Dáil Éireann díospóireacht -
Tuesday, 10 Dec 1985

Vol. 362 No. 9

Companies (Amendment) Bill, 1985: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Mr. M. Ahern

The effectiveness of this Bill will depend on how it is enforced. Over the last 20 years or so the Companies Registration Office have been unable to deal with the annual returns that have been sent in. The annual returns not being sent in are far greater than those that are being sent in. The reason for this is that there is a grave staff shortage in the Companies Registration Office. For this Bill to be implemented effectively that shortage will have to be remedied. The Companies Registration Office is being computerised at the moment and this will help in keeping records up to date and in enabling people to find relevant information quickly. However, computers do not work by themselves and the required staff must be employed in the office.

The Bill lists new formats for the presentation of accounts. So that the Bill will get off on the right footing the operative date should not be as soon as June 1986 but it should be in January 1987. This will allow accountancy firms and accountants to re-educate their staff, to change software where necessary and will generally allow for effective compliance with the Bill. If the operative date for the Bill is too soon the conditions will not be established to allow smaller firms to comply with the Bill. It is important to give a year so that the accountants and their staffs can be educated and so that they can get the message across to their clients so that they will submit their books and records in time for them to be dealt with effectively.

This will have far-reaching effects for medium and small firms and will not greatly benefit the economy. This Bill has been introduced so as to comply with Directive No. 4; we are being forced to introduce this legislation. This shows that not only do the people involved not consider it necessary but that the Government do not consider it necessary for the majority of companies that operate here.

I will have some detailed questions on Committee Stage and I will pursue them at that stage.

Mrs. Owen

I welcome the Minister's opening remarks where he said that he was very anxious to upgrade our domestic Companies Acts. This is very essential. The Minister has been dedicated in trying to correct many of the anomalies and difficulties that exist in this area at the moment. It is interesting to note that the fourth report of the Joint Committee on Secondary Legislation, report No. 19 of 3 September 1985, at chapter 4, spells out that the joint committee have been informed that this country has not at present any general domestic legislative framework establishing employees' rights to information and consultation on decisions affecting them. That is an indictment in that perhaps there are areas of our company law which do not protect employees or people dealing with companies. However, that report does highlight the fact that some legislation has moved towards improving the situation for employees. I refer to the EC Safeguarding of Employees' Rights on Transfer of Undertakings Regulations, 1980 and the Protection of Employment Act, 1977, both of which implemented the terms of two previous EC directives.

It has been necessary to introduce this Bill because we are a member of the EC. At times we may like to ignore or reject certain rules attached to that membership but we did enter the Community with our eyes open, a large percentage of our people agreeing to do so. Therefore we must take our membership seriously and recognise that there will be times when some directives or instructions to member countries will not always be welcomed by us with open arms.

As the Minister said, in the whole area of company law, we are only too well aware of the unsatisfactory position obtaining here in which a company can be operating one day, close its doors the next, leaving many debts, unprotected creditors, and people who may have paid deposits absolutely without redress. The most devastating aspect is that, in many cases, the very next day, not three days later — as Deputy Prendergast said on the last occasion on which we debated this Bill — the same people will have opened their doors under a different name, trading, with the big car still outside and the fine house still available to them. Yet the unfortunate customer who may have spent his life savings on a deposit is left without any redress whatsoever. I hope the Minister will deal with that most unsatisfactory situation.

The introduction of this Bill has been occasioned by the fourth directive, issued in July 1978 and which should have been passed into law in member states by the first half of 1982. It is no reflection on us that we are introducing this Bill only now. It would be unfair not to recognise that part of the delay in doing so was the fact that we had three general elections in very quick succession, with changes of Ministers and the difficulties that entailed in getting back into the nitty gritty, complex work involved in the drafting of this Bill and implementing the terms of this fourth directive.

However, I suppose there is validity in the criticism of some unions that it has taken so long to introduce this Bill. I accept the Minister's statement in his opening remarks that the servicing of meetings on EC directives and the implementation of directives demand considerable resources. He also said that the complexity of the company law area renders it important that we examine whatever changes we make thoroughly. It should be remembered that EC directives can be implemented in a number of ways. It is the task of the Minister to implement legislation with the least damaging effect on our companies while still fulfilling the underlying principle of the directive.

I hope the introduction of this Bill will rid us of the obligation to face European Court proceedings which I gather are listed for end January 1986. I trust the fact that we have shown ourselves willing to introduce this legislation will prevent us being subjected to the indignity of being taken before the European Court.

The Bill is an extremely complex one. I could not help realising that more fully while listening to Deputy Prendergast on Thursday week when he condemned its provisions for being too lenient and not covering banks. I think the Minister did interject at that point to say that that was not a fair comment. Perhaps that comment showed that Deputy Prendergast had been bogged down by the complexity of the Bill. I hope that was the reason rather than his seeking a cheap headline, perhaps something to the effect: Deputy condemns Bill because banks get off scot free — the sort of headline we are used to seeing — when people are not perhaps fully informed about the complexities of the matter under consideration. It is my understanding that the banks will still be covered by the 1963 Act and by certain sections of this Bill. I have no doubt the Minister will clarify that matter in his closing remarks lest there be any misunderstanding amongst the public that we are letting the banks off scot free from disclosing their true financial position.

The Minister is to be commended for his efforts and those of his Department to implement the terms of the directive in such a way as to ameliorate as far as possible their effect on small and medium sized companies. The vast majority of companies operating here would fall into the category of "small". I also welcome the fact that the Minister has used this Bill as a vehicle to introduce two new classifications of companies, small and medium, without diminishing the overriding principle of the directive, which is that a true and fair view of a company's operations be given. He has managed to introduce a Bill whose provisions will be least damaging to small and medium sized companies.

I hope that companies which will be affected by these provisions will have commenced already to get their houses in order. The implementation of these provisions will involve the hiring of additional staff, or the training of existing staff, whose job it will be to assess how they will affect the running of their company. There will also be involved the revision of accountancy practices and, in more recent times, the changing of accounting soft ware. It may also be the opinion of management that there should be some corporate restructuring so that their companies may benefit from the various reliefs available.

All of this work should have been commenced already because companies cannot claim that they were unaware that this legislation was pending, though I suspect many will have hoped that the will to introduce this Bill was diminishing. As I have said, we cannot ignore those parts of EC law or directives we do not like. Therefore, there was an inevitability about the introduction of this Bill and I know that many companies are already preparing for the implementation of its provisions.

The provisions of the Bill create two new categories, small and medium sized private companies. The Bill spells out clearly how you qualify to be one of this type of company. The categories are defined in the terms of their balance sheets totals, their annual turnover and their average number of employees in a year, and, provided they qualify in two out of three of those rules, they can call themselves a small or medium company depending on their annual turnover and balance sheet total.

Since the publication of this legislation companies will have assessed into which category they fall. The small companies will be obliged only to publish a balance sheet with certain notes attached. This should not be a hardship to small companies because already they are obliged to prepare and distribute to their shareholders as a minimum the abridged balance sheet with notes relating to items about them and directors' and auditors' reports. The small companies must publish, subject to the EC parent guarantee concession, an abridged balance sheet which must give a true and fair view with a few notes, a statement by directors that they have relied on and are entitled to exemptions, a report from the auditors confirming that the company is entitled to the relief availed of and that the accounts are properly prepared, and auditors' report on accounts presented to shareholders. Already shareholders get a great deal of information from their companies, so the extra burden that this legislation is bringing in is not too great and should not cause any companies to close their doors.

The reliefs to the medium companies are not as generous as to the small companies, but the Bill limits the kind of information that the medium companies have to disclose. I heard one Deputy who contributed on this debate talk about disappointment that EC subsidiaries did not have to publish the accounts of the companies here in Ireland. That Deputy failed to go on to say that very strict regulations are attached to that exemption of EC subsidiaries and where they wish to publish the accounts of their parent company the Minister will decide to grant this concession only after he is satisfied that the following conditions are or will be fulfilled: that all shareholders consent to the concession for the financial year, that the parent declares to every shareholder that it guarantees the debts, that the subsidiary's accounts are consolidated in the parent's group accounts and the subsidiary's concession is noted therein, that the subsidiary's annual return notes the concession for that year and that the group accounts of the parent are drawn up in conformity with the Fourth Directive. Therefore, it is not just a blanket clearance for EC subsidiaries in this country, that they can hide behind the parent company.

The rules as to kind of account the parent company must distribute and disclose are very strict. Therefore, the fears expressed by some that this was a back door for hiding here companies that have EC parents are unfounded. I welcome the rules that the Minister is implementing here. Obviously, employees of EC subsidiaries here would prefer to have the local company's accounts published, but with the restrictions here they will still be able to assess the health of the company, and the fact that their debts will be guaranteed should be a protection to them. The Bill also provides that dormant companies will have to publish accounts. Of course, they will automatically fulfil two of the three rules for small or medium companies and will be obliged to publish accounts with certain notes attached.

Regarding the formats that the Minister has laid down in the Bill, a great deal of fear has been expressed especially by some of the people in companies that would be affected by this legislation. They feared that a change in their accounting practices would involve them in enormous expense, a great deal of retraining and complex understanding. However, the Minister has chosen in this legislation to be as flexible as possible by giving a choice of two balance sheet formats and four profit and loss account formats. This flexibility will benefit many companies who are preparing accounts and they will be able to continue and maintain their present accounting practices and the format layouts they are using already. Deputy Ahern last week raised an area covered under section 2 and I would like to raise it also. It is the exemption for religious and charitable organisations.

Mr. M. Ahern

I would go only for the charitable.

Mrs. Owen

I beg the Deputy's pardon. I guess he was fearful of the nuns and priests in his constituency——

Mr. M. Ahern

There are no religious organisations there.

Mrs. Owen

——many of whom I know. It covers religious and charitable organisations. The Minister indicated that there are good reasons why we should not put very severe restrictions on charitable and religious organisations and oblige them to prepare accounts that are extremely complex. However, I would like to hear the Minister comment and indicate how he will determine the list of companies so exempted under section 2. Will there be a list that I or any other member of the public can see in the Companies Registration Office and find out from it who is exempt from having to publish accounts? In other words, where does a charity begin and end? The majority of our charities and our religious bodies are reputable, but concern has been expressed from time to time about the workings of some of them. The public who donate so generously to these bodies are entitled to know how these bodies use their hard earned tax money to the benefit of the group or organisation for which the money is raised. Many charities already publish clear documentation of where their money goes each year which they circulate to all their donors. This is a source of comfort to people who continue to donate to them because at least they know that the money is being used properly. However, the Minister should keep a very close watch on this exemption that he has built into this Bill in section 2. The time has come for some firmer legislation generally dealing with the whole area of charities both in our tax laws and in the setting up of the charities. It seems there in no control here. Anybody seems to be able do decide that he is a charity, to get flags or tickets printed and is away off to raise money for some worthy cause or other without much control on him and without answerability to anybody as to what percentage of that income goes on administration, paying collectors etc. We must be careful here.

As one totally untrained in economics I welcome sections 13 and 15. The Minister rightly in his speech pointed out that many people who want to get a sort of pen picture or bird's eye view of a company pick up the glossy presentation from the company that has the chairman's report on the front of it and in which he can read lovely, glowing accounts of the company, the marvelous profits they made, the new openings they had in the year and so on. That is as much as most of us can understand about many of these published accounts. Section 13 has the effect of supplementing the requirements of section 158 of the principal Act by requiring that the report of the directors of a company contain additional information concerning the company's and subsidiary's affairs and in particular a review of past and future developments, important events since the balance sheet date, and activities in research and development. The directors' report and the annual accounts must be consistent with each other; in other words, the written glossy work must correspond with the hard figures listed in the accounts which most of us find difficult to wade through. Those directors' reports must be confirmed and signed. Such a procedure is welcome, particularly for those who cannot put a trained eye, like the Minister and others, on the reports.

The provisions of two EC directives have been implemented already and the Bill before us will give more protection to employees by making more information available in relation to companies. There are those who contend that the provisions do not go far enough and that the Minister has chosen to take out the desirable elements of the directive. Some hold that less information will be available to employees following the passing of the Bill. How much information will be given in the accounts of large companies about the amount that may be due in PRSI, PAYE and pensions? I accept that that is covered in the Schedule but I would like to be able to say to employees that as soon as the legislation is passed they will know if the company they are working for is in default in regard to such payments. Employees putting their backs to the grindstone for the betterment of a company are entitled to know if the tax and levies being deducted each week are being sent to the Revenue Commissioners and not being used as a soft temporary loan to keep a company going. If a company that has not made a return collapses employees will be left without protection if the Revenue Commissioners seek their share first. As a result the employees would lose pension rights.

In November the Taoiseach announced in the House that it was hoped, in consultation with the NESC, to introduce into the workplace committees consisting of management and employees to act as a watchdog in regard to the payment of PAYE and PRSI. That commitment, and the provisions in the Bill, should convince employees that their rights are being protected. In my view the provisions will prove an advantage to companies in that they will be obliged to have a stricter discipline on their undertakings. They will now be aware that if they run into cash flow problems they cannot hold on to their PAYE, PRSI or VAT payments and coast along for a few months to keep the sheriff away from the door. They will have to be able to stand over their accounts. I welcome the fact that the Legislature is, somewhat tardily, accepting its responsibility in regard to implementing the Fourth Directive.

Mr. Taylor

As has been pointed out, the Bill is before the House pursuant to a directive of the European Community made quite a number of years ago. There has been no great enthusiasm on the part of successive Governments who were so anxious for us to join and participate in the EC to carry out Community directives. It has been quite the reverse. It appears that the Minister has been dragged, protesting all the way, into implementing provisions which should have been brought in five years ago.

The Fianna Fáil spokesman, Deputy Flynn, complained about the Bill and suggested that its provisions would be an imposition on large private limited companies that operate here. He remarked at how terrible it was for the EC to visit such an atrocity upon us. He, and his party, were more than anxious to bring us into the EC, but when we are in there appears to be a reluctance to bring in measures required by that institution. Some modest — it is very modest — protection may be given to workers in companies and members of the public by this measure. It appears that there has been a change of heart about the EC by Deputy Flynn and his party. Deputy Haughey, in a recent contribution, did some sabre rattling about our association with the EC. I say to him that it is a little late in the day to be thinking along those lines. We acted to become members of the Community and we have to live with that. But, if we are in, we ought to carry out requirements in EC directives without bringing the country to the embarrassing position of being hauled before the European Court of Justice for being in default of requirements we were so anxious to take upon ourselves in our early years of membership.

Listening to the protest by Deputy Flynn one would think that the Bill represented a major intrusion into the activities of the business community. That is far from the truth. In fact, the Bill opts for the minimum requirements on disclosure suggested by the EC. It would have been better and more appropriate if the Minister had gone for a wider disclosure provision on companies. The maximum possible disclosure should be made by companies. The definition of "small" is, perhaps, a misnomer. It sounds to me that they are fairly substantial companies in the Irish context and most of them will be excluded under the minimal requirements in the Bill.

Under the Bill the vast majority of the 75,000 Irish companies, and the subsidiaries of EC based companies, are excluded from the main provisions. In most European countries there is a full disclosure requirement of the profits, losses, assets and liabilities of companies. In my view only very small companies, employing no more than a handful of workers, ought to be excluded from the disclosure provisions. Workers have a right to know what is going on. Many of the companies concerned were set up and operate through public funds.

For example, there are more than 2,600 small companies, so called, grant-aided and one-third of the total new jobs in manufacturing industry provided in 1984 were in small firms. Eighteen million pounds of public money has been channelled into small industries in 1984 by the IDA alone. The public have a right to know what is going on there, having regard to the fact that it is public money that has set up so many of these.

The question of confidentiality and secrecy of operation referred to by the Fianna Fáil spokesman is entirely inappropriate in this issue. Any member of the public, let alone workers, should be entitled to go to the Companies Office and see to what use or misuse, as the case may be, the public funds have been put. Likewise, workers must have an interest in the affairs of the company, even if public funds have not been involved. The record of very many of these companies, I am sorry to say, has been unhappy. There have been and continue to be very serious abuses. As Deputies we come across many cases in our personal experience from time to time when, for example, pension fund contributions have been deducted by arrangement from the workers' wages and that money has not been passed to the trustees of the pension fund, but retained as part of the capital of the company. I would not go so far as to say that it is a common practice, but one comes across it far more often than one should.

There are cases where by arrangement with some companies union contributions that the workers make are deducted from their wages and are supposed to be paid over to the unions concerned. Again in many cases those funds are retained. What happens when one of these companies go into receivership or liquidation? The receiver or liquidator puts his hands on the funds deducted from the workers' wages and in very many cases there is a very substantial and real loss, of great consequence for the workers involved. They find themselves deprived of the pension rights and union rights to which they are entitled.

The nature of the protection to be provided by this Bill is minimalist in the extreme, which I find disappointing. I find it disappointing that it is this Companies Bill which is now before the House rather than the Bill, for which we have been waiting with some impatience for quite a long time, which deals with the much more relevant and important question of making directors personally liable in certain circumstances. Legislation is overdue with regard to an EC directive on that matter also and will we have to be brought before the Court of the European Commission before that is brought in? That is the reform of company law that I and many of us here would have wished brought before the House in preference to the present one which, quite frankly, will not provide a great deal of protection for very many, either workers or members of the public.

Members of the public do need protection from the operation of many of these companies. People dealing with companies, ordinary members of the public, all too often do not realise the hazards of what they are doing. A very favourite method of setting up a business is that an individual, who may well have had a number of defunct companies to his record before, sets up a trading company perhaps, puts whatever capital he wishes into it and immediately takes out a debenture to secure himself from the day on which the company is incorporated. He has first call on anything because of that debenture. The ordinary members of the public coming to deal with that company do not know that. They will pay deposits to have work done, goods supplied, a house built — all the myriad of things across the commercial and financial spectrum — not knowing that if anything goes amiss with that company such deposits will be very much at risk. The man who set up the company will have first call on whatever assets are there, through his debenture.

Members of the public could find out, one must concede, whether a company have a debenture or not. One can find out where the Companies Office is located in Dublin Castle, go into the intricacies of it, wait an hour or two for the file to come up and, if one has the expertise to examine it, one could find out if there is a debenture. That is undeniably true, but that is not for real so far as the members of the public are concerned. They have no protection by the fact that the debenture would be recorded in the Companies Office. If the Minister has the wish to provide some protection for these people, some consideration should be given as to how the status of a company from the debenture point of view could be brought to the attention of the public other than by having it recorded in the Companies Office files and other than by requiring a very small number of Irish public companies to register their accounts, as this Bill does. It might be appropriate to insist that all documentation, invoices, advertising material and so on, put out by the company should be required to note on letterheads and notepaper if the company have a debenture.

Perhaps there should be a short note warning of the dangers that might well apply to persons paying deposits, in particular, to such a company. These deposits on occasion might be relatively small amounts to purchase a consumer item of no great cost, but it could be a very considerable amount — for example, a substantial deposit on a house, which could run to a couple of thousand pounds or more. There are very few builders around who will undertake this business in their own name alone. An examination would show that they use limited companies for that purpose. Likewise an examination whould show that they have taken out a debenture in their own favour in case anything goes wrong. I am not even talking here about those directors who might be milking the company or withdrawing funds on a fraudulent basis. That is a factor. But leaving that aspect aside, it is interesting that when one goes to buy a new house and pay a deposit on it, one is not allowed to pay a deposit to a solicitor to be held as stakeholder so that one could get it back in the event of anything going wrong in the meantime. In these cases it is insisted that the deposit money be paid over direct into the hands of the builder; and when one looks at the record in recent times of problems in the building industry, with building firms going into receivership and liquidation, that interim period is a terifying prospect until you get your house title, and a serious situation is faced by many.

At the very least, consideration should be given to the possibility of requiring that kind of information about a dealing company that take deposits, in particular that there is a debenture in existence and a risk involved there. Some care would have to be taken to make sure that such a law, if brought in, would be enforced. Most of the company regulations applying at present are not being enforced, even the requirements regarding registered offices, names of directors and so on, except in respect of a minor number of companies. The Companies Registration Office do not have the resources to check up these matters because they are as affected by the cutbacks in the public service as all the other branches of Government. The Companies Registration Office do not ensure that the company returns giving the names of directors are up to date. Presumably this is because of lack of staff and facilities. There is little point in bringing in new regulations unless arrangements can be made to operate them. Adequate back up staff must be provided.

We would have an additional advantage if rather more detail was required in the accounts of these companies and if the net was widened very considerably. I do not know why the Minister went for the lowest common denominator in setting the parameters of what would be required. I am not happy about that decision. Does he share the views of Deputy Flynn about preserving secrecy and confidentiality, even where workers and public funds are concerned? I would think that it would serve the public much better if these things were open to view, clearly available for all to see.

As far as subsidiaries of foreign firms are concerned, I am sure the arrangements will suit them very well because we suspect most strongly that they are happily engaged in repatriating substantial quantities of the profits they make in this country, taking advantage of the tax laws and so on. It appears to be the position that they do this legally, but that should be known. It should be open to us to see exactly what they are about. If they are repatriating their profits in that way, cognisance should be taken of that fact and due attention should be given to companies of that description when they next come to the IDA with applications for more public funds.

I am unhappy about the degree of protection being given here. The unfortunate members of the public dealing with companies will not be helped to any worthwhile extent by this Bill. People will continue to lose out, in many cases losing hard earned savings.

I am very unhappy about the position regarding the activities of a receiver or liquidator put in by a debenture holder. When that happens it is as though a kind of iron curtain comes down around the company. It is an excuse to cut off any information about the company. It is impossible to get an answer to any question. The blanket response is that one can ask nothing and find out nothing because the liquidator or the receiver is in. That is not good enough. There should be a procedure devised under which receivers and liquidators would be obligated on a regular basis, perhaps every three months, to make available information as to exactly what they are at in the company, exactly what they have received and exactly what they are doing with it. The same should apply in the case of a receiver. An unfortunate person may be trying to find out if he will get back his £2,000 deposit or whatever, but he may be left waiting for years. Many of these receiverships go on for years.

Mr. J. Bruton

That is a major part of the second Bill.

Mr. Taylor

And when will we have that Bill?

Mr. J. Bruton

I will be dealing with that in the reply to the debate.

Mr. Taylor

I hope we will have it very soon. These delays and the lack of information from receivers which the public are having to tolerate——

Mr. J. Bruton

I have spent an enormous amount of time personally on that Bill. It is an extremely complicated measure containing 150 or more sections.

Mr. Taylor

That may be, but there are many precedents to work on in other countries. We have been waiting for some years for this Bill.

Mr. J. Bruton

Something like 1,000 amendments were tabled to an equivalent Bill in Britain.

Mr. Taylor

We have not yet seen the Bill. We have been told about it for some years. The Minister's predecessor had it for a considerable time and indicated that the Bill was at a very advanced stage when he left office. I do not want to get into any wrangle about this.

Mr. J. Bruton

Excuse my intervention.

Mr. Taylor

I am relieved to hear that the Bill will shortly put in an appearance. I look forward to seeing it. I hope the Minister in his reply will be able to give some hard information as to when the Bill will be printed and circulated to Members. It will be a great relief to members of the public who have experienced such frustration in trying to find out what is going on inside those companies which have been subjected to the depredations of so many rogue directors and company promoters.

I am disappointed that the Bill does not expand the requirements of the directive, but without being too grudging about it we have to welcome it as some small step forward. Perhaps at a later stage the EC will issue another directive insisting on a wider base being provided. It is regrettable that we have to wait for the EC to put these reforms forward. I do not know why we cannot put forward reforms on our own initiative without prompting from the Commission. That appears to apply to a fair amount of our legislation, which would not be on the Statute Book but for promptings from the EC. I have to note that fact with regret.

Mr. Yates

I welcome this Bill. This whole area of company legislation has long been in need of reform, but this reform is based on the EC fourth directive and it does not deal with the basic problems in company law.

I propose to deal first with some aspects of the 1963 Act which I consider to be wholly inadequate and unfair, particularly as they pertain to small business and unsecured creditors in the event of insolvency. Most small companies are privately owned and operated and are limited liability companies under the terms of the Companies Act, 1963. In theory the benefits of forming a limited liability company allows someone to set up a corporate body, which gives limited financial protection instead of being totally liable. However, the practice of limited liability is being circumvented by the banks and other financial institutions because they are insisting on personal guarantees from owners of small firms and their shareholders. Therefore, limited liability de facto, only hold for trade and other creditors who tend to be other smaller companies and, as a result, a small company tends to suffer from a lack of equity and a high level of bank borrowing. Ultimately, all the risks are borne by the company and their shareholders and the rewards favour the financial institutions.

When the Minister is preparing the very detailed Bill which he outlined he should address the question of personal guarantees, because this is a facility used by powerful financial institutions to circumvent the whole concept of limited liability and ensures that the people who bear the brunt of the worst effects of limited liability are other small firms. Therefore, there is a domino effect: if one company closes many more will have heinous cash problems.

Mr. J. Bruton

What does the Deputy suggest? Although I sympathise, what practical changes can I make, given that these guarantees are given voluntarily?

Mr. Yates

This could be tackled in either of two ways. Where the enterpreneur is financially committed to the project, if he sets up a business costing £40,000 and has already put in £20,000 of his own cash, borrowing a further £20,000 from the bank and where the injection of personal equity is such to show that he is not a fly by night but deeply committed for sums up to £20,000 there should be an insistence that the banks would not request personal guarantees in those instances.

Mr. J. Bruton

It could be done through company law?

Mr. Yates

That is one way of dealing with it, through the tax code of section 84 loans. The other way is to look at the way in which banks are becoming secured creditors and circumventing the concept of limited liability. Of course, the Minister may say that it is freely given, but the reality is that you do not get the money otherwise. It is Hobson's choice.

Mr. J. Bruton

Some would say that, if the bank insist on a personal guarantee, you should not be borrowing the money in the first place.

Mr. Yates

The banks require an arm and a leg and will only lend what you have in security anyway.

Mr. Connolly

They want your body and soul also.

Mr. Yates

The second area where I should like to see an attempt to deal with the inadequacy of the existing Companies Act is that of insolvency. Delinquent directors have been abusing the concept of limited liability, and this should be tackled. In such liquidations small companies bear the brunt of being unsecured creditors. This deliberate abuse must be dealt with. There must be a comprehensive review of the Companies Act in this regard. It should specifically deal with the problem of delinquent directors who salvage the assets of one company and then start trading in another. That is a flagrant abuse whereby it pays people who owe a large amount of tax to wind up their company and shift their assets so that the cupboard is bare when the receiver comes. At present they can set up a new company with total immunity. There should not be a witchhunt in regard to all entrepreneurs in dealing with this problem, but directors should be responsible and debarred from managing companies for a period of five years after that. They should certainly be debarred from managing a company until the receivership or liquidation of the company they previously owned has been would up. In some companies, particularly in the building industry, people can salvage the assets and move them to a new company registered under the Companies Act. Before the liquidator has sold the previous company they are taking orders from the old company so that there is no prospect of retaining employment. The Minister should deal with that point specifically——

Mr. J. Bruton

Does the Deputy mean delinquent or insolvent?

Mr. Yates

Delinquent. I have a very positive attitude towards risk taking and the problems in that regard. There are cases where there is deliberate abuse of the existing——

Mr. J. Bruton

How does one prove delinquency?

Mr. Yates

The Minister has recourse to greater expertise than I have. The concept of an administrator should be made available to small companies who are creditors of any other company. Larger companies can have inordinate purchasing power over smaller companies. However, if a large company is insolvent or nearing insolvency there is nothing that a smaller company can do under the present insolvency law to ensure reorganisation. In my own constituency a contractor did a huge amount of work for the Ross Company who were his sole client. He saw the writing on the wall but could not collect his money before the receiver was called in because he was dependent on the company for his future. He had to choose between continued trading with the company by giving them credit or being put out of business by not getting any orders. Unsecured small firms should have some kind of recourse in terms of obtaining meagre pence in the £ and they should have access to a court order in that regard.

The position of unsecured creditors generally also must be dealt with in any proposed company law changes because the present law is unfair in its distribution between creditors of different classes. In liquidations unsecured creditors are usually left with nothing after preferential creditors — often the taxman followed by holders of floating charges — have been looked after. I realise this is a thorny and contentious area but I urge the Minister to look at the question of restricting the rights of preferential creditors over and above those of unsecured creditors and setting aside part of the proceeds of a liquidation for unsecured creditors. I am not saying that preferential creditors should be written off. But when the receiver is selling all the assets, machinery, plant, premises and so on, he first pays the secured creditors, then the preferential creditors and there is nothing left. Surely it would be fair to say that a minimum of 10 per cent should be put aside for unsecured creditors in certain circumstances?

I should like to see some proposal on these lines rather than have the total inequality that exists at the moment. The needs of a small electrical contractor and those of the bank are totally different and what a bank and what a small business can afford to write off as a bad debt are very different. The small unsecured creditors are left at the end of a long queue and they get nothing. Recently I was talking to a prominent receiver and he told me that gone are the days when unsecured creditors got 5p in the £. Now they get nothing at all in most cases. There should be greater equality between creditors and this should be done at the expense of preferential creditors. A specific percentage should be set aside to allow something to unsecured creditors. Fair play demands this. If a policy were evolved dealing with matters such as personal guarantee, delinquent directors, the concept of an administrator and allowing fair play between preferential and unsecured creditors, this would show small businesses that we recognise that the entrepreneurial spirit is something that must be fostered in Ireland and that it involves taking risks, but not unacceptable risks. If there is inequality, as is the case now, people will not put their money on the line and set up small businesses.

I should like those points to be dealt with in the forthcoming Bill mentioned by the Minister. I will turn now to the Bill at hand.

An Leas-Cheann Comhairle

The Deputy appears to be anticipating the debate on the other measure.

Mr. Yates

It is all dealing with company law.

Mr. J. Bruton

Perhaps it is better to say these things now.

Mr. Yates

Deputies have received data from the CII and from the ICTU in relation to this matter. As is the case in many instances, there is a polarisation of opinion when what is needed is the combined forces of workers, employers, shareholders and the State. Co-operation between those sections is necessary if we are to hold on to the jobs now existing.

There has been a problem in commercial life here in respect of the failure and hesitation of employers to disclose anything about their affairs. I give a guarded welcome to the Bill but I ask that on Committee Stage there be a detailed examination of the measure to allay certain fears I hold. If we are talking solely about information to shareholders and to employees, I have little objection. However under the terms of this Bill information will have to be lodged in the Companies Registration Office and I am afraid that as a result of this there could be cases of industrial espionage. There may be certain strategic market information in respect of turnover, product development and investment that may fall into the hands of international competitors and this could be to the detriment of Irish companies. I do not believe that is the intent of the Fourth Directive. This matter must be clarified on Committee Stage. There should be a more specific definition of information disclosure and I suggest it should relate more to profitability and less to turnover. If a competitor is in a position to obtain information in relation to turnover he will be able to draw certain deductions from that.

In this as in other Bills I have grave reservations that it may be possible to proceed further with this measure by way of ministerial order. This surreptitious, almost Trojan horse type of legislation could mean that a future Minister could take a completely new interpretation of the measure and change its content by way of ministerial order. In such an event there could be disclosure of information that would be totally inappropriate to Irish circumstances and conditions.

Mr. J. Bruton

There are similar provisions in the 1963 Act. They have not been abused in the past 23 years.

Mr. Skelly

Nevertheless, it is a bad feature.

Mr. Yates

I would have no fears in respect of the Minister, but who knows what the future holds. It could happen that the person who introduced the Bill would find to his horror that the subsequent use of ministerial orders had an effect totally contrary to the intention of the Bill.

I do not wish to be critical of our public and our civil servants, who have served the country well. However, there is an almost permanent power of interference in public life by civil servants. To have such provisions on the Statute Book could lead to problems. The rate of return on investments in Irish commercial life it is not good: we are talking about a 1 per cent rate of return for indigenous industries. They are faced with many problems in trying to keep in business. They have to cope with the bank and the taxman and they do not want unnecessary interference also.

I should like the Minister to comment on the general exemption given to small firms under this Bill. Nowadays there is the attitude both here and in the EC that small is beautiful. All of us are in favour of small industry but when it comes to sorting out the needs of small firms I hope that when we refer to exemptions for small firms we are talking about the IDA definition, a firm employing from one to 50 persons. The AnCo definition is one to 80 persons employed. The EC definition of a small to medium firm is one employing one to 500 people. I hope the Minister will spell out clearly the definition of a small firm.

Mr. J. Bruton

There are three criteria in the Bill, two of which must be fulfilled.

Mr. Yates

Would the IDA definition of one to 50 be exempt?

Mr. J. Bruton

That is one of the three criteria, two of which must be met.

An Ceann Comhairle

It would be much better not to proceed by way of question and answer.

Mr. Yates

As always, we will follow your guidance in these matters. There is a need to apply the rigours of this legislation to multinationals. In the Bill we must draw a line between indigenous Irish companies and foreign companies. I am not against EC subsidiary companies setting up here: they are more than welcome and we appreciate their investment and the employment they give. However, we have seen through the evolution of the black hole and decisions made by remote control, companies pulling out of Ireland overnight. The difference in loyalty and commitment to the Irish economy between foreign subsidiaries here and indigenous companies is vast. The only way an indigenous company operating, say, in Birr can repatriate their profits is back up the road — there is no question of a black hole.

Therefore, the commitment and loyalty of such companies is much greater than those repatriating money quite legitimately out of the country, and the scrutiny must be different because the criteria are different. Corporate board decisions to pull out of Ireland or to rationalise can be taken in such a way that, if employees had the information earlier, it would make for openness and awareness by the workers of problems in the company.

I hope the Minister will explain the implications of the ICTU document. I am puzzled by the conflicting data in that document in regard to the polarised sections of Irish commercial life. The document refers to the Bill as providing for the minimum disclosure of information. It states that the vast majority of the 75,000 Irish companies and the EC companies are excluded from the main provision of the Bill. Will the vast majority of those 75,000 companies meet the criteria?

In amending company law we must be very careful not to do anything that would minimise the incentives to take risks in this economy, or to do anything to stop people putting their money on the line, putting their money where their mouths are. Our tax code, our financial institutions and a battery of legislation are presenting an armoury for the defence of small companies because we are not concerned about the risks they have to take. Unless we have a positive public attitude to risk taking and do not saddle companies with a legal and administrative environment that will choke their existence, we will be defeating what we are trying to attain. I ask the Minister to use his good offices when preparing major company law to deal with the question of unsecured creditors of small firms, with the right to appoint an administrator to deal with the process whereby a small proportion, say 10 per cent, of the proceeds of a liquidation can go to a small firm, so that deliberate delinquent directors would not be allowed to set up a new company until their previous company had been wound up. I think I am speaking on behalf of the Oireachtas Joint Committee on Small Businesses when I make those points. I welcome the Bill and I hope that on Committee Stage we will hear that excessive powers are not being given to the Minister by way of order and that strategic information on companies will not be given away to their competitors.

Mr. Reynolds

I will make only a few short submissions on the Bill. I agree with what Deputy Yates said in relation to the opportunities that exist, unfortunately, for directors under present law to close a business today and open one tomorrow. I hope that all loopholes in that direction will be filled quickly because that sort of thing destroys the confidence that exists in the limited liability company law. I subscribe to the view that information about companies' activities, especially in relation to PRSI and tax commitments to workers and the future welfare of employees, should be available because that would lead to better understanding of company problems and better general industrial relations. Any company management that do not have a two-way flow of information in relation to company operations are very foolish. Many good ideas come up from the floor. Managements have not all the answers and I would not agree that managements are always right. In critical times in the past, if they had listened to what their employees said, perhaps many companies would not have gone to the wall.

In Ireland in the past, and we still have far too much of it, we had the "them" and "us" attitude. That attitude existed for far too long and led to many confrontations and strikes. Many old fashioned managements seem to think that the best way to run a company is to keep all the information close to their chest. I never subscribed to that view. Any improvements that can be made to protect the rights of workers, particularly pension funds, will be very welcome.

From that point of view, I cannot welcome the Bill. First of all I ask myself who will want information and for what purpose will it be assimilated? I draw a distinct line between furnishing the type of information I spoke about earlier in relation to employees' welfare and cross-fertiliseration of ideas between management and employees, and closing the loopholes which permitted the existence of fly-by-night directors. We have had too much of that. However, when it comes to fundamental disclosures of strategic information in relation to companies I cannot go along with the Bill.

I draw a distinct line between information relating to employees' welfare or to good cross fertilisation of ideas between employers and workers or to filling all the loopholes that will enable us to rid ourselves of the fly-by-night directors of whom we have had too many examples in the past and the disclosure by companies of strategic information which is an attack on the free enterprise system. If I make a private investment, why should a conglomeration of bureaucrats in Brussels have to know all about my business, and for what purpose should they have that information? Many of those directives that appear from time to time are dreamed up by a bureaucracy in Brussels that is thriving on itself and which relates in no way to the real problems. My limited experience of Brussels bureaucracy led me to the conclusion that it is socialist orientated. It is time that we told the people in Brussels to stop churning out directive after directive when these are directive that can only have the effect of stifling enterprise.

The sort of nonsense that is contained in this directive should not be heeded. The rot has been allowed to develop down through the years. I am not blaming any Government for this. The French, for instance, will accept any directive while they are sitting around the table, though they may have no intention of ever implementing anything that would be to the detriment of the French economy. The great industrial nation of Germany was granted a derogation in relation to limited partnerships within the context of the fourth directive. The Germans sought that derogation because 80 per cent of their business is comprised of limited partnerships but where is the out for industrial development and private investment in Ireland so far as this directive is concerned? I accept that the Minister has gone as far as he can go within the limits, but I disagree fundamentally with this kind of nonsense being foisted on us time and again from the EC.

Of its definition, private investment is private. The private investor puts his money on the line and takes the risks involved. It is a serious indictment that at this very early stage of our industrial development we are providing for the kind of disclosures referred to in this legislation. This will cause serious problems for the future.

By today's standards a company with a turnover of £2,500,000 and a balance sheet of £1,500,000 is very small. Anybody who is in the market place knows only too well that strategic information can be collated by multinationals for the purpose of ruining the small man who is trying to embark on some business venture. There are plenty of examples of how multinationals ruined the chances of the smaller businessman before his business got off the ground.

One such instance that comes to mind is of a small industry in Waterford. The product concerned was being supplied by a multinational based in the UK. They had almost a total monopoly in respect of certain medical services but when the Irish enterpreneurs began to eat into the big corporation's market place and were having a fair deal of success with what was an excellent product, the multinational sent representatives to all the hospitals offering special terms, something on the lines perhaps that because of some promotional activity, normal supplies during the following 12 months would be less 50 per cent, while supplies additional to normal requirements would be free of charge. That is an example of the kind of opposition one encounters in the market place.

The same kind of problems arise in other spheres of activity. That is why I am totally opposed to the disclosure of the kind of information we are talking of in this legislation. It is strategic information. Its disclosure would make it very easy for competitors to determine the gross profit margin of a small company. It would make it very easy for the bigger competitor to squeeze the smaller one out of the market place, because the disclosure of strategic information allows the big corporation to decide on what their strategy would have to be in order to ruin the chances of the smaller man. The bigger company would determine how much money they had to spend for, say, three, six or nine months in pursuit of that task. Nobody should be fooled into thinking that anyone in the market place is a benevolent operator. One must be as good as the next.

I was not in politics when we joined the EC but I recall the Common Market being described by someone then as the big businessman's club. The more documentation of the kind being discussed here that is poured into this Parliament, the more I am convinced of how accurate a description that was of the EC. A multinational setting up here would not have to make the kind of disclosures that are being provided for in the Bill because they could set up as a subsidiary or as a branch. There are ways out for all except the Irish entrepreneur who will have to disclose this strategic information to everyone in sight.

I am not making any case for people who would abuse the Companies Act or the limited liabilities provisions because such persons would do only harm to any business and give everyone a bad name. What I am talking about is the future development of Irish industry and about the rough battles that will have to be fought on that road, but here we are handing the ace in the pack to our competitors to enable them to screw us down.

We must not forget the debt that has been placed in our market place already by those people as a result of Irish industry not having being competitive for so many years, of its not responding to the market place in terms of the products that were needed, for instance. One might ask how long a person would have to be in business to produce the figures I have given by way of defining a small business. The aim of all of us is that our small indigenous industries will develop into medium and large industries but we are not helping in that regard by this kind of legislation. The small man of today can be the big man of tomorrow and we should not put obstacles in his way.

How can people be expected to risk their money when we are handing so much ammunition to their competitors? We all know that money invested in industry today is high risk money. People now are opting for secure investments. Much of the money that would otherwise be invested in property or industry is being invested in the Post Office which probably provides the best return possible. Presumably, if the property market picked up, there would be a renewal of investment in that area, but the fact remains that, despite all our efforts, badly needed moneys are not being invested on the industrial side. By providing for more regulations and for further disclosure of a company's operations, we are putting matters into reverse. There is far too much bureaucratic control without our adding to that load. I accept that the consumer society is entitled to protection but I do not accept that Governments must go over-board and introduce one regulation after another.

We are talking about young people setting up their own businesses and small firms trying to get one step further. They already have to deal with a great deal of bureaucracy, and now they will have these European regulations. This will stifle business. By definition private enterprise needs freedom to operate. Which economies are working well? The United States of America and Japan, and why are they successful? Because they have freedom to operate. Where that freedom is abused, hit it as hard as possible, but do not stifle private enterprise. The people who invest money and take risks are using their own money and yet we are putting more bureaucracy in their way.

We badly need deregulation, not more regulations. Certain sections of the community always appear to be crying for protection for this and protection for that, but the consumer is not prepared to protect himself. He has a choice when purchasing goods. The consumer wants a regulation for this and a regulation for that, but it is time he realised that this leads to more spending of taxpayers' money to implement each regulation and he should be prepared to protect himself. As far as I am concerned, the customer has a free choice when buying goods. In my view we have more than enough laws to protect the consumer, and sometimes these laws may be even too restrictive. We must remove shackles from private enterprise if we want them to do their job properly.

I have heard a number of Deputies say that private enterprise has failed this nation. If that is so it is because we made it impossible for them to succeed. Ask any young person who starts a business. I saw an article in a recent business magazine about a man who had set up a small food industry in Deputy Yates' area. He listed 78 agencies he had to go to before he was ready to set up business. Admittedly, I could not name those 78 agencies although I could count a hell of a lot — planning permissions, county councils, the ESB, the IDA and so on — but he could because he put them down in black and white.

Mr. Skelly

I bet he is on the point of giving up.

Mr. Reynolds

I think he is on the point of giving up.

Mr. Skelly

He must be Irish.

Mr. Reynolds

Yes he is Irish. This is another complaint we politicians hear about. It is said by Irish would be entrepreneurs or industrialists that if you are Irish you do not, and cannot, get the same facilities foreigners get. This is a nonsense, as I and the Minister know. People who do not have accountants, solicitors and all the personnel which multinationals have available do not know what to do. The poor Irishman, who can produce the product and has spotted an opportunity in the marketplace, is not versed in these areas. This is one reason Irish entrepreneurs believe they are being discriminated against. It would be better if we provided these services for small entrepreneurs rather than putting a weight on their backs by presenting them with all these rules and regulations. It must be remembered that every regulation takes more taxpayers' money and more civil servants to implement it. Yet people begin to wonder what all civil servants are doing. It is society who is calling for more regulations and more personnel to implement those regulations.

The same will happen with all the regulations being poured into this country from the European Community. Will the EC give any money to Ireland to implement these regulations? No, they will not; but they produce these regulations and directives and expect us to implement them. We are going in the wrong direction. The place to stop these regulations is at source, not at the Minister's desk in Dublin. We realise that the present Minister and the previous Minister's stayed out of this as long as they could, but during that time we should have been doing what other member states were doing, that is, looking for ways out. In 1982 I went to Brussels and complained about the French, Germans, Dutch and everybody else breaking or bending the rules. The Commissioner admitted that he was not in a position to do anything about them, that this was what happened when we hit a deep recession. He said everybody moved into their own trenches and protected their own. Nobody admits that in public, but that is the reality.

I am sure the Minister could give a number of examples proving conclusively that the French have abused various directives from time to time. We all know they have abused certain directives in regard to how we can export goods to France. They put up bureaucratic barriers at the customs posts, demanded that forms be filled in in triplicate or with four or five copies and if one item was not properly answered the drivers were turned back. If that happens three or four times the Irish businessman will find that his charges begin to outweigh his profits and finally he will decide not to export to France. That is precisely what the French want. They have even gone so far as to dig up roads and knock out telecommunications to hypermarket chains which have continued to import goods which it was decided they should not import. The French look after France first and the EC second. I am not advocating protectionism but we should take the same type of action to give the Irish industrialists the same type of protection which other Governments give their nationals without breaking, or bending the rules, call it what you like.

We are, and have been, very good Europeans. But we are paying a very dear price for it and, unfortunately, so is our economy. I would like the Minister to tell me who wants this information, for what purpose, and how he believes it will help industrial development in Ireland, because I believe it will have the opposite effect. The kind of disclosure being requested here suits industrially developed nations because they already know the ways out. I understand that Luxembourg brought in legislation which hardly complied with the regulation. We know what the Germans and the French have done, but what are we doing? The Minister has gone as far as he can within the rules laid down in the Fourth Directive, but how does what we have to accept endanger industrial development in Ireland? I believe it will seriously undermine it in years to come because we are only at the developing stage. These directives should be stopped at source. When these regulations are being discussed in the EC we should show quite clearly that we are not at the same stage of development as other EC industrialised nations. We are only starting to develop and they are fully developed. We need derogation from many of these directives. We need different limits than those that obtain within the EC so as to protect our people.

The information which it is now obligatory on Irish companies to disclose will be and can be used in the marketplace. Strategic information, such as the number of employees, how the business is going and so on, can be extracted from the information which companies are now compelled to give. From a small company's turnover a large competitor will be able to produce the company's profit and loss account and balance sheet taking into consideration all the information that must be disclosed. However, the small company cannot do that in relation to the large company.

Mr. J. Bruton

Why not?

Mr. Reynolds

A multinational which sets up a branch in Ireland does not have to give the same information as does the small company.

Mr. J. Bruton

The multinational company gives the information on a group basis.

Mr. Reynolds

The Minister knows that group information is not the same as information from a small company. I defy anybody to disentangle group information and relate it back to a specific operation. The multinationals are not confined to any sector of industry. At the end of the day what the multinationals disclose to the EC is the total amount of their group activities but not specific information in relation to one subsidiary. The multinationals have a definite advantage. That is why I ask: is the European Community becoming the big businessman's club? If it is, the small company better look out. This sort of thing can totally undermine small companies. It has been agreed that, if we are to prosper, we have to eat into our big import bill. Import substitution and linkage has to be an arm of economic development. We cannot get fruitfully involved in that if this sort of information must be disclosed to our competitors who are flooding the country with their goods We cannot compete on that basis. Small and medium sized industry here is being put at a disadvantage.

The Minister has gone as far as he can within the limits of the directive, but over the last number of years we should have considered ways and means of protecting the development of our small industries. I am only concerned about disclosures in relation to the successful operation of a business and not about disclosures in relation to the welfare of employees or fly by night directors. Will the Minister give some assurance that Irish industry will not be totally disadvantaged as a result of the implementation of this directive and that they will not have to give away strategic information which is private. A public company must have its books open to the public, but a private investor is entitled to the privacy of that investment and should not have to show up his strengths and weaknesses. We must face that problem. Both small and medium sized industries are being given a death warrant in this directive. It may not show quickly but it will show over a period as the Europeans come into grab our market.

Because of these EC directives a lot of the efforts of successive Ministers for Industry and Commerce will come to nought and much of the investment which might be made by Irish people will not be made because it will have become a riskier business. The IDA will have to look more closely at investment in the future, knowing the unfair competition that will have to be met and about the unfair disclosures that will have to be made. If we have to depend on the multinationals for the development of this country we will be in a sorry state. They will be here as long as it suits them to be here. We should look to a stronger native industrial base. Recent closures and withdrawals of multinationals — for instance, by the people in Greystones — are a sign of the times. The marketplace is constantly changing and the product life of high technology industries in many areas has become so short that we would be far better off in the long term looking to our own resources, encouraging Irish investors and ensuring that we do not strangle them with more and more regulations and disclosures.

Mr. Skelly

It is incumbent on me to make a short contribution, especially in view of Deputy Reynolds' important contribution. Deputy Reynolds' contribution showed his insight into business and its problems and was a warning to the Minister, to the IDA and to those trying to develop business along small business lines. It is interesting to note the contributions by the three previous speakers who without having experience in business expressed a different concern at this Bill. Their concerns are legitimate and as important as the concern expressed by Deputy Reynolds and those which I intend to express. I would love to see a whole stream of short contributions by Deputies with business experience, particularly in the small business sector, so as to get their comments on the possible effects of this Bill. It would not be a waste of time if the Minister issued a questionnaire to people in business to see how they feel about the disclosures and the effects of the disclosures on their businesses.

While I appreciate that this directive must be complied with, its effects should be minimised as far as possible. In most cases the bank manager knows the extent of the company's liability and the strength of the company. It is not necessary to publish that information for all the world. This Bill can be dealt with more effectively on Committee Stage and I will reserve most of my detailed comments until then. However, it is necessary to point out now a few of the pitfalls to people who believe in disclosures and who believe that some things should be hidden from employees. How will this Bill affect employment? Will there be an increase or loss in employment as a result of this Bill? It is easily demonstrated that there will be a considerable loss of employment as a result of the implementation of this directive. It will lead to unfair competition if turnover figures are disclosed in small businesses. It will result unfair competition if turnover figures are disclosed in small businesses. It will result in a lot of people without ideas trying to copy successful small businesses. This will lead to pressure in the marketplace. The IDA have tried to restrict competition when grant aiding businesses. In this respect I can foresee people queueing up at the Companies Registration Office to ascertain the state of affairs of many companies. As we know, business is ruthless; people have no qualms about undermining someone's livelihood if they can get away with it. There are other ways of obtaining information than going to the Companies Registration Office.

Detailed information, especially of a small company in a specialised field, is of enormous value and can affect small businesses not only from the point of view of giving information to the bank manager but also to creditors and competitors. This will put enormous pressure on existing small businesses. I can foresee enormous queues at the Companies Registration Office. I can foresee companies setting up and specialising in providing vital information — courtesy of the EC, through the Government — on businesses just as there were specialised firms established in the past decade to set up companies. There will be consultancies established to give specialised information to people who want to ascertain whether they should go into a certain field, who want to get information about prospective competitors or whether a company is weak.

The employer area will be most affected by this type of disclosure. When people demand full information from a business it should be remembered that much is taken for granted because there is much "gut" feeling and a risk area in which many employees would not care to become involved, or have any experience of. It should also be remembered that many people would not have the staying power to remain in business with the enormous financial pressures that hone in on them from different quarters: from banks, sales, creditors and suppliers. That is usually the state of affairs in a small business. If we seek too much disclosure too soon, expecting small businesses to forecast six months ahead that they should close down, then why bother setting up at all? I can foresee very few people getting off the ground if that is the type of criterion to be applied.

The implementation of the terms of this directive may not have much of a short term effect but, in the long term, I foresee many businesses going to the wall, resulting in many employees losing their jobs. There may be a crisis of confidence in the market. As it is the banking sector is not the greatest supporter of business. As I have said before, probably they were the only institutions in the State that did not make any contribution during the recent recession. Indeed, six months ago the chairman of the Bank of Ireland announced that they were imposing a 3 per cent levy on small businesses wishing to borrow for expansion purposes. Because of the resultant outcry, the proposal was with drawn. I said in the House then that if the banks were not prepared to enter into the risk area one of two things should happen: either they should be encouraged by subsidies to do so or else the Government should become involved. In the intervening six to nine months that has happened in the form of the establishment of the National Development Corporation.

In his contribution, Deputy Yates mentioned personal guarantees, as I have done many times before. Indeed, I was glad to see that the Minister paid particular attention to this matter because it is one of the weakest areas in the whole of the business sector. As the Minister invited suggestions on how personal guarantees could be dealt with under the Companies Act I hope to be able to present some on Committee Stage. As he said, it is not a question of personal guarantees being given voluntarily, they are extracted and loans will not be granted without the banks first seeking such personal guarantees. I wonder how many people are aware of that practice of extracting personal guarantees, even when there is plenty of collateral. It should be remembered that people setting up in business are in a spot, they have no choice and such guarantees are given under duress. We would be doing the whole of the business community a great service were we to restrict personal guarantees to banks in the case of business. Perhaps the Minister cannot do so by law but there are other ways of discouraging personal guarantees. I am not sure whether they could be forbidden. It is an area in need of urgent examination. Banks will tell one that they do not move against people's assets in the case of personal guarantees but everybody in business knows that is not the case. Above all other western countries of which I am aware, this country invariably insists on personal guarantees. This places tremendous pressure on individuals, on business people, particularly on small business people, trying to expand because small businesses usually get off the ground without much help, without much capital. Usually they survive on their cash flows, the people involved working extended hours in order to keep going.

There have been submissions made by the small industries sector of the Confederation of Irish Industry in the last year on the effect of personal guarantees. There have been extensive surveys undertaken, If the Minister is not familiar with them — though I am sure he is — perhaps he would have his officials extract that information for him and examine it in the preparation of the further legislation he has in the pipeline in this area.

Mr. J. Bruton

CII research.

Mr. Skelly

Yes. I will give the Minister copies if he wishes. It is my view and that of many people that the only institutions that have not contributed to this State during the recession were the banks. Yet the Government and the Minister left the banks sweating for only one short week before helping them out generously in their cirsis with the ICI. Therefore, it is only right and fair that the matter of personal guarantees be examined thoroughly. Many people who are concerned about this form of legislation and the effects it will have on employees are employees and those people would thank the Minister and us if we were to ease the pressure on small businesses of that unnecessary, crippling burden in the case of lending and if we were to copy the form of lending that takes place in, for example, the North American market. I do not see why we must be beholden all the time to banks. We saw their attitude when the farmers had their backs to the wall and their attitude this year when they decided arbitrarily to put a 3 per cent levy on small businesses. They are not helping small businesses to operate and this form of legislation does not help either.

The subject of delinquent directors comes up frequently, and I reiterate Deputy Yates's remark that we should be careful not to turn this into a witch hunt because if we follow that line to its natural conclusion we will close down business altogether. The incentives for the private sector are pathetic at the moment. Yet more and more pressure is being exerted on that sector and they do not believe that they can withstand much more of it. Nobody advocates that people should be let away with breaking the law or with collapsing companies and running off and setting up again, but there is a limit. There is not enough understanding of the pressures that business people are under to go into business in the first place and then stay in it. I ask the Minister to take account of those difficulties and hardships. In the future legislation he intends to bring in it would be helpful if people had some indication of what is to come so that, considering the huge number of amendments he said were suggested in the case of Britain, we could all give it careful consideration.

We must also take into account the pressures on business here caused by the peculiar hardships and difficulties that exist in Ireland. For example, consider the "cannot get paid" syndrome. Ireland is a notoriously bad place to be paid for services rendered. The first airplane into Dublin from London every Monday morning is full of debt collectors. In business it is almost impossible to survive because people do not pay without being hounded and chased and that makes it difficult to run a business and to have cut off points. Some people here have a simplistic attitude towards business and seem to believe that every business takes in money and splits the profit, the wages, VAT, PAYE and even PRSI and puts them into separate compartments and that, at any given time, that business can close the door. They do not seem to take into consideration the ongoing situation with business, the bank overdraft, depending on creditors to pay their bills in order that the business may survive, and all the complicated links that go into business. It seems to them in many cases that directors and people running businesses are deliberately hoodwinking them, or closing down, or negligently letting their businesses go to the wall.

A combination of factors and very often extreme pressures cause businesses to collapse. Not many people here realise that in ten or 12 years 95 per cent of businesses fail, and not just in one sector. If we bring in directives which penalise businesses so much, and have taxes on businesses which penalise them also, and if we are to have a form of disclosure which enables creditors to stop giving credit and competitors to seek weak links, which enables banks — who would have certain information anyhow — and other individuals to take unfair advantage of a business, inevitably we will have many closures. In the long term if we had a very strong, healthy, totally capitalistic economy, that could work, but in the kind of mixed society and mixed economy we have where the State is very fatherly towards its citizens, and we have a very large public sector as well as a small private sector, that kind of thing does not work. Under those circumstances employers would be very nervous and, unless they were very robust, they would be quick to pull down the shutters. I do not see too many businesses surviving if we have full disclosure.

This is linked to the fact that we have not really got a work ethic, and that makes it doubly dangerous. We should not be taking directives from the EC which, in the main has a work ethic in countries like Germany and France. If we had a work ethic we could see ourselves getting out of the problems we are in, in the space of another generation. At the moment this country needs a whole generation to work for Ireland, and that whole generation is out there in the form of young people and we need massive investment in order to achieve what I have said. Here we are depending on small business to get us out of that dilemma.

In the past couple of years in particular, the IDA have concentrated on the small business area. They were remiss in not doing so a few years before that and in concentrating too much on multinationals and very big industries and trying to attract them to the country, whereas America and Britain were concentrating heavily on small business. We know the effect of the collapse of multinationals and particularly the haemorrhaging effect it can have on rural or small urban areas. In an area like Dublin the overall effect might not be seen when people come from all over the city to work in such plants and premises. It would be seen in Deputy Collins's constituency. For instance, Ferenka caused a haemorrhaging effect in that part of the country. Latterly the IDA have woken up and, luckily, they can draw money down from the State and can cover up the cracks and their mistakes. They flew to radio and television and spent a great deal of money advertising and marketing and every day we are hearing about——

An Leas-Cheann Comhairle

Is this a passing remark about the IDA?

Mr. G. Collins

It was a devastating remark about the IDA.

An Leas-Cheann Comhairle

This is a Companies Bill we are talking about at the moment.

Mr. Skelly

This is the only place where I can talk about the IDA without being hammered.

An Leas-Cheann Comhairle

The debate must be confined to the provisions in the Bill.

Mr. Skelly

I am referring to the small business sector. Now we will be able to hear how Johnny started a new business with the help of the IDA grant. The whole idea of the directive is that Johnny will not be able to get very big because as soon as he gets something good and makes progress all the information about his business will be available. He will not find it easy to get off the ground.

Mr. J. Bruton

Sometimes information is not a bad thing.

Mr. Skelly

I appreciate that, but I am dealing with Ireland. We are trying to solve Ireland's problem.

Mr. G. Collins

This directive will wipe out what we have. It will do considerable harm.

Mr. Skelly

Irish people are very circuitous, to say the least, and like keeping things close to their chests. The only thing one is not allowed in Ireland is success. If one links the general begrudging attitude of people towards success to disclosure of information, such as is proposed in the directive, then one has a very lethal weapon which will bring down a lot of companies. This also militates against a good characteristic in the Irish make-up, flair. The provisions will kill the flair. It must be remembered that flair in business is an absolute necessity particularly in regard to sales, stamina, and surviving. Many people hold the view that a business is either profitable or not and that a business person should be able to see well ahead of time when to get out. They feel that if a person in business sees any difficulty ahead he or she should jump out, pay everybody and not start again for at least five years. It does not work like that.

I have a number of reservations about the Bill which I will deal with on Committee Stage. I do not like the ministerial order feature coming into Bills. The Minister is reserving to himself the right to alter or add to the provisions of the Bill without having to obtain the approval of the House. That is a dangerous road to be going down. I asked if this Minister was responsible for this and his response was that it was introduced in a 1963 Act. I have noticed similar provisions in legislation in recent times and I consider that a dangerous departure. If we had a Minister who was not in control of his Department, a weak Minister——

Mr. G. Collins

If we had a Labour Minister in control of that Department.

Mr. Skelly

Or if we had a Fianna Fáil Minister, or a Minister of any political persuasion in charge of the Department, who was not on top of his work we could have directives to introduce this and that order at the behest of civil servants. In effect it would mean the handing over of the functions of the House to civil servants. I do not mean any disrespect to civil servants but they are not in business. The whole point about people who are pressing for change in the business area, who want total disclosure, directors put in jail and more employee participation is that they do not know what it is like to try to build and survive in business.

Deputy Reynolds described the directive as a bit of bureaucratic nonsense. I believe there should be some disclosure because there are a lot of chancers, fly-by-nights, in the business world. Such people are bad for the confidence in any community and there should be no room for them. Such business would be stopped if we had a certain amount of legitimate dislosure. I do not think people deliberately mean to be vindictive. I do not think they realise the consequences of having witchhunts and introducing the regulations some Members have suggested. Most people in business are genuine and reasonable people who work extraordinarily hard. Most of the population do not have the type of incentive needed to get on in business and prefer to work for somebody else but the small percentage who are prepared to go out on a limb and get involved in a business must be encouraged by the State and not hampered. Failure here is all right but success is not. A person who fails in business should not be criminalised. There should be room for second starts.

Mr. J. Bruton

This is more relevant to the other Bill. It does not arise on the Bill before the House.

Mr. Skelly

I understand that, but my comment is relevant in that we are introducing a provision to insist on the disclosure of information, something that has not occurred to date. My point is that it does not suit the Irish business world, the Irish personality. We have very restrictive and mean money lenders here. The banks are very shy about giving out money and want personal guarantees before they loan a penny. As somebody said, they want one's blood in a bottle before they will loan money. In that type of climate the disclosure of information will militate against the businessman.

There are other ways of protecting employees and I accept that they should have as much protection as possible. Protection can be given through insurance, savings and so on. I shall put suggestions in regard to that to the Minister when he introduces the other legislation. However, certain pressures will come about when the directive is put into operation. Small businesses here generally are poor and survive because the people involved put an enormous amount of time and energy into them. The provisions of the directive will militate in the area of reselling and in the area of building up some wealth. A small business needs time to build up wealth because the profits are small. It will not be easy to build up wealth if companies are liable to disclose certain information. One learns many intangible things when one should not disclose information. The directive will remove the opportunity to withhold information until the time is right.

The free economies are doing well at present such as those in Japan and the US. It is difficult for a small business to get off the ground and even more difficult to stay in business. From now on it will be very difficult to sell. What may happen as a result of this directive is that thousands of small businesses, and their owners, will be sentenced to a life of drudgery and disadvantage. We could unwittingly be locking them into a situation from which they could never get out. Most people go into business for a given number of years, five or ten or perhaps 15 years; but this is a retrograde step. People may have to work up to their seventies and die in the business, through not being able to sell out and move on. We are taking a leap in the dark.

Mr. J. Bruton

How does the Deputy infer that this has anything to do with being able to sell or not?

Mr. Skelly

It is restrictive to ask for disclosures. Much business operates in a secretive manner. Those involved keep their cards close to their chests and do not disclose everything to the public, their competitors, their banks, or their employees. Disclosure being restrictive, the chances of expansion are very limited, profitability is adversely affected and the chances of starting ancillary businesses will be small. They will not have the same flexibility.

Mr. J. Bruton

How? I honestly do not follow the logic which the Deputy is advancing.

Mr. Skelly

I hope the Minister will not take me up wrongly, but I understand why he does not follow. If he were running multiple small businesses, he would understand. In this country we did not have a tradition of industry or business and had to learn fast. The opportunities at present are very restrictive. We are going through a recession and because of the country's debts a huge burden has been placed on businesses. It is being made very difficult to survive and often people are surviving in business by their wits. One cannot take that into account in a Bill, which is why a Bill can be restrictive. I do not know if it was the intention of the Government to delay this Bill for five years and wonder why it is being put into operation now. If this country wants to invest heavily in small businesses, it will have to give these businesses the maximum flexibility. That is the point I am trying to make.

Mr. J. Bruton

I do not know. There are many small businesses run on an unlimited base, without any of the privileges of limited liability.

Mr. Skelly

Perhaps there are, but I would not say that there are very many.

Mr. J. Bruton

Of the population, 20 per cent are employed in agriculture.

An Leas-Cheann Comhairle

Would you please speak to the Bill?

Mr. Skelly

Agriculture is different. In all seriousness, the Minister cannot take in agriculture, saying that 20 per cent are in small businesses.

Mr. J. Bruton

Of course, they are.

Mr. Skelly

It is really a measure of the lack of understanding on the part of those who for the protection of employees will unwittingly destroy businesses. It is a measure of the lack of understanding among people running small businesses that legislation is being brought in which will make it difficult for them to survive. It would give an unfair advantage to big companies over small companies. They will have the financial muscle and be able to flatten and take advantage of small companies. They can move into the areas which have been pioneered by small companies and run them out of business. They will see their weaknesses by disclosure, which is very important. If one specialises in a certain area and has expertise, one can pick out those areas and destroy companies, go in temporarily, undercut them and run them out. We should be encouraging small businesses. We must get up off our knees. This country has suffered enough at the hands of uncaring multinationals who came in for the grants that they could get and because of the laxity of our laws in certain areas such as drugs and chemicals. This Bill restricts the room for flair. It is using a sledge hammer on the small business area whose turnover, £1.5 million, is very small and the number of employees is limited to 50.

There are no advantages for the small business registering under this type of directive. On Committee Stage, I should like to go into this in great detail. However, we should put down markers now. As Deputy Reynolds has said, we should not easily without putting up a fight accept EC directives which may damage our economy. If they do not suit our economy, we should resist them, or seek concessions. I have no doubt that larger countries would resist. For example, the United States always puts its economy first, no matter how small the country with which it is dealing. It puts first the benefit of its entrepreneurs and businessmen. Germany and France have done so also and I draw attention to these matters. I do not welcome the Bill. This directive is foisting it on us. I ask the Minister to remove altogether the ministerial order from the Bill. He should certainly remove the requirement of disclosure of the business turnover. I do not know if it is possible at this stage, but he should have a look at the format before Committee Stage.

Mr. O'Kennedy

As has been pointed out by the Minister in introducing this Bill and as indicated in the explanatory memorandum, the purpose of this Bill is to give effect to the Fourth EC Company Law Directive and, in effect, to harmonise the laws in respect of disclosures, especially the manner of accounting, of both public and private companies. In the first instance I want to acknowledge that the Minister in presenting the Bill in the present form has availed of all such facilities and exemptions as can be applied within the meaning of the Directive. However, let me say that harmonisation of laws as proposed in this directive is harmonising as if the companies throughout the European Community, be they small, medium or large, are all operating on the same base, with the same advantage.

I want to express now, as strongly as possible, a personal view based on experience within the European Community and also experience of the impact of harmonisation on the economies of the member states. Quite frankly, there has been far too much harmonisation of laws and far too little harmonisation of the economic climate of the member states. The European Community, and in particular the Commission, which operates to a considerable extent in isolation from the reality of the commercial place, are now hell bent on giving the impression of progress towards the aims of the European Community by a series of directives and regulations that require the same legal obligations throughout the Community, without having regard to the commercial realities of the member states. If we in the European Community were really interested in bringing about a healthier, fairer and better climate for the operations of our corporations, be they public or private, then the European Community, which now requires us to pass this law into domestic legislation, would be doing much more about the economic climate in respect of which this harmonisation is being imposed.

Let me point to four or five simple facts which must be stated publicly as a strong criticism of the failure of the EC in this area. Why is it that in the past five years the economic progress of countries outside the Community — countries such as Austria, Norway, Finland and Switzerland — has far outstripped that of the member states, measured either against the best, which is the Federal Republic of Germany, or any of the rest, let it be Ireland. By any criteria one wants to apply in terms of employment, profitability of corporations or growth in the economy, the reality is that these countries outside the European Community who are not subject to harmonisation, regulation, control and direction of the Commission and the administrative machinery of the Community, have benefited much more than those of us who have apparently been subject to the benefits of the EC. Far too much time and effort have been spent on administrative regulations, directives harmonisation proposals and far too little time has been spent on actually implementing the most basic document of all, the Treaty of Rome, together with all that it demands and requires of the member states and of the institutions of the Community, the Commission and the Council. It is clear from even the most casual reading of the Treaty of Rome and subsequent treaties that the actions of member states and the institutions in recent times have gone quite the other way.

I appreciate that the Minister is forced to introduce this legislation because of the determination to harmonise within the Community. These kinds of actions forced on member states will in the long run prove damaging to member states in our condition who have not the same degree of economic development as some of the other states. Far from eliminating regional imbalances, these actions will do quite the opposite.

Regulations of this kind seem to assume that we are all at the same stage of economic development. We are not. There is a great difference between the circumstances of the small and medium-sized companies in Ireland and those in the Federal Republic of Germany, for example. If we look at the trend in liquidations of companies in the past five years we will see a vast difference between the experience here and that of our partners in the EC and an even greater difference between our experience and that of non-EC members.

The laws and company structures are different in many countries to those which obtain here. The concept of partnership, for instance, is widely used in the Federal Republic in a way it is not used here. The provisions of this directive may not be applied in many cases to enterprises in the Federal Republic which are very much greater in terms of shareholding, employment and profitability than the industries here. Nevertheless, we are being asked to harmonise as if the base of our law was in every way the same, as if the nature of the enterprise and the legal structure of it were the same.

This is an occasion when all of us, particularly the Government in the course of consultations in the European Community, should proclaim loud and clear that we will support harmonisation provided the European Community supports the most basic harmonisation of all, namely, the harmonisation of standards of living in member states, the elimination of regional imbalances and the utilisation of agencies and instruments of the EC at every opportunity to improve living and working conditions of people in the member states.

We have in this city an institution of the Community concerned with living and working conditions of people within the EC but it has no teeth, no effect, because the actions of the Community, particularly the Commission and the Council of Ministers, show no concern for the most basic aspect of living — the right to work and the right to have constant secure employment.

We should tell our Community partners that this kind of harmonisation without the rest is unacceptable not just to us but in terms of the obligations of membership of the European Community and of the Treaty of Rome. I am sure the Minister will welcome the support of this side of the House in giving this message in Europe.

I would draw attention to an anomaly or a contradiction of the obligations of the European Community. Certain branches of multinationals — namely, the subsidiaries here of multinationals in France or the Netherlands — will not be covered by the requirements of this legislation and the fourth Directive because they are branches of a parent company. Some of these branches far exceed even in their subsidiary activity the scope of some of our major companies. By excluding branches of multinationals from these requirements because the parent companies are based outside this country, we exempt them from the requirements of disclosure under this legislation, while imposing obligations on our own companies. The least we should be concerned about is to ensure that domestic indigenous companies should not be at a disadvantage against the branches of multinational companies operating here. The future is at least as much based on the health and vigour of our domestic enterprises as it is on the attraction of branches of foreign enterprise.

Mr. J. Bruton

More so.

Mr. O'Kennedy

We are in agreement. When we are being asked to harmonise we should state very loudly and with total determination to those who ask us to harmonise, on a base which itself is anything but harmonised, that this we cannot accept as if it were in line with the basic principles of the European Community.

Debate adjourned.