I should like to thank Deputy Faulkner for co-operating in this matter. I asked him to have amendments put in fairly quickly so that we could deal with the matter this week if possible. I wish to state how grateful I am to him for making an extra effort to have this done. Yesterday when I was talking to him it appeared we would not get an opportunity of discussing the Bill this week but now we have that opportunity. If it is dealt with in the same expeditious way I am sure we will get it through fairly quickly.
Building Societies Bill, 1975 [Seanad]: Committee Stage.
Section 1 agreed to.
SECTION 2.
Question proposed: "That section 2 stand part of the Bill."
In this section the phrase a "member of the family" means the spouse, son, daughter, stepson, step-daughter, adopted son or adopted daughter. Is a son-in-law or a daughter-in-law included in the definition?
No.
Is the Minister satisfied that this does not leave a loophole?
We could go out to very far degrees of kindred but we decided the section went far enough. In reply to the Deputy's question, it may leave a loophole but I hope it will not.
The Minister appreciates that the person could get around this by having his daughter-in-law apply?
It could happen, but I hope it will not.
I will not press the matter. I just wanted to know if the Minister had that in mind when he decided on definition.
We checked on this matter but we did not want to go too wide. I admit that what the Deputy suggests could happen but I do not think anybody would do a thing like that. I feel it would be too pointed.
In this section the word "society" means a building society established for the purpose of raising funds, by the subscriptions of members and the acceptance of deposits and loans, for making loans to members on security by the mortgage of freehold or leasehold estate or interest. Does the Minister not consider this definition is too narrow? Would he not consider including development in some way as well as the simple function of raising money or making loans available? Does the present definition not confine the building societies too much?
No, it does not. We do not want to make this too wide. We are dealing with building societies and it was thought that if we went any further possibly we might enable societies to expand their operations in areas other than those strictly necessary to enable them to carry on as building societies. I can assure the Deputy a great deal of thought was given to this section and to this definition. We came down in favour of confining it in the way stated and I think that was the right thing to do.
In the event that at a later stage the Minister considered the building societies could involve themselves in something other than what is laid down here, would that mean he would have to amend the definition?
Yes, it would. I would point out that there are quite a few finance houses dealing with various matters. To widen this area and allow building societies to expand into other sectors would give them an opportunity if the occasion arose to make profit on some other front. All of us are interested in ensuring that as much as possible of the money invested is used for the purpose of the building societies. That is as it should be and we are anxious to have it retained there.
Is the Minister satisfied that the definition of the word "mortgage" is clear enough? It states in the Bill that it includes charge. Does that mean any charge?
This is one of the difficulties one encounters when framing a Bill of this kind. The word "mortgage" has a well-known connotation. If we attempted to give it another connotation it might do more harm than good. When we talk of a mortgage we mean a charge on registered land. I take the point made by the Deputy but he can be assured it was deliberately kept very short because everyone understands what the word "mortgage" means.
Is it necessary to define the word "mortgage"?
No. Everyone knows what the word means and it would only create confusion if there was an attempt to redefine it.
Question put and agreed to.
Sections 3 and 4 agreed to.
SECTION 5.
I move amendment No. 1:
In page 6, line 13, after "Act" to insert "(other than a regulation under section 76)".
This section provides for the making of regulations by the Ministers for Local Government and Finance. Subsection (4) provides that every regulation made under the Act shall be laid before each House of the Oireachtas as soon as it is made and it may be annulled by resolution of either House. As it stands, subsection (4) does not take account of the fact that a draft of any regulation under section 76 must be approved by each House before it is made. The purpose of the amendment is to eliminate the necessity of laying regulations before each House which have already been approved in draft by each House. In other words, it is the draft that will come before the Oireachtas and it can be annulled by either House. There would be no point in having the regulations back again for a second run. This is simply a drafting measure to ensure that there is no confusion.
Amendment agreed to.
Question proposed: "That section 5, as amended, stand part of the Bill."
I should like the Minister to define what is meant by "prescribing". The section states that he may make regulations prescribing any matter or thing and I should like his comments on this.
It is a general provision regarding the making of regulations. It empowers the Ministers for Local Government and Finance as appropriate to make regulations under the Act. The regulations may apply generally or to specified classes of society. Any regulation must be laid before each House of the Oireachtas and may be annulled by resolution of the Oireachtas except for 1976 which we have just mentioned. "Prescribed" is the word normally used to say—"the Act of".
I am well aware that it is normally used. I wanted to get a basic definition as it applies to the section.
The Deputy will find it in the definitions section. If the Ceann Comhairle has no objection, let us go back to the definitions section. "Prescribed" means prescribed by regulations made under this Act.
"Prescribed" means prescribed. I will not take it any further. If the Minister looks at the definitions he will see that "prescribed" means prescribed.
And we all know what prescribed means. Let us not bring a dictionary in here.
Question put and agreed to.
Sections 6 and 7 agreed to.
SECTION 8.
Question proposed: "That section 8 stand part of the Bill."
I appreciate that previously a fewer number of persons could establish a building society. Is the Minister satisfied that ten, which is a relatively small number, is sufficient?
I think ten is an appropriate number. Normally it would not be ten individuals but ten people representing perhaps many more. Ten would appear to be a fairly reasonable number. As Deputy Faulkner said, under existing regulations any number of persons may establish a society, under section 13 of the 1874 Act, and the rules to be transmitted to the registrar must be signed by three persons and the intended secretary or other officers, under section 17 of the 1874 Act. All of us agree that the existing requirements are inadequate and a reasonably large number of persons should be involved. Therefore, the ten founder members provided for is in line with the requirements of section 1 (3) of the British Building Societies Act, 1962. It seems to be working well over there. At least we can use experience which has been found to be useful in other countries. Therefore, ten is what we have inserted here.
This section reads:
Any ten or more persons not disqualified under this Act...
Would it not be better if it read: "Any ten or more qualified persons"? The word "disqualified" seems somewhat negative; it gives the impression that one is looking for people disqualified, rather than assuming that most of them are honest.
There is a very good reason for that wording because persons disqualified from establishing societies are undischarged bankrupts or persons convicted on indictment of offences involving fraud or dishonesty. Deputy Moore says it is a negative way of doing it but it has been found to be the safest phraseology.
(Dublin Central): In relation to the ten persons mentioned in this section is there any criterion laid down as to what should be their qualifications? I agree that it should not be less than ten persons. It is important when establishing a building society that plays such an important role in handling the money of shareholders and depositors that some criterion be laid down with regard to their qualification in this field, at least some of them. I know that in a later section the Bill states that it requires a deposit of £10,000. In my opinion money should not be the sole criterion here—the £10,000 from each of the directors that would be necessary. In today's society people can come by that amount fairly easily. I should like to see at least some of those ten qualified in the field of handling finance. If an average ten people got together with no proper knowledge of the running of a building society, investment of the funds, or handling of mortgages, it would be a bad day for building societies. Expertise is needed in this field today; people who know their job are essential to the proper running of the societies.
We think it would be rather dangerous to lay down qualifications such as Deputy Fitzpatrick referred to.
(Dublin Central): I am saying one or two; I am not saying all of the ten.
We believe it would be dangerous to do so. The registrar will have the right to decide whether or not the person is qualified. For example, section 11 (3) says:
The Registrar, if he is satisfied that the rules comply with the relevant requirements of this Act, shall not refuse to register rules delivered to him...or that the name of the proposed society is undesirable or so resembles the name of another society or the name of a person carrying on in the State banking business within the meaning of the Act of 1971 as to be calculated to deceive, or that registration would not be in the interest of the orderly and proper regulation of building society business.
That gives the registrar fairly wide scope, much wider than if we stipulated certain things. We could be at it for a week and still miss out something that would cause a lot of trouble.
The absence of qualifications is a qualification in itself. If one had anything else one might be setting up something like a star chamber.
That is what I would be afraid of.
(Dublin Central): I merely mentioned it in passing.
Question put and agreed to.
SECTION 9.
Question proposed: "That section 9 stand part of the Bill."
In subsection (1) I recognise the reason for the use of the words "building society" or "cumann foirgníochta". Basically it is to ensure, when we refer to subsection (2), that societies which are not entitled to be building societies cannot use either description. I should like to know in what circumstances it is envisaged that the English or Irish version would be used.
If a building society had an office in the Gaeltacht I am sure they would use the Irish version there and it would be quite in order for them to do so.
I am very much in favour of it being inserted. In fact I would prefer to see "cumann foirgníochta" having precedence over "building society".
The trouble is that a lot of people might have difficulty finding where to put their money.
I do not think they would. It really means that building societies themselves will decide which form they will use.
Yes.
Question put and agreed to.
SECTION 10.
Question proposed: "That section 10 stand part of the Bill."
(Dublin Central): Paragraph (i) reads:
the manner in which loans are to be made and repaid, any deductions for premiums,...
Paragraph (h) reads:
the purposes to which the funds of the society are to be applied and the manner in which they are to be invested;
How will a society know in what fashion they will invest their funds? How can they tell the Minister for Local Government or the Minister for Finance when they must first consult with the Minister for Finance from time to time as to how their funds are to be invested?
This is dealing with the rules of the society. It would be dealt with before that would arise at all.
(Dublin Central): I read it that these rules have to be submitted to the Minister before they are accepted.
Yes, but if the rule said: "the society shall invest its money in hotels, farms" and so on, naturally that would not be acceptable.
(Dublin Central): In other sectors the Minister will lay down guidelines as to how and where the money is to be invested, in consultation with the Departments of Local Government and Finance. How can any building society tell the Minister exactly where they will invest their moneys when it is at the discretion of the Minister for Finance?
It is a re-enactment of section 1 (a) of the 1894 Act. It is similar to section 4 (1) (b) of the British Act of 1962. The rules must state the manner in which the funds of the society are to be raised. They raise their funds in different ways, by the issue of shares, of one or more denominations to be paid up in full or to be paid by periodic or other subscription. It is a continuance of what obtains already except that we are tightening it in such a way that, before a society are registered they know exactly what are the terms.
Deputy Fitzpatrick asked how they would know what they were going to do with the funds eventually. We must have in it a certain broadness which will allow this to be dealt with. We could not enact in this House in any way a Bill which would allow building societies to take in money supposed to be for building houses and it turned out that it was to be loaned to other people, perhaps members of the society, for the purpose of buying or investments for which the money was never intended. Deputy Fitzpatrick will find that there is nothing new in this. We are trying to ensure that the loopholes that were there are not being continued.
(Dublin Central): I agree that it is nothing new and I am sure it was in the procedure of building societies but up to now they had not to have the same consultation or the permission of the Minister for Finance and the Minister for Local Government. They drew up regulations. I know what the Minister is coming at but there is a different clause in this Bill because there will have to be consultations with the Minister for Finance and the Minister for Local Government in their regulations. They will have to know the Ministers' mind in this matter as regards investing finances.
There are returns made throughout the year. Outside and inside auditors go through the accounts. They go through the quarterly accounts all the time so constant consultation goes on between the societies and the various watchdog areas of the Government.
(Dublin Central): I do not doubt what Deputy Dockrell says but there is something in this Bill that was not in former legislation, that is, the consent of the Minister for Finance and the Minister for Local Government. They intervene at certain points in relation to where their money will be invested.
Deputy Fitzpatrick is probably aware that on the 23rd of May, 1973, the Minister for Local Government, in consultation with the Minister for Finance, had to make certain arrangements to save the building societies with regard to tax remissions, that unless they use the money as building society money and not for other reasons or further uses certain steps would have to be taken. We are now ensuring, before the society are registered they will know what is expected of them. It will be in their rules and it will be discussed before the society is registered.
(Dublin Central): I just wanted to get this clarified.
I appreciate that and I thank Deputy Fitzpatrick for bringing the point out.
Lines 26 to 39 of this section deal with the rights of members to requisition meetings, the formal notice for convening meetings and the manner in which notice will be sent. Is there a change in this Bill as distinct from the previous legislation? Does a mortgage holder have voting rights? Did he under the previous Bill? We want to get this on the record and have it clarified. What protections are there for mortgage holders? Is it just a subscriber, an investor, who has voting rights or has a mortgage holder voting rights?
A mortgage holder has not voting rights unless he is also a subscriber. Many mortgage holders are subscribers. It is as subscribers that they have voting rights not as mortgage holders. This is a normal case. If somebody borrows money from Deputy Burke or from me, it does not give that person the right to tell us how we should run our business in order to lend him more money. This is quite evident.
I just wanted to have this matter clarified. It is something which came up in the past and it is as well to have it on the record.
(Dublin Central): Are preferential shares only issued to founder members or can they be issued to other members afterwards?
They could be issued to others but it would be a matter for the society themselves to decide.
(Dublin Central): What grounds would establish the issuing of preferential shares to an average shareholder or depositor?
The provision has been made fairly wide. The authority for building societies is being made fairly wide. The idea is to encourage a widening of the type of investment and this is why it is included. The society will have the right to do it themselves. Perhaps it is a matter which will have to get further discussion at a later stage. Once the provision is there it is not a matter we would legislate for in the House, whether the provision is or is not there. We are saying that the provision is there and that it can be widened.
(Dublin Central): It is one which should not be abused.
The registrar will have the right to control it.
Is section 10 (1) (b) which says that the rules of every society shall specify the manner in which the funds of the society are to be raised really necessary?
Yes. The rules should be as full as possible. Therefore, that is included in this type of legislation. It is necessary to have this.
I presume the same thing applies to paragraph (f) "whether the society intends to borrow money and, if so, within what limits". It is obvious that a society must borrow money.
Of course. Many small investors invest money in those societies. If somebody comes along with £100,000 of hot money which he wants to invest, I do not think the rules should be such that he can dump the money in for a couple of weeks until the heat goes off and take it out again. This is a very necessary stipulation.
Does it mean that should the society decide to change part of the manner in which funds are raised they can do so by including it in the rules and referring it to the registrar?
That is exactly the point.
Subsection (1) (c) refers to the terms on which shares are to be issued and repaid. Is there any place in the Bill dealing with the terms on which loans are being paid?
That would be in the mortgage scheme. It would not be included in this.
Do I gather from the Minister's reply that it is the intention of the Minister and his Department some day to make rules within which a society should be bound or is it up to each society to make their own rules?
The societies will make the rules and will submit them to the registrar who will approve or disapprove of them. The whole point is that the rules will be made by the societies but they must be approved by the registrar. They must be sanctioned before they can be put into operation. The registrar can prescribe certain rules if he feels the rules are not adequate. He can say that this, this and this must also go in which I consider is right.
How will the existing building societies be affected by this? Will they have to submit a new set of rules to the registrar or will their existing rules, on which they are operating, be automatically accepted or is the whole thing going to be tightened or altered in some way?
They will submit their existing rules and any amendments they feel should be put in. In order to keep them all in line they will have to be submitted to the registrar. In the main, there will be very little difference in the new rules which will be prescribed by the registrar and the existing rules. They are not so bad considering they are so long in existence. However, this will have to be done and the authority to do it will be there.
Any alterations they feel ought to be made as a result of this Bill will be made, if necessary, by the societies concerned. That is laid down in the Bill.
That is correct.
Question put and agreed to.
SECTION 11.
Question proposed: "That section 11 stand part of the Bill."
I am letting the sections run along if there is no query from the Opposition. I have a brief on each of the sections which I could read out but, in my opinion, that would only waste the time of the House. If there is no objection to the procedure I am adopting. I will continue with it because it is, perhaps, the easiest way. If any point is raised, I will deal with it.
I suggest that if the Minister has anything in his brief he feels he should tell the House he should do so but it is not necessary that he should be concerned with every section. Subsection (4) of this section states:
Whenever the Registrar decides to refuse to register rules delivered to him under subsection (1), he shall, within six months of such delivery, notify the signatories of the rules of his decision and of his reasons for it,
Does the Minister not think that six months is a very long period? Even the courts would be quicker than that.
It will not be a question of the registrar receiving a set of rules, looking at them and saying: "Okay, they are not right". I am sure he will ask to see the people who have submitted the rules and there will be a lot of discussion in connection with them. We felt that a period of six months was not an unduly long term for such discussions. In fact, there was a suggestion that 12 months might be more suitable. It will not affect the operation of existing societies while the rules are being considered. This is a reasonable approach to the matter and to make it shorter than six months would not be in the interests of the societies or the proper drawing up of rules.
If a building society decides to register particular rules they must regard it as a matter of importance to them that these rules should be registered. The registrar has the right to refuse to accept the rules and in such cases they can bring the matter to the courts on appeal. It is my view that societies would be more than anxious to have discussions with the registrar to clear new rules as quickly as possible after they submit them.
The Deputy should remember that the existing societies were aware of this provision and raised no objection to it. With regard to new societies, if the rules are approved there is no trouble about the matter and they can be accepted within a short period. If a discussion is necessary, it can take place as soon as the registrar and the societies can arrange a meeting but in no case can it drag on longer than six months because within a period of six months the registrar must give a definite decision. I feel the Deputy is looking at it as if the registrar was going to sit down for six months and do nothing about it. That is not so. Six months is the longest period the registrar can hold up an application for the registration of rules. If the Deputy looks at it in that light, he will find that it is a far more reasonable thing.
I am sure the Minister will agree that where one defines a particular period it is often allowed to run to that. I agree that where the registrar is satisfied that the rules are in order he can sanction them quickly but where he is not satisfied and the society wishes to have the rules registered a problem can arise. I can fully appreciate agreement with the existing societies on this matter because they already have rules laid down and the vast majority of them have been accepted. If the Minister assures me that from the consultations he has had with the societies the period of time is not considered too long, I accept his word.
In my view there will be very few cases where this will drag on. In most cases the rules when submitted will be approved within a short time. However, it would be unfair to the societies if we insisted that the rules are approved within, for instance, two months. They may be forced to go to the courts on appeal then when a longer period of discussion with the registrar might clear the matter. It would be in the interests of the registrar also to ensure that the rules are confirmed as quickly as possible. It is in the interest of us all to ensure that he does not allow through a rule which would be against the interests of our people.
If the registrar did not approve the rules of a new society for the six months' period that society could not commence operation?
That is correct.
How can a society commence operations if the rules are not approved?
I did not say they could. They are not a building society until the rules are approved.
If the registrar holds up an application for six months the commencement of the operations of such a society is held up for that period.
That is so but that is the best method. Those who are anxious to start a building society do not make up their minds to do so today and commence operations tomorrow. Even if they submit rules with which the registrar does not agree it follows that they are still making the necessary arrangements to proceed as a building society. I imagine that one of the first things they will do is draw up a set of rules. When that is done they apply to the registrar and then go ahead with arrangements to set up a society. Unless there is something terribly wrong with their rules—in which case they should never have started—they will eventually get their rules cleared. "Eventually" in this case means not later than six months after the application is made. If it runs beyond that period, they have a right to go to court. It is preferable to have it this way rather than have a shorter period and have discussions breaking down resulting in expensive court actions over something which could be solved over discussions.
I suggest a compromise similar to that brought in by the Minister on the Bill dealing with planning, an amendment which gives an applicant the right to go to the planning authority and say that the application can be held for two months or four months while negotiations proceed. Could the Minister do that in the case of building societies, that the registrar can hold the application for three months and a further three months, by agreement?
Although I can see the merit in Deputy Burke's point, I would prefer not to do that. I can see arguments against it. We are talking about the extreme case here. The number of societies that will be registered will be very small. Of that number a small proportion may submit a rule or rules which are not acceptable. It would be a mistake in order to try to rush things if we did something which would work against the general body of societies. A society interested in going ahead will wait that period to have the rules approved. I would prefer to leave it as it is.
The only reason I mentioned the point is to endorse what Deputy Faulkner said. If you write six months or any period into a Bill, instead of becoming the maximum it becomes the normal. That is what I was afraid of.
We intend to make it clear to the registrar if it is necessary —and I do not think it should be necessary to do so—that this is only the extreme case where it will drag along. There can be reasons why it may take that time. He will have the right to sanction rules as soon as he is satisfied, whether that is within a week, or a day, or whatever it is. Section 10 lays down what they are expected to meet so it should not be so difficult.
Deputy Burke has brought out an excellent point. One does not want the registrar's office sitting on every application for at least six months and arriving at a decision in the last week. One would hope there would be consultations throughout the whole period and that, in most cases, it would be a great deal less than six months. The public must be protected by giving the registrar a longer period to enable him, if necessary, to go into the various financial and legal matters that will arise.
I agree fully.
Question put and agreed to.
SECTION 12.
Amendment No. 2 is in the name of Deputy Faulkner. I observe that amendments Nos. 3, 7, 10 and 11 are cognate. I suggest that we debate them together, with separate decisions if necessary.
I move amendment No. 2:
In page 9, subsection (6), line 24, after "society" to insert "within two months."
I notice that in the Bill the registrar is required to take various actions and that no time period is specified within which a decision must be taken. In contrast to that, there are a number of occasions where the societies are compelled to take action within a specified time limit. Our whole approach on this side of the House is towards giving more power to the registrar, but we still believe some checks and controls are necessary. In most Local Government Bills, on contentious matters local authorities are required to give their decisions within specified time limits. It seems reasonable, therefore, that the registrar should be similarly constrained. This would have the additional advantage of ensuring he has adequate staff to carry out his legal obligations.
By a special resolution, the building societies can alter their rules. If they decide to do so, we must assume the alteration is being made for the benefit of the society and their members. The registrar may decide to accept the change in the rules or to reject it, and an appeal may then be made to the courts. If the society believe the alteration is beneficial to their members, the longer the decision is held up the greater the disadvantage to the members concerned. As I said earlier, to ensure that a decision of this kind is not put on the long finger, we should leave it open to the registrar to delay a decision for a limited period of time, but we should specify the time within which he must make a decision.
I said on Second Reading of this Bill and on a number of other Bills that this is a matter which is in the interests of everybody in this House. The Bill is the property of the House and the House have the right to make amendments if they consider them necessary. As on previous Bills, I will welcome any reasonable amendment which will improve the Bill. If I think an amendment will not improve the Bill or is not necessary, I will say so. I can easily see the merit of what Deputy Faulkner is proposing in these amendments. I accept the principle that a time limit should be set within which the registrar should be required to give a decision. I visualise that the registrar will be very involved with the societies and the need for the time limit will not arise in practice. In most of the cases mentioned, I agree that two months is an acceptable limit, but I would suggest to Deputy Faulkner that in the case of section 19 regarding an application for permission to advertise for funds, a time limit of six months would be more appropriate. The registrar is statutorily bound to take into account a large number of factors under section 19 and a limit of two months might become impracticable.
As regards the amendment he proposes to section 30, amendment No. 11, this section derives from section 169 of the Companies Act, 1963. There is no time limit in the section in the Companies Act and the practice throughout this Bill has been to follow, rather than anticipate, company law. Furthermore, this is mainly a matter of internal communication and I do not think a time limit is really necessary. I propose, therefore, to accept in principle amendments Nos. 2, 3 and 10, and No. 7 amended to six months. As the precise wording needs to be looked at, with the permission of the House I will introduce an amendment on Report Stage. I thank Deputy Faulkner for bringing the matter to my notice.
(Dublin Central): The Minister is right to accept the spirit of Deputy Faulkner's proposal. I would not agree with the Minister's suggestion that we should follow what happened in the past only. We should be looking forward too.
Company law.
(Dublin Central): Company law has often been changed. Some time limit should be in the Bill. The Minister said he is accepting the principle of Deputy Faulkner's amendments and that he will bring in an amendment covering a period of six months. It is hardly necessary for the registrar to take six months to make his decision. Other sections in the Bill are more complicated. Six months is a bit long. Perhaps three months would be a compromise between Deputy Faulkner and the Minister. Deputy Faulkner is quite right in putting some time limit in this and other sections in the Bill. Otherwise a decision would be left to the discretion of the registrar and it could lie on his desk for 12 months or two years. This is an omission from the Bill which the Minister will rectify on Report Stage.
Six months is the lowest I can go. If the Deputy looks at section 19 (5) (a)——
(Dublin Central): I had not looked at that.
There are so many things the registrar must do that six months is a reasonable limit.
I should like to express my appreciation of the Minister's acceptance of my amendments. I recognised that there was a difference between the various sections when I submitted the amendments. I recognise that in the promotion of advertising it is, perhaps, a bit more difficult than it is in relation to some of the other amendments.
I will accept the Minister's proposal and I take it he will bring the amendments in on Report Stage.
I understand, therefore, that amendment No. 2 is agreed to.
No. I do not know whether technically it would have to be withdrawn on condition that it would be reintroduced. Would that be the proper procedure?
Yes, on condition that it would be reintroduced.
Yes. If the wording fits we shall leave it as it is.
Amendment, by leave, withdrawn.
Section agreed to.
SECTION 13.
Amendment No. 3 has been discussed and I take it is not being moved?
On condition that it is reintroduced on Report Stage.
Amendment No. 3 not moved.
Sections 13 to 15, inclusive, agreed to.
SECTION 16.
Question proposed: "That section 16 stand part of the Bill."
(Dublin Central): The Minister stated earlier that the purpose for which the building societies are established is primarily for the building of houses. Subsection (1) states:
A society shall, so far as is necessary for the purpose for which it was established, have power to hold land with the right of sale.
I did not think building societies could buy land as they are established at the moment, but evidently this subsection gives them this right. Does this mean they can go into commercial development?
No. They can buy land for the purpose of building an office. I can understand why the Deputy has this impression, but they cannot—and this is what was happening—go out and buy land for speculation purposes. This section, which is a re-enactment of existing provisions, allows a society to hold land or buildings for the purpose of conducting its business. The section has been drafted tightly and would not allow a society to become involved in land speculation or land development. A society may hold only such land and buildings as are necessary to enable it to conduct its business as a building society, that is, to raise funds and make loans to members. The purpose for which a society may be established is clearly defined in section 2 as being the raising of funds for making loans to members by the mortgage of freehold or leasehold estate.
There are a number of fields of commercial activity which are incidental to building society operations. These would include, for instance, bridging loans, fire insurance and life assurance. Arguments have also been put forward that societies' close involvement with the property market places them in a good position to become more directly involved in that market. Much consideration has been given to these questions but, on balance, it is felt that the interests of the building society movement as a whole and, in particular, the security and confidence enjoyed by investors, are best served by allowing societies to operate only within their traditional limits of accepting funds and making loans to members on the security of freehold or leasehold estate.
This power to hold land is, accordingly, being limited by subsection (1) to that purpose. Subsections (2) and (3) enable a society to acquire land for the purpose of erecting an office for the conduct of its business, but the section does not permit a society to hold land for development purposes.
While I accept the Minister's good faith in this, I believe the section is broad enough as it is worded here to allow flexibility as far as the society is concerned. Take office development, for example. What is to stop a society buying a site, deciding they are going to build an office; they get a better offer for their site six months later and then sell the site? I am not saying they would do it meaning any harm, but is this type of speculation stopped in section 16? It should be written into the rules of the society that that type of operation will not be allowed.
If Deputy Burke looks at section 76 he will see that is covered.
(Dublin Central): Why they could not bring the provisions together I do not know. As subsection (3) of this section reads the society may purchase, hold or lease land for the sole purpose of erecting on it a building for conducting a business, and the next subsection says the society “may sell, exchange or let”. Under that section I could erect a building, have part of it for my building society office and let a substantial amount of it as a hotel. I I know that under section 76 that is tied up.
Unfortunately we cannot write it all into one section. We have tried to avoid running a line from an early section to a later one. Also, it is very annoying to have to relate back to previous Acts. Luckily there were only two previous Acts dealing with building societies in the last century, so it is not so bad. Deputies can be assured that the point is well covered.
(Dublin Central): Section 16 does not refer us to any other provision in the Bill. It does not say “subject to—”.
It is not necessary to do that, because section 76 itself is quite clear. The Ceann Comhairle would probably prevent us from dealing with section 76 now; it is one of the contentious ones.
Any legislation passed here should be capable of being understood by the layman, the man who would be investing in the building societies. To avoid any misunderstanding, surely the Minister could write something into the section that would clarify it, even by referring it to section 76.
We have already discussed the reasons for which building societies were established. Section 16 (1) says:
A society shall, so far as is necessary for the purpose for which it was established, have power to hold land with the right of sale.
(Dublin Central): That is better.
That is as clear as crystal to anybody who has any interest in a building society, even the man going in to invest his "fiver". The reasons are set out why the building societies were established and the purposes for which they can hold land. That is clear enough without going to section 76, but 76 clinches it.
The Minister has stated clearly that, on the one hand, there is the fact that the building societies do not want and have not been given the right in any way to indulge in land or property speculation. At the same time, it would be unfair to place them in a position in which they were unable to buy a property for the purpose of carrying on the administration necessary to their business. Some of the societies are doing vast business and have vast administrative offices. It would be very unfair to leave them in the position that they dare not buy any property, because they were held up somehow on a right of sale, if such was necessary for their business. The Act recognises that there is a possibility that something might occur which gives them the right of sale.
(Dublin Central): What does subsection (4) mean to the Deputy?
They may sell or let any building or land mentioned in subsection (2) or (3) which is for the purpose of conducting their business. It may want to move to bigger premises so it may have to sell its property or part of its property. It is right to ensure that societies cannot indulge in land speculation and property speculation. Certainly they do not want to. They have enough speculation in a sense with each individual loan but, at the same time, the Bill recognises that they must not be placed in an unfair position in relation to all other forms of financial business. In other words, they must be able to sell their own property if it is in their interest to do so.
While nobody would disagree with what Deputy Dockrell says, many people would be worried about section (2). A building society could build an office block, use one room in the office block themselves and let the rest of the block at a profit. That is very good business, but that is not what they were established for. Building societies were established for house building and not for building office blocks. Office block building is a very lucrative business to be in and there is a temptation for building societies to build and let an office block and bring in plenty of money. While I know that this section cannot be omitted we should look at it further and ensure that building societies will recognise that their reason for existence is to make money available for house building. A building society could become very prosperous and move out of its original sphere of activities, and we would have big property developers making plenty of money and even ploughing money back into house loans but they would be missing out on their essential purpose which is to devote all their energies towards providing house loans. Deputy Dockrell made a very good case when he said that we cannot tie them down altogether. We do not want to but we should write in every possible precaution to impress on them that the Oireachtas adopted this legislation to make them better prepared to provide more house loans and we do not want to see them go overboard on office developments.
Possibly we are going a little wide of the mark. I refer Deputy Moore particularly back to section 2, the definition section, page 5, line 10 which says:
"society" means a building society established under this Act for the purpose of raising, in accordance with this Act, funds (by the subscriptions of the members, the acceptance of deposits and loans) for making loans to members on security by the mortgage of freehold or leasehold estate or interest;
At present by arrangement between the Minister for Local Government and the societies 90 per cent of the net inflow must be spent on mortgages for houses. The suggestion that we are putting something in here which will allow building societies to go out and start building office blocks all over the place and completely ignore the object for which they were set up is wrong. The Registrar of Building Societies will not allow that to happen because it would be an infringement of this section. What Deputy Dockrell said was that if a society require an office and they purchase a building in which such an office is, it would be perfectly in order for them to make a transaction which would result in the sale or disposal of the remainder of the offices. They could make money on that which could be re-invested provided they stayed within their 10 per cent. We are talking about building societies whose object is to build houses and we are labouring the point. We are making a lot of something which is not a serious matter. Even under existing legislation it has been possible to confine them to 10 per cent. Under the new legislation we resisted the temptation to widen the scope; they must stay within their own ambit. I think it would be a mistake if we attempted to tighten the Bill any further.
(Dublin Central): I would not like to inhibit the expansion of the building societies in any way. I take the point that Deputy Dockrell has made, that if a society expands it requires new offices. Naturally, building societies are in business to make money. When I read the section I thought that it was rather broad in its context in relation to the previous sections which the Minister had defined so closely.
I appreciate that but I am satisfied that we have it as tight as it would be reasonable to have it.
Question put and agreed to.
SECTION 17.
As amendments numbers 4 and 20 are related they may be taken together.
I move amendment No. 4.
In page 11, subsection (5), line 31, to delete "twenty-one" and substitute "eighteen".
Section 17, subsection (5) reads:
A person under the age of twenty-one years may be admitted as a member of any society the rules of which do not prohibit such admission and can give all necessary receipts, but while he is under that age he shall not be entitled to vote or to hold office.
I believe that this subsection as it stands is very much out of date. Many young people are marrying and becoming houseowners before the age of 21 and, more important still, they can vote in Dáil and local elections and they can become members of this House. Yet in this Bill they are given less than their full rights. I am aware of the argument put forward by the Minister when supporting this anomaly in the Seanad when the Minister said that the Department of Justice was preparing a law for changing the age of majority and that when such legislation was passed all reference in this legislation to 21 years would automatically change to 18 years. I can see no reason why we should wait for that day. This legislation is now before us and the Minister says it will last for a long time. If we are to consider it in the context of the length of time since the previous legislation on building societies was enacted, it certainly will last a long time. If this new legislation has to be amended in a few months when the legislation mentioned by the Minister is passed, then I can see no reason why we should not amend the legislation now and insert 18 instead of 21. The same arguments I put forward in relation to section 17 relate perhaps even more closely to section 53 (2). To suggest that the person who can vote for those who govern the country is not regarded as a fit and proper person to vote in elections on issues relating to building societies is ridiculous. Therefore, I commend the amendments to the Minister.
I wish to support everything said by Deputy Faulkner. It is ludicrous that a person of 18 who is entitled to vote for his representative in the Dáil is treated in this way in this legislation. Many young people between 18 years and 21 years are getting married and they are put into an awkward position in regard to mortgages. I should like the Minister to give serious thought to this and to accept the amendments.
I realise the Minister is anxious to wait for the overall change with regard to majority age which is being drafted in the Department of Justice but we have seen instances where other Bills have been delayed in that Department and in others. Various problems can arise that delay the drafting of Bills. We should not wait for the general Bill but should make the decision as we go along. Here is a classic example of problems being put in the way of young people by legislation. We had a referendum and the people expressed their wishes regarding the role of people of 18 years and we should not go against the general wish of the public. The Minister should accept the amendments.
Nobody in this House is more anxious to give rights to 18-year-olds than I am. I would point out that the first Bill I piloted through the House was the measure that gave 18-year-olds the right to vote. In this case it is not simply a question of putting this into the legislation and thus making it operative. If that were the case I would be prepared to say this was the right thing to do but I am advised that putting in that provision here would not make it operative.
Until the Law Reform Commission have completed their investigations and until the legislation is passed reducing the age of majority to 18 years, a person under 21 years is still a minor. As such he is not entitled to sign a contract and, if a contract is signed, he can repudiate it unless it can be proven that it would be in his own interest not to do so. In those circumstances I do not think anybody, never mind a building society, would be prepared to accept the signature of somebody under the age of majority.
I have every sympathy with Deputy Faulkner's amendments. I know he thinks of this matter in the same way as I do. A young person can carry a gun to defend the State but he is still a minor until he is 21 years. I could never see the merit in that but until legislation is passed it would be unfair and would be a bad joke on those people if we gave the impression that by writing that provision into this legislation we were giving them something when that was not the case. For that reason I am sorry I cannot accept the amendments and it would be better if the Deputy withdrew them. I will give an assurance to the House that I will do my best to have the age of majority reduced to 18 years. I believe it will come in a relatively short time and it must apply to everybody in all walks of life. When the age is reduced to 18 it will apply to existing law. Where the age of 21 years is entered it will be as if it were 18 years. In the circumstances I would ask the Deputy to withdraw the amendments. They will not do what he wishes and will cause complications.
Section 53 (2) provides that a person under the age of 21 years shall not be entitled to vote at a meeting. I accept that the Minister is as anxious as anybody to have the change made. I am trying to prove whether it is possible for us to make changes here before the Bill is introduced by the Minister for Justice because, as Deputy Burke pointed out, that may be held up for a considerable time. It is absolutely ridiculous that at a meeting of a building society where individuals are being elected to certain positions somebody cannot vote for the person of his choice simply because he is under 21 years but, at the same time, the young person can vote in national and local elections. Young people are being deprived of rights that all of us consider are their entitlement. I think the Minister has pointed out that a person under 21 years is still a minor in law.
A point was made by Deputy Burke regarding loans but neither of the amendments referred to loans. They refer to the right to vote at a meeting of a society and that is an entirely different matter. I am as anxious to give 18-year-olds the same rights as anybody else. If Deputy Faulkner will withdraw the amendments I will have a look at the position before Report Stage. If it does not infringe on the law of contracts I will introduce an amendment that will meet the point he is making. Many people of 18 years come to me and tell me that while they can get a loan they are not allowed to sign the relevant documents. That would still be the position even if we put the requested provision into the Bill.
I had not included that. When the change is made in law relating to the age of majority, will a person under 21 years but over 18 years be allowed to sign the documents?
Once the age of majority becomes 18 all those rights will accrue to that young person.
I accept that there are problems in this matter and I will leave it to the Minister to have a look at it. In a comparatively simple matter of electing officers in a building society it seems strange that a person under 21 is not permitted to voice his opinions by way of a vote when he can do so in a national election.
(Dublin Central): This problem arose with regard to the Finance Bill last year. When will the Law Reform Commission make some effort with regard to this matter? This question has arisen on numerous occasions in the last four years—it applies to many areas.
I could also say I have been listening to this for a very long time. Remember how long it took us to get the Constitution and the voting age changed. The thinking of those preparing this report is that it would be better to take a little longer because it is a very important issue. There are so many different facets. That is why it is being held up. I have yet to meet somebody, except, say, a crank, who will say that they do not believe that the age of majority should be 18 not 21. Therefore, Deputies can be assured that, as early as it can be done, the necessary legislation will be introduced.
I agree to withdraw the amendment on the basis that the Minister will have a look at it.
Amendment, by leave, withdrawn.
Question proposed: "That section 17 stand part of the Bill."
Is it wise to include subsection (2), which allows a building society to make a loan available to a person who is not a shareholder in the society?
Would the Deputy repeat that?
Is it wise to build into this legislation a provision under which a building society can, in law, make a loan available to a person who has not a share or an interest in a building society?
Deputy O'Leary will be the most unpopular man in the country if that is published in the newspapers. I am quite sure the Deputy does not mean it exactly as he has put it. I would ask him if he would consider rephrasing it. There are thousands of people who have got loans from building societies who could not have done so unless they were legally entitled to get such loans, who are not shareholders, who never had any money invested. I think I know what Deputy O'Leary is thinking of—as do all of us—that everybody should be encouraged to save some money and to invest it in societies.
That is my point.
But there are lots of people who have not found it possible to do that, who want to buy or build a house, who have applied to a society and, if there is adequate money available, have got such loans. It would be a tragedy if we did not continue that arrangement. I think Deputy O'Leary does not mean that but that is what it sounds like.
I would have no objection, say, to including this in the rules of a society, or allowing a building society to make loans available to people who have not shares in it. I think it unwise to build into legislation a provision under which people, even without a £5 share or £10 share in a building society, can get a loan while, at the same time, other people can get a loan by reason of the fact that they have a share in a building society.
A society, subject to its rules, may allow a person to whom a loan is being made to become a member without holding a share. This subsection specifies the liability of such a person. In the definitions section "society" is defined as a building society established for making loans to members. In order to comply with this definition a building society is enabled to make a loan to a noninvestor by allowing him to become a member without holding a share, obviating the need for advance shares, which was the practice in many societies and will not disturb the practice of issuing advance shares. The liability of a person to whom this subsection applies, in effect, will be that of the holder of an advance share, that is, the amount of the mortgage deed itself.
As I said to Deputy O'Leary, to stipulate that if somebody had not got money invested they were not entitled to borrow money would simply mean either that building societies would have to go back to a statutory arrangement under which the shares would be referred to as advance shares or, alternatively, applicants for loans would have to put in a nominal sum, go through the motions of becoming a member, and then proceed to draw money out. I do not think either would be desirable and would merely further complicate the matter. In view of what is happening, particularly this year in which an enormous number of people have drawn money without being members, it would be a pity if we interfered with that arrangement. If Deputy O'Leary takes another look at it he will realise it would be a pity to do so.
I raised a point with the Minister on section 10, line 26 onwards, in regard to the rights of members to requisition meetings and the form of meetings. I made the point to the Minister of the person who got a mortgage and asked was he then a member. Here he is automatically being made a member when he gets a loan. Is that not correct?
But not with a voting right.
Not with a voting right?
That is the difference.
Just for clarification, is it specified in an earlier section?
If the Deputy reverts to the definition of "society" he will find it there.
Would the Minister say why it is necessary to have subsection (2) in the Bill? Surely the Minister will agree that a person with a £100, £50 or £25 share in a building society should have a prior right to a loan rather than a person who has no share at all in a building society?
Of course, he has. Suppose on the first of any particular month a particular building society have £1 million they want to loan for the purpose of building houses and by the 28th of that month they have loaned only £500,000. Although they may have claims with them from people who are not members of the society for £2 million should they hold on to that and say: "No, although you want the money, we are holding this just in case somebody who has an investment in the society wants to borrow money." The point being missed is that an awful lot of people invest money in societies for the purpose of getting a loan and initially indicate that by saying: "We will be looking for a loan at a later date." However, an awful lot of people invest money in societies because it is an investment; it is a safe income on which tax will not be payable and which they are sure of getting.
To insert a stipulation saying that unless somebody had an investment with a society they were not entitled to borrow money would be the cause of an uproar, particularly as the societies themselves, if they find they have 100 applications on hand and 50 of them are from members, will give priority to those 50 members. That is an established practice and is as it should be. I am trying to go easy on Deputy O'Leary because I am sure he does not mean what he appears to be saying. It might give the impression that Deputy O'Leary is opposed to anybody except those with money invested in building societies being allowed to draw moneys from them. I do not think that is what he means but that is what he is saying.
Is this subsection necessary at all?
We believe it is.
Possibly the confusion that has arisen here relates to what Deputy Burke raised earlier. Deputy Burke asked if a person who got a loan automatically became a member and he was told that he did not; unless he had shares he did not automatically become a member.
I am sorry, Deputy, that is not what I said. I said he was a member without voting rights.
I accept that that is what the Minister said in his most recent statement.
I said that if somebody borrowed money from Deputy Ray Burke or myself we should not, or would not, give them the right to run our business, or have a say in the running of our business so that it would make money to lend them more but that those who would put money in the business would naturally have their voting rights. That was the very first point I made.
That is more satisfactory.
Reverting to the last time I spoke, the Minister referred me to the definition of the word "society". If the Minister looks at it he will see that "society" means:
A building society established under this Act for the purpose of raising in accordance with this Act, funds (by the subscriptions of the members, the acceptance of deposits and loans) for making loans to members on security by the mortgage of freehold or leasehold estate or interest.
It says "by making loans to members".
They automatically become members. I am sorry if I am not getting through. They become members when they borrow money but they do not become members with voting rights.
That clarifies the matter.
Subsection (6) (a) (i) states:
the person whose name first appears in the records of the society in relation to shares jointly held shall be the senior joint holder.
Is that necessary? If shares are jointly held by a man and his wife and if he is a chivalrous husband and lets his wife sign first she would become the senior joint holder. This could lead to trouble further on. It should be enough if they are on the register as joint holders.
It is only for the purpose of issuing the notice instead of sending out two notices. The person who is first on the list will receive it.
Suppose there was some difference between the husband and the wife afterwards, could either use the voting rights without the consent of the other person?
This can happen in a lot of things. The husband or wife could get the letter. We could not legislate for matters of difference like this.
No, but we could write in that the society must notify both of them.
Subsection (6) (a) (iii) states:
Where under this Act a member of a society may attend and vote at a meeting by virtue of being a holder of shares in the society, and such person is a joint holder of such shares, the person entitled to exercise the rights conferred by sections 52, 53 and 54 shall, notwithstanding anything in those sections, be the senior joint holder;
What Deputy Moore is attempting to put across—there may be a lot of merit in it but not in this Bill—is that there should be some way of differentiating that if the husband and wife have a dispute, even if it is only a temporary one, the husband or wife, whichever name is down first, should not be entitled to go along and vote for the other person. If we started to do that we could have a lot of fun but we would not solve the problem. I suggest that we leave it as it is. We are following the recognised regulation and I suggest that Deputy Moore agree with me.
I will not press it but could both not be notified of the general meeting?
The object is to save money for societies, shareholders and mortgagees because post costs a lot if notice has to be sent out to thousands and thousands of people. I feel strongly about the register of electors in this regard also. Politicians do something similar but it does not cost us as much money.
Does the Minister mean that a husband should have the two votes?
It might be a good idea if the wife had the two votes?
Question put and agreed to.
NEW SECTION.
The acceptance of amendment No. 5 involves the deletion of section 18 of the Bill.
I move amendment No. 5:
In page 12, before section 18, to insert the following new section:
"18. —(1) A society shall not raise any funds under section 22 after the commencement of this section unless—
(a) written evidence has been produced to the Registrar satisfying him that not less than ten of the appropriate persons (or where there are less than ten, all such persons) have each been issued with shares in the society to a value not less than such sum as may be prescribed by the Minister after consultation with the Minister for Finance, and that the total value of such shares is not less than such sum as may be prescribed by the Minister after such consultation,
(b) written evidence has been produced to the Registrar satisfying him that the appropriate persons have been paid to the society the prescribed sums in cash for those shares,
(c) written evidence has been produced to the Registrar satisfying him that the society has complied with section 20, and
(d) the Registrar has certified that the evidence referred to in paragraphs (a) to (c) has been produced.
(2) For the purposes of subsection (1) the appropriate persons are—
(a) in the case of a society which is incorporated on or after the 5th day of December, 1975, the persons who established the society, and
(b) in the case of any other society, the directors of the society.
(3) (a) The terms applicable to the shares to which subsection (1) (a) refers shall not, either at the time when the shares are issued or at any time before the expiration of five years from the date on which the Registrar's certificate referred to in subsection (1) (d) is issued, be in any respect more favourable than those applicable to any other shares issued by the society.
(b) Within the five-year period referred to in paragraph (a) a society shall not give effect to or recognise any transfer of shares referred to in subsection (1) (a) other than a transfer by operation of law.
(c) For the purposes of paragraph (a) "terms" shall include rate of interest, dividend or bonus, liability to contribute to losses, rights on a transfer of engagements or winding-up of the society or on the union of the society with another society.
(4) Within the five-year period referred to in subsection (3) a society shall not repay the sum (or any part thereof) subscribed for the shares referred to in subsection (1) (a) unless during the period the society is wound up under section 95 or a transfer of its engagements to another society has been registered by the Registrar under sections 26 or 27 or a person who has subscribed for those shares becomes disqualified under this Act or dies.
(5) Where a person referred to in subsection (4) becomes disqualified or dies, either—
(a) the remaining persons who subscribed for the shares referred to in subsection (1) (a) shall within the period of 30 days after the disqualification or death pay to the society sums in cash equal to the aggregate to the sum subscribed by the person becoming disqualified or dying, and shall be issued with shares in the society to the value so subscribed, or
(b) any other person not disqualified under this Act may subscribe in cash for, and be issued with, shares in the society to a value not less than the sum subscribed by the person disqualified or dying,
and the provisions of subsection (3) shall apply to shares issued under this subsection.
(6) The evidence referred to in subsection (1) shall be produced to the Registrar—
(a) in the case of a society which is incorporated on or after the commencement of this section, within three months from the date of incorporation;
(b) in the case of any other society, within three months from the commencement of this section;
(7) Where a society fails to produce to the Registrar within the appropriate period specified in subsection (6) the evidence referred to in subsection (1)—
(a) in the case of a society which is incorporated on or after the commencement of this section, the Registrar may cancel the registration of the society under section 94;
(b) in the case of any other society, the Registrar may take an application to the Court under section 95 for the winding-up of the society.
(8) If a society to which this section applies raises any funds in contravention of this section, or if at any time within the five-year period referred to in subsection (3) any provision in that subsection or in subsection (4) is not complied with, the Registrar may make an application to the Court under section 95 for the winding-up of the society.
(9) For the purposes of this section, the shares referred to in subsection (1) (a) shall be deemed not to be shares issued under section 22.
(10) This section shall not apply to—
(a) any society which was incorporated on or before the 5th day of December, 1973 and which, during the two-year period ended on the 5th day of December, 1975, raised funds and made loans to members on the security of freehold or leasehold estate,
(b) any society which was incorporated during the two-year period ended on the 5th day of December, 1975 and which, on that date, had assets of not less than £20,000."
Sections 18 and 20 deal with certain matters relating to the commencement and carrying on of business by a society. The situation which exists at present is that where any four persons wishing to establish a society submit rules for registration, the registrar has little or no option but to register the rules and incorporate the society. Once registration has been obtained, the society may immediately advertise and begin accepting funds from the public. Bearing in mind the scale of operations of societies at present, this situation is considered most unsatisfactory. The provisions of section 18 are designed to remedy the matter to some extent by prohibiting societies from accepting any funds until they have complied with certain requirements.
The purpose of the amendment before the House is simply to meet some inadequacies of detail which become apparent in the text of section 18 as it now stands. I will elaborate on these points of detail in a moment. In the main, however, the proposed amended version of the section does not differ from the existing text. The purpose still remains of prohibiting a society from accepting funds until it had met with certain requirements. These requirements are that:
(a) the founder-members must each have been issued with, and paid in cash for, shares in the society to a value not less than that specified by the Minister for Local Government, after consultation with the Minister for Finance, and
(b) the society must have deposited funds with the Central Bank in accordance with section 20.
Certain restrictions are placed on the founder-members' shares—for example, the terms applying to them cannot be more favourable than those applying to other shares in the society and they cannot be repaid or transferred within five years. This is to ensure that persons establishing a society shall have and maintain a minimum interest in the society from the start and will, therefore, see to its proper management. The purpose of the deposit at the Central Bank is to provide a measure of protection for investors' funds.
Societies which do not comply with the requirements of the section may have their registration cancelled, or may be wound up. It transpires, however, that a situation could arise with the section, as it stands, where the founders of an existing society, which may have been established for some years, could now be required to contribute substantial amounts if it is to be allowed to continue in operation. I am not satisfied that this would be either equitable or feasible as, in certain cases, some or all of the founders might have ceased to be associated with the society or might even have died. Accordingly I am now proposing that, in the case of an existing society coming within the terms of the section, the shares should be subscribed by the directors, rather than by the founders.
It is provided in subsection (2) (a) of the Bill that the terms applicable to the founders' shares shall not be more favourable than those applicable to "any other shares of that class" in the society. It could be argued that the founder shares could themselves constitute a "class of shares" and, in that case, subsection (2) (a) would not be effective. I am therefore proposing that the terms shall not be more favourable than those applying to "any other shares" issued by the society and the meaning of "terms" is being spelled out in detail.
It is not proposed that societies which are actively carrying on business, that is, accepting shares and deposits and making loans, should come within the ambit of the section. I am satisfied even that societies fairly recently established and which proceeded to build up a fund for the making of loans should also be excluded.
There are, however, a number of registered societies which have never carried on any business but which were established in an attempt to circumvent the provisions of the Bill and, presumably, to confer some advantage on the founders. It is proposed that the provisions of the section should apply in full to these societies. Similarly, there are a number of very old societies which have long ceased to function but which could be taken over and reactivated by persons seeking to circumvent the provisions of the Bill. It is proposed that the provisions of the section should apply in full to these societies also.
The proposed amendment to the section has, accordingly, been drafted so as to apply the section to three categories of societies. These are:
(i) all new societies established after the Bill was published,
(ii) societies established more than two years before the Bill was published but which in the two years prior to publication did not make any loans to members, that is, old dormant societies, and
(iii) societies established during the two years prior to publication but which at the date of publication did not have total assets of more than £20,000.
I consider that the section, as amended, would be more watertight and more really enforceable than the original section and so I commend amendment No. 5 to the House for its approval.
I also commend amendment No. 8 to the House. This amendment is consequential on amendment No. 5 and serves only to maintain consistency between the terms used in sections 18 and 20.
The Chair should have mentioned that amendment No. 8 is consequential on amendment No. 5 and both may be discussed together.
We accept the amendment. The explanation given by the Minister in relation to section 18 would be very much the same if he had not made the change except, as he pointed out, to make the section more watertight. The Minister's statement, in the main, referred to the situation as it was in the original section.
Amendment agreed to.
The acceptance of that amendment means that a new section is inserted and section 18 deleted.
(Dublin Central): Do I take it that the Chair is telling the House that we have passed that section?
The old section 18 is deleted and this new section inserted. The amendment which we have disposed of relates to the insertion of a new section.
Can we discuss the new section?
The old section is deleted completely and a new one inserted.
(Dublin Central): I thought that when we adopted the amendment I could then speak on the section.
The acceptance of the amendment meant the deletion of the old section and the insertion of this new one.
(Dublin Central): I wanted to raise a number of questions on the new section.
If the Deputy has some comments which he feels might be helpful to me I have no objection to his making them.
(Dublin Central): With regard to the provision in relation to the death or disqualification of one of the founder members or directors and of the fact that the subscription be made by the other members within 30 days, is there an obligation placed on the remaining members to take up these shares within 30 days?
Yes, they must.
(Dublin Central): That is what I thought. In the event of a death or disqualification of a member I can visualise a situation arising where it would not be financially possible for the surviving shareholders to take up the funds which the person who died or was disqualified could not hold. In that event what will the situation be with that society? Is there any provision whereby this can be overcome?
Paragraph (b) answers that question.
(Dublin Central): Assuming that a member cannot be found to subscribe in cash for, and be issued with, shares in the society to a value not less than the sum subscribed by the person becoming disqualified or dying, what is the position?
Does the Deputy feel that because somebody dies or is disqualified there should be a lacuna— a word over used by a former Minister —that there should be a term during which nothing would happen, like Mohammed's coffin that is shared between heaven and earth? Surely it is in the interests of everybody that the remaining members take up these shares. If they are not able to do that, they will find a reputable person who will fill in and take up the shares. I am sure there will be no difficulty about doing that. If there is, I assume the registrar will have to decide what is to be done. If the money cannot be found I can only assume that that society was in a bad way. Steps would have to be taken to deal with that society if that could not be done. The alternative to what is in the Bill is that the society is on its way out.
(Dublin Central): I do not accept the view that it will be possible too often to get people to rush in with £10,000 to be deposited in the Central Bank at 1 per cent over lending rate. It may be difficult to get an outsider to take up the shares. In the event of the remaining members not being able to take up the shares would the Minister or the registrar force that society out of business?
If the Deputy wishes to put down an amendment for Report Stage he is entitled to do so. As far as I am concerned what is proposed in the new section is a sensible arrangement. We either allow the people who may claim to have a proprietary right as they are the remaining members to take up the shares or if they cannot do it a reputable person prepared to do it is found. Building societies would come to a sorry state if we reached a stage where nobody was prepared to do this. Deputy Fitzpatrick's fears are groundless.
(Dublin Central): They are not. Some discretion should be left to the registrar with regard to the remaining members, even if they are not able to come up with the money.
If I accepted Deputy Fitzpatrick's point I would be leaving a wide open trail for somebody to dash through in order to spoil the whole thing.
(Dublin Central): I do not mean that but the registrar should be given a discretion in a unique situation where a company through its own members was not able to find the capital. I do not wish to see this abused.
Subsection (7) (a) and (b) states:
(a) in the case of a society which is incorporated on or after the commencement of this section, the Registrar may cancel the registration of the society under section 94;
(b) in the case of any other society, the Registrar may make an application to the court under section 95 for the winding up of the society.
There is a discretion there; the word "may" is used in both cases. I would hate to see it being used because a society that would find itself in that position would not be one that would encourage a lot of investment.
(Dublin Central): I was referring to a genuine society that may find itself in that position.
I do not think we can legislate for the failure of people to produce the necessary money or the necessary numbers we are demanding in the Bill. Deputy Fitzpatrick's ideas confuse me. In my view he is trying to bring about a situation which would contravene the terms of the Bill. The Registrar cannot do anything contrary to what is in the Bill if the people cannot find the money. If they cannot find the money they cannot run a society and that is all that is about it.
(Dublin Central): I am not trying to do anything to undermine the structures of building societies and I am fully aware of the meaning of the section. I am trying to visualise a situation which may arise of genuine founder members of a society who could find themselves faced with this. I should like the Registrar to have strict regulation over this. I am not trying to undermine the structure or weaken it in any way. It struck me that the section could cause complications at some future date for some genuine group who started a building society and lived up to their promises and carried out their functions. They could find themselves in this kind of situation.
It is safeguarded by the Registrar who has discretion in the matter.
SECTION 19.
I move amendment No. 6:
In page 14, to delete lines 20 to 25 and to substitute the following paragraph—
"(b) the society has complied with the requirements of section 18, if that section applies to it, and with the requirements of section 20;".
Section 19 generally prohibits certain societies from advertising for funds until they have complied with the requirements of the section. The purpose of the amendment is to correct a looseness in the drafting. The intention is to ensure that, if a society are required to issue founder member shares under section 18, the society must comply with the requirements of that section before they can obtain permission to advertise for funds under section 19. It is a drafting amendment.
Amendment agreed to.
Amendment No. 7 not moved.
Question proposed: "That section 19, as amended, stand part of the Bill."
I should like to welcome any section that will control in some way wasteful advertising by the building societies. By the very nature of their business the building societies must advertise to get funds, but I should like to see some control as to the relationship between the amount of money spent on advertising and the total assets of the societies. A guideline should be set down by the Minister. I do not see any such guidelines in this section setting down a particular figure which a building society cannot exceed in an advertising campaign in one year. If there is such control I should like the Minister to clarify it. We have seen over the past few years a ludicrous amount of advertising, particularly by two or three of the bigger societies. Night after night we have seen this advertising on television. Undoubtedly, it brings in a certain amount of money, but I feel that the same amount of money could be raised with much less wasteful advertising.
This is not the section which deals with the control of advertising. It deals with who may advertise for a certain purpose. Deputy Burke's point can be discussed on section 76, which is the regulation section. However, I should like to deal with the two interesting points which Deputy Burke has raised since they might appear in print and people might get the wrong impression. First of all, if all societies stopped adver tising completely, it would mean a drop in the mortgage rate of one-third of 1 per cent. Secondly, the three building societies to which Deputy Burke referred who have carried on a large amount of advertising are, in fact, the societies whose business has increased very substantially, while those who did not advertise at all or who spent less on advertising have grown very slowly. Since all the building societies offer almost the same conditions it has been suggested that they should combine in some way, but, of course, business people often sell the same goods at the same price and they do not offer to combine. They have their own ways of seeking customers. We can discuss this matter further on section 76.
The Minister mentioned one-third of 1 per cent as if it were a small amount of money. This is, in fact, quite a substantial sum.
It would be a retrograde step if we were to prevent building societies from advertising over a certain limit. The flow of funds could drop and fewer people would be able to get loans. The cure would be worse than the disease. We must be very careful on this point.
Deputy Burke does not realise two things. Firstly, if the Minister attempted to limit advertising quantitatively he would inevitably substantiate the position of the larger societies. There would be no free competition. Smaller societies would inevitably be condemned to remain in an inferior position. If that had been done some years ago, many people who are now living in houses and paying off their mortgages would be walking about the streets or the country roads or living with their inlaws. The money would not have come in to make it possible for the societies to lend as much as they have done.
I should like to ask the Minister a question. Section 19 (2) provides:
A society which on the 5th day of December, 1975, had total assets of less than £1,000,000 shall not advertise...
Is the reference here to gross assets or net assets?
Gross assets.
I do not necessarily agree with the points made by Deputy Dockrell but I will wait until we come to section 76 to deal with those points.
(Dublin Central): Do I take it that it is not necessary to have assets of £1 million in order to advertise? In section 19 (2) it states that a society must have assets of £1 million in order to advertise. Does that apply to the smaller companies or companies which are starting business?
Societies which have less than £1 million must get permission to register.
(Dublin Central): This I am sure will be forthcoming. It is very difficult for a small company starting off to attract funds and I am sure this will be left to the discretion of the registrar.
In most cases it will be a matter of form, but it will be purely at the discretion of the registrar. I would not like to make rules for the registrar. He would probably resent it.
If the assets had increased considerably since 5th December, 1975, surely he would take that into consideration?
I am sure he would. I should hate to do the registrar's job and I am sure he would hate to do mine.
(Dublin Central): Section 19 (5) (d) provides:
the society complies with such conditions in relation to liquidity, reserves and other matters of a financial nature as may be prescribed by the Minister for Finance under Part IV;
Have the building societies ever considered the setting up of a rescue fund such as applies in the stock exchange? The various companies in the tourist industry also pool a certain amount of money into a reserve fund.
Two societies which went to the wall during the past couple of years were rescued by the association. I give them credit for being very fair in dealing with these matters and I am sure they will continue to be so.
(Dublin Central): There is no obligation on them?
There is no obligation. They acted without obligation to preserve the good name of the societies. It is good business practice.
Section 19 (7) provides for an appeal to be made to the court against the decision of the registrar. Does this refer to the District Court or to the High Court?
The High Court.
Should this not be spelled out in the Bill?
It would be great fun having it appealed to the Circuit Court and from the Circuit Court to the High Court. This is a very serious matter and it would have to start at the High Court.
Should it not be written into the Bill?
It is in the definition section.
Question put and agreed to.
SECTION 20.
I move amendment No. 8:
In page 15, to delete lines 43 to 56 and substitute the following subsection:
"(10) (a) In the case of a society to which section 18 applies, the initial calculation of the amount of the deposit for the purposes of this section shall be made by the Central Bank as soon as may be after the commencement of this section or as soon as may be after notification by the Registrar of incorporation under section 11, whichever is the later.
(b) In the case of any other society this section shall not apply during the period of three months beginning at the commencement of this section.".
Amendment agreed to.
Question proposed: "That section 20, as amended, stand part of the Bill."
I would like to tell the House I am considering the introduction of a small technical amendment on Report Stage. It is to deal with the Central Bank, subsection (6). It will not affect the Bill but the wording is not what it should be, and I will introduce it on Report Stage.
(Dublin Central): As regards the deposits with the Central Bank, I presume once this Bill passes, the larger building societies, as we know them, will have to find £500,000 to deposit with the Central Bank and the other, smaller societies will have to find in the region of £20,000. Has the Minister any fear in his mind that the transfer of this capital from the building societies to the Central Bank will slow down the rate of loans which could be made available to house purchasers?
I do not think it will affect that. Present trends appear to show it will have no effect.
(Dublin Central): My information is that the flow of money into the building societies has been slowing down.
It will be part of the liquid reserves.
(Dublin Central): The liquid reserves they are holding at the moment?
It will be part of the liquid reserves.
(Dublin Central): I presume the liquid reserves they hold at the moment are in short-term investments carrying a very high interest rate, in the form of gilt edge or something like that. When they transfer them to the Central Bank they will certainly not qualify for the same interest rate.
This is a technical matter but I understand this must be done. I think Deputy Fitzpatrick will agree something like this is necessary.
(Dublin Central): I agree something like this is necessary, but I said on Second Reading that if some type of securities were lodged, of which they hold a considerable amount for their offices and so on, that would be just as useful for the Central Bank. Although I see the reason for this, I would not like to see the building societies deprived of £500,000, particularly if they are short of cash for housing loans.
At the present time they are running towards £100 million loans this year, which is a great deal of money, so I do not think there is any question of a shortage. I think the Deputy will find it will work out all right.
(Dublin Central): Money is very expensive and I would not like to see too much of it lying in the Central Bank, where maybe the Minister for Finance could put his hands on it. We know how he uses it.
Is that the objection the Deputy has to——
(Dublin Central): It is one of my objections.
It touches me when I find the faith the Opposition have that they will never be back in office again.
That is what we are planning for.
(Dublin Central): Would the transfer of some securities be just as good?
We should consider that.
Question put and agreed to.
Section 21 agreed to.
SECTION 22.
I move amendment No. 9.
In page 17, between lines 54 and 55 to insert a new subsection as follows:
"(8) A deposit or loan to a society, which is permitted under section 19 of this Act to advertise for funds, shall be acceptable as a trustee security for the purposes of section 1 of the Trustee (Authorised Investments) Act, 1958."
Section 1 of the Trustee (Authorised Investments) Act, 1958, specified those investments which are trustee securities. Section 2 authorised the Minister for Finance to vary, by addition or deletion, that list. The trustee status can only be conferred on investment bodies which attain certain qualifications. These qualifications were not specified by the Minister when he spoke in the Seanad debate, but he did not imply that the bulk of building societies would not qualify. He said:
A number of the provisions in this Bill will remove the last obstacle in so far as a number of societies are concerned.
While this may be so, it is still up to the Minister for Finance and the Department of Finance to take action and they could be very slow in doing so, because, for example, this action might slow down the flow of funds into national loans. The amendment we propose would make it automatic that any society which was permitted by the registrar to advertise for funds would have trustee status. It would also make the decision to permit advertising a more crucial one and one that would not be taken without considerable thought. I think we would be in agreement that when a building society is permitted to advertise this will only be done after very careful scrutiny by the registrar and that a building society in such circumstances would be a fit society to be included among those who have the qualifications to be entitled to have trustee money invested with them. As I said, while I recognise that it relates mainly to the Trustee Act, nevertheless, being admitted would result in a very considerable flow of funds into the building society and it would help to stabilise this flow of funds. We have knowledge through past experience of the fact that money flows into the building societies at varying rates. Sometimes the building societies are short of money and cannot fulfil their obligations as happened in 1974; then there was a considerable inflow of money, but in more recent times that has again slowed up and since the bank strike a considerable amount of money which was invested in the building societies has gone back to the banks, in fact, more than the inflow. This resulted in some building societies refusing to grant mortgages, or granting them under stricter regulations, in October, 1976. Membership would create a more stable situation. I strongly urge the Minister to agree to its inclusion in this Bill.
The question of trustee status was raised on Second Stage. I indicated then that the granting of trustee status to building society deposits was a matter for the Minister for Finance under the Trustee Acts, 1893 to 1958. As the Minister responsible for housing, I should like trustee status to be given to certain building society deposits as it would open up a new range of investment funds for building societies.
Deputy Faulkner's amendment seeks to confer trustee status on deposits with any building society. This would be an easy way for me to boost the inflow of funds to building societies, but I must resist the temptation to do so. In the first instance the granting of trustee status is a matter for the Minister for Finance. A society would have to satisfy more rigid financial criteria than those set out in section 19, which deals only with permission to advertise. When an Act such as the Trustee (Authorised Investments) Act, 1958, exists, which deals fully with the matter, it would be absurd to begin the proliferation of references to trustee status in a variety of enactments. The provision in the Bill will remove obstacles which have been in the way to granting this status to building societies.
To accept Deputy Faulkner's amendment would amount to bad legislation and I recommend that it be withdrawn. I am anxious to see trustee status granted. I am sure that within a relatively short time of the enactment of this Bill most of the societies will obtain trustee status. It is important that it does not become the right of any society to get it and for that reason I would ask Deputy Faulkner to withdraw his amendment.
The Minister said that my amendment would appear to grant the right to any building society to obtain trustee status. That is not so. My amendment specifically states that only building societies authorised to advertise for funds should achieve this status. Any building society which has to go through the stringent examination which would be necessary before it was permitted to advertise would be a suitable subject for trustee status. The Bill provides that the Minister may consult with his colleague, the Minister for Finance. When we get to the Committee Stage the Minister for Finance will know what is likely to arise under this Bill and he could agree with the Minister for Local Government that trustee status should be granted to the type of society I have referred to. The Minister will agree that, having gone through the process which will be necessary to ensure that a society has the right to advertise, there can be no doubt that such a society will be a suitable subject for trustee status. Apart from an increased flow of funds, it would stabilise the situation and we would not have a continuation of the stopgo situation to which we have become accustomed.
The Deputy is oversimplifying the matter. Trustee status will be granted quickly after the passing of the Bill. The Minister for Finance and I are in agreement on this matter. Deputy Faulkner's amendment reads:
A deposit or loan to a society, which is permitted under section 19 of this Act to advertise for funds, shall be acceptable as a trustee security for the purposes of section 1 of the Trustee (Authorised Investments) Act, 1958.
In other words, Deputy Faulkner says that every building society is entitled to trustee status.
Every society that is entitled to advertise.
If they cannot advertise they are not an active building society. Deputy Faulkner is saying that as soon as a building society is allowed to operate it is entitled to full trustee status. I could not accept an amendment which would give that authority. Some people have found ways to circumvent the existing legislation. If trustee status had been granted a serious situation could have arisen.
We share the Minister's hope that the passing of this legislation will strengthen the structure of the building societies. If the amendment is not accepted it could be said that it will not give trustee status to building societies. While we want to see money flowing into the housing fund, it may well be that other Government Departments might not.
The registrar would not be able to interfere if, under section 19, they were allowed to advertise. They would be entitled to trustee status under Deputy Faulkner's amendment.
If we can raise the standards of building societies we hope that some day they will all be worthy of trustee status. We must therefore speed the day when this is possible. Deputy Faulkner's amendment would strengthen the Bill, give status to building societies and attract a large amount of money for house building. Our main concern is to ensure that building societies are strong enough to help in the housing drive. The more money we can attract, the more we will have for housing.
The Minister makes the point that he would like to extend trustee status and hopes that building society standards will be so high that every society will be worthy of trustee status. If they get the right to advertise for funds under section 19—and there are strict controls on advertising for funds under the section—surely the small investor is entitled to the same controls. If they are not given trustee status they should not be allowed to advertise to attract the small investor's funds. If they are so weak as building societies, why should we give them the right to advertise for any funds?
Deputy Burke is assuming that the small investor goes to the small society. That is not so. Most of them invest in the larger societies because they have more confidence in them. The small society may be prepared to meet more quickly the criteria required than the larger society. The main point is that they must reach a certain standard. They are allowed to advertise and nothing will bring them to that standard more quickly than the fact that other building societies have been given trustee status. Therefore, within a short time everybody must have trustee status to survive. The right to advertise guarantees the right to trustee status.
(Dublin Central): We all appreciate that giving trustee status would be a wonderful advantage as regards the inflow of capital to any organisation but we must always consider that trustee status must carry far more guarantees than any other type of financial institution. We on this side of the House are convinced that if we want to boost inflow of capital to a building society the granting of trustee status at some time with proper regulations laid down is desirable. This is very much a matter for the Minister for Finance and I am very glad to hear that the Minister for Finance and the Minister for Local Government are on the same wavelength in relation to the granting of trustee status. I wonder if that view is shared by all the top financial experts in the Department of Finance.
The Minister runs his Department as I run mine.
(Dublin Central): The Minister might mention publicly in the House that his heart is in the right place, but we know perfectly well that there are other impediments besides the regulations laid down here, although it is of vital importance that trustee status in building societies is protected. A lot of funds are invested in trustee status that the Government have available to them. I can see an outflow of this capital into the building societies. I am not sure that the Minister for Local Government and the Minister for Finance are on the same wavelength. It is a good public thing to say: “Of course we will give trustee status when the proper standards and regulations are established.” I know that the Minister for Finance will say that if a question is put down. The standards that the Minister for Finance will set down will be fairly restrictive, in my opinion. Many building societies will not be in a position to qualify, although the leading building societies are all on a par with each other. A case can be made for the granting of trustee status to building societies. I believe that the Minister for Finance may not be too keen to push trustee status and make it available to the building societies. Certain funds which are available to the Minister at present could be used in the building societies to far better effect for the country if we get it.
Perhaps Deputy Fitzpatrick might comment whether or not he thinks that simply complying with section 19 should qualify every building society for trustee status?
(Dublin Central): I am quite convinced that the structures and the limits that are granted to trustee status must be watertight.
Therefore the Deputy will agree with me that section 19 is not the way to do it?
(Dublin Central): I believe that the building societies must get trustee status if they are to have the inflow of capital.
Trustee status will come but there is a recognised procedure in relation to conferring trustee status. Everybody here is aware of it and many, I am sure, will have checked up on it. I am satisfied that there is no way to deal with the matter except through the recognised criteria. It cannot be changed, as has been suggested, because somebody feels that this would be a way of preventing it from being given. Section 19 does not require permission to advertise even for all the existing societies. The amendment does not do what Deputy Faulkner suggested it would. We have made a great deal of progress this morning on the Bill and I would ask Deputy Faulkner to withdraw the amendment.
I accept that the Minister for Local Government is as anxious as I am to have trustee status granted. I am equally as sure of what Deputy Fitzpatrick has said: that the Minister for Finance may not be as anxious to have it granted. It is vitally important that trustee status should be granted to the building societies, and I feel that in relation to these societies which under this Bill will be permitted to advertise the necessary structures will be built in. In these circumstances we should have trustee status incorporated in the Bill, but if the Minister can assure me that he will do his utmost to have trustee status conferred by the Minister for Finance as quickly as possible after this Bill is passed, I will withdraw the amendment.
I have no hesitation in giving that assurance. There is no difference of opinion between the Minister for Finance and myself on this issue. There has been a tremendous increase in the inflow of funds to building societies, and it is quite true that this year they hope to lend £100 million as against £43 million two years ago. The granting of trustee status will bring in a lot of funds which can only be invested with trustee status.
The Minister would agree that while the inflow has been very good recently it can take a down-turn as it did in 1974 and we have to have the situation consolidated.
It was lucky that we had a good Government that were prepared to take steps to remedy the situation in 1974.
(Interruptions.)
The Minister is well aware that the reason that the money went into the building societies was that people who had money which they would normally invest in industry put it into a safe deposit.
The money that came into the building societies has always been that of the small investors, because it is the only way they can avail of income tax reliefs. Anybody who has a big amount of money will invest it elsewhere where it will earn very much more.
Could the Minister say when approximately trustee status will be granted to the building societies?
In a relatively short time, as soon as the Bill has passed through the House. The sooner we get this Bill through the House the quicker we will have trustee status granted.
(Interruptions.)
Order. Is the amendment withdrawn?
Yes.
Amendment, by leave, withdrawn.
Progress reported; Committee to sit again.