As the Senator will appreciate, I am not prepared to include the phrase "trade union" but what I would be prepared to do when we get to section 145 is to indicate in the Bill that a prospective creditor would include an employee. I would be quite prepared to put the word "employee" in that part of the Bill when we get to section 145 which means that the Senator would have succeeded in convincing us that the word "employee" should be in there. I am prepared to do that in section 145 of the Bill but not beforehand.
Companies (No. 2) Bill, 1987: Committee Stage (Resumed).
Debate resumed on amendment No. 205:
In page 113, between lines 31 and 32, to insert a new paragraph as follows:
"(d) a trade union representing employees of the company."
—(Senator J. O'Toole.)
Mr. O'Toole
To save me from reading through it, does that mean that it will have the effect on the other sections.
It will mean that an employee can initiate the procedure. It does not change the definitions section but it does mean that an employee can actually go to court and seek the appointment of an examiner. I will build it in under "prospective creditors" in the section. I will mention "employee" as a group or a person who can go to court.
Do I interpret the Minister as saying that he intends to bring in at this stage of the Bill an amendment to include the word "employee"?
Yes.
Politics is the art of the possible and only the art of the possible. Certainly when one puts forward a proposal one is always a bit unhappy if it is not accepted. I do appreciate that the Minister has come an enormous distance to meet my demands and my proposal. I can certainly say that from the point of view of the Irish Congress of Trade Unions we would have been much happier to see the word "trade union" put into it but at least we will have achieved in that instance the right to move as an interested party for this section. I welcome the commitment from the Minister and I am grateful to him for coming this far. On that note I withdraw my amendment.
Amendment, by leave, withdrawn.
Government amendment No. 206:
In page 113, to delete lines 32 and 33.
This is just a drafting amendment. In the last line of section 143 there is the phrase "‘proposals' means proposals for a compromise or scheme of arrangements". I am advised that it is totally unnecessary to have that sentence there at all and I wish to delete it.
Amendment agreed to.
Section 143, as amended, agreed to.
NEW SECTION.
Government amendment No. 207:
In page 113, before section 144, to insert the following new sections:
"144.—(1) Where it appears to the court that—
(a) a company is or is likely to be unable to pay its debts (within the meaning of section 214 of the Principal Act), and
(b) no resolution subsists for the winding-up of the company, and
(c) no order has been made for the winding-up of the company,
it may, on application by petition presented, appoint an examiner to the company for the purpose of examining the state of the company's affairs and performing such duties in relation to the company as may be imposed by or under this Part.
(2) Without prejudice to the general power of the court under subsection (1), it may, in particular, make an order under this section if it considers that such order would be likely to facilitate the survival of the company, and the whole or any part of its undertaking, as a going concern.
.—(1) A petition under section 144† may be presented by—
(a) the company, or
(b) the directors of the company, or
(c) a creditor, or contingent or prospective creditor, of the company, or
(d) members of the company holding at the date of the presentation of a petition under that section not less than one-tenth of such of the paid-up capital of the company as carries at that date the right of voting at general meetings of the company, or
(e) Fóir Teoranta, where the company the subject of the petition has received financial assistance from that company,
or by all or any of those parties, together or separately.
(2) A petition presented under section 144 shall—
(a) nominate a person to be appointed as examiner, and
(b) be supported by such evidence as the court may require for the purpose of showing that the petitioner has good reason for requiring the appointment of an examiner, and
(c) where the petition is presented by any person or persons referred to in subsection (1) (a) or (b), include a statement of the assets and liabilities of the company (in so far as they are known to them) as they stand on a date not earlier than 7 days before the presentation of the petition.
(3) A petition presented under this section shall be accompanied—
(a) by a consent signed by the person nominated to be examiner, and
(b) if proposals for a compromise or scheme of arrangement in relation to the company's affairs have been prepared for submission to interested parties for their approval, by a copy of the proposals.
(4) The court shall not give a hearing to a petition under section 144 presented by a contingent or prospective creditor until such security for costs has been given as the court thinks reasonable, and until aprima facie case for the protection of the court has been established to the satisfaction of the court.
(5) The court shall not give a hearing to a petition under section 144 if a receiver stands appointed to the company the subject of the petition and such receiver has stood so appointed for a continuous period of at least 14 days prior to the presentation of the petition.
(6) On hearing a petition under this section, the court may dismiss it, or adjourn the hearing conditionally or unconditionally, or make any interim order, or any other order it thinks fit.
(7) Without prejudice to the generality of subsection (6), an interim order under that subsection may restrict the exercise of any powers of the directors or of the company (whether by reference to the consent of the court or otherwise).".
Since the summer we have not been lying on beaches in foreign parts but have been working very hard on this legislation. We have taken on board many of the Senators' proposals and suggestions. In response to what the Senators have been coming up with, we are introducing a whole series of new sections and amendments which we will come to in the days ahead. This is the start of that process. We have all these new sections because of the points raised by the Seanad and submissions which have been made to us to improve the legislation.
There are several changes which we think we should make to section 144 but rather than make them piecemeal I have taken the approach here of replacing the entire section with two new sections. The first of these concerns itself with the basic power of the court to appoint the examiner and with giving the court some guidance as to when this might be appropriate. The second new section is essentially concerned with the actual mechanics of the petition itself. The first part deals with the power to appoint the examiner; the second one deals with the mechanics of appointing that person. That is why I split section 144 into two.
I can, if Senators wish, explain the many changes of detail we are proposing here. The general idea, however, as with most of the amendments I am proposing to Part IX of the Bill which is the part we are on, is to make a more workable system of salvaging companies which is the total objective of this part, to rescue companies, to salvage companies, to put them into intensive care so that they can live again. That is exactly what we are at here. That is why I split this section into two. I am splitting it into two, one dealing with the general power of the court to appoint an examiner and the other outlining how an examiner is to be appointed and who should be appointed. That is the basic thrust of section 144.
I welcome the inclusion of these new sections. I put a question earlier to the Minister and I expressed surprise that there was no reference to directors on the list of those who would be able to bring a petition to the court. I am very pleased to see that a reference to directors has been included in this new section. The list of people who have been referred to who would and would not be able to bring a petition to the court is fairly detailed and wide-ranging. There will be ample opportunities for people to bring petitions to the court and ample opportunities for people to make sure that a company does not go into receivership or liquidation. If all of those people together watch the affairs of the company as astutely as they should, we should have no company failures. We should have a lot of activity in the court for the examiner.
I also welcome the inclusion of the new sections but I would just like to ask one or two questions. I am not sure from reading the section — perhaps the Minister of State can let me know — how long it would take to appoint an examiner. If an examiner is appointed by the court — I would just like to make sure — would the examiner go immediately into operation and how long would the court have for this? Does it mean that the examiner from the day he is appointed by the court goes straight in and he is an examiner as and from that day? I am not trying to make a pedantic point but I do not see it there and I do not know whether that is normal or not. That may be normal court procedure.
The second thing I would like to ask the Minister about is whether he has thought to any extent about whether the examiner should be someone who is acceptable to creditors? It is absolutely no secret that the CII have been interested in this question, whether it is relevant or not or whether it should be left absolutely up to the court. In other words, should there be any consultation between the court and the creditors or between the court and whoever is petitioning about whether the examiner is someone who is acceptable, whether it is a member, a trade union or a creditor? Should it be included in the Bill and is it a good or a bad thing?
Thirdly, should it be included in the Bill as well that once a petition has been proposed that all interested parties should be informed? It seems that if one interested party comes to the court with a petition there would be several other interested parties who should, by right and by all commercial sense, be entitled to know that the petition is being presented to the court. I do not see anything in this amendment or any particular section in this Bill which allows for that. In other words, a particular creditor, an employee or a member could possibly steal a march by petitioning the court and telling nobody else who is interested. I do not see any procedure laid down for the court to actually inform the other interested parties, who I think would probably have something relevant to offer if they are creditors or if they fall into the categories already referred to.
I am just saying that there should be a procedure of consultation so that the court would be in possession of all the relevant information, of the feelings of all the creditors and all the other people who cannot actually petition the court. I see a danger in this Bill, and I see a danger which is not covered by this amendment, of one particular category or one person in one particular category actually stealing such a march on the others and I would like to hear the Minister's comments on this.
The final question I would like to ask relates to the definition, and it is a definition which I think the Minister will have come across before, of when a company is unable to pay its debts. I do not think this is splitting hairs; I think it is important that we should know exactly what that means. Does it mean — and several companies have made some sort of representations on this — for instance, that when a company looks for significant extensions of credit from various suppliers that means it is unable to pay its debts and that if it is granted these extensions it is working commercially? Does it mean, for instance, that when a company has not been able to pay its VAT returns or is not able to pay the Revenue, it is unable to pay its debts and there is a case for bringing in the examiner or is that just a normal commercial decision made by the company and made by those who are creditors? Finally, would an extension, a roll-over bank credit, mean that a company is unable to pay its debts? Unable to pay its debts is a very broad term in this Bill which could be interpreted in the narrowest possible terms. In other words, extension of credit by any creditor at all could be interpreted as the company being unable to pay its debts at a time when the company was possibly working in a commercial fashion. I would just like to see that rather more narrowly defined and to hear the Minister comments on that.
They are very good points, Senator, and I will try to deal with them quickly. The Senator's first question was when would the examiner start to act. My response to that would be from the actual moment of the examiner's appointment, which would be case in the case of liquidators and receivers. From the very moment of their appointment they take up action.
May I interrupt the Minister for a moment? That was one of the questions I asked and I think I may not have asked a second one which was, is there any prescribed time between the date of the petition and the appointment? It seems that we may have in both cases a delay. Should there not be some defined time in the Bill whereby there would be some limit between the date of the petition and the appointment? Otherwise it could go on for months.
We cannot tackle that issue in this legislation because we are dealing with the rules of the court and the modus operandi of the court itself which really are outside this legislation. One would present a petition to the court with all the papers and documentation and the court then, as soon as it could, would deal with the matter. In this legislation I cannot lay any time limit on the court. I can insert time limits for lodging petitions but I cannot put a time limit on when the court must deal with something. I am acting here on the basis that the High Court or the court involved would act on a petition and make a decision on a petition as quickly as possible and that the court would use their injunction-type rules and this is strictly outside this area, to make a quick decision on a petition.
I have thought about this but I cannot see a way whereby I can insist on the court dealing with something on the day. I think the Senator is aware, particularly if we look at recent events, of how quickly courts can actually sit and come up with a judgment when some interest is threatened or something might be diluted if they do not act. The courts have been able to sit, act and give a decision. They certainly do so in the case of liquidations when people can make their submission and have it heard in court very quickly. There is no time limit between the date of the petition and the decision on the petition. It will have to fall within the ordinary rules of the court: I would not expect any delay of any great significance but then again that would depend on the volume of business the courts would have to deal with in the future.
I understand exactly what the Minister is saying and I think this is a difficult area. I am envisaging a situation whereby the court is petitioned and possibly the company involved does not want an examiner called in under any circumstances and produces a mass of documentation in opposition to this particular petition with the case going on for weeks and weeks. Meantime, simultaneously, the company continues to trade, in an irresponsible manner — I do not want to use the word "reckless" again — to the detriment of everybody involved.
I do not know whether the Minister can produce rules whereby this would be brought to the court under its special injunction procedure but I can see a situation where one goes to the court and the case literally drags on for three or four months. The examiner then becomes irrelevant because he is not appointed as there is opposition to it. I do not see that covered in the Bill. We are talking about companies which in some cases are being run irresponsibly and in some cases get into trouble for perfectly genuine reasons. I can see this being used as a device by the company to delay the appointment of the examiner with consequent disaster for the people involved.
I understand what the Senator is getting at and I know the use that a clever commercial group could make of a situation like this. In section 145 we talk of the protection of the court applying from the date of the petition. Generally, as in liquidations, the case will be heard immediately, and I hope that that will be the position. The protection of the court commences from the date of the petition.
But the appointment of the examiner does not.
No. It applies from the date of the petition. Once the petition is lodged with the court the protection of the court will mean that people cannot move against the company. This does not apply to the date of the appointment of the examiner but to the date when the petition is lodged but those two dates should not be far apart, a matter of hours rather than days. I am speculating about that area because I do not know what the future pressure on courts might be but this legislation gives protection from the date of the petition.
Does the Minister not think it possible to give the company too much protection and that in that case the company is protected from its creditors?
Yes, from the date of the petition.
The company is under no pressure from the other side to trade in any particular commercial way. Because there is a gap between the appointment of the examiner an the protection of the court, the company gets the protection from its creditors while it can carry on doing what it likes without the interference of the examiner. That period is very much weighted in favour of the company and it may be to the detriment of the shareholders, the workers and everybody.
I do not know if that potential exists. Those presenting the petition would highlight that possibility and the necessity for an immediate decision because, as the Senator says, once a company is frozen, the Company might feel that they can take their time with the next step. The ball is in the court of the courts at that stage because they will have the petition which will state the urgency and give all the information about the company. I could not see a court waiting while a situation deteriorated in a company if they had an urgent petition in front of them. I would expect the case to be dealt with immediately. I will certainly give some thought to the Senator's point as it is an interesting one and I can see where there would be some scope for difficulties. I am operating here in good faith on the basis that the court will deal with the case quickly.
I could not anticipate how long a case of this sort might last. This is really a new area. However, it is better to err on the side of caution. One cannot anticipate the workings of the courts. It could happen that they would say they have to hear all the evidence and, as a result, these cases could go on for days or months. That is the only thing I am worried about if that gap remains that the company itself will suffer.
I am happy to try to find a solution to this because the Senator is right in that there is a problem to be solved. One suggestion is that we could run the protection from the date of the appointment of the examiner. However, if I do that I would be in trouble because then once the town gets to know that a petition is in and a decision awaited, people will run for liquidators in the meantime. That would negate the whole purpose of this rescue mechanism. The protection has to run from the moment the petition is in. It would be meaningless to run it from the date of the appointment of the examiner. I will look at this to see if in the legal maze we can find a way to make sure there is not a gap that is detrimental. I am not making any promises because I am not sure we can do that. I am not sure we can tell the courts when to sit and how soon they shall consider an application. As the Senator knows, the courts operate under court rules. However, I will explore that area and I will say a few words on it on Report Stage, given the opportunity.
I am glad that Senator Ross has highlighted a very fundamental problem which might arise. If the potential viability of so many companies is at stake there could be a lot of work for the examiner under this legislation. The High Court could be inundated with these cases and that would mean delays and some delays could be to the detriment of a lot of people.
Is amendment No. 207 agreed?
Senator Ross asked a few other questions to which I would like to reply. One question referred to how we would ensure that the examiner would be acceptable to the creditors. It is worth reflecting on the fact that the petition will be put forward by a group of people. If the creditors put forward a petition they will name in the petition the person whom they wish to be appointed examiner. That will ensure that the creditors are happy. If the petition comes from some other source, for instance, the directors of the company, they will name a person in their petition. The petitioners put forward the name of their nominee in their petition and that ensures that those petitioners are pleased with the person they get. It is practical that the petitioner should suggest an examiner. That is the way it works in liquidations when people are going to court.
Senator Ross referred to informing interested parties. If the creditors dash to the court for an examiner, Senator, Ross wanted to know if all the other people, the members and so on would be notified. That does not happen when a liquidator has been appointed. The party who feel they must act get the evidence together and go to the court and the court can decide. To that extent, at that moment the court is playing a role in looking after the interests of the other parties and has to take into account the fact that this is a one-sided application coming from a particular person. The alternative would be too cumbersome. We would end up with a whole committee in court debating the whole future of the company rather than a single issue, that is, that a single interested party feels that a liquidator or an examiner should be appointed. All I have done here is to copy the liquidation rules which seem to work. In liquidations one does not have to notify all the various bodies. One just goes into court and gets the liquidator.
The Senator's fourth point was about a company being unable to pay its debts. The phrase is the best I can come up with. It is defined in the Companies Act, 1963 as follows: "a company shall be deemed to be unable to pay its debts". It is also in the new section 144 as follows:
a company is or is likely to be unable to pay its debts (within the meaning of section 214 of the Principal Act).
The Principal Act has three sections which deal with when a company is unable to pay its debts and so on. If the Senator wishes I will go through it, but it is all in section 214 of the 1963 Act which lays out the measures by which one is deemed to be unable to pay one's debts. All I have done is to refer to the 1963 Act which has been tried and tested.
I must admit I have not read the 1963 Act so I can hardly comment on that yet. I should like to return to the point about all interested parties being informed when a petition is brought to the courts. While I understand the Minister's points about liquidations, it seems to me that we have a problem here in that if one small creditor, or a contingent or prospective creditor, or a director or a member of the company, petitions the court the court, obviously, when deciding whether to send in an examiner will have to consider more than the position of the creditor who submits the petition. The court will have to tell that creditor that it will have to see if there are larger creditors, what the balance sheet looks like, what the trading position of the company looks like and what the annual accounts look like.
If the Minister is doing that he is answering, to a certain extent, my point about all interested parties being informed but he will be creating serious difficulties about the gap we referred to because a court will have to make many inquiries into the state of a company. If all interested parties are to be informed it seems to me that that type of consultation process will delay the appointment of the examiner. We cannot have one without the other. There is a real difficulty here. I am asking the Minister on which side he thinks this should fall because I do not think the two are necessarily reconciled. In other words, if he informs all interested parties of the difficulties and the petition, or if he makes efforts to inform some of them, he will widen this gap between the petition being produced and the examiner being appointed. One way or another we will have serious difficulties. In equity the Minister should make every effort — I am not worried about the liquidation rules; I think there is a fault there — to inform all interested parties if the court is to be able to make a balanced and sensible decision.
There are practical difficulties involved. Amendment No. 219, which I will be recommending to the Seanad at a later stage, lays down that within three days after the examiner's appointment he or she will advertise that fact in at least two daily newspapers circulating in the district, in Iris Oifigiúil, and notify the registrar of companies who shall publish it in Irish Oifigiúil. Therefore, within three days of the appointment of the examiner the formal notices will be in public circulation to the effect that an examiner has been appointed.
That may not meet the Senator's point in that he may be anxious that all interested parties should get a hearing before the decision is made to appoint an examiner but I would have two difficulties in regard to that suggestion. The first is that we do not adopt such a procedure with liquidations. To do so would be a slow and cumbersome procedure which would result in delays. In effect, there almost would be a trial because interested parties would have to be heard. My second problem is that the ultimate concern of the court is not the good of the individual parties but the good of the company as a unit. When a court hears from one party to the company — the creditor, a director, or a member — its job is not to take into account how the matter will affect individual parties but how it will affect the survival of the company. Therefore, clean surgery is better in this case with the individual party applying for the appointment of the examiner to do the job.
It is important to remember that there might be a case for accepting the Senator's point if we were dealing with liquidations but we are not discussing them. The role of the examiner is to try to save the company and put it back on the road. It is unlikely that there would be an aggrieved party at the time of the appointment of the examiner although there may be an aggrieved party when the examiner has finished his or her job. The worst that could happen would be that the examiner would fail to save the company. It is important to remember that an examiner will be appointed when the company is in serious difficulty. The Senator's sentiments about consulting those involved are admirable and, in general, I would share them if they related to liquidations but in regard to this matter it would be better to have clean surgery.
I am anxious to focus the court's mind on its key role, that it must consider the overall good of the company and not go through a check-list of the parties involved to see who agrees. That may not be entirely satisfactory but it is the best way forward.
I welcome the decision to give the companies a right to appeal to the courts for the appointment of an examiner. It will save many small companies who are experiencing short-term cash problems, changes in market trends or unforeseen liquidations of companies that are customers of the troubled company. A great deal of the success in determining the concept of an examiner will depend on the interpretation by the courts. There is an onus on the courts to get the right balance. The courts must come up with the necessary ingredients to ensure an acceptable and effective role for the examiner. To be effective the examiner must be able to integrate with existing management as smoothly as possible. At the same time the examiner must have sufficient clout to carry out the duties in a business like manner. The judgment of the courts in this delicate area is vital to the success of the concept of an examiner. The courts must be able to judge each case on its own merits and arrive at the best possible solution.
I accept, as the Minister said, that there are real difficulties in inserting an advertisement when a petition is presented. I agree that the advertisement should be inserted after the examiner has been appointed and that interested parties should be informed in that way and at that time. There is a conflict here and it is only right to admit it. It may be that some of the things I said were in contradiction with each other but that was deliberate. We have a conflict between the urgency of getting something done and the difficulty about consulting people at the same time because consultation means delay. The Minister appears to have come down, probably rightly, on the side of urgency in the interests of companies but, having done that, he should consider the points I made about the delay between the making of the petition and the appointment. Having said that urgency is the criterion here, which I think it is, he should try to think of something between now and Report Stage which will fit in.
Amendment agreed to.
Question: "That section 144 be deleted," put and agreed to.
NEW SECTION.
Government amendment No. 208:
In page 114, before section 145, to insert a new section as follows:
".—(1) Where the court appoints an examiner to a company, it may, at the same or any time thereafter, make an order—
(a) appointing the examiner to be examiner for the purposes of this Part to a related company, within the meaning of section 109, or
(b) conferring on the examiner, in relation to such company, all or any of the powers or duties conferred on him in relation to the first-mentioned company.
(2) In deciding whether to make an order under subsection (1), the court shall have regard to whether the making of the order would be likely to facilitate the survival of the company, or of the related company, or both, and the whole or any part of its or their undertaking, as a going concern.
(3) Where an examiner stands appointed to two or more related companies, he shall have the same powers and duties in relation to each company, taken separately, unless the court otherwise directs.".
The effect of this amendment would be to insert a new section in Part IX which deals with the rescuing of a company which is a member of a group of companies. In such a case the standard practice may well develop of multiple petitions to the court and simultaneous appointment of the examiner to more than one or, indeed, all of the companies in the group concerned. It might be convenient if we short-circuited this need by giving the court some flexibility at the outset where a company the subject of a petition is a member of a group. That is the basic purpose of the amendment. If it is a group situation an examiner can be appointed to related companies to obviate the need for individual examiners to be appointed to the individual companies within the group.
The Minister said related companies. Does he mean companies with all of the same directors or companies with only some of the same directors?
Related companies are very clearly defined. There is a list of criteria as to what is a related company. It is not just common directors. That is one of the criteria. Section 109, on page 95 of the Bill, deals with the question of related companies. "For the purposes of this Act, a company is related to another company if (a) that other company is its holding company or subsidiary; (b) or more than half in nominal value of its equity share capital is held by the other company" and so on. There are six different definitions of what a related company is. It is within the meaning of that definition that we talk about a related company here.
Amendment agreed to.
Amendment No. 209 is consequential on amendment No. 229 and they may be discussed together.
SECTION 145.
Government amendment No. 209:
In page 114, line 32, after "and", to insert "(subject to section 154 (3))".
It has been put to me by many people — including many Senators on the Second Stage debate here — that this time limit of three months for the protection of the court under Part IX is too short. Of course our basic position was that the time should be short. That is quite deliberate, not simply to concentrate minds as it were but also in consideration of the position of creditors, particularly those with security, who would have their debts effectively frozen. You have got to be very careful about how long you can freeze the debts of a company and freeze creditors in situ. At the same time I will probably have to acknowledge that — particularly with larger companies — a time span of three months may be too short when you get down to dealing with cases actually and that some mechanism will have to be found to enable this to be extended where warranted. Thus, we could with some reluctance agree that provision should be made for extensions in special cases. However, we would be anxious to ensure that extensions do not become the norm in rescue cases.
I have tried to frame amendment No. 229 in such a way as to make it clear that extensions are to be the exception and that the court will have to be convinced that if it gave the extension, the examiner's report would be delivered in good time thereafter. The related amendment No. 219 to section 145 (1) is intended as a signpost to section 154 to make it clear that the period of three months mentioned in section 145 is not immutable. I have given a lot of thought to extending it to three months. We have given quite an amount of time to discussing and debating the pros and cons of that aspect of it. It would seem that what we have come up with here is to stick with the three months and allow the examiner, if he or she feels it is necessary, to go back to court and get another month. That is what we are proposing.
I think there has been intense lobbying especially from the accountancy profession on this particular issue and, indeed, from many companies and pressure groups as well. It is a very difficult one. I would come out against the Minister's amendment in the end because if the three months limit is not enough — which it may well not be — I am not sure that another 30 days is going to be enough either. We are actually quibbling about time here and I would prefer to see the three months limit stay but to give the court discretion to extend it for longer in special circumstances — not just 30 days. My understanding of this amendment is that it can be extended for 30 days and that is it. I would have thought that possibly what should be done here is that the Minister should allow the examiner to come back to the court after three months and for the court to respond by saying: "Yes, you have another 30 days and only another 30 days", but he could be granted another extension after that.
I understand the urgency of all this and I understand the problems which creditors will come across but accountants I have talked to about this matter assure me that in the case of larger companies the three months limit is totally inadequate and that possibly another 30 days would be inadequate as well. The answer is that it is impossible to come up with a definite deadline on this issue but that, while keeping pressure on the examiner, it would be absurd to allow him only 30 days extra when he cannot complete the report and when material is still coming into him and has not been collected. I ask the Minister to consider keeping the three month rule, giving him another 30 days but also — and we have to trust our courts, they are very sensible people, they will be looking at this objectively with the interests of the company and the creditors in mind — to consider giving him an extension of another 30 days and another 30 days but only at the discretion of the court. To give it just four months — which is the effect of this amendment — may mean that a proper report is not produced.
I do not see how you can actually put a time limit on this sort of thing as we do not know the size of the company that will be looking for an examiner. It is possible that a very large company with worldwide interests could come under this category. God forbid, but it is possible and we have got to include this as a possibility under this Bill. In that situation, the three month rule will be inappropriate. It just will not work. The information will not be collected and a proper report will not be produced. Whereas I think the pressure should be kept going, I can envisage a situation in which this is totally impractical. You have four months — three months plus one — and the examiner then has to come to the court with a totally incomplete report. That could really happen and the Minister should think about it. The pressure should be kept on him and make him come back to court time after time for an extension. Certainly do not give him the sort of time rule which means that he produces a report which is inadequate and on which it is impossible to make any sensible decisions.
I do not follow the logic of what the Senator is saying. He started off by saying one thing and then said "maybe" or "if" or "at" or "this". If we do not stick to a three months limit, the pressure will not be kept on to force the accounts to be produced. If it could be extended by 30 days each time — even if they had to go to the court to get that done — it could drag on on an unending basis. There has to be a definite time within which the matter is finalised.
In reply to that, every member of the accountancy profession — who are envisaged to be examiners in these cases on the whole — has told me that a three months limit is totally inadequate and that in certain cases it would be impossible for them to produce a report of this sort. Perhaps the Minister will say that that is protecting themselves before the Bill comes in, and that is a possibility. They are the best opinions I have on this and I respect them. I believe that possibly — in certain circumstances, but only in certain circumstances — in the case of large international company it will be inadequate.
The Minister should have some set time because I would be very worried about having an extension month after month. What happens then is that the creditors might have nothing to get and we know it is very expensive to go to court. Those people are highly paid professionals and there would be a grave danger that they they would not worry about trying to push it to a finish because they could get another 30 days. I would see it as a very dangerous thing to put in. It should be either three, four, five or six months. There should be a very definite date and that is it. If they have a deadline to work to, they will have to finish at that time. I would see it as very dangerous to leave it open-ended.
The court does not have to grant a further extension.
The trouble is if the loophole is there, the court may be generous and keep granting it. They are very professional people and they will give very good reasons to the court why they want more time. They will keep going on and in the end they will have everything that is going and the poor creditors will have sweet all to get. I would see it as being very dangerous. I have a little experience of dealing with this type of thing: "Man to man thou art just, but you do not know what man to trust." I forget who wrote that. I would appeal to the Minister to have a very positive deadline.
I feel strongly about the question of finality. I understand Senator Ross' concern, but I think people in business — bankers, creditors, directors, members of companies — appreciate deadlines. I will just refer the Senator, for example, to the recent Irish Distillers saga that we have been having in the newspapers and he will see the number of decisions and reports they were able to produce overnight and the "war cabinets" they were able to put together an all sides. The Stock Exchange is a place that is riddled with deadlines, perhaps correctly, but one thing that is very definite about trying to take over a company is that there are terrific deadlines. They are all there, you can make an offer by such a date; you can only increase it by such a date; by such a date you must do this, that and the other. That kind of finality means everyone knows the rules. It is like playing in the All-Ireland, when the time is up the time is up and that is that. I think to say that we did not really get the wind on that one, that we would like to play another 15 minutes, is unfair. At the end of the day the finality of it is important. I am totally confident, from what I have seen in commercial life recently, of the speed at which that machine can move when it has to. If we give the business community six months, they will take six months to write a report. I know the consultants.
The point I am trying to make really is that it is not a question of you giving it to them, or of our giving it to them. It is leaving it to the discretion of the court in each case. The point I am making is that the court whom we should trust, and whom I think we do trust, would judge each case on its merits and will say, "No, you have got no more time; this is it." Or in certain cases for certain reasons, the court can say "Yes, it is only reasonable there is more time given". I do not think the court is likely to give extra time where it is not due.
Yes, Senator, but we are writing the company legislation, not the courts. The Oireachtas is writing the legislation and we have to give guidelines to the court. The Government's intention here is to say," Look, you have three months, you can buy another month and that is it". The game is over at that stage. You have to be conscious of what the examiner has to do. He does not manage the company and travel around the globe looking for orders. He goes in and tries to make arrangements and deals.
Most good examiners will have this job done in a very short time, in a matter of weeks. If the expectation was built up in the company that they had got a good chance in court of getting a further extension, it could become the norm. I really think the time limit is important here, just like the Stock Exchange rules; I am not being smart when I am referring the Senator to that, I honestly believe the analogy is correct. The deadline is there and people have to meet it and business people are very strong on the point about finality.
We have come across some criticisms about Chapter XI in the United States about their system which can drag on and on and can go on much longer than we would envisage. It is something we can look at I suppose in future years when we see how the system is working. We are talking about a rescue, an emergency, drastic action where creditors perhaps will get frightened by the amount of moneys they are owed and a scheme has to be put together and adopted by the court. You need to capture that atmosphere and knock heads together to get the agreement at the time. If it becomes a normal part of trading instead of a kind of crisis situation, I do not think people will concentrate as urgently and they will not be in the mood to do the deals perhaps that they should do for the company if it drags on. I think that is important.
If you are a banker or a creditor and the company owes you money and you are not agreeing and you know there is a deadline, you have to make a quick decision whether to go with the company going into liquidation or to come on board because you have got to go to court in three days time. If we do not put in a definite deadline I am worried about that. I know the Senator said the court could decide that in view of the facts, but I think it is better off if the examiner knows when he starts that the deadline is there and is not going to move — a bit like the tax amnesty perhaps. It is important that we put down a marker.
I honestly think that if a company is worth saving and if it is in intensive care it is worth staying up all night to save it and it is worth rolling up the sleeves and getting in there and sorting it out quickly. I have seen companies doing that and I think it works very much. We are talking about intensive care here and in intensive care people do not keep office hours. They do not come in at nine and go home at 5 o'clock. When a patient is in intensive care it works around the clock. It has got a deadline to meet. It has got to save the situation. It cannot hang around. Three or four months is certainly adequate to come up with a report. It is not being asked to turn the company around in that period. It is being asked to write a report and I know many good potential examiners who would write that report overnight, if they had to.
I think the Minister has been reasonable on so many other things that I am prepared for him to be misguided on this. I am not going to oppose it.
Amendment agreed to.
Government amendment No. 210:
In page 114, lines 41 to 43, to delete paragraph (b), and substitute the following paragraph:
"(b) no receiver over any part of the property or undertaking of the company shall be appointed, or, if so appointed before the presentation of a petition under section 144, shall, subject to section 146, be able to act;".
This is a technical drafting amendment. It is intended to clear up an apparent ambiguity in section 145 (2) (b) of the Bill. The basic idea in that paragraph is that following the presentation of a petition under section 144, no receiver can be appointed to the company concerned. That is all right so far but, however, the provision goes on to say that no receiver if so appointed shall subject to section 146 be able to act, what we mean here is a receiver who is appointed before the petition was presented. The current wording seems to suggest that a receiver could somehow be validly appointed after the presentation of the petition. I am just really improving the wording of the section here to get the intention clear.
Amendment agreed to.
Question proposed: "That section 145, as amended, stand part of the Bill."
May I ask the Minister what is the position of goods that are supplied to a firm or goods that are supplied under retention of title, for example, once a company is under examination? What effect does a petition have on goods that are being leased to a company? What are the effects on those goods?
We are coming to amendment No. 218 which deals with that kind of situation, and with your permission, we will leave it until then.
Question put and agreed to.
SECTION 146.
Government amendment No. 211:
In page 115, lines 41 and 42, to delete "Where an application is made, under section 144, for the appointment of", and substitute "Where the court appoints".
This is a change of wording and the intention is simply to align the opening words of subsection (2) with those of subsection (1).
Amendment agreed to.
Government amendment No. 212:
In page 116, between lines 7 and 8, to insert a new subsection as follows:
"(3) In deciding whether to make an order under subsection (1) (a) or (b), or subsection (2) (c), the court shall have regard to whether the making of the order would be likely to facilitate the survival of the company, and the whole or any part of its undertaking, as a going concern.".
This is basically giving guidelines to the court as to when it might restrict a receiver or a provisional liquidator's powers. If Senators want any more detail I will certainly go into it. It is laying down guidelines for the court as to when it might restrict a receiver or a provisional liquidator's powers.
Amendment agreed to.
Government amendment No. 213:
In page 116, line 10, after "company", to insert "but before a provisional liquidator has been appointed or an order made for its winding-up".
This is a technical amendment. It is intended to clarify that a protection petition and a winding-up petition will only be heard together if a winding-up order has not actually been made or a provisional liquidator appointed. The subsection would not really make any sense otherwise. It is just to clarify that.
Amendment agreed to.
Question proposed: "That section 146, as amended, stand part of the Bill."
I am not opposing the section. Guidelines are being given to the court and maybe that could be referred back to the point we made earlier about the court hurrying up on the appointment of the examiner. If we can give guidelines to the court, in the legislation — which we obviously can — we may find some way of giving guidelines to the court in the earlier decision we spoke about. I know this is not strictly to do with this section but it is a relevant and, I hope, a fairly constructive point.
Question put and agreed to.
SECTION 147.
Government amendment No. 214:
In page 116, lines 16 to 19, to delete subsection (2), and substitute the following subsection:
"(2) So much of section 175 as relates to the rights and powers of an auditor of a company and the supplying of information to and co-operation with such auditor shall, with the necessary modifications, apply to an examiner.".
This is a drafting amendment. The present section 147 (2) refers to "all provisions of the Companies Acts" and so on which give an auditor the right to get information. When we looked more closely at this provision we found that the only provision relating to this matter is section 163 of the 1963 Act which is being replaced by section 175 of the Bill. It seemed simpler and clearer for the users of the legislation to specify the particular section of the legislation where this provision is to be found rather than the more vague "all provisions of the Companies Acts" and so on. I am just specifying that more clearly.
Amendment agreed to.
Amendments Nos. 215 and 216 are related and may be discussed together.
Government amendment No. 215:
In page 116, lines 43 to 52, to delete subsection (7).
We are moving here to the powers of the examiner and the examiner's role once he is appointed. I am putting in a section which allows the examiner to go to court if he wishes to take over the running of a company. The reason I hesitated, A Chathaoirligh, is that I was just wondering whether I would go through the various sections or just give a pen-picture. I think I will do the latter first and see whether the Senators wish me to go into more detail.
Basically, what I am providing in this section is that if an examiner, once he or she is in place, feels that he or she wants to take over to himself or herself the full powers of the directors of the company, the examiner must go back to court to get that done and if the court agrees, can have vested in the examiner the full powers of the directors of the company. I want to be clear on this. When the examiner goes in first he does not have that power but he has the option of going to court to get that power as quickly as possible. That is the broad picture. There are a number of other details in it.
The present policy of Part IX is that the examiner is, in effect, a sort of a company doctor who basically analyses the company in difficulties, prescribes remedies and gets the parties concerned to try to agree. It has been very strongly put to us by a number of interested parties that it is essential that the examiner should be in a position to actually run the company in certain cases if there is to be any hope of a successful rescue. These parties are not happy that the current powers of the examiner in this respect as they presently appear in section 147 (6) and (7) are the proper solution.
I have considered this in some depth and the two amendments I have put forward today are the result of this. In framing the amendments I was reluctant to go the whole way and give the examiner an unfettered right from day one to run the business in this way. For one thing a right like this might very well discourage companies and their boards from seeking protection in the first place. Much of the initiative will come from the company and the directors themselves to seek the appointment of an examiner so it is important that we encourage them to do that. Company managements could be reluctant to seek court protection if they saw that the automatic consequence of this would be their removal from office, even temporarily, and the stripping of their powers. This kind of attitude would be understandable and would of course be the opposite to what I want to achieve.
I found a very sensible middle ground here which I think is unique in legislation and it certainly differs from other regimes. This middle ground would ensure that the directors would stay in possession to begin with but that the examiner could ask the court, at any time, to give him or her full management powers if he or she could demonstrate that this was necessary. That is a very central and important part of this mechanism.
Amendment No. 215 is related to amendment No. 216 and since I am proposing, by the introduction of the new section, to give the examiner more powers in certain cases it follows that he or she will no longer need the powers in section 147 (7) of the Bill. Related amendment No. 215 simply deletes subsection (7) of section 147. To summarise, I have listened very carefully to rescue specialists and rescue experts, not just accountants but the people who have specialised in company rescue, including our own State agency in that area, and also in the private sector. Indeed some Senators have spoken about the examiner's role. I have accepted all that advice. With regard to giving him the power to run the business from day one, some people suggested that this could be a way of running the business more effectively with benefits all around but this middle course is perhaps the correct route to go forward, that is, putting the examiner in and then leaving it to the examiner to decide whether he needs the power of the directors.
For the examiner to get the full powers of the directors in the first instance he must go to the court but I think the examiner should be given the power to run the company. In other words, if he is to keep a company viable for a rescue or take-over or to keep a company running, the examiner must be given the full powers to run the company in the meantime. If he has to go to court in the first instance to obtain the powers of the directors, should he not be given the power to run the company?
To be clear, when the examiner goes in he does not have the full powers of the directors at that point, but if he decides he needs those powers when he sees the company in the small print he can go back to the court and get the powers. That will greatly encourage the directors to co-operate with the examiner because they will know that the examiner can go back to court and get full powers if he can explain why he needs them. In the meantime, the examiner has very substantial powers. He presides at meetings, attends board meetings and generally has authority to order the affairs of the company but does not have the full powers of the directors unless he seeks them. I am happy that the Senator envisages a situation where the court appoints an examiner who perhaps has not been suggested by the company but the Senator must also remember that, by and large, it will be the company that goes to court to seek the appointment of the examiner. If we want to encourage them to do that, we do not want to frighten them to the extent that they will not go to court to get an examiner appointed.
It will probably be the directors of the company who will see a situation developing where they will need help. If they see a liquidation staring them in the face they will seek to get an examiner brought in to assist them. I hope that the normal situation will be that, when the examiner comes in, he will be able to work through the managing director and the board and effectively call all the shots. That would be effectively what he would do. It would be a very sensible management who would co-operate with him. If the management do not co-operate then the examiner can say: "I am off to court to seek the powers of the directors and when I come back from the court I will be in a position to direct things fully". This is a nice mixture because if I tried to do it any other way I would be worried about scaring off the people I need to make this work and very often these are the directors of the company themselves.
Is there a time scale in which the examiner would have to make up his mind whether he was getting the co-operation of the directors? Is there a limit on the time the examiner would have to decide whether he would go back to court again to get the full powers of the directors?
There is no time limit.
I welcome this amendment. It is indicative of the constructive response we have had while this Bill has been going through the House. Many of these amendments have delayed the Bill a great deal but the result will be a very good Bill. This is a case in point where the examiner is given greater powers as a result of a point of view being put to the Government and the Ministers by the people who will be affected by this section.
Senator Ross, as it is now 5.30 p.m. would you report progress?
Do I move the adjournment?
I was waiting for the Acting Leader. You report progress and Senator Cullimore——
I report progress?
You report progress and Senator Cullimore will suspend the House.
I report limited progress.
I move that the sitting be suspended from 5.30 p.m. to 6.30 p.m.
Sitting suspended at 5.30 p.m. and resumed at 6.30 p.m.
We are resuming on amendment No. 215 which is being discussed with related amendment No. 216. Is amendment No. 215 agreed? Agreed.
Amendment agreed to.
Section 147, as amended, agreed to.
NEW SECTIONS.
Government amendment No. 216:
In page 117, before section 148, to insert a new section as follows:
—(1) Where it appears to the court, on the application of the examiner, that, having regard to the matters referred to in subsection (2), it is just and equitable to do so, it may make an order that all or any of the functions or powers which are vested in or exercisable by the directors (whether by virtue of the memorandum or articles of association of the company or by law of otherwise) shall be performable or exercisable only by the examiner.
(2) The matters to which the court is to have regard for the purpose of subsection (1) are—
(a) that the affairs of the company are being conducted, or are likely to be conducted, in a manner which is calculated or likely to prejudice the interests of the company or of its creditors as a whole, or
(b) that it is expedient, for the purpose of preserving the assets of the company or of safeguarding the interests of the company or of its creditors as a whole, that the carrying on of the business of the company by, or the exercise of the powers of, its directors or management should be curtailed or regulated in any particular respect, or
(c) that the company, or its directors, have resolved that such an order should be sought, or
(d) any other matter in relation to the company the court thinks relevant.
(3) Where the court makes an order under subsection (1), it may, for the purpose of giving full effect to the order, include such conditions in the order and make such ancillary or other orders as it sees fit.
(4) Without prejudice to the generality of subsections (1) and (3), an order under this section may provide that the examiner shall have all or any of the powers that he would have if he were a liquidator appointed by the court in respect of the company and, where such order so provides, the court shall have all the powers that it would have if it had made a winding-up order and appointed a liquidator in respect of the company concerned.".
Acting Chairman
Amendment No. 216 has already been discussed with amendment No. 215.
Amendment agreed to.
Government amendment No. 217:
In page 117, before section 148, to insert a new section as follows:
.—(1) Where an order is made under this Part for the winding up of the company or a receiver is appointed, any liabilities incurred by the company during the protection period which are referred to in subsection (2) shall be treated as expenses properly incurred, for the purpose of section 165, by the examiner.
(2) The liabilities referred to in subsection (1) are those certified by the examiner at the time they are incurred, to have been incurred in circumstances where, in the opinion of the examiner, the survival of the company as a going concern during the protection period would otherwise be seriously prejudiced.
(3) In this section, ‘protection period' means the period, beginning with the appointment of an examiner, during which the company is under the protection of the court.".
This is a new section and the purpose of it is to ensure that the examiner can continue to get credit during his period there by a process of certifying debts which will subsequently rank as being expenses and therefore receive priority treatment were there to be any subsequent liquidation. That is the purpose of this new section.
Acting Chairman
Is the amendment agreed?
I do not know whether this is the appropriate section on which to raise this matter but perhaps the Chair will guide me on it. How does the Minister envisage a situation whereby the examiner, who is taking over the role of chief executive of the company or something similar to that, decides that he needs a rapid and major injection of capital into the company, in other words what is referred to as liabilities in this amendment? How would that come about? The answer may be that it is just a normal commercial decision for him to actually go and look for credit elsewhere in order to get capital for the company. Would the Minister consider that he should have some special relationship perhaps with Fóir Teoranta or some bank of that sort? I am trying to visualise in a situation where the examiner having made a decision and having seen that the company may be rescued in certain circumstances and needs short term funds and capital, or just needs a cash injection, where he would go for that money.
He would behave commercially. I do not think a special arrangement with a particular bank or Fóir Teoranta would be wise at this stage. It is better that he is free to make his own arrangements. If the examiner required a cash injection he would obviously have to talk to individual banks or would-be investors if he chose to do that. It is important that we get this clear. At first his only power is that of veto. He is there to prepare the report, assess the situation, preside at meetings and guide the management. He has powers under section 147 to take whatever steps are necessary to halt, prevent or rectify the effects of such act, omission, course of conduct, decision or contract. In other words, he has a kind of veto at that stage. If he sees the directors doing something, he can stop it. At that stage if cash is needed and the directors are not seeking it, I do not think it is impossible for him to instruct them as to what they have to do. I am relying on the fact that the company would certainly co-operate with him, knowing that he can get the power if he wants it. If he goes back to the court and takes the power of the directors he can arrange the necessary finance if he feels it is necessary to keep the company going.
There has been an almost universal view since the Bill was published that one of the main difficulties which would be faced by a company under protection, and by the examiner, would be the reluctance of ordinary trade creditors to continue to supply the company during the protection period. Such a refusal might be based on the fear that the company might be wound up at a later time or, indeed, a receiver appointed after the company came out of protection and that they would effectively just be throwing good money after bad. For that reason we felt it necessary to give the examiner this role of certifying debts which would be paid as expenses.
The Senator's point is whether the examiner can raise capital. When he is carrying out the duties of the directors and has the full power of the directors he can do whatever the directors could have done under ordinary company legislation. Assuming that the directors could raise capital as directors, so too could the examiner. He would not have that power while he was not exercising the role of the directors but he should almost certainly be able to ensure that the chief executive of the company at that time does so if that is what is needed. If the chief executive fails to do so, the examiner can be appointed in his place. I do not know if that clears up the point. I certainly would envisage that the examiner, when he is exercising the duties of the directors, would be able to do whatever the directors could do, such as raise capital.
I take the Minister's point. It is an extension of the point he made about trade creditors being reluctant to give the examiner in this situation any more credit. That is a very natural and normal commercial decision for trade creditors to take. That should be extended to commercial banks and anybody who is likely to lend him money or to inject capital. What I can see — and I am not even sure whether or not this is correct but I think it is — is a situation in which an examiner decides that the company is viable if its gets an injection of capital and if it is given further credit. If I was a bank to whom the company already owed money I would be very reluctant to lend any more money to that company even under pressure and recommendation from the examiner. The examiner will certainly have a plan, a very coherent project, for getting the company back into profit and back on a stable footing but if he goes to a normal bank — and I am arguing to a certain extent against my own philosophy — looking for more money, having a new plan and a new situation, he will find the bank, just as much as ordinary trade creditors very reluctant to forward any more money to the examiner, whatever and however credible his plan.
I do not know what the solution to this problem is, but maybe some sort of special arrangement with Fóir Teoranta might help. What we may come across here is the whole theory of the examiner being a very worthy and a very enterprising one but, in practice, when he is thrown into the rough commercial jungle, he finds that people are very reluctant to deal with him on normal commercial criteria because he is a new phenomenon and does not really bear the sort of credit worthiness necessary. They would be frightened that the company would go under and that they would be, as the Minister said, in normal trade credit terms, throwing good money after bad.
Let me explain briefly. I may have misled the Senator and I assure him it was not deliberate. It is envisaged that the procedure of certification of debts due will extend to bank loans or bank overdrafts or that type of credit which the examiner may need. What is meant by this procedure is that the examiner could certify the debt as being one he requires. That would automatically rank it as an expense of the examiner and as such it would under, section 165 (3) of the Bill, be paid before any other debts, even preferential ones. When a company is liquidated the first bill paid is the cost of liquidation, so this will become a cost of examining, as it were, and therefore rank as the first payment in the event of the company subsequently being wound up or a receiver appointed. When I talked about certifying debts earlier I meant to include bank overdrafts and borrowings or loans which the examiner may require to put in place.
Does the Minister mean that it the examiner incurs any more debts on behalf of the company then — and I cannot find this here — they will get some sort of preferential status?
Yes. Providing he certifies them they will rank as an expense and will have not only some kind of preference but the top preference.
Could the Minister point to where that is in the Bill?
Yes. It is Government amendment No. 217, incurring of certain liabilities by the examiner. The first subsection reads: "Where an order is made under this Part for the winding up of the company or a receiver is appointed, any liabilities incurred by the company during the protection period which are referred to in subsection (2) shall be treated as expenses properly incurred, for the purpose of section 165, by the examiner."
I think it is covered.
I welcome very much the right of the examiner to guarantee payment to a creditor who continues to supply goods. This is particularly important in an area where another company has a monopoly. Often companies go into liquidation because of failure to get supplies from other companies who have a monopoly of the market.
Amendment agreed to.
Government amendment No. 218:
In page 117, before section 148, to insert a new section as follows:
".—(1) Where, on an application by the examiner, the court is satisfied that the disposal (with or without other assets) of—
(a) any property of the company subject to a security to which this section applies, or
(b) any goods in the possession of the company under a hire-purchase agreement,
would be likely to facilitate the survival of the whole or any part of the company as a going concern, the court may by order authorise the examiner to dispose of the property as if it were not subject to the security or to dispose of the goods as if all rights of the owner under the hire-purchase agreement were vested in the company.
(2) This section applies to any security other than a security which, as created, was a floating charge.
(3) It shall be a condition of an order under subsection (1) that—
(a) the net proceeds of the disposal, and
(b) where those proceeds are less than such amount as may be determined by the court to be the net amount which would be realised on a sale of the property or goods in the open market by a willing vendor, such sums as may be required to make good the deficiency,
shall be applied towards discharging the sums secured by the security or payable under the hire-purchase agreement.
(4) Where a condition imposed in pursuance of subsection (3) relates to two or more securities, that condition requires the net proceeds of the disposal and, where paragraph (b) of that subsection applies, the sums mentioned in that paragraph to be applied towards the sums secured by those securities in the order of their priorities.
(5) An office copy of an order under subsection (1) in relation to a security shall, within 7 days after the making of the order, be delivered by the examiner to the registrar of companies.
(6) If the examiner without reasonable excuse fails to comply with subsection (5), he shall be liable to a fine not exceeding £1,000 and, for continued contravention, to a daily default fine not exceeding £50.
(7) References in this section to a hire-purchase agreement include a conditional sale agreement, a retention of title agreement and an agreement for the bailment of goods which is capable of subsisting for more than 3 months.".
This is a section which tries to maintain an important element of balance in the Bill while, at the same time, ensuring that it will be as workable as possible. It has been put to me that the company could be effectively hamstrung during the protection period if some of its assets, for example buildings incurring heavy overheads, were the subject of a fixed security. This could clearly be a drain on the company's resources during the protection period and the suggestion was that the examiner should be able to dispose of such property whether or not he has been given power by the court actually to run the business.
However, there is a quid pro quo. The examiner should, the argument goes, be required to account to the security holder for the proceeds of any such disposal. Similar arguments have been put to us in cases where goods in the company's possession are the subject of retention of title agreements which the Senator mentioned. Obviously if the supplier concerned could simply grab the goods, the company's position could very quickly become untenable. The UK also faced this problem in their protection legislation. The amendment we have come up with to address this problem is similar to section 15 of the UK Insolvency Act, 1986. What we are doing there is ensuring that the examiner can actually dispose of secured assets and provide that they are paid over to the body that secures them.
If an examiner is appointed and a supplier supplies goods, does he lose his title to those goods? Can he still retain title to the goods? If that is the situation, once an examiner is put in, suppliers would be very reluctant to supply goods if they cannot retain title to those goods.
That is an excellent point and one I hope to deal with under section 218 which is coming up very shortly. So, with the Senator's permission, I will leave it until then.
The Minister stated earlier that he was introducing an amendment to cover what we were referring to in relation to the retention of title and the status of goods supplied to a company under examination. I want to know what status would those goods have in those circumstances.
There is a technical question here to which I would have to give further consideration. Basically he can use the goods but would have to apply them towards discharging the sums secured by the security or payable under the hire purchase agreement. If there was a hire purchase agreement in place, or something like that, he would have to discharge the sums due on foot of those contracts. Is the Senator referring to the general ownership of goods supplied generally in the ordinary trade sense?
Yes. In the ordinary trade sense if a supplier supplies goods to a company that is under examination, can the supplier retain title to those goods and, failing that, would he rank as a preferential creditor.
I want to get this clear because there is some confusion about it. We are talking here about an ordinary creditor who supplies goods to an examiner. The query really is whether the person who supplies the goods to the examiner can retain the title. The same situation applies there as if the goods are supplied to a company unless the examiner decides he wishes to certify the particular debt, in which case it will rank as an expense. If you are supplying goods to an examiner you are in the same position as if you are supplying goods to any other company, unless the examiner decides he wishes to certify the debt, in which case the debt will rank as an expense so you should get your money if the company goes into liquidation.
On the question of title passing, title passes when the goods are paid for, and the same rules apply as in the ordinary course where you would have to have a retention of title clause before you could retain the title. We have not built into this legislation any special retention of title other than for hire purchase and the like which is separate. We have not built into the legislation any separate retention of title clause which allows someone who supplies goods to an examiner to retain the title. I did not detect any particular demand to do that.
I can assure the Minister that it will cause problems. If suppliers of goods to a company under examination have a retention of title to those goods, they will demand a 100 per cent return on the supply of their finance or the return of their goods from that company. It is an area where there could be great confusion if we do not clarify it now. Is the examiner treating those goods as part of the assets of the company or not? If they are not part of the assets of the company, they cannot be treated as part of the package which will bring about a reconstruction of the company.
Would the Senator permit me to come back on that one because there are some difficulties in regard to hire purchase and I would like to clear them up? With your permission, Senator, I will come back to it, if that is all right. Perhaps, we could agree on that and I will come back to explain the position and undertake to clarify whatever the Senators wish.
Acting Chairman
Is the Senator agreeable to that?
Can we defer the amendment? Can that be done?
I would prefer not to do that.
Amendment agreed to.
Government amendment No. 219:
In page 117, before section 148, to insert a new section as follows:
.—(1) Where a petition is presented under section 144, notice of the petition in the prescribed form shall, within 3 days after its presentation, be delivered by the petitioner to the registrar of companies.
(2) (a) An examiner shall, within the time limits specified in paragraph (b), cause to be published in Iris Oifigiúil and in at least two daily newspapers circulating in the district in which the registered office or principal place of business of the company is situate a notice of—
(i) his appointment and the date thereof, and,
(ii) the date, if any, set for the hearing of the matters arising out of the report to be prepared by the examiner under section 150.
(b) The time limits referred to in paragraph (a) are—
(i) twenty-one days after his appointment in the case of Iris Oifigiúil, and,
(ii) three days after his appointment in the other case referred to in that paragraph.
(3) An examiner shall, within three days after his appointment, deliver to the registrar of companies a copy of the order appointing him.
(4) Where a company is, by virtue of section 145, deemed to be under the protection of the court, every invoice, order for goods or business letter issued by or on behalf of the company, being a document on or in which the name of the company appears, shall contain the statement ‘under the protection of the court'.
(5) Failure to comply with the provisions of this section shall be an offence.".
This is a tidying-up amendment. I feel there is a lot of tidying up to do in section 148 of the Bill and it would be more convenient simply to replace the whole section. None of the changes we propose making, however, is particularly significant in its own right nor will it change the general thrust of the section. I can certainly give Senators details of the individual changes we propose, if necessary. This is mainly an amendment to tidy up the notification procedure of the appointment of an examiner. I can go into it in detail if Senators so wish.
Amendment agreed to.
Question: "That section 148 be deleted" put and agreed to.
NEW SECTION.
Government amendment No. 220:
In page 117, before section 149, to insert a new section as follows:
.—(1) An examiner may resign or, on cause shown, be removed by the court.
(2) A vacancy in the office of examiner may be filled by the court.
(3) An examiner shall be described by the style of "the examiner" of the particular company in respect of which he is appointed and not by his individual name.
(4) The acts of an examiner shall be valid notwithstanding any defects that may afterwards be discovered in his appointment or qualification.
(5) An examiner shall be personally liable on any contract entered into by him in the performance of his functions (whether such contract is entered into by him in the name of such company or in his own name as examiner or otherwise) unless the contract provides that he is not to be personally liable on such contract, and he shall be entitled in respect of that liability to indemnity out of the assets; but nothing in this subsection shall be taken as limiting any right to indemnity which he would have apart from this subsection, or as limiting his liability on contracts entered into without authority or as conferring any right to indemnity in respect of that liability.
(6) A company to which an examiner has been appointed or an interested party may apply to the court for the determination of any question arising out of the performance or otherwise by the examiner of his functions.
This section relates to the resignation of an examiner and amendment No. 220 takes the convenient approach of replacing the whole of section 149 rather than making piecemeal changes. We have also changed the note in the margin. To begin with, the words in subsection (1) "appointed under this Part" appear to be unnecessary because the term "examiner" is already defined in section 143. There is also a typographical error in line 30. The word "or" should read "on". Subsection (2) is unchanged. Subsections (3) and (4) are new.
It has increasingly struck us, and this point has been made previously in the Seanad, that unlike the winding-up provisions of the Companies Act, Part IX of the Bill is somewhat short of procedural mechanics though some of the amendments we have already discussed include several which have been inspired by the liquidation procedures of the existing Act. Subsections (3) and (4) of amendment No. 220 are two further cases in point and are based on section 228 (b) and (g) respectively of the 1963 Act.
Subsection (5) is also new. It has been put to us that it would be useful and desirable to have a provision dealing with the liability of the examiner in respect of acts done by him in the same way as applies to receivers under section 316 (2) of the 1963 Act, particularly since we are now proposing to give the examiner more power in relation to running the business. Subsection (5), therefore, is closely based on section 316 (2) of the 1963 Act.
Finally, subsection (6) of the amendment is unchanged from section 149 (3) of the present text. It is really a list of the general provisions as to the examiner and his office.
This is a procedure which has also been adopted in relation to receivers and liquidators taking account of general provisions where the person carrying out the examination resigns. The section fails to take account of an examiner wishing to retire rather than resign. An examiner may find himself in an awkward position in a company. Having been appointed by various creditors or a group of creditors to carry out an examination, there might be an occasion when he or she might feel obliged to retire rather than to resign. Perhaps there is a loophole here. If an examiner finds something in the investigations he is not happy with, he could retire rather than be forced out by the court or forced to resign. The word "retire" needs to be included in order to cover that eventuality. Maybe I am overstating the case but it is worth discussing.
I do not see the difference between resigning and retiring.
The difference between resigning and retiring is that an examiner, if he chooses to retire, could wait until a particular period of time has elapsed and drag his feet on the issue. He might be appointed for a particular length of time to carry out the examination. At the end of that specific period of time he might choose to retire rather than issue a report. I can visualise this happening more in the case of receiverships rather than examinations but I am wondering whether this could happen in the case of examiners?
We are talking here about a period of three months, possibly four. I think the word "retire" is perhaps too polite. It gives the impression that this is almost a lifetime's work, from which one would retire. If you get out of this job in the middle of a three-month period, what you are doing is resigning. The 30-day period provides for an examiner to resign or be removed from office, which I suppose is not the correct word to use.
With the 30 days available, the court can extend——
I think we are very much into the small print here. If the examiner wants out of the job during the four-month period, we are providing here for him to resign. I do not see what difference it would make to include the words "retire".
Must he give reasons why he or she is resigning?
That is provided for in the Bill.
If somebody resigns during the course of an examination, does that not smell particularly bad for the company involved? It might prejudice the good standing of the directors who brought the petition. Perhaps there are less glorious ways in which a course of action might be taken. The examiner might choose to retire rather than to resign.
The safety valve is that one would have to go back to court to get another examiner appointed. I imagine the court would want to know why a new examiner was required. At that point the thing would emerge. I do not think we should lay it on an examiner who just wants to give up the job.
Unfortunately, in day-to-day operations these things happen. Receivers might choose not to make a report in certain instances because they may find themselves being put in an awkward position. They may prefer not to make a report rather than getting embroiled in something that they might not like to get involved in. If a group of creditors decide to make a petition and appoint an examiner, there is no reason in the world why the people who appoint the examiner would not exercise their weight and judgment in order to get a particular result. The examiner finding himself under that particular type of pressure might choose to retire. If the word "resign" is mentioned during any particular examination, it could generate a lot of ill-will towards the reconstruction of the company and there could be bad feeling.
I see the Senator's worry. The whole story about the company will come out in the examiner's report. Perhaps it is better that it should come in that independent way. Once the examiner wishes to resign, he can do so and we can get somebody else to do the job and then that person can go to court and present the reports and explain all that has to be explained about the company. It is a different way of solving it. It will take its course.
When reading the amendments this morning I noticed that subsection (6) of amendment No. 220 says:
A company to which an examiner has been appointed or an interested party may apply to the court for the determination of any question arising out of the performance or otherwise by the examiner of his functions.".
How would the Minister of State reconcile that provision with the provisions of Section 147, as amended, relating to the powers of the examiner to convene meetings of the boards of directors, or to be heard at meetings of the boards of directors? How can the company take decisions independently of the examiner which would enable it to ask the court to resolve the dispute if the examiner has a large control over the decision making process of the company? I cannot understand how the company can make a petition when it can no longer operate independently of the examiner.
Ultimately the shareholders of the company would have the ultimate power in the matter. The purpose of this clause is to ensure that if an examiner has a difficulty and cannot resolve it, or is not getting co-operation, he can go to the court. The intention is — so that the examiner can do his job. The shareholders will still be the ultimate authority in the company in policy terms. The intention behind this is that the examiner will have access to the court in carrying out his duties under this legislation.
I am not trying to be troublesome but I am fully aware of the intention of the subsection. I am not clear on another issue. There may well be no shareholders other than the directors of the company and it appears that section 147, as amended, effectively stymies the company from having the capacity to take independent decisions. Can the Minister illustrate how a company which has an examiner involved with it could, independently of the examiner, petition the courts? The powers of the examiner under section 147 are very extensive and it is difficult to see how the company could take an independent decision which he could not effectively over-rule, given that Section 147 (6) says:
Where an examiner becomes aware of any actual or proposed act, omission, course of conduct, decision or contract, he shall, subject to the rights of parties acquiring an interest in good faith and for value in such income, assets or liabilities, have full power to take whatever steps are necessary to halt, prevent or rectify the effects of such act, omission, course of conduct, decision or contract.
Given the power of the examiner I cannot see how a company could petition the courts independently. If that is the intention it could be more precisely written so that the members of the company would be entitled to meet and take a decision separate from the examiner if they wanted to petition the court.
The members of the company are the shareholders. They will still be in existence so they can take a decision to go to the court to have a matter determined. There is nothing to prevent the members of the company from going to court to have a matter determined. Whether or not the examiner agrees with them, the members are the shareholders and whether or not they are directors is a separate matter. There is no question in this legislation of removing the shareholders. Even if they are all directors, there is a provision here for the examiner to take over the powers of the directors, in other words, the running of the company, but the shareholders of the company are still in existence. The shareholders would not have the authority to remove the examiner but as shareholders they would have a life of their own and could go to the courts to have a matter determined. There are two distinct power centres both of which can go to court — the examiner and the shareholders whether or not they are directors. That is the only workable structure I could come up with.
We are not arguing about the principle. What the Minister is saying is not clear in the Bill. Section 147 (3) says:
Notwithstanding any provision of the Companies Acts relating to notice of general meetings, an examiner shall have power to convene, set the agenda for, and preside at meetings of the board of directors and general meetings of the company to which he is appointed and to propose motions or resolutions and to give reports to such meetings.
That is not affected by amendment No. 214 so it stands. Subsection (4) reads:
An examiner shall be entitled to reasonable notice of, to attend and be heard at all meetings of the board of directors of a company and all general meetings of the company to which he is appointed.
The examiner will always be entitled to attend general meetings of shareholders or meetings of the directors. Subsection (6) goes on:
Where an examiner becomes aware of any actual or proposed act, omission, course of conduct, decision or contract, by or on behalf of the company to which he has been appointed, its officers, which in his opinion, is or is likely to be to the detriment of that company, or any interested party, he shall, subject to the rights of parties acquiring an interest in good faith, in such income, assets or liabilities, have full power to take whatever steps are necessary to halt, prevent or rectify the effects of such act...
If the examiner does not want to allow the directors or the members of the company to petition the court under the provisions of section 149, he would be in a position to effectively veto such a petition because he would be able to overrule them if he saw fit. That is the way it reads to me. I do not want the Minister to go back over what we have already discussed, but I cannot see how either the members or the directors can act independently of the examiner and take the decision as a company to petition the court to resolve a dispute between themselves and the examiner. That is what I am trying to get clarified.
I do not envisage that the examiner will overrule the shareholders of a company who wish to go to court. Under section 147 the examiner has a veto power to take whatever steps are necessary to halt, prevent or rectify the effects of such acts, omission, course of conduct, decision or contract. That is in the case of actions which are likely to be to the detriment of the company. A decision by the shareholders to go to court would not, by any stretch of the imagination, be deemed to be an action likely to be to the detriment of the company. The examiner, therefore, would not have the power to overrule a decision by the shareholders of the company to go to court for the determination of any matter. He can only overrule them where it is likely to be to the detriment of the company. This is a difficult concept because the shareholders remain in existence and they have certain options, one of which is to go to court to seek the determination of a matter. The examiner has such an option. He can overrule many things but he certainly cannot overrule something that is not to the detriment of the company.
Acting Chairman
I should like to remind Senator Brendan Ryan that he is discussing section 147 which is not relevant to the amendment before us. We have already passed section 147.
The amendment we are discussing deals with the power of a company to apply to a court. Section 147 is one of the sections which determines the relationship between the examiner and the company. The examiner's relationship with the company is fundamental to whether the company can take a decision to apply to the court for clarification. I do not have any dispute with the principles involved but as things stand it is a matter for the opinion of the examiner, not something that he has to establish in court, whether something is to the detriment of the company. The examiner may hold the view that a petition to the court would be to the detriment of the company and I cannot see anything in the legislation which would prevent him from doing that if he wishes.
The directors of the company are the people who run the company. If the examiner takes control he takes over the duties and functions of the directors but the shareholders, as a separate body of people, still retain ownership of the company. In this procedure we are not removing ownership of the company; we are putting in a person to do a particular job. The owners of the company will continue to exist. What we are saying is that while the examiner is doing his or her job the owners of the company can go to court and the examiner cannot say, "I hereby prevent the owners of the company from going to court". I do not think I need to write that into the legislation because we are not removing the powers of the shareholders. I do not think there is a need to list what I am not doing.
Acting Chairman
We are discussing amendment No. 220 and Senator Ryan is referring to section 147 which has been passed by the House.
With respect, whether amendment No. 220 is workable depends on what section 147 means. It would have been impossible to discuss this matter when the House was considering section 147 because we had not reached amendment No. 220 which relates to section 149. I do not thing it can be said that we should not discuss section 147 because we are discussing section 149.
Acting Chairman
If amendment No. 220 is accepted section 149 will be deleted.
And the amendment is worded in the same way as the section. Subsection (6) of amendment No. 220 contains precisely the same wording that section 149 contains. Whether the Government amendment is accepted or not, the wording in that subsection will be the same.
There is nothing to prevent the shareholders of a company meeting. All they have to do under this provision is to notify the examiner. If he or she chooses not to attend, or to attend and preside, it will have to be borne in mind that other people own the company. I am sure they will be prepared to say, "We do not care what the occupant of the chair says. We are going to the court to have this matter determined; we have that right under the legislation and the examiner cannot veto that move because it is not detrimental to the company". I cannot see the Senator's point. We are talking about two separate blocs of people, the shareholders who own the company and who have access to the court, and the examiner who may have influence if he presides at the meeting. I can assure the Senator that the shareholders will be aware that they own the company. They also will be aware of their right under this legislation to approach the court. It should be remembered that all we are talking about is giving them the right to approach the court and that is not exactly earth shattering.
I do not wish to get involved in a dispute with the Acting Chairman or the Minister on this because, ultimately, it will be resolved in the courts. One of the reasons for this legislation is that there have been many abuses of company law by unscrupulous directors and owners who have used the privilege of limited liability in ways that were to the detriment of customers, employees and the general climate for enterprise and business here. If an examiner decides that the owners are being malicious in petitioning the courts as a way of frustrating his or her activities then, in my view, the Bill gives the examiner the authority to overrule them on the basis that it was his or her opinion that it would be to the detriment of the company. I do not think that uncertainty has been resolved but that is my last word on the issue; I will not pursue it.
Acting Chairman
Is Senator Ross offering? I called the Senator on three occasions and he opted to give way to the able Senator on his right.
I am not the pushy type and I should be allowed make my point now. The amendment is a good one but I should like to put a number of questions to the Minister in regard to it. Senator Hogan was right in saying that there was a danger in copying in all these amendments the powers and provisions for liquidators and receivers without recognising that the examiner has a completely different role to play. The examiner will not be called in unnecessarily by creditors. More often than not it will be the company that will be calling in the examiner. The amendment envisages the demise or the departure of an examiner and it is important that the Minister, in order to solve the problem raised by Senator Hogan in regard to resigning or retiring, outlines the circumstances in which he envisages an examiner resigning or being removed by a court. Will it occur where there is a conflict of interest or where there is a question of dishonesty or fraud involved? We must consider when the removal will be necessary.
Subsection (2) is very sloppy. It states that a vacancy in the office of examiner may be filled by the court and it seems to me that in the circumstances envisaged in subsection (1), where an examiner may resign, or, on cause shown, be removed by the court, that it will be necessary that an examiner be appointed immediately because those circumstances would be sudden and unforeseen. It will not be possible to anticipate them and they will not happen in the normal course of events.
One cannot anticipate a resignation or a removal. To follow subsection (1) with the sloppy sentence that a vacancy in the office of examiner may be filled by the court seems to me not to put any obligation on the court to fill it or not to specify any time limit within which the court should fill it. In my view it is essential if subsection (2) follows directly from subsection (1) that we state in subsection (2) that the vacancy shall be filled by the court immediately. Otherwise, there may be a long gap and it may be necessary to go through the same procedure as with a petition. Will the Minister answer that point?
There are many circumstances under which an examiner may wish to resign. That person may have too much work, may wish to branch into another area, may have discovered a conflict of interest which he or she was not aware of or may feel that it was time to quit the assignment on the basis that it was getting complicated. They are legitimate reasons why one may wish to resign and they are ordinary, everyday reasons. We agreed earlier that we should not make a list of reasons why an examiner should be removed for fear of leaving out some human failing. However, such matters as incompetence, dishonesty, being charged with a criminal offence, fraud and other areas could be causes for removing a person from office. In any way conniving or planning with individual creditors would be dishonest as well. Those are the kind of areas in which I would envisage an examiner would be removed — I stress that that list is much longer than I have indicated.
I take the Senator's point about the next sentence: "A vacancy in the office of examiner may be filled by the court." My legal advice is that we are not permitted to say in this case "shall be filled by the court" on the basis of the theory of separation of powers whereby we do not tell the court what it does. My legal advice is that "may" in this context is always interpreted as "shall".
I have to believe the Minister about that. I have no option and I do not for one moment question that. Even if that is the case, which undoubtedly it is, that sentence certainly needs tightening up because it gives the option to the court whether or not to fill the vacancy and it gives no timetable on the court. Surely it is essential — we discussed it in the previous section — that we can give guidelines to the court. We have done so in a previous amendment by the Minister today. Unless this is tightened up and given guidelines on time, we are leaving ourselves open to two things. We are leaving ourselves open to the court taking as long as it likes in the appointment of an examiner when one resigns — which seems absolutely crazy — and we are presumably leaving it open to a new hearing of some sort which is very similar to a petition. If that stays I want to go on to something else but if it is going to be tightened up I want to leave it. This is quite important. Even if we cannot tell the court to appoint an examiner — which I am sure the Minister is right about — we can certainly, as we have already done, give it very obvious guidelines and we have done it on previous sections.
I am impressed by what the Senator has said. I am stuck with that legal position which I cannot budge from at the moment but I will see whether we can find a form of words which meets the Senator's requirements. My intention is clear, that is, that the court will appoint another examiner. That is the Government's clear intention. I want to put that on the record of the House. I will see if I can find a form of words which will make that clearer but I have to deal with the legal situation as I described and I cannot do that now. I will look at it and see if I can tidy it up a little.
If the Minister does not look at it very hard I will come back to him on it on Report Stage. I am concerned that there is not a complete re-opening of the petition, a situation which was there before. I anticipate that because of the way it is drafted that is exactly what will happen. I have received submissions on this and it is no coincidence that this should be done, in the event of a resignation, in consultation with interested parties again. Initially I thought that submission was fair but I would have thought it was absurd that it should be done in consultation with interested parties because then the whole urgency is gone. I would like the Minister to look at it to see if we can redraft it, so it is immediate and urgent.
I will look at it.
I welcome this amendment. I am pleased that the Minister has seen fit to give the shareholders the opportunity to apply to the court and to question the decisions of an examiner because the running of a company can be very complex. I wonder what qualifications these examiners will have because they may find it difficult to move in and take decisions and take over the role of directors. I am pleased that the Minister has built in this safeguard. It is possible that an examiner may take the wrong decisions which would have an adverse effect on the company. I am pleased that the Minister has put down this amendment. It gives the shareholders the opportunity to go to the court and to question the decisions of the examiner.
In regard to the point raised by Senatory Ryan I must say that I tend to agree with the Minister, but I want to be sure that my interpretation is correct. Senator Ryan was worried that a company could not go to the courts to question any action or decision of the examiner. It is my view — and I am glad he is back to hear it — that under the previous section, which the Leas-Chathaoirleach does not want us to discuss, he can exercise that power only when he considers that what the company is trying to do is likely to be to the detriment of the company. When he has considered that, if the examiner still wants to halt the company he will, in the words of the other amendment, "take whatever steps are necessary to halt them". The only steps he could take would be legal steps. He would have to go to a court to seek an injunction to stop the company seeking the other court to question the examiner. Therefore, their case would have to be made at that point. It seems to me that there would be access to the court by both the examiner and the company and that a court would decide, if the examiner tried to halt the company by way of an injunction. He would have to prove that it was "subject to the detriment of the company". It is hard to see how the questioning of the examiner's work by the company could be seen to be to the detriment of the company. Therefore, it seems to me that it concludes and covers the whole situation. I am satisfied that the fear raised by Senator Ryan is covered by the legislation as it stands.
Amendment agreed to.
Question: "That section 149 be deleted" put and agreed to.
NEW SECTION.
Government amendment No. 221:
In page 117, before section 150, to insert a new section as follows:
—(1) The directors of a company to which an examiner has been appointed shall, within 7 days of the appointment, cause to be made out, verified by affidavit and submitted to the examiner a statement in accordance with this section as to the affairs of the company.
(2) The statement shall, in so far as is reasonably possible to do so, show as at the date of the examiner's appointment particulars of the company's assets, debts and liabilities, the names and addresses of its creditors, the securities held by them respectively, the dates when the securities were respectively given and such further information as may be prescribed or as the court may direct.
(3) A person to whom subsection (1) applies who makes default in complying with the requirements of this section shall be guilty of an offence.
This is an amendment to ensure that the directors must give certain data to the examiner on his or her arrival. The new section we are proposing to introduce will cut down considerably on the work of the examiner, provided he gets all the information he is entitled to. I think the amendment is self-explanatory.
I am glad this amendment is proposed because it gives a definite time limit to directors to supply specific information to examiners. Three months is a very short time if you are talking about the reconstruction of a company. If an examiner has undue delay in getting all the information he or she requires from directors or the people involved in the company, it can have very serious consequences for the viability of the company at the end of the day. For that reason I think that putting a limit on the time directors have to furnish details of their affairs is not unreasonable in this instance.
I welcome this amendment and in particular the time limit. Right through the discussion of this Bill we have all agreed that time limits tighten up the procedure admirably. Could the Minister direct me to where the penalties for the offence referred to in subsection (3) are dealt with?
In section 184(1)
Amendment agreed to.
SECTION 150.
Amendment No. 222 is consequential on amendment No. 224 and they may be discussed together.
Government amendment No. 222:
In page 117, lines 39 to 41, to delete "which shall be in two parts, in accordance with sections 151 and 152, respectively", and substitute "in accordance with section 151."
I think it is unnecessary to split the examiners report under section 150, which is in the existing Bill, into two parts. Indeed, the current division of the matters to be reported on in the current sections 151 and 152 is somewhat arbitrary in some cases and leads to much repetition in others. For example, it seems to me to be unnecessary to require the name of the company to be specified. There is too much detail in that. In addition, there are several refinements that we think need to be made to the various matters listed in the two sections.
Finally, we are conscious of the need to ensure that the examiner's report and the task of preparing it should not be made too difficult or get in the way of its primary function of recommending ways and means to save the company. I will just stress again that the role of the examiner is it recommend ways and means of saving the economy. We must keep that focus in mind all the time. Overall, sections 151 and 152 should now be combined in one section and amendment No. 224 would — as well as doing this — make several amendments along the way. Again, I can give the House full details of those if we need to go through them.
Amendment agreed to.
Government amendment No. 223:
In page 117, lines 44 to 46, and in page 118, lines 1 to 3, to delete subsections (3) and (4), and substitute the following subsections:
(3) The examiner shall deliver a copy of his report under this section to the company on the same day as his delivery of such report to the court.
(4) The examiner shall also supply a copy of his report under this section to any other interested party on written application, with or without the omission of such parts of the report as the court thinks fit..
I am not sure that the Minister has explained the situation to us. I am worried about subsection (4) of amendment No. 223: "The examiner shall also supply a copy of his report under this section to any other interested party... with or without the omission of such parts of the report as the court thinks fit". I did not think amendment No. 223 had been moved.
Sorry, it is the Minister's amendment. It is not up to you to move it.
Amendment No. 223 would restrict the circulation of the examiner's report under the section. The report which the examiner prepares will probably contain a considerable amount of sensitive information about the affairs of the company and there seems to be no good reason why this should be made available to the public at large, as it will be, if it is filed in the Companies Registration Office under the present subsection (3). Indeed, in many situations, publication of this information could have quite disastrous consequences for the company. While the revised subsection (4) would still allow any interested party to get the report, we think that for the same reasons of confidentiality the courts should be able to abridge the copies of the report going to such parties.
The amendment would, therefore, do a number of things; first, it would delete the requirement to send the report to the Registrar of Companies; secondly, the company would automatically get a copy without having to apply for it or indeed having to pay for it. Finally, the court could direct that any copies being sent to interested parties should have certain sensitive information omitted.
I am a little taken aback as I read the amendment and listen to the Minister. The section as it stands would require the examiner to send a copy of his report to the Registrar of Companies. Does that automatically mean that it would become public knowledge to all and sundry, in which case I think one can accept that provision without too much difficulty? The second part of the amendment means that as it stands the Bill proposes that the examiner should supply a copy of his report to the company and any interested party. "Interested party"— as I understand it — involves creditors, members of the company and employees, under an amendment which I understand the Minister accepted or undertook to insert when I was not here. That is hardly the whole world and it appears to me that all of those interested parties have a right to know the examiner's views since their own financial, and indeed in the case of employees employment, interests are fundamentally linked up with it, and none of those interested parties, in my view, will have an interest in damaging or harming the company.
The reason they will have sought this procedure to have this remedy of an examiner introduced is to protect their interests. That is why they are listed as interested parties because they are worried that their interests will be undermined. It seems to me, therefore, that it is being excessively protective because it could well be that the information that is vital to the interests of some of these interested parties could be deleted.
I think it is a pity that the courts would have no guidance as to what should be left in or left out. What would be left out if the employees as an interested party seek a copy of the report? Will that be different from what the creditor or the banks would seek as an interested party? What would be the criteria the courts would use? It seems to me that it leaves the courts with an enormous difficulty and also leaves perhaps some of the interested parties, and particularly employees, considerably at risk of getting a less than complete picture of the company on which perhaps their own future depend.
I think the Minister is perfectly right in restricting information of this sensitive nature. I think that the definition of interested party is sufficient to cover the number of people who will get the report in this instance. The fact that he is removing the obligation to deliver the examiner's report to the Registrar of Companies is a welcome development. After all, if a company is under examination and various financial details of the company are being examined by an examiner and if it is in the interests of everybody, management, employees, financial institutions etc. that the company is reconstructed and saved, then all that information should be at the discretion of the people directly involved in the company and nobody else. I do not think it is anybody else's business. I think the terms of the amendment as proposed here are sufficient to cover it.
I am inclined to agree on that particular point. I take Senator Ryan's point about the need for access to this information by the interested parties, but I could foresee a situation, for instance, that one of those listed or interested parties would be the creditors of a company. Very often people in the same industry or area of work are enmeshed in deals together. A creditor of a company could be a competitor of the company as well. If, let us say, the examiner's report contained a detailed breakdown of the company on those aspects of the company's operation which were profitable and those assets which might be stripped to leave it on a narrow base would give, say, a unit cost breakdown which would be of enormous value to a creditor who could also be a competitor, I could certainly see a lot of sense in not having that type of information available to a competitor.
I would certainly accept that just because a party is an interested party that they should have access to the examiner. The interested parties are in conflict. The interested party could be the company directors or the company employees. Their main thrust would be to keep this company is operation. From the employees point of view, it would be to keep all the jobs secure and from the directors point of view, to keep it as profitable as possible. The creditor's — also an interested party — interests in this is to get what he or she is owed — and if they happen to be a competitor, to bury the company at the same time. I would certainly see the value in discretionary editing or censorship being allowed. I certainly believe that we need something like that. I welcome the amendment.
I would like to support what the Minister has said and disagree with my colleague. The reason is quite simple. This examiner's report is issued with one simple motive, that is, to save and rescue the company. I would have thought that any information which is going to leak out and damage or has the potential of damaging that company should be stopped one way or the other. I am all in favour of free information on all sorts of basis except in this case where if you are a competitor of that company you will want to get hold of that information and you will want to use it in order to once and for all kill the company dead which is already on a fairly rocky basis.
Obviously the examiner's report is going to contain some highly sensitive information which is confidential, which is presumably about the future trading strategies of the company and which would be invaluable to its competitors. It is really no good saying we could send it to the creditors or these people because they will not leak it to anybody else. The answer is, they will. If we are serious about saving a company as far as I am concerned that sort of information should be restricted to a very limited number of people and only those whose vital interests require that they have it.
An example strikes me of where this type of thing could lead to insider trading. I recall that Fóir Teoranta were involved in a public company which was based in the Limerick area some years back and in this sense it is the same operation as an examiner. They looked at the operation of the company and put forward certain proposals on it. When Fóir Teoranta moved out of that company it was operating successfully, which is an unusual thing at the best of times. They had put forward a certain set of proposals which meant the liquidation of many of the assets of the company, had redirected it in a different way and get involved in new activities, all of which led to the shares in the company moving from 17p up to something like 285p in seven or eight months. In effect that is the same operation as insider trading in many ways. The kind of information that was there would not have done the company any good had it been available to the creditors who were the competitors in this case. I am happy with the legislation.
Is amendment No. 223 agreed to?
I have heard the arguments from my colleague but I am not sure that I have heard the Minister's reply to what I said.
Since most of the Senators agreed with me I felt it was unnecessary to repeat their excellent arguments.
Let me pursue my own argument a little bit further for a moment. I do not want to keep the Minister too long. The logic and thrust of what my two colleagues have said — and I understand the Minister agrees — would end up with the examiner not being able to publish his report at all. If one begins to worry about the possible damage to the company, the truth is that fundamental damage would be done to the company when it became known that an examiner had been put in.
I heard over the monitor — and I do not want to go back over this — a discussion in which Senator Hogan was concerned that people would not extend credit to the company or would be unlikely to do business with the company if they knew an examiner would be put in because of the risks that would be involved. The truth is that an examiner is put in because people, either creditors, members of the company, Fóir Teoranta or the employees, are concerned about the company.
At the very least the amendment should have contained a reference to the omission of such parts of the report as the court thinks might or would be damaging to the interests of the company. It is an extraordinary wide phrase as it stands and it will be very much in the capacity of very persuasive lawyers to persuade the courts that most if not all of a report ought not to be supplied to some people. What are the rights of access of employees if the company have a policy of telling their employees very little about the state of the company? Is that going to be used to deprive the employees of most of what is in the examiner's report?
I am not persuaded that it is necessary but if we are going to allow a fairly dramatic retreat from the principle enshrined in the Bill as drafted about publishing the examiner's report, the criteria under which the court should operate ought to be clearly spelled out and if the criterion — the one that seems to be accepted universally and one that I would not dispute — is in the interests of the company, a specific reference should be introduced into the Bill to say that "where the courts believe that the publication of that information would damage the interests of the company". As it stands it seems that if the courts think that something is not fit to be published for a variety of reasons a lot of legal precedents could be established which could end up effectively restricting the amount of information available to the interested parties. I do not propose to pursue the matter any further but I ask the Minister to think about it. It is not something that I would want to make a big issue out of.
Amendment agreed to.
Section 150, as amended, agreed to.
NEW SECTION.
Government amendment No. 224:
In page 118, before section 151, to insert a new section as follows:
151.—The examiner's report under section 150 shall comprise the following—
(a) the names and permanent addresses of the officers of the company and, in so far as the examiner can establish, any shadow directors,
(b) the names of any other bodies corporate of which the directors of the company are also directors,
(c) a statement as to the affairs of the company, showing, insofar as is reasonably possible to do so, particulars of the company's assets, debts and liabilities as at the latest practicable date, the names and addresses of its creditors, the securities held by them respectively and the dates when the securities were respectively given,
(d) whether in the opinion of the examiner any deficiency between the assets and the liabilities of the company has been satisfactorily accounted for or, if not, whether there is evidence of a substantial disappearance of property that is not adequately accounted for,
(e) a statement of opinion by the examiner as to whether the company, and the whole or any part of its undertaking, would be capable of survival as a going concern and a statement of the conditions which he feels are essential to ensure such survival, whether as regards the internal management and controls of the company or otherwise,
(f) his opinion as to whether the formulation, acceptance and confirmation of proposals for a compromise or scheme of arrangement would facilitate such survival,
(g) whether in his opinion, an attempt to continue the whole or any part of the undertaking of the company would be likely to be more advantageous to the members as a whole and the creditors as a whole, than a winding-up of the company,
(h) recommendations as to the course he thinks should be taken in relation to the company including, if warranted, draft proposals for a compromise or scheme of arrangement, and
(i) such other matters as the examiner thinks relevant or the court directs.
Amendment agreed to.
SECTION 151.
Question: "That section 151 be deleted" put and agreed to.
SECTION 152.
Question: "That section 152 be deleted" put and agreed to.
SECTION 153.
Government amendment No. 225:
In page 119, line 22, to delete "or", and substitute "and".
This is simply a drafting amendment which proposes in line 22 to delete the word "or" and substitute the word "and" and to align the wordings.
Amendment agreed to.
Government amendment No. 226:
In page 120, line 13, after "order", to insert "under".
This amendment corrects a printing error. The word "under" is missing from page 120, line 13.
Amendment agreed to.
Government amendment No. 227:
In page 120, lines 16 to 23, to delete subsection (6), and substitute the following subsection:
(6) Where the court makes an order for the winding-up of a company under this Part, such a winding-up shall be deemed to have commenced on the date of the making of the order, unless the court otherwise orders.
To be frank, this subsection should not have been included in section 153 in its present form since it merely seems to complicate matters unnecessarily. As currently worded, subsection (6) has the undesirable effect of rendering invalid and ineffectual any of the actions taken by the examiner or any disposition of the company's property undertaken by him under, for example, section 147. On reflection I think that this approach is somewhat unrealistic since many things may have happened during the protection period before the examiner reports back to the court whether or not his view is that the company can subsequently be saved. The amendment would, therefore, delete the present section 153 (6) and replace it with a new subsection which would provide that whenever the court made a winding-up order under this Part of the Bill, in other words whether under section 153 or some other section, the winding-up would be deemed to commence on the making of the order and not before, unless the court orders otherwise. That, perhaps, is a more satisfactory way of dealing with it. It is basically a technical amendment which clarifies and simplifies the date on which winding-up starts.
Amendment agreed to.
Section No. 153, as amended, agreed to.
SECTION 154.
Government amendment No. 228:
In page 120, line 36, to delete "The examiner", and substitute "Notwithstanding any provision of the Companies Acts relating to notice of general meetings, the examiner".
This amendment is about notice of meetings and is a technical amendment. Amendment No. 228 is intended to ensure that the examiner will not in the exercise of his functions be restricted by the Companies Acts provisions about minimum notice of general meetings. It would obviously be undesirable if, having regard to the very tight time limits within which he has to operate under Part IX, he had to give the usual 21 days notice of general meetings for the purpose of the consideration by shareholders and so on of his rescue proposals. This amendment very much loosens up the time scale and time schedules that would apply in the normal course.
I have a difficulty with this subsection. I always worry about taking away support structures or protective structures. Any of us who have been involved in any kind of organisation of any description knows that nothing causes as much aggravation at an AGM as a person who got his or her notice too late. There is not one of us here who has not been through that at some time. Over the years there is plenty of case law to indicate that the courts have declared the decisions of AGMs null and void because the requirements of the by-laws, the rules, the regulations, the Act or whichever it happens to be for calling the AGM have not been complied with. We are trying to wipe out something which the law has protected over the years.
If the amendment were to reduce it to some minimum period I would have no difficulty with that but it actually means that a meeting could be called at a day's notice. That would be totally wrong and unacceptable. I do not think it is right to remove the 21 days requirement and replace it with anything. It is not a protection and it is open to abuse. Maybe it is not open to abuse because that is possibly too strong. I do not expect that it would be abused but it shows a scant lack of respect for the other people. It also means that people might get different periods of notice for the meeting and that would be quite acceptable. I do not believe that it is right to take away the minimum number of days and replace it with nothing. It is not acceptable. I have a grave objection to it.
If the Senator feels strongly about it I will be happy to put in a short number of days which should meet his requirement. I have no problem with that. However, we must be clear on what we are trying to do here. There is no question of giving 21 days' notice out of three months. We cannot waste it. It is the guts of a month. I was proceeding on the basis that the examiner would be in a rescue mood and a rescue situation and would act reasonably. Considering the number of times in this Bill that we have envisaged the examiner being in and out of court and the number of people who can object ultimately to the report and so on, were the examiner to behave anyway unreasonably he would have the whole house of cards down on top of him. My impression is that it is good the way it is because the court will not tolerate any sharp practice. However, if the Senator feels strongly about it I will certainly consider a few days.
It is very hard to decide the number of days. The type of company would dictate a great deal. I would like "reasonable notice". A judgment is made then and the courts decide if it was unreasonable and that means there is a protection in there and people have access to protection and a right to find a remedy. It gives a remedy to people who have a grievance. That means that if the court would interpret that a small company with all the people involved in a local area could be called at a day or two's notice, at the same time with a huge public company with shareholders maybe nationwide or worldwide, it would be totally unfair to do it at a day's notice. I would say then "reasonable".
I support Senator O'Toole in the remarks he has just made. A minimum amount of days should be inserted in the Bill. "Reasonable notice" is very vague also. If you put in a minimum requirement of the number of days in which notice must be given we could get over the problem.
I would prefer not to put in the word "reasonable" in this case because in a crisis type situation there are differing interpretations of what is reasonable. "Reasonable" in the normal course is a lengthy period but in this type of rescue, hothouse, intensive care environment the word "reasonable" could be misinterpreted all over the place. I would be prepared to come back with perhaps "three days" if that would be acceptable.
Let me make a small point. I take Senator O'Toole's point on this and it is a valid point. Three days may be too short if you take it that notice is given maybe on Saturday; then there is only Monday. Would the Minister consider seven days? In section 150 (1)——
We are on section 154 now.
——looking back, the directors of a company have to present a statement of accounts to the examiner within seven days. Could that be a precedent? Could seven days be inserted in this section?
I have sympathy with what the Senator is trying to do but section 4 of the Bill — which we dealt with years ago now I think — provides that Saturday, Sunday and public holidays shall not be reckoned for notice days. It is, therefore, three working days in that sense and that could turn out to be perhaps as long as the Senator envisages, so I would not be prepared to go beyond the three working days.
I am quite happy with that and I take the Minister's point.
I was going to suggest three working days, but the Minister has covered that.
Amendment agreed to.
Government amendment No. 229:
In page 120, between lines 40 and 41, to insert a new subsection as follows:
"(3) Where, on the application of the examiner, the court is satisfied that the examiner would be unable to report to the court within the period of three months referred to in section 145 (1) but that he would be able to make a report if that period were extended, the court may by order extend that period by not more than 30 days to enable him to do so.".
Amendment No. 229 has been discussed with amendment No. 209.
Amendment agreed to.
Is amendment No. 228 agreed?
Yes, agreed with your——
A Senator
To come back on Report Stage.
We have not that alternative really. I think I must ask the Seanad to pass the section, as amended, and I will undertake to introduce an amendment on Report Stage to alter it.
That is all right.
We are so friendly here now.
It just shows how constructive we are when we do not have all the interruptions from the far side of the House.
Senator O'Toole, do your own thing and leave the other side of the House to look after themselves.
Government amendment No. 230:
In page 120, lines 41 to 46, to delete subsections (3) and (4), and substitute the following subsections:
(3) The examiner shall deliver a copy of his report under this section—
(a) to the company on the same day as his delivery of such report to the court,
(b) to the registrar of companies within 3 days after such delivery, and
(c) to any interested party on written application, provided that such delivery under paragraph (b) or (c) may, if the court so directs, be subject to the omission of such parts of the report as the court thinks fit.
(4) The court may, in particular, give a direction under subsection (3) if it considers that the inclusion of certain information in the report to be delivered under paragraph (b) or (c) of that subsection would be likely to prejudice the survival of the company, or the whole or any part of its undertaking.
Amendment No. 230 would replace subsections (3) and (4) of section 154 and make some changes along the way. Section 154, as the House knows, deals basically with who gets the plan. That is the broad picture and how it works. We propose a definite time limit of three days in this case for delivery of the report to the Registrar of Companies as opposed to the present indefinite "as soon as may be" phrase that is in legislation. Secondly, the company concerned should get the report on the same day as it is lodged with the court. Further, the company should not have to apply to the examiner to get it. Thirdly, the reference to "without charge" in the present subsection (4) is perhaps unnecessary. Finally, it has been suggested to me that it is essential that information concerning the company's trading strategies or other confidential information which, if published, would give an unfair advantage to the company's competitors should not be disclosed in the report.
For our part we think the examiner has to be free to include such sensitive matters in his report since to deny him this might prevent him negotiating a rescue plan at all, so we are leaving that to the examiner. I suggest in this amendment, therefore, as a sort of rider to subsection (3) that the court might be empowered to authorise the omission from the copies going to the registrar and to the interested parties of such matters as the court thinks fit.
Finally, I have added a new subsection (4) which would effectively give guidance to the court as to when it might consider authorising the publication of an abridged report in this way.
I am intrigued by the difference in wording between amendment No. 223 which we discussed earlier and amendment No. 230 about the deletion of information. I cannot understand the logic behind the differences. I can understand, even if I do not agree with, the logic behind what was said on amendment No. 230 but we have, for instance, in amendment No. 230 specific reference to information that would be likely to prejudice the survival of the company or the whole or any part of its undertakings, but no such reference was contained in amendment No. 223. Also, presumably substantial amounts of information about the company which would be contained in the examiner's report will be available through the Companies Office. We were worried about that under amendment No. 223, so we deleted entirely the requirement to make a report to the Companies Office.
It appears that if the examiner's report is going to contain more than a simple statement that "in my opinion the company or the following sections of it can survive" then the courts will have to delete a great deal of information, in which case the report will be meaningless, or what is effectively vital information that may not undermine the position of the company but might be useful to other people will be contained in the report to the Registrar of Companies. Therefore, I suggest to the Minister that amendment No. 230 and amendment No. 223 seem to have similar objectives and ought to have similar wording to be consistent.
I agree with Senator Ryan in that there is a contradiction with what was stated in the previous amendment in regard to the confidential nature of the report of the examiner. If subsection (3) (b) were to be deleted then we might come near to the terms of the Minister's objective in relation to this amendment. The necessity for an abridged report or leaving out information to the Registrar of Companies is very open to interpretation. It can mean anything. You could give a summary of the report or very little information to the Registrar of Companies. Therefore, I do not see the need for it at all. As Senator Ryan has pointed out, in order to be consistent with the objectives it would have to be similar to the wording in amendment No. 223 to section 150.
I told Senator Ryan that I would think about it. I have done so and I think the Senator is probably right. At the time I did not think it needed to be spelt out but it is so clearly put here that perhaps we should just add the same words. I have no difficulty about that. As regards leaving it to the court as it thought fit, I was quite happy that that meant that it would take into account the survival of the company as being the primary motive because the whole thrust of this section is the survival of the company. If it helps to put it in, we will do so. In other words we will put similar wording back into the section on Report Stage.
As has been the case all through the discussion on this Bill, the Minister is being extremely reasonable and nobody is going to argue with him. As everybody has said frequently, he has been most forthcoming. I suggest to him that perhaps the reference to the Registrar of Companies ought to be put in separately and a separate report be made to the Registrar of Companies rather than an edited version of his report which is essentially a confidential report. Presumably the intention ought to be that no more than a simple statement that in his opinion the company is potentially rescuable ought to be there rather than an edited version, leaving out bits, which could be illogical or which could have failures of logic in it simply because the court would delete certain information, there would be gaps in it and it might not make sense. It might be better to put in an amendment saying that a separate report containing certain limited information should go to the registrar of companies.
We are going over time but I want the Minister to reply to this.
I would prefer to consider the option of removing the Registrar of Companies from the report altogether in the basis that that puts it in the public arena. I may approach it on that basis. The reason I left it here is that we are talking about the actual plan, whereas in the previous case we were talking about the first report which had many proposals in it. That was too early a stage for it to get into the public arena. I was not very concerned about it getting into the public arena at the actual survival plan stage because it has been agreed by all parties at that stage. On reflection I think it might be simpler to keep it away from the Registrar of Companies altogether and in that way it is being deliberately kept out of the public arena. Therefore I think I will do that.
Amendment agreed to.
Progress reported; Committee to sit again.
Will Senator Haughey say when it is proposed to sit again?
I suggest that the House should sit at 10.30 tomorrow morning.