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Dáil Éireann díospóireacht -
Thursday, 17 Nov 1988

Vol. 384 No. 4

Companies (No. 2) Bill, 1987 [Seanad]: Second Stage (Resumed).

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

Deputy Abbott was in possession.

I welcome the opportunity to contribute to this debate. The concern of this House and of the Government to have a proper business environment prevail here, with the necessary safeguards in place guaranteeing the interests of creditors, taxpayers, those of the Revenue Commissioners and all other persons involved in the affairs of companies, is most welcome.

I commend the Minister on the sensitive way in which he has introduced these proposals and on his overall quest for balance in relation to the provisions of this Bill. However, I have some concern in relation to the anxiety expressed in the House to have on the Statute Book provisions which, on face value, appear to give relief and provide sanctions against the worst abuse in regard to the running of companies and the defrauding of creditors.

All I can say in relation to the new provisions of the Bill — which come into force after a liquidation, after a long time spent in court and much resources having been spent on bringing fraudulent directors to heel, and there are many provisions of a criminal and civil nature — is that we must ascertain what was the practice and rate of success in relation to that type of activity that obtained under the provisions of the 1963 Act which, after all, constituted the state of the art until a few years ago. One finds in those provisions that, in the practice of liquidations, ultimately the courts have not found it possible to impose criminal sanctions against the worst offenders. There have been occasions when the courts, during the course of liquidations or examinations of the affairs of directors of companies who have been guilty of fraudulent behaviour, have referred behaviourial instances and papers to the Director of Public Prosecutions.

I have made inquiries and asked questions in certain quarters as to whether any prosecutions emanated from such referrals. My information indicates that no great number of prosecutions has resulted from these referrals as it appears that in various ways the law itself does not have the resources to deal with that type of prosecution. For example, it appears there are difficulties encountered in relation to proof. The office of the Director of Public Prosecutions do not seem to have the resources or the expertise to proceed with these cases. If we are serious about putting criminal sanctions in place in regard to fraudulent activities and insider dealing, then we will have to look at the question of how we go about proving an offence. We are going to have to look at computer transactions, electronic transfers and the many complicated accounts, including those subject to the Official Secrets Act and those held in confidence by the Revenue Commissioners, before we consider including any criminal sanctions in this Bill. The recent report of the Law Reform Commission on heresay evidence should be considered when we come to consider how various offences can be proved without the necessity of tracking down the persons who made the original entries on a computer.

These are the difficulties which have resulted in a slowing down of the implementation of the existing legislation and they are the kind of difficulties which will slow down the application of criminal sanctions against directors when this welcome legislation is enacted. In referring to possible difficulties in the prosecution of offenders and to the failure to bring offenders to justice, I do not want to give the impression that I want to join with those who seek to criminalise and stigmatise the business community and who fail to realise that we rely on the business community for growth in the economy. The objective of any future amending legislation based on how this legislation has worked should be to avoid crises, the appointment of receivers and liquidators and court disputes as much as possible. We should look at the provisions contained in this legislation and in the Principal Act of 1963 to see where difficulties may arise for those involved in partnerships and for creditors.

It is incumbent on directors to disclose the affairs of a company. We are not making a demand for disclosure but people should be able to find out what is contained on the register, and they should be able to find out who the directors are, what the extent of their shareholding is and how much capital is available to the company. Therefore at a glance it would be possible for them to see who might be sued as a result of some wrongdoing. I know of creditors and members of a company who have found it difficult to obtain basic information. A company need to keep the register up to date and make the accounts of the company available to both directors with a minority shareholding and members of the company. If this legislation were to be amended it should provide for the making of applications to examine the books of a company, as directors with minority shareholdings are entitled to do under the 1963 Act, in the Circuit Court without there being the necessity as is the case at present to make the application in the High Court.

We also have to look at the question of how people are able to set up businesses and receive unsecured credit. The profile of the classic phoenix company goes something like this: a person goes to the bank to inform them that they wish to buy a hotel or a pub of considerable value and set up a limited company. The bank will then lend a considerable amount of money and have the loan secured with a mortgagor or a debenture which would give the bank first call on that major asset. The company then start to trade, perhaps in a provincial town, with some creditworthiness. The shelves are stocked with goods which are very often subject to a retention of title clause and with the plant and equipment subject to a hire purchase agreement. Anything moveable in the building will more than likely not be the property of the company. We will find that when the company begin trading the cash coming in will primarily be used to pay the most urgent bills with a steady slowing down of payment to the Revenue and suppliers until we reach the stage when the secured creditor, the bank, begins to feel the pinch and something happens. Very often both the Revenue and the creditors do not move in time and the only people outside the company who know what is going on are the bank, a secured creditor. Of course, the bank are happy to allow things to continue as they are and as a result both the Revenue and other creditors are denied their lawful payments.

In cases where the Revenue and suppliers do move for a liquidation the banks will subsequently go through the same procedure all over again and allow the principals of a firm buy another major asset such as a hotel or a pub and go through the same procedure of securing that asset. In some cases they will allow this to happen four or five times over a period of time. It is not always a case of a company rising, falling and rising again, as very often one finds that some people will set up a series of these so-called phoenix companies with many people finding themselves caught as a result of supplying these companies. Many people ask how on earth we allow this to happen but the problem is that the banks, innocently or otherwise, fund these companies. They rely solely on their very favoured position as secured creditors without assessing the reality of the business they are funding with their money and in doing so, they might be acting against the interests of their customers and potential customers.

While I do not wish to say anything which would stop the flow of credit to bona fide companies, in order to ensure regular and moderate control of the activities, of those who might become involved in phoenix-type operations I believe that it might not be such a bad thing if the provisions of this Bill were widened to place the onus on a bank which provided secured credit to a company to ensure that on a yearly or six-monthly basis the private company submit accounts to the bank such as would indicate to the bank whether the company were trading recklessly.

Further sanction should be provided in the legislation whereby a bank which acted negligently, having regard to the interests of the other creditors, be they the Revenue Commissioners or ordinary supplier creditors, would lose its benefit of preferential status. Various speakers have already suggested that suppliers should be given preferential status above other existing preferential creditors such as the Revenue Commissioners and secured creditors but I do not think this is a reasonable proposal. It is a very popular proposal but I do not think it is realistic. I respectfully suggest to the Minister that the banks should somehow be made partners in reckless trading. If circumstances arose where the banks should reasonably have had knowledge of the type of reckless trading that was going on, they should lose not their creditor status but their preferential status, or at least some proportion of that preferential status, because the court investigating the matter deemed it to be their fault.

My thinking behind this suggestion is not that I wish to penalise the banks or start a witchhunt against them but I think the banks are in a position to have enormous influence on the general conduct of corporate affairs, especially on the affairs of small private companies which tend to get into difficulty, where reckless trading arises in the first instance through ignorance on the part of the principals of the company rather than any criminal intent to defraud anyone. Very often a business person's first experience of a phoenix company happens by accident. They allow their companies to slide into difficulties but by experiencing corporate difficulties very often they learn the skills of the classic phoenix merchant and they then set up companies to deliberately defraud creditors. If the banks took a more active interest in the affairs of companies in which they have secured credit they could possibly prevent inexperienced business people allowing their companies to get into a position where they would have to be liquidated and thereby cause suppliers in particular and others to be denied payment of what was owing to them.

Consistent with this line of thinking, that a stitch in time saves nine, I suggest that we should now be looking at the need to educate potential directors and shareholders in small trading companies of the responsibilities that shareholding and directorship will carry. There is nothing new in this suggestion in the present context because I can think of certain areas of activity which require training and have a prerequisite for skill before people are allowed into certain businesses. One thinks of the requirements needed for a person to take out a transport plate. One is required to have a transport manager who is suitably and professionally qualified or to have certain professional and academic skills acquired from doing a course in transport. One thinks of the requirements of the construction section of the Revenue Commissioners in relation to the qualifications of persons who take out C.2 certificates. Where one is allowing, under the law, a person to become a director of a company one has to realise that that person is becoming a trustee not only of shareholders' interests but also of the interests of the creditors, suppliers, the Revenue Commissioners and the employees who might be owed redundancy and wages. If one has to appoint a trustee out of court in respect of a family settlement or as a legal representative of an estate, one has to provide evidence of character. Very often in relation to the appointment of a person as a legal representative of the estate of a deceased person, bonds and other documents have to be provided for the secure administration of the estate, even in circumstances where the size of the estate would be minuscule when compared with the size of operation carried on by even a small company. One must not be shy in putting forward suggestions about the tests of eligibility one should undergo to become a director, or which would show the qualities and dependability of a trustee, without going overboard and without imposing a restriction on business.

I think Deputy Deenihan suggested that this legislation, the 1963 Act and amending Acts should be presented to the business community in palatable and readable form. That is a good suggestion and is consistent with my idea that there should be a general preparation for business people who enter the corporate life and who undertake corporate responsibilities. They should have regard to the great onus on them to safeguard the interests of the many people who depend on the proper running of limited liability companies for which they have responsibility.

Another area of corporate activity which never ceases to amaze me is how innocent people get caught. This area relates to people who have had no previous experience of this type of business, who enter limited liability company partnerships. Very often people who have significant sums of capital will put their money into an enterprise through a limited liability company. They will see an accountant once or twice when the company has been formed and they will be told they will get a certain number of shares and that they will be directors. However, these people are never advised to check out whether they are directors of the company, what shareholding they are entitled to and, if further shares are issued, what will happen to their shareholdings.

Very often, directors and shareholders allow their partners to ride roughshod over them for years. It is only when the company get into difficulties and it is suddenly realised that the dividends expected to accumulate within the company have vanished, or the shares expected to be owned are not formally attributed in the books of the company to those concerned, that the rush to the safety of a solicitor's office will take place, for things to be sorted out. There are many people in that position and for them it would be very necessary to have some basic grounding in the setting up and running of a company and being in a position to formally establish their right through the implementation of the basic tenets of company law.

Many disputes which arise between the partners do so through simple ignorance, a lack of ability, or perhaps an unwillingness to come to terms with the need to formalise relationships from the outset. The same comment can be made with regard to unincorporated partnerships. Far too many business relationships set up in this country are not sufficiently formalised. We are far too willing to commit our affairs to a handshake, as happened to a quite notorious recent case in relation to a public company. We will have to depart from that behaviour in our business culture. One of the tasks of corporate legislation should be to ensure that this unfortunate national trait be discouraged as much as possible. I would like to think that reasonable, bona fide business people would not be unduly prevented from setting up corporate businesses by any instruction procedure or tests of ability which would be set up by any further amendment of this legislation. Such testing procedure would be quite consistent with the provisions of the Bill, which require certain directors who have had a scrape with insolvency to provide sufficient capital in the event of their setting up a further company. There are provisions which specify minimum capital requirements for companies set up under circumstances where there have previously been difficulties. That type of provision is positive and welcome.

In relation to provisions in the legislation for the appointment of an examiner, if the Bill is to be recognised by any chief characteristic, that would be the one picked out by the general public. Very often in liquidations one finds that the whole thing happens so quickly that the entire charisma, character and goodwill of a business can vanish overnight, very often not to be replaced, just because there was no halfway house between trading and liquidation. I have great hopes for the future of companies which will experience the procedure of the appointment of the examiner and be rescued by gradual adjustment, whether it be increased capitalisation or an arrangement between all the creditors, or whatever. The setting up of a business, of contacts and of management structure to deal with the production of any item and its marketing is now much too complicated for us here to say that the savage procedure of liquidation is to apply mechanically in the event of these companies becoming insolvent. It is very important to state this fact, having regard to our sad history of businesses being grossly under-capitalised. The use of the examiner, in general will be to ensure that under-capitalised companies will have more capital and will be held aloft by the examiner from collapse until enough interested people, enough investors in the economy, can say that it is a good business, that there are plenty of orders, that there is a good staff of workers and good management, that is has been under-capitalised from the very start, possibly because of starting off in a small way, and that this company will be given a second chance without scattering their goodwill, abilities and undoubted business acumen to the four winds.

A feature of the last ten years throughout the depression has been the saddening spectacle of company after company going into the High Court on liquidation. The procedure for liquidations which one reads in the Companies Acts and the regulations made thereunder and the procedure of courts described in the case law amount to quite an integrated, neat and clean looking system. However, the practical experience of people on the ground in relation to liquidations has been that it is a tragedy, not only for the company and the personnel who own and work in it but also for the creditors. As soon as the liquidator or receiver is appointed, the experience has been that not only do items disappear out of the premises of the company but also claims arrive here, there and everywhere, either from retention of title clauses, or hire purchase contracts, or claims for damages to limbs or fingers, or in respect of bills not paid by the company. One invariably finds that in the statements of the assets of the company drawn up by the directors or the liquidator at the start of the liquidation, the figures for these assets are hardly ever met by the disposal of the assets because they disappear into thin air from the mentioned sources and from very inadequate selling and disposal procedures during the liquidation.

My view has always been that a liquidation is and always will be a tragedy. By bringing the intermediate procedure of the appointment of an examiner into this proposed legislation, the Minister has taken a major step towards ensuring a continuous business environment here which will not involve the stop-go of liquidation. We will go back to a situation which perhaps prevailed in economies before limited liability companies were ever heard of, where people went on a stock joint basis into a large partnership and each and everyone concerned took a share of the risks of the business. They faced up to the risks and did not hide behind any legalities to avoid the inevitable tragedies of some business.

The business atmosphere which this legislation will provide will ensure that there will be a growth in the economy of persons who understand that there are ethics relating to business. Even the debate in this House will highlight the desirability of having honest and responsible business people leading firms. In the past many young people have been discouraged from going into business on their own or in partnership with others because company legislation allowed the fast and loose merchants very often to predominate in business life at the expense of honest to goodness traders and suppliers. Young people were reluctant to go into business because it did not have the ethical standing of other activities. The results of the debate on the legislation will encourage more ethical dealings. I hope it will encourage people to set up organisations similar to the professional associations such as the medical and the accountants associations and the Law Society, which have as their objects the control and self-regulation of business ethics.

There is great status attached to successful business, and to persons who can go out there and conduct their business and pay their way. If we were to have national heroes, it would be the people who go out and produce the exports and jobs, to satisfy the great national need we have for exports, jobs and wealth creation. People who go out and toil every day — very often they and their families sacrifice income for many years before they have their business built up — deserve great credit. They should join together to establish great partnerships or organisations which would have the hallmark of integrity, dependability and, above all credit worthiness.

This reminds me of the growth in commercial activity across the water in England right from the Elizabethan times when the joint stock companies started off. People would join together without limited liability and send ships off to the furthest ends of the earth to bring back merchandise. This could result in great profit but equally it often resulted in severe losses. Given that this new legislation provides for setting up separate companies with the minimum capital qualifications, I think that private companies could join together in certain instances and set up criteria of creditworthiness and capitalisation which they as a group could hold themselves out as having. They could regulate their membership to ensure that anyone seeking to enter into contracts with them would guarantee that they would not supply a company who were not creditworthy, or did not operate to a certain set of ethical standards. This could not be legislated for or forced on the business community, but we are reaching a stage where not only are we required to have skills and resources in the European economy, but where we also need to prove to the rest of Europe that we have the requisite business integrity required to carry out transactions from here to Greece or from Spain to here. All countries should be able to deal on the Irish business scene without the fear of being let down, either through corporate manipulation, defrauding creditors or in ordinary contractual relationships.

I hope this legislation will go a long way to inducing a sense of confidence among the business community and among trade unions and employees of companies that the Government are intent on ensuring a proper business environment in which people can operate honestly in the knowledge that they will be reasonably secure in their employment and, in the case of suppliers, that what is due to them will be paid.

Many of the developments in the legislation were forewarned by developments in the courts. Over the past ten years, with the increasing number of liquidations, the courts have become much more active in protecting the interests of creditors. They have become much more active in ensuring that in instances where directors act fraudulently they are made personally liable. The Bill reflects the courts' concern in this regard. I am confident, given the attitude displayed by the courts over the past ten years, that whatever provisions are provided in the legislation will be actively pursued in the courts both by the legal profession and by the judges who deal with company law cases.

I am quite satisfied that however the legislation may be refined at present, it will be a success and will be of positive benefit to the business community. In the fullness of time when we see how the legislation is working, I hope the Government will not be reluctant to come back to the House to provide whatever further slight refinements or amendments are necessary to ensure there are no technical anomalies which prevent the spirit of the legislation working.

First, I believe that this Bill is good in substance and is long overdue. I feel confident that it will mark a significant improvement in the general area of company law. I agree with many of the sentiments expressed by Deputy Abbott about its implications and the consequences of its passage.

It is worth while asking, when we look at company law in a general sense, why we have so organised our affairs that individual persons can be turned by law into what amount to companies or corporations. As Deputy Abbott pointed out, these limited liability companies are of comparatively recent origin and corporations and companies prior to the institution of limited liability were on a statutory basis. Things which were effectively similar unless they were created by statute or by ordinance of the king or queen of the day were effectively akin to large partnerships in which all the participants were liable for all the debts. Two basic reasons emerged for the institution of the modern limited liability company: first, it is to provide for continuity, that a business may come into existence and not cease to exist or go into a legal crisis because one of the proprietors dies or becomes insolvent or whatever; the second factor, is the limitation of liability itself. These are the two major factors in company law which justify the existence of limited liability companies in their modern form.

With regard to the continuity of a business, it is desirable that an artificial person should be created as distinct from the actual human beings and bodies which constitute the ownership of any company from time to time. This allows the shares of the company to be transferred. Effectively, it allows the business to move in terms of its ownership from A to B, and to allow for the participation of unit trust funds as much as private individuals without disruption to the business. But in relation to the question of risk-taking and liability, totally different considerations apply.

I am of the view that this House should approach limited liability with a degree of seriousness — almost reverence — because of the implications of the limitation on liability. It is all very well to talk about an enterprise culture, in which I personally believe, and to talk about institutionalising the merits of risk-taking, creating a society in which people can take risks in as favourable an ambience as possible. When a person takes risks with his own money, that is his own business. Perhaps, as Deputy Abbott says, those who take risks by setting up businesses and offering employment to others are the heroes of our modern western market liberal society. People who take risks with other people's money are in a very different category. It is all right to take risks with one's own money but there must be slightly more responsibility when one takes risks with investors' money. Much more important is the taking of risks with the assets, services and credit of third parties who are entirely strangers to the substance of the company's business. That is a completely different thing.

Risk-taking is not a virtue of an unqualified kind. Risk-taking falls into three basic categories, the first of which is risk with one's own enterprise, efforts and property. Then there is risk with the enterprise, efforts and property of those who are in some sense with you in the running of the company — the shareholders who are the joint owners of the company. With regard to the interests of third parties, strangers to the company's affairs, risk-taking is not a virtue. It may be necessary but in many cases it is a vice. To use the credit of third parties and strangers for the purpose of enriching oneself and to take risks with their money with the protection of law is a very serious matter. It is that feature of Irish company law which has given rise to so much dissatisfaction.

We have heard about the phoenix syndrome where persons set up in business, inflate it, deflate it like a burst balloon, take the profits and set up another business in its place, without regard to the interests of the creditors, many of whose lives are ruined by such behaviour. The phoenix syndrome is something which the man in the street can understand and dislike. It has to be looked at very carefully and not just in broad populist terms. It is easy to come into this House and suggest making life much more difficult for businessmen by hammering the business community and making criminal liability for directors stick. Those are populist sentiments which in many cases are justified, but they cannot be trotted out on a simplistic basis without regard to the commercial realities of life.

The commercial realities of life involve for many people a totally ridiculous situation in which small traders trying to establish small businesses come face to face with a companies code which is very hard for the ordinary person without third level education to comprehend and appreciate fully. Company law is a very complex area. That the average Joe Soap who wants to run a business of a small kind employing himself and one or two others must, if he wants to limit his liability, establish a company, is a proposition which I do not readily accept. The limited liability company such as we have established with company secretaries, directors' meetings, annual general meetings, annual accounting requirements, qualified shareholders' rights, debentures and charges, are propositions which are appropriate to a company which is genuinely an association of strangers with a view to a common purpose.

There is much to be said for the proposition that we should establish a simpler form of limited liability for small and sole traders. There are plenty of models in continental Europe for such a form of simple limited liability, so that an ordinary person who is a plumber does not have to pretend that he has an annual general meeting between him and his wife every year to decide how his business is being conducted. I hate legal fiction. I find it an abomination that courts seriously have to pretent that a plumber and his wife, who is also deputising as secretary of the company, have for some purpose to go through this legal charade in order to avail of limited liability. Would it not be far better to allow businesses to apply for limited liability up to a small amount and let people trade with them in the knowledge of that limited liability? It is not a company; it is just a person who is carrying on a limited business. Its assets are of a certain amount and the only obligation in relation to creditors of that business is for the participants to give full and fair accounts annually or biannually and for persons in those circumstances not to trade to an extent which is inconsistent with the accounting base of the company. That would be much more honest and sensible than pretending that Article A applies to a sweetshop in any street in this city. People do not behave as if they are directors of a large company. It is absurd to try to warp a model based on this loose association of strangers on to a business which is a million miles away from it.

If we want to look at limited liability as an incentive to risk-taking, we might look at the American example. The great majority of jobs in their great job boom have arisen in very small businesses which have become established. If we want to learn from their experience, we should take the sole trader or the person with one or two employees out of the maze of company law and find within Europe a structure of limited liability which is honest, realistic and reflects the real situation. It must be workable and should not depend on legal fiction. There are 1,000 good reasons for such a change in the manner in which we afford limited liability to small businesses and there are very few rational reasons for requiring small businesses to conform to the substance of company law. All the arguments about continuity which I mentioned earlier do not apply to such an extent to small businesses of this kind. All the arguments about shareholders' rights are entirely fictional and inappropriate in that context. Simple limitation of liability should be available in cases of that kind.

There is a model already in existence. I refer to the limited liability partnership which pre-dates the companies code as we have it. It allows a general partner to take on partners who do not take on unlimited liability but only limited liability. The general partner must remain liable in total for the debts of the company, but his limited partners are entitled to avail of limited liability, provided they do not take an active part in the management of the company. There is one model — and I am not saying it is apposite to every trader because it would not be of much assistance to many of them — where the Legislature has left in being a different form of liability which does not depend on the structure and the fiction of a company's existence.

I say all that to put in place my view that company law and the enhancement of the enterprise culture does not mean that the only way one can make risk taking more attractive is to do it by the vehicle we know as a table A off-the-shelf company with directors, shareholders and so on. There are a thousand different ways of achieving the same result outside the companies code. Now is the time to set up a working group in the Department of Industry and Commerce to see if there are not simpler forms of limited liability which could easily be established for small traders with a view to making life easier for them and to making the law more honest as it applies to them.

Much this Bill is concerned with remedial matters — investigation of the company's affairs, undoing transactions involving directors, preventing abuses arising out of directors interest and insider dealings, winding up of the company, providing protection for the company in the case of temporary insolvency under which the company's affairs can be reconstituted, receivers and new regulations in relation to the accounts and accounting standards of the company. That is the substance of this Bill and it is fundamentally a remedial step designed to afford greater safeguards and substance to those who deal with companies and to impose, as Deputy Abbott put it, a different standard of behaviour than perhaps has been the norm in the past on those who use companies.

I feel very strongly about company insolvencies and whatever remedy we provide must work in practice. There is no point in having remedies which only work in theory, or on paper, or having volumes the size of the 1963 Companies Act, which seems to provide a series of remedies, duties, liabilities and so on, but does not work. The yardstick this House brings to company legislation must always be simple — is it effective? We can impose liabilities on a host of people, but at the moment the law, say, relating to the recovery of small debts, or even large debts, is non-effective.

The recent report of the Law Reform Commission in relation to the appointment of sheriffs to reconstitute what used to be there — a system of enforcing court orders — is a signal lesson to this House. We have hugely complex civil and commerical laws but more and more people going to law find that when they have litigated the matter and have been told they are entitled to X amount, there is no way to recover that money. The same applies to our company code. It is all very well to tell small creditors we are providing a new system whereby companies can go into protection rather than liquidation, but to an ordinary Joe Soap who is in debt and finds himself to be a creditor of an insolvent, whether temporarily or permanently, company he cannot just go to the sheriff and take legal remedies as if they cost nothing and were always effective. A person in those circumstances needs real protection, not paper protection.

When the British Parliament instituted their second last great codification of company law in 1948 which our 1963 Act is largely a mirror — they took one measure which we in our wisdom, or lack of wisdom, decided not to take, that was to provide a State liquidation of companies in the interest of creditors. An official receiver was provided who could, at the instance of a creditor take over the function of liquidating a company. We left it effectively to a creditor to go to court and apply for a private enterprise liquidator to be appointed. The difference between those two sets of circumstances has been very telling in terms of how company law has been used and abused in both jurisdictions.

In Britain the official receiver chased directors and rogue directors, pinned their liabilities on them and used the law to corner them wherever they went. In Ireland and I know this as does Deputy Abbott from ordinary contact with litigation — we frequently have to tell somebody who is owed £8,000 that by the time he has appointed a liquidator and has provided security to wind up the company, and by the time he has sorted out the jumbled mess that appears to be the affairs of that company, he will be out of pocket further because he must bear the cost of finding an accountant who will take on the affairs of the company. The dreadful thing is that to date, the worse the condition of the company the less likely was anybody to appoint a liquidator, because in many cases the liquidator looked at the affairs of the company — I do not say this in an incriminatory way against those who have acted as liquidators because they do a good job — and found there were no assets out of which even an hour of his time could be paid for. In other words, there is no prospect of the receiver being remunerated, and unless the creditors were willing to bank roll the liquidation, nothing could be done. That frequently led to creditors being advised by lawyers — good and fair minded lawyers — not to throw good money after bad but to abandon their debt and let the man get away with it because it was not worth their while chasing him. That is the reality of company law in Ireland.

The official receiver is a person whose duty it is in certain circumstances to say he would do the liquidation, chase the directors and do something about getting the assets of the company into some form so that there is something left for the creditors. But that provision did not exist in Ireland, and the absence of the official receiver made company law in Ireland a preserve for those who wanted to abuse it. In fact, it is a miracle there was not twice as much abuse. If there had been a state officer whose duty it was to take over a liquidation in certain circumstances and to wind up the affairs of a company, I believe there would have been far less abuse.

It has to be said that even in the structure of the Companies Act, 1963, there was a total failure to come to grips with the real motives of the fraudulent abusers of limited liability. Fraudulent trading was provided for in the Act but nothing was ever done — it is a pity that the Minister for Justice is no longer in the House — to make the laws of criminal evidence such that any of these offences could ever be proved. A person could go into a company's office and find records, invoices and books of account but as the law stands, none of these could be produced in evidence. It is all very well to say in a civil case that you found these books and that they tend to show X, Y and Z and the court, probably bending the rules of evidence, would start to draw inferences from them, but in a criminal case — and like myself Deputy Abbott has prosecuted at the request of the Director of Public Prosecutions on many occasions — it must be proved beyond reasonable doubt by admissible evidence.

The simple fact is that Irish criminal law does not permit prosecutions of complex fraud. It is impossible, unless the defendant makes widespread confessions of guilt, effectively puts his own head in the noose and kicks the lever as he goes down, to secure convictions. Computer records are not provable in an Irish court. Records of indefinite origin are not provable and in many cases the rule of hearsay prevents documents which are obviously authentic being used to establish the facts set out in those documents. The right of silence, about which we hear so much, allows the accused person to say, "Prove it. I do not want to make any comment on it. I do not want to say anything about the records of this company nor about its condition of trading history. You prove the case against me".

Many times it has transpired that people who are obviously civilly liable — and should be criminally liable — cannot be prosecuted because there is not even a presumption of any kind to assist the prosecution in relation to the records of the company and all the records available are inadmissible. That is the day-to-day experience of company law. We live in a slightly unreal world in this House. We are now passing a law to make certain forms of behaviour by directors a criminal offence; we are providing for penalties on summary conviction and penalties on indictment but, in relation to trials on indictment, nobody in this House seems to have any notion of what form those trials will take, what form the Book of Evidence will take, who will give evidence about the company's affairs or who will pinpoint the fraudulent transactions. How will they do it? Will they wave invoices at the jury from five yards away across a courtroom and hope that the judge will say it is admissible evidence, even when it is not? Things do not happen that way.

We have reached the sad state that commercial fraud and commercial crime are, effectively unprovable. Therefore, all the criminal sanctions provided for in the Bill are, in a large measure, ineffective and incapable of operation. I am not being critical or anyone in this House because the legal profession have failed to face up to this and they have the most experience in this field. The man in the street does not know what the hearsay rule is and still less has he any idea of how it can be improved upon. The legal profession know precisely how unfair that rule is and how much a vehicle of fraud it frequently is. They have not done their bit in goading this House into reforming the law relating to commercial fraud and commercial crime.

If a jury of 12 people drawn from all walks of life are to be empanelled and asked to consider the affairs of a company and to decide, beyond reasonable doubt, the guilt or innocence of a director of the offence we are creating in this statute, they would need to have considerable accounting skills or be able to have the advice of accounting experts as to the significance of the figures brought before them. At the moment the opinion of an accountant in a criminal trial as to the significance of figures and whether something was a reasonably likely transaction undertaken in the context of the solvency of the company, is not evidence available to a jury. It just shows that, on virtually every front, the dice still remains loaded against enforcement of the law. We are doing right things in the Bill but we are not delivering on our fundamental duty to make these provisions effective. In this connection, I summarise by saying that unless these measures are made effective and made to stick, they are pointless window dressing.

I compliment the Minister on introducing the Bill but a whole raft of legislation is needed in addition to it to make the legislation stick. The legal procedures necessary to make the legislation work are not there. I instance the absence of an official receiver and the absence of fair rules of procedure and reasonable rules of evidence as things which will make this legislation ineffective.

Deputy Abbott alluded to a fairly obvious point, that it is easy to come in here and say that small traders should be preferential creditors of a company. It is an easy proposition to conjure up and it would cause a headline here and there if it was said often enough or loudly enough. However, translating it into practice is a very different thing. In terms of preferential creditors, you will never get a fair system unless an entirely radically different view is taken of the assets and the mode of their distribution on an insolvency. This Minister should think in terms of dividing the cake on an insolvency in statutory slices, much as in the case of inheritance under the succession Act. A certain portion of the assets of any company, determined by percentage — I do not know what it should be, 10 per cent, 25 per cent or 35 per cent — should always be available for different classes of creditor. No creditor, by lending to an institution which has limited liability, on the basis of an absolutely exclusive charge gives him priority over all other creditors, should be able to say that he will take the interest on his loan which is charged on the assets of the company and avail of the limited liability and, that if there is any insolvency, he will be the first to get his money and will take it without any consideration for the implications for the other creditors of the company.

It would be possible to devise a system of insolvency law which would separate the assets of an insolvent company into proportions which would be available for different purposes. One purpose is the cost of the liquidation itself, so that maybe 5 per cent of the assets of a company were always available if necessary. I am not suggesting that they should always be applied to this purpose but that they should be available, if necessary, for a liquidator so that a liquidator coming to grips with an insolvent company would always have some proportion of the assets of the company for distribution and available to fund the liquidation.

Another proportion should always be available for ordinary, unsecured creditors, and the rights of secured creditors should, therefore, it follows logically, be confined to a different proportion of the company's assets. A model along those lines could be instituted and would be fairer. There should be no situation in which bona fides, ordinary creditors ended up utterly penniless while secured creditors recovered all that was due to them. Secured creditors — let us be clear about this — are in general terms institutions which have lent to the company and they look to the company for an interest income, whereas that is not the case with an unsecured creditor who is normally somebody who has given a service or goods to the company in good faith and with the expectation that the debt will be paid. I do not see why we should in our laws, provide for an unlimited capacity for institutional lenders to immunise themselves from the effects of insolvency when ordinary Joe Soaps cannot. While I agree with Deputy Abbott — I do not want to be populist and simplistic — on the subject of protecting ordinary trade creditors, this House should address itself to the possibility of providing definite proportions which were always available for unsecured creditors so as to protect them, at least in part, from the consequences of insolvency.

While I am on the issue of insolvency I would like to say that my party have, in their two or three years of existence, always championed the proposition that the Revenue Commissioners should not be secured creditors of any company. The Revenue Commissioners are given power after power in Finance Acts to secure the debts due to them in relation to taxation arrears. That kind of power is not available to the ordinary unsecured creditor of a company with a small amount of money. The Revenue Commissioners — I make no criticism of them — very frequently, in the management of revenue, make commercial decisions to go easy on a company they believe will be in a position in six or nine months' time to pay their tax debts. I am not criticising them for that. That is a sensible discretion which is given to them. In making their decision they know that in the last analysis they are secured.

The ordinary people who deal with the company in the intervening period, who lend to the company, supply to the company and work for the company in various ways, do so continually at a risk that the Revenue Commissioners can at any stage pull the plug and say that that company is no longer considered to be a solvent or a saveable commodity. Those are the circumstances in which it is wrong for the Revenue Commissioners to be able to claim their preferential creditor status. They have been, in many cases, entitled to something which the ordinary trade creditor is not entitled to. Their Inspector of Taxes sits down with the directors and the accountants of the company and he knows the position of the company. Very frequently the Revenue Commissioners have much better knowledge than any trade creditor can possibly have and they make a decision to extend credit. In the meantime ordinary, innocent people deal with that company but if there is an insolvency the Revenue Commissioners' position is secured at any given time because they have the rank of preferential creditor. We should as a House acknowledge that that is unfair. It brings about a false sense of security among the Revenue Commissioners and it inculcates a willingness on the part of the Revenue to forego revenue in certain circumstances or to forego adherence to strict time limits for payment of revenue due on the basis that this safety net is always available to them. That is unjust and does not even work in the interests of the Revenue Commissioners in the long run. It would be far better if, when they sat down with the directors of a company, they were in a position to say to them: "We are just ordinary unsecured creditors; we are not going to give you any particular favours; we want an arrangement which will stick and we will not deal with you on the basis that we are all right but everybody else can suffer if the company becomes insolvent". In the context of preferential creditors there is a need for a review of the law. Unfortunately, this Bill, while it deals very well with many other matters, fails to deal with that issue and that is regrettable.

I would like to refer to the question of infractions of the law. The penalties provided for in this Bill are not severe enough. When somebody has been knowingly and fraudulently trading it is not very different from when somebody pilfers money on a massive scale from his employer. The penalties imposed should be the same as those for embezzlement under the Larceny Act, 1916. We cannot have a two-tiered system of justice where white collar crime of embezzlement is dealt with more severely than directors' conscious acts of fraud.

I note that it is proposed to amend section 297 of the Companies Act in relation to fraudulent or reckless trading. Now the definition of officer is to include an auditor, liquidator, receiver or shadow director. I hope that is sufficient to cover people who substantially derive profit from a company. I hope the title of shadow director is sufficient to cover not simply people who are proxy directors but also bank rollers of a company who are aware of its affairs. I wonder if that is the case.

There are a number of matters in the Companies Act, 1963, which need amendment or small running repairs. One of them which strikes me — I have written to the Minister about this and I hope that on Committee Stage he will accede to an amendment or even put down one himself — is in relation to the banking world. Provision should be made so that securities issued by banks by way of promissory notes or other money notes for trading on international markets would be excluded from the definition of debentures. At present they are included as securities of a company. Therefore documentation in relation to the floatation of such note issues should be dealt with other than on the basis that it amounts to a prospectus and that liability arises accordingly. It is unnecessary for us to trammel Irish banks. Other companies trading in the banking business are not trammelled by such an unduly restrictive law. I will be putting down an amendment on Committee Stage on that and on a number of other small but important issues. I want to try to avail of this opportunity, in amending company law, to make a few running repairs.

It is perhaps unfortunate — I can see why it has come about — that now when Britain has consolidated its company law in a new Act, Ireland should be still adding to a patchwork of individual Companies Acts. It is a pity that the 1963, the 1983, the 1986 Act and this Bill would not have been consolidated into one Act. Perhaps that will be done under the rules of this House, without huge debate or massive disturbance to the procedures of the House. It should be possible to produce one consolidated Companies Act which would make the law accessible in one document as it was in 1963.

I congratulate the Government for getting on with this Act. My major misgiving is in terms of effectiveness. On Committee Stage our contribution will be directed towards increasing the effectiveness of this legislation rather than disagreeing with its principles in any way.

I welcome the Bill. It is long overdue. It is certainly lengthy with 11 Parts and 207 sections. If one was to go into such a Bill in detail on every section one would need to be here for days. I know many other Deputies will wish to speak on it and I intend to be as brief as possible. In a debate in this House a number of lawyers, accountants and such people have spoken on the Bill generally. They are very well briefed and very well aware of the pitfalls and difficulties faced by companies and people involved over many years.

During the past eight or ten years I have been involved with the liquidation and receivership of many companies in my county — indeed, at one stage we were creating records down there in that regard — usually to make sure that jobs were saved or the people losing their jobs got a fair crack of the whip. I have been appalled at some of the things I have seen happening in that time. I have seen companies closing down one day and the directors opening other companies or similar type companies the next day. I have seen asset stripping, rogue directors redirecting moneys and equipment out of a company that went into receivership of liquidation just weeks previously and using them to set up new companies. In practically every case the real losers both in financial terms and job wise have been the suppliers and workers of such companies. Nobody seems to care about this sector. This Bill, I hope, will go a long way towards correcting the problems that have existed in this regard up to now.

The latest example of rogue companies I have come across is one called Hospital Transport Services Scheme of Scalty, County Carlow who recently canvassed house to house in my county and other counties of the region offering old people and the less well off transport services at a yearly rate of £36 each. They collected thousands of pounds, but after a couple of months they disappeared and no one seems to be able to make any contact with them or bring them to justice. I have numerous letters from people in my own county who paid money to this operation. I have passed these letters to the Minister for Health and I hope he can have the matter investigated. I feel this company collected moneys under false pretences by promising a hospital transport service, maybe because some health boards withdrew the service of bringing people to hospitals because of the cutbacks, and these rogue directors saw an opportunity to get easy money. Certainly they got easy money at the expense of the poor, the less well off and the old people and they have caused consternation among this group of people who feel cheated and let down by such action. I appeal to the Minister for Industry and Commerce, the Minister for Justice and the Minister for Health to involve themselves in trying to have this company investigated by the Garda Síochána and to see that justice is done and is seen to be done. The company have run with thousands of pounds of poor people's money and no company or group of people involved in such a company should be allowed to get off scot free with such deeds. Immediate action should be taken here.

The Bill contains a number of provisions that I welcome, particularly the proposed new arrangements providing that companies in financial difficulties can avail of a legally enforceable rehabilitation period when they can seek court protection under which the rights of all creditors are temporarily frozen and the court appoints an examiner to examine the affairs of the company and keep a supervisory role on their affairs while they are under protection. The examiner reports to the court on the viability of the company and if they are viable prepares a rescue plan which in turn is submitted to interested parties, for example, creditors, for acceptance. This is a welcome initiative. If it had been there heretofore maybe some of the companies who have gone to ground because of bad management or financial difficulties could have been saved. I compliment the Minister on introducing this provision.

The highlights of the Bill generally are that directors may more often become personally liable for a company's debts in a winding up and that directors of insolvent companies will be restricted in future directorships. Directors of holding companies may have the same responsiblity as directors of an insolvent subsidiary for the latter's affairs. Greater powers are given to the Minister and other parties, such as creditors, to have inspectors investigate a company's affairs. Companies experiencing financial difficulties can be placed under protection of the court for a period of months, and insider dealing is prohibited. Substantial penalties are provided for non-compliance.

These are the principle features of the Bill. In many ways they are welcome, particularly by people who suffer severe losses because of companies who have gone into receivership or liquidation.

Part II of the Bill deals with investigations into the affairs of a company. The courts are empowered to appoint inspectors to investigate a company's affairs when this is deemed necessary. It can be on the application of an interested party or the Minister himself can initiate proceedings. This legislation deals with matters such as entry and search of premises and the inspector's report which is to be made available to various interested parties as the court sees fit.

Part III is in regard to directors and various connected persons, for example the spouse or other members of the immediate family. It deals with situations where a company director might be tempted to put his personal interests before those of the company. This has been known to happen on a wide scale; company directors have used company assets and moneys for their personal benefit. People who supply such companies or who are involved in such companies will welcome this provision.

Part V deals with insider dealing. It is difficult to come by evidence of insider dealing in Ireland but it is highly likely that it exists here. Initially it was proposed in the Bill that the practice should be dealt with as a civil offence only. However, after much discussion and debate the Minister has now decided to make it a criminal offence in line with practice in most other countries. Insider dealing or even the impression that others have of the inside track is a great hindrance to public confidence particularly in the Stock Exchange. Investment in industry through the Stock Exchange is the lifeline for economic activity and growth, and confidence in it must be maintained.

Part IV, which many see as the most significant Part of the Bill, addresses the problem of fraudulent and reckless trading. Provisions have been available in company law since 1963 under which company directors could be made liable for their company's debts where fraudulent trading had taken place. This Part will strengthen and improve the law in this regard. The problem to some extent with existing legislation was that as things stood it was very difficult to prove fraudulent trading, consequently liquidators tended to avoid it. Under this Bill offences of fraudulent trading have been divided into civil and criminal sections and the standard of proof required in a civil case brought by a liquidator or creditor is thus lowered. I welcome the provision that the concept of reckless trading is to apply to liability for debts of a company being wound up and that this will apply to a director who knowingly contracts debts which he does not honestly believe on reasonable grounds can be paid. In many cases over the past few years we have seen companies trading right up to the day they have gone out of existence. I refer particularly to the farmers in the south eastern region who had cause to become very militant recently because they were selling cattle and other products to companies who purchased them right up to the day prior to going into receivership. As a result there were severe financial losses. Such losses, in many cases, put people in the farming community and other business people out of existence as well as the company that went into receivership. It is fraud of the highest order to become involved in purchasing goods, knowing that the financial resources are not here to pay for such goods. It is time action was taken in that area.

It has been a bone of contention with me for a long time that preferential creditors are not rated in order of merit. The banks and the Revenue Commissioners always get the largest slice of whatever is going when a company goes into receivership and I am not sure that this should be allowed to happen. I do not see why the banks should be allowed to be preferential creditors because, in many cases the banks are aware for some time that a company is in a bad financial situation because they have the resources and the expertise and have the company's accounts in their office. They know the position the company is in and if it can survive. Yet they do not inform the company that they feel it cannot survive or warn it that it cannot continue down the road it is on. The banks must play a greater role in this whole area. In many cases banks have pulled the plug, knowing that when the assets are sold off they will get a reasonable slice of the cake, and that people down the line such as suppliers and employees will get very little. That is not right.

The Revenue Commissioners are the same. They allow companies to get away with paying VHI, VAT and tax returns for up to four years. Such companies are then trading under false pretences because they are using money collected from the workers and moneys due in VAT receipts to survive. If the money has not come through after six or nine months, or certainly within one year and if the Revenue Commissioners find that the company is not in a proper trading position, they should advise the company of what action may or may not be taken. The Revenue Commissioners have a role to play. Because the Revenue Commissioners and the banks shy away from playing any role in the survival of a company and can, at the end of the day, pull the plug and allow the company to go out of existence, they should not be high on the list of preferential creditors. This is an area the Minister should look at on further Stages of the Bill.

Small suppliers up and down the country have gone out of business because a company they supplied went into receivership. The Department, the banks and the Revenue Commissioners are not concerned about those small suppliers and they are just allowed to go to the wall. They suffer huge losses and they have no protection from anyone. The Minister should ensure in the Bill that suppliers are given a higher preferential credit rating because they are not able to carry significant losses whereas the banks and even the Revenue Commissioners may be able to do so.

On the question of liquidation and receivership, the amount of money being paid to liquidators and receivers is exorbitant. They charge massive fees that are not justified and the responsibilities of a receiver are not well defined. A receiver is appointed to look into the affairs of a company, wind up a company and sell off the assets. I have seen companies that had vast amounts of assets such as materials, equipment and buildings, and yet by the time the company appointed to act as receiver carried out an inventory much of the equipment etc. had gone missing, and such materials and equipment would have a value and would ensure that creditors would get more when they were sold or disposed of.

Some receivers or liquidators do not act quickly enough or in a responsible enough manner. It seems they are not responsible to anyone at the end of the day. That is something that should be looked at in far greater detail because in some cases companies can be sold off for, say, £90,000 with the receiver getting £50,000, leaving very little money for creditors, preferential or otherwise. I have seen workers get as little as 5p or 6p in the £ after anything from 14 to 20 years service. That should not be allowed to continue. There should be some sort of fixed payment to receivers and people involved in this arena. It should not be open-ended regardless of whether they spend 80 hours, 90 hours, 100 hours or one year winding up a company. No one seems to have any great interest in how long they spend. It is not right that the receivers and the liquidators should cream off most of the money that accrues from the selling off of assets. The Minister should look at this area also.

Finally, I compliment the Minister on taking action. We have been promised this Companies Bill on a number of occasions and the public have been crying out for action to be taken, particularly in circumstances where companies were closing down today and starting up tomorrow with no lack of money to set up the new company, and suppliers losing substantially as a result of closedowns. This whole area needed to be tackled, and I compliment the Minister, Deputy Albert Reynolds, for taking the initiative by introducing this Bill. I hope that following the passing of this Bill swift action will be taken to implement its proposals so that we will not have the type of roguery, skulduggery and underhandedness that has gone on for a long number of years in relation to company closures and asset stripping.

This Bill is most welcome, having been required for a long time. It has been proven over the last number of years that it is absolutely essential to restrict and control the phoenix-type companies that we have read about in the newspapers. It is quite a while since this Bill was first thought about. The Leader of the Progressive Democrats was involved in the earlier stages. Deputy Frank Cluskey was later involved, and Deputy John Bruton produced a Bill that was more or less the same as this Bill when it was introduced in the Seanad. The sooner it is passed into law the better for everybody concerned.

The whole concept of limited liability goes back over a number of years. It is absolutely essential and operates in nearly all democratic countries. Limited liability status places the directors of a company in a position of trust. They are in a fiduciary position and, as a result, there is an obligation on them to be honest in their transactions. There is no doubt that limited liability status has been seriously abused by a minority of people, some of whom have been reckless in their business dealings and whose actions on occasions have been fraudulent. It is unfortunate that there has been little success in the efforts to combat such fraudulent transactions. The Department of Industry and Commerce and the Companies Office have had limited success on that score. In fact, I am not aware of any success they have had in proving fraudulent transactions by companies. I see the Bill, which deals with mushroom companies and phoenix companies, as an effort to remedy the glaring defects in business life and commercial law.

The problem with limited liability status was that the person who ran a business in a competent manner was placed at a disadvantage on many occasions. We are all aware of the companies that have amassed huge sums of money which were siphoned off by the directors for their own personal gain, for the purchase of houses, property, lands and even race horses. While those assets were being siphoned off, the company was getting deeper and deeper into debt. It is not hard to picture what happened to those companies. When they went into voluntary liquidation many respectable family businesses, their suppliers, farmers and local traders were often left penniless. That has occurred in livestock dealing and in all aspects of business. I welcome the Bill as an effort to deal with that problem.

The Bill is a complex measure and I do not intend to go into its provisions in detail on Second Stage. However, I give notice to the Minister of my intention to produce, with the agreement of my party, a number of amendments for Committee Stage. I compliment the Minister of State on his approach to the amendments and suggestions put forward when the Bill was being debated in the Seanad. The Bill was changed drastically in the Upper House arising out of amendments put forward by Senators from all parties and submissions made by the business community. Under section 7 (1) a court may appoint an inspector from the Department to investigate a company. Such application will be made to the court by the shareholders. I do not intend to dwell on that provision on Second Stage but I should like to refer to subsection (3) which provides that the individual who wishes to have a company investigated may be ordered by the court to give security in the sum of £200,000. I have no doubt that that will deter people from applying to a court to appoint an inspector to investigate a company. Very few companies can afford to put up that type of security. I accept that some companies for frivolous or even malicious reasons may apply to the courts to appoint an inspector to carry out an investigation but a security of £5,000 would be sufficient to deter people from making applications for frivolous reasons. If the court decides to adopt the measure of requiring a sum of £200,000 to be lodged as security, this section regarding investigations made by the company shareholders will be rarely, if ever, utilised and it is a very important section. The measure is onerous and much too restrictive and is entirely counter productive as regards its benefit to a company.

The Minister may appoint his own inspectors after he applies to the court; I welcome that. The position in regard to the report is accurately outlined in the Bill and I am happy with the measures in so far as they deal with the proceedings on the inspectors' report but the item I mentioned will certainly have to be changed.

I also want to refer to section 16 in relation to where an inquiry or an investigation is being carried out. The situation here is serious in that if persons purchase shares in good faith and for valuable consideration and pay over their money, they can find that the sale was null and void. It is stated in section 16 that:

The Minister may by notice in writing direct that the shares shall until further notice be subject to the restrictions imposed by this section.

It is stated also that the sale will be null and void. I would ask the Minister to have this situation clarified. I can understand why he has included this regulation. Shares are often sold on by people at the last moment. Directors, for their own reasons, see a means of obtaining cash rapidly, sell shares to an innocent third party who pays his money. If that person has not received notice then it would be wrong that he should be made a scapegoat and should be at the loss of his money. Where an investigation is going on or where there is an inquiry of any sort I am anxious that proper notices be published. I do not think that the matter of notices is adequately set out in the Bill. The purpose of this provision is to ensure that the person who, in good faith, purchases shares will be safeguarded in some way. Whether the investigation is registered in the companies office or is published in Iris Oifigiúil or in newspapers is a matter that will have to be clarified. As it exists I can foresee innocent people being at the loss of their money regarding the purchase of shares or debentures. I would like to have this area investigated further.

In company matters one of the areas where there must be a certain amount of privilege is in regard to a solicitor or barrister who is acting on behalf of a director of a company, where confidential discussions take place and where documents are produced to a solicitor who reads them and, perhaps keeps copies of them. In any normal democracy such conversations between a solicitor and client are regarded as privileged. In section 23 the Minister has made some effort to allow privilege to a solicitor dealing with a director or member of a company. While the Minister has gone some of the way to meet this problem of privilege, the Bill as presently drafted, is too limited in its scope and needs to be extended further. In normal business transactions and to allow for confidence between solicitor and client I ask the Minister to extend that section further. Section 23 (1) states:

Nothing in section 14 to 16 or 19 to 21 shall compel the disclosure by any person of any information which he would, in the opinion of the court, be entitled to refuse to produce on the grounds of legal professional privilege or authorise the taking of possession of any document containing such information which is in his possession.

The point I am making is that in so far as it relates to the particular sections it should cover all aspects of this Bill. It is too limited in its scope. In western democracy, as we know it, the discussions of a solicitor and client are privileged. In my view this section has all the hallmarks of leading to a situation where that privilege may be interfered with. I do not believe that to be the intention of the Minister or his departmental officials nor of anybody in this House to have any breach of that privilege. I ask the Minister to re-examine this area that he will be able to meet his own wishes which I am sure are on the same lines as mine.

The next section I should like to deal with concerns transactions involving directors. There will have to be restrictions on the manner in which directors conduct and carry out their businesses. However, that being said, some of the restrictions imposed under the provisions of Part III of the Bill in regard to transactions involving directors are too restrictive. I note that the limit imposed on loans to be given to a director of a company, as specified in the Bill, is £2,500. I contend that in this day and age such a figure is unrealistic. I know there will be exceptions such as the circumstances obtaining in the case of a dwellinghouse and so on.

It must be remembered that we are endeavouring to encourage people into business, industry and to invest here, including foreign business people. After 1992 there will be free trade generally within Europe. I predict that there will be cynical comment in many countries at the undue restrictions imposed here on the amount of loans a company can make to a director. Again, I contend that the figure of £2,500 is unrealistic at present and will appear even more so as time goes on. I contend that that type of nit-picking interference in the affairs of companies will deter many from coming here.

It should be remembered also that there are heavy penalties provided for breach of the provisions of these sections.

These provisions involve too much interference in the affairs, directorships and management of companies and of businesses. This is something that should be examined at the earliest possible opportunity, particularly as we are endeavouring to stimulate industrial development here. For example, anybody knowingly in breach of the provisions of section 31 will have been deemed to have committed a criminal offence. The Minister might confirm that but that is my interpretation from a reading of the Bill as it stands. These provisions will lead to prospective investors here questioning our attitude to entrepreneurs — bearing in mind the restrictions and penalties to be imposed with a director liable to be deemed to have committed a criminal offence if knowingly in breach of those provisions. Therefore, it is in everybody's interest that these provisions be amended.

Any company conducting its business properly and efficiently should be allowed the freedom to continue to do so. Equally they should be allowed advance loans to the directors with the provisio that, in the event of the company getting into difficulties — it being seen that any given loan was advanced with the intention of siphoning-off money from the company — the directors, personally and individually, can be followed by a creditor to obtain reimbursement. However, I reiterate that I do not think a limit of £2,500 is a realistic figure for insertion at this stage.

It is good that there be provision for sufficient disclosure of interests in shares by directors or secretaries of companies. There must be a proper register maintained of shareholdings and interests. I note that under the provisions of section 47 in the register of directors and secretaries, the present forename and surname and any former forename and surname of a director or secretary must be given, his date of birth, usual residential address, nationality, business occupation and so on. I fail to see the relevance of a person's date of birth being included because that should not be of public interest so long as he or she will have reached the legal age limit within which they can conduct such business.

Over the years I have had much contact with the Companies Registration Office. There was one gentleman in that office, an institution in himself, having been there so long. Probably he was better versed in company law than many leading lawyers. I refer to Mr. McCormack, one of the most knowledgeable persons of company law I have met. I can say that the staff of that office have been consistently courteous and helpful. With the greater number of companies forecast, the difficulties to be encountered in maintaining registers up-to-date, bearing in mind the various information on companies sought by the public generally, it is essential that there be a serious examination carried out of its staffing structure.

I know there was a great shortage of staff in that office, just as in many other Government Departments. However, the services of that office will be of such importance henceforth the Government will need to devote particular attention to the matter. I know that the office is at present being computerised. With the inception of the single market we shall have to have an extremely efficient, vigilant staff in the Companies Registration Office. It must be borne in mind that we shall be dealing with foreign companies coming here who will have subsidiaries located elsewhere in Europe and around the world. If a person wishes to inquire into a particular company or about an individual they should be able to do so and information should be made available with the least possible delay.

Let me now refer to inside dealing. The Stock Exchange in Ireland has been properly managed and run and those associated with the exchange are held in high esteem both in Europe and around the world. It is of tremendous importance that they be held in such high esteem. It is because of this that many citizens around the country have invested their life savings in publicly quoted companies on the Stock Exchange. For this reason every effort should be made to safeguard the excellent reputation of the Stock Exchange. We can do this under the section dealing with insider dealing. I am glad the Minister took note of the submissions made and the demands for change in the Seanad. It was the Minister's intention only to make insider dealing a civil offence, but after listening attentively in the Seanad he agreed to amend the section and make insider dealing a criminal offence. This is to be welcomed.

Finally, let me refer to the section which relates to the putting of a company under the protection of the court. Again, this is to be welcomed. There are companies who if given the opportunity would have been able to trade their way out of their difficulties but they were not given the chance because either the Revenue Commissioners or the banks pulled the plug and put them into liquidation despite the pleas of the owners. This is a Bill which has received the support of everybody in this House and I hope it will have a speedy passage through the remaining Stages.

Like all other speakers I welcome the opportunity of being able to contribute to this debate. Having read the excellent contributions which were made and seen the work which was done by Senators it is difficult to come up with original ideas on the Second Stage of this Bill. I would like to acknowledge the work which was done in the Seanad, where many technical amendments were tabled. I would not be aware of such problems if those technical amendments had not been tabled. What I have to say is of a general nature but let me say that the law in relation to companies up until now has been very murky. Many things which should not have happened and many things which were not covered in law are now going to be covered under this Bill. Some of these activities have picked up tags along the way, such as insider dealing. However there was fraud in relation to certain types of loans and many people got away with a lot, with many businesses folding up in the process. In the extreme cases a director would drive off to his mansion in a Mercedes with perhaps a yacht in tow with some small unfortunate businessman going bankrupt as a result without having any recourse to the law.

This document is more like a bible than a Bill, covering 207 sections. It is a very difficult Bill to understand and because of this I have no doubt that the debate on this Bill will be very lengthy and a new record will be set for a Committee Stage debate. Likewise a record was set in the length of time it took to get this Bill into the House. There were many delays as Deputy Bruton indicated. Even though he was a member of a Government, in the inner sanctum, for a number of years he did not manage to get much done in this area. I have taken every opportunity to point out that it takes a long time to get legislation into this House and I believe that people like Deputy Bruton should have taken action. We should be looking at the reason for the delay. The delay in this case may have been to our benefit because so many changes have taken place in communications and new scams have been devised, such as insider dealing. Also in the interim period three Bills have been introduced so as to enable us to comply with EC regulations. We should remember that the original Bill was published in 1963 and that earlier we spoke about child care when it was pointed out that it has taken 80 years to introduce major legislation in that area. We need to be able to react to changing circumstances and be able to react more quickly.

I would like to see more rules being introduced by way of ministerial directive. The public have seen fraud perpetrated by what have been described as cowboy operators and they cannot understand why there is no legislation in place. There is a need to strike a balance in the legislation because for each bad business person there are hundreds of good honest capable business people. We have to recognise that fact and the legislation should set guidelines and regulations which will not allow cowboy operators to operate but will help the legitimate honest business person. I believe that is what is being aimed at in this Bill. The Minister for Industry and Commerce, Deputy Reynolds, has shown an aptitude to react to situations. With regard to below cost selling, petrol prices, etc, he was willing to go into the market place and tell people what they should be doing. I believe he has been successful in that area and I wish him well in taking that kind of action.

Balancing trade and the bringing in of regulations is a difficult question. There is a risk which has to be carried in business and while on the one hand there is a need to protect the legitimate business person as far as possible and not make regulations too complicated, so complicated that a person, particularly in the smaller arena, will be afraid to get involved, at the same time there is a need to outlaw the cowboy operators.

In the business environment the old attitude was that a handshake was sufficient to seal a deal in many cases and the rules which were there were understood by most of the people in business. However, that seems to have changed. One recent case I want to refer to showed the technical difficulties involved and how the scene has changed. With regard to the take-over of Irish Distillers Limited, obviously those of us in the Cork area kept a very close eye on the situation. We were briefed by the principals and others who were involved but we knew that it was not just our Minister for Industry and Commerce or Minister for Finance who were involved. A British based take-over panel seemed to have a major role to play in the whole affair. The EC panel had a major role to play and we also had our national legislation. The company law area has become so complicated that there has been a court hearing and an appeal in this case but the deal has still not been sealed. This shows how difficult the company law area has become. It will be difficult to simplify it but if the regulations are set down in a workmanlike way at the outset I believe we can create the proper climate in this area.

We have said that we need to create a climate for investment in industry and I believe this has been done on the economic front. Interest rates and inflation rates are at their lowest level for 20 or 25 years. We now need to regulate the legal side of business, which I believe is being done. I am aware that there are lobbies on both sides in this regard. On the one hand there are business people who are afraid of being caught by competitors, suppliers etc., and the public who do not understand the situation and who are worried and, on the other hand, there are the professionals in the field who are represented on the CII, etc., who have made representations in this regard. They believe we have to look at both sides and try to get the best balance possible.

I suppose my major role in this House is to present the problems which I see on the outside, to this House and the Minister, to have them looked at and try to come up with solutions to these problems. I have spoken with about two groups but up to now I have only been able to generalise in a very broad way on this Bill. I have said it is an attempt to deal with corrupt directors, to eliminate insider trading and confine the bad individual. On the positive side — and we should try to emphasise the positive side — I have been able to say that the legislation is an attempt to protect and help companies which could have been solvent if they were given a fair measure of time to work their way out of their difficulties.

The Cork area got a bad hammering during the period 1985-86 when an unprecedented number of companies went to the wall. From discussions I have had with people involved in these companies I believe many of them could have been saved if this type of legislation had been in force. They had cash flow problems and they needed protection for a period of time but this was not available. I congratulate the Minister for putting a provision for that protection into the Bill because it is only fair to these people. On the other hand, provision is being made for the examination of a company and I believe — as was said in relation to the Insurance Bill — that it should be a subtle type of operation and the confidence of a company should not be undermined by the fact that an investigator is put into the company.

With regard to preferential creditors, I support totally the case made by the CII that for tax purposes and other State revenue the period of time during which they are preferential creditors should be very limited. It is scandalous that a unit of an organisation should have precedence, in regard to bills going back over four or five years, over people who are trading with the company on a daily basis and who have to keep their affairs up to date. In this regard the highlight has to be that enlightened provision, the tax amnesty, which brought so many companies up to date. It would have been impossible to implement a provision whereby the Revenue Commissioners, as preferential creditors, would have had a shorter call last year. Because of the action taken by the Minister for Finance, Deputy MacSharry, this year I believe it is possible to bring such a provision into the Bill. I should like the Minister to look carefully at this area. If there are inefficiencies in the State sector we should address them so as to bring people up to date in their workings. They should not be cushioned from the realities of commerce but should be in there trading like everybody else.

Some of the other sections in the Bill deal with related companies being protected when they are in difficulties. While protection is provided on one side I believe it is correct that there should be some repercussions for parent companies which liquidate smaller units. We are aware that asset stripping has occurred in many cases. When a small company is bought the assets can be siphoned into the parent company and the smaller company can be liquidated, with a knock-on effect for small traders. It is important that at times smaller companies should be looked upon as separate units but it would be for the parent company to do that. Obviously there should also be a balance in this regard and the Construction Federation of Ireland have made the case that this should not be enforced if the debt has been run up as a result of honest trading practices but enforced only where fraudulent or improper dealings are concerned. This area is so fine that it would be impossible to decide which is which and there has to be legislation to cover this.

The whole matter of people walking away with funds and setting up other companies has been touched on in this debate by every second speaker. We have seen the great scandal of companies being closed down in cities and towns and the principals involved opening up, in many cases a few hundred yards away.

Debate adjourned.
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