Like every other Deputy in this House I heartily welcome this Bill. I am glad to note that it got very thorough debate in the Seanad and appears to have been improved as a result because there were a great many amendments made to it and a great many views taken into account.
Much of what one might like to say about the Bill might be said more appropriately on Committee Stage because it is very technical indeed. Unfortunately the Bill is very long. Notwithstanding that I hope it can be so arranged that, without guillotining it or anything else, it will become law within the next few months because the urgent need for many of its provisions is obvious and has been for quite some time past. It constitutes the biggest change in purely domestic, as opposed to European-imposed company law since 1963.
The 1963 Companies Act was a major one which has not altogether withstood the test of time, not through the fault of its drafters, promoters or anything else, but simply because commercial circumstances have changed enormously in the last quarter century, indeed have changed more rapidly perhaps that at any other comparable period in history. Since his retirement comes up within the next week or two, I should like to avail of this opportunity to pay tribute to the man who was a major instigator in producing the 1963 Companies Act, who worked on it as secretary of the committee that dealt with it for a number of years. I refer to Mr. Joseph Holloway, now retiring as Secretary of the Department of Energy, and who has quite a monument to himself in that Act. The then Minister whom he greatly assisted was Deputy Jack Lynch, who has been in retirement a little longer, and who would regard that Act certainly as one of the more important legislative actions of his lengthy period in this House.
I hope that this Bill will be equally important. Indeed, as commercial circumstances are likely to change even more rapidly in the future, I hope that its amendment, once enacted, will be quicker, that perhaps in future we will not have to wait for such an enormous tome; that in the future it will be possible to amend specific aspects of company law more rapidly than has proved to be the case in more recent times.
I shall deal with some aspects of the Bill only. At the outset I should like to make a few references to Part II and to the question of investigations into companies. I note that the provisions of Part II propose to remove the power of the Minister for Industry and Commerce to appoint inspectors, instead to give that power to the High Court and to clarify the manner in which that power can be exercised. That is a good thing. I do not mean necessarily giving that power to the High Court — because I do not know that an awful lot necessarily is achieved by taking it away from the Minister — but whether an appointment be instigated by the Minister or the High Court, it is important that those inspectors appointed have adequate powers.
When I was in the Department of Industry and Commerce I recall twice appointing inspectors to examine the affairs of companies. I recall one was a public but not quoted company and the other a private company. I remember that the advice given to me in the Department on each occasion was not to bother because it was not thought the inspectors would achieve anything. Unfortunately, I found that that departmental advice was correct because, two or three years later when I was leaving that Department, nothing had been achieved that I could see. The reason nothing had been achieved was that the inspectors did not appear to have had adequate powers. For example, they could not compel certain people to attend before them to give evidence, nor could they compel the production of certain papers. As a result they could not get to the bottom of the apparently fraudulent activities carried on by at least some of the directors of those two companies. I thought that was very regrettable. I felt I must have been about the only Minister for Industry and Commerce in Europe who did not have power to have a proper investigation carried out into what appeared to me and to the Department to be fraudulent activity on the part of directors. Indeed, in one case, while I was asking the inspectors to endeavour to expedite their inquiries and so on I saw the promoter or principal of the company under investigation trading again, with limited liability, in this city as though nothing had ever happened. I thought that very regrettable. In the case of the other company, the principals decamped to England and further abroad with a substantial amount of the company's assets which should have gone to its creditors who, unfortunately, were left high and dry.
These kinds of examples underline the difficulties encountered. I am talking about two cases only within four years or so when a Minister for Industry and Commerce appointed inspectors. Since the enactment of the 1963 Act I think any inspectors who were appointed have been unsuccessful in concluding their investigations in each case. Therefore it is quite appropriate that the system be changed and, if it is necessary to give appropriate powers to such inspectors by way of the High Court, so be it. However, I contend that the Minister should retain for himself some power of instigation of these types of inquiries or inspections because it will be important that he be able to react quickly to some undesirable or fraudulent practices being carried on. If you like, that is one specific part only of a general intention in this Bill to endeavour to deal with fraudulent or less than honest activities in regard to companies and, in particular, what has been described here by the Minister and others as the phoenix syndrome — of people who, not necessarily fraudulently, carry on their businesses but allow them to run down, who do not pay creditors and start up again with limited liability, often as the Minister said, in the same premises.
There has been a number of such instances particularly in the case of a small minority of speculative builders. I found it very hard to stomach, as did many unfortunate people who were caught by such activities. I understand that there is one site in Dublin where the same builder, using a succession of three different private limited companies, built a block of houses via one company, did not pay his creditors, did not finish the estate, as he had contracted to do with the purchasers of the houses, decamped next door, built another block of 100 houses as a different company which, in legal terms, was a separate entity from the first but in fact was exactly the same person; did the same again a second time and went on to do the same for yet a third time. Yet each time he was within the law as it stands.
It is only proper that that law should be changed and I am glad that that is now being done. However, I must say it is not easy to strike a balance. One is outraged by cases of that kind. Therefore, one's instinct is to push out the law fairly hard or far in order to ensure that it will not happen again. But, if one does that without any great sensitivity, one may catch those types of people but one will also catch a whole raft of perfectly honest and honourable people who simply get into commercial difficulty through the problems of the marketplace and not through any form of dishonesty or unwillingness to meet their obligations. Therefore, one must temper the law in a way that will strongly discourage people who act dishonestly but will not unduly penalise those who simply have misfortune. People who have commercial misfortune here, seem to me — apart from the law at all — to be very heavily penalised anyway by the social attitudes taken to them by contrast with commercial misfortune in other places which is not regarded as the sort of black sin often attributed to such people here through no fault of theirs.
While one might have many comments to make on that aspect of the Bill on Committee Stage it has to be said that the provisions of the Bill do endeavour to fairly hold that delicate balance. I am sure there will be refinements suggested on Committee Stage. I hope the Minister will maintain an open mind in regard to them.
This Bill is so long one cannot really deal with it section by section. It is more convenient to deal with it in general terms by referring to the parts. Part V, which deals with the whole question of insider dealing and the Stock Exchange-related aspects of company law, is to be welcomed.
The amendments made in the Seanad are also welcome in that the original proposal was to make it a civil offence where a civil debt would be recoverable, but on reflection the Minister accepted the overwhelming advice he received in the Seanad which was to the effect that it should be made a criminal offence. It is only right that it should be made a criminal offence and that various duties be placed on various people and the stock exchange in regard to how it deals with these matters.
There is one problem which the Minister will have to look at between now and Committee Stage, in the context of Part V, and that is the problem which has arisen over the past number of months, well after the introduction of this Bill, as a result of the prolonged Irish Distillers take-over saga which took a further step this morning. It is a problem which cannot be ignored. The 1978 Monopolies and Mergers Act which I introduced in this House deals with some aspects of that problem but that Act is now out of date, it is ten years old, and it was brought in in what I might call another era. It was brought in at a time when the degree of economic cohesion in the EC was much less than it is now. It never envisaged that what is going to happen in 1992 would happen and it regarded this country as being entirely the master of its own affairs in these matters. Whether we like it or not that is not the case today. In conjunction with looking at this Bill the Minister should also look at the 1978 Act to see whether separately or together they might be amended to take account of the circumstances in which we now find ourselves in so far as the dealings of quoted companies are concerned and in so far as there is a possibility of further take-overs, particularly heavily contested ones.
The Irish Distillers take-over bid is only the first of, what some would say, many, but at the least several, such take-over bids we are likely to witness both before and after 1992. There probably will be an increasing tendency to take actions of that kind. Therefore it is necessary for us to look at any law we may make in this regard in an international and in an EC context. Neither this Bill nor the 1978 Act enable the Minister for Industry and Commerce to act in the way he might wish to. I do not envy the Minister the position he finds himself in today in trying to decide on that particular take-over bid because to a great extent many of his functions have been pre-empted.
I have no objection nor could I have to the courts exercising jurisdiction over corporate activities and affairs within Ireland. Equally, I have no objection nor could I have to the European Community, acting through whichever institution is appropriate, exercising jurisdiction over these matters, because we as a country have ceded sovereignty in matters of this kind to it by way of public decision in a referendum. Therefore, we have to accept that we will be bound by decisions which it will make on the basis of Community law, be it under Article 85 or Article 86 of the Rome Treaty but, and I think this is a very big but, the people of this country never ceded any sovereignty or jurisdiction to 30 stockbrokers sitting in the city of London to make decisions in regard to Irish industry. We never ceded any such sovereignty and when I put through the 1978 Act in this House there was no take-over panel in Dublin, which at that time had a semi or quasi autonomous stock exchange, and to the best of my recollection there was no such panel in London either, or at least if there was such a panel it did not have the powers it now has. As a result of whatever internal arrangements were made as between the London and Dublin stock exchanges in regard to their own business practices which is really a matter for them, we suddenly find ourselves subjected to the jurisdiction of a self-appointed body of institutional investors established in London to look after their own interests and the interests of their class. That is not acceptable.
I would imagine there would have been a major outcry in this country today, which has been averted, if the decision of that panel had been to seek to set aside the decision of the High Court of Ireland, upheld by the Supreme Court of Ireland and the roughly corresponding decision of the European Commission. There would have been an outcry. The fact that it has been avoided, perhaps for political reasons, should not blind us to the possibility that it could still happen in three or six months time. I have ceded no jurisdiction and this House and no Irish Government have ceded jurisdiction or any sovereignty to them. They have not been elected by anybody. They were appointed, not to represent industry but simply to represent the interests of the financial institutions and financial professionals, nobody else. They do not have the interests of small shareholders or the employees of a company at heart. They are only secondary matters.
The existence of this panel with the powers that they have has created significant uncertainty for companies wishing to continue trading and manufacturing goods. Its existence has created great uncertainty for the employees of companies, small shareholders and management and it destabilises companies. Great credit is due to Irish Distillers for not becoming destabilised during the traumatic events to which they were subjected during the past six months. Above all else, this panel which claims jurisdiction over our commercial activities ignores the national economic importance of any particular industry. It is not interested in the Irish whiskey industry or in what it means and how important it is to this country. It is only interested in seeing whether the rules used in this take-over game were observed by the financial institutions and nothing else. I do not think that this is good enough where so much is at stake.
An example of what is at stake is set out in the Schedule to the 1978 Act. All the considerations which the Minister for Industry and Commerce has to take into account are listed there. All of these can be ignored by a body which has now apparently acquired, through fortuitous means over which we seem to have had no control, the ultimate power of deciding yes or no on these commercial activities. I do not think this is acceptable. When I introduced the 1978 Act it was readily accepted on the basis that in the last resort the Minister for Industry and Commerce would have the final say in these matters. If the decision of the panel this morning had been otherwise he would have had no say. I do not think it would have arisen. Even now, when he formally has the decision, is his power of discretion not enormously fettered by all that has happened? Has he the same freedom of choice he would have had if this whole episode had not gone through so many different channels up to now? That is something which will have to be looked at in the context of this Bill. It is not easy to do and either this Bill, or another one that hopefully, would be introduced quickly, might update the 1978 Act to take account of what has happened.
The Stock Exchange here have some responsibility towards this country because of what they did a year or two ago in becoming part of London without any apparent autonomy of their own.
They have an obligation to try to rectify a situation which is not tenable in this country. I do not think I am being chauvinistic or nationalistic about it. I think that if it were the other way round it would not be acceptable. It would be laughed out of court if, let us say, Pernod Ricard, a French company, were trying to take over a German company in the same line of business and it was a contested take-over and they had to go to Madrid or Lisbon in order to get the permission of some group of stockbrokers and financial people there. They would regard that as laughable but, in fact, that is what they have had to do in this country. They have had to go with their cap in hand to London and say: "I hope, gentlemen, we did not infringe your rules which you laid down for your benefit in your country in what we did in a totally different country that is sovereign and independent".
I will yield sovereignty — and I will be among the first in this House to yield it — but I yield it by decision of the Irish people. I will not yield it because of the strange circumstances which gave rise to this unsatisfactory panel having jurisdiction over all publicly quoted Irish companies. I understand the make-up of the panel consists of 30 people and that none of them is Irish. If an Irish case comes up, I understand that the local branch of the Stock Exchange here has negotiated some arrangement whereby one Irish person can attend the meeting of the panel having what is called "observer status", whatever that is. It certainly is not an awful lot by all accounts and I think it is quite unsatisfactory. I do not think that situation would be tolerated anywhere else.
The Minister for Industry and Commerce is facing as and from today — and will have to make up his mind in presumably the next month or so — a fairly tricky situation. It is not straightforward. I understand that as recently as this morning after the announcement from the panel in London that Grand Metropolitan went back into the market in Dublin buying Irish Distillers shares at 452p in order to build up their holding further. They have about a 27 per cent holding, or perhaps more by now. That is a very substantial holding in a public quoted company. They are in an extremely strong position. They can block, for example, a special resolution if it had to be passed by Irish Distillers. At the same time, they cannot get at Pernod Ricard, for two reasons: first, because Pernod Ricard is a French company and the French are much more defensive of their national interests than we are and, secondly, because Pernod Ricard is apparently a closed company anyway because about 40 per cent of the equity is held by the Ricard family or by family interests in general.
One of the challenges which faces the Minister for Industry and Commerce at present with regard to this is that he will have to accept this very unusual position which has never arisen here before and he will have to try to knock heads together as between these two companies. If he can do that successfully, it could be greatly to the national benefit to have some arrangement whereby both of these overseas companies, Grand Metropolitan and Pernod Ricard, would have an interest in Irish Distillers and would co-operate for the benefit of that industry in Ireland. Of course, Grand Metropolitan are infinitely the larger company. They are enormously successful in terms of their worldwide distribution and their sales methods. They have had tremendous success and, in particular, they have had success with what is probably the most successful new Irish product of all of the last ten or 15 years — Baileys Irish Cream.
It seems that we might be able to have the best of both worlds if the antagonisms which have grown up over the last six months could be soothed by the Minister and if he could, as I put it, knock heads together and get these two companies to co-operate in some fashion. Would it not be possible, for example, for some of the brands to be given to one of these companies? It is not possible for Grand Metropolitan to acquire Pernod Ricard without the consent of the family interests concerned but, without going into detail, it seems that there are several ways in which a useful relationship could be worked out which would be to the benefit of the industry here, of the name of Irish whiskey, of its wider distribution throughout the world, the interests of the employees here and, hopefully, in the creation of further employment.
I greatly welcome — as I am sure everybody does — the provisions in Part IX of this Bill which introduce a form of the US Chapter 11 system here in respect of companies which are in difficulties but not necessarily wholly and irretrievably insolvent. It sets up here for the first time a system whereby it may be possible, with the protection of the court, for such a company to trade out of its difficulties. That provision has been long overdue. Some time ago I believed that it might usefully have been introduced here and I greatly welcome it.
One thing which is not in the Bill before us but was referred to by the Minister in his speech on Second Stage is what he calls "the proposed Part XI of this Bill", which he said he will introduce on Committee Stage. This will allow companies, both public and private, to acquire their own shares subject, as the Minister put it, to certain safeguards and conditions. I welcome that provision. I think we are one of the few Western countries which does not have it. However, the Minister will be aware that unless there are very definite safeguards, this provision will be open to abuse, and potentially to grave abuse. If possible, I should like to see a draft of Part XI. I am sure it is in circulation already, privately at least, in some quarters. If this were brought in without the proper safeguards it could lead to disastrous consequences. On the other hand, if the safeguards are too great it might not be possible to utilise the provision in the circumstances in which it should be utilised. It is one of these provisions in which it is difficult to strike a balance and it will take some time. I do not blame the Minister in any way for not rushing in with it because it is difficult to achieve it but I should like to get people who fully understand the provision to read a draft of Part XI to see whether that balance can be achieved.
I have few reservations about the use of this device in private companies but I have much greater reservations about the abuses it is open to in public companies. In his Second Stage speech on 3 November 1988 the Minister said:
The new facility will be of great benefit to public companies also, where there is often a compelling case for a company to buy in shares which are, perhaps, felt to be undervalued and where the company has surplus cash available to finance the purchase.
Undoubtedly, that is the instance, but I am sure that he must realise the potential abuse to which it is open. He has only to cast his mind back a year to the Guinness company, to Mr. Saunders and all his friends, to see the level to which what was once almost the jewel of the Irish industrial crown has been reduced by the disreputable and dishonest activities of Mr. Saunders. The danger about giving a public company such a right is that you may no longer have a normal market in the shares. Mr. Saunders sought to create an abnormal market by improper means, to keep up the price of Guinness shares in order to facilitate the takeover of the distillers in Scotland. It is only one aspect of the abuses to which this is open. He did not necessarily do it by Guinness buying their own shares, but by variants of that. The easier and more obvious way is where the company have power to buy their own shares. For that reason, so far as public companies are concerned there is a considerable need to have safeguards.
Again, you can go too far and the type of people who have to deal with these matters should be very fully consulted before any final drafts are arrived at in respect of something of this kind. You have to bear in mind, particularly, that in Ireland, with an extremely narrow market, a very small number, unfortunately, of public quoted companies and a declining number of the larger companies because they tend to merge and to be taken over, it is possible to have a major effect on the price of shares by the purchase of even quite a small quantity. You could buy as little as £25,000 worth of shares in some Irish company and have a significant effect on their price. The price could go up 5 per cent for the expenditure of such an absolute pittance of money. For that reason, this facility must be very carefully watched.
We also have a new phenomenon on our Stock Exchange of all these companies that are not fully listed, that come under the third market, unlisted market, small company market and various other things. Many of those are very speculative companies. The public often do not realise just how speculative they are. On the other hand, I can see the point of view of the Stock Exchange in wishing to have them there in order to try to widen the Irish equity market. Particularly with them, the purchase of a few thousand shares could affect their price by 5 per cent or 10 per cent. It is very easily open to manipulation and we will have to be very careful. That is why Part V, to do with insider dealing, is so crucially important.
It was distressing to hear the comments made about a year ago by a stockbroker who is a Member of the Oireachtas regarding insider dealings in the Dublin Stock Exchange where such activity is not a criminal offence and apparently not even a civil offence. I am sure that that statement was not lightly made. Those concerned will have to ensure that the law as it will be under Part V of this Bill is properly policed by them — because in the last analysis they will have to police it — and that the law is properly enforced. It is particularly necessary in the context of the proposed Part XI of the Bill which may now be brought in.
There are numerous other points I would like to make if that were possible. The Bill is so enormous and deals with so many matters of great importance that one could go on about different aspects of it at great length but I do not want to do that because some of the points might be more usefully put on Committee Stage. I hope the Minister will consider setting up a special committee on this because if it goes through a committee of the whole House it could take an inordinate length of time. I would like to see it enacted as quickly as possible.
In conclusion, in relation to the general requirements of disclosure, particularly in so far as they affect private companies in this country, again it is difficult to achieve the appropriate balance. The suggestion has been made to me that perhaps we have gone too far in terms of the proposed disclosure requirements by private companies. I emphasise that I am not talking here about public companies. This is a very small country. There is often a certain prurient curiosity about what people are doing that does not take place in larger countries. Particularly if we want seriously to get into the financial services sector, as the Government hope to do via the Custom House Docks area and other similar proposed activities, we will have to be very careful that our law does not go beyond that of other countries, particularly within the European Community, in terms of unnecessary disclosure. We will have to be very careful, for example, that we are not just pandering to trade union interests or to prurient requirements of gossip magazines, or something of that kind. Other countries, even where they have fairly strict rules of disclosure, also tend to have available to them offshore locations through which that type of company can operate if they so choose. Some of the more obvious examples are that the UK have, among many other places, the Cayman Islands available to them; the Netherlands have, of course, the Netherlands Antilles. The Belgians and French tend to use Luxembourg as an offshore location. We have not anything specifically the same. Again, it is a question of trying to achieve the necessary balance, of going far enough to stop those who are acting improperly but at the same time not going too far to hinder unnecessarily or improperly those who are acting honestly. This is not easy.
People complain about the slowness of company legislation and I suppose that I have so complained myself, but when you see the complexity of this Bill, the important matters with which it deals and the way in which it tries to uphold the balance, perhaps sometimes more successfully than others, you realise that unfortunately it is necessary to proceed a little slowly. A commendable effort has been made in this Bill and I welcome it. In particular, I would like to see a draft of the proposed Part XI.
As I said earlier in his absence, I would like the Minister to retain the open mind he had in regard to many of these matters in the Seanad and it is hoped that some further improvements can be made. With a Bill of this kind the passage of even a few months sometimes renders some of it out of date. That will have to be taken into account. In the Minister's absence I gave something of a dissertation on the difficulties that are created for him by the present situation in Irish Distillers. I invited him to consider whether it is appropriate now to amend the law, given the very unusual circumstances. I do not mean to amend the law in relation to Irish Distillers but in relation to future cases of that type, of which we will have several — I have no doubt about that. Equally, there are other aspects of company law that may go out of date, as rapidly as in three or six months time.
I am glad the Bill has reached this House. I wish it a speedy passage, but not so speedy that it is not fully examined. I would like to see, if possible, that examination carried out by a special committee rather than by a committee of the whole House. For example, perhaps this could be done over the Christmas recess and then it could be reintroduced at the end of January for a speedy Report Stage, and have it passed into law by February of next year. Everybody would welcome that and we should strive to try to achieve it.
