Dáil Éireann díospóireacht -
Wednesday, 23 Apr 1986

Vol. 365 No. 8

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

Debate resumed on 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".

— (Deputy Flynn)

Mr. Flynn

We are considering the implementation date, and I have been asking the Minister to consider a gestation period of 18 months because of the need of business people to acquaint themselves with the new measure, to take specialist advice and to deal with the new procedures so that they will be able to work out all the changes this will mean for the various companies and so that they will be given a reasonable time in which to change their corporate status, if necessary. Companies can alter their status: they can decide to become unlimited companies or to become branches or to take other measures so that they will not have to take on board all of this legislation.

The Minister was not forthcoming when I asked him to deal with whatever difficulties might arise and to consider the main effects of the legislation on small Irish companies, particularly those who do not have the necessary skills to deal with the changes proposed. With that in mind, I was hoping that the Minister might relent. During the response on Second Stage, Minister Bruton was being very forthcoming in this matter and recognised the need to allow businesses a time schedule of at least 18 months to acclimatise to the change. Minister of State Collins does not seem to be accepting that. I ask at least for a reasonable time to be given for the necessary adjustment to be made.

In so far as this amendment is concerned, is it intended to bring different types of companies into line on different dates? That could be a particular problem with individual companies. If the accounting periods did not coincide with the new measures, it would be in the best interests to have a reasonably long period so that all could get into line on a particular date and have the matter finalised. In existing legislation the requirement is that the latest date for filing of annual returns is 11 months after the end of the financial year. Because of the disparity between dates of filing, registration and so forth, does the Minister not think that there is a very justifiable argument for allowing an extended time scale for implementation?

Mr. E. Collins

As I said before, the translation of the directive from European into Irish law should have been made in 1980 and it should have been in effect by 1981. We are at present before the European Court of Justice for its non-implementation. To a certain extent, my hands are tied. There may very well be a directive from that court to implement this legislation on a certain date.

The effects of the directive and the requirements of this Bill have been known for quite some time within the accounting bodies, among industrialists and commercial undertakings. There is no reason to feel that they have not been given ample time. I realise, however, that companies need time to adjust and I am not anxious to rush unnecessarily this Bill into effect when it becomes law. I shall give a reasonable time for adjustment but, as I said before. I shall have to bring in the legislation sooner rather than later.

In response to the Deputy's other comments, it is my intention to bring the generality of companies under the aegis of the legislation at the same time, that is all the companies affected by it.

Mr. Flynn

I shall not press the Minister any further on that point. However, I would refer him to article 55 of the EC directive. While we might be pressed by the Commission for an early implementation date, one must consider that there are other EC member states which have not yet implemented this legislation. They also would be quite happy to have a derogation for a limited period. Article 55 could be loosely interpreted as allowing the Minister some latitude. Under subsection (e) of that article it is stated that a period of 18 months may be extended for up to eight years in so far as certain types of companies are concerned, particularly shipping companies. It also deals with the type of companies in existence at the entry into force of the provisions referred to in paragraph 1 of that directive. That paragraph is quite clear and specific, that member states — and that includes Ireland — can bring into force laws and regulations and the provision necessary to comply with the directive within two years of its notification. I know that that time limit has expired, but one could loosely interpret it that the effective date is the date on which the legislation is passed into law when signed by the President. If that be so, we are still talking about 18 months. If representations were made to Brussels in this regard, a derogation might be found to satisfy my request for a little breathing space for companies, so that expense would not be placed on them on the double. My main point is that the Minister, I am satisfied, is not the sort of Minister to be involved in retrospective legislation. Never let it be put on the record of this House that the Minister is a man who would put into our law retrospective legislation which would incur expense and the possibility of job losses for individuals in Irish companies and businesses. Let him do himself, the country and business a favour by seeking this derogation on our behalf and he will be well thanked by all concerned.

Mr. E. Collins

I am grateful for the Deputy's comments. I should not like to be a party to any job losses. As I said earlier, the type of derogation being sought by the Deputy is not a possibility. One must assume that the Commission would not take us to the Court of Justice unless it had good grounds on which to do so. As I have been at pains to explain to the House, we are a number of years behind in the implementation of this directive. However, I am aware of the difficulties of Irish industry and commerce and note the remarks of the Deputy. I am to a certain extent constrained in what I can do.

Mr. Flynn

Would the Minister allow that under article 55 certain different types of companies are referred to? Will all these companies have to comply on the same date or will there be staggered implementation? I should like the Minister to grant the five year period to unregistered companies as outlined in subsection (a) paragraph (2) of article 55 of the directive. I am asking him to take the full options available under that directive for the benefit of all companies concerned.

Mr. E. Collins

All the periods mentioned by the Deputy have long since expired, with the exception of the case of shipping companies. It is not open to me to seek the derogation which the Deputy is requesting, while I take into account the concern which he has expressed on behalf of Irish industry and commerce, of which I am also aware.

Mr. Flynn

I must be a spoilsport on this matter.

Question: "That the words proposed to be deleted stand" put and declared carried.

Amendment declared lost.

Mr. E. Collins

I move amendment No. 26:

In page 20, subsection (5) (a), line 48, after "ending", to insert ", as may be specified by the Minister by order,".

This is a necessary clarification in order to confirm the Minister's right to decide whether the financial years' accounts to which the Bill will apply will be designated by reference to the opening or closing date of the financial year. It is purely a drafting amendment.

Amendment agreed to.

Section 24, as amended, agreed to.

SCHEDULE.

An Ceann Comhairle

Amendments Nos. 27, 28, 29, 30 and 32 are related and may be taken together.

Mr. E. Collins

I move amendment No. 27:

In page 23, part I, line 7, after "income", to insert "(8)".

These amendments all deal with the positioning of and the content of Note (8) in the balance sheet formats. Note (8) in the notes to the balance sheet formats on page 26 of the Bill requires that in determining the amount to be shown in respect of "net current assets (liabilities)" in format 1 of the balance sheets, account must be taken of any amounts shown under the heading "pre-payments and accrued income". In fact, because of the way balance sheet format 1 is presented such amounts are automatically taken account of. The present text of Note (8) is therefore superfluous. I propose to delete it and to delete the reference to Note (8) in format 1 at the item, Net Current Assets (liabilities).

Instead, I propose, in amendments Nos. 27, 30 and 32 to replace the text of Note (8) with a new text requiring details to be given in the balance sheet, or via a note thereto, of the amounts of any Government grants included in the accounts, and to position Note (8) at the headings "prepayments and accrued income" in formats 1 and 2 where, in accordance with accounting practice such amounts would normally be included.

This amendment is in response to a suggestion by the accountancy bodies who feel, and I agree, that such information on Government grants is of sufficient note to warrant a specific disclosure requirement. The net purpose of this is to ensure that where Government grants are forthcoming they are noted.

Mr. Flynn

I can accept that. It was probably not necessary to include that specific item because it could have been included as an extra item in another section.

Mr. E. Collins

Yes, but we are anxious to have clarification.

Mr. Flynn

It is very acceptable that the Government grants be included in that way. The tradition has been to have such moneys included in returns as separate items. I am glad to support the Minister's point of view. In taking the Schedule, are we including all of part I?

An Ceann Comhairle

We shall dispose of all the amendments to the Schedule.

Amendment agreed to.

Mr. E. Collins

I move amendment No. 28:

In page 23, part I, line 8, to delete "(8)".

Amendment agreed to.

Mr. E. Collins

I move amendment No. 29:

In page 23, Part I, line 19, after "income", to insert "(8)".

Amendment agreed to.

Mr. E. Collins

I move amendment No. 30:

In page 25, Part I, line 25, after "income", to insert "(8)".

Amendment agreed to.

Mr. E. Collins

I move amendment No. 31:

In page 26, Part I, note (7), line 19, to delete "amount" and substitute "amounts".

This is merely to correct a typographical error.

Amendment agreed to.

Mr. E. Collins

I move amendment No. 32:

In page 26, lines 24 to 28, to delete note (8) and substitute the following new note:

"(8) Accruals and deferred income (Format 1, items C. 9 and F. 9 and Format 2, item C. 9)

The amount in respect of Government grants, that is to say, grants made by or on behalf of the Government, included in this item shall be shown separately in a note to the accounts unless it is shown separately in the balance sheet.".

Amendment agreed to.

Mr. Flynn

I move amendment No. 33:

In page 41, Part IV, between lines 13 and 14,, to insert the following paragraph:

"(6) Pension funds will be maintained in a separate financial fund or account, details of which will be indicated in the notes.".

Perhaps I could make a reference in relation to page 23 and ask the Minister to convey it to his staff.

An Ceann Comhairle

I have called amendment No. 33.

Mr. Flynn

That deals with something further on in the Schedule.

An Ceann Comhairle

Yes, but when we will come to the Schedule as amended.

Mr. Flynn

Perhaps I could redraft my amendment. I do not think that "will" is regarded as parliamentary so far as drafting is concerned and that I should use the world "shall".

Mr. E. Collins

It is better English.

An Ceann Comhairle

The Deputy may amend his amendment by leave.

Amendment to amendment agreed to.

Mr. Flynn

This amendment is rather important. The question is one that has arisen for many years. It concerns the whole position of pensions in so far as companies and their accounts are concerned. There are two types of these pension and there are defined contribution benefits. I am very concerned about money collected from employees to the extent that that money should be kept separate from the accounts of the general business of an operation. I was hoping that it would be possible to provide that there would be a separate financial fund or account into which all moneys from the pension fund, whether subscribed by the individual employees or by contribution and regardless of whether the scheme was a defined benefit one to which the company had made contributions, would be shown clearly on a yearly basis in defined accounts returned to the registrar's office and held in a separate bank account. The purpose of this, now that all these matters are to be published, is that the employees in particular would be able to see readily that the company had honoured their obligation by making their contribution and that, in the other instance, they had more than honoured their obligation in keeping the employees' contributions safe and separate from the financial resources of the company. It is with that in mind that I have tabled the amendment.

This amendment should be welcomed by everyone who genuinely wishes for a situation whereby when companies run into difficulty at least the pension fund for the employees will have been safeguarded. I was hoping the Minister would find it possible, as an extra, to take this amendment on board. Perhaps he will reconsider it for inclusion by way of amendment on Report Stage.

What the amendment stands for is self-evident. It incorporates a provision that has been asked for by trade unions and workers for many years. This Bill provided a glorious opportunity by way of the insertion of a single sentence such as I am proposing here which would ensure that moneys paid in respect of pension funds, whether by way of benefit or contribution, would be held separately.

Mr. E. Collins

I sympathise with the Deputy's concern to ensure that moneys provided for pension funds should be kept in separate accounts. However, as indicated in reply on Second Stage, companies legislation per se is not the correct vehicle for introducing provisions dealing with what are essentially supervisory aspects of pension fund management by firms. The area covered by the Deputy is one which is being examined by the Minister for Social Welfare in the context of the establishment of a pension board representative of all interested parties and which will review and make recommendations on the supervision of occupational pension schemes in general. The sort of concern which the Deputy has voiced will, I believe, be at the top of the list in such a review. I will be happy to communicate the Deputy's concerns to my colleague, the Minister for Social Welfare, and I ask Deputy Flynn therefore to withdraw the amendment on that basis.

The information required is fairly substantial but in company law we are dealing with company matters and pension funding is a separate matter. The Deputy's amendment has my philosophical support but the matter falls to be dealt with by another Minister and I do not wish to impinge on the role of another Minister or to split legislation that is appropriate to one Department. For that reason I ask the Deputy to understand my position. I will undertake to convey his serious concern in the matter to the Minister for Social Welfare. It is a concern that I share personally. I will ensure that the matter is considered as a top priority in the context of the establishment of a pensions board. The Deputy will understand that I am trying to keep what is in effect company law within the realm of company law and pension funds within the realm of pension fund legislation.

Mr. Flynn

I accept the Minister of State's attitude in this matter. The Minister of State obviously feels that there is a vacuum in the existing law dealing with pensions. Because it was mentioned, I thought that this was an ideal opportunity to impress upon companies, through the company law, that this was a requirement which would be made of them. No matter how we look at it, details of the amount of money involved in pensions and reserves are going to be recorded anyway and they are going to be readily available in so far as the full accounting procedures are concerned under the standing practice. All I was concerned with was not just having it as included matter in the format but that it would have been mandatory on them also to have it under a separate financial account so that it could not be swallowed up in redundancy payments, buy outs, purchases of other assets, takeovers or any other type of financial arrangement and that pension fund money cannot be utilised, even in the short term. That happens so often.

Companies do not willingly put their hands on the pension fund. They always have a reason. They take it for a temporary period to do something which will enhance the company, buy further assets or a new product line. They say they will build it up on the double afterwards. Suddenly, it all goes wrong and the employees lose their pensions. There is no redress. Some effort was made a year ago to utilise the redundancy fund to come to the rescue of those people but it was not adequate. The onus of responsibility rests with the directors and the officers of the board. They should be held liable and under penalty similar to the question of fraudulent fining in so far as the taking up of pensions in an unauthorised way is concerned. However, I accept the Minister of State's good faith in the matter.

Was this question referred to in the directive or is this a peculiar Irish inclusion to accommodate our own set of circumstances? In reading down through the directive it did not occur to me as readily as some of the other items the Minister of State referred to. It was because of that that I thought that this was a peculiar Irish insertion. Obviously some of the things in the Schedule are not peculiar to Ireland but they are individual as far as Ireland is concerned. This is one of them and that is the reason I thought it was a reasonable time to have a go at the Minister of State.

Mr. E. Collins

I can confirm that the reference to the separate notation for pension funds is one that my Department added to the directive. It was as far as we could go along the road within the context of company law. I have complete sympathy with what the Deputy has stated. I would say also, that there should be an obligation not only on the directors and officers of the company but also on the trade unions negotiating with the company to see that whatever pension scheme is in operation is safeguarded and should be reviewed regularly by both sides. It is an area outside the scope of company law. I did go as far along the road as I could but I am asking the Deputy to understand my position. It will be brought to the attention of the Minister for Social Welfare.

Mr. Flynn

I would like to say that the first long overdue step has been taken along the road. That is to be welcomed. It is a pity that we do not get a little bit more publicity, not for our own personal advantage, but for this legislation which has many good things in it for the protection of employees and employers. This is particularly for the protection of employees and it is a pity that it does not get a good headline because now the nature of every pension scheme held on behalf of employees by any company has to be published and published for the benefit of all concerned each year. It has to be stated explicitly whether it is funded externally or internally. It has also to be stated whether an actuary has in fact completed an assessment of the fund and whether the fund is capable of doing and performing as was intended. The date of the last actuarial experience has to be recorded. This must be a considerable advance for the employees of many of our companies, and for many of our companies' employees who found themselves outside the gates of Leinster House trying to seek compensation for funds that were pinched by fraudulent trading and directors.

I welcome this and it is a pity that the representatives of The Workers' Party who berated me today about being so conservative in so far as the thresholds of this legislation are concerned could not be here to support the action being taken in the first step along the road to protect the pensions of employees of industry. I hold the Minister of State to his word. I take it in good faith that the representations he promised will be made to the Minister for Social Welfare and that this matter will be relieved by early legislation. I know and understand that it is not primarily a company law business.

Amendment, by leave, withdrawn.

Mr. Flynn

I move amendment No. 34:

In page 43, Part IV, paragraph 41 (5), line 16, to delete the word "seriously".

This is a particular item of the legislation to which I take some exception. I take it that it refers directly to article 45 of the EC directive. The Minister of State might indicate if I have the proper article in the matter.

Mr. E. Collins

Article 45(1)(b).

Mr. Flynn

This is a means whereby companies through their advisers can, in effect, escape some of the harsher elements of disclosure as outlined. I particularly want to remove the word "seriously" in that I felt that "prejudicial" conveys a meaning strong enough in so far as disclosure is concerned. There is no need for the adjective "seriously" to expand on that matter. If it were deleted it would give a much more flexible interpretation to the legislation. There is no need for that word to be included. All the words of the directive have not been taken on board in the other sections of the Bill. One particular instance which I recall is where the word "indication" was placed in a particular area that was not relevant to the actual place where it appeared in the directive. It suited our purpose admirably. I was of the opinion that the Minister of State could quite easily have deleted the word "seriously" without diminishing the effect of the legislation. The Minister of State would have enhanced the opportunity for individual companies to utilise a mechanism to get round a situation where information, which might very well be prejudicial to their continuing in business, would be deleted.

We all know that section 13 of the Bill is the one section which allows open shooting to predators. It enables people who seek information on their competitors to undermine the economic viability of individual companies. The utilisation of this formula is the way individual auditors and directors could say that that information, if it was disclosed, would seriously prejudice their ability to continue in business. We are concerned with research and development and the whole question of science and technology. If the information gleaned because of expenditure on research and development was to be available willy nilly to all concerned, then the predators would be everywhere. It would mean a cessation of science and technology development in this country. I ask the Minister, with a view to making it easier for directors and people involved in sensitive areas of strategic information, whether market development or product development, to give them the leeway of having this section adjusted to remove the word "seriously" and allow "prejudicial" to stand independently.

Mr. E. Collins

We are slightly at odds on this. Paragraph 41(5), which the Deputy wishes to amend, does not relate to the overall activities of the company but merely to the turnover of the company. It does not relate to section 13 as the Deputy alleges. I sympathise with the Deputy in his request to delete the word "seriously". There is nothing I can do since the words "seriously prejudicial" are laid down in article 45 (1) (b) of the directive and we are obliged to follow that in this provision. The inference made by Deputy Flynn in regard to science and technology is not what this paragraph refers to. It merely refers to turnover.

Mr. Flynn

I have one critical question to ask the Minister and, if I get the answer I would like, there will be no further need for discussion. If the directors' opinion and judgment were to the effect that any disclosure would be prejudicial to the company's performance or activity, would that mean the auditor would not be in a position to challenge their judgments?

Mr. E. Collins

The words used in the paragraph, "where in the opinion of the directors the disclosure of any information required by this paragraph would be seriously prejudicial" make it quite clear that it is the responsibility of the directors to determine the disclosure of information on turnover. We are talking about turnover and not items of expenditure such as research and development. If the directors of a company feel that to divulge the turnover of a company is seriously prejudicial to the company, then they may so reserve their position. That information need not be disclosed but the fact that any such information has not been disclosed must be stated.

Mr. Flynn

The question of turnover is rather critical to this whole matter. Turnover has to be broken down by categories and geographical markets. Once turnover is broken down into the various products with which it is involved and when it is broken down still further into the markets into which that product is selling we get a very easy numerical calculation. It would be possible from the numerical calculation for individual companies dealing in single products to have the unit cost of production elicited from that information. If that were the case one can imagine how damaging it might be to a company whose competitors were doing their fine calculations on the turnover versus the amount of articles sold into a particular market. Once you have the unit cost of production you have the strategic source of information on any company. That is the concern of industrialists. The competitors would then be able to underpin their pricing structure and under sell it if necessary and, consequently, perhaps cause the collapse of companies. That is a genuine fear. It is for that reason that I wanted a more liberal interpretation of the meaning of prejudice.

Mr. E. Collins

Paragraph 41 relates only to large companies and not to small or medium sized companies. The Deputy will note that the phrasing in paragraph 41 (1) and (2) is "in the opinion of the directors". One would imagine that there would be succinct conferences——

Mr. Flynn

There will be more than that.

Mr. E. Collins

——and board meetings to determine what are or what are not classed as substantially different markets. Nevertheless it applies only to large firms and they are mostly forthcoming in parading their successes in the various marketplaces with their various products.

Mr. Flynn

Who will be the policeman for the directors should they decide at any time to say that is prejudicial? In fact if something is prejudicial there is no need for it to be serious. It is in the best interests of the company. I take it that the directors are their own decision makers in the matter and their own policemen of their decisions. Consequently, there will be no comeback on them. They would not be liable under the Act.

Mr. E. Collins

No. The auditor might question the decision.

Mr. Flynn

There is not an auditor in the world who will challenge his directors. I wish the Minister would state in words what he is doing by gesture.

Mr. E. Collins

I have been very forthcoming with the Deputy all day.

Mr. Flynn

If it ever came to the interpretation of this at the Green Table the attitude of the Minister would carry a lot of weight but mine would carry none. He is the framer and the implementer of the legislation.

Amendment put and declared lost.

Mr. E. Collins

I move amendment No. 35:

In page 44, Part IV, paragraph 43, after subparagraph (3), between lines 14 and 15, but before the heading "General", to insert the following subparagraphs:

"(4) Any amount expended on research and development in the financial year, and any amount committed in respect of research and development in subsequent years, shall be stated.

(5) Where, in the opinion of the directors, the disclosure of any information required by subparagraph (4) of this paragraph would be predudical to the interests of the company, that information need not be disclosed, but the fact that any such information has not been disclosed shall be stated.".

The purpose of this amendment is to secure that, as part of the information supplementing the profit and loss account, companies will disclose particulars of amounts expended and committed in respect of research and development activities. The amendment provides, however, that this information need not be disclosed where the directors of a company consider that its disclosure would be prejudicial to the interests of the company.

Because a commitment to research and development can play such a key role in many companies, future growth, disclosure of the actual level of expenditure taking place in this area would provide a very useful indicator of a company's future prospects to potential investors, and the proposed amendment will secure this disclosure. At the same time, however, it is necessary to protect those companies which might be damaged by disclosing particulars of their activities in this area and the proposed amendment, therefore, allows the information in question to be withheld in such cases.

The amendment goes substantially to meet the desires expressed so eloquently by Deputy Flynn on a number of occasions this evening. Expenditure on research and development need not be disclosed if the directors consider that such disclosure would be prejudicial to the interests of the company. I am sure this is what the Deputy would like to see.

Mr. Flynn

It is exactly what I like to see. It was pleasing to see this amendment in the name of the Minister. This simple amendment at the end of the business today sums up all I should like to see applied to the legislation and I only regret that the Minister did not find it possible to apply similar phrasing in respect of all sections. I know he would not feel justified in doing that and that no doubt it would be a matter of great concern to our EC partners that he had done something to negative the impact of the Bill but it would have had my wholehearted support. The reason I pressed my amendment was that I recognised the Minister did not have his heart in the word "seriously", otherwise he would have incorporated it in his amendment. I thought that perhaps he might take the option to remove it, but unfortunately he is slavishly complying with the article of the directive.

Mr. E. Collins

Honourably complying.

Mr. Flynn

I rather think he has been slavish in his support of it because he could have deleted some of the more difficult sentences without any great difficulty. Research and development are absolutely fundamental so far as the progress of a company is concerned and particularly the financial commitments to such development. This must be protected. I am pleased that directors may take the option of stating that disclosure would be prejudicial to the interests of the company concerned. For that reason I welcome the Minister's amendment.

Now that the Minister is getting into the right frame of mind so far as protecting Irish business interests are concerned, perhaps he would indicate to his advisers that on Report Stage there might be similarly worded amendments in respect of six other sections. If he did that he would provide a framework to allow for disclosure in proper circumstances but there would also be the opportunity for directors and concerned people to protect their limited liability status on the one hand and their investments on the other hand. The Minister would be doing a good day's work if he were to do this in respect of some of the other sections on Report Stage.

Mr. E. Collins

I cannot give any undertaking at this stage.

Amendment agreed to.

An Leas-Cheann Comhairle

Amendments Nos. 36, 37 and 38 in the name of the Minister are related and, by agreement, they may be taken together.

Mr. E. Collins

I move amendment No. 36:

In page 45, Part V, paragraph 47, line 27, to delete "paragraphs 49 and 52" and substitute "paragraph 49".

This amendment is necessary because in the form in which the Bill is before the House the provisions of paragraph 52 have no relevance to the matters to which paragraph 47 refers. Consequently, related changes are needed in paragraphs 48 and 53. They are purely technical changes. The reference to paragraph 52 which is now being deleted is an inadvertent carry-over from an earlier draft of the Bill.

Amendment agreed to.

Mr. E. Collins

I move amendment No. 37:

In page 45, Part V, paragraph 48, line 33, to delete "52" and substitute "51".

This amendment is necessary in order to achieve the correct reference in paragraph 48.

Amendment agreed to.

Mr. E. Collins

I move amendment No. 38:

In page 46, Part V, paragraph 53, line 25, to delete "52" and substitute "51".

The amendment is necessary to achieve the correct reference in paragraph 53. It is purely a technical amendment.

Amendment agreed to.

Question proposed: "That the Schedule, as amended, be the Schedule to the Bill".

Mr. Flynn

I refer the Minister to paragraph G under the heading "Provisions for liabilities and charges". Perhaps the Minister might consider between now and Report Stage if it is necessary to alter item No. 2 under the heading "Taxation, including deferred taxation". I suggest that deferred taxation might not always be a liability and that being the case it could be misinterpreted later. The matter might be worth considering.

Mr. E. Collins

I understand that the words "deferred taxation" are used in standard accounting terminology, are clearly understood and inserted in the accounts at the audit stage. As the Deputy said, deferred taxation may not subsequently be a liability but because of the terminology of the taxation code it was necessary to include the words.

Mr. Flynn

I refer the Minister to Note No. (2) under the heading of "goodwill" where it is indicated that goodwill shall only be included to the extent that it was acquired for a valuable consideration. Will it be permissible to write off goodwill immediately against reserves? I understand it can be capitalised only if it was acquired for a considerable consideration. It is important to get that matter cleared. Is it depreciated systematically over a number of years by the directors or does it necessarily have to be written off immediately against the reserves?

Mr. E. Collins

In the first instance, amounts representing goodwill shall only be included to the extent that the goodwill was actually acquired for a valuable consideration. In other words, it cannot be brought up out of nowhere. There must have been a valuable consideration in order to have it expressed on the balance sheet.

Mr. Flynn

I am worried about how it may be written down.

Mr. E. Collins

I would refer the Deputy to page 30 paragraph 9 (2) which is as follows:

Subject to subparagraph (3) of this paragraph, the amount of the consideration for any goodwill acquired by a company shall be reduced by provisions for depreciation calculated to write off that amount systematically over a period chosen by the directors of the company.

Again, it is a matter for the directors of the company to decide the period over which they wish to write it off.

Mr. Flynn

Is the period determined by the directors or would the period of economic life not be a better way of systematically writing it off? Could it be written off immediately?

Mr. E. Collins

If the Deputy would refer to subparagraph (3), it states:

The period chosen shall not exceed the useful economic life of the goodwill in question.

In subparagraph (2) it is the direct responsibility of the directors to determine the period over which the goodwill can be written off but that period cannot exceed the useful economic life of the goodwill in question. Also subparagraph (4) reads:

In any case where any goodwill acquired by a company is shown or included as an asset in the company's balance sheet, the period chosen for writing off the consideration for that goodwill and the reasons for choosing that period shall be disclosed in a note to the accounts.

I think it is covered fairly adequately. It is a tricky area but it has been handled properly and in realistic terms because a figure for goodwill can wrongly inflate the value of a balance sheet.

Mr. Flynn

It is important for those who would be reading this legislation subsequently and seeking interpretations. I interpret it clearly that goodwill has to be of high valuation the day it is acquired in the first instance and that it can be systematically written off over its economic life or it can be written off over a period decided by the directors.

Mr. E. Collins

Within that period.

Mr. Flynn

Within the period. Why is that? Can the directors themselves not dictate the period over which they would like to write it off?

Mr. E. Collins

Yes, but the period cannot exceed the economic life of the goodwill.

Mr. Flynn

That is understood. There is a third way that it can be written off. It can be written off on a once-off basis.

Mr. E. Collins

Yes. That is a fact. Most auditors will recommend writing off goodwill from the balance sheet as a matter of good accounting practice.

Mr. Flynn

I would like to ask the Minister about fixed assets mentioned on page 29. I understand the way fixed assets have to be valued. There is the purchase price or production cost less the depreciation calculated to write off the assets over their useful economic lives. What I want to know is can the purchase price of an asset include the expenses incidental to the acquisition of the asset? Is that permitted?

Mr. E. Collins

My understanding of the cost of an asset is the cost of the asset plus the cost of installation of the asset and any prices incidental to the acquisition of the asset would be part of the cost of the asset.

Mr. Flynn

Is it permissible that the production cost would include, say, raw materials and direct costs, such as interest on capital borrowed? Could that also be included in the valuation of a fixed asset?

Mr. E. Collins

The incidental cost of the fixed assets, the cost of the money for the interest, the cost of installation, can all be accumulated into the cost of the fixed asset prior to depreciation.

Mr. Flynn

What about the indirect costs? Are they allowed as well?

Mr. E. Collins

What type of indirect costs?

Mr. Flynn

Let us suppose one is purchasing a particular item and there is capital involved and one has direct costs such as——

Mr. E. Collins

On page 31, paragraph 14 states:

(1) The purchase price of an asset shall be determined by adding to the actual price paid any expenses incidental to its acquisition.

(2) The production cost of an asset shall be determined by adding to the purchase price of the raw materials and consumables used the amount of the costs incurred by the company which are directly attributable to the production of that asset.

(3) In addition there may be included in the production cost of an asset—

(a) a reasonable proportion of the costs incurred by the company which are only indirectly attributable to the production of that asset, but only to the extent that they relate to the period of production, and

(b) interest on capital borrowed to finance the production of that asset, to the extent that it accrues in respect of the period of production:

Provided, however, in a case within clause (b) of this subparagraph that the inclusion of the interest in determining the cost of that asset is disclosed in a note to the accounts.

It is very comprehensive.

Mr. Flynn

This is a first for me and I was hoping that the explanatory memorandum would go as far as the interpretation of it. But the Minister might as well put on the record what he means by fungible assets. I am not an accountant but I have heard them all. If I am catching the Minister on the hop let him feel free to leave it over until Report Stage when he can get a note on it. But it is a new one on me and I would like an interpretation of it for the record.

Mr. E. Collins

Assets of any description shall be regarded as fungible assets, if assets of that description are substantially indistinguishable one from another.

Mr. Flynn

Would shares in the company be fungible assets?

Mr. E. Collins

Yes, shares are fungible assets.

Mr. Flynn

Items in the showroom?

Mr. E. Collins

If they are of the same gender they are fungible assets.

Mr. Flynn

Ships in the bay, as long as they are all ships.

Mr. E. Collins

They are fungible and floating.

Mr. Flynn

Most of the Schedule is self explanatory but the detail of it is going to lead to the greatest amount of interpretation by the professionals in the game later on and probably the judges as well. It is only a matter of getting a few interpretations and explanations.

Mr. E. Collins

Let me say that we are taking great care to take into account the observations of interested parties, in particular the accounting profession, in drawing up the Bill. We have used the most up-to-date accounting practices in the Bill. I think the Deputy realises that himself.

Mr. Flynn

Yes, it is a highly technical Bill and I would expect that that would be the modus operandi that would lead to the best result in the final analysis. It is obvious that a lot of this work has been professionally advised upon. That is an important aspect because the provisions of the Bill, together with the Schedule, as far as I can see, will last for a considerable length of time and will form the basis of legislation in company law for our lifetime. It is just as well that this legislation has been professionally advised upon and it was a wise course of action for him to take. it is obvious from some of his remarks that he has been advised that this is what the accounting profession would like, but it has to be borne in mind that some of the Standard Statements of Accounting and Practices have been altered by some of the provisions and there is a conflict between some of those statements. That is inevitable and it will make life easier for all concerned that they will be able to reconcile them with the Bill.

Mr. E. Collins

I am grateful to Deputy Flynn for his extremely professional and positive contribution. I also want to express my appreciation of Deputy Mac Giolla's contribution on Committee Stage; on an earlier stage Deputy McCreevy also took an interest. I know it is not usual but I would like to express my appreciation to the officials in my Department who interpreted this directive and translated it into national law. They have done a fine job.

An Leas-Cheann Comhairle

Is the Schedule as amended agreed to?

Mr. Flynn

So that it will be on record, if anybody wants to know, there is a conflict with the Standard Statements of Accounting and Practices Nos. 9, 19 and 20. SSAP 9 deals with the question of valuing work in progress on long term contracts. There seems to be a conflict there so far as this Bill is concerned, particularly with section 5(c). Under SSAP 19, investment properties are not required to be depreciated. This would be in conflict with the Bill's requirements that all fixed assets must have a limited, useful, economic life. There also seems to be a conflict with SSAP 20 which deals with the question of foreign currency translation. It would be in the best interests of all concerned if they could be reconciled. May I say a final few words about the Bill or do we have to do anything else?

An Leas-Cheann Comhairle

Is the Schedule, as amended, agreed to?

Mr. E. Collins

The overriding and guiding principle in the Bill is that at all times a true and fair view of the company is expressed, whether it be in the profit and loss account and balance sheet or the auditor's report.

Question put and agreed to.

Title agreed to.

An Leas-Cheann Comhairle

When is it proposed to take Report Stage?

Mr. E. Collins

Next Tuesday, with the agreement of the Whips.

An Leas-Cheann Comhairle

Is that agreed?

Mr. Flynn

I want to thank the Minister for being so forthcoming. He will appreciate the means I adopted in dealing with this matter; rather than fighting it out on Committee Stage I took the opportunity to put most of the markers down on Second Stage. I think that was a good exercise. I am on record as saying I regret that this Bill had to be introduced because I have no doubt it would never have seen the light of day in Irish circumstances but for the fact that the EC demanded it of us. There is something to be learned from this.

Some sections of this Bill will create difficulties for some businesses, not necessarily the large businesses because they have the capacity to deal with them. The non-EC businesses can arrange themselves as branches and they will not be over-burdened one way or the other. But there is a certain type of Irish business which will find it difficult to adjust, and will find it expensive. They may have difficulties in implementing this legislation but, irrespective of whether there are difficulties, I am satisfied this legislation will have no effect unless the registrar's office is brought into production to deal with it. The experience in registrars' offices in all EC countries is the same. Accounts are not filed in time, there is no follow-up, there is no policing of the arrangements and, unless the Minister can give a categorical assurance that he going to take it on board and that his Department will be capable of dealing with this legislation, it will have been a waste of time and effort.

An Leas-Cheann Comhairle

That would be more appropriate for Fifth Stage.

Mr. Flynn

I thought we were on Fifth Stage.

An Leas-Cheann Comhairle

We are fixing the date for the Report Stage.

Mr. E. Collins

I do not mind if the Deputy wants to take Report and Final Stages tonight.

Mr. Flynn

We had our difficulties on certain sections, and Deputy Mac Giolla was somewhat taken aback, but I think he misunderstood a lot of the thrust of the Bill. Perhaps he might think better of it tomorrow. I thought another party would have taken more interest in this legislation because they portray themselves throughout Ireland as the protectors of business, and ensuring that business gets the right climate in which to thrive. It is remiss of them that they did not feel it worth their while to come into this House to discuss the most important piece of company legislation since 1963. They did not contribute to Second Stage and they did not come into the House to offer one single word on the Committee Stage of this important legislation.

An Leas-Cheann Comhairle

Is it agreed to take Report Stage next Tuesday, with the agreement of the Whips?

Mr. Flynn

Yes.

Report Stage ordered for Tuesday, 29 April 1986.