I move: "That the Bill be now read a Second Time."
I thank Deputies for facilitating an early debate on the Companies (Miscellaneous Provisions) Bill 2013 and the urgent issues it addresses. It is the second Bill I have introduced this year to amend the Companies Acts and has already passed all Stages in the Seanad. It provides for a small number of immediate and targeted changes to company law that are necessary to continue to allow us to respond dynamically and flexibly to opportunities and challenges arising from changes in our operating environment. The full suite of existing Companies Acts - amounting to 16 in all - has been the subject in recent years of a major reform and consolidation exercise.
The Companies Bill 2012, a landmark legislative project I brought forward in April this year, not only consolidates the corpus of company law since 1963, but also overhauls and restructures the legislative framework. That Bill consolidates, simplifies and reforms company law to provide a state-of-the-art framework for all businesses operating in Ireland, whether domestic or foreign. It brings a coherence, structure and accessibility to the canon of company law which will greatly assist businesses and others with an interest in these matters. The Bill is the product of a lengthy period of collaboration between officials in my Department with the Company Law Review Group, CLRG, and the Office of the Parliamentary Counsel. The CLRG is a statutory body, set up in February 2000, whose role is to advise me as Minister for Jobs, Enterprise and Innovation on the reform and modernisation of company law. The group includes all relevant stakeholder interests, with members from Departments, professional bodies - that is, solicitors, barristers and accountants - employer and business interests, regulatory bodies, trade union interests and individual legal and finance practitioners. The Companies Bill 2012 completed Committee Stage in this House on 6 November.
I assure Deputies that the relevant provisions of the Bill before us today will also be incorporated into the consolidation exercise. The necessity of bringing forward additional legislation in the company law area so soon after the introduction of the Companies Bill 2012 signifies the priority the Government attaches to supporting businesses. In deciding to expedite the measures relating to Circuit Court examinership, as well as a small number of others that are already included in the consolidated Bill, we are responding to continually evolving corporate circumstances. Small businesses are central to our growth and jobs plans. Some 200,000 small businesses employ approximately 650,000 people, or more than one third of all people at work in Ireland. Many of these businesses have substantial growth potential but face legacy debt problems arising from the financial crisis. We are confident that by creating a mechanism for them to deal with these legacy problems we can not only save jobs, but also unlock the potential for the growth and job creation we are striving to achieve.
The provision on examinership, which was recommended by the Company Law Review Group, allows small private companies to avail of the option to access examinership directly through the Circuit Court rather than the High Court. This initiative is part of a programme of measures we are putting in place to support small and medium-sized enterprises, including through the Government's Action Plan for Jobs, and is aimed at reducing the costs associated with an application for examinership and enabling increased numbers of small private companies to apply for this mechanism. In particular, businesses with large potential for growth and job creation but which are being held back by legacy debt problems are expected to benefit from the move. This measure and the other measures relating to e-filing of accounts with the Companies Registration Office, CRO, and the better facilitation of the work of the Office of the Director of Corporate Enforcement, ODCE, will allow us to progress more speedily than would be the case if they were part of a very large Bill that would require a great deal of Oireachtas consideration and whose passage would, as a consequence, require to be undertaken at a more measured pace. These measures are set out in sections 2 to 6, inclusive, which I will outline in more detail shortly.
The additional measures at sections 7 and 8 will strengthen oversight of the audit process, provide better protection for shareholders, investors and creditors, and are important to have progressed at this time, following the focus there has been on audit in the context of the financial crisis. The imposition of a levy on relevant statutory auditors, audit firms and auditing public interest entities will enable the Irish Auditing and Accounting Supervisory Authority to defray the costs of carrying out quality assurance on them, once this function has transferred from the recognised accountancy bodies to the authority. The transfer of the quality assurance function implements an EU recommendation in this matter. Separately, the implementation of a member state option in an EU Commission decision will enable the competent authority to apply its investigation and penalty systems to a particular cohort of third-country auditors.
The Bill, in sections 9 and 10, also facilitates amendments to the Personal Insolvency Act 2012 and the Bankruptcy Act 1988, legislation which comes within the remit of my colleague, the Minister for Justice and Equality. Several amendments were made to the Bill on both Committee and Report Stages in the Seanad. I will address these amendments as they arise under the relevant sections.
Section 2 deals with examinership for small private companies. The provision on examinership arises from a recommendation made by the Company Law Review Group that the Companies Acts be amended to allow small private companies, meeting the criteria which define a "small company" in company law, the option to apply directly to the Circuit Court for examinership. A "small company" is a private limited company that meets at least two out of the following three criteria: turnover of a maximum of €8.8 million, balance sheet total of a maximum of €4.4 million and 50 employees or fewer. The Companies (Amendment) Act 1990 allows the remission of an examinership from the High Court to the Circuit Court subject to certain criteria. However, the provision in section 2 eliminates the requirement for any High Court involvement with the associated costs. It is hoped that the immediate impact of this change will be lower costs and greater accessibility for small private companies to the examinership process. This means, for example, that companies based outside Dublin will be able to apply for examinership to their local Circuit Court, thus reducing costs and travel time. Access to a more affordable mechanism for restructuring makes it more likely that small companies will avail of examinership, thus providing them with a greater chance of economic survival. In particular, businesses with potential for growth and job creation but which are being held back by legacy debt problems are expected to benefit. This, in turn, should contribute to an improvement in the general employment and economic situation within the State.
Three Government amendments to this section were agreed on Committee Stage in the Seanad. The first of these clarifies how a company can show that it meets the eligibility criteria for availing of this provision. This improves the clarity of the criteria for prospective applicants. The second amendment clarifies that where the most recent financial year ended within three months before the application for examinership and where the accounts for that financial year might not yet be available, the accounts for the year before that are to be used. The 15-month limit ensures the accounts used in these circumstances must be for a financial year that ended no more than a year before the end of the most recent financial year. Again, this provides for flexibility in circumstances where the accounts for the immediately prior financial year are not available. The third amendment provides that where an examiner is appointed to a small company, he or she can only be appointed to a related company where that related company also falls to be treated as a small company by reference to its latest financial year.
Another measure that is being proceeded with ahead of the Companies Bill 2012 is that provided for in sections 3 and 4, which will facilitate the electronic filing with the Companies Registration Office of documents relating to the financial statements a company is required to file with the office as part of its annual return. Each of the two sections caters for the obligations of a different category of company as regards the filing of its annual return. Electronic filing of annual returns has, in a sense, been hampered by the need to file a copy of the accounts-related documents that has been certified as a true copy or a true written copy and which contains copies of the signatures of the two directors who signed those accounts. Currently, if a company wishes to file those documents electronically, it must manually scan in every page of the hard copies so there will be a copy of the handwritten signatures of the two directors. In the experience of the Companies Registration Office, this discourages take-up of electronic filing.
The Bill provides that a copy can now include a document which is signed using typeset signatures, that is, typed names, of the directors. This means the entire document can be created electronically and the measure should facilitate a far greater uptake of electronic filing. It also provides for the safeguard that in the case of such submissions, the copy documents must be accompanied by a certificate signed by a director and the secretary of the company stating that the copy of the accounting documents is a true copy of the originals except for the signature. This certificate can be signed either manually or using an electronic signature.
Section 5 deals with designated officers. This new section, agreed on Committee Stage in the Seanad, will provide that if a designated officer named in a search warrant has ceased to be an officer of the Director of Corporate Enforcement or is otherwise unable to act, another designated officer may apply to a judge of the District Court for an order that his or her name be substituted for the original designated officer's name on the search warrant. This section was contained in the Companies Bill 2012 and is being brought forward to ensure the process is in place should the need for it arise.
Section 6 deals with disclosure of information to the Office of the Director of Corporate Enforcement. It is the final provision extracted from the 2012 Bill for earlier consideration by the Houses of the Oireachtas. It deals with exchange of information between regulatory bodies relating to suspected breaches of legislative provisions and is an essential element to a properly functioning regulatory environment. Under section 18 of the Company Law Enforcement Act 2001, the Revenue Commissioners, the Competition Authority and the Garda are entitled to disclose information to the Director of Corporate Enforcement or an officer of the director that may relate to the commission of an offence under the Companies Acts. However, section 77 of the Finance Act 2011 inserted a new section, section 851A, into the Taxes Consolidation Act 1997 which has impacted adversely on enforcement activities of the ODCE in that it has unintentionally affected the utility of information exchanges from the Revenue to the ODCE. This provision has served to restrict the amount of Revenue information which the ODCE can properly obtain and use. In particular, it is an obstacle to the ODCE in its use of such information in support of its investigative and civil enforcement work under the Companies Acts. The impact of the provision in the Finance Act warrants the inclusion of the remedial provision in this Bill.
The opportunity is being taken in section 6 to clarify further that information may be disclosed to the director which would assist the ODCE in investigating whether the grounds for bringing disqualification proceedings against a person who was a company director existed at the time the company was struck off the register for failure to file its statutory returns. This section was amended in the Seanad to include the Insolvency Service of Ireland in the list of bodies that may share information with the Director of Corporate Enforcement.
Section 7 relates to the levy on auditors to fund the quality assurance mechanism. The term "quality assurance" is given to the process of regular inspection of statutory auditors and audit firms to ensure systems are in place which allow for a consistently high quality of audits. The scope of inspections includes an assessment of auditors' compliance with applicable auditing standards and independence requirements, a review of the internal quality control system of the audit firm and the testing of selected audit files.
International best practice relating to the external quality assurance of audits, in particular, of those companies classified as public interest entities, holds that this should be carried out by the public oversight bodies for audit and not by the recognised accountancy bodies of which these audit firms are members. Public interest entities are listed companies, credit institutions and insurance undertakings. While this scrutiny is not an obligation under current EU legislation, the matter is being considered at EU level as part of audit proposals.
The Government has decided that Ireland should move to the model of independent inspection of the audit of public interest entities based on the model set out in a European Commission recommendation on the matter. It was decided that the Irish Auditing and Accounting Supervisory Authority should carry out these functions instead of the recognised accountancy bodies. The recognised accountancy bodies operate these functions under the powers vested in them by the regulations transposing the latest EU audit directive. The European Commission recommendation specifies that quality assurance inspections should be executed by a public oversight body, either exclusively or together with another appropriate body that is accountable to the public oversight body.
To facilitate the Irish Auditing and Accounting Supervisory Authority in carrying out the functions, it is proposed to provide for a levy on the relevant statutory auditors and audit firms which audit public interest entities to defray the costs of carrying out these functions. Additional functions are proposed to be conferred on the Irish Auditing and Accounting Supervisory Authority in the Companies Bill 2012, while the balance of the related functions can be provided to IAASA by amendment to existing regulations. The transfer of the important quality assurance function to an independent oversight body such as the Irish Auditing and Accounting Supervisory Authority will strengthen oversight of the audit process in Ireland relating to these public interest entities. The transfer of the function to IAASA is to be fully funded by the relevant statutory auditors and audit firms with no cost to the Exchequer, apart from once-off start-up costs.
Section 8 refers to the application of the systems to third country auditors. The final item under the Bill relates to the application of investigation and penalty systems to certain third country auditors and audit entities which carry out the audit of companies incorporated in specific third country territories whose transferable securities are admitted to trading on a regulated market in the State. Again, the measure is audit-based and rather technical and relates to regimes drawn up by the European Commission based on an evaluation carried out by the Commission on the public oversight, quality assurance and investigation and penalty systems for auditors and audit entities of particular territories. This evaluation has led the European Commission to draw up two lists in respect of certain countries outside the EU made up of those deemed equivalent to corresponding EU audit oversight systems and those deemed not to be equivalent at the moment but which may be deemed so in future.
On foot of this, the Commission goes on to prescribe in Commission decisions, specific treatments by member states in respect of each of the two categories in question. For the record, the references to these decisions are Commission Decision 2011/30/EU, as amended by Commission Decision 2013/288/EU, which set out regimes to be applied by member states to the auditors and audit entities that carry out audits of the annual or consolidated accounts of companies incorporated in certain third countries whose transferable securities are admitted to trading in the State. The focus is on countries whose audit oversight systems are deemed by the European Commission not to be equivalent to those of the EU. The treatment of these by member states is referred to as a transitional period regime and applies for the periods specified in each of the two Commission decisions. The countries subject to this include Bermuda, the Cayman Islands, Egypt, Mauritius, New Zealand, Russia, and Turkey. A member state option is provided in these Commission decisions and the current provision proposes that this option be availed of. Taking the option will allow the competent authority in Ireland responsible for implementing these Commission decisions to apply its investigation and penalty systems to the third country auditors and audit entities which are subject to the transitional regime.
Based on evaluations carried out by the European Commission, the audit and oversight regimes of the countries in question are deemed not to be equivalent to those in the EU. Accordingly, the audits of undertakings from third countries which are admitted to trading on a regulated market in Ireland may not be as robust as an audit carried out in Ireland or another member state. For persons investing in or contemplating investment in such entities, this means a greater degree of risk may be entailed. Conferring such powers on the competent authority would enable it to pursue the auditors in question and subject them to its investigation and penalty systems. The prospect of this may focus these auditors on producing high quality audits to avoid the consequences of the application of these powers. This is why it is considered prudent to take the option.
The measure also proposes to provide that where future European Commission equivalence evaluations are undertaken which result in a different set of countries being provided for under a future Commission transitional period decision, the Minister should have the power to adjust the list, as constituted, thus enabling the competent authority to apply its investigation and penalty systems in line with the revised list of transitional period countries.
I, as Minister for Jobs, Enterprise and Innovation, intend to make regulations to confer the role of competent authority on the Irish Auditing and Accounting Supervisory Authority, as I consider that it is entirely appropriate for that authority to be enabled to employ its powers in these instances, thus affording safeguards to parties placing reliance on the audit reports in question.
The approach taken in sections 7 and 8 is consistent with the developments on audit at EU level. The oversight of the audit process in Ireland as regards public interest entities will be strengthened with the transfer of the important quality assurance function to an independent oversight body. It also is critical to give greater international credibility to Ireland's audit process particularly with regard to such entities. Overall, the aim of these two sections is to improve audit quality and confidence in audit reports.
Section 9 deals with debt relief notices under the Personal Insolvency Act 2012. At the request of the Minister for Justice and Equality, a number of Government amendments were put forward to the Personal Insolvency Act 2012 and the Bankruptcy Act 1988 and were agreed in the Seanad. Section 9 provides for the amendment of a number of sections of the Personal Insolvency Act 2012 to improve the operation of the debt relief notice process, which is one of three new debt resolution processes in the Personal Insolvency Act 2012. The amendment to section 25 deletes the reference, in the definition of debt, that the debt must be payable within three years from the date of application. The effect of this deletion will be to allow the debtor to propose the inclusion of debt that does not become due until future dates beyond three years. The deletion will address the operational difficulties for the Money Advice and Budgeting Service, MABS, approved intermediaries of calculating the exact amounts owing under term loans, hire purchase and lease arrangements and instalment orders, which may have more than three years to run. In addition, a certain interpretation of the previous definition would appear to allow settlement of up to three years of such debts but then allow continuation of payments to creditors to resume in the fourth year and onwards. Such an outcome would be counter to the policy intention that all the debts, other than the four categories of excluded debt, owed by the debtor must be included in a potential debt relief notice, DRN, application. The definition of debt will now capture all the debts owed by the debtor. If those debts total less than €20,000 and all other qualifying criteria are met, the debtor should qualify for a debt relief notice. At the end of the three-year supervision period associated with the DRN, all debts are written off, no matter what the original term of a debt may have been.
The deletion of section 26(4) of the Personal Insolvency Act 2012, which provided that "A debtor shall not be eligible for a Debt Relief Notice where 25 per cent or more of his or her qualifying debts were incurred during the period of 6 months ending on the application date", arises for similar reasons to the change proposed in section 25. Both MABS and the Insolvency Service of Ireland have indicated potentially significant operational difficulty in precisely determining the age of certain debts, particularly in the context of debt that continued to accrue over the period and where some repayment had been made by the debtor. Given the complex nature of, and the conditions attaching to, a range of credit agreements, it often is very difficult to precisely identify the dates on which debts fall due, for example, in regard to some credit cards, and even when this can be worked out, the requirement that less than 25% of the debt has been incurred in the last six months would also have been problematic. The amendment to section 27 is a drafting amendment in regard to the obligation on an approved intermediary to be of the opinion that the information contained in the debtor's prescribed financial statement is true and accurate. The addition of the words "in all material respects" again facilitates the work of the approved intermediary and will ensure that a minor error would not invalidate the application for a DRN. The amendments to sections 43 and 44 insert a new "anti-abuse" ground for challenge to the granting of a DRN by either a creditor or the Insolvency Service of Ireland. The proposed amendments are based on the corresponding existing anti-abuse provisions in the Personal Insolvency Act 2012 at section 87(a) for a debt settlement arrangement and section 120(a) for a personal insolvency arrangement. The amendments, taken together, are designed to facilitate the processing of applications for DRNs by MABS.
Section 10 deals with the amendment to the Bankruptcy Act 1988. It provides for the amendment of a number of sections of the Bankruptcy Act 1988. The amendments, to sections 17, 105, 130, 140B and 141, are similar in nature and have the objective of reducing certain of the costs associated with bankruptcy. The amendments will allow the Minister for Justice and Equality to prescribe how notice of the adjudication of bankruptcy is to be given by the bankrupt. The essential change is a new option of using, cost free, the website of the Insolvency Service of Ireland for the notice of bankruptcy, in addition to Iris Oifigiúil. At present, only publication in Iris Oifigiúil and a daily newspaper circulating in the State are permitted. This change in regard to giving notice could save a bankrupt person a considerable amount. The proposed amendment to section 140A of the Bankruptcy Act 1988 is in regard to the register of insolvency decisions arising from the operation of the EU regulation on insolvency proceedings. It will permit the relevant register to be maintained in electronic format, for it to be open to public inspection and for an inspection fee to be charged. This essentially is a technical amendment.
Consequential amendments to the Long Title to take account of the amendments being made to the Personal Insolvency Act 2012 and the Bankruptcy Act 1988 were also agreed on Report Stage in the Seanad, together with necessary changes to section 11, which deals with the commencement of individual sections.
Finally, this brings me to the end of this overview of a package of important measures the Government wishes to expedite due to their potential to have a positive and immediate impact for business, the enforcement of company law and audit, as well as to provide greater clarity to the personal insolvency regime. I commend the Bill to the House.