At the last meeting it was agreed that section 175, as amended, stand part of the Bill. The debate is to resume on section 176 so I call on the Minister to move amendment No. 236.
I move amendment No. 236:
In page 135, subsection (4), lines 9 to 11, to delete paragraph (a), and substitute the following:
"(a) unless at least one class of members and one class of creditors whose interests or claims would be impaired by implementation of the proposals have accepted the proposals, or".
Section 176 arises at the stage when the examiner has agreed a set of proposals with the various interested parties involved — creditors, shareholders and so on. They have been submitted for final confirmation by the court. As the text of subsection (4) stands at present, so long as one class of shareholder has accepted the proposals, they could then become binding on all other classes of shareholders and, more importantly, on all the creditors as well, including creditors who may not have agreed to the proposals. This is unduly favourable to the shareholders and, potentially unfair to the creditors of the company. I have brought forward this amendment to alter the balance between the two groups.
It should be borne in mind that where a company is under protection it will be either actually or prospectively insolvent and in the absence of Part IX the shareholders would have lost everything. Therefore, where the interests of the shareholders concerned might only be marginally diluted under the examiner's proposal it seems unfair for the shareholders to be able to effectively force a compromise on all of the creditors as well who have much more to lose. The amendment would prevent this happening and restore what I think is a more equitable balance between the shareholders and the creditors.
Could the Minister describe the classes of creditors? What constitutes a class?
There are secured creditors, unsecured creditors and the ordinary creditors.
What is the difference between an ordinary creditor and an unsecured creditor?
It is a matter of terminology more than a difference.
That is what I want to establish. What does the terminology mean?
There is no real distinction; except its just a different name. It is really a matter of terminology.
Is the Minister saying that there are two classes of creditors, secured and unsecured?
I am advised that they are the primary creditors.
What is the meaning of "class of creditor" in the context of amendment No. 236? What are the classes in the context of this amendment, and not in any other context, that are likely to be required to have a majority?
Secured and unsecured creditors; they are the two classes.
That is all.
The interesting point here is that any class of creditor or any individual creditor can, it would appear, appeal against an arrangement being reached here, and there can be a full High Court hearing. It would appear that under subsection (3) the court may confirm, subject to modifications, or refuse to confirm, proposals so that any individual creditor could seek to influence the court in order to confirm, subject to modifications which would mean that he could bring up virtually any issue in the court, to over-turn the matter. One of the concerns that have been expressed throughout has been the danger that there would be an undue amount of court proceeding on the matter. Is it the case that any creditor, let us say one of the unsecured creditors who was not happy with his dividend, could seek to upset the whole thing at the court after all the other creditors had agreed? If so, is there any limitation on the extent to which one could take such an action?
Section 176 (2) (c) says:
any creditor or member whose claim or interest would be impaired if the proposal were implemented.
Such a creditor or member would have rights in that regard. These would be classes of people who would have a say. We will also be coming to this area in section 177, which deals with objections to confirmation of proposals by a court. That would deal with that.
I move amendment No. 237.
In page 135, line 48, and in page 136, lines 1 and 2, to delete subsection (11), and substitute the following:
(a) the court refuses to confirm proposals under this section, or
(b) the report of an examiner under section 170 concludes that, following the required meetings of members and creditors of a company under this Part, it has not been possible to reach agreement on a compromise or scheme of arrangement,
the court may, if it considers it just and equitable to do so, make an order for the winding-up of the company, or any other order as it deems fit.".
Amendment No. 237 is intended to fill an apparent gap in the structure and mechanics of Part IX of the Bill. As drafted at present, sections 175, 176 and so on seem to assume that the examiner will have a set of agreed proposals on which to report back to the court. However, the provisions involved do not cover a situation in which, despite his best efforts, the examiner is unable to have a compromise agreed between the various parties involved. Section 178 (b) implies that a protection order can terminate on a date earlier than the coming into effect of a compromise. On reflection it would be as well to have an explicit provision to cover such cases in the interests of certainty.
The new subsection (11) (b) provides that where the examiner reports to the court that he has not been able to have a set of proposals agreed, the court will have wide ranging powers to make whatever order it deems fit in the circumstances, including an order for the winding up of the company concerned.
Under its jurisdiction to make any order it deems fit, could the court order the matter to be referred back to the examiner, provided it is within the time limits?
It could so do.
I had a question about subsection (3) which seemed to allow any discontented minority share creditor within a class, the majority of whom accepted the settlement, to seek to upset it in court. It is only right that they should have that right, in a sense; I understand it from the point of view of justice. However, I wonder if it will lead to unduly long-winded proceedings?
Could I request Deputy Bruton to wait until section 177, which outlines the objections by a court to confirmation of proposals. We could discuss this point then.
What happens if proposals are put together, but subject to banks agreeing to continue financing? How does a genuine, concerned creditor make his point in relation to the overall package; because at the end of the day, if the company is to be saved somebody will have to provide the finance. The proposal to abolish Fóir Teoranta appears to be quite ridiculous at a time when we are providing for the appointment of an examiner to save companies, a move we all support. At the end of the day, the creditors may not know what position the bank is going to take over time and they would be extremely concerned. I can see a situation arising where the court will become a place where people argue their point and the judge — who is not really qualified to make a decision — will find himself in the invidious position of having to decide one way or the other. Given that we have courts dealing with family problems and we want the judges in those courts to understand the problems, by dealing with them on a continuous basis, in this area we should have judges who understand the intricacies of the world of commerce and have some training and background in this field. I can see some dreadful problems arising in this connection. I would like the Minister to tell me if my fears are properly founded.
The court will decide on the basis of the examiner's proposals. The examiner will strive to work out acceptable proposals. Deputy Barrett has made a very interesting point. The President of the court will have to decide what judges should be allocated at a certain time to hear cases in this very specialised field. I accept fully the point made by the Deputy but it is a question of the cost of setting up such a structure. The structure in place in the courts will have to adjust when dealing with cases in this area but it seems obvious that the President of the court should have available to him a judge who specialises in this field. This is what we are seeking to do in the family courts.
The arrangements in the courts and the reform of the courts, in terms of the different specialties now required in this area, are matters for the Minister for Justice. It strikes me, as we go through this Bill, that most of the dealings are in specialised areas and we are putting very serious responsibilities on the courts in relation to saving companies. The points raised by Deputy Barrett are certainly justifiable. However, it is not within our jurisdiction to deal with this matter; the reform of the courts is a matter for the Department of Justice.
Deputy Barrett made a very good point, which also struck me. In the UK there are what are known as commercial courts. Since we have a much smaller legal set up there would be a difficulty, within the overall court structure, in appointing commercial orientated or business orientated judges. Nevertheless, one soon notices when reading the law reports or any modern book on company law that company law cases, tax cases and business law cases generally tend to be allocated to certain judges who are regarded as having more experience in these areas.
In relation to what Deputy Barrett has said, and I agree with him, some consideration should be given within the Department to the question of allowing assessors or qualified people, in the accountancy or related fields, to assist judges in some way, if this can be done under the Constitution. Having regard to the fact that we have a smaller legal set up than the UK, or the United States, something along those lines should be considered, but perhaps that is a matter to be decided in the future.
What Deputies O'Dea and Barrett are really pointing to is the position that will obtain in the courts. We do not yet know the number of cases that will be referred to the courts, but the points made by Deputy Barrett, in relation to the specialised business court, and by Deputy O'Dea, in relation to advisers to the Judiciary, are worthy of examination. However, at this stage, we have to accept that these are matters for the Minister for Justice.
When this Bill is implemented — which I hope will be as soon as possible — we will have a better opportunity to assess the effectiveness of the system. As Deputy O'Dea said, judges who specialise in these areas are available to hear tax, property or business law cases. We accept that that is the case. The Judiciary will face a formidable task under this Bill. There will be a certain onus on them but the benefits will be enormous if, at the end of the day, they can be of assistance in saving a particular company.
As I mentioned the last day on section 176, as amended, it is clear that a company will have to apply to the court when it is solvent but unlikely to remain so. However, if following the appointment of the examiner, it emerges that the company is indeed able to meet all its liabilities, the existing section 176 does not appear to enable the court to confirm the examiner's proposals. This is something that has to be rectified and I propose to come forward with an appropriate amendment on Report Stage.
Subsection (6) states that where the court confirms proposals, the proposals shall be binding on all creditors or the class or classes of creditors affected. Let us suppose a bank is one of the creditors and the proposals are subject to a bank advancing further moneys, will the court be able to confirm a proposition which will force a bank to produce money over a period of months? Will the court be able to bind a bank to continue supporting the company or will a team of lawyers be paid, through the bank, to defend the case in court because they disagree with the proposals? I am not trying to be negative. I am merely asking if there is such a danger here? That is why I think linked with this proposal there is the need to maintain Fóir Teoranta. It is in the interest of companies and jobs in the future — if we are going to have this type of proposal — that we have a body like Fóir Teoranta but much will depend on the confidence that will be built up in this area. People will either go for this or they will not. If they do not go for it and they decide initially that what they are being tied into is commercially unattractive, before we have the chance to put in an examiner the company will have gone into liquidation. This would be a shame. With an agency like Fóir Teoranta in the background, they can be used as part of a package. If the examiner, who I hope will be a highly qualified person and will have the opportunity to examine a company to decide whether it has a future or if changes should be made, can recommend that a body like Fóir Teoranta make available a sum of money, Fóir Teoranta would operate far better because of the existence of the examiner. In the longer term, this would also increase the prospects of success in this Part of the Bill.
I would ask the Minister if he would, perhaps, consider making a statement here whether he feels Fóir Teoranta should remain in existence and if his Government would have second thoughts on this proposition of abolishing Fóir Teoranta because in my view, it is essential to this overall package.
Under no circumstances would I comment on Deputy Barrett's request, particularly as the matter will be before Dáil Éireann this evening.
You are a Member of the Dáil, are you not?
Yes I am, but it is not before the Dáil at this stage for discussion. We could not pre-empt the contribution, which I will not be making to the debate. If he wishes, Deputy Barrett should make that contribution in the Dáil Chamber. He should make known his very strong views in relation to Fóir Teoranta's future during the debate that will be held in the very near future.
The banks would not be a creditor in respect of future lending. Section 162 may enable the examiner to certify future borrowings from the banks. We debated the last day the situation regarding the continuation of credit from companies and banks — any commitment the examiner would enter into would be given preferential treatment as far as the company is concerned. Maybe that would in some way satisfy Deputy Barrett's concerns in relation to this matter. I certainly will have the points he raised in relation to the Bill examined.
Just on subsection (6), I endorse entirely what Deputy Sean Barrett has said about the necessity to keep Fóir Teoranta in operation in order to provide a form of continuing support for the examiner in the early period of the operation of this Part of the Bill. I could understand if the Government wanted to abolish Fóir Teoranta after a number of years of operation of this Part of the Bill on the basis that there was no continuing need for Fóir Teoranta. I certainly think that if this sort of system is to work — and we are entering into a completely new area of law with no precedents to follow in this jurisdiction we need to ensure — whether the appropriate simile would be a midwife — some other form of representation of the public interest with resources available to it that this system operates effectively, at least for an initial period.
Without being facetious, one realises the Minister is not in a position to make a commitment here about legislation that is happening elsewhere, but he might consider asking the Minister for Finance to defer the effective date of the abolition of Fóir Teoranta for, let us say, two years, to allow this Part to come into law and be in operation for a while. Then, if it is working there would be no need to continue with Fóir Teoranta, but if it is not working, maybe we should keep Fóir Teoranta. That is all I would say about it. We could be making a big mistake by getting rid of Fóir Teoranta before we see how this Part of the Bill is going to work.
It is only fair to remark that the Minister for Finance has been associated with a company which has, entirely justifiably, received the assistance of Fóir Teoranta. Many other companies like that have benefited from the activities of Fóir Teoranta. I do not see anything wrong with that. It is a very healthy thing and I do not think we should abolish Fóir Teoranta without giving proper thought to it simply in order to establish some sort of macho image as a shooter-down of State bodies. I did not abolish Fóir Teoranta when I was Minister for Finance, despite my reputation for blood-thirstyness in this area.
What happens if there are five secured creditors, with security in the form of property over different assets, and they constitute a class, and four of them vote for the acceptance of the proposals in accordance with the now amended section and the fifth says: "No, I won't agree. I am hanging on to my security"? Does the court in that case under subsection (6) of this section have the right to set aside the property rights of the minority secured creditor within the class of secured creditors who have accepted, as a class, the proposal by majority but, who himself has not accepted the proposals? Is it constitutional to set aside those rights in this way? I realise that that has been done in Britain and in America, but they have a different constitutional position to ours. In the United States they have a very short Constitution which is not as clear as ours on property rights, and in the United Kingdom they have no Constitution. I wonder whether the Minister and his advisers have considered that dimension.
I wish to make one observation on the point made by Deputy Barrett. The compromise scheme of arrangements does not relate to future credit; it only relates to existing credit. If a bank's interests are being impaired, it is up to the bank whether they want to let the court go ahead and confirm the compromise proposal because if any creditor, including a bank, which will be a class of itself, whose interest is being impaired objects, then, under subsection (4) (a), the court can go ahead and confirm the compromise scheme or proposal.
I do not think the banks will be a class. As the Minister told us, there will be the two classes, secured and unsecured creditors.
They will be a class if they are the only form of secured creditor. My understanding is the secured creditors on their own constitute a class. I think there are two classes of creditors, secured and unsecured, and possibly preferential creditors as a third class. Generally speaking, the bank will be the only secured creditor, so in that scenario the bank will, of itself, constitute a class of creditors. Deputy Bruton mentioned a case where there are other secured creditors, where the term "secured creditors" contains a bank and others. In that situation the bank can, of course, if it wishes, object to the compromise scheme of arrangements under specific headings in section 177.
If they object, has the court the power to override their objections given the constitutional guarantees of property?
I come back to Fóir Teoranta and the fact that it escaped Deputy Bruton's attention when he was Minister for Finance.
I am sure it was recommended to him during his period as Minister for Finance. Nevertheless I look forward to hearing the debate in the Dáil today between the former Minister and the present Minister on the abolition of Fóir Teoranta. At this stage it would be inappropriate for me to make any comment whatsoever, good, bad or indifferent, about the future of Fóir Teoranta or how it would seem to be helpful in the context of the examiner's position in relation to the saving of companies. When the Dáil decides on this issue, we will have to take it on board in relation to the Bill itself. There are some mentions in the Bill to Fóir Teoranta. That will have to be suitably deleted when it comes to Report Stage.
In relation to the court, once a court confirms the request, the proposals are binding. This provision has been cleared by the Attorney General so we are quite satisfied that it will hold up.
Give us a little information on the basis for that decision.
If four agree the fifth might be seen to be unhelpful in keeping a company going. In regard to the points made by Deputy Bruton in relation to the banks, if they were the one to disagree and the majority were in agreement with the proposal, then it would seem inappropriate that they would go along that line. They would not want to be seen to be unhelpful or frustrating the rescue of the company. The Attorney General has checked the provisions of this Bill and we are satisfied that it is constitutional and does not infringe on the constitutional provisions in regard to the property.
Has the Minister put the specific question in regard to section 176 (6) to the Attorney General?
I cannot say that one specifically has been brought to his attention but all the provisions of his Bill have been cleared by the Attorney General, therefore he would be very conscious of that point. At this time this is our recommendation on the advice available to us. Any provision can be contested at an appropriate level.
We do not want that. We want to enact legislation that is not open to constitutional challenge. This provision is necessarily unique in the Bill. Nowhere else in the Bill is a totally blameless, uninvolved person who loaned money to a company going to find a majority of the people in their class, by decision, take part of their property rights away from them. This is quite unusual where you have a majority decision subsequently ratified by the court. Difficulties have arisen in the area of compulsory acquisition of property by local authorities — and the Kenny report — and questions have been raised on the constitutionality of such compulsory acquisitions.
There is a well established case law in regard to the rights of property. It is important that this particular provision be cleared by the Attorney General. I realise the entire Bill has been drafted by the Parliamentary Draftsman's office who work under the aegis of the Attorney General, but this is a huge Bill and unless the Attorney General's attention was drawn specifically to this section, I do not think he would necessarily consider it from the point of view I have just referred to.
I will concede to Deputy Bruton's request as he has emphasised the importance of it. I agree it must be seen, as far as we can establish, as not infringing on constitutional rights. I have said that I am prepared, as requested by Deputy Bruton, to refer this section to the Attorney General to have it reconfirmed on Report Stage, as far as we can establish at this stage, that it would not infringe on constitutional rights. The case has been well argued.
We will refer section 163 and this section back to the Attorney General to confirm that they are, as far as he can see, constitutionally sound. We do not want this Bill to be contested; it would damage the basis of the Bill if we had contests on its constitutionality.
I do not think this Part of the Bill would work unless there was some mechanism where the property rights of secured creditors could be interfered with. I do not see how a scheme of arrangement or compromise is going to be worked out. If we get rid of this provision, then any single, small creditor who has any sort of security can object and jeopardise the operation. We are not talking about a number of small creditors interfering with the property rights or the security of a large creditor, because under section 175 (4) the proposals have to be adopted by a majority in number representing a majority in value of the creditors. We must bear in mind that there is no absolute right to private property in this country. Article 43 of the Constitution deals with that: it subjects the right of private property to the public good. I would imagine that the Attorney General will conclude from the case law — and there is plenty of case law to enable him to conclude — that it is in the public interest and for the public good that there be some mechanism to rescue companies before they go into liquidation.
The points raised by Deputy O'Dea are in order and would be the basis of the decision by the Attorney General on his recommendation at the time. As Deputy Bruton has raised this point, it is very appropriate that we have it checked again because it has come up here for debate. We will bring the point raised by both Deputies to the attention of the Attorney General.