Minister were to amend subsection (2) (b) to specify more clearly what are the reasons which might or might not justify the appointment of an examiner, then I think the receiver would be in a better position of knowing whether an examiner was likely to be appointed.

Chairman

I take Deputy Bruton's point. He seeks to go through the section in detail. The point I would make in relation to a contribution like that is that, if Deputy Bruton feels that as a result of the discussion that has gone on so far, stricter criteria should be laid down rather than what is in subsection (2) (b), that would require an amendment on Report Stage. I do not think we can start discussing amendments that are not there. We have to stick to the amendments as they stand and, if as a result of the discussion which has gone on and has been fruitful, you want to go back to criteria that have come up on Report Stage, there is no amendment to that effect there at the moment.

Mr. J. Bruton

Of course if I do not mention the matter now an amendment cannot be introduced on Report Stage.

Mr. Flood

The Minister suggested that he might reduce the days from 14 to seven. I think that that is a good idea and it is in the interest of a company concerned. I would like to see the Minister agreeing to that and making arrangements for it, because, leaving too long a period by which the examiner can be appointed, I think, when a receiver is in, is not advisable. It does not create good prospects for protecting or saving a company. I certainly would go along with him on that. We are coming to the powers of the examiner and so on. They are very substantial, as we shall see in the next couple of sections, as between the role of the examiner and the receiver.

Chairman

Is there agreement? Is there a consensus to reduce the number of days from 14 to seven and deal with the amendments as they are in front of me?

Mr. S. Barrett

The amendment that we have deletes the appointment of an examiner, once a receiver has been appointed. As Deputy Liam Lawlor said, the most likely people to put in a receiver are the banks. The bank puts a receiver into a company. I maintain that it is highly unlikely that another creditor would go to the court to seek to have an examiner appointed. The most likely person to go to court to have an examiner appointed would be a member of the company. That would be a stalling tactic, if you like. Why should a creditor at all want to put in an examiner because the creditor or creditors would have to continue giving credit and supplying goods. The banks would have to continue supplying money, all in a situation which would be very tricky anyway. The examiner has limited powers in relation to the real changes that would have to be made, that is, the sale of property or whatever. What you are going to have here is an examiner being put in, perhaps by a member of the company. That is the only other person that can put in an examiner except a creditor. In this instance where receivers are put in, it is my contention, and it is the advice that I have been given, that, in order to protect themselves, the receivers will now, when appointed, cease trading and will terminate employment. This is to avoid the possible difficulties that can arise down along the line. Instead of improving the situation I maintain that this is going to make it worse.

Mr. Leyden

I would far prefer to have an examiner appointed here to examine the affairs of the company. I do not think Deputy Barrett is right to say that the only person who can put in an examiner is a director of a company or a creditor. It is quite possible that it could be, under section 156 (1) (c), a creditor or prospective creditor including an employee of the company. This question of an examiner is a very good point in the Bill. In a few circumstances coming to light very recently this provision could save the company and I feel there is a great need for it. Indeed I feel that we should certainly agree to it and that the proposal which I have made to reduce the period to seven days certainly should go some way to satisfying the amendment proposed by Deputy Bruton and Deputy Barrett in this regard. The receiver will know where they stand, within seven days they will know exactly that an examiner will not at that stage be appointed.

Deputy Barrett and I are not on the same wavelength. As far as I interpret him, he is saying that it would be more likely a director of the company who would want an examiner appointed. What I am saying is that an employee could derive most benefit by the appointment of an examiner. If I was an employee of a company I would prefer to have an examiner look at the company, than the receiver of the company, who would be acting on behalf of a financial institution. I am afraid financial institutions are not carrying their burden of responsibility in relation to companies generally in this regard and they are too quick to move to appoint a receiver. This is an opportunity to say to them that, in relation to the preservation of employment in this country, they have very serious responsibilities and it is not a question of accumulating the maximum number of profits per year. It is a question of preserving employment. As far as I am concerned, Chairman, I am getting more enthusiastic about this provision as I go along and I am absolutely convinced of the need for it. I hope that we have an opportunity of seeing it through, because I certainly know, from my personal experiences in my constituency, that the banks will be responsible for closing more companies. They were the first people to appoint a receiver. I know that Deputy Tomás Mac Giolla will support me in regard to the protection of employment.

Mr. J. Bruton

That is an interesting intervention in its own way, because the problem the Minister is highlighting is that if banks feel they are not going to have the power to appoint receivers who can act to protect what they have lent, they will not be interested. That is the reality of the world, the cruel and hard world in which we live. They are lending money to companies which they want to be able to protect. If the banks feel they are not able to appoint receivers and that in every case where a receiver is appointed the employees even of an insolvent company will be able to delay the receivership by applying to a judge for the appointment of an examiner they will be more exacting in the terms that they demand for lending to companies in the first place. Yes, good reason, and good reason is left open to the courts to decide.

I think what is going to happen though is, as long as you have the possibility of banks being stopped from protecting themselves through receiverships by the appointment of examiners, they are not going to lend money. That is going to cause difficulties. I would go along with all the oratorical flights of the Minister which, I am sure, come from years of practice at Roscommon County Council.

Mr. Leyden

Actually, Chairman, it comes from more practice in being a Minister in Government than it does from being a member of Roscommon County Council. I know Deputy Bruton might be facetious in his comments, and do not particularly take offence at his remarks, because I am too long around here to take such offence. Nevertheless, I will not go to the council level but deal with the matter at the level of the Oireachtas.

Amendment put and declared lost.

Mr. Leyden

I move amendment No. a221b:

In page 122, subsection (5), line 25, to delete "14" and substitute "7".

Amendment agreed to.

Progress reported; Committee to sit again.

The Committee adjourned at 4.30 p.m. until 11 a.m. on Thursday, 24th May, 1990.