Special Committee on the Companies (No. 2) Bill, 1987 debate -
Tuesday, 26 Jun 1990

SECTION 200.

Mr. J. Bruton

I move amendment No. 244:

In page 150, subsection (1), lines 30 to 32, to delete from and including ", without any limitation" down to the end of the subsection and substitute "for a proportion of the debts and other liabilities of the company as may be specified by the court by reference to the responsibility of such officer for such contravention which has contributed to the company's inability to pay all of its debts and other liabilities.".

Section 200 creates a personal liability for directors in the case of failure on their part to keep the books of account in accordance with the requirement of section 198 in the original Bill which has now reverted to section 147 of the 1963 Act. That is now the law and remains the law as a result of the decision of this Committee not to accept section 198 of the present Bill.

Amendment No. 244 was framed with reference to the original provisions of section 198 which provided that a director who was found to be liable in this situation would be liable without any limitation. Even though the omission on his part in regard to the books may have been of a relatively modest dimension, if that was a factor at all, he could be liable without limitation for the debts of the company. A non-executive director in a company who is a man or woman of substantial assets may well be pursued in regard to this matter far out of proportion to his or her actual culpability or responsibility for the omission in regard to the accounts. Therefore, Deputy Barrett and I are suggesting that the liability of an individual director in this situation — personal liability apart from the liability of the company — should be limited to a proportion of the debts and other liabilities of the company as may be specified by the court by reference to the responsibility of such officer for such contravention which has contributed to the company's inability to pay their debts, in other words, to give the court the right to have some degree of proportion in allocating personal responsibility rather than have it simply personal responsibility without limitation.

Mr. S. Barrett

In support of what Deputy Bruton said, small businesses need to benefit from the expertise and business acumen of non-executive directors who may be prepared to serve on boards, particularly of small companies, to assist those companies to develop their true potential. The more onerous the liabilities the less attractive it will be for them to serve on these boards. I ask the Minister to consider what we are trying to achieve. There may be instances where the court will decide that an executive director should be held liable for the full amount but there may be others where a non-executive director, appointed in an advisory capacity and unaware of the day to day operations of a company, could be held liable, without any limitation, if an action is taken. That is unreasonable. People will think twice about serving on boards as non-executive directors if they are to be left with this possible liability resting on their shoulders. We are not trying to relieve a director of this liability but rather trying to bring some realism into the area where, depending on the circumstances, the court would have discretion.

Mr. Leyden

Section 200 makes officers of a company open to the imposition of personal liability for all or any part of the debts or other liabilities of the company in the circumstances specified in the section. The amendment proposed by Deputies Bruton and Barrett would restrict the power of the court in this respect to declaring officers of the company liable for a proportion of the debts. I am more than happy that the present wording allows the courts the flexibility to do precisely what the Deputies are seeking to do, that the court has total discretion to make an officer personally responsible for all or such part as it may specify of the debts and other liabilities of the company.

In deciding the extent of liability to apply, that court would, of course, have regard to the extent to which the director concerned was responsible for the company's situation, which is the point covered by the second part of the Deputies' amendment. Apart from that, I would be concerned the Deputies' amendment would have an effect they did not intend. For example, the amendment states "by reference to the responsibility of such officer for such contravention. . .". This could be interpreted to mean that the court must make such a person liable in direct relationship to his contribution to the contravention and that the court would not be able to take other mitigating circumstances into consideration. A similar amendment, No. 144, was withdrawn by Deputies Bruton and Barrett in similar circumstances.

The wording of subsection (1) is generally in line with similar provisions imposing personal liability in the new section 35, which we added to the Bill earlier, as well as sections 107, 116 and 139. In these circumstances, I am happy the existing wording is more satisfactory than the one proposed in the amendment and I would not, accordingly, be prepared to accept the amendment.

Mr. Roche

There is a specific reference to section 198, which is now lost in section 200 (1) (a). What are we discussing here? We are discussing a section which, to my mind, does not have a great deal of substance. If section 198 has been validly defeated, is there any point in discussing this section? Unless of course the section is to be redrafted?

Chairman

It is open to the Minister to bring in a new section 198 on Report Stage and he has put the Committee on notice that he intends to do that. I am looking forward to it. We are now dealing with amendment No. 244 to section 200, which the Deputy is not withdrawing. We can discuss the section despite the fact that section 198 has been lost.

Mr. J. Bruton

I agree with that interpretation. I disagree however with the Minister because judges tend to differ and we do not know in what way this section will be interpreted by individual judges. Some judges may decide to throw the book at people over a bookkeeping error while others may take a very lenient view. It is desirable that there be consistency. That is why we are looking for the Legislature to give guidance to judges that there be proportionality to the responsibility of the officer in terms of the payments he might have to make.

Amendment put.

The Special Committee divided: Tá, 5; Níl, 5.

Tá
Barrett, Sean.	Durkan, Bernard.
Bruton, John.	Reynolds, Gerry.
Carey, Donal.

Níl
Cowen, Brian.	Rabbitte, Pat.
Kitt, Tom.	Roche, Dick.
Leyden, Terry.

Chairman

There is an equality of votes, so the question is decided in the negative.

Amendment declared lost.

Mr. J. Bruton

Let me give notice that we shall return with an amendment in not precisely the same terms, but in similar terms.

Chairman

We now move on to deal with amendment No. 245.

Mr. J. Bruton

I move amendment No. 245:

In page 151, subsection (6), line 22, to delete "194".

This is a simple amendment. It relates to the definition of auditors which regards them as being officers of a company. Section 194 defines "officers" and contains a reference to auditors.

It is the understanding of those in the profession that auditors are not officers of a company; in fact, they are external to a company. It is their very independence that makes them valuable to the public. If they are to be defined in subsection (6) as officers of the company they would not have that independence.

Mr. Roche

Given the recent antics of some auditors who must have been blind or taken a day off when auditing the books, or switched off their accounting antenna, I would have thought that any section which seeks to impose a degree of additional liability on auditors would have been welcomed. I would welcome any section which sought to import the concept of officership and give them some sense of responsibility for their antics and operations for which they get paid a very high amount. It is a pity we cannot make it retrospective, given the antics of some auditors in some of our State-sponsored bodies. However, that is excessively contentious.

Mr. J. Bruton

I have no aversion to considering the question of personal liability of auditors for failure but I do not think that that should be done in a fashion which states that auditors are officers of companies as clearly they are not. Auditors are independent of a company, yet subsection (6) pretends they are officers simply to leave them open to personal liability. If the Minister wants to do this, it should be done in a separate section framed in a fashion which recognises their separateness.

Mr. Leyden

I will not read out the reply because Deputy Bruton has clarified the matter and added to his initial comments. He is concerned about the personal liability of auditors. We are prepared to look at the wording of this section before Report Stage, but the principle still stands.

Mr. J. Bruton

What is the Minister saying?

Chairman

He is saying that he cannot accept the amendment but if the Deputy wishes to bring in a separate section where the same liability would attach to the auditors, without they being defined as officers of the company——

Mr. Leyden

I will look at the wording of this section to see if we can revise or change it so that an auditor will not be defined as an officer of the company. This is the only issue between us at this stage. Deputy Bruton stated that an auditor is not an officer of a company and we want to make this clear in redrafting this section.

Mr. J. Bruton

The substance of the amendment has been accepted in the sense that——

Chairman

The amendment has been withdrawn.

Mr. Leyden

If that was the purpose of Deputy Bruton's amendment it would be accepted, but I do not think that was his initial intent.

Chairman

The Chairman has said the amendment is withdrawn and we will move on to the next amendment.

Mr. Carey

The Minister is niggling.

Chairman

I am sorry, but it is the only way we can do business.

Amendment, by leave, withdrawn.

Section agreed to.

Section 201 agreed to.

NEW SECTIONS.

Chairman

We will now move to Part XI of the Bill. The Minister may wish to give a short resumé of this Part, and we can then proceed with the amendments.

Mr. Leyden

I will make a general statement on the content and aims of the proposed new provisions on the purchase of own shares. Irish company law generally prohibits the purchase or redemption of its own shares by any company. The issue of redeemable preference shares is permitted under strict conditions but the issue of redeemable ordinary shares is not currently allowed under any conditions. The present prohibition which was set out in the Companies Act, 1963, and the Companies (Amendment) Act, 1983, is essentially a codification of a common law doctrine which was established in the last century. The basis for this was that those dealing with a company should be assured that all of the subscribed capital should remain available to pay the company's liabilities and that no part of it can be returned to a shareholder to the detriment of a creditor.

The concept of a company purchasing its own shares is well established in the USA and Canada. The underlying principle is that a company can buy back its own shares so long as it does so out of profits without impairing capital. The UK Companies Acts also allow companies to purchase their own shares subject to certain conditions designed to ensure the maintenance of capital. The second EC directive on company law also allows the purchase of own shares but the directive also provides that where this is done it must be subject to certain conditions. These conditions relate to the percentage of shares which a company can hold and to the suspension of voting rights in these shares.

The new provisions proposed in amendments Nos. 246 to 274 followed a period of consultation with several interested groups in both the private and public sectors. The Department also looked at the legal mechanisms involved in the other countries, which I mentioned earlier. This examination showed that there was a case for allowing Irish companies to purchase their own shares so that they could have all the tools in their armoury which their competitors have and are not in danger of being at a competitive disadvantage. In making these proposals, however, a major consideration has also to be given to the protection of creditors by placing limits on the use of the power to purchase own shares. I have already mentioned that Irish companies are operating in an increasingly competitive environment and that in order to compete effectively they must have the same facilities as their competitors. The ability to issue ordinary redeemable shares as opposed to redeemable preference shares and to purchase the company's own shares is one element of this. The argument for such powers essentially relates to strengthening the company by enabling it to order its affairs in a cost effective and efficient way, thus enhancing its competitiveness.

The power of companies to purchase own shares will, I hope, encourage a greater level of equity investment in industry by both individuals and institutions. Investors who might fear having their investment locked in an unquoted company will appreciate the ability to sell their shares to the company as a valuable exit route. The experience of those in the business of promoting private companies in particular is that the absence of a ready market for these companies' shares is a major disincentive to venture capital investment in Ireland. The ability of a company to buy back shares would make investment and participation in private companies more attractive, providing shareholders with a further means of disposing of their shares and permitting the remaining members to maintain control and ownership of the business.

There are other advantages which will result from the new provisions, for example, the ability of a company to purchase or redeem its shares will facilitate the retention of family control where a family member wishes to realise his stake in a business and the remaining share-holders are unable to buy the shares personally. It should also allow the operation of employee share schemes to be simplified. Furthermore, companies would obviously, be given more flexibility in the arrangement of their capital structure. Finally, a mechanism would be available whereby the company would buy out the shares of a dissident shareholder and thereby contribute to the effective management of the company.

Chairman

We now come to amendment No. 246 in the name of the Minister.

Mr. Leyden

I move amendment No. 246:

In page 151, before section 202, but in Part X, to insert the following new section:

"Part XI

Acquisition of own shares and shares in holding company

202.—In this Part—

‘the Act of 1983' means the Companies (Amendment) Act, 1983;

‘company' means a company to which section 203 relates;

‘distribution' has the meaning assigned to it by section 51 (2) of the Act of 1983 (as amended by section 228 (d) and (e) of this Act);

‘redeemable shares' includes shares which are liable at the option of the company or the shareholder to be redeemed.".

This amendment introduces the new Part XI and interprets four references in the new Part.

Mr. J. Bruton

As I understand it, the redeemable shares we are talking about here — the mechanism which is being used to enable people to buy out shares — are shares that may be issued only after the passage of this Act. It appears this Part of the Bill does not allow a mechanism for existing ordinary shareholdings to be purchased. If that is the case, it would not be a good idea. One of the arguments made in favour of getting people to invest in business expansion schemes to provide money for manufacturing was that in due course an exit mechanism would be provided where the company could buy back the shareholdings of those who invested in it. Most of those shares would have been already issued to people who bought in the last three years. If this Part only applies to new shareholdings issued henceforth it would appear not to apply to those who invested in companies in the past and not to address that problem.

Mr. Leyden

A company can redeem redeemable shares or purchase own shares. As far as retrospective shares are concerned new section 206 (1) of amendment No. 250 states:

Subject to subsection (2), (3), (4) and (5) and the provisions of the Companies Acts governing the variation of rights attached to classes of shares and the alteration of a company's memorandum or articles, a company may convert any of its shares into redeemable shares.

Mr. J. Bruton

We will tease out the details later.

Mr. Leyden

Yes.

Amendment agreed to.

Chairman

Amendments Nos. 247 to 251, inclusive, and No. 259 are related and may be discussed together. Is that agreed? Agreed.

Mr. Leyden

I move amendment No. 247:

In page 151, before section 202, but in Part X, to insert the following new section:

"203.—(1) Subject to the provisions of this Part, a company limited by shares or limited by guarantee and having a share capital may, if so authorised by its articles, issue redeemable shares and redeem them accordingly.

(2) The issue and redemption of shares by a company pursuant to subsection (1) shall be subject to the following condition——

(a) No redeemable shares shall be issued or redeemed at any time when there are no issued shares of the company which are not redeemable.

(b) No such shares shall be redeemed unless they are fully paid.

(c) The terms of redemption must provide for payment on redemption.

(d) (i) Subject to subparagraph (ii), no such shares shall be redeemed otherwise than out of profits available for distribution.

(ii) Where the company proposes to cancel shares on redemption pursuant to section 204, such shares may also be redeemed out of the proceeds of a fresh issue of shares made for the purpoises of redemption.

(e) The premium, if any, payable on redemption, must, subject to paragraph (f), have been provided for out of the said profits of the company.

(f) Where the shares were issued at a premium, any premium payable on their redemption (being a redemption to which paragraph (d) (ii) applies) may be paid out of the proceeds of a fresh issue of shares made for the purposes of the redemption, up to an amount equal to—

(i) the aggregate of the premiums received by the company on the issue of the shares redeemed, or

(ii) the current amount of the company's share premium account (including any sum transferred to that account in respect of premiums on the new shares),

whichever is the less, and in any such case the amount of the company's share premium account shall, notwithstanding anything in section 62 (1) of the Principal Act, be reduced by a sum correspondoing (or by sums inthe aggregate corresponding) to the amount of any payment made by virtue of this paragraph out of the proceeds of the issue of the new shares.

(3) Subject to the provisions of this Part, the redemption of shares may be affected on such terms and in such manner as may be provided by the articles of the company.".

These amendments provide for the issue of redeemable equity shares and for the purchase of their own shares by companies. They also set out the general conditions under which these powers can be exercised. While the grouping of these sections together involves consideration of a fairly lengthy piece of text, I hope the Committee will agree that it is the best way to proceed, given the connections between the various sections.

I will start by summarising what these new sections propose. New section 203 proposes to give companies the power to issue redeemable ordinary shares and to redeem them accordingly subject to certain specified conditions. New section 204 provides that these shares may be cancelled on redemption, and sets out the conditions governing such cancellation. New section 205 provides that instead of cancelling the shares, the company may hold them subject to certain limitations. New section 206 will allow a company, again subject to certain conditions, to convert existing shares into redeemable shares and provides that once converted they would be subject to the new provisions governing redeemable shares. New section 207 will allow companies to purchase their own shares and provides that shares so purchased should be treated in similar ways to redeemable shares that have been redeemed. Finally, new section 215 sets out the consequences which will flow from a failure by a company to redeem or purchase its own shares. I can, if the Committee wish, go into more detail as to the sections involved in this group, but this is a very long text and perhaps the Deputies could accept the summary I have given. If not, I will go through the whole text.

Mr. J. Bruton

There are a number of double negatives in this section which make it hard to understand. In section 203 (2) it is stated that "No redeemable shares shall be issued or redeemed at any time when there are no issued shares of the company which are not redeemable." That probably is as clear as day to the Minister but I cannot understand it; I do not know what it means. I tried knocking out the two "nos" to see what it really meant. We actually have a treble negative here. Maybe the Minister will explain it.

There is another provision which I would like to question, that is about all one can do in a section of such complexity. Section 205 (2) (a) says: "The maximum number of treasury shares that a company may hold at any one time shall not exceed ten per cent of the issued share capital of the company." My understanding is that these treasury shares are in fact a different mechanism from that referred to in the other sections; it is a United States system I am told. Why do we have a limit of 10 per cent? Why not 20 per cent or 40 per cent? Is there any particular reason for having a 10 per cent limit?

Mr. Leyden

May I come in on these questions? The 10 per cent limit arises from an EC second directive on company law which requires us to have that limit. In relation to the shares themselves, the wording of section 203 (2) (a) means that before a company issues redeemable shares they must have in place an issue share capital that is permanent and not redeemable at some future date. It must be remembered that capital plays a major role in the development and growth of companies. It is, therefore, essential that companies should have a proper balanced capital structure as between permanent capital for general purposes and less permanent capital for specific purposes.

Mr. J. Bruton

Given that a 10 per cent requirement is laid down in section 205, why is the Minister not laying down some requirement in section 203 as to the proportion of the shares of a company which should not be redeemable if he wants to maintain a non-redeemable capital core to a company, which seems to be reasonable? He should put some proportion or value on that — that it should be say 10 per cent, 15 per cent or 20 per cent of the capital of the company. It would appear that if you have one non-redeemable share worth £1 that is enough and you can have a further £10 million worth of shares which are redeemable, but if that is the case, it is not much of a safeguard.

Mr. Leyden

The points being made by Deputy Bruton are very reasonable, particularly when we relate them to the requirement in the EC directive of 10 per cent. We are positively disposed to bringing forward some requirement on Report Stage in relation to this.

Mr. J. Bruton

I accept that. What would the Minister feel would be a reasonable requirement?

Mr. Leyden

I will have to examine it further before Report Stage. I could not give an off the top of the head answer. It is a serious requirement. I think what Deputy Bruton is saying is reasonable. We will have to work out some mechanism to reconcile this requirement. I could not say what a reasonable requirement would be without examining it further. We propose to bring in an amendment to new section 203(1)(a) on Report Stage. We can discuss that at that stage.

Chairman

Has the discussion on the amendment concluded?

Mr. J. Bruton

I am not sure that it will go on much longer——

Mr. Leyden

I have a detailed script here that I feel would be useful if it were circulated to Members before the next meeting. It would be useful to have it on record as well. It is a very long script and I do not want to bore the Committee by going through it. I know it cannot be on the record if I do not go through it. I am trying to get the best of both worlds.

Mr. J. Bruton

There is a recently introduced provision in Standing Orders for the circulation of material for the inclusion in the record. I think the Minister should avail of that procedure to have it included in the record.

Mr. Leyden

I wish to avail of that procedure.

Mr. J. Bruton

Can the Minister explain the section 206 procedure in the context of private non-quoted companies that have issued BES shares? How will they go about this process of making these shares redeemable, assuming that the shares were issued, say a year ago?

Mr. Leyden

New section 206 — sub-sections (1) to (3) — will give a company the general power to convert any of its existing non-redeemable shares into redeemable shares subject to the following conditions. The company cannot convert the shares of an individual against his wishes unless it complies with the provisions of section 78 of the 1963 Act and section 38 of the 1983 Act on the variation of shareholders rights, judicial review and so on. The company cannot convert as many shares as would leave it with no permanent non-redeemable issue share capital — section 206(5). I said I would come back to that again. Shares so converted will become subject to the conditions set out in the new provisions governing redeemable shares. Finally, before any such conversion the company must amend its articles and memorandum of association to allow it to do so, i.e., with the approval of three-quarters of those present and voting at a general meeting. I will be circulating that document to Members and to the secretary of the Committee.

Mr. S. Barrett

How is this applied to the issue of shares to employees in a company? The Minister said this would benefit such a scheme. Can he expand on that a little? Does he intend that redeemable shares would be issued to employees, which I presume on leaving the service would be eventually redeemed as the employee got no option to hold on to those shares if they so wish when and if they eventually leave the company?

Mr. Leyden

I understand the provisions in this section would make it easier for employees to be given shares of a company even though it is not specified, the inclusion of this section in the Bill will mean that the employees of a company will be in a position, without very complicated arrangements, to receive shares in the company. These shares will be more tradable and an employee who leaves the company will have a better chance of selling them back to the company.

Mr. J. Bruton

These provisions are important because they will create a market in shares so that worker shareholding can be encouraged. Taking shares in a company when there is no prospect of being able to sell them is not an attractive option and people prefer to take a wage increase rather than shares, the value of which is so indeterminate as be valueless to them in a practical sense because they cannot be sold. If we create a market for shares through this mechanism I believe I will encourage greater employee shareholding in industry. During my period in office as Minister for Industry and Commerce I was most anxious to promote employee shareholding in companies. Indeed the record will show that I gave the original instructions for the drafting of these provisions precisely for that purpose. It also says something about the speed of affairs in the administrative machine that it has taken so long to do this.

Mr. Leyden

I have been told by my officials that the fault lies in the speed of the Oireachtas machine and not with the officials. I have been told to say that, and I agree with it.

Mr. J. Bruton

Let us all say he said it with great conviction.

Mr. S. Barrett

How will this provision apply to private companies in terms of finding a value for such shares? I understand how it will operate when shares are quoted on the Stock Exchange but how will it operate in regard to a private company?

Mr. Leyden

Basically it will be a question of whether a private company is in a position to issue such shares in the company at a particular time and the negotiations on any agreement which will be reached between a company and its employees. The value of the shares will be evident to the people involved at that stage and as Deputy Bruton has said it will give the company the option of buying back the shares. Generally, there will be flexibility in relation to such transactions. The principle of the new provision is very attractive and applies to both private and public companies. The mechanism being used is open to negotiation; we cannot tie down every provision at this stage.

Mr. S. Barrett

How will this provision apply to State owned companies if you want to introduce the process of shareholding into such companies?

Mr. Leyden

Is the Deputy advocating privatisation?

Mr. S. Barrett

Maybe the Minister will answer the question I asked as distinct from my views on privatisation. I believe employees in State companies should be allowed to become shareholders in the companies in the same way as the employees of publicly quoted companies or private companies. If we want to give employees in State companies the incentive to create wealth and have an interest in the day-to-day activities and running of their companies, I do not understand why they should be treated differently to those in private companies.

Mr. Leyden

The shares of State companies are owned by the Minister for Finance. Deputy Barrett is raising a completely different issue. I am not in a position to comment on the future of State companies, or the distribution of their shares.

Mr. S. Barrett

I am not asking about the future of State companies. As I have said all along, if we want to have a viable State sector we should find ways and means not alone to pay the staff the commercial rates on the open market but we should also engage in the process of making it possible for them to become shareholders in such companies. It is not a question of one's policy on privatisation; it is a question of the practical day-to-day workings of a company so that it will be more attractive for people to remain in those companies and feel part of them. We should make certain in this important section of the Bill, which Deputy Bruton was very keen on during his term of office, that we provide for every eventuality.

Mr. Leyden

The future development of State companies — for instance, Irish Life — is subject to legislation and this companies legislation will apply to such companies.

Mr. S. Barrett

What would happen in the case of An Post?

Mr. Leyden

It would not apply in that case because there are no shares available.

Mr. S. Barrett

There would have to be shares, that is my point.

Mr. Leyden

I am not going to predict Government policy in this regard.

Mr. S. Barrett

I am talking about what the law will say if it is decided in the future that this is the way forward. All I am doing is asking the Minister to look at the possibility of providing a mechanism for the sale of shares to employees in such circumstances. Will the sections he is proposing here cater for that possible eventuality. I am not asking him to determine future Government policy in relation to State companies; I am only asking him if the legislation would cater for it if it were to happen.

Mr. J. Bruton

It would appear that these sections relate to the purchase by the company of its own shares. If the State takes a decision to dilute its shareholding in certain companies in which it currently is the 100 per cent shareholder and offers these shareholdings to its employees, it would be more attractive to the employees to take up those shares as a result of the passage of these sections than it would be in the absence of them. This means employees would know in the final analysis that if they cannot sell those shares on the open market, perhaps through a stock market flotation or whatever, the person who sold them in the first place, i.e., their employer, would have a means, under this section, to buy them back. As Deputy Barrett correctly said, leaving aside the question of privatisation or otherwise, these sections represent a major step forward in allowing an opening towards employee shareholding whether it be in the public or private sector.

I would like to raise one question on amendment No. 250. Subsection (2) of that amendment provides that "A conversion of shares under subsection (1)"— that is, from ordinary to redeemable shares —"shall not have effect with respect to any shares, the holder of which has withheld his consent to or voted against a resolution for . . .such a conversion". In my view, the words "or voted against a resolution for" should not be included. There is a danger that by including how a person votes at a meeting among the reasons that might give them the power to accept or not to accept an offer later — which would not be available to somebody who voted for the resolution — will mean people will not vote for the resolution on its merits. There will be a tendency for people to vote against the resolution and hope others will vote for it so that they will have a second bite of the cherry. This means that if they do not like the final shape of things or change their minds in the following six weeks, they can refuse the shares.

It seems to me that the question of consent in respect of an individual shareholding, whether to accept the redeemable shares, should be an entirely freestanding matter and should not relate to how a person voted on a resolution. A person should be entitled to reject the offer or to accept it regardless of how they voted on a resolution. I do not quite understand why this should be here. For instance, if the Dáil votes for an increase in pay for Members and some of the Members vote against it, that does not mean those Members are obliged not to accept the offer.

Chairman

Some voted for it and did not take it up.

Mr. Leyden

Section 206 (2) provides some measure of protection for an individual shareholder who does not consent to or vote for conversion of shares into redeemable shares. The general effect of the phrase "a conversion of shares" is that the shares belonging to the individual involved cannot be converted against his wishes. That is basically the situation.

Mr. J. Bruton

There are two phrases here "has withheld his consent to" or "voted against". Do they mean the same thing? Does withholding your consent mean voting against?

Mr. Leyden

It means abstained.

Mr. J. Bruton

I see. Should not everybody have the right to not accept the offer, given that they are all individual shareholders? Surely they all should have the right not to accept this transfer whether they voted for or against the resolution. Are they not essentially separate transactions? People voting at a meeting is one thing; people selling or converting their shareholding, in an individual case, is a different thing.

Mr. Leyden

I am not quite sure. Basically this would be a meeting of the actual shareholders. It is not a question of offering people something. As it says here a conversion of shares under subsection (1) shall not have effect with respect to any share, the holder of which has withheld his consent to or voted against a resolution at a general meeting. That is basically what it is. Therefore, it is really protecting his or her rights in this case.

Mr. J. Bruton

Why cannot everybody have that option? Why does it have to be confined? If the Minister is saying that the only people who will have the option of turning down the offer——

Mr. Leyden

Or a person who votes against it.

Mr. J. Bruton

——or a person who votes against it, you will give rise to circumstances in which people will vote against it merely in order to keep their options open. Perhaps it would be better not to have that requirement there, but to simply say that anybody can withhold their consent, within a certain time limit, even if they voted for it.

Mr. Leyden

It is not the intention to have it there.

Mr. J. Bruton

I have no doubt that the section was not designed to be self-defeating. I am suggesting that perhaps the wording could have that unintended effect.

Mr. Leyden

We will have to examine this further. The points raised by Deputy Bruton are quite reasonable. It is not what we intended to achieve in this section. The angle being put forward by Deputy John Bruton is certainly one that we will have to consider in the light of his viewpoint, which highlights the benefit of having views expressed here by people conversant with these matters. We will have to engage in further consultation on this matter. Certainly, as drafted, it would be against the principle of what we were trying to achieve. The points raised by Deputy Bruton are certainly worthy of detailed consideration. I am sorry we cannot give a detailed response because we have not yet had an opportunity of considering the points raised by Deputy Bruton.

Mr. Roche

It strikes me that the section, as worded here, would have the effect of forcing people to vote in a certain way. In addition to the validity of the points made by Deputy Bruton I would think that that would also militate against the existing wording. It does warrant additional attention.

Mr. J. Bruton

I am happy about what the Minister has said — that is as far as I wanted to go — and perhaps he would re-examine it.

Amendment agreed to.

Mr. Leyden

I move amendment No. 248:

In page 151, before section 202, but in Part X, to insert the following new section:

"204.—Shares redeemed pursuant to this Part may be cancelled on redemption, in which case the following provisions shall apply as respects those shares:

(a) The amount of the company's issued share capital shall be reduced by the nominal value of the shares redeemed but no such cancellation shall be taken as reducing the amount of the company's authorised share capital.

(b) Where the shares are—

(i) redeemed wholly out of the profits available for distribution, or

(ii) redeemed wholly or partly out of the proceeds of a fresh issue and the aggregate amount of those proceeds (disregarding any part of those proceeds used to pay any premium on redemption) is less than the aggregate nominal value of the shares redeemed ("the aggregable difference"),

then a sum equal to, in the case of subparagraph (i), the nominal amount of the shares redeemed and, in the case of subparagraph (ii), the aggregable difference shall be transferred to a reserve fund ("the capital redemption reserve fund") and the provisions of the Principal Act relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the capital redemption reserve fund were paid-up share capital of the company.

(c) Where a company—

(i) has redeemed and cancelled shares, or

(ii) is about to redeem shares and cancel them upon redemption,

it shall have power to issue shares up to the nominal amount of the shares redeemed or to be redeemed as if those shares had never been issued, and accordingly the share capital of the company shall not for the purposes of any enactments relating to stamp duty be deemed to be increased by the issue of shares in pursuance of this paragraph.

(d) Where new shares are issued before the redemption of the old shares, the new shares shall not, so far as relates to stamp duty, be deemed to have been issued in pursuance of paragraph (c) unless the old shares are redeemed within one month after the issue of the new shares.

(e) The capital redemption reserve fund may, notwithstanding anything in this section, be applied by the company in paying up unissued shares of the company (other than redeemable shares) to be allotted to members of the company as fully paid bonus shares.".

Amendment agreed to.

Mr. Leyden

I move amendment No. 249:

In page 151, before section 202, but in Part X, to insert the following new section:

"205.—(1) Subject to the provisions of this section, a company may instead of cancelling shares upon their redemption hold them (as "treasury shares") and shares so held may be dealt with by the company in the manner provided for in subsection (4) but not otherwise.

(2) (a) The maximum number of treasury shares that a company may hold at any one time shall not exceed ten per cent of the issued share capital of the company.

(b) In calculating the number of shares which a company may hold in accordance with paragraph (a) there shall be added to the shares held in pursuance of this section the number of shares held in the company by any subsidiary of the company in pursuance of section 220.

(3) For so long as the company holds shares as treasury shares—

(a) the company shall not exercise any voting rights in respect of those shares and any purported exercise of those rights shall be void; and

(b) no dividend or other payment (including any payment in a winding up of the company) shall be payable to the company in respect of those shares.

(4) Treasury shares may either be—

(a) cancelled by the company in which case the provisions of section 204 shall apply as if the shares had been cancelled on redemption, or

(b) subject to subsections (5) and (6), may be re-issued as shares of any class or classes.

(5) A re-issue of shares under this section shall be deemed for all the purposes of the Companies Acts to be an issue of shares but the issued share capital of the company shall not be regarded for any purpose (including the purposes of any enactments relating to stamp duties) as having been increased by the re-issue of the shares.

(6) (a) The maximum and minimum prices at which treasury shares may be re-issued off-market ("the re-issue price range") shall be determined in advance by the company in general meeting in accordance with paragraphs (b), (c) and (d) and such determination may fix different maximum and minimum prices for different shares.

(b) Where the treasury shares to be re-issued are derived in whole or in part from shares purchased by the company in accordance with the provisions of this Part the re-issue price range of the whole or such part (as the case may be) of those shares shall be determined by special resolution of the company passed at the meeting at which the resolution authorising the said purchase has been passed and such determination shall, for the purposes of this subsection, remain effective with respect to those shares for the requisite period.

(c) Where the treasury shares to be re-issued are derived in whole or in part from shares redeemed by the company in accordance with the provisions of this Part the re-issue price range of the whole or such part (as the case may be) of those shares shall be determined by special resolution of the company passed before any contract for the re-issue of those shares is entered into and such determination shall, for the purposes of this subsection, remain effective with respect to those shares for the requisite period.

(d) The company may from time to time by special resolution vary or renew a determination of re-issue price range under paragraph (b) or (c) with respect to particular treasury shares before any contract for re-issue of those shares is entered into and any such variation or renewal shall, for the purposes of this subsection, remain effective as a determination of the re-issue price range of those shares for the requisite period.

(e) (i) For the purposes of determining in this subsection whether treasury shares are re-issued off-market, the provisions of section 208 (off-market and market purchases) shall have effect with the substitution of the words "re-issue", "off-market re-issue" and "re-issued" respectively for the words "purchase", "off-market purchase" and "purchased" in subsection (1) (a) of that section.

(ii) In this subsection, "the requisite period" means the period of eighteen months from the date of the passing of the resolution determining the re-issue price range or varying or renewing (as the case may be) such determination or such lesser period of time as the resolution may specify.

(7) A re-issue by a company of treasury shares in contravention of any of the provisions of subsection (6) shall be unlawful.".

Amendment agreed to.

Mr. Leyden

I move amendment No. 250:

In page 151, before section 202, but in Part X, to insert the following new section:

"206.—(1) Subject to subsections (2), (3), (4) and (5) and the provisions of the Companies Acts governing the variation of rights attached to classes of shares and the alteration of a company's memorandum or articles, a company may convert any of its shares into redeemable shares.

(2) A conversion of shares under subsection (1) shall not have effect with respect to any shares, the holder of which has witheld his consent to or voted against a resolution for (as the case may be) such a conversion but, subject as aforesaid and to subsection (3), the conversion shall have effect according to its terms.

(3) Subsection (2) shall not, where a shareholder objects to a conversion, prejudice any right he may have under the Companies Acts or otherwise to invoke the jurisdiction of the court to set aside the conversion or otherwise provide relief in respect thereof.

(4) No shares shall be converted into redeemable shares if as a result of the conversion there would be no shares in the company which are not redeemable.

(5) The provisions of sections 203, 204 and 205 shall apply to shares which have been converted into redeemable shares under this section.".

Amendment agreed to.

Mr. Leyden

I move amendment No. 251:

In page 151, before section 202, but in Part X, to insert the following new section:

"207.—(1) Subject to the following provisions of this Part, a company may, if so authorised by its articles, purchase its own shares (including any redeemable shares).

(2) Sections 203 (2), 204 and 205 shall apply in relation to the purchase by a company under this section of any of its own shares as those sections apply in relation to the redemption of shares by a company under section 203.

(3) A company shall not purchase any of its shares under this section if as a result of such purchase there would no longer be any member of the company holding shares other than redeemable shares.".

Amendment agreed to.

Chairman

Amendments Nos. 252 to 256, inclusive, are related. They may be taken together by agreement. Agreed? Agreed. The Minister to move amendment No. 252.

Mr. Leyden

I move amendment No. 252:

In page 151, before section 202, but in Part X, to insert the following new section:

"208.—(1) For the purposes of sections 209 and 211, a purchase by a company of its own shares is—

(a) an ‘off-market purchase' if the shares are purchased either—

(i) otherwise than on a recognised stock exchange, or

(ii) on a recognised stock exchange but are not subject to a marketing arrangement on that stock exchange,

(b) a ‘market purchase' if the shares are purchased on a recognised stock exchange and are subject to a marketing arrangement.

(2) For the purposes of subsection (1), a company's shares are subject to a marketing arrangement on a recognised stock exchange if either—

(a) they are listed on that stock exchange, or

(b) the company has been afforded facilities for dealings in those shares to take place on that stock exchange without prior permission for individual transactions from the authority governing that stock exchange and without limit as to the time during which those facilities are to be available.".

This group of new sections — in other words, sections 208 to 212 — provide how a company should seek the authority of its shareholders for the purchase of its own shares. Different provisions are applied to what we call off market and market purchases. A market purchase of shares essentially is where the shares are purchased on a recognised stock exchange. A less specific authority is appropriate for a market purchase of shares than for an off market purchase. Accordingly, in the case of an off market purchase the actual terms of the contract must be approved by the shareholders whereas for a market purchase, an individual contract does not have to be approved.

The new section 208 defines the terms "market" and "off market". The new section 209 provides that an "off market" purchase by a company of its own shares can only be carried out in accordance with a contract of purchase which would be subject to the following conditions: first, the terms of the contract must be authorised by the special resolution passed by three-quarters of those present and voting at a general meeting of the company; second, the contract may be varied, revoked or renewed by the general meeting in the same way as it was originally authorised; third, where the voting rights of shares directly affected hold the balance of power, these voting rights would be invalidated for the purpose of the general meeting involved; fourth, an individual shareholder, regardless of the size of his holding, may demand a poll on a special resolution in which he has one vote for each share held, and finally, shareholders must be supplied with a copy of their proposed contract, or memorandum of its terms, 21 days before the meeting and indeed at the meeting itself.

Coming to section 210, a contingent purchase contract is one that applies on the occurrence of some event or the meeting of some condition. In case an obligation to purchase its own shares might arise from such a contract the new section 210 stipulates that the company can purchase its own shares only as a result of such a contract if the terms of the contract have been authorised by a special resolution of the company. The purpose of section 210 is to apply the provision of section 209 on purchase contracts to contingent purchase contracts as well.

The new section 211 requires the company to obtain the authorisation of its members for a market purchase of its own shares under the following conditions: first, a general authorisation must be obtained by an ordinary resolution passed by a simple majority of those present and voting at a general meeting; a specific authorisation of each and every market purchase would clearly be impractical. Second, the authorisation may be varied, revoked or renewed by subsequent ordinary resolution of a general meeting. Third, copies of these resolutions must be sent to the Registrar of Companies. Fourth, in the case of PLCs the resolutions must state the volume of shares involved and the price range that the company may pay for them all with a view to inhibiting misleading trading.

New section 212 provides that each authorisation for a plc to purchase its own shares, whether by ordinary or contingent purchase, by market or off market purchase, cannot last more than 18 months. There is a saving for contracts or parts of contracts where expiry dates are exceeded.

Mr. J. Bruton

I have not a lot to say about all this. Basically this is a series of mechanical sections that allow the process to be taken forward. The only query I have really is about section 212, amendment No. 256, where a period of 18 months can expire after a special resolution has been passed in a company before the actual conversion of the shares takes place. It would appear to me that people should know where they stand somewhat sooner than that; we should not be allowing companies to pass such a resolution, creating certain expectations that shares are going to be redeemed, and then not act for up to 18 months.

Mr. S. Barrett

I have a question in relation to the value of the share. If there is a contract to purchase, and the value of the share increases, there is no obligation to complete the contract of sale for a period of 18 months. Subsection (2) states that once you have entered into the contract within the 18 months period you can still go ahead and purchase the shares later on. Is there perhaps a possibility of the real value of the share not being paid as a result of delaying tactics? That is why I pose the question.

Mr. Leyden

As Deputy Bruton said the details constitute the nuts and bolts of the section. We are satisfied with the 18 months provision having examined legislations in other countries in relation to this matter.

In relation to Deputy Seán Barrett's question, I do not believe that the 18 months provision would affect the value of the shares involved. We are really talking about the authorisation or authority of the company to go through the procedure. It is not a binding provision as such, and does not affect the cost of the shares.

Mr. J. Bruton

Could the Minister explain what he means by saying it would not affect the cost of the shares? If the company have an 18 months' grace period in which to use this resolution it would appear to me that they have more or less the cards in their hand to agree to this. For example, circumstances could arise in which shareholders are called in to a special company meeting and, on the valuation of the shares at that time, they reckon it would be sensible for them to sell the shares to the company, anticipating what they will get for them, a price may be suggested but the company might fail to implement that although they had reached agreement on price. In the meantime the value of the company shares might treble. Suddenly the people who had agreed to sell at the lower price would feel that they were being ripped off, that they would be far better off had they not agreed to the company buying their shares but remained in the company as full shareholders. By giving a company 18 months in which to avail of this right allows the company to have their bread buttered on both sides. As I understand it, that is the point that Deputy Seán Barrett made.

Mr. Leyden

Section 211 (3) states: "any authority granted under subsection (1) shall (a) specify the maximum number of shares authorised to the acquired, and (b) determine both the maximum and the minimum prices which may be paid for the shares". Section 211 (4) reads: "A resolution to which subsection (3) applies may determine either or both the prices mentioned in paragraph (b) of that subsection by — (a) specifying a particular sum; or (b) providing a basis or formula for calculating the amount of the price in question without reference to any person's discretion or opinion". We have a formula for working out the top and bottom prices of shares which I do not think would be prejudiced by the 18 months provision at all.

Mr. J. Bruton

Suppose I agree to sell cattle to the Minister, then was able to say that he had 18 months to decide whether he was going to take them from me or not or, to put it the other way round, suppose he was selling the cattle to me and I had 18 months to decide whether or not I was going to take them, he might discover that he had a difficulty feeding them over the winter. The analogy is not exact, but——

Mr. Carey

——in the West; Deputy Bruton is right.

Mr. Leyden

That is not comparing like with like.

Mr. J. Bruton

Does the Minister not see the point that they should not be allowed to sit on the authority for that length? Would the Minister not agree that, say, six months would be more reasonable, that they must make the deal within six months rather than 18 months?

Mr. Leyden

The point is that the 18 months is not binding on the shareholder. If a shareholder is not happy with the price, he does not have to sell; that is basically it. Therefore, it does not force him to sell. There is nothing hard and fast about the 18 months provision. Quite frankly, we adopted it from the legislation available to us when preparing this section. In fact it was the United Kingdom Companies Act of 1985, to be quite specific. Perhaps a six months or 12 months provision would be more suitable for our circumstances.

Mr. J. Bruton

My impression is that 18 months is too long. Perhaps the Minister would agree to look at that.

Mr. Leyden

Certainly I will. The points raised by Deputy Bruton are very reasonable and could give rise to difficulties. It is only right and proper that we examine it. Again I say it is based on a UK Companies Act. We will check and endeavour to find out how it operated in practice before coming back on it. They have a few years experience of operating this section. In reality it may not prove as difficult a problem as the Deputy envisages but, on the other hand, it may be worthwhile to examine it.

Amendment agreed to.

Mr. Leyden

I move amendment No. 253:

In page 151, before section 202, but in Part X, to insert the following new section:

"209.—(1) A company shall not make an off-market purchase of its own shares otherwise than in pursuance of a contract authorised in advance in accordance with this section.

(2) The terms of the proposed contract of purchase shall be authorised by special resolution before the contract is entered into and any such authority may be varied, revoked or from time to time renewed by special resolution.

(3) A special resolution under subsection (2) shall not be effective for the purposes of this section if any member of the company holding shares to which the resolution relates exercises the voting rights carried by any of those shares in voting on the resolution and the resolution would not have been passed if he had not done so.

(4) Notwithstanding anything contained in section 137 of the Principal Act or in a company's articles, any member of the company may demand a poll on a special resolution under subsection (2).

(5) A special resolution under subsection (2) shall not be effective unless a copy of the proposed contract of purchase or, if the contract is not in writing, a written memorandum of its terms is available for inspection by members of the company both—

(a) at the registered office of the company for not less than the period of 21 days ending with the date of the meeting at which the resolution is passed, and

(b) at the meeting itself.

(6) Any memorandum of the terms of the contract of purchase made available for the purposes of this section must include the names of any members holding shares to which the contract relates, and any copy of the contract made available for those purposes must have annexed to it a written memorandum specifying any such names which do not appear in the contract itself.

(7) A company may agree to a variation of an existing contract of purchase approved under this section only if the variation is authorised by special resolution of the company before it is agreed to, and subsections (2) to (5) shall apply in relation to that authority save that a copy or memorandum (as the case may require) of the existing contract must also be available for inspection in accordance with subsection (5).".

Amendment agreed to.

Mr. Leyden

I move amendment No. 254:

In page 151, before section 202, but in Part X, to insert the following new section:

"210.—(1) In this section ‘contingent purchase contract' means a contract entered into by a company and relating to any of its shares which does not amount to a contract to purchase those shares but under which the company may become entitled or obliged to purchase those shares.

(2) A company shall only make a purchase of its own shares in pursuance of a contingent purchase contract if the terms of the contract have been authorised by a special resolution of the company before the contract is entered into and subsections (2) to (7) of section 209 shall apply to such contract and resolution.".

Amendment agreed to.

Mr. Leyden

I move amendment No. 255:

In page 151, before section 202, but in Part X, to insert the following new section:

"211.—(1) A company shall not make a market purchase of its own shares unless the purchase has first been authorised by the company in general meeting and any such authority may be varied, revoked or from time to time renewed by the company in general meeting. This subsection shall not be construed as requiring any particular contract for the market purchase of shares to be authorised by the company in general meeting and for the purposes of this Part where a market purchase of shares has been authorised in accordance with this section any contract entered into pursuant to that authority in respect of such a purchase shall be deemed also to be so authorised.

(2) Section 143 of the Principal Act shall apply to a resolution under subsection (1).

(3) In the case of a public limited company, any authority granted under subsection (1) shall—

(a) specify the maximum number of shares authorised to be acquired; and

(b) determine both the maximum and minimum prices which may be paid for the shares.

(4) A resolution to which subsection (3) applies may determine either or both the prices mentioned in paragraph (b) of that subsection by—

(a) specifying a particular sum; or

(b) providing a basis or formula for calculating the amount of the price in question without reference to any person's discretion or opinion.".

Amendment agreed to.

Mr. Leyden

I move amendment No. 256:

In page 151, before section 202, but in Part X, to insert the following new section:

"212.—(1) Without prejudice to the generality of sections 209, 210 and 211, in the case of a public limited company, any authority granted under those sections shall specify the date on which the authority is to expire which shall not be later than 18 months after the date on which the special resolution or ordinary resolution, as the case may be, granting the authority is passed.

(2) A public limited company may make a purchase after the expiry of any time limit imposed by virtue of subsection (1) in any case where the contract of purchase was concluded before the authority expired and the terms of the authority permit the company to make a contract of purchase which would or might be executed wholly or partly after the authority expired.".

Amendment agred to.

Mr. Leyden

I move amendment No. 257:

In page 151, before section 202, but in Part X, to insert the following new section:

"213.—(1) Any purported assignment of the rights of a company under any contract authorised under section 209, 210 or 211 shall be void.

(2) Nothing in subsection (1) shall prevent a company from releasing its right under any contract authorised under section 209, 210 or 211 provided that, in the case of a contract authorised under section 209 or 210, the release has been authorised by special resolution of the company before the release is entered into, and any such purported release by a company which has not been authorised as aforesaid shall be void.

(3) Subsections (2) to (7) of section 209 shall apply to a resolution under subsection (2).".

I hope that it is clear from the previous sections we have discussed that a company who conform to the provisions of the new sections 209, 210 and 211 have certain rights and obligations to exercise and meet. New section 213 (1) absolutely prohibits a company from assigning to any third party any rights attached to their authorisation to purchase their own shares. New section 213 (2) and (3) provides, however, that a company may actually release their right to purchase where the release has been authorised by a special resolution of the company.

Amendment agreed to.

Mr. Leyden

I move amendment No. 258:

In page 151, before section 202, but in Part X, to insert the following new section:

"214.—(1) Any payment made by a company in consideration of—

(a) acquiring any right with respect to the purchase of its own shares in pursuance of a contract authorised under section 210, or

(b) the variation of a contract authorised under section 209 or 210, or

(c) the release of any of the company's obligations with respect to the purchase of any of its own shares under a contract authorised under section 209, 210 or 211

shall be unlawful if any such payment is made otherwise than out of distributable profits of the company.

(2) If the requirements of subsection (1) are not satisfied in relation to a contract—

(a) in a case to which paragraph (a) of that subsection applies, no purchase by the company of its own shares in pursuance of that contract shall be lawful under this Part;

(b) in a case to which paragraph (b) of that subsection applies, no such purchase following the variation shall be lawful under this Part; and

(c) in a case to which paragraph (c) of that subsection applies, the purported release shall be void.".

The purpose of new section 214 (1) is to ensure that incidental payments arising out of a contract for purchase of own shares, a variation of such contracts or a release from such a contract are paid out of the distributable profits of the company. This ensures that such incidental payments are not paid in such a way as to reduce the company's capital. New section 214 (2) provides that, where subsection (1) is breached, in other words, where the specified incidental payments are paid otherwise than from distributable profits, then either the purchase or the release, as appropriate, will be void.

Mr. J. Bruton

How will the distributable profits of a company be determined? Will this be determined annually in respect of the annual accounts, or would it be possible to determine distributable profits on the basis of any more frequent or interim examinations of the financial position?

Mr. Leyden

Distributable profits could only be determined annually. Even bearing in mind our regular, detailed continuous and consistent bookkeeping exercise I do not think we could do what Deputy Bruton suggests.

Mr. J. Bruton

The Minister's original intentions in this matter——

Mr. S. Barrett

——are being defeated. The bookkeeping is separate. Surely in a case in which you are considering the purchase of shares — a relatively once-off thing — if you were considering something today you might be basing it on the distributable profits of, say, ten months ago. Surely, you would be better off looking at today's profits rather than, say, those of ten months ago because such things can change very quickly? My purpose in posing this question is to support Deputy Bruton's original concept of encouraging people to go into the business expansion scheme, and to make it possible for them to withdraw their money. A company may be in a position to give that money out today. We should make it as attractive as possible for that scheme to develop properly. Would the Minister consider examining that, perhaps basing it on the current position of a company, especially in the case of a new company where things can develop rapidly, the very type of company for which you would need the business expansion scheme. It might be in the interests of that company today to go and buy back those shares; equally it might be the request and wish of the investor that such would happen. For that reason the Minister should examine that, to see whether it would be possible to facilitate the purchase back of shares based on the current position.

Mr. Leyden

"Distributable profits" can be determined only at the end of the financial year and would be made known fairly quickly thereafter. Therefore, I do not think it would be ten months later that that information would be available. It would be available as quickly as possible after the end of the financial year. I do not see any great difficulty in that.

Mr. S. Barrett

There will be instances in which many a company will be in course of sale or perhaps a valuation of the company is undertaken based on that exercise. For the same reason surely it should be possible to do that in relation to the buying back of shares. It is rather arbitrary that it should be based on the last year's distributable profits.

Mr. Leyden

If a company decided to have their figures audited in the interim, it would change the situation, but they would have to be audited. We will have to consider the point raised by Deputy Barrett.

Mr. J. Bruton

Would "distributable profits" in this case include profits made in previous years but not distributed? In other words, could circumstances arise in which a company were not actually making any profit this year but had accumulated "distributable profits" which they had not distributed from previous years. Could they use those previous profits to buy back their own shares?

Mr. Leyden

To repeat the point Deputy Barrett made in relation to the distributable profits and the basis on which they could be decided at a particular time, they would have to be based on the audited figures of the company. The points being raised by Deputy Seán Barrett are quite reasonable. We will endeavour to ensure that they are taken into account. With regard to the points raised by Deputy Bruton in relation to accumulated profits, section 4 (5) of the Companies Act, 1983, on profits available for distribution, restriction on the distribution of profits and assets, reads:

A company shall not make distribution, as defined by section 51, except out of profits available for this purpose. For the purpose of this Part, subject to section 47 (1), a company's profits available for distribution are its accumulated realised profits so far as not previously utilised by distribution or capitalisation, less its accumulated realised losses so far as not previously written off in reduction or reorganisation of capital duly made.

Basically that would cover the point, that there is scope for accumulated profits which would arise but allowing for accumulated losses that would be realised. I think that would cover the point raised by Deputy John Bruton.

Amendment agreed to.

Mr. J. Bruton

I move amendment No. 258a:

In page 151, before section 202, but in Part X, to insert the following new section:

"215.—(1) Subject to a regulation or regulations made under this section, which have been approved by resolution of Dáil Éireann, a private company limited by shares or limited by guarantee and having share capital may, if so authorised by its articles, make a payment in respect of the redemption or purchase of shares, as the case may be, of its own shares otherwise than out of its distributable profits or the proceeds of a fresh issue of shares.

(2) Regulations made under this section shall deal, inter alia, with the following matters—

(a) the conditions to be fulfilled before the provisions of subsection (1) of this section may be used,

(b) publicity for any proposal to avail of this section.

(c) the rights of any objectors to a proposal to avail of this section.".

The purpose of this amendment is to allow a private company to make a payment in respect of the redemption or purchase of shares other than out of its distributable profits. However this would be something which could be authorised only by regulations made by the Minister. There will be circumstances in which it might be desirable to allow a measure of flexibility greater than that contained in the sections we have just been discussing. Clearly I could not, in the time available to me, draft a sufficiently strong set of safeguards for the rights of minorities, for the capital preservation of the company and so forth. The formula that Deputy Barrett and I have chosen in this amendment, which is to allow an exception to section 214 as we have just discussed, would be to allow the Minister to make regulations covering this matter, including also the conditions to be fulfilled to avail of the privilege, the publicity for the proposal and the rights of objectors. I do not like enacting legislation by regulation. Nonetheless the section, as it stands, which we have first discussed, is probably slightly over-rigid, and we wanted to allow this bit of flexibility here.

Mr. Roche

Why is Deputy Bruton making the exclusion? He said "other than out of their distributable profits, or the proceeds of a fresh issue of shares". Why would he specifically deny the use of those funds for this purpose?

Mr. J. Bruton

At the moment one may only purchase the shares out of distributable profits or the proceeds of a fresh issue of shares, and I am saying that there should be circumstances in which a company might be allowed to make a purchase otherwise but that the Minister should have the power to make regulations governing that.

Mr. Roche

This is in addition to using those?

Mr. J. Bruton

Yes, to supplement what the Minister is already doing.

Mr. Leyden

The amendment from Deputies Bruton and Barrett allows the Minister to introduce regulations to be approved by Dáil Éireann which would allow payment in respect of a company's own shares to be other than out of the profits or the proceeds of a fresh issue of shares. Our approach to purchase or redemption of own shares has had as one of its main guiding principles the maintenance of capital. The importance of this principle has been widely recognised by the courts. Notwithstanding the fact that the section is an enabling one with power of approval resting with the Dáil, we could not agree to the amendment, as we believe that, with the exception of the provisions in our latest amendments relating to special types of investment companies, there should be no provision whereby purchase of own shares should be other than from the funds specified in our Part XI amendments. A risky provision is being put forward by Deputies Bruton and Barrett in relation to this section. I appreciate that the amendment would allow the Minister to bring in a regulation which would go before the Dáil. That would be a restrictive aspect but it would be better not to include this amendment in the Bill.

Mr. J. Bruton

I think the Minister is making a mistake in taking that view. The acceptance of the amendment would give him a useful flexibility. He does not have to use this power if no problem arises with section 214. This amendment can be allowed to remain a dead letter. However, if problems arise with the over-rigid formulation of section 214, if that is what it is, then section 215 would be available without the requirement of coming back here to enact full blown legislation. The Minister should accept this amendment in the knowledge that he does not have to use it unless there is a need for it.

Mr. Leyden

I am generally in favour of regulations because it means that instead of bringing in amendments to the Bill we can bring in regulations as required. I did not get an opportunity to study this but I can see merit in it and generally we have made progress on this Bill so far. I am in favour of accepting the amendment but that is a personal point of view. The amendment allows flexibility which I would like to see in the Bill. I am prepared to accept the amendment subject to a possible change of wording on Report Stage.

Amendment, by leave, withdrawn.

Mr. Leyden

I move amendment No. 259:

In page 151, before section 202, but in Part X, to insert the following new section:

"215.—(1) This section applies to—

(a) redeemable shares issued after the coming into operation of this Part,

(b) shares which have been converted into redeemable shares pursuant to section 206; and

(c) shares which a company has agreed to purchase pursuant to section 209, 210 or 211.

(2) Without prejudice to any other right of the holder of any shares to which this section applies a company shall not be liable in damages in respect of any failure on its part to redeem or purchase any such shares.

(3) The court shall not grant an order for specific performance of the terms of redemption or purchase of the shares to which this section applies if the company shows that it is unable to meet the cost of redeeming or purchasing the shares out of profits available for distribution.

(4) Where at the commencement of the winding up of a company any shares to which this section applies have not been redeemed or purchased then, subject to subsections (5), (6) and (7), the terms of redemption or purchase may be enforced against the company and the shares when so redeemed or purchased under this subsection shall be treated as cancelled.

(5) Subsection (4) shall not apply if—

(a) the terms of redemption or purchase provided for the redemption or purchase to take place at a date later than that of the commencement of the winding-up, or

(b) during the period beginning with the date on which the redemption or purchase was to have taken place and ending with the commencement of the winding-up the company could not at any time have lawfully made a distribution equal in value to the price at which the shares were to have been redeemed or purchased.

(6) There shall be paid in priority to any amount for which the company is liable by virtue of subsection (4) to pay in respect of any shares—

(a) all other debts and liabilities of the company other than any due to members in their character as such, and

(b) if other shares carry rights, whether as to capital or to income, which are preferred to the rights as to capital attaching to the first mentioned shares, any amount due in satisfaction of those preferred rights,

but subject as aforesaid, any such amount shall be paid in priority to any amounts due to members in satisfaction of their rights (whether as to capital or income) as members.

(7) Where by virtue of the application by section 284 of the Principal Act of the rules of bankruptcy in the winding-up of insolvent companies a creditor of a company is entitled to payment of any interest only after payment of all other debts of the company, the company's debts and liabilities shall for the purposes of subsection (6) include the liability to pay that interest.".

Amendment agreed to.

Mr. Leyden

I move amendment No. 260:

In page 151, before section 202, but in Part X, to insert the following new section:

"216.—Section 64 of the Principal Act is hereby repealed but any redeemable preference shares issued by a company limited by shares before the coming into operation of this Part which could but for the repeal of section 64 have been redeemed under that section shall be subject to redemption in accordance with the provisions of this Part save that any premium payable on redemption may, notwithstanding section 203 (2) (e) and (f), be paid out of the share premium account instead of out of profits or may be paid partly out of that account and partly out of profits available for distribution.".

This amendment has the effect of replacing the previous arrangements for issuing the redeemable preference shares by the new arrangements in this Bill for the issue and redemption of redeemable shares generally. It also provides transitional arrangements, whereby an option in section 64 of the 1963 Act to use either of the share premium account or profits to pay the premium on redemption can be used in cases which would, except for this amendment, have had the option under the 1963 Act.

Mr. J. Bruton

Is there any need to get rid of the mechanism that was there before, as it is not doing anybody any harm? I would ask the Minister to leave it there. I am advised that it has been used extensively by the IDA and has not damaged anybody. I agree that the provisions in this amendment are much better and more elaborate but why fix it if it is not broken?

Mr. Leyden

We are trying to improve it. That is the advantage of debating a Bill for so long.

Mr. J. Bruton

Does the Minister take my point about this section?

Mr. Leyden

Yes, it is a reasonable point.

Mr. J. Bruton

Will the Minister consider withdrawing this amendment and reintroducing it on Report Stage if he is satisfied that it is needed?

Mr. Leyden

I should like to look at it again before I agree to do that.

Mr. J. Bruton

That is the Minister's privilege.

Mr. Leyden

I am prepared to reconsider it.

Amendment agreed to.

Mr. Leyden

I move amendment No. 261:

In page 151, before section 202, but in Part X, to insert the following new section:

"217.—A reference to redeemable preference shares in—

(a) section 69 (1) (e) of, and the Second, Third, Fourth and Sixth Schedules to, the Principal Act, and

(b) section 55 (1) (h) of the Act of 1983,

shall be construed as a reference to redeemable shares.".

This amendment completes the replacement of redeemable preference shares by redeeming the shares in the context of the Companies Acts. It simply provides that reference to redeemable preference shares in specific parts of the 1963 and 1983 Acts shall be construed as reference to redeemable shares.

Amendment agreed to.

Mr. Leyden

I move amendment No. 262.

In page 151, before section 202, but in Part X, to insert the following new section:

"218.—(1) Every company which enters into a contract under section 209, 210 or 211 shall, until the expiration of ten years after the contract has been fully performed, keep at its registered office a copy of that contract or, if it is not in writing, a memorandum of its terms.

(2) Every document required to be kept under subsection (1) shall during business hours (subject to such reasonable restrictions as the company in general meeting may impose, so that not less than 2 hours in each day be allowed for inspection) be open to the inspection of any member and, if the company is a public limited company, of any other person.

(3) If a company fails to comply with this section, the company and every officer of the company who is in default shall be guilty of an offence.

(4) In the case of a refusal of an inspection of a document required under subsection (2), the court may, on the application of a person who has requested an inspection and has been refused, by order require the company to allow the inspection of that document.".

The purpose of this amendment is to ensure that copies of contracts for the purchase of shares are kept at the company's own registered office and made available to members and, in the case of a plc, to any other person. I am sure the Committee will agree that this is a reasonable provision which provides additional transparency in the use by companies of the new provisions.

Amendment agreed to.

Mr. Leyden

I move amendment No. 263:

In page 151, before section 202 but in Part X, to insert the following new section:

"219.—Subsection (6) of section 91, in its application to dealings by a company in its own securities, shall not preclude a company from dealing in its own shares at any time by reason only of information in the possession of an officer of that company if—

(a) the decision to enter into the transaction was taken on its behalf by a person other than the officer, and

(b) the information was not communicated to that person and no advice relating to the transaction was given to him by a person in possession of the information.".

We have previously discussed Part V which deals with insider dealing. The proposed new section 219 provides that if a purchaser of own shares is not to fall foul of the insider dealer provisions, two conditions have to be met in relation to inside information about a proposed purchase. First of all, the decision to enter the transaction must have been taken on the company's behalf by someone other than the person with the inside information. Second, the information must not have been communicated or advice given to the person taking the decision to purchase.

Amendment agreed to.

Mr. Leyden

I move amendment No. 264:

In page 151, before section 202, but in Part X, to insert the following new section:

"220.—(1) Notwithstanding sections 32 and 60 of the Principal Act a company may, subject to the provisions of this section, acquire and hold shares in a company which is its holding company.

(2) The acquisition and holding by a subsidiary under subsection (1) of shares in its holding company shall be subject to the following conditions:

(a) The consideration for the acquisition of such shares shall be provided for out of the profits of the subsidiary available for distribution.

(b) Upon the acquisition of such shares and for so long as the shares are held by the subsidiary—

(i) the profits of the subsidiary available for distribution shall for all purposes be restricted by a sum equal to the total cost of the shares acquired;

(ii) the shares shall, for the purposes of the consolidated accounts prepared by the holding company in accordance with sections 150 to 152 of the Principal Act, be treated in the same manner as is required in respect of shares held as treasury shares under section 43A of the Act of 1983 (inserted by section 228 (c) of this Act); and

(iii) the subsidiary shall not exercise any voting rights in respect of the shares and any purported exercise of those rights shall be void.

(3) A contract for the acquisition (whether by allotment or transfer) by a subsidiary of shares in its holding company shall not be entered into without being authorised in advance both by the subsidiary and its holding company and the provisions of sections 208 to 213 shall apply, with the necessary modifications, to the granting, variation, revocation and release of such authority.

(4) For the purposes of this section, a subsidiary's profits available for distribution shall not include the profits attributable to any shares in the subsidiary for the time being held by the subsidiary's holding company so far as they are profits for the period before the date on or from which the shares were acquired by the holding company.

(5) This section shall not apply to shares held by a subsidiary in its holding company in the circumstances permitted by section 32 of the Principal Act.".

Amendment agreed to.

Mr. Leyden

I move amendment No. 265:

In page 151, before section 202, but in Part X, to insert the following new section:

"221.—(1) Where the winding-up of a company which has acquired shares in its holding company in accordance with section 220 commences within six months after such acquisition and the company is at the time of the commencement of the winding-up unable to pay its debts (taking into account the contingent and prospective liabilities), the court, on the application of a liquidator, creditor, employee or contributory of the company, may subject to subsection (2), declare that the directors of the company shall be jointly and severally liable to repay to the company the total amount paid by the company for the shares.

(2) Where it appears to the court that any person in respect of whom a declaration has been sought under subsection (1) believed on reasonable grounds that the said purchase was in the best interests of the company, the court may relieve him, either wholly or in part, from personal liability on such terms as it may think fit.".

Amendment agreed to.

Mr. Leyden

I move amendment No. 266:

In page 151, before section 202, but in Part X, to insert the following new section:

"222.—(1) Every company which has purchased shares pursuant to this Part shall, within 28 days after delivery to the company of those shares, deliver to the register for registration a return in the prescribed form stating with respect to shares of each class purchased the number and nominal value of those shares and the date on which they were delivered to the company.

(2) In the case of a public limited company, the return shall also state—

(a) the aggregate amount paid by the company for the shares, and

(b) the maximum and minimum prices paid in respect of each class purchased.

(3) Particulars of shares delivered to the company on different dates and under different contracts may be included in a single return to the registrar, and in such a case the amount required to be stated under subsection (2) (a) shall be the aggregate amount paid by the company for all the shares to which the return relates.

(4) If a company fails to comply with the requirements of this section, the company and every officer who is in default shall be guilty of an offence.

(5) Summary proceedings in relation to an offence under this section may be brought and prosecuted by the registrar of companies.".

The proposed new section 222 provides that the companies purchasing shares under these new provisions will make a return to the registrar of companies giving the number and nominal value of shares purchased and the date on which they were delivered to the company. This return must be made within 28 days of delivery of the shares and in the case of a plc must give details of what was paid for the shares. The new section would allow companies to make a combined return, including different contracts. Failure to send the required return will be an offence and may be prosecuted summarily by the registrar of companies.

Amendment agreed to.

Mr. Leyden

I move amendment No. 267:

In page 151, before section 202, but in Part X, to insert the following new section:

"223.—The following section is hereby substituted for section 89 of the Principal Act:

‘89.—(1) If a company has created or issued shares in its capital, or acquired any of its shares by a redemption or purchase in purported compliance with Part XI of the Companies Act, 1989, and if there is reason to apprehend that such shares were invalidly created, issued or acquired as aforesaid, the court may, on the application of the company, any holder or former holder of such shares or any member or former member or creditor, or the liquidator, of the company, declare that such creation, issue or acquisition shall be valid for all purposes if the court is satisfied that it would be just and equitable to do so and thereupon such shares shall from the creation, issue or acquisition thereof, as the case may be, be deemed to have been validly created, issued or acquired.

(2) Where shares have been redeemed or purchased in contravention of paragraph (d), (e) or (f) of section 203 (2) or section 203 (3) of the Companies Act, 1989, then the court shall not make a declaration under subsection (1) above in respect of those shares.

(3) The grant of relief by the court under this section shall, if the court so directs, not have the effect of relieving the company or its officers of any liability incurred under section 41 (3) of the Companies (Amendment) Act, 1983.'.".

Before dealing with the amendment I should like to correct a typographical error in the published amendment. The ninth line of subsection (1) of the new section 89, should read "any member or former member" and not "any member of former member".

Essentially this proposed new section would modify section 89 of the Principal Act to take account of these new provisions. Section 89 of the 1963 Act provides that if the court is satisfied that it would be just and equitable to do so, it may, on the application of the company, a shareholder, creditor or the liquidator of the company, declare that invalidly created or issued shares will be deemed to have been validily created or issued. The new section 89 we are proposing here would extend this power of validity to the acquisition and redemption of shares. However, the court will not have the power to deem as valid the invalid acquisition of shares where certain provisions of this new Part XI has been breached. The provisions in question are sections 203 (2) (d), (e) and (f) and 203 (3).

Amendment agreed to.

Mr. Leyden

I move amendment No. 268:

In page 151, before section 202, but in Part X, to insert the following new section:

"224.—(1) The Minister may make regulations governing the purchase by companies of their own shares or of shares in their holding company and the sale by companies of their own shares held as treasury shares and such regulations may relate to companies in general or to a particular category or class of company.

(2) Without prejudice to the generality of subsection (1), regulations under this section may provide for in particular—

(a) the class or description of shares which may (or may not) be purchased or sold,

(b) the price at which they may be purchased or sold,

(c) the timing of such purchases or sales,

(d) the method by which the shares may be purchased or sold, and

(e) the volume of trading in the shares which may be carried out by companies.

(3) If a company fails to comply with the provisions of regulations made under this section, the company and every officer who is in default shall be guilty of an offence.".

Mr. J. Bruton

I move amendment No. 1 to amendment No. 268:

After subsection (3), to insert the following subsection:

"(4) Any regulation made under this section shall not come into effect until it has first been approved by resolution of Dáil Éireann.".

Amendment No. 268 gives the Minister power to make regulations about a wide range of matters concerning the purchase of shares, including the description and class of shares which may be purchased, regulations about how the price may be set, the timing of the purchase and sales, the volume of trading in shares that may be carried out, etc. These are very wide rule-making powers which the Minister quite rightly has. I believe that the powers are so wide and so fundamental and we have such little practical experience of the area in question that it would be useful that any regulations made by the Minister under this section should have the approval of the Dáil by positive resolution rather than simply by the passive provision of being laid before the House for 21 days. That is why I am suggesting this additional amendment.

Mr. Leyden

Some of these matters are very technical. I do not know whether it is necessary to burden the Dáil in relation to regulations that may arise. I am prepared to consider the points raised by Deputy Bruton. I have not had much opportunity to go into the amendments in great detail. We want to reach a balance. If there are matters in the regulations of serious import it may be possible to draft a provision that they come before the Dáil, whereas the more mundane and technical matters would go through in the normal way.

Mr. J. Bruton

Would the Minister consider that?

Mr. Leyden

That is what I would be inclined to do.

Mr. J. Bruton

It would be difficult, however, to define "serious".

Mr. Leyden

I am never against regulations as such because the option is provided to bring in regulations at a future date. That does not necessarily mean that the regulation will be brought in under the legislation.

Mr. J. Bruton

The way I see this happening is that the Minister would get together a group of regulations he would want to make under this section. He would not be sending material to the Dáil every few weeks; he would wait until he had amassed a number of items and then he would move a motion to approve them all together. I do not think that would take up too much of the time of the House. I feel the amendment, therefore, is reasonable.

Mr. Leyden

I would like to examine this further with the draftsman. I do not want to burden the Dáil with regulations on a regular basis on every small matter and technical detail, nevertheless, I am not against the principle of this amendment in relation to serious or important issues which should be brought before the Dáil in regulation form. I know it is difficult to define what is serious and what is technical but a practical approach would be adopted by the officials in this regard.

Mr. J. Bruton

Would the Minister be prepared to consider, between now and Report Stage, possibly allowing at least some of the matters concerned here to be ones which would be the subject of affirmative resolution? I do not know which of the categories would be the most important.

Mr. Leyden

I am prepared to consider this before Report Stage. As Deputy Bruton said, it is very difficult at this stage to work out which would be serious and which would be technical or trivial. What Deputy Bruton is bringing into this may in a sense give an opportunity for Ministers in the future without amending the Bill to bring forward regulations. Circumstances may change in the future and this many be a good provision seen in the light of day but at this stage I would like to examine it further and I assure the Chairman that I will come back to the House on Report Stage in this regard.

Amendment No. 1 to amendment No. 268, by leave, withdrawn.

Amendment No. 268 agreed to.

Chairman

Amendment Nos. 269 and 270 are related, and so may be taken together. Agreed? Agreed.

Mr. Leyden

I move amendment No. 269:

In page 151, before section 202, but in Part X, to insert the following new section:

"225.—(1) Whenever shares for which dealing facilities are provided on a recognised stock exchange have been purchased either by the company which issued the shares or by a company which is that company's subsidiary, the company whose shares have been purchased shall be under an obligation to notify that stock exchange of that matter; and the stock exchange may publish, in such manner as it may determine, any information received by it under this subsection.

(2) An obligation imposed by subsection (1) shall be fulfilled before the end of the day next following that on which it arises.

(3) If default is made in complying with this section, the company and every officer of the company who is in default shall be guilty of an offence.".

The proposed new section 225 requires that whenever shares for which dealing facilities have been provided on a recognised stock exchange have been purchased by the company issuing the shares or by their subsidiary, that company is under an obligation to notify the stock exchange.

The proposed new section 226 requires the stock exchange authorities to report to the Director of Public Prosecutions if they have reason to believe that the notification requirements in section 225 have not been complied with. Furthermore, stockbrokers would be required under subsection (2) to notify the exchange of any such breaches. Section 226 is closely modelled on sections 98 to 100 of the Bill which the Committee have already agreed in relation to the area of insider dealing.

Amendment agreed to.

Mr. Leyden

I move amendment No. 270:

In page 151, before section 202, but in Part X, to insert the following new section:

"226.—(1) If it appears to a relevant authority of a recognised stock exchange that a company in the case of whose shares dealing facilities have been provided on that stock exchange has committed an offence under section 224 or 225, such authority shall forthwith report the matter to the Director of Public Prosecutions and shall furnish to the Director of Public Prosecutions such information and give to him such access to and facilities for inspecting and taking copies of any documents, being information or documents in the possession or under the control of such authority and relating to the matter in question, as the Director of Public Prosecutions may require.

(2) Where it appears to a member of a recognised stock exchange that

any person has committed an offence under section 224 or 225, he shall report the matter forthwith to a relevant authority of the recognised stock exchange concerned, who shall thereupon come under the duty referred to in subsection (1).

(3) If it appears to a court in any proceedings that any person has committed an offence as aforesaid, and that no report relating to the matter has been made to the Director of Public Prosecutions under subsection (1), that court may, on the application of any person interested in the proceedings concerned or of its own motion, direct a relevant authority of the recognised stock exchange concerned to make such a report, and on a report being made accordingly, this section shall have effect as though the report had been made in pursuance of subsection (1).

(4) If, where any matter is reported or referred to the Director of Public Prosecutions under this section, he considers that the case is one in which a prosecution ought to be instituted and institutes proceedings accordingly, it shall be the duty of a relevant authority of the recognised stock exchange concerned, and of every officer of the company whose shares are concerned, and of any other person who appears to the Director of Public Prosecutions to have relevant information (other than any defendant in the proceedings) to give all assistance in connection with the prosecution which he or they are reasonably able to give.

(5) If it appears to the Minister, arising from a complaint to a relevant authority of a recognised stock exchange concerning an alleged offence under section 224 or 225, that there are circumstances suggesting that—

(a) the relevant authority ought to use its powers under this section but has not done so, or

(b) that a report ought to be made to the Director of Public Prosecutions under subsection (1), but that the relevant authority concerned has not so reported,

he may request the relevant authority to use such powers or make such a report, and on a report being made accordingly, this section shall have effect as though the report had been made in pursuance of subsection (1).

(6) Where the Minister makes a request under subsection (5), the relevant authority concerned shall communicate the results of its investigations, or a copy of its report under subsection (1), as the case may be, to the Minister.

(7) A relevant authority of a recognised stock exchange shall not be liable in damages in respect of anything done or omitted to be done by the authority in connection with the exercise by it of its functions under this section unless the act or omission complained of was done or omitted to be done in bad faith.

(8) For the purposes of this section each of the following shall be a ‘relevant authority' in relation to a recognised stock exchange—

(i) its board of directors, committee of management or other management body,

(ii) its manager, however described.

(9) A relevant authority shall have the same powers and duties for the purposes of this section as it has under sections 99 and 100.

(10) Where the Minister considers it necessary or expedient to do so for the proper and effective administration of this section, he may make such regulations as he thinks appropriate in relation to—

(a) the powers of authorised persons, or

(b) the matters in respect of which, or the persons from whom, authorised persons may require information under section 99, as applied by subsection (9).".

Amendment agreed to.

Mr. Leyden

I move amendment No. 271:

In page 151, before section 202, but in Part X, to insert the following new section:

"227.—(1) The Principal Act is hereby amended—

(a) in section 62 (1) by the insertion after "except as provided in this section" of "and section 203 (2) of the Companies Act, 1989,";

(b) in section 62 (2) by the deletion of "preference" where it first appears and the insertion after "on redemption of any redeemable preference shares" of "in pursuance of section 216 of the Companies Act, 1989,"; and

(c) in section 72 (1) by the deletion of "to purchase any of its shares or".

(2) The Sixth Schedule to the Principal Act is hereby amended by the substitution of the following subparagraph for subparagraph (d) of paragraph 12:

‘(d) the amounts respectively provided for purchase of the company's share capital, for redemption of share capital and for redemption of loans;'.".

The proposed new section 271 makes two technical amendments to section 62 of the Principal Act and one to section 72. These amendments are necessary to take account of the new situation provided for by the new provisions.

Amendment agreed to.

Mr. Leyden

I move amendment No. 272:

In page 151, before section 202, but in Part X, to insert the following new section:

"228.—The Act of 1983 is hereby amended—

(a) by the substitution in section 41 (4) of the following paragraph for paragraph (a):

‘(a) the redemption of preference shares in pursuance of section 65 of the Principal Act or the redemption or purchase of shares in pursuance of Part XI of the Companies Act, 1989;';

(b) by the deletion of section 43 (13);

(c) by the insertion after section 43 of the following new section:

‘43A.—Where a company or a nominee of a company holds shares in the company or an interest in such shares, such shares shall not be shown in the balance sheet of the company as an asset, but—

(a) the deduction of the cost of the acquired shares from the profits available for distribution, and

(b) the nominal value of such shares,

shall be disclosed in the notes to the accounts and the profits available for distribution shall accordingly be restricted by the amount of such deduction.';

(d) by the substitution in section 51 (2) of the following paragraph for paragraph (b):

‘(b) the redemption of preference shares pursuant to section 65 of the Principal Act out of the proceeds of a fresh issue of shares made for the purposes of redemption;'; and

(e) by the addition of the following paragraph after the paragraph inserted by paragraph (d):

‘(bb) the redemption or purchase of shares pursuant to Part XI of the Companies Act, 1989 out of the proceeds of a fresh issue of shares made for the purposes of the redemption or purchase and the payment of any premium out of the company's share premium account on a redemption pursuant to section 216 in the said Part;'.".

The proposed new section 228 amends the 1983 Act to make it consistent with the provisions of the new Part XI. Section 41 (4) of the 1983 Act prohibits companies purchasing their own shares with certain exceptions. The new section 228 (a) ensures that redemption and purchase of shares under the provisions of Part XI are included in these exceptions. Section 43 (13) of the 1983 Act provides for the accounting treatment of shares held by a plc in the company itself. Such shares could, for example, have been acquired by the company through forfeiture, gift or request. As the new section 228 (c) is going to provide for the accounting treatment of own shares for all companies, it is necessary to delete the existing accounting treatment set out in section 43 (13) of the 1983 Act. This is the effect of the new section 228 (b).

The new section 228 (c) applies to all companies and their nominee acquiring shares in the company. It provides that the shares shall not be shown in the balance sheet as an asset but requires that the notes to the accounts must disclose the deduction of the cost of the acquired shares for the profits available for distribution and the nominal value of the shares. It further provides that the profits available for distribution must be restricted by the amount of that deduction. Paragraphs (d) and (e) of section 228 are also necessary to bring the 1983 Act in line with the new provisions contained in Part XI. Essentially these two paragraphs replace section 51 (2) (b) of the 1983 Act to reflect the repeal in section 216 of section 64 of the Principal Act, new classes of shares created by Part XI of the Bill and the new arrangements applicable to the repayments of share premiums.

Amendment agreed to.

Mr. Leyden

I move amendment No. 273:

In page 151, before section 202, but in Part X, to insert the following new section:

"229.—(1) Section 14 of the Companies (Amendment) Act, 1986, is hereby amended—

(a) in paragraph (vi) by the substitution of ‘acquisition or disposal' for ‘disposal'; and

(b) by the insertion of the following paragraph after paragraph (vi):

‘(vii) the reasons for the acquisition, lien or charge, as the case may be.'.

(2) Part I of the Schedule to the Companies (Amendment) Act, 1986, is hereby amended—

(a) by the deletion in Format 1 of the balance sheet formats of items A.III.7, B. III. 2 and H.IV. 2;

(b) by the deletion in Format 2 of the balance sheet formats—

(i) under ‘Assets', of items A. III.7 and B.III.2 (Assets), and

(ii) under ‘Liabilities', of item A.IV.2; and

(c) by the deletion of note (3) in the notes on the balance sheet formats following the aforesaid formats.

(3) Part IV of the Schedule to the Companies (Amendment) Act, 1986, is hereby amended—

(a) by the insertion of the following paragraph after paragraph 32:

‘32A. Particulars of any restriction on profits available for distribution by virtue of section 220 (2) (b) (i) of the Companies Act, 1989, must also be stated.'; and

(b) by the substitution of the following subparagraph for subparagraph (3) of paragraph 39:

‘(3) The amounts respectively provided for the purchase of the company's share capital, for redemption of share capital, and for redemption of loans.'.".

This proposal is to amend the 1986 Act to reflect the changes we are introducing here. In particular it amends section 14 of that Act to ensure that the annual directors' report includes information on the amounts paid for shares acquired. It also introduces a new requirement to show in the directors' report the reasons for the acquisition of own shares or the subjection of shares to a lien or charge. It also makes some technical and detailed amendments to the schedule to the 1986 Act.

Amendment agreed to.

Mr. Leyden

I move amendment No. 274:

In page 151, before section 202, but in Part X, to insert the following new section:

"230.—(1) A company which contravenes any of the following provisions shall be guilty of an offence, namely sections 203 to 207, 214 and 218 to 220.

(2) Section 203 shall apply to an offence under this Part."

The proposed new section 230 is really self-explanatory in that it makes contraventions of the sections specified an offence under the Bill.

Amendment agreed to.

Mr. Leyden

I move amendment No. 274a:

In page 151, before section 202, but in Part XI, to insert the following new section:

"202.—It shall be the duty of the directors of a public limited company to take all reasonable steps to secure that the secretary (or each joint secretary) of the company is a person who appears to them to have the requisite knowledge and experience to discharge the functions of secretary of the company and who—

(a) on the commencement of this section held the office of secretary of the company; or

(b) for at least three years of the five years immediately preceding his appointment as secretary held the office of secretary of a company; or

(c) is a member of a body for the time being recognised for the purposes of this section by the Minister; or

(d) is a person who, by virtue of his holding or having held any other position or his being a member of any other body, appears to the directors to be capable of discharging those functions.".

I would like to make a brief introductory statement on Part XI of the Bill. Unlike the other parts of the Bill Part XI does not have one common theme running through it. As published it only contains six sections and what I would like to do therefore is give a brief indication of what these aim to do. I have table a number of further amendments of a general nature and we will be discussing these in due course.

The first two sections in Part XI have to do with offences. The first of these, section 202, arises from the fact that in many sections throughout the Bill new offences are created but the sanctions for contravention of the sections are not specified in the relevant section. Instead these are set out in section 202 which contains the general penalties, the maximum amount of fine or term of imprisonment that can be imposed where a person is found guilty and so on.

Mr. J. Bruton

Could I clarify something? Are we dealing now with the qualifications of a secretary of a public company?

Mr. Leyden

That would arise in Part XI. We propose to put in a new section.

Section 203 provides that individual officers will be capable of being made liable where the entity of which they are a member has committed an offence in breach of the four sections specified. This is a further provision to ensure that persons do not hide behind the veil of the separate legal personality of the company. Section 204 provides a general penalty for people guilty of furnishing false information arising from obligations contained in the Companies Act. Section 205 provides that a person who destroys, mutilates or falsifies documents shall be guilty of an offence. Section 206 makes a provision as to how information which is submitted to the registrar of companies is to be classified and will enable the Minister to make regulations in regard to the classifications used.

Finally, section 207 addresses the problem which arises where companies cease trading but are not formally wound up and dissolved. This is a measure designed to prevent people who operate companies simply walking away from their responsibilities.

In addition I have tabled a number of miscellaneous amendments to tackle a number of issues in the Companies Act which I consider ought to be addressed at this stage. We will come to discuss these as each amendment is moved. That is all I would like to say at this stage by way of introduction to Part XI.

Returning to amendment 274a, in various sections in the Companies Act obligations are imposed on company secretaries and in view of this I think that the position of company secretary should be given special recognition in the Companies Acts. This is what amendment 274a is designed to do. The first thing I would point out about the amendment is that the qualification requirements will only apply to public limited companies. It will not apply to private companies. The introductory paragraph of the new section places a general duty on the directors to ensure that the secretary is a person capable of discharging the responsibilities involved. This is expanded on in the following paragraphs of the section.

Paragraph (a) provides for the continued appointment of a company secretary employed when the section comes into effect. Paragraph (b) provides for the appointment of a secretary by a public limited company where the person has previously been employed as a secretary in another company. Thus a person's previous involvement as a secretary of a private as well as a public company would be acceptable. Paragraph (c) will enable the Minister to recognise relevant professional bodies in this area and is similar to the provisions in section 191 in relation to auditors. Paragraph (d) provides that directors can take other matters into consideration in deciding who to appoint as secretary of a public limited company. This would essentially give the directors considerable freedom to appoint a person who may not be professionally qualified but whom they consider to be appropriately equipped to do the job.

Mr. J. Bruton

I welcome this amendment, particularly paragraph (d) which ensures that there will be no closed shop.

Amendment agreed to.

Mr. Leyden

I move amendment No. 274b:

In page 151, before section 202, but in Part XI, to insert the following new section:

"203.—Section 61 of the Principal Act is hereby amended by the insertion after subsection (2) of the following subsection:

‘(3) As respects debentures which, under the terms of issue, must be repaid within five years of the date of issue, an offer for subscription or sale to a person whose ordinary business is to buy or sell shares or debentures (whether as principal or agent) shall not be deemed an offer to the public for the purposes of this Part.'.".

The Companies Act, 1963, adopts different approaches as to the requirements for the issue of prospectuses, depending on whether the company concerned is incorporated inside or outside the State. Part III of the Act deals with domestic companies while Part XII deals with foreign companies. In the case of domestic companies section 44 (4) (b) provides that the provisions regarding prospectuses need not be complied with in relation to shares or debentures which are not offered to the public. Section 61 goes on to define what constitutes offering shares or debentures to the public.

Section 367 (2) provides that in the case of foreign companies any offer of shares or debentures to any person whose ordinary business is to buy or sell shares or debentures, in other words an investment professional, will not be deemed to be an offer to the public.

The existing provisions are, of course, essentially designed to protect the public from being exploited by unscrupulous operators. However it has been put to us that the need for this protection does not arise in respect of certain short-term debentures which are issued to investment professionals such as the various investment institutions in the financial markets. The debentures referred to in the amendment will include short-term commercial negotiable certificates of deposit and similar instruments and could greatly assist Irish commercial industrial and financial institutions raising funds by allowing them to offer these advanced forms of securities to dealers and sophisticated investors with greater ease and without concerning themselves about the stringent rules relating to prospectuses. The measures would also facilitate financial institutions established in the international Financial Services Centre.

I am advised that it is not clear whether the existing wording of section 44 (4) (b) already excludes such debentures where the offer is confined to persons whose ordinary business it is to buy or sell shares as in such cases it could be argued that the debentures are not on offer to the public. However it is difficult to pin down adequately what the proper construction of "the public" is in a case like this. In the interests of legal certainty, therefore, the amendment states explicitly that the issue of short-term debentures to any person whose ordinary business is to buy or sell shares or debentures, whether as principal or agent, would not be regarded as an offer to the public.

In conclusion I should perhaps mention in passing that the UK authorities introduced similar amendments in their legislation.

Amendment agreed to.

Mr. Leyden

I move amendment No. 274c:

In page 151, before section 202, but in Part XI, to insert the following new section:

"204.—(1) The Minister may make provision by regulations for enabling title to securities to be evidenced and transferred without a written instrument.

(2) In this section—

(a) ‘securities' means shares, stock, debentures, debenture stock, loan stock, bonds, undertakings for collective investments in transferable securities within the meaning of the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 1989 (S.I. No. 78 of 1989), and other securities of any description;

(b) references to title to securities include any legal or equitable interest in securities; and

(c) references to a transfer of title include a transfer by way of security.

(3) The regulations may make provision—

(a) for procedures for recording and transferring title to securities, and

(b) for the regulation of those procedures and the persons responsible for or involved in their operation, and

(c) for dispensing with the obligations of a company under section 86 of the Principal Act to issue certificates and providing for alternative procedures.

(4) The regulations shall contain such safeguards as appear to the Minister appropriate for the protection of investors and for ensuring that competition is not restricted, distorted or prevented.

(5) (a) The regulations may for the purpose of enabling or facilitating the operation of the new procedures make provision with respect to the rights and obligations of persons in relation to securities dealt with under the procedures.

(b) The regulations shall be framed so as to secure that the rights and obligations in relation to securities dealt with under the new procedures correspond, so far as practicable, with those which would arise apart from any regulations under this section.

(6) (a) The regulations may include such supplementary, incidental and transitional provisions as appear to the Minister to be necessary or expedient.

(b) In particular, provision may be made for the purpose of giving effect to—

(i) the transmission of title of securities by operation of law;

(ii) any restriction on the transfer of title to securities arising by virtue of the provisions of any enactment or instrument, court order or agreement;

(iii) any power conferred by any such provision on a person to deal with securities on behalf of the person entitled.

(7) The regulations may make provision with respect to the persons who are to be responsible for the operation of the new procedures.

(8) The regulations may make different provision for different cases.

(9) Every regulation made 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 such House within the next twenty-one 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 has been prepared on the basis of representations from the stock exchange and is designed to facilitate the introduction of shares "dematerialisation" in due course on the Dublin and London exchanges. This is part of a project called Taurus and the idea ultimately is to have a paperless clearing and settlement system for shares traded on the two exchanges unified. At this stage the final shape of how the new procedures will operate has not been determined. However, I think they will almost certainly be somewhat technical. This amendment will give the Minister the flexibility to introduce the necessary procedures by means of technical regulations, which of course again brings regulations into play in this Bill.

Mr. J. Bruton

Given that this is authorising something on which we do not have a clear idea of how it will work I feel that the regulations to be made under subsection (9) should be ones which, shall we say, for the first three years of the operation of this section, would require an affirmative resolution of the House. When the initial set of regulations that will set this mechanism in being are being introduced it would be reasonable that they should be subject to the approval of the Dáil. Subsequently, when one would be engaged in the tidying-up-type amendments after that three year period, it would be reasonable to revert to the provision in subsection (9) which is simply the ordinary, passive form of approval. Would the Minister agree, for the first three years, to provide for the affirmative resolution procedure?

Mr. Leyden

I do not have the final details of the requirements here. Having to review something after three years does impose certain difficulties in requirements for both——

Mr. J. Bruton

I was not suggesting that the Minister review it. I am simply saying that, for the first three years, it should be subject to an affirmative resolution; after those three years that provision would expire and one would then revert to the provision here.

Mr. Leyden

I am agreeable to that. I will draft an amendment for Report Stage.

Amendment agreed to.

Mr. J. Bruton

I move amendment No. 275:

In page 151, before section 202, but in Part XI, to insert the following new section:

"202.— Section 392 of the Principal Act is hereby amended by the addition of the following words:

‘This Report shall be laid before the Houses of the Oireachtas no later than four months after the end of each calendar year and shall contain—

(a) a description of all investigations undertaken under Part II of this Act,

(b) a listing of all convictions obtained for offences against the Companies Acts,

(c) an assessment by the Minister of the effect the provisions of the Companies Acts in regard to personal liability of directors, restrictions on directors of insolvent companies, prohibition of insider dealing and the placing of companies under court protection are having on enterprise and employment in the country,

(d) a description of the changes made or proposed in the law governing companies by the European Communities and of the effect of such changes on company law and practice in this State,

(e) a report on evidence available to the Minister of companies carrying on business in Ireland seeking to incorporate in another jurisdiction in order to avoid certain provisions of the Companies Act in this jurisdiction.'.".

The purpose of this amendment is to require the Minister to report annually to the Dáil on the operation of the companies legislation. We have given the Minister in this Bill a vast array of new powers to exercise; we have created a whole new range of civil and criminal offences; we have made a huge change in the legislation affecting companies. We do not know precisely — and that is in the nature of things — how it will all work. It is important that the Department of Industry and Commerce, who are responsible for overseeing this legislation — already providing, for example, a very useful triennial report on industrial policy — should provide an annual report on the operation of companies legislation. It does not have to be a long document. What we are proposing here is that this report would be laid before the Dáil and each year should contain a reference to all investigations taking place under Part II of this Bill. I predicted, during the debate on Part II on Committee Stage, that there would be no investigations under Part II because it was such a cumbersome procedure that it would not be used. I may be proven wrong, but I would like to have a report to prove me wrong from the Department of Industry and Commerce in which they would tell us all of the investigations that will be initiated.

Chairman

And a public apology forthwith.

Mr. J. Bruton

Yes. We hear constantly about legislation being enacted but not enforced. We are proposing here that the Department should report on the number of convictions obtained for offences committed under the provisions of companies legislation. We are also asking that the Minister assess how the new provisions in regard to personal liability of directors, restrictions on directors of insolvent companies, prohibition of insider dealing and the placing of companies under protection, are working in practice. We recommend a text from the Minister giving his judgment as to how this is working. Likewise, we think he should keep us in touch with what is happening in European law in this area and also that there should be a description of the "changes"— not "charges"— made, or proposed, in the law governing the European Community: that is a typographical or drafting error; I do not know which.

The final issue on which we want the Minister to report annually to the Dáil is on the evidence available to him that there might be companies incorporating abroad to avoid the strictures of Irish company legislation. One of the points that Fine Gael made quite forcibly during these Committee debates was that we felt, that if legislation was too draconian people would simply reincorporate in the Isle of Man or somewhere else where the company legislation is much more lax. Perhaps we will be proven wrong in our fears and this will not happen. Perhaps we will be proven right but it would be useful if there was a report to the Dáil on this subject.

I do not believe that this is a major administrative problem for Government to have to produce a report along these lines. I do not think it will be the most sensational or exciting document ever produced but in order that we should keep company legislation under a proper informed review, a report along the lines of this amendment would be useful. I hope the Minister will accept it.

Mr. S. Barrett

In supporting Deputy John Bruton may I point out that there are precedents for this type of reporting contained in the Extradition (Amendment) Act, 1987, under whose provisions a report is submitted to the Dáil every 12 months on the workings of that Act. That is a good provision. If we, as a country, are to keep pace with changes in the manner of doing business throughout the European Community, it is important that the Dáil be informed of how our existing laws are operating. Such a report might highlight the need for a re-think or changes that might be effected in the future. Indeed had we more of this type of debate in the Dáil, we as legislators would be doing a far better job than we are doing now. All of the time of the Dáil is spent on nothing else but the passage of legislation. There is very little opportunity for a review of existing legislation, and of the need to remove blockages to the creation of employment and wealth in this country. Such a report would be in keeping with an existing precedent and would do nothing but good. I would strongly recommend to the Minister that he see the wisdom of accepting our amendment. It would be in everybody's interest irrespective of one's party-political beliefs. I suggest it is something that should be welcomed right across the board. We would be doing everybody a great favour were this provision incorporated in this new legislation.

Mr. Leyden

I do not like to introduce too much red tape. This amendment would impose a certain amount of additional work and responsibility on the Department, in turn placing an extra burden on the limited number of Departmental staff. Looking at the specific paragraphs in the amendment, paragraph (a) provides that a description of all investigations undertaken under Part II of this Act should be included. While I would see no objection to specifying how many investigations be undertaken in any year I do not deem it appropriate to include a description of such cases.

Paragraph (b) provides for a listing of all convictions obtained for offences against the Companies Acts. If what the Deputies mean is the number of convictions under a particular section, that is something I would be prepared to consider including. However, again bearing in mind the pressure under which the Companies Registration Office continues to operate, I cannot agree to anything which would involve unrealistic time and effort which could be better utilised in another way. I can see from statistics advanced and so on, such a report would be realistic, but what the Deputies are requesting is something that would take up an enormous amount of time in the Department which could better be used in possibly updating the statistics. I can see the point of having statistics available and details of convictions but not the detailed information required by this amendment.

Mr. J. Bruton

I feel very strongly that we should have a reporting arrangement in this legislation. I also feel very strongly that unreasonable responsibilities and work should not be placed on public servants who have, despite the jocose remarks that I have made occasionally during the passage of this Bill, an enormous workload which they carry through with excellent good humour. I know from experience how hard people have to work in this particular section in dealing with matters of high technical content. In an effort to reach agreement with the Minister on this amendment — I hope we can actually reach agreement — I would certainly agree, first of all, that the report might be, say, every three years rather than every calendar year; secondly, that it should only list the investigations rather than describe them; thirdly, that it would simply enumerate the convictions, not describe them.

In respect of the other matter contained therein, what we are seeking is a description on the part of the Minister of how the policy underlining the legislation is working in practice. It is not unreasonable to ask the Minister to report on that every three years. He can be as longwinded or as brief as he wishes in drawing up these descriptions, but he would be required to draw them. The precedent with which the Department of Industry and Commerce are familiar already — of operating the triennial view of industrial policy — is quite a good one in the sense that the Department are familiar with that sort of practice. They do make a big effort to produce a good report. The three year review process actually helps the Department to focus their work on reviewing it every three years, not doing it piecemeal. I would hope that we could reach agreement with the Minister on an amendment along those lines.

Mr. Leyden

I accept the points put forward by Deputy Bruton. I am agreeable to the thrust of his proposal. Having spent so much time going through this legislation with a fine comb in the Oireachtas in recent years, it would be appropriate that, after such efforts — bearing in mind the changes in Europe in relation to company law and the requirements in the ever-changing scene — if we need a review, a three-year one would be appropriate. I would go along with that proposal. I will have to draft an amendment accordingly for Report Stage. I will take on board some of the points made by Deputy Bruton in an effort to clarify the position.

Mr. J. Bruton

The Minister will endeavour to deal with the matters specified in subparagraphs (c),(d) and (e), of our amendment — that is, how these provisions are working in practice.

Chairman

The Deputy described it, when trying to meet the Minister, as a review of policy.

Mr. J. Bruton

Yes, that is correct.

Mr. Leyden

A review of any legislation is always appropriate, as is reporting to the Dáil. I will come back on Report Stage on the detail. I agree with the proposition in principle.

Mr. J. Bruton

On the basis of the assurances given by the Minister, I agree to amendment No. 275 being withdrawn.

Amendment, by leave, withdrawn.

Amendment No. 276 not moved.

Sections 202 to 205, inclusive, agreed to.

NEW SECTIONS.

Mr. Leyden

I move amendment No. 276a:

In page 153, before section 206, to insert the following new section:

"206.—Sections 125 (2), 126 (4), 127 (2) and 128 (3) of the Principal Act shall have effect as if for the sums mentioned therein there were substituted ‘£1,000' in each case.".

This amendment is designed to remove an anomaly in the existing Companies Act with regard to the fines that can be imposed for, first, failure to make an annual return and, secondly, failure to annex accounts to the annual return. The amendment basically removes this anomaly by aligning the relevant financial penalties at a maximum of £1,000 each.

Amendment agreed to.

Mr. Leyden

I move amendment No. 276b:

In page 153, before section 206, to insert the following new section:

"207.—Section 12 (1) of the Companies (Amendment) Act, 1982 (which relates to failure to make annual returns) is hereby amended by the substitution for ‘three consecutive years' of ‘two consecutive years'.".

Section 12 (1) of the Companies (Amendment) Act, 1982, is designed to tackle the problem of companies which ignore the requirements to file annual returns. Where these returns are outstanding for three consecutive years the registrar can move to have the relevant companies struck off the register. The provision has proved to be very useful in recent years in enforcement as well as in effectively identifying non-trading companies. The underlying problem being tackled is the incidence of companies which ignore the requirement to file annual returns. When this happens, information which should be available is not available to the public, in turn giving rise to complaints on the part of practitioners and the public alike. In addition, a considerable amount of resources of the Companies Registration Office is devoted to pursuing defaulters. By virtue of amendment No. 276b a reduction in the number of years for which returns must be outstanding from three to two will enable the registrar to move more quickly against defaulting companies. In general, the impact of serving notice in companies which are careless in regard to their obligations to file returns because of imminent striking off is greater than the threat of court proceedings for failure to make returns.

Mr. S. Barrett

Obviously this amendment will have an effect on shelf companies. In relation thereto, I support the Minister in what he is trying to achieve — that any trading company should certainly lodge its annual accounts in time and in accordance with the law. But it has been of benefit that there are shelf companies people can purchase in order to set up business quickly. It does not do anybody any harm. There is a difference here. Could the Minister incorporate some wording to show that this applies to actual trading companies, companies that have traded and in respect of which no accounts have been returned? In the case of a company on the shelf, which has not actually traded but has just been taken off the shelf in order merely to get business up and moving quickly, there is a difference. Would the Minister examine that?

Mr. Leyden

Shelf companies, as such, would have to indicate to the Registrar of Companies their exact status, submitting an annual return which would be a very simple procedure based on the fact that they would not be trading. At least the Registrar of Companies would know exactly the status of each company involved. Otherwise——

Chairman

They would not be struck off the register, would they?

Mr. Leyden

If they made a return they would not be struck off the register, no. The fact that they were not trading would not mean that they would be struck off the register. The fact is that the Registrar of Companies will want to know exactly the status of each company involved but they must submit an annual return. That would clarify their position.

Amendment agreed to.

Mr. Leyden

I move amendment No. 276c:

In page 153, before section 206, to insert the following new section:

"208.—The Principal Act is hereby amended by the insertion after section 311 of the following section—

‘311A.—(1) Without prejudice to the provisions of section 311 (8) of this Act and section 12 (6) of the Companies (Amendment) Act, 1982, if a company feels aggrieved by having been struck off the register, the registrar of companies, on an application made in the prescribed form by the company before the expiration of twelve months after the publication in Iris Oifigiúil of the notice striking the company name from the register, and provided he has received all annual returns outstanding, if any, from the company, may restore the name of the company to the register.

(2) Upon the registration of an application under subsection (1) and on payment of such fees as may be prescribed, the company shall be deemed to have continued in existence as if its name had not been struck off.

(3) Subject to any order made by the court in the matter, the restoration of the name of a company to the register under this section shall not affect the rights or liabilities of the company in respect of any debt or obligation incurred, or any contract entered into by, to, with or on behalf of, the company between the date of its dissolution and the date of such restoration.'".

Section 311 of the Principal Act and section 12 of the Companies (Amendment) Act, 1982, provide respectively that the Registrar of Companies may strike off the register dormant companies and companies who fail to make annual returns for three consecutive years. Both sections, however, provide for the restoration of a company named to the registrar after strike-off by means of a High Court order. As a result of the strict "strike-off" regime currently being pursued by the Companies Registration Office, there has been not just a considerable tidying up of the register and an improvement in the submission of annual returns, but also a significant increase in the number of applications to the court for registration to the Registrar. In any case, the applications are straightforward and could be dealt with administratively. This would have the particular advantage of saving some companies expensive court applications. The proposed amendment would introduce a new procedure allowing the Registrar to restore companies to the register, provided application was made within 12 months of strike-off. The provision is based on subsection 311 (8) of the Principal Act and section 12 (6) of the 1982 Act and is a very reasonable provision.

Amendment agreed to.

Section 206 agreed to.

NEW SECTIONS.

Chairman

Amendment No. 276d is on the additional list and there are amendments Nos. 1 and 2 to amendment No. 276d in the names of Deputies Bruton and Barrett. We will discuss amendments Nos. 276d, 276e and the two amendments to No. 276d together. Agreed? Agreed.

Mr. Leyden

I move amendment No. 276d:

In page 153, before section 207, to insert the following new section:

"207.—(1) This section applies to the delivery to the registrar under any provision of the Companies Acts of documents in legible form.

(2) The document must—

(a) state in a prominent position the registered number of the company to which it relates,

(b) satisfy any requirements prescribed for the purposes of this section, and

(c) conform to such requirements as may be prescribed for the purpose of enabling the registrar to copy the document.

(3) If a document is delivered to the registrar which does not comply with the requirements of this section, he may serve on the person by whom the document was delivered (or, if there are two or more such persons, on any of them) a notice indicating the respect in which the document does not comply.

(4) Where the registrar serves such notice, then, unless a replacement document—

(a) is delivered to him within 14 days after the service of the notice, and

(b) complies with the requirement of this section or is not rejected by him for failure to comply with those requirements,

the original document shall be deemed not to have been delivered to him.

(5) For the purposes of any provision imposing a penalty for failure to deliver a document, so far as it imposes a penalty for continued contravention, no account shall be taken of the period between the delivery of the original document and the end of the period of 14 days after the service of the registrar's notice under subsection (3).

(6) Regulations made for the purposes of this section may make different provision with respect to different descriptions of document.

(7) Every regulation made 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 such House within the next twenty-one 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.

(8) In this section, ‘document' includes any periodic account, abstract, statement or return required to be delivered to the registrar.".

Amendment No. 276d contains the first of two sections which I am proposing to insert in this Part, which will allow the Registrar of Companies to exercise some control over the delivery of documents to him under the various requirements of the Companies Act. The first section deals with actual written documents. The second being inserted by amendment No. 276e relates to documents transmitted by electronic means. With the advent of advanced computerised technology in the not too distant future, the Companies Registration Office hope to introduce a new image processing system by which the various documents submitted to their office will be scanned by computer and, from that, be capable of being absorbed into the records of the office. This system, which is currently being developed, is dependent on optical character recognition as distinct from the receipt of documentation by electronic means. In essence, for the scanning system to operate effectively, it will be necessary to prescribe in great detail the precise layout of forms. The section being inserted by amendment No. 276d will enable the necessary requirements to be specified in ministerial regulations.

The purpose of the second section being inserted by amendment No. 276e also is straightforward and is designed to enable the Minister to make regulations prescribing procedures which will enable the Registrar of Companies to accept delivery of documentation required under the Companies Act by electronic means.

Mr. J. Bruton

I move amendment No. 1 to amendment No. 276d:

In subsection (2), in the second line of subparagraph (b), after "section" to insert "as to the form and content of the document".

The purpose of our amendments is to limit the power of the Minister to make regulations governing documents to matters properly the concern of this section, namely, the form and content of the documents. We do not want the Minister to use the powers he has in subsection (6) to make regulations for virtually any purpose concerning these documents. That is why we proposed the insertion of the words "as to the form and content of the document" only.

Mr. Leyden

We will accept the amendments subject to looking at their provisions for Report Stage. I am accepting the amendment.

Amendment No. 1 to amendment No. 276b agreed to.

Mr. J. Bruton

I move amendment No. 2 to amendment No. 276d:

In the second line of subsection (6), after "provision" to insert "as to the form and content of the document".

Amendment No. 2 to amendment No. 276d agreed to.

Chairman

We come to amendment No. 276d, as amended.

Mr. Leyden

I just want to make the point that we received these amendments to the amendment today after lunch. In the general context of this Bill and the fact that we are trying to get the Bill completed this evening——

Mr. J. Bruton

——I might add that we received the Minister's amendment yesterday after lunch.

Mr. Leyden

Touché. I understand that was proper notice.

Amendment No. 276d, as amended, agreed to.

Mr. Leyden

I move amendment No. 276e:

In page 153, before section 207, to insert the following new section:

"208.—(1) This section applies to the delivery to the registrar under any provision of the Companies Acts of documents otherwise than in legible form (whether by electronic means or otherwise).

(2) Any requirement to deliver a document to the registrar, or to deliver a document in the prescribed form, shall be satisfied by the communication to the registrar of the requisite information in any non-legible form prescribed for the purposes of this section.

(3) Where any document is required to be signed or sealed, it shall instead be authenticated in such manner as may be prescribed for the purposes of this section.

(4) The document must—

(a) contain in a prominent position the registered number of the company to which it relates,

(b) satisfy any requirements prescribed for the purposes of this section, and

(c) be furnished in such manner and conform to such requirements as may be prescribed for the purposes of enabling the registrar to read and copy the document.

(5) If a document is delivered to the registrar which does not comply with the requirements of this section, he may serve on the person by whom the document was delivered (or if there are two or more such persons, on any of them) a notice indicating the respect in which the document does not comply.

(6) Where the registrar serves such notice, then, unless a replacement document—

(a) is delivered to him within 14 days after the service of the notice, and

(b) complies with the requirement of this section or is not rejected by him for failure to comply with those requirements,

the original document shall be deemed not to have been delivered to him.

(7) For the purposes of any provision imposing a penalty for failure to deliver a document, so far as it imposes a penalty for continued contravention, no account shall be taken of the period between the delivery of the original document and the end of the period of 14 days after the service of the registrar's notice under subsection (5).

(8) The Minister may by regulations make further provision with respect to the application of this section in relation to instantaneous forms of communication.

(9) Regulations made for the purpose of this section may make different provision with respect to different descriptions of documents and different forms of communication.

(10) Every regulation made 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 such House within the next twenty-one 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.

(11) In this section, ‘document' includes any periodic account, abstract, statement or return required to be delivered to the registrar.".

Amendment agreed to.

Mr. J. Bruton

I move amendment No. 277:

In page 153, before section 207, to insert the following new section:

"207.—Section 2 of the Principal Act is amended by the inclusion of the words ‘or the Circuit Court' after the words ‘the High Court' in the definition of ‘the court' in section 2.".

This is quite an important amendment. There is reference throughout the Bill to the High Court being the place where all company legislation matters should be sorted out. I have been told that, for a relatively modest High Court action, one will incur expenses, talking conservatively, of £3,000 or £4,000. We have a tendency in our legislation for lots of relatively minor procedural matters to be required to go before the motions of discovery of documents and things like that, which could easily be dealt with by written procedure. Our court rules require them to be taken orally before a judge — even if they only take ten seconds — which means having gentlemen with wigs appearing there at quite considerable expense to the client and to the solicitor commissioning those gentlemen to do the work. Anything that simplifies that procedure, by having these type of matters dealt with in a lower court — as we propose here in the Circuit Court — would be a great step forward. It would enable the company legislation to operate, as intended, much less expensively than will be the case if we persist in having the matter dealt with in the High Court. I would make the further point, that while we might have got away in the past with having the High Court dealing with it, as a result of this Bill, in a whole lot of areas, we have introduced new requirements for the court to be involved. The court will henceforth be involved in the appointment of investigators and the court will discern all sorts of matters concerning the liability of directors throughout a long list. If it has always to be the High Court, it will be very expensive to operate this legislation. I would hope, therefore, that the Minister would accept the involvement of the Circuit Court. If the Circuit Court cannot settle the matter, if it cannot be settled at that level, it will go to the High Court anyway. Acceptance of an amendment will mean that the less contentious detail will have been swept out of the way at Circuit Court level less expensively.

Mr. Leyden

I have listened with great interest to the points raised by Deputy Bruton in support of this amendment. Let me say straightaway that I will go a certain distance towards accepting it, but, simple as it appears, I would not accept the amendment today in its present form. However I am certainly prepared to give an undertaking to do some further work on it with a view to coming back on Report Stage with a considered amendment of my own.

Let me explain why I am adopting this approach. Section 2 (1) of the Companies Act, 1963, provides that the expression "the court" when used in relation to a company means the High Court. One has only to glance through the various Companies Acts to see that there are a whole host of cases where matters can be referred to the High Court; the court is given various powers to make orders, give directions, take declarations, fix remuneration and so on. Of course these would all be civil actions. Such involvement of the courts has to be distinguished from cases in respect of which an offence is being prosecuted in the courts. In the case of criminal prosecutions, offences can be prosecuted summarily — which would be done in the District Court — or on indictment, which would normally be at the Circuit Court.

However, it is in relation to the first type of court action, the civil type, that the present amendment would have a particular bearing. On the civil side, it is possible to distinguish three different kinds of action. The first of these involves areas where the court is closely involved in a particular process. This is the case, for example, with court windings-up, court investigations under Part II of the Bill, restrictions on directors under Part VII and the companies under court protection in Part IX.

The second category of court involvement I would identify does not involve quite as much on-going involvement of the courts as those I have just mentioned, but would involve more than just isolated references. This category would include applications of the court in a voluntary winding-up, or where a receiver has been appointed and some problem arises which has to be referred to and resolved by the court.

Finally, there is a third category which contains a whole host of different sections providing for the involvement of the court on a kind of once-off basis. For example, these would range from the remedy in cases of oppression under section 205 of the 1963 Act to a reduction of capital under section 72 of that Act, court orders to comply with inspection of various company registers and so on. In all, I estimate there are about 130 sections in this category.

My initial attitude would be to hesitate in involving the Circuit Court in the first two categories but to be favourably disposed towards doing so for the matters falling into the third category. Before reaching any final decision I would need to consider the matter in some detail. For instance, in earlier exchanges on other Parts of the Bill, some Deputies suggested there was need for a special court to be established to deal with company law matters. In practice, I understand that the matters relating to company law issues which come before the High Court generally are assigned to judges who have particular knowledge in this area. However, over the years a certain expertise has been built up within the High Court on company law matters on the part of the judges involved. Therefore we could not lightly discard such expertise. I say that with the utmost respect for the judges in the Circuit Court. I would not wish to play down their abilities or integrity in any way.

As an alternative approach to that proposed in the amendment it might be possible to think in terms of giving powers to the Minister to specify, in regulations, what matters could be dealt with in the Circuit Court. Such regulations would provide a degree of flexibility the present proposal does not afford, giving us a chance to ascertain exactly what type of case might be handled by a lower court. I need hardly add that any consideration of this matter also will have to involve the Minister for Justice responsible for the administration of justice generally and for the courts in particular.

I agree with the Deputies that there may be certain matters which could be properly specified for consideration either by the Circuit Court or the High Court as an applicant chooses. Equally, however, I tend to think that there are other company law matters that should be considered by the High Court only. In the circumstances I am certainly prepared to examine all relevant provisions to identify those I consider could be dealt with by the Circuit Court as well as the High Court. I am prepared to do this before Report Stage in the hope that I can introduce an appropriate amendment at that stage.

Mr. J. Bruton

The Minister's attitude is entirely reasonable. The amendment was designed to achieve what it has achieved, in other words, to get the Minister to look at this matter. Obviously he is prepared to do that. I am withdrawing the amendment on that basis.

Amendment, by leave, withdrawn.