SECTION 179.

I move amendment No. 238:

In page 136, line 35, to delete "it" and substitute "if".

Amendment No. 238 simply corrects a typographical error in the text.

Amendment agreed to.
Question proposed: "That section 179, as amended, stand part of the Bill."

May I just ask one question on the section. It states that if the company or any interested party, within 180 days, discovers fraud, the court may re-open the matter. It can re-open the matter on such terms and conditions as it sees fit, particularly with regard to the protection of the rights of parties acquiring interests or property in good faith and for value. I always thought it was an essential part of property law that if a person gets property in good faith and for value without notice, actual or constructive, they have an absolute right to that property. Am I just being paranoid or is there some suggestion, or hint of a suggestion, that a person who gets property in good faith and for value without notice can be in some way subjected to somebody else's interests under that section?

I do not think the Deputy is paranoid, however, I am not in a position to make a medical opinion.

(Interruptions.)

I have a detailed note here, but I will not read it all into the record because I am quite satisfied with the section.

Could the Minister give us some idea of the circumstances in which he expects section 179 to be used in general terms? Why is it put in there at all? One of the criticisms under the existing company law which led to this Bill was that all sorts of things hinged on fraud. It has been very difficult to prove fraud. That is why in a number of areas we have moved over to the concept of fraud or recklessness as grounds on which various sanctions can be imposed. Yet this section which allows for revocation is founded solely on fraud. If there is need for a revocation clause should not the grounds be widened to include fraud or material, negligent, mis-statement of the factual position of the affairs of the company? To my mind fraud requiresmal fides on the part of the person committing it. It is possible that people without proven mal fides could have created a condition in which an examiner was appointed by making certain representations about the position of the company which they did not know were untrue but were reckless as to whether they were true or untrue.

In fairness, I think I should remind us all what is actually in section 179. This section is an important saver for any of the parties who may be involved in a company rescue under this Part. In essence, some or all of the parties involved in a company rescue are likely to have to forego some of their interests. For the members of a company, this might involve forgoing a dividend or dividends from the company or writing down the value of their shareholding. For the creditors of a company this could mean a reduction in the amounts owed to them by the company. In some cases the sacrifice could be quite substantial.

Under existing company legislation parties that are affected by fraud have various remedies made available to them. In the case of a company rescue under Part IX, a similar protection is being written into the Part. It is provided that if the company or any interested party discovers that their scheme of arrangements or compromise was procured by fraud, then within 180 days, six months after the confirmation of the proposals by the court, it can apply to the court to have the confirmation revoked.

The parties that will have the right to apply for the revocation of the courts confirmation are the company and any interested party. The latter group, in accordance with the definition in section 154, includes a creditor and a member where the company has received financial assistance from that company. Thus, any of the parties directly involved in the rehabilitation will be able to apply for relief under this section. While the section allows the courts to revoke the previous confirmation on such terms and conditions as it considers appropriate, it also provides that the court must have regard to the protection of the rights of parties acquiring interests or property in good faith and for value, in reliance on the courts' confirmation of the proposals in the first instance. This is a very necessary provision to ensure the workability of their proposals under this Part.

If parties dealing with the company, which has emerged after a compromise or scheme of arrangements has been confirmed by the courts were to feel that their dealings with the new restructured company could be overturned by a later court action, then they may be very reluctant to enter into any commitments. To do so would leave them open to the possibility that they would have to, for example, return products or property, or whatever, bought from the company, even though bought in good faith.

The section essentially provides that a court in deciding applications under this section must take into acount the rights of anybona fide purchaser for value. This provision is designed to ensure that the principles of equity are upheld and will not be compromised by the strict application of the provisions of the section. This will clarify some of the points raised by Deputy O’Dea. In relation to Deputy Bruton’s point, I consider this section should continue to be confined to fraud, and to fraud only.

If we widen the definition it could lead to greater uncertainty in relation to this section. That is the general feeling.

It is the sort of general feeling I would share myself but the Bill has been predicated on the basis that fraud as a ground for action has been too narrow because of the burdens of proof required to prove fraud. For that reason, why reckless misstatement for example?

I have been reassured and I am very happy about this.

The Minister is politically responsible. I have the utmost confidence in his officials but he is the person who is ultimately responsible.

We are satisfied in this case. We cannot broaden it any further than fraud. That is our general advice.

Explain that. It would be uncharitable if I said that the fact the Minister is satisfied did not surprise me, and I do not want to be uncharitable——

I will go through the section again. I have outlined the details of section 178 exactly as it applies. I cannot elaborate further than that. I simply have outlined it already, and I am going back through the whole section again outlining what the situation is. That is simply it. If Deputy Bruton has any amendment to put forward, I suggest he put it forward now or on Report Stage

I do not want to waste the time of the House on Report Stage putting forward an amendment that there is no point in. That is why I am asking the Minister now to tell me why he would not agree, beyond just saying he is satisfied, to the inclusion of "reckless mis-statement" or some other such reference along with fraud as a grounds for seeking revocation. I just want to know why the Minister is not prepared to accept that. If the Minister can satisfy me, I will not put down an amendment. I will save everybody, his officials included, the bother of preparing briefing notes for the Minister for Report Stage, and the Bill will be enacted that five minutes sooner.

I have given the reasons as we have them. I have no other reasons on section 179 as stuctured. I am sorry that I cannot satisfy Deputy Bruton in this regard but that is a fact.

The Minister did not deal with my point. The Minister introduced the section by referring mainly to things that had nothing to do with the point I made about the protection of people who bought for value and that sort of thing. That is not what I am on about. What I am on about is the grounds upon which somebody can apply for revocation. Those seem to be confined to fraud. I am reminding the Minister of what he already knows, that we found in other sections of the Bill that fraud was too narrow and to hard to prove. If the Minister would allow his officials to answer, that is fine with me. That is no criticism of the Minister.

Before the Minister replies, when the Minister was referring to value, etc., he was dealing with my point which I think he was entitled to deal with. The situation here is that once the compromise is agreed and confirmed by the court, that is the end of the matter. I take Deputy Bruton's point about fraud and other sections not being wide enough to catch what we intended to catch, but it would seem that the whole mechanism here would dictate that the matter be brought to an end one way or the other. If it is brought to an end in one way in the sense that a company stays in existence, that is fine. That is our intention. It must be brought to an end sometime. If you make an exception to the general rule whereby you can overturn all this again within 180 days, it should only be done on the narrowest possible grounds. It would be dangerous to widen it further. I do not think we should be talking about things like reckless misstatement or material reckless misstatement or immaterial reckless misstatement. The matter will never come to an end. There will be no certainty if you push it too far. Fraud should be caught. People should be allowed to overturn this within a certain period of time on the basis of fraud. Frankly I think it would be dangerous and entirely inappropriate to extend it further.

I thank Deputy O'Dea for attempting to answer the point. I put it to the Committee that we could have a situation where directors decide to seek the appointment of an examiner to protect themselves and do not really go to any trouble to state truthfully the position of the company in making their application. It may turn out subsequently that the statement were false in a lot of material respects but one cannot actually prove that they were fraudulently stated to be false. It may be that in the meantime the appointment of the examiner has prejudiced the interests of certain parties who might have moved sooner. They cannot apply for revocation now unless they can prove fraud. What we are saying here is that a private individual has to prove fraud. It is difficult enough for the Director of Public Prosecutions or the Garda to prove fraud and to get the information, with all the powers that they have, but here we are asking a private individual to prove fraud. Where is he to get the documentation and the data necessary to prove fraud? He does not have any powers of entry to premises. He does not have any powers, other than normal civil powers, to demand documents. How is he to assemble the evidence to prove fraud?

Deputy Bruton has elaborated further on his request. It would bring great uncertainty into this whole Bill if we broadened from the word "fraud" the whole possibility of objecting within a certain time. The person buying this property in good faith might find the decision overthrown after six months. An alternative would be not to give any grounds for objections. I am satisfied that we must give some grounds and what I have inserted is "fraud". If we broaden this beyond the word "fraud" we will have this unending uncertainty about the situation. It would be damaging to the whole working of this Part. I am not being disrespectful to Deputy Bruton. If the Deputy feels it would be worth while having this further debated on Report Stage, he can put down an amendment for that Stage and we can elaborate further. I have looked through this and checked it and I am sorry that initially one had to give a quick response to him in this regard because really any alternatives to the word "fraud" had not been fully considered and I am satisfied that if we bring any other definitions into it, we are going into a minefield of problems. I certainly cannot go down that road at this stage.

I am glad the Minister has admitted that he has not considered any alternative to this. Therefore, his statement that he is satisfied about the existing wording is a satisfaction that he has acquired with relative recency. Therefore, perhaps the Minister would agree to look at the grounds here a little bit further between now and Report Stage. If somebody can prove that a specified material misstatement was the grounds for the appointment of the examiner, that should be sufficient ground for revocation, without necessarily proving fraud. I would ask the Minister if he would examine that between now and Report Stage and see if there is something in that.

I want to reassure the Committee that everything that is said on Committee Stage here will be fully examined in advance of Report Stage, which I hope will be taken in the autumn of this year, so that we and our officials will have an opportunity of going through line by line everything that has been submitted here, including the points being made by Deputy Bruton in this regard. From the general advice we are getting, I feel that it would widen the scope of this particular section if we brought in other provisions. It would be damaging to the workability of this Bill but nevertheless Deputy Bruton has put forward a strong view in this regard. I will have it examined in advance of Report Stage. The Deputy is quite right in saying that we did not consider alternatives to the word "fraud". We could have left fraud out of it altogether and we could have deleted the section completely. We are giving a possibility of some appeals system to the courts and we could have deleted that completely but nevertheless all points made on Committee Stage, even though there may not be amendments to the Bill, will be fully examined because of the significance and importance of this Bill. Our desire is to make it a workable, very efficient and very effective Bill.

I can see both points of view. If fraud is interpreted by the courts in its narrowest possible sense, then certainly one has to agree that it would be very difficult to prove. Deputy Bruton is talking about fraud being held by the courts to include wilful blindness or wilful misstatement without checking out the facts, but I think that we all recognise that there must be some certainty in this. If a company is saved, that must be the end of it. Deputy Bruton, on reflection, will agree with that point, otherwise he would surely be arguing that we should take out the requirement of 180 days. The reason this can only be done for 180 days is that the matter must come to an end at some stage.

I would prefer to see slightly wider grounds and a shorter time limit. I am only prolonging this because I had not got a clear answer.

Question —"That section 179, as amended, stand part of the Bill"— put and agreed to.