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

Question again proposed: "That section 8 stand part of the Bill".

Minister of State at the Department of Industry and Commerce (Mr. E. Collins)

Before we reported progress I had finished my contribution to this section and Deputy Flynn was satisfied with the section too.

Question put and agreed to.

Section 9 agreed to.

SECTION 10.

An Ceann Comhairle

Amendments Nos. 14 and 15 are cognate and may be taken together by agreement.

Mr. E. Collins

I move amendment No. 14:

In page 11, subsection (1), line 47, to delete "and roman" and substitute "or roman".

The purpose of this amendment is to secure that items listed in the formats to which either an alphabetic or roman designation has been given will be disclosed in the abbreviated accounts of a "small" company, and not just those items to which both designations have been given. An example would be the item "Net current assets" in format 1 which is given only the alphabetic designation "D". This approach accords with Article 11 of the directive.

The purpose of amendment No. 15 is identical to that already described under subsection (1) of section 10, i.e., to secure that items listed in the formats to which either an alphabetic or roman notation has been given will be disclosed, and not just those items to which both designations have been given. This approach accords with Article 47 of the directive.

Amendment agreed to.

Section 10, as amended, agreed to.

SECTION 11.

Mr. E. Collins

I move amendment No. 14a:

In page 12, subsection (2), line 26, after "Act," to insert "but subject to section 3 (1) (b) of this Act,".

The effect of this amendment is to require the balance sheet published by a medium sized company to give a true and fair view. This is what the reference to section 3(1)(b) means in the amendment. At present the balance sheet required to be published by small companies under section 10(2) must give a true and fair view, but it is not clear in section 11(2) that the balance sheet published by a medium sized company should also give this view. In practice, this could lead to medium sized companies having to publish slightly different information from that which small companies are required to. The amendment rectifies this anomaly. The amendment does not alter the position that medium sized companies will have to publish more extensive information in the balance sheet than will small companies to whom section 10(2) applies. The need for this change was brought to my attention lately by the accountancy bodies who suggested a change for clarity and consistency.

Amendment agreed to.

Mr. E. Collins

I move amendment No. 15:

In page 12, subsection (2), line 30, to delete "and roman" and substitute "or roman".

Mr. Flynn

Is that section 11?

An Leas-Cheann Comhairle

Yes. We have already discussed that amendment with amendment No. 14

Amendment agreed to.

Question proposed: "That section 11, as amended, stand part of the Bill."

Mr. Flynn

Section 11 really applies to exemptions for medium sized companies from the provisions of section 3 to section 7 and the same can apply in regard to the exemptions for small companies in section 10. It is a pity that Deputy Mac Giolla is not here to say that there are variations in different company sizes and that when one takes the two sets of thresholds in the previous sections into consideration and adds the exemption it is obvious that this Bill is going to mandate every company in the country one way or another to give an enormous amount of disclosure of information. I hope the Minister has succeeded in riding out the anomalous situation that exists in this section.

Question put and agreed to.

Section 12 agreed to.

SECTION 13.

Question proposed: "That section 13 stand part of the Bill."

Mr. Flynn

This section is considerably important. It provides for considerable disclosure of the operations of companies. I take it this is in addition to the information which would normally be sought under section 158 of the Principal Act. It is necessary to consider certain elements of this section to see exactly what is intended by the promoters of the directive. Perhaps they have gone much too far here in offering an open invitation to the creditors of industry. They are going to put industry at a great disadvantage. Consider the items that must be made known by those who have to comply with section 13. They have to give a full and fair report of all the developments of the company and its subsidiaries. They also have to give all the important events which might be attached to that company and, worst of all, an indication of the future developments of the company. If an ordinary company are considering developing their business in a year or two years' time and are making financial arrangements to allow them to do this, their opposition and competitors are fully aware in advance of the business intentions and financial arrangements which the company have in mind. I regard that as an enormous disclosure for any business to sustain.

Under this legislation they also have to tell the general public what they propose to do in so far as research and development programmes are concerned. That is not just an indication to competitors of what they will face in the market place; it is also an indication to business interests at home and abroad and to those in competition with them that such information is easy to obtain. This information is valuable. Indeed, the most valuable resource a company have is their information resource which should have been protected. The predators in the business world should not have been facilitated by this section which lays naked the whole operation, financial arrangements and intentions of a particular company in so far as improving their business is concerned.

If is one thing to give a review of how your business and subsidiaries have been doing for the past few years, but quite another to indicate in advance to your competitors what you propose to do in a year's time. I draw particular attention to this. There is no way of getting round it because the Minister is so determined that a true and fair view must apply to every aspect of the legislation. I regret that the Minister could not find a formula of words which would have allowed existing business to carry on their research and development programmes and future intentions without laying bare their total commitment in that regard. I would go so far as to say that I could not imagine even Deputy Mac Giolla seeing the rationale behind this section.

I am sure the Minister of State in his business dealings would have recognised how damaging it would be to one's company to know that what one was hoping to achieve by way of a new product was hindered because one had to give indications in advance that one was intent on developing a new product line, that one had a development programme coming to fruition and that one would be making the necessary financial arrangements to do this. A person who has spent no money on research and development may decide to pick up that project which will be available to him or her without any outlay. That person may decide to use the brains and money of another company to accommodate himself. That is where the predatory effect I was referring to comes in. I regret that article 46 had to be taken on board in its entirety.

I had hoped the Minister would have taken on board the maximum exemptions in the fourth directive. As far as this section is concerned, the disclosure of such things as turnover, research and development and the breaking down of markets and classes of business a company is involved in is, in effect, anti-business. I regard this section as anti-business and anti-industrial development. It will have a marked effect not just on business development but on the efforts to attract investment into the country. It may lead to a cessation of research and development programmes that are under way and being promoted actively by the Minister's colleagues in Government. They made a major statement recently to the effect that they propose to provide extra funding for research and development programmes here.

Fianna Fáil have issued a science and technology document which will be activated as soon as we get an opportunity. The section before us runs contrary to the whole thrust of industrial development we have been trying to generate for the past few years. I regret the provision is in the Bill and that I cannot table an amendment to set it aside in its entirety. I know the Minister would like to agree with that but, unfortunately, he will be forced through the lobby in support of something he wishes in his heart was not in the Bill.

The kind of information I see being involved in this would be of interest to competitors only. If the country recognised that what is now being proposed seeks to give full and total disclosure of confidential and strategic information on the intentions of a company in financial gearing and its research and development programmes, there would be a major outcry against it. Nobody will thank us if we cause unemployment and liquidations by passing something that was rammed down our throats by the EC Commission. This should have been fought by the Government before it got to the floor of the House. On behalf of the business community I should like to enter the strongest reservation about the section which seeks total disclosure of the intentions of businesses. It is regrettable and I hope there is a way in which the Minister can minimise its impact.

Tomás Mac Giolla

Deputy Flynn has raised what seem to be legitimate fears about the section and the Minister of State has not replied adequately to the points raised by him. I have not got all the answers to this question but I am sure the Minister has because this matter was discussed at many levels throughout the EC. I am sure Deputy Flynn is not the first to raise this matter because it has been dealt with by countries with more industrial and company experience than we have. Those countries are wide awake to the problems of rivals. I am sure the appropriate replies to questions raised by Deputy Flynn are available to the Minister.

I am sure, as Deputy Flynn said, that the section does not require full and detailed explanations of all proposals for research and development in a company or its subsidiaries. The Minister should tell us the type of information that is required. Paragraph (d) refers to an indication of the activities, if any, of the company and its subsidiaries in the field of research and development. I understand that to be a generalised comment to the effect that a company is carrying out research and development on the effects of air pollution on buildings although a specific research was being carried out on the effect of CO2 on limestone. If a full and detailed account of the activities of a company in the field of research and development and future developments of the company is required then the fears expressed by Deputy Flynn are legitimate. I am sure those fears have been expressed at Commission level and in countries where this directive has been adopted. The directive should have been adopted here five years ago which means that we are behind other countries. The answers to the questions posed by Deputy Flynn must be available and I am sure the Minister has them. I hope the Minister will give a detailed reply to the points raised by Deputy Flynn.

Mr. E. Collins

I regret that Deputy Flynn accused the Government of being anti-business in the section and said that the section is anti-industry. He made a lot of play about the damage the provision will do. I should like to remind him that a Fianna Fáil administration agreed to the directive in 1978 and if he jogs his mind back the facts may become more apparent to him. We are converting European law into national law in the Bill. Paragraphs (c) and (d), the two vital provisions under consideration, commence with the words "an indication". What is required is an indication of likely future developments in the company and its subsidiaries. I would not consider that an onerous task or one that would expose the company to a competitive challenge.

In relation to research and development, again the initial words are: "an indication of the activities". This should not cause companies any trouble. It is merely to give an indication of what are the intentions of the company. I do not think any company secrets need be given away. Neither do I think any information of vital interest to the company or to the competitors of a company need be given. The words have been carefully chosen in the directive as well as in the law. It is nice to see the new found friendship between Deputies Flynn and Mac Giolla. I can allay their fears about the security of a company with regard to the information it would have to include in the directors' report.

Mr. Flynn

I will not pursue the matter any further. The Minister is quite right when he says that in Article 46, subsection (2), it is made quite clear that the report is merely to seek an indication. When that was being thrashed out it took some years before that word was permitted, for the very good reason Deputy Mac Giolla and I have been advancing, that there were those who thought it should be the other way round. I am happy to see that the Minister has taken it on board. Even as it is, it could be maintained that indicators are very informative in many cases.

We have broken our necks in this area at being good Europeans. I want to tell the House that all the other European jurisdictions are not such good Europeans. They have taken the greatest pains not to comply with the spirit, the intent or the wording of that directive. It was very easy for the United Kingdom Government to do so because an awful lot of the provisions in this directive were less stringent than some of the legislation already in place there. That applies to some other European countries as well, but not so with beloved Ireland.

Germany, Greece, Luxembourg and France have not yet completed their business in so far as the implementation of this directive is concerned in national legislation. They have implemented some elements to try to get over the hump, to give the impression they are doing something. The Germans in particular — because the vast majority of companies registered in that country take the form of limited partnerships — did not want that provision included at all. One can say to them: well done. They have been promised a new directive all to themselves that will deal with limited partnerships which means they will not be involved in the disclosures outlined in this directive.

France has a limited arrangement — we should have taken good note of what the French were doing in this regard — because the French did not want to take it on board in its entirety either. The same goes for Luxembourg. The implementation of their national legislation is now regarded as dubious. But not good old Ireland. We will do nothing dubious to protect our industrial base. We are taking on board holus-bolus everything included in the directive.

When a question of national interest is concerned the day-to-day arrangements in other countries in these matters might not always suit our situation. That is one of the disadvantages of being in the EC. I accept that. They have the collective muscle to push through certain legislation that does not affect them in any ulterior way but that could be damaging to the position that has obtained here over the years in so far as limited liability status is concerned. We were a good bit behind our European partners in this regard but certainly we will be ahead of them once this business is finished.

Mr. E. Collins

I take issue with the Deputy, not in any partisan way. We do have a directive that is being implemented. I am aware of the GmbHs in Germany. We are watching the position very carefully. I understand that the Commission are preparing a directive to bring the GmbHs within the scope of this directive. That is as it should be. Italy and Greece are the two remaining defaulting countries. The directive is being implemented and, where it is not being implemented, the Commission are taking the relevant countries to court. We have not been to the forefront in the implementation of this legislation. We have examined it very closely. We have conformed to it in the best interests of our economy and industry as far as we can see. The Deputy states that we are good Europeans. We are not; we are Europeans. We are partaking in a political structure, in a community, that requires legislation to be unified in large measure by directives. That is what we are doing, no more and no less.

Question put and agreed to.

Section 14 agreed to.

SECTION 15.

I had hoped the Minister might indicate the type of information that need not be given. This might be of value to those studying the intent of the legislators as distinct from words in the legislation, which I have no doubt will be the cause of litigation hereafter.

Mr. E. Collins

This provision in section 16 (1) requires that companies which at the end of their financial year have subsidiary or associated companies shall provide certain details in relation to such holdings in the notes to their accounts, as required by article 43.1.(2) of the directive. For the purpose of this subsection, the term "subsidiary" has the meaning set down in section 155 of the Companies Act, 1963 and the term "associated" company has the meaning specified in paragraph (b) of this subsection.

In the case of each such subsidiary or associated company, the information specified in paragraphs (i) to (iv) of this subsection is required to be provided by way of notes to the accounts. The information is, name, address and business of the subsidiary or associated company, percentage of the shares held, identifying each class of shares held, capital and reserves, and profit or loss for the latest financial year of the subsidiary or associated company.

It should be noted that section 158 of the Companies Act, 1963 already contains a comparable disclosure requirement, though the proposal contained in this Bill differs from current requirements in three important respects. First, the information in question is being required by way of notes to the accounts, whereas it was previously provided in the directors' report. This change is required by article 43 of the Fourth Directive.

Second, the information which must now be disclosed is more comprehensive than that required under section 158 (4) and (5) of the 1963 Act which was limited to the name, place of incorporation and nature of business of each such subsidiary or associated company. Third, the definition of an associated company contained in the 1963 Act, while based on holdings in excess of 20 per cent, related such holdings to shares carrying voting rights whereas the definition used in this subsection uses the additional criterion, set out in the directive, of holding in excess of 20 per cent of the nominal share capital of another body corporate.

Subsection (2) (a) provides that information required by paragraphs (iii) and (iv) of subsection (1) on the capital and reserves and profit or loss of a subsidiary need not be given in the parent company's accounts if:

(i) the parent company is itself a subsidiary of another body corporate in the State, or

(ii) if the accounts of the subsidiary in question are already included in group accounts, or

(iii) the investment of the company in the shares of the subsidiary are included in the parent's accounts on the equity method basis of valuation.

The reasons for the exemptions are as follows in each of the cases listed:

(i) The information would be partial only. It is the holdings of the ultimate parent at the top of the tree which we are interested in.

(ii) If the subsidiary is included in group accounts, its relevant capital and reserves and profit or loss will already be included in the picture given by the group accounts.

I move amendment No. 17:

In page 16, before section 17, to insert the following new section:

17.—(1) Where a private company is a subsidiary of another body corporate formed and registered in a Member State of the European Communities, or would be a subsidiary of that other body corporate if that other body corporate were a company, the company shall, as respects any particular financial year of the company, stand exempted from the provisions of section 7 (other than subsection (1) (b) of this Act if, but only if, the following conditions are fulfilled:

(a) every person who is a shareholder of the company on the date of the holding of the next annual general meeting of the company after the end of that financial year, shall declare his consent to the exemption.

(b) there is in force in respect of the whole of that financial year an irrevocable guarantee by the other body corporate of the liabilities of the company referred to in section 5 (c) of this Act in respect of that financial year and the company has notified in writing every person referred to in paragraph (a) of this subsection of the guarantee,

(c) the annual accounts of the company for that financial year are consolidated in the group accounts prepared by the body corporate and the exemption of the company under this section is disclosed in a note to the group accounts,

(d) a notice stating that the company has availed of the exemption under this section in respect of that financial year and a copy of the guarantee and notification referred to in paragraph (b) of this subsection, together with a declaration by the company in writing that paragraph (a) of this subsection has been complied with in relation to the exemption, is annexed to the annual return for that financial year made by the company under the Principal Act to the registrar of companies,

(e) the group accounts of the other body corporate are drawn up as far as possible in accordance with the requirements of the Fourth Council Directive, and

(f) the group accounts of the other body corporate are annexed to the annual return aforesaid and are audited in accordance with Article 51.1 of the said Fourth Council Directive.

(2) The Minister may make such orders (if any) as may be necessary for the purpose of enabling this section to have full effect.".

The purpose of this amendment is to secure a more definite procedure for the granting of exemptions to subsidiaries of EC parent companies while, at the same time, strengthening the terms under which such exemptions would be granted. In the first place it is proposed to amend the first paragraph of this section so as to remove the Minister from the role of final arbiter in this area. Instead, a straightforward legislative arrangement is proposed whereby the exemption will become automatically available once the qualifying conditions set down in the section are complied with. This approach will remove the concerns which Deputies have expressed regarding the Minister's involvement in deciding whether exemptions should be granted and the dangers of inconsistencies which might arise in the future in the granting of such exemptions.

It is also, proposed in the first paragraph of this section to apply a minor qualification to the proposed exemption from section 7 of the Bill regarding the filing of accounts. This, in effect, retains the impact of section 7 (1) (b) of the Bill so as to secure that, to the extent that accounts and documents are required to be provided in the Companies Registration Office under section 17 — that is group accounts, notification of guarantee, etc — such accounts and documents will have to be translated if necessary and be available in the Irish or English language. This, as the House knows, is a standard provision of company law.

With regard to the conditions which must be complied with in order to qualify for exemption, a series of revisions is proposed with the aim of achieving a more precise and more complete treatment of exempted cases. A general feature of these revised considerations is the fact that compliance with them is being made a prerequisite to qualification for exemption.

In paragraph (a) of this section it is proposed that consent to the exemption be declared by every person who is a shareholder in the exempted — that is the subsidiary — company at the date of the company's AGM. This will achieve a desirable clarification regarding the nature of the consent required.

In paragraph (b) of this section it is proposed to introduce, for the purpose of strengthening, the terms attaching to the guarantee required of the parent company. The guarantee in question is now required to be irrevocable. This prevents parent companies from backing out of their responsibilities after an exemption takes place. In addition to this paragraph, it is required that every person who is a shareholder in the exempted company at the time of that company's AGM be notified in writing of the guarantee entered into by the parent company.

The Deputy has raised a number of points. We were trying to find a way of giving effect to the directive's thrust and one way was by way of ministerial surveillance, as it were. On re-examination we considered that a statutory exemption without ministerial conformation would be more appropriate. I should say, first, that all of the shareholders of a subsidiary company must agree to this exemption and must renew it at each annual meeting. Secondly, there must be in effect an irrevocable guarantee for the financial period up to the following annual general meeting. The word "irrevocable" is the operative word here.

Paragraph (d) proposes that there be annexed to the annual return to the Registrar of Companies a notice stating that the exemption had been availed for the financial year in question. In other words, the irrevocable guarantee must also be lodged with the Companies Registration Office.

Mr. Flynn

Perhaps the Minister would go a little further so far as the guaranteeing of the debts is concerned. Has he anything in mind as to the kind of debts he thinks should be guaranteed? It happens often that bank debts continue for years. These debts can be restructured also. It might prove to be an impossible imposition to have the guarantee run to the full extent of the original debt when the debt was being reduced during a number of years. Apart from the debts that have to be guaranteed, should the position arise that the company wished to withdraw from the guarantee there seems to be no provision in the Minister's amendment to ensure that one must be given the right to extricate oneself from a guarantee. The inclusion of the word "irrevocable" will make it impossible for the person who guaranteed the debt in the first place to extricate himself even if the guarantee is no longer necessary so far as the debt is concerned. In what kind of formal manner may the debt be withdrawn?

There is another element in so far as debts are concerned. I presume that we are talking here of debts at the balance sheet date because a company could have future debts and those might have escalated from the debts at the date of the balance sheet. What then would be the position? Is there a mechanism by which the irrevocable guarantee might be expanded to take on board increased debt subsequent to the date of the balance sheet? Obviously there would be the loophole that a balance sheet debt could be organised to be at the lowest figure possible but then suddenly would be shown to expand without there being any guarantee to cover it. That is something we would want to be very careful about. I would also like to know the mechanism for the removal of the guarantee should the subsidiary be sold. It might not then be necessary for the original home based entity to continue the guarantee. It would be an additional burden and certainly they would not want it once a subsidiary was disposed of. When a subsidiary is disposed of, does the guarantee die immediately?

Mr. E. Collins

In relation to the liabilities covered by the irrevocable guarantee referred to by Deputy Flynn I refer him to the new section 17 (1) (b) which states quite clearly:

there is in force in respect of the whole of that financial year an irrevocable guarantee by the other body corporate of the liabilities of the company referred to in section 5(c) on this Act...

The financial period.

Tomás Mac Giolla

I am only dealing with the amendment at the moment. The Deputy may discuss the amended section if the amendment is accepted by the House. The old section will be deleted and we can then discuss section 17, as amended.

Amendment agreed to.

Question proposed: "That section 17, as amended, stand part of the Bill."

Tomás Mac Giolla

This section probably affects this country more than most other countries. From the establishment of the State a considerable number of those companies existing here were just branches of British companies. By adding the words "Ireland Limited" they established themselves as subsidiaries of British companies. Apart from the excellent semi-State companies established in the period 1920 to 1940, the main industrial development was from the subsidiaries of British companies. Even companies that were based here at the time proceeded to locate their parent company in Britain. The parent company of Guinness was in Dublin but in the thirties it was moved to London and the Dublin operation became a subsidiary.

From 1960 onwards the IDA offered inducements and incentives to foreign companies to locate here and there was a huge increase in subsidiary companies of the multinationals. In proportion to the total number of companies in the country we have a very high number of EC subsidiary companies and by exempting them we will be affected to a greater extent than any other EC country. Estimates of the numbers employed in these companies vary between 30,000 and 40,000. The estimate given by the ICTU was of 450 such companies established from 1960 to 1980 but that did not include the companies established before 1960. The ITGWU considered this matter and they came to the conclusion that the number of jobs in companies of EC member states from 1960 to date was 36,500 or 45 per cent of the total foreign companies here. They estimated that there were at least 6,000 people in jobs of other subsidiary companies before 1960, making a total of 42,000. Many of these workers are employed in the bigger and the more profitable companies and the businesses concerned will be exempt from disclosing any financial information. Our experience has been that many such companies have closed down overnight on a direction from the parent company, whether in Europe, Britain or the United States. Information is not available here regarding the progress of such subsidiary companies.

The exemption is very surprising in view of the large profits of the subsidiaries that are exported. Neither the Government nor the Central Bank are able to give specific figures of the profits. They can give a total figure of the amount going out of the country but they cannot say how much relates to the profits of specific companies. That information is not available to the Government or to the workforce.

I understand that the specific exemption here is temporary pending implementation of the Seventh Directive. If it is a temporary exemption and if it will be so regarded in the EC directive, why is it not stated in the Bill? If the Seventh Directive is passed, will the Minister come back to us to have this section deleted? Perhaps the Minister will elaborate on this point.

Mr. E. Collins

We are putting in this exemption. My understanding is that it is mentioned in the Council directive dealing with consolidated accounts, namely, the Seventh Directive which will be in operation until 1995. There is no need to mention whether it is temporary or permanent. The section will stay in force until it is amended. When the matter is discussed in 1995 or thereafter it will be reconsidered in the light of the Seventh Directive.

I am not quite sure if the Deputy is for or against section 17. From the point of view of a person trading with a company concerning which there is a continuing guarantee on its liabilities, if I were a trader I would be very happy to trade with a company that had an irrevocable guarantee covering its liabilities. Exemption will be allowed under article 57 under very straightforward conditions and we are availing of that article. This will be welcomed by companies abroad who wish to have their Irish operations kept private but the concomitant necessity would arise that their liabilities as outlined in section 5 (c) would have to be fully covered by an irrevocable guarantee. I feel that the section will not be widely used because it is a fairly stringent section. Nevertheless, I feel that traders would probably be happy dealing with such companies.

Tomás Mac Giolla

I am quite happy with the guarantee. It is the exemption from publishing accounts that I am not happy with. On the question of the Seventh Directive, the Minister said that this section would be considered in the light of the Seventh Directive when it is implemented. Does he mean that it could remain on or will it in fact be amended or deleted when the Seventh Directive comes in?

Mr. E. Collins

My understanding of the situation is that the Seventh Directive will ensure that this section will continue until 1995. It may or may not continue after that. It would depend on the final form of that Seventh Directive.

Question put and agreed to.

An Ceann Comhairle

The new section is inserted and section 17 of the Bill is deleted.

Amendments Nos. 18, 19 and 20 not moved.

Section 18 agreed to.

SECTION 19.

What we are dealing with here is where one publishes interim accounts, for instance. In such a case the process I have mentioned must be gone through. It does not affect section 5 or 6.

Question put and agreed to.

SECTION 20.

Question proposed: "That section 20 stand part of the Bill."

Mr. E. Collins

This section deals with the distribution of assets and profits so far as the 1983 amendment legislation is concerned.

Question put and agreed to.

SECTION 21.

Question proposed: "That section 21 stand part of the Bill."

Mr. Flynn

This amendment proposes that offences and penalties shall not apply in the case of officers of the company, that is, directors and secretary. I cannot accept this proposal. It is standard practice throughout the Companies Acts to apply offences and penalties to "officers in default" and indeed section 383 of the 1963 Act actually defines the term "officer in default". If there are worries about persons being proceeded against unfairly, there are defences provided in section 22 (2) (a) and (b) of the Bill and in section 383 of the 1963 Act. Basically a person must be knowingly, wilfully or recklessly in default.

Deputy Flynn, Deputy Mac Giolla and Deputies on all sides of the House are concerned about cowboy companies, about companies folding up and not paying their debts, but we have to face the fact that they are officers in a company and they are in responsible positions. These officers include a secretary and directors of a company. If we are to have an effective system of company law administration, we will have to accept the need for responsibility being assumed by officers of companies. Otherwise the regime will have no meaning and we will continue to have defaulting companies and people knowingly, wilfully or recklessly being in default of their statutory duties. I cannot condone that decision. What we are doing in this Bill is trying to ensure that officers of a company—the secretary and directors—will realise they have responsibilities under this legislation and if they are wilfully in default, there will be a penalty to pay.

Mr. Flynn

In the Principal Act of 1963 "officer" is defined as follows: "officer in relation to a body corporate includes a director or secretary". I would be happy to know that if a director or a secretary was culpable in these matters he would stand liable, but I am afraid that is not exactly what the Minister has done here. His wording is "and every officer of the company". I take it that would include others beyond a named director or a named secretary of the company.

If the Minister had made the penalty clause here applicable in the same way as it is applied in the Principal Act it would have been very easy to take it on board and I would think it reasonable. The Minister made reference to fraudulent directors. Let me be clear on my behalf and that of the party I represent that we have been awaiting far too long the introduction of legislation on the question of insolvency and fraudulent trading and fraudulent directors. In blunt language I want them run out of town. There is no room in my prospectus for them or for that kind of operation. I see it as domestic insolvency legislation long overdue, long promised and I wish that the Minister would bring it in.

We are not talking about fraudulent directors here. We are talking about a director's liability in the formulation, production and presentation of accounts. I would have preferred if the Minister had incorporated the liability attached to the individuals culpable in the matter of false information as being officers to mean a director or the secretary of the company. I would think it very harsh for individuals who might be downstream of that level of activity in the company to find themselves jointly and severally made liable in the event of litigation for falsification of accounts. Would the Minister not consider that the wording as it is there encompasses more than was intended in the Principal Act?

Mr. E. Collins

I do not think we are departing in any major way from the Principal Act. A company could appoint John Smith to be responsible for making returns to the Companies Registration Office and could appoint John Power to be secretary of the company.

Mr. Flynn

He could not, under this legislation. It has to be a specific person and these things have to be signed by the auditor. It is not as flexible as that. You do not have to go that far to catch the culprit.

Mr. E. Collins

You may. I am anxious to ensure that officers of companies know that they are liable for non administration and their own irresponsible actions. It is time that directors and officers of companies were aware of their responsibilities and I am not going to let them get out from under this or any other legislation. I am surprised that there is opposition to the wording. I do not believe it is deviating much from the 1963 Act.

Mr. Flynn

It is. The word "every" is deviating considerably from it. Let me ask the Minister of State a question. Is an auditor not an officer of the company? Is the auditor who takes the director's report and accounts and signs his name to them and gives them a certificate deemed to be liable if it is found out subsequently that there is falsification of the record? The auditor should stand much more liable than the clerical officer who might be deemed as the person to deliver the accounts to the filing officer in the Companies Registration Office. The Minister has gone too far with the words "every officer". Why not just leave it "the company"? Why not put in just "the directors and the secretary of the company"? Why beat about the bush with this antiquated terminology of "officer" and "every officer"?

The Minister has not really satisfied me on that. He has been very accommodating in some aspects of this. Section 383 of the Principal Act states: ...officer who is in default..." and I am prepared to accept that, and an officer in default means the secretary of the company in all practical terms. Every officer could mean the accountant in the company, the financial controller or a whole range of people who might be suddenly brought before a court. I do not think their reputation could stand up to that. The directors might, after they had finished their business, falsify the matter and in the end the auditor must come along and give his certificate. Is he an officer, and does he stand indicated if things do go wrong? Will the Minister reconsider between now and Report Stage that the terminology might be too expansive there?

Mr. E. Collins

I do not believe I have deviated primarily from the Companies Act, 1963. Let me quote two subsections of that Act and if the Deputy wishes to follow me he will see what I mean. Section 128 (3) of that Act provides:

If a company fails to comply with this section, the company and every officer of the company who is in default shall be liable to a fine not exceeding £100.

Section 127 (2) provides:

If a company fails to comply with this section, the company and every officer of the company who is in default shall be liable to a fine not exceeding £100.

Section 22 (2) provides:

(a) in any proceedings against a person in respect of an offence under this subsection, it shall be a defence to prove that he had reasonable grounds to believe and did believe that a competent and reliable person was charged with the duty of ensuring that the provisions of the said section 3 or section 4 (other than subsections (3) and (13)), as may be appropriate, were complied with and that the latter person was in a position to discharge that duty, and

(b) a person shall not be liable to be sentenced to imprisonment for such an offence unless, in the opinion of the court, the offence was committed wilfully.

Again we have included provisions for the defence of innocent persons. At the same time, if there is wilful illegal nonobservance of the Act we must be in a position to take action against those persons, particularly directors, who have the primary responsibility for managing a company.

Question put and agreed to.

NEW SECTION.

Mr. E. Collins

I move amendment No. 22:

In page 20, before section 23, to insert the following new section:

"23.— Section 222 of the Principal Act shall not apply to proceedings before the Employment Appeals Tribunal.".

Section 222 of the Companies Act, 1963, provides that when a company is wound up or a provisional liquidator has been appointed no action or proceeding can be taken against the company without the consent of the High Court. The reason for this provision is to allow the winding up of the company to proceed in an orderly manner. It has been represented to me that section 222, however, has an untoward effect on the operation of the Employment Appeals Tribunal, where a company is or becomes insolvent. In such a case a person seeking redress at the tribunal can be required to seek the consent of the High Court to allow the proceedings to go ahead, and this has happened in several instances. Furthermore, in the case of former employees of insolvent companies, such employees have to obtain awards from the tribunal in order to apply for payments from the employers' insolvency fund.

The Minister saved three votes to date by having been generous following the Second Reading of the Bill which was a good way of dealing with it. I was conscious of what I was doing at the time of seeking amendments for different reasons and the Minister and the Minister of State did the right thing by amending sections rather than refusing to take amendments from me later on. The idea is to put in a marker on the Second Reading which, if worthy, the Minister will include as his own amendment which is the right way of doing it. However, the Minister was not prepared to relent on section 23. I see no reason for this section because it gives the Minister all embracing powers to alter any section of the legislation at will without recourse to anybody. I do not think the Minister is entitled to that power and he has not given any good reason for requiring such power. I would be very reluctant to give it to him for the reasons stated here over the past few hours.

The Ministers, Deputy Bruton and Deputy Collins, are quite amenable to taking the full options available under the Fourth Directive on board with a view to helping Irish business but, as far as I am concerned, that directive is very damaging to Irish business even in the easiest form available to us under its options. It will have a very inhibiting effect on investment enticement into the economy and could, in effect, lead to disruption of business and lost job opportunities. However, I am satisfied that the heart of the Minister of State is in the right place, but if Deputy Tomás Mac Giolla should ever become Minister, I would not be satisfied that his heart would be in the right place.

The Minister said Deputy Mac Giolla's attitude was an instrument of damage to Irish industry. That is a pretty harsh remark about poor old Deputy Mac Giolla but I am quite satisfied that if Deputy Mac Giolla had his way he would have turned this legislation upside down and committed a foul against industry which would have left thousands unemployed. Because that situation exists a Minister, to satisfy his ideological requirements at a later date, might use this catch all section which allows him to alter the provisions of the Act, every single aspect of it in so far as it relates to the formats of the balance sheet and the profit and loss account, notes to the accounts and all the disclosure of information that we have been trying so painstakingly to cloud today by making it possible for individuals in industry to survive in the competitive area without disclosing to all and sundry their research and development programmes, their financial dealings and their development arrangements for the future. We tried to minimise the effect of those sections on Irish industry. I am satisfied that if people of another ideology were in charge of the country they would immediately use the powers in the section to alter all those provisions. In that event all the good work of Minister Collins would be set at nought. Certainly, Deputy Flynn's attitude would be thrown head over heels out the door. I do not think that would be in the best interests of the Irish economy.

I do not know why the Minister seeks this all-sweeping power. What does he want it for? Why is he not prepared to come back to the legislature to make changes that would affect the lives of all people working for the 76,000 companies registered here? It is not simply a matter of a few alterations in a minor piece of legislation. Anything done under this legislation affects the lives of everybody working here, the economy and the investment climate and conditions we are trying to create to entice new jobs. If the Minister takes on this he can, at the stroke of a pen, change the whole thrust of the legislation. That is not acceptable to me. If the Minister wishes to alter the fundamentals of the legislation he should be required to come back to Dáil Éireann and Members should be given an opportunity to discuss them.

I thought the Minister would have taken on board the restriction contained in section 8 (12), He was prepared to adopt a different method of changing it in that section but section 23 gives him the catch-all to alter everything. It is not possible for me in that event to allow the section to stand. Any Minister can change the whole thing at will. Does the Minister envisage additional disclosure requirements being required especially in the case of small companies as defined in the Bill? Is it his intention, or the intention of anybody else, to use this escape clause at a later date to alter the legislation? The powers in the section are superfluous, are too wide ranging and need to be altered. The only way I can alter them is to oppose the section and put the Minister on notice that he is not acting in the best interests of the economy and industrial concerns here.

Tomás Mac Giolla

I agree with Deputy Flynn. Certainly, were I the Minister in charge I would love to have a section like this in an Act. However, I think Deputy Flynn is over worried because I am sure that the Minister, having the same ideological views as Deputy Flynn, wishes to have these powers for the reverse reasons. He does not wish to have them to make things harder for companies but, in the case of companies that may be having some problems, he wants power under the section to release them from their burdens and relax things for them. I am sure he wants to make it much easier for such companies to find their way through the problems that may arise because of the provisions in the Bill. That is the purpose of the ministerial order and I an sure Deputy Flynn recognises that.

It is not a matter of argument but a matter of law. On Report Stage I am prepared to add a subsection repeating what is necessary under the 1963 Act and which will mean that every order will have to be brought before the House for confirmation.

The purpose of this provision is to retain for the Minister the power to introduce such modifications to the format and contents of the accounts required under the Bill as may prove necessary in the light of experience gained in the operation of the Bill's requirements or as a result of development in accounting practice.

In addition, it may prove necessary at some later stage to prescribe special formats of accounts for particular classes of company. This is envisaged in the directive in article 2 where members states may require specially adapted formats in the case of companies in a particular economic sector, and in article 5, in the case of investment companies or financial holding companies as defined in that article.

It may further be necessary to amend the provisions in relation to current cost accounting in the Schedule to the Bill, either as a result of the review of the relevant accounting standard, SSAP 16, at present being undertaken by the accountancy bodies, or as a result of a review of the provisions in the directive concerning current cost accounting. Article 33.5 of the directive provides for such a review.

Question put and agreed to.

SECTION 24.

An Leas-Cheann Comhairle

Amendments Nos. 23 and 24 in the name of the Minister are cognate. By agreement they may be taken together.

Mr. E. Collins

I move amendment No. 23:

In page 20, subsection (2), line 34, after "1983," to insert "section 6 of the Designated Investment Funds Act, 1985,".

These amendments are necessary in order to align the citation provision in the Bill with that adopted in the Designated Investment Funds Act, 1985, which was passed since this Bill was published.

Amendment agreed to.

Mr. E. Collins

I move amendment No. 24.

In page 20, subsection (3), line 37, after "1983," to insert "section 6 of the Designated Investment Funds Act, 1985,".

Again, this amendment is necessary in order to take into account the construction adopted in the Designated Investment Funds Act, 1985. It is a technical amendment.

Amendment agreed to.

Mr. Flynn

I move amendment No. 25:

In page 20, subsection (4), lines 39 to 43, to delete "on such day or days as, by order or orders made by the Minister under this section, may be fixed therefor either generally or with reference to any particular purpose or provision and different days may be so fixed for different purposes and different provisions", and substitute "for accounting period commencing on or after the 1st of January, 1987".

I should like the section to be amended so that we could talk about the implementation date. This is critical in so far as the whole operation of this Bill is concerned. I am anxious that a certain period of time should be allowed to businesses before it becomes legally binding on them to implement all of the provisions of this Bill.

While I raised the matter on Second Stage and felt that the Minister, Deputy J. Bruton, was going down the road with me, subsequently I am not so sure he intends going as far as is necessary in the interests of business, particularly in the interests of the accountancy firms who must deal with the new arrangements. Business itself is under some pressure. It should be remembered that there is a certain element of expense involved.

While it might not affect large companies to any great degree, in that they have the expertise, experience and computerisation in place, that would not be the case in so far as small companies are concerned.

It should be remembered also that there are changed formats, new means of calculating assets, new situations for accounting. All of this means that companies are seeking considerable advice from their auditors and accountants as to how they will comply with these provisions. If one is to believe the Minister, it would appear he will be rather rigid in the implementation of the provisions of this Bill, that he is making arrangements with the Companies Registration Office to gear up to giving effect to this legislation. If that is the case, then what was in the past a kind of laissez-faire attitude towards the filing of accounts will not henceforth obtain. The attitude to date has been: who would check up on them anyway? That is the position that obtains in the Companies Registration Office at present—it does not matter a whit whether one has accounts filed or not. If the Minister is to be taken at face value then there will be some slight change of attitude in so far as the filing of accounts is concerned and companies need time to effect this transition.

In the directive itself it was recommended that some 18 months might be available for that purpose, that is, in article 55. Indeed, it could have been extended to eight years for certain types of companies. I know the Minister will say that the 18 months should have applied from the date of implementation as decided on by the Commission and that 18 months have long gone past. That is beside the point. We must seek the derogation that will be available to us. I understand from contacts in Brussels that, if the Minister were to seek this derogation and apply article 55 in its widest possible interpretation, more than likely he would get a good hearing. It takes some time to implement these measures and, while the implementation date is past as regards the 18 months to which the directive applies, the Minister should be generous in this regard.

Eighteen months would allow companies time to change their status. While that might appear to be an escape route for companies who wanted to get unlimited status, have themselves broken up, or incorporate in some other way— which would not require their implementing the provisions of this legislation at all—companies who wish to take that route should be given sufficient time. Many of the high-tech companies, particularly in chemicals and pharmaceuticals, are very anxious to take on the branch option. I know very well that the Minister's advisers know what is going on in this city at present in so far as the option under section 354 of the Principal Act is concerned. They are taking on that option. Others will be finding the means which allow them to take other options. In fairness the Minister must give them time to do that.

I am asking that the implementation date should be no sooner than 1 January 1988. I say that for a very good reason. We understand from section 4 that comparative information has to be provided, that it is not merely a question of the first set of accounts. One has to gear up and get the first set of accounts in position this year. Then, next year, one can use the 1986 set for comparative purposes. With the two years' accounts in place companies would be able to claim any exemptions available under the provisions of the Act. They would have some experience of dealing with the accounts, would have complied with the two year period necessary to avail of the exemptions and would be in a position to take on board the requirements of the legislation. It will be expensive. There are new disclosures, new formats to be considered and business will need time for this purpose. It will be expensive and time-consuming on the business community. There are many pressures on businesses and we must recognise that. it would be unnecessary and unfair of us here in the comfort of the Chamber of Dáil Éireann to say that we will implement this and that companies will have adapted their accounts to the new legislation by 1 January next. That is not a realistic start, and unless the Minister is prepared to do away with comparisons he will have to get a derogation from the Fourth Directive to allow him to postpone the implementation of the Bill until 1 January 1988.

Mr. E. Collins

The Deputy suggested that if I were to speak to some person in a big building in Brussels I might get a favourable ear. It is news to me that that could happen. I would remind the House that we are before the European Court of Justice for failing to implement this directive. The Deputy and I must have been speaking to different people in different offices in Brussels if he thinks we would be allowed to postpone implementation of the Bill until 1988, because our case is due to be heard next June and the court may direct us to implement the directives by a certain date, sooner rather than later.

I understand the difficulty which some firms are facing in relation to adaptation to the new accounting régime, but the date of operation is normally written into legislation. I cannot give the undertaking requested to delay operation of the Bill until January 1988. That would show us to be in bad faith with Europe, but what is more important is that we will be under a direction from the Court of Justice to implement the Bill before then.

It was stated that the Bill could be brought into operation by next summer. By the time it has passed through this House and the Seanad and is signed by the President I would imagine it will be summer and I can see no justification for delaying its implementation longer. I will consider the period after the passage of the Bill, but this directive should have been implemented and translated into our national law long ago. Therefore, I am not in a position to delay its implementation and I cannot accede to the Deputy's request. I will allow what I consider to be a reasonable interval for companies and their auditors and accountants to understand the Bill.

Mr. Flynn

If I could convince the Minister that the notion he is propounding could cause jobs to be lost and some company closures, would that convince him that there is a need for a longer gestation period? Being before the European Court of Justice is a different matter from the actual putting in place of this legislation. I appreciate that we were tardy about introducing national legislation in this respect, but we are in the process of doing so and I do not think the court would be offended if we took a few extra months to bring it to completion. I could not see any difficulty about getting an adjournment of the case in view of the fact that the Legislature is dealing with the matter.

If we implement the Bill before January 1988 the Minister will be applying retrospective legislation. In 1986, if a company had made its arrangements in accordance with their normal accounting practice and if these are not in accordance with the principles of the legislation next year, they would have to adapt to a new set of formulae and make retrospective changes in the accounts they had finalised for this year. Auditors and accountants would have to revamp all this year's accounts and restructure the accounts unnecessarily. A company would have to say to its accountants that they would be starting a new system in January 1987 in order to comply with the new regulations and they would find it enormously difficult. I do not think the House should willingly give the authority to the Minister to adopt such an attitude because of the hardship it could cause many small companies.

I am not talking now about the unregistered companies and those with royal mandates and special Acts of Parliament setting them up which, in effect, can look over their shoulders to the legislation to provide whatever money is required if all fails in the end. I am talking now about the 67,000 companies approximately which are involved in a small way. If these companies have a very small staff and poor equipment there is a certain element of training to be undertaken by the staff to accustom them to the new formats and the new demands. It is most unreasonable not to allow at least one dry year before the full thrust of the legislation bears down on them. It is not too much to ask that the remainder of this year would be available to companies to gear up and have a dry run at the new formula. Otherwise, it is being made more difficult for the registrar of the Companies Registration Office to deal effectively with the legislation. He is not yet ready. His operation, according to recent reports, is only beginning to become computerised. If the figures for the United Kingdom are anything to go on, half of the companies are not filing their accounts anyway.

I do not want the outcome to be that we shall be at loggerheads over this legislation. Why not give extra time? There is confusion in the registrar's office. Some people will have great difficulty and, finally, we shall have some liquidations, companies going to the wall, jobs lost and mothers crying. I interpret what the Minister is saying with regard to the implementation date as being 1 January 1987. By the time the legislation goes to the Seanad a couple of months will have passed, the President will then sign it and there will be orders to be made under section 8(12) and, no doubt, under section 23 when the Minister thinks about it and we shall end up with a whole new formula. People are entitled at least to time so that the legislation can settle in properly without any confusion. It has caused enough difficulty to businesses as it is. The difficulties in the business world are obviated by certain changes of attitude which have been undertaken, all quite legally. The big guns, the EC, parent companies, subsidiaries, conglomerates and unregistered companies, have no difficulty in accommodating the Minister immediately. They have the equipment and personnel to do this. The only type of company which can be hurt by the absence of a gestation period of at least 18 months from the beginning of June next are the small companies.

That is not so. I would be very upset if I thought the Minister was taking that attitude towards small Irish industry. I trust that he will have a change of heart before we return to this debate later this evening.

Progress reported; committee to sit again.

Dáil Éireann díospóireacht - Wednesday, 23 Apr 1986

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

Dáil Éireann díospóireacht -
Wednesday, 23 Apr 1986