Special Committee on the Companies (No. 2) Bill, 1987 debate -
Tuesday, 12 Jun 1990

SECTION 195.

Mr. J. Bruton

I move amendment No. 241:

In page 146, subsection (1) (c), line 45, to delete "any capacity" and substitute "a capacity other than as a full time employee".

This is dealing with where an auditor has been disqualified. The situation here is that a person who is disqualified may not become a partner in a firm of auditors or give directions or instructions in relation to the conduct of an audit or work in any capacity at all in the conduct of an audit. There is a problem here possibly, that this would mean that somebody who is disqualified is essentially denied perhaps any means of earning a living at all. It may not be the intention to be quite as severe as that. The purpose of amendment No. 241 in the name of Deputy Barrett and myself is to allow a disqualified person to work as an employee — in other words where he is working under the direction of somebody else, just doing the paper work, but not where he is exercising independent judgment. Admittedly the phrasing I have used does not make it as clear as I would like. Perhaps it would be better if it were to say "a capacity other than as a full-time employee under supervision of a qualified auditor" or something like that. My intention — and the Committee can consider whether it is valuable or not — is to allow the person to continue to make some sort of a living in however subordinate a role rather than just to throw him out altogether. It is possible that people could be disqualified from what might be described as a technicality. However, I would be interested to hear other Members' views on that.

Mr. Leyden

I have a detailed response here but I will give a very quick response. He is only disqualified from being an auditor or working at audit work. There is nothing to stop him from doing any other form of accountancy work. That is the kernel of the situation. Basically he must have been guilty of a serious offence. If you are serious about tightening the abuses of company law we cannot be half-hearted in tackling the particular problem. In general a disqualification order would be for a period of five years and after this period expired there would be nothing to prohibit a person returning to engage in activities prohibited for disqualified persons provided of course he is otherwise qualified. Like any disqualification, whether it is a person disqualified from driving for instance, he is disqualified for that period. That issue has been debated. In this case the person is only disqualified from being an auditor or doing audit work. That to me is clearcut. It does not mean that he will not have a livelihood. That is the concern that Deputy Bruton has put forward, that he will be completely debarred from earning a living in any capacity in the accounts world. That is not the case, but he is disqualified from audit work.

Mr. J. Bruton

What could he do?

Mr. Leyden

He could work as an ordinary accountant, a management accountant, in an industry, tax affairs. There is quite a lot——

Mr. J. Bruton

Most tax affairs require audited accounts.

Mr. Leyden

He can obtain assistance from and work in co-operation with an auditor that is qualified.

Mr. J. Bruton

That is precisely what my amendment proposes, that he should be able to work as an employee.

Mr. Leyden

First of all, he would not be able to work on an audit.

Mr. J. Bruton

What about an audit of sole traders?

Mr. Leyden

Just for clarification, it specifies "company" and it is company law, so maybe the concerns that Deputy Bruton has are not well founded.

Mr. J. Bruton

The problem is the phrase "in any capacity" in the conduct of an audit? Is it really necessary to prevent him from just working in a subordinate capacity if he is simply record taking or something like that but with the judgment being exercised by somebody else?

Mr. Leyden

We might have to review it in relation to even doing private audits. That is the other side of the coin. I have expressed the opinion that in fact he would be allowed to work in a private sole trader situation but not for a company. The restrictions on him are not that serious. I feel that once you are involved in the audit and once you allow persons to engage themselves you can get around this section. I feel that the restrictions on that person are not as grave as maybe first seen by Deputy Bruton.

Tomás Mac Giolla

Deputy Bruton has raised the question whether the person could be an employee of a company? If an audit is taking place in a company in which he is an employee and he provides the books and certain information or whatever to the auditors, is he not engaged in the conduct of an audit? The conduct of an audit seems to me to be a very broad term. Anyone who gives any information or provides any material assistance is engaged in the conduct of an audit, although he may not be doing the actual audit in that capacity. He would be assisting and he would be just an employee of a company. There is a question raised as to the extent of his exclusion from any activity in the company.

Mr. Leyden

During the course of Deputy Mac Giolla's contribution we were trying to get some clarification of the points being raised. The Deputy is raising a hypothetical situation and it is a good thing to tease out the position of this particular person who is disqualified. If I take it correctly what Deputy Mac Giolla is saying is that if that person who was disqualified is taken on in an audit section of a major company, presenting the facts and figures to the auditor——

Tomás Mac Giolla

In the accountancy section of a company.

Mr. Leyden

It would not affect that person's position because it is only the conduct of the audit itself by the auditors that he is actually debarred from under the restrictions.

Mr. J. Bruton

Which is by its nature external?

Mr. Leyden

Yes.

Tomás Mac Giolla

It is fine to say it just covers those who are doing the audit. When you have words down like "the conduct of an audit": the conduct of an audit in a company can be a very wide-spread business. It can take in everything from porters to chief accountants or whatever. Is it that simple for a judge to say that the conduct of an audit only takes in the actual auditors?

Mr. Leyden

Again, the points raised by Deputy Mac Giolla are very fair. I think Deputy Bruton also sought this kind of clarification of the situation. Paragraph (c) is very limited. What we will be trying to do on Report Stage is to pin it down more, to make it absolutely clear. I take the points raised by both Deputy Bruton and Deputy Mac Giolla, in relation to that particular section, that we should be quite clear as to what it refers to and there should be no ambiguity; that the person who is disqualified must be debarred from working for an auditor as such, not, as you say, the porter of a company who might be conveying documents to somebody. That would not be the intention. We want to get that clear and your points are well taken.

Chairman

I hope the Minister has clarified the situation to the satisfaction of the Committee. What Deputies Bruton and Mac Giolla were trying to do was to ensure that we are talking about external people, people who are coming in to conduct the audit. My understanding of the situation is that employees of the company who may be preparing books for the purposes of carrying out the audits or preparing records etc., would not generally be seen as being involved in the conduct of the audit. Also, it is hard to envisage the sort of situation where they would be under a disqualification order, because they are not the sort of people we are talking about anyway. I think the Minister has taken the points on board, and if the section can be redrafted to clarify the matter I take it that everybody will be happy with that. I take the Minister's assurance that he will make an honest effort in this regard.

Amendment, by leave, withdrawn.

Section 195 agreed to.

Sections 196 and 197 agreed to.

NEW SECTIONS.

Chairman

Amendment No. 241a is in the name of the Minister. As amendments Nos. 241b and 241c are related, these three amendments may be taken together. Is that agreed? Agreed.

Mr. Leyden

I move amendment No. 241a:

In page 148, before section 198, to insert the following new section:

"198.—(1) The registrar of companies shall maintain a register containing the names and addresses of persons who have been notified to him as qualified for appointment as auditor of a company or as a public auditor.

(2) In this section and in section 1990, ‘address', in relation to a person, means his usual residential or business address.".

Mr. J. Bruton

Are these new sections?

Mr. Leyden

They are.

Mr. Bruton

I wish to make a point of principle here. Where a series of amendments introduce a series of new sections which would, if they were part of the Bill in its original form, be discussed independently, the same procedure should apply; in other words there should be independent discussion of each section. I have no objection to the Minister making a general statement introducing these amendments but I think we should at least have the capacity to discuss them separately if that is required.

Mr. Leyden

It will be clearer when you hear the reply. Article 28 of the directive requires member states to ensure that the names and addresses of all approved auditors are made available to the public. I propose to comply with this requirement by ensuring that the Registrar of Companies maintain a register of all authorised persons. The first of the amendments, amendment No. 241a, provides accordingly. The second amendment, amendment No. 241b, contains transitional provisions concerning the notification of approved auditors to the Registrar of Companies.

Subsections (1) and (2) contain the necessary provisions in relation to bodies which are at present approved and require them to furnish details of their members to a registrar within one month of their recognition being renewed. Subsection (3) provides that individually authorised auditors must notify the registrar of the names and addresses again within one month of the commencement of this section. Subsection (4) provides that any body of accountants which fails to comply with the notification requirements shall be guilty of an offence. Whereas the previous amendment dealt specifically with transitional arrangements, amendment No. 241c contains the necessary continuing provisions to ensure that recognised accountancy bodies will notify the registrar of new members of the body who are granted practising certificates and thus become qualified for appointment as auditors of a company or as a public auditor. Similar provisions are provided for individually authorised persons. Again subsection (4) contains the necessary provisions, making it an offence for a body not to comply with the requirements to notify details of newly approved members of the body to the registrar. I think that will indicate that we are complying with the new EC directives in this regard. That is why we are bringing this section in.

Mr. J. Bruton

Obviously, if you want a register you have to have some compulsion to make sure that it is kept and this is what this is about. The point I have to raise is in regard to the new section 199 (4) and also the new section 200 (4), which refer to "the body of accountants concerned shall be guilty of an offence". I am interested to know how exactly a body of accountants can be prosecuted for an offence. If, for instance, a jail sentence is the relevant penalty how is that applied to a body of accountants? I wonder if there are limits to the number of people who could be incarcerated. If a fine is the appropriate provision, is there any requirement that the bodies be in a position to pay the fine or if the body itself does not pay the fine is there a provision whereby members may be levied to contribute towards the fine? It seems to me that where you are imposing criminal sanctions — and this is what these are — on bodies corporate as distinct from individuals, special arrangements do need to be made. I am wondering if they are being made. As far as I know, and I may be mistaken here, this is the only point in the Bill that I have seen so far where a body corporate is being made the possible subject of criminal proceedings. I think in every other case it has been an individual. I wonder if provision has been made to deal with the possible imprisonment of a body corporate?

Mr. Leyden

In fact quite a number of sections refer to a company, hundreds of sections actually.

Mr. J. Bruton

It is fairly clear and well established that in the case of a company the directors would be responsible; they are the ones who take the penalty for the company. In many of the cases to which the Minister is referring, in any event, they are financial penalties, where it is the civil responsibility of the company and so on. Here, however, you are talking about a body of accountants who may not even be incorporated. How are they going to be made the subject of criminal sanction?

Mr. Leyden

In fact again, reading the overall situation in this Bill, you will find that the company will be liable for financial restrictions or liable to pay a fine, that is the company itself and not just company directors. That is definitely in this Bill. This Bill is going on so long now that when we get to the end of it we will have to go through it all again and get another feeling of what is happening. That is just one point in reply to Deputy Bruton. As regards the other point that Deputy Bruton made in relation to these bodies, if a body is a limited company, then a company would be prosecuted; if it is not a limited company, then the individual members of the committee could be prosecuted. There are different ways of dealing with it. It would depend actually on how the body of accountants was set up and who would be liable for prosecution as such.

Mr. J. Bruton

How are most of them set up?

Mr. Leyden

One of the bodies is actually a company as far as we know. Again there is a chartered body involved in a number of organisations and I have not a full list here. The Institute of Chartered Accountants is a company incorporated by charter. There are different organisations but if it is not a limited company then the individual members of the committee could be prosecuted.

Mr. J. Bruton

Where are the offences specified for these sections?

Mr. Leyden

In section 202.

Mr. J. Bruton

Section 202 refers, in the case of summary conviction, to a term of imprisonment not exceeding 12 months and in the case of conviction and indictment, a term of imprisonment not exceeding three years. How do you apply that to a body corporate?

Mr. Leyden

You simply do not, and you could not possibly.

Mr. J. Bruton

But if you want to avoid imprisonment, do what you want to do through a company because the worst thing that can happen to you is that you could be fined.

Mr. Leyden

The whole purpose of the Companies Bill is to tighten up the whole operation of companies. At the end of the day that is what we are trying to do. You cannot put the whole company in jail.

Mr. J. Bruton

If a body of accountants is not incorporated and is simply an association set up like a football club and is not incorporated, it would appear that the penalties that could be imposed on them are both a fine and imprisonment, in the sense that because they are not an incorporated body, the individual members can be liable themselves. On the other hand if they are an incorporated body, the worst that can happen to them is a fine. That is a peculiarity that should not exist and there should be uniformity of treatment. An accident — that is all it would be — whereby one body of accountants is incorporated and another is not, could mean that one of them would suffer much more dire penalties than the other. I do not think that is the Minister's intention and some clarity should be brought into it.

Mr. Leyden

We will be going through this in more detail when we come to the actual section which is section 202. It will give us an opportunity of going into greater detail about how we can bring in these fines and restrictions. In the Companies Act of 1963, for example — we have opened section 284 at random — if a company fails to comply with subsection (3), the company and every officer of the company who is in default shall be liable to a fine not exceeding £25. That was the restriction at that particular stage. That is just an indication of how the operation works in reality. We will be coming to section 202 in due course and we will have an opportunity of going into it in greater detail.

Mr. J. Bruton

I appreciate the Minister's anxiety to move on but we are dealing with a very particular type of situation here. We are not dealing with companies or normal breaches of company law, which we have gone into already, and there is a whole range of penalties that have been considered there, including civil penalties and the ability to pursue the assets of directors and a lot of other things. As far as normal company misfeasance is concerned we know where we stand. Here, however, in these new amendments which have been relatively recently introduced, we are bringing in a new category of criminal. In other words, the criminal who is not an accountant individually but a body of accountants. It is a completely new category of criminal that we are dealing with here.

What I am saying to the Minister is that in this particular category — and it is a very narrow subset of the whole range of criminals that are being dealt with in this legislation — you have the peculiarity that if the body of accountants is not incorporated they are liable to penal prison sentences whereas if they are incorporated the worst that can happen to them is a fine. It could be a pure accident that for some reason one of these bodies of accountants did not believe it should incorporate because of some tradition. Then they failed to lodge their books in accordance with these sections, along with some other incorporated group of accountants who also made the same mistake. They are both brought up to court and it is discovered that members of one of them can be put in jail and the others cannot. We are relying a lot on judges to be sensible in this legislation — even though we have no category of judge in Ireland trained in financial matters which is another odd situation in itself — but we should try to refine the legislation a little bit to ensure that an accident of incorporation or non-incorporation does not seriously change the penalties that could fall.

Mr. Leyden

The point made by Deputy Bruton is very interesting in this regard. In the examples which he outlined, there does seem to be an anomaly between the fine and the penalty on both groups because of different ways they are incorporated. If we can gauge the opinion of the bodies involved — we have not received any submissions since publishing this — maybe today's discussion will create a reaction. I would be open to suggestions. It is the responsibility of the members of the committee to put forward suggestions and I would certainly be open to proposals or suggestions as to how we might try to refine this and make it more embracing and more fair.

Mr. Carey

Why does the Minister put in imprisonment as a penalty? Why not just have the financial penalty?

Mr. Leyden

The course suggested by Deputy Carey is quite an interesting one and could be more fair. We were dealing with a financial restriction really and it would apply to everybody whether they are incorporated or not incorporated. I will have to consider accepting Deputy Carey's suggestion. It is one way out of the difficulty raised by Deputy Bruton. I would certainly take that on board. It would be the only fair way, because, as Deputy Bruton said, the individual could be both fined and imprisoned whereas the incorporated bodies could not possibly be imprisoned.

Tomás Mac Giolla

Is it not true that in the drafting of that section the fine was related to the fact that there is imprisonment. If imprisonment was cut out of that, the fine should be increased enormously because a £1,000 fine and the possibility of imprisonment is a very serious matter. If there is no possibility of imprisonment, £1,000 fine is fiddlesticks, similarly with a £10,000 fine and a possibility of three years imprisonment. I do not know what the original drafters had in mind if they were putting in imprisonment of corporate bodies — they must have had something else in mind — but when you put in imprisonment it is to add to the seriousness of the offence and without that your fine should be £10,000 for the summary conviction and conviction on indictment should be £100,000. It would be a much more serious fine for a corporate body. Obviously the drafter here was talking about individuals. That is very evident from the fine. The fine means nothing to a company —£1,000 or £10,000. If you just cut out imprisonment, you would certainly want to consider the whole question of fines in that section.

Mr. J. Bruton

Another possibility might be to extend the offences to say that where individuals within the body of accountants can be indicated as having had a personal responsibility for the corporate failing of their body as a whole, they might personally be liable as well.

Chairman

I think the Minister should ask his officials to look at it along those lines.

Mr. Leyden

Chairman, I think there has been some very interesting comments put forward by Deputy Bruton, Deputy Carey and Deputy Mac Giolla. I am trying to work out a fair and accurate approach to this particular issue. We could, as suggested, make the individual in the company who defaulted in his responsibilities in complying with these regulations liable for imprisonment, but I would be more inclined to go along with Deputy Carey's suggestion of imposing financial penalties. Section 202 is the one that would apply there. It provides for financial punishment rather than imprisonment. We have brought this forward to comply with EC law, so we will have to come back and talk to you on Report Stage about it.

Amendment agreed to.

Mr. Leyden

I move amendment No. 241b:

In page 148, before section 198, to insert the following new section:

"199.—(1) Subject to subsection (2), a body of accountants whose recognition has been renewed by the Minister under section 195 (1) or which has been recognised under section 195 (3) shall, within one month after such renewal or recognition, deliver to the registrar of companies the name and address of each of its members who is qualified for appointment under the Companies Acts as auditor of a company or as a public auditor.

(2) Without prejudice to the generality of subsection (1), a body of accountants based outside the State, whose recognition is renewed or granted as aforesaid, shall notify details of those of its members who wish to practise in the State.

(3) Every person who, immediately before the commencement of this section, holds an authorisation from the Minister under the Companies Acts to act as auditor of a company or as a public auditor (otherwise than by virtue of membership of a recognised body of accountants) shall, within one month after such commencement, deliver his name and address to the registrar of companies.

(4) If default is made in complying with subsection (1), the body of accountants concerned shall be guilty of an offence.".

Mr. J. Bruton

I have just one question. The body of accountants shall deliver within one month after the renewal or recognition the name and address of each of its members — is it possible for them to do that quickly in all cases? Is it a month too short?

Mr. Leyden

From here on they will be aware of their responsibilities to furnish this information so they should be able to comply with it. It seems a reasonable amount of time to get their information together, particularly with the computerised lists and so on.

Chairman

Amendment agreed to.

Mr. Leyden

I move amendment No. 241c:

In page 148, before section 198, to insert the following new section:

"200.—(1) Subject to subsection (2), where, by virtue of his becoming a member of a body of accountants, a person (other than a person referred to in section 199 (1)) becomes qualified for appointment as auditor of a company or as a public auditor, the body concerned shall, within one month of his becoming so qualified, deliver his name and address to the registrar of companies for inclusion in the register referred to in section 198.

(2) Without prejudice to the generality of subsection (1), a recognised body of accountants based outside the State shall notify details of those of its members who wish to practise in the State.

(3) Every person who, after the commencement of this section, is granted an authorisation by the Minister under the Companies Acts to act as auditor of a company or as a public auditor (otherwise than by virtue of membership of a recognised body of accountants) shall, within one month after such grant, deliver his name and address to the registrar of companies.

(4) If default is made in complying with subsection (1), the body of accountants concerned shall be guilty of an offence.".

Amendment agreed to.

Mr. Leyden

I move amendment No. 241d:

In page 148, before section 198, to insert the following new section:

"201.—(1) The Minister may make such supplementary regulations as he considers necessary for the proper and effective implementation of the Council Directive.

(2) Without prejudice to the generality of subsection (1), if, in any respect, any difficulty arises in regard to the implementation of the Directive, the Minister may by regulations do anything which appears to him to be necessary or expedient for removing that difficulty, and any such regulations may modify any provision of this Part so far as may be necessary or expedient to implement the Directive but no regulations shall be made under this subsection in relation to any provision of this Part after the expiration of 3 years commencing on the day on which the relevant provision of this Part came into operation.

(3) Every regulation made by the Minister under this section shall be laid before each House of the Oireachtas as soon as may be after it is made and, if a resolution annulling the regulation is passed by either House within the next 21 days on which that House has sat after the regulation is laid before it, the regulation shall be annulled accordingly, but without prejudice to the validity of anything previously done thereunder.".

This amendment proposes to give the general power to make supplementary regulations for the proper and effective implementation of the EC directive. For example, the directive provides that members states may approve firms of auditors which satisfy specified conditions. In Ireland at present only nationals can be approved as auditors and I do not propose to alter this situation at this stage. However, the question of allowing auditors to form companies and of allowing such companies to act as auditors of companies or as public auditors has to be further examined. Until such examination has been completed and all the issues considered I do not propose to provide that auditors be permitted to form limited companies for auditing purposes. Thus amendment 241d will enable the Minister to make appropriate regulations if it is considered desirable to go down that road at a later stage.

Subsection (2) is in the nature of a transitional provision that would enable the Minister by regulations to modify any of the provisions in Part 10 introduced to implement the EC directive. However, any such modification would have to be made within three years of the commencement of this Part.

Mr. J. Bruton

I do not object to any of that. Could I ask the Minister has the Government looked at the possibility of multi-disciplinary partnerships for example, partnerships between solicitors and accountants to form a service that would cover the whole range? I understand that this is something there is increasing interest in amongst the professions concerned. It is linked in some respect also, perhaps, to the argument that exists about whether or not they should be unified, for example in the legal profession, with barristers and solicitors all being interchangeable. I would be interested to know if the Government have any views on the question of multi-disciplinary partnerships.

Mr. Leyden

The Government are looking at this through the restrictive practices commission. The professional bodies will also be considering these matters as well. These are issues which will be addressed as time goes on. At this stage the restrictive practices commission are looking at it.

Mr. J. Bruton

The Minister probably knows that under the Solicitors Act, solicitors may not enter into multi-disciplinary partnerships. They may not enter into a partnership with non-lawyers.

Mr. Leyden

I do not have any particular brief on this. I do not know how they operate in relation to auctioneering agents. They must be operating with their own people in that regard.

Mr. J. Bruton

I understand the Solicitors Act specifically prohibits solicitors from entering into partnerships with non-lawyers and that includes a prohibition in respect of lawyers who are recognised only in this State. The only people with whom they may form a partnership are solicitors recognised within this State. For instance, if an Irish firm of solicitors wanted to form a partnership with a British and a French firm of solicitors they could not do it because the other partners, the French and the British, are not recognised as solicitors here. This seems to be a potential problem. I think it might be something that the Minister would like to inform himself about.

Mr. Leyden

The points put forward by Deputy Bruton are ones that the Fair Trade Commission will have to investigate. They are looking into this particular area, that of restrictive practices which is their domain. It is not our responsibility under this Companies Bill.

Amendment agreed to.