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Seanad Éireann díospóireacht -
Thursday, 19 Nov 2009

Vol. 198 No. 6

Companies (Miscellaneous Provisions) Bill 2009: Second Stage.

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

I am pleased to bring the Companies (Miscellaneous Provisions) Bill 2009 before the House. The Tánaiste and I thank Senators for facilitating an early debate on the urgent issues it addresses.

This is the second Bill the Tánaiste has introduced this year to amend the Companies Acts. Like its predecessor, the Companies (Amendment) Act 2009, this Bill focuses on making a small number of immediate and targeted changes to company law which are necessary to continue to allow us to respond dynamically and flexibly to opportunities and challenges arising from changes in our operating environment because of the recession.

Senators will be aware that the full suite of existing Companies Acts, amounting to 14 in all, is currently the subject of a major reform and consolidation exercise. I will outline progress made in this regard later and I assure Senators that the provisions of this Bill will also be incorporated into the consolidation exercise.

This Bill covers two separate provisions. The first of these allows for the use of US Generally Accepted Accounting Principles, known for short as US GAAP, in the preparation of the accounts of a specified category of companies. It also enables the prescription of other specified internationally recognised accounting standards. The second provision limits a potential exposure of the Exchequer to costs that could arise from court investigations into the affairs of a company.

On the first of these provisions, which I will refer to as the US GAAP proposal, I make the following introductory comments. Attracting and developing foreign investment in the State is a major strand of the policy of this Government. Indeed, foreign direct investment has played a pivotal role in Ireland's economic growth over the past decades and will continue to do so well into the future.

In order to attract investors, industrial promotion policy needs to be agile, flexible, imaginative and continuously evolving and changing. This is particularly the case where the attraction, integration and retention of foreign investment projects in Ireland is concerned. This is paramount at times like the present where the global economy is facing almost unprecedented challenges to get back on track and where there is intense competition for a restricted pool of foreign investment. In times like these, foreign investments do not come easily. There is intense competition for this scarce investment resource.

A parallel imperative confronts multinational companies as they seek to adjust and adapt to a changed and changing economic situation worldwide. Those who wish to survive, not to mention prosper, simply cannot afford to stand still. For many, this means restructuring and reconfiguring their global operations to best advantage. Such strategies have the potential to result in opportunities or disadvantages for investment locations around the world. In such a context, a country's ability to maintain its attractiveness as a centre for investment largely depends on how, or whether, it responds to these developments.

Ireland does not have the luxury of passively watching as multinational investment disappears to competitive destinations that have kept up with or anticipated new trends and developments. We cannot afford to miss out on these possibilities if we are to work our way through our current economic difficulties. This Government is aware that openings must be created and availed of and it is committed to doing all that is possible to meet this goal.

It is encouraging to note that notwithstanding the economic downturn, Ireland continues to be an attractive location for foreign direct investment. IDA Ireland has already had a significant number of new investment projects approved and announced this year. To date in 2009, there have been 48 announcements, with a combined investment of in excess of €650 million and a potential to create 3,300 jobs. That is a remarkable achievement in these difficult times and I wish the IDA the best in its work. It always excels in the work that it does.

It is encouraging that so many companies are prepared to undertake and announce these investments in Ireland given the current global trading environment. The more optimistic economic forecasts for 2010, both globally and for Ireland, should help the IDA to make a significant contribution to economic recovery and continue to secure foreign direct investment for Ireland.

Ireland's foreign direct investment landscape has continually undergone its own transformation, scanning the horizons of enterprise focusing on and securing FDI using novel technologies, innovative business models and new markets. Ireland's landscape has evolved from that of a location based originally on manufacturing to a re-branding of ourselves as the young Europeans through to today's model of the smart economy built on the dual strengths of our innovation culture and our ability to be entrepreneurial.

As a member of the European Union, Ireland offers international investors a stable political and economic environment and a sophisticated, well-developed corporate, legal and regulatory environment. The Government recognises that the quality of economic regulation has a considerable impact on our competitiveness and growth and it is critical that we are capable of responding to changing economic circumstances in a way that is strategic and which reflects the evolving needs of business and investors.

This is the broad policy context in which the US GAAP measure contained in the Bill can be seen. The legislation is designed to facilitate multinational companies that have operations in Ireland to continue to add activities and substance to these operations. This will further contribute to economic activity here and provide valuable employment opportunities. This measure will assist in attracting specific categories of companies from abroad to establish in the State.

Certain multinational companies, which already have a substantial investment presence in Ireland, have further integrated their activities here by transferring their parent undertakings to Ireland. As these companies are listed on US stock exchanges and report to the US Securities and Exchange Commission, they will continue to have to prepare US accounts using US accounting standards in order to remain compliant in the United States.

In addition to this obligation, as Irish registered companies, these multinational parent undertakings will also have to prepare Irish accounts. The accounting standards followed by the generality of companies in this State are Irish generally accepted accounting practice, known as Irish GAAP, or international financial reporting standards, designated by the acronym IFRS, which are adopted by the EU. It would be particularly onerous and expensive for a company if the obligation to convert to Irish GAAP or EU IFRS were to arise over a compressed period and inordinately so if this requirement arose during a company's current financial year.

The legislation, therefore, provides for the use by this restricted category of companies of US GAAP for a limited period of time, namely, the arrangement will apply for a maximum of four financial years and it expires on 31 December 2015 at the latest. This measure will facilitate an orderly transition by these companies to the use of Irish GAAP or IFRS, the EU standard. There is a precedent for this. When IFRS was introduced by the EU, a transitional period was allowed so that the various parties could make the necessary preparations.

Companies will be subject to Irish company law generally, including all the provisions which relate to accounts. In fact, our objective is that Irish company law will override any provision of US GAAP if it were to be in conflict with the Companies Acts.

Allowing these companies to prepare their Irish accounts using US accounting standards for a limited period of time would eliminate the significant duplication of cost and effort of preparing two sets of accounts under two different sets of accounting standards. It will also create a bridge roughly spanning the period during which significant international developments are expected in regard to the convergence of US and international accounting standards.

In the interests of providing for future flexibility in this area, the Tánaiste is including an enabling provision for ministerial prescription of other specified internationally recognised accounting standards if such a demand arose and was considered appropriate to do so. Any such regulations will apply for the same transitional period as the US GAAP measure.

Some enforcement costs are likely to arise for the Director of Corporate Enforcement in respect of the US or other GAAP provision. Accordingly, the Tánaiste proposes to table a Committee Stage amendment to provide a mechanism that would allow the Minister for Enterprise, Trade and Employment, subject to the approval of the Minister for Finance, to make regulations for the purpose of defraying, or assisting in defraying, enforcement costs that may arise from this proposal to provide for the use of US or other GAAP.

The second proposal included in the Bill addresses a potential exposure of the Exchequer to costs of inspectors appointed by the High Court under section 7 of the Companies Act 1990. There are two related powers within that Act allowing the court to appoint inspectors to investigate the affairs of a company. Section 8 facilitates such an appointment at the request of the Director of Corporate Enforcement while section 7 provides that a variety of specified interested parties can petition the High Court to have inspectors appointed. Those parties include the company itself, a director of the company, a creditor and a group or block of shareholders of the company.

As the law stands, there is an upper limit of €317,435 on the amount that those who petition for such an appointment can be required to pay towards these costs. This limit applies both to the security they can be asked to advance before the investigation commences and to the amount of the eventual costs of the investigation that the applicants would have to bear. Unless the court decides that a company should meet all or some of the costs of the investigation, the balance of those costs, namely, the amount above the applicants' statutory ceiling of just over €317,000, would have to be borne by the State or the taxpayer. On the basis of previous experience, the cost of a wide-ranging investigation could amount to €10 million. The Tánaiste and I believe it necessary to take immediate action to protect the taxpayer from having to meet the very significant costs of such wide-scale investigations, some of which could conceivably duplicate investigations happening elsewhere in the State system, for example, by the ODCE, the Financial Regulator or the Criminal Assets Bureau.

This need has to be balanced with the competing duty of the State to ensure shareholders and others have suitable access to justice. To ensure an optimum balance would be achieved, I considered a number of alternative policy responses to this question. Having regard to wider safeguards provided for in company law that are available to prospective applicants under section 7, the Tánaiste concluded that the fairest and most balanced way of approaching this issue was to remove the absolute limit on costs currently applicable to applicants. This involves removing the statutory limit in the two sections of the 1990 Act where it appears, that is, section 7 dealing with security for costs and section 13 which deals with the final costs of the completed investigation. This will leave total discretion to the court in relation to the issue of costs, and will place applicants under this provision on the same general footing as other parties initiating court proceedings in that they can be held liable for the full costs if the court decides to do so. The costs of investigations initiated by the ODCE, under section 8 of the Companies Act 1990, would continue to be met in the first instance by the Exchequer though my Department's Vote.

Company law must remain dynamic and responsive to meeting emerging opportunities and challenges. To meet this goal, the Tánaiste, in her role as the Minister with responsibility for this area of law and in co-operation with my colleague, the Minister for Trade and Commerce, Deputy Kelleher, consistently seeks to make timely and appropriate amendments to the Companies Acts if this will support the development of business or the enforcement of our laws. I wish to inform Senators that the Tánaiste is finalising a small number of other important law proposals which I hope to include in the Bill. We would like the Seanad to consider these proposals on Committee Stage of this Bill if they can be finalised within a timeframe that would not delay its enactment.

On the details of the Bill, section 1 provides that a true and fair view of a parent undertaking may be given by the use of US GAAP by certain parent undertakings which are defined in the section. This is subject to the proviso that the use of those principles in the preparation of the undertaking's accounts does not contravene any of the provisions of the Companies Acts or any regulations made under them. The accounts in question are the company's group accounts and the individual accounts of the parent company. This arrangement will be limited to a specified category of companies. These are defined as parent companies incorporating in Ireland for the first time whose securities are not traded on a regulated market in the European Economic Area, whose securities are registered with or who are subject to reporting to the US Securities and Exchange Commission and who, on the date this Bill passes into law, have not already incurred an obligation to file their first accounts with the registrar of companies. The section also provides for this arrangement to apply for a maximum of four financial years and expires on 31 December 2015 at the latest. Where accounts are prepared under this section, the notes to the accounts are required to state that this is the case.

Section 2 gives the Minister the power to make regulations that may prescribe other specified internationally recognised accounting standards under which specified categories of companies may prepare accounts for a maximum of four financial years to end by 31 December 2015. Any such regulations shall specify the accounting standards, which shall be internationally recognised, and generally accepted accounting principles or practices of a jurisdiction where a majority of the subsidiaries of the parent undertaking have a substantial connection or where the market is situated on which the shares of the parent undertaking are primarily admitted to trading. In preparing accounts using other internationally recognised accounting standards, companies must not contravene any provision of the Companies Acts or any regulations made under them. Where accounts are prepared under this section, the notes to the accounts are required to state that this is the case.

Section 3 removes the current upper limits that applicants can be asked to contribute towards the costs of court investigations initiated on foot of their applications under section 7 of the 1990 Act. The upper limit currently applies both to the security applicants can be asked to advance before the investigation begins, provided for section 7(3), and to the amount of the eventual costs of the investigation the applicants would have to bear, provided for in section 13(1). Section 4 is standard drafting and simply contains the Short Title and the fact the Act and the Companies Acts shall be read as one.

I wish to brief Senators on the status of the ongoing major review and consolidation of the entire suite of Companies Acts. As Senators will be aware, the Company Law Review Group published its draft general scheme of the companies consolidation and reform Bill in 2007. The Government subsequently approved the drafting of a Bill along the lines of the general scheme and the Office of the Parliamentary Counsel is drafting the legislation. The proposed Bill will consolidate the existing 14 Companies Acts, dating from 1963 to 2009, as well as other regulations and common law provisions relating to the incorporation and operation of companies, into a single Act comprising more than 1,300 sections. The provisions of the general scheme cover the incorporation of companies, corporate governance duties of directors and secretaries, financial statements and auditors, receivers, reorganisations and examinerships, windings-up and compliance and enforcement. The provisions are brought together in a coherent manner which will facilitate business people in incorporating and operating companies day to day. The general scheme also modernises company law to reflect modern business practice. Given that 90% of companies in Ireland today are in the form of a private company limited by shares, the general scheme sets out in sequential sections all the provisions relating to that type of company. In subsequent sections the provisions for the private company are modified for other company types such as public limited companies.

Furthermore, to promote compliance with the law and to protect investors and creditors, the general scheme also sets out clearly the corporate governance duties of directors, company secretaries, auditors etc. The general scheme also sets out the functions of the Companies Registration Office, the Office of the Director of Corporate Enforcement and the Irish Auditing and Accounting Supervisory Authority in ensuring compliance with the law and brings together the provisions relating to compliance and enforcement such as company investigations, compliance and protective orders, disclosure orders, disqualification and restriction of directors, and prosecution, offences and evidential matters. The likely date of publication of the companies consolidation and reform Bill is September 2010.

I would make the following summary remarks on the Bill before us. The Government regards the US GAAP provision and the scope to designate other internationally recognised accounting standards as a practical measure. It demonstrates the Government's forward-looking approach to industrial promotion and stimulating foreign direct investment. We consider the provision removing the upper ceiling on court costs that can be recovered from applicants under section 7 of the Companies Act 1990 is a balanced and fair approach to this issue.

I commend the Bill to the House.

I welcome the Minister of State to the House and the Bill he has introduced. The impression can sometimes be given in this House during discussions on competitiveness and the action that needs to be taken to increase job security and number of jobs in our economy that what is needed is a grand sweeping strategy focused on one particular element. However, the opposite is often the case. What is required is a bundle of many different initiatives, each of which may be small but when taken together can create a more favourable environment for job creation and retention. This Bill appears to be a measure of that nature. It is about creating a more favourable accounting environment in Ireland for a period that will increase, to an extent, our competitive advantage. For that reason, the Bill and the provisions in regard to company inspectors, on which I will comment shortly, are to be welcomed.

The issue of accounting standards, the changes that are taking place and the differences they can have on a company are a pretty dry subject. When preparing for the debate on this legislation, I came across an example that brought home to me the importance of this legislation for companies and the importance of accounting standards. I read an article that compared the effect that two different accounting regimes would have on the annual reports of BAA at the time. It offered as an example the annual report it filed for 2006. If the GAAP, generally accepted accounting principles, standards had been applied during that period, the annual net income of that company would have been £148 million sterling. However, if the IFRS, international financial reporting standards, had been applied, its annual net income would have been in excess of £450 million sterling. That is a significant difference based on the two accounting standards in place. There is nothing devious or underhand about it because it is all about how the financial standards account for assets and liabilities and how they are measured. It appears to be very sensible for the economy to recognise this and try to create a more agile environment, given the pressures on our competitiveness.

I will refer to several specific points related to the Bill and put several questions to the Minister of State. Before doing so, I wish to comment on the general environment in relation to accounting standards because, as the Minister of State indicated, it provides an important background to the Bill. For many years there has been consensus on the need to move to global accounting standards. However, what is unique is that the consensus appears to be moving into action, as moves are afoot to put in place the global accounting standards to which the Minister of State referred. We are all aware of the collapse of such companies as Enron and the role played by financial reporting standards. More recent examples include the experiences of multinational banks with different reporting standards and how they can create ambiguity in the way assets and liabilities are reported. This environment has created a once in a lifetime dynamic to move to a common platform throughout the world for the way in which accounting should be done. This must be welcomed because the quicker we move to common standards for the way in which economic activity is reported, the more likely it is that we will avoid some of the great difficulties we have encountered recently and confer fair standards for how such matters are accounted for and measured. I welcome the creation of the global environment within which the Bill is placed.

That leads me to one of the first questions I have for the Minister of State and I would appreciate his response. I understand the Securities Exchange Commission, SEC, in the USA, the body responsible for accounting standards, has recently given guidance to American companies to the effect that it wants them to begin the migration to international reporting standards. Given that it appears accounting bodies in the USA are being given guidance on the need to migrate to a more common accounting platform, how many companies does the Minister of State expect this legislation will affect in Ireland? Will it deliver the competitive advantage we might have believed initially, given that the American accounting bodies now want American companies to move to what, in effect, will be accounting standards that resemble those in Europe, including Ireland? To make the point more clearly, given that it appears American companies will migrate to an international accounting framework, how many companies will benefit from the concession the Bill offers?

Section 1 clarifies the companies for which the concession will apply. I note the legislation does not refer to companies resident in Ireland. It makes the point that they should have securities registered with the SEC in the USA and makes reference to the fact that these companies were not compelled to provide accounts for the registrar of companies in the jurisdiction. However, it does not indicate they should be registered in Ireland in the first place. This may be an oversight on my part, as it may be inferred in the legislation or made explicit elsewhere. However, should it not be explicitly spelled out in the legislation that these companies must be resident in Ireland to take advantage of the concession the legislation will create?

I refer to a point made by the Minister of State. He indicated that on Committee Stage he would introduce a concession to allow companies to defray or receive assistance in defraying enforcement costs that might arise in the implementation of US accounting standards. Given that the Bill already provides for a concession in this regard, is it necessary to offer a further financial advantage to companies? Must we do even more to make matters advantageous for such companies, given that the legislation will create an advantage in the first place?

The Minister for Finance referred to the fact that we must avoid a jurisdiction within which so-called brass plate operations are set up, that is, operations with a nominal presence in Ireland to allow them to take advantage of our tax regime and corporation tax rate. Is there any way in which this legislation could be taken advantage of by companies which might wish to have a nominal presence in Ireland to take advantage of the accounting standards in place? It is unlikely but I recall reading an appalling article in which Ireland was referred to as the Wild West of financial services and in which reference was made to the environment that had been created. It was an appalling and inaccurate article and I recognise the Government went to great lengths to repel and rebut it. Nonetheless, we have no wish to do anything that could create the impression that there is such an environment in Ireland such that further opportunities could be created.

I refer to the welcome provision in the Bill related to company inspectors. It is the right thing to do for the taxpayer. Does the Minister of State expect an increase in the number of such applications before the courts and his Department? Does he believe any of these inspection requests will come from the banking industry?

Those are my five questions and I would appreciate answers to them from the Minister of State. I welcome the Bill. It is a minor measure but it will assist us. It must be seen in the context of change in global accounting standards, which I support. It will create an environment within which the country will be able to flourish.

I welcome the Minister of State, Deputy Lenihan, and his departmental officials to the House for a debate on the Companies (Miscellaneous Provisions) Bill 2009. I propose to share time with Senator Carty.

Is that agreed? Agreed.

The Bill is relatively short and I understand it covers two different issues. One is the US GAAP, the transitional accounting standards and regulations. From listening to the Minister of State, the provision will allow companies that relocate parent companies to Ireland to continue for a limited period to draw up group accounts and individual parent company accounts using the US accounting standards. This is a question posed by Senator Donohoe. The period is four years for each beneficiary company, with an end date of December 2015. Companies incorporated in Ireland were heretofore expected to use Irish or international financial reporting standards. The legislation also includes provision for the Minister to make regulations, if appropriate, for the same category of companies using other internationally recognised accounting procedures and standards. I do not see any great difficulty with this measure. Listening to the Minister of State, everyone will sign up to the importance of attracting foreign direct investment. The Minister of State mentions that we cannot afford to miss out on these possibilities or we may lose investment to other destinations. If this tool will assist us to attract, integrate and retain foreign investment projects in Ireland, it is a welcome move and one to which we all sign up. The legislation is designed to facilitate companies with certain operations in Ireland to add activities and substance to these operations. This will contribute to additional economic activity here and, it is hoped, provide valuable employment opportunities.

Most of the companies that will avail of this mechanism already have substantial investment in Ireland. Perhaps the Minister of State can indicate the level of this investment and the benefit that accrues from it, such as employment and participation in our export and import markets. Perhaps he can indicate also the expected target market that will follow from this measure. Most of these companies are listed on US stock exchanges and report to the US Securities and Exchange Commission. They will have to continue to prepare US accounts to remain compliant in the US. In addition to that procedure, as Irish registered companies they will have to prepare Irish accounts. This is where standards followed by companies in this State are generally accepted accounting practices, known as Irish GAAP, or international financial reporting standards adopted by the EU.

This is a lot of technical change to accommodate continued investment and that is why it is important for the Minister of State to clarify the current levels and the likely benefits that will accrue. He might clarify whether a particular group of people or companies sought this measure. If so, how was this brought to the attention of the Department of Enterprise, Trade and Employment? What will be the likely cost to Revenue? The Minister of State referred to the Director of Corporate Enforcement and costs in that regard but I refer to the bigger picture.

The Minister of State asked for urgent accommodation of the Bill and asked if we could finalise a framework that would not delay its enactment. I hope the House will give the Minister of State a green light on this matter. We will accommodate this Bill which will be on Committee, Report and Final Stages in the House on Wednesday. I am pleased to indicate that Members on this side of the House will accommodate this.

We are all under pressure at the moment. Internationally, Ireland is under pressure and the issue of competitiveness is critical. When we have the opportunity to do so, we should do what we can to assist in attracting foreign investment, especially in respect of the transatlantic benefit Ireland has enjoyed for a considerable period of time, although perhaps not as much over the past eight years as we did before. The US and Ireland have a special relationship and most leaders of America have encouraged and developed the special relationship. It is interesting to note that the current US President, Barack Obama, has tapped into his Irish roots which happen to be in the same county as the Taoiseach. Arising from that special relationship with the US, it is appropriate that we try to accommodate the US in whatever way we can to develop the relationship and tap into the investment potential.

I am a little concerned that, in the current economic and financial climate where we are under pressure, we have seen individual states respond to their needs in a particular fashion. We hear about trillions of dollars going into a particular industry in the US and figures for some European Union member states with which Ireland cannot compete. Senator Donohoe referred to global accounting practices but I would like to see a partnership approach to the transatlantic response to the current financial and economic difficulty. I say this because the representatives of the Department of Enterprise, Trade and Employment are present. Ireland should avail of the special relationship that exists between the US and Ireland. There is a great opportunity to have a transatlantic response.

Regarding the second unconnected issue, we are limiting the potential exposure of the Exchequer to costs of certain court-appointed investigations into the affairs of companies. This relates to the Companies Act 1990 which provides that a variety of prescribed interested parties can petition the High Court to have inspectors appointed to investigate the affairs of the company. At present, there is an upper limit on the amount that the applicants for such an appointment can be required to pay towards these costs by way of security that can be demanded in advance of the investigation or by way of the applicants having to bear the eventual cost of the investigation. I understand the Bill provides for the removal of the statutory absolute limit on the costs applicable to applicants. This would leave the courts with total discretion on costs and would place applicants on the same general footing as other parties.

I welcome the Minister of State and his officials. I thank Senator Callely for providing me with a little of his time as I must attend another meeting. I welcome the Bill. It is important in the times we are in to do everything possible to ensure that foreign investment in the country is kept to the fore. It has stood us well for many years and I hope it will continue to do so. I welcome section 3 of the Bill as the taxpayer must be protected. As the Minister of State said, some cases can cost up to €10 million. An upper limit of €317,000 is very low and I welcome the amendment. From the taxpayer's point of view it is not expected the Bill will give rise to additional staffing requirements and this is important in the times we are in. The Minister of State mentioned he will table amendments and I look forward to hearing what they are. I am sure they will be constructive and will work to the good of the Bill.

I welcome the Minister of State and the heavy-hitting advisers he has behind him. I know well their expertise in this area and I have discussed and argued issues with them over many years. I must declare an interest as a member of the Irish Auditing and Accounting Supervisory Authority. This is an issue of great interest to me. The question of standards in accounting and auditing has to do with trust and confidence. It is a simple issue of people being able to trust the figures they see, the names written at the bottom and the regulation in place. In this regard the Bill is welcome and necessary.

After listening to the Minister of State's speech and going through it in great detail I had to sit down outside and take a rest. A line in it states, "The likely date of publication of the companies consolidation and reform Bill is September 2010". I know the Tánaiste would never lie or deliberately mislead the House but on her previous occasion here when debating the Companies (Amendment) Bill, I had tabled a number of amendments to that Bill, supported by Fine Gael and the Labour Party, on matters about which we felt very strongly. We argued intensely until, with her most beguiling of smiles, the Tánaiste stated she could not accept the amendments on that occasion but that she could deal with the issue in the company law consolidation and reform Bill, which was in its final stages and would be with us by next spring. Now, I see it will be published six months after that.

This may not seem an important issue but on that occasion I made the point that the previous occasion we amended the Companies Acts was in 1990 and it took two years to get that legislation through the Houses. In fact, it took so long that one section had to be taken on its own to deal with a crisis in the meat industry. I am not making this point to be critical of the section of the Department that deals with this but because it is important. Let us put on hold what is in the Bill and consider the entire area of regulation. The most recent important matter to issue from Europe on this is the famous eighth directive on accounting and auditing standards and the quality assurance that goes with it. Accounting and auditing are about quality assurance and nothing else. We are one of the last countries to transpose this directive. I do not want to embarrass the Minister of State or the country — it is not good for us to do so — but it is an embarrassment whatever way we look at it. We are way behind on the quality assurance that is required in accounting standards.

To take this matter further let us consider how it works. Much reference has been made to the Securities and Exchange Commission. I might not be too enthusiastic about it but I do not object in any way to us having an intervening period in which United States based companies will be allowed to stick with US standards. What I do have a problem with is that the US has been so reluctant to buy into international standards for as long as we remember. It is only in the past two months, as was pointed out by Senator Donohoe, that they are moving to international standards. This is a major win for Europe.

I will now consider how this works in reverse and how it is policed in other countries. In other counties, a check is carried out. The supervisory authority in countries with many companies based there, such as the UK, France, Germany, Italy, Spain and Luxemburg in particular, visits companies and checks standards to ensure they are complying with the applicable US, Irish or GB GAAP, or the international standards. This happens in every country except Ireland. Despite all that has happened over the past two years, the people checking how this is implemented are in the accountancy bodies themselves. This creates a difficulty because the Department will encourage many Irish companies to register in places such as Japan or other countries where we are trying to build up industry. This means those countries must have trust and confidence in our system.

Around the world, checking accountancy and auditing standards is done by an independent State oversight body or supervisory authority. In Ireland, it is done by the accountancy professional bodies themselves. That is a mistake. Those of us who are aware of this feel it is completely wrong and we have been speaking to the Department about it for years. It should be changed. I honestly believe the accountancy bodies, which are very important and have much influence, have managed to influence the Department because they have been working with it for the past 100 years, since before the foundation of the State, and they are listened to more than other groups. It is a mistake and we will pay a price for it somewhere along the way. I could write the advice being given to the Minister of State because I know exactly what the answers are but there is no answer to the general principle that supervision of accountancy standards should be done by the State.

The Bill quite rightly raises the limits to which people must contribute and I welcome this. Let us apply it to the Irish situation. In the past week, two or three questions have been raised on investigations into various banks and heads of banks in the news — they need not be mentioned. The oversight body has a choice under the Companies (Auditing and Accounting) Act 2003. It can insist that the accountancy bodies themselves conduct the investigation into whether members of a company fulfilled their obligations. This is different to the checking of standards that I mentioned earlier. The supervisory authority has an oversight role to ensure it is done properly. However, the legislation also allows the oversight body to investigate a body such as Anglo Irish Bank. As was indicated, these investigations can cost millions of euro. There is no money available in Ireland to conduct them. I have listened to the debates in these Houses and among commentators regarding why this area is not being investigated. One of the reasons is that section 3 of the Bill, welcome though it is, would not be available if the Irish Auditing and Accounting Supervisory Authority, which is the body appointed by the Minister, chose to act by itself. I am not saying the Department would refuse to act but that it would not want to provide the money. It would only be due to public embarrassment that it would act. If Anglo Irish Bank was a UK institution, that country's Financial Services Authority would investigate and the cost would be carried by the accounting bodies. In Ireland only 60% of the cost of the Irish Auditing and Accounting Supervisory Authority is covered by the accounting bodies but this does not include the matters to which I refer. This is an important issue in terms of trust and confidence.

Senator Coghlan and I have on many occasions raised the issue of protecting the term "accountant". The matter has been considered by the Department and the company law review group. Everybody agrees it should be protected and we have at least progressed beyond the silly arguments about not putting bookies out of business by confusing the term with "turf accountant". The term "accountant" remains open to abuse, however. Anybody can put up a doorplate claiming he or she is an accountant and there is nothing we can do to stop it. Such people would not be entitled to conduct audits but they could present themselves as accountants to an unsuspecting public.

I ask the Minister of State to outline the difference between the approaches taken in the US and Europe in regard to accounting standards. The legislation introduced in the US in the aftermath of the Enron affair is called the Sarbanes-Oxley Act. That Act provides for prison terms to be imposed on the chief financial officer of a company. However, the weakness of the American system is that it is rules based. If an issue is not covered by a rule, the system is silent on it. In many cases, the reports produced under rules based systems are meaningless. It is preferable to have a principles based approach which tells people to act honestly and prudentially.

In an ideal world, there would be no need for company law. In the middle ages, shopkeepers were hanged if they did not behave honestly and prudentially. As that came to be considered somewhat barbarous, more polite concepts such as limited liability were introduced. These were seen as democratic gifts which would allow business people to pursue opportunities and take reasonable risks. The key concept was reasonableness. I recall a time when exchanges in the stock markets were conducted on the basis of a nod and a handshake. That no longer happens because of the question of trust.

I welcome the Bill for its aspirations towards trust and confidence but wider issues need to be considered. One such issue is amending the Companies Acts to require that directors issue a compliance statement that to the best of their knowledge they are presenting a fair and accurate reflection of their companies' accounts. The Minister previously stated this matter was best provided for in the forthcoming company law consolidation and reform Bill. This was recommended by the audit review group, which I chaired in 2002, but it seemed to put a bomb under accounting and business professionals. They asked how anyone could dare to make such a demand of company directors. However, any reasonable person would consider it an appropriate requirement.

I commend the Minister of State's officials, who are hardworking and highly knowledgeable about this area. Although I argue with them regularly, I would not gainsay their contribution to companies legislation. I wish them well in their efforts on the company law consolidation and reform Bill. I have given out about delays to that Bill but I do not wish it to be rushed.

The Companies (Miscellaneous Provisions) Bill 2009 is a reaction to recent controversies which diminished the international reputation of Ireland's corporate and financial services sectors. It is the second amendment to the Companies Acts in the wake of these controversies. This is to be regretted because, despite Senator O'Toole's suggestion that we might be better off without company law, we were looking forward to the consolidation of the legislation in the near future. Consolidation is badly needed because the law has given companies a legal personage without encouraging them to observe the principles of corporate social responsibility. Companies tend to act amorally but the existing law does not allow us to hold them properly to account. We could argue about the failure of political will to put stronger legislation in place but we must also admit to cultural issues in our corporate practices. In tandem with legislative change, we must redouble our efforts to change that culture.

This Bill reminds me of the spoonerism coined by Myles na gCopaleen for his characters Keats and Chapman, "dogging a fled horse". We are trying to shut a large stable door after the damage has been done. The Bill will give us confidence that we will prevent such damaging events in the future but it will do nothing to assuage public concern about what has happened. Public anger about the lack of ethical standards in financial services companies is justified.

Senator O'Toole referred to exemptions for American multinational companies in Ireland. I am uncomfortable about putting dual standards in place and hope the company law consolidation and reform legislation will address the anomaly we are creating with the Bill before us. It might be useful, however, to adopt American standards in respect of malfeasance in financial institutions. The idea of arresting, charging and prosecuting someone would be welcome if it fostered higher corporate standards. It is unacceptable that 18 months after our controversies arose, we are no nearer to bringing prosecutions. In the United States, people have been identified, arrested, prosecuted and processed in the courts. Ireland's body of corporate law is extremely weak in terms of securing results within a timeframe that would achieve the public confidence required. The position is even worse in that public confidence is so low that people believe prosecutions will never brought in the case of activities that we all know have not been for the common good. I hope this view will not become a self-fulfilling prophesy as it would indicate that corporate law has failed. If the necessary action is not being taken because certain aspects of corporate law preclude it, sufficient resources are not available in the Office of the Director of Corporate Affairs or there is a reluctance to identify individuals who are presumed to have been involved in the practices that caused the current economic calamity because these persons would expose and compromise others, we must act to address these issues. We must not allow such perceptions to exist.

The Bill reflects a sincere effort to address flaws in the companies legislation, for example, in areas such as loans to directors, residency requirements and the use of legal privilege. I accept, however, that the approach is one of applying a band aid. The Government must indicate its plans to strengthen companies legislation further through the promised consolidation Bill. By reacting to events and taking relatively quick action to strengthen the law in areas in which it was viewed as weak, we miss areas where further abuses may occur. More encompassing legislation will provide an opportunity to address these areas.

The Bill is welcome but I would have liked stronger measures. The Government should commit to making available whatever resources are necessary. I concur with Senator O'Toole that legislative measures providing for directors' statements of compliance should be introduced as quickly as possible. Regrettably, the Bill reflects the fact that in the current corporate environment, especially in financial services, the inclination to do good or recognise the concept of the common good has been superseded by the cult of the individual and greed. We must recognise this change in legislation rather than relying on gentlemanly agreements. We must move on from the concept of allowing companies, notably in the financial services industry, to be self-policing in terms of auditing and accounting. We must recognise that the role of the State is, in a sense, to legislate for Murphy's law-type scenarios. In other words, it must operate on the basis that if something can go wrong morally and ethically, it will go wrong. We need to provide the legislative means to ensure all such circumstances will be addressed.

I welcome the Minister of State and his officials. This is a short Bill, although the Minister of State spent considerable time setting out the context for its introduction. I was not sure before this morning whether to welcome the legislation and decided to await greater clarity on its purpose. However, the Minister of State did not provide greater detail than that contained in the explanatory memorandum. It appears the legislation is motivated by a requirement to address urgent matters and that these could not await promised legislation. I ask the Minister of State to elaborate and clarify the reasons for the introduction of the legislation.

The two key elements of the Bill are the measures to allow the use of United States generally accepted accounting principles, GAAP, on a temporary basis for certain categories of company and to remove the cap on the contribution of companies towards costs incurred in court cases and reduce the State's exposure in this regard. While these measures are welcome, I seek greater clarity on the reason for the introduction of the measure on GAAP. I ask the Minister of State to outline the key differences between US and Irish generally accepted accounting principles. Greater clarity is also required on which category of company may use US generally accepted accounting principles. It appears the measure will apply to the parent undertakings of companies based in Ireland. I ask the Minister of State to clarify the matter.

I support Senator Donohoe's request for information on the number of companies affected by the measures and the potential level of exposure. I also ask the Minister of State to give specific examples of the companies affected. He indicated that we need to avail of opportunities to attract foreign direct investment. Obviously, everyone supports foreign direct investment. Given that the arrangement for the use of US GAAP applies to companies already operating in Ireland, to what extent will it encourage new companies to invest here?

In light of the urgency with which the legislation is being introduced, is there a danger that companies based here may pull out of if the measure is not introduced? To what extent do other European Economic Area countries provide flexibility of this nature to investing companies? Why will the transitional arrangement cease to have effect from 31 December 2015? What will be the position regarding companies seeking to invest after that date? I am a little uncomfortable with this arrangement and ask the Minister of State to clarify the matter.

Section 2 gives the Minister the power to make regulations providing for the use of other international accounting standards. If the Minister chooses to exercise this power, the matter should be debated in the House. I am aware that United States accounting standards are high, having experienced the introduction of Sarbanes-Oxley standards in a previous employment. For this reason, I have no fear of US standards in terms of the hoops they put companies through, although they are costly and create considerable stress for some people.

Will the Minister of State elaborate on the reason the legislation is being introduced with such great urgency? Senator Boyle suggested the Bill has been introduced in response to recent controversies. I do not detect a link between the new measures and recent controversies. Perhaps the Minister of State will comment.

I thank Senator Ryan for his contribution. He is anxious to learn more about the differences between United States and Irish GAAP or generally accepted accounting principles. I must put up my hands as I am not an accountant or lawyer. My officials will prepare a short note on the matter and communicate directly with the Senator. Accounting standards are difficult and complex and there are differences between them.

The reason for the urgency is that we like to be agile and respond quickly to the needs of industries and companies based in this country. We were approached by a number of substantial companies, one of which is one of the largest accountancy companies in the world. They need certainty on this issue because they need to know if they will have to produce two sets of very complex accounts in order to be compliant with their obligations in the United States under the Securities and Exchange Commission and those regarding their regulated presence in Ireland. The matter is urgent because we do not want to impose an additional cost on such companies because it can give them a bad feeling about the country, namely, that we are excessively bureaucratic. We want to facilitate them and the ease with which they can move to the US standard before they move their parent companies here. When a parent or holding company locates here, it is good news for Ireland Incorporated because moving a holding or parent company here involves extra work in Ireland, much of which concerns immediate servicing where a holding company which runs a series of global companies rather than a headquarters operation is established. At the very minimum, such a move involves extra work for accountants, solicitors and back office staff servicing the operations of a global holding company which might have operating companies elsewhere.

I understand Senator Boyle had particular concerns about our acceptance of a non-Irish standard but Senator Ryan dealt with that point when he outlined his own experience of the Sarbanes-Oxley legislation. The American standard is very high.

Senator Ryan raised another issue, on which I wish to respond, namely, the reason for the transitional nature of the provision. It is hoped that by 2015 we will converge to a world standard of accounting, a point to which Senator Donohoe referred. We have been debating this issue for years. If one reads financial newspapers such as the Financial Times or the The Wall Street Journal, the idea of converging to a world accounting standard has been discussed for 20, 30 or 40 years. Therefore, there are no financial or economic problems caused as a result of people reading different sets of accounts in different parts of the world or opportunistically availing of loose or weak accounting standards in order to avail of an opportunity not to be honest in their disclosures. As a result of the global crisis, there seems to be a will to move more rapidly towards convergence. Globalisation, not just in terms of the recession and difficult experiences of recent months and years, has also driven this process. When there is greater globalisation, there is a need to move to higher standards on a global scale, rather than applying regional or local standards.

Senator Ryan raised the possibility of allowing existing companies such as Intel to benefit from the Bill. It is not intended to extend the scope of the measure beyond those covered by the definition of "relevant parent undertaking". Measures are focused and tightly defined in terms of duration in order to accommodate companies which find themselves faced by the prospect of having to prepare their accounts in accordance with the IFRS or Irish GAAP standards within a very short timeframe. The circumstances of companies operating for a number of years are, therefore, not comparable and, consequently, there is no basis for providing for their inclusion.

The Tánaiste and Minister for Enterprise, Trade and Employment appreciates the comments made by Senators O'Toole and Boyle today and in the debate on the Companies Act earlier this year. I am speaking on her behalf and she is actively considering the appropriate response to the question on a director's compliance statement. She will bring this view and the resulting legislative proposal to the Government before the Bill is published. The House will consider and decide whether to adopt a final Bill in this regard.

Senator O'Toole raised the issue of the transposition of the eighth directive and quality assurance recommendations. The issue is being considered in the context of the transposition process, while the quality assurance proposal was considered in detail with all the relevant parties, including the IAASA. The Senator also raised the issue of the review of accountancy standards. We are examining the issue, as is the director of compliance. How we protect the term "accountant" is being discussed in the context of ongoing discussions in this regard.

I thank Senator McCarthy for his brief intervention, in which he asked if extra staffing would be required. Extra staff will not be required as a result of the Bill.

Senator O'Toole raised an interesting matter which I was encouraged by, that is, avoiding the pitfalls of the US system, in other words, moving towards a rigid rules based system in terms of how we deal with regulation. I am not making another argument for light touch regulation but some confuse robust regulation with rules based regulation. One of the great tragedies is that sometimes regulations encourage people to break the rules. For example, the Enron case revealed a multitude of mission statements, regulations and recommended best practice. If a highly intelligent workforce comprising 50 to 100 accountants is presented with ten or 20 tight rules on how they should behave, the first thing on all their minds in how they can find their way around them.

There is a profound issue in terms of regulation regarding trust and confidence, to which Senator O'Toole referred. Changing behaviour in companies is far more important than regulation. Leaders or those in senior management positions should act as exemplars of proper behaviour. Asking people to change their behaviour and behave in a moral fashion is preferable to having a mountain load of regulations. Regulation can often present a challenge rather than a restriction on their activities to highly intelligent people.

Senator Callely and a number of other Senators asked if the Bill would attract more inward investment. I inform Senator Ryan that we are not suggesting there is a pot of gold behind the Bill. Its essential purpose is to facilitate companies which have already located here in order that they will not be loaded with an additional burden. Our ability to be urgent in our response and nimble enough in responding to the concerns of large companies with a substantial presence here which have a particular issue is something we are proud to promote. There are not many other countries which offer such a service. We go the extra mile to facilitate inward investors because it is something from which we will greatly benefit. This is the foremost location of choice for US foreign direct investors in Europe. In my role in the Department of Enterprise, Trade and Employment I have found the ease with which people are able to meet decision makers in Ireland to be a distinct advantage. I met a gentlemen recently and when I asked the reason he was locating here, he said it was that I was there, as Minister of State. He was not flattering me by saying I was a wonder kid in terms of business promotion but in the country he had come from one would have no chance of meeting somebody at my level in the political or administrative scene. It is a significant advantage; therefore, we should not be bureaucratic to the point where it is a competitive advantage we might lose.

Senator Callely asked how many companies the proposed measure would attract to Ireland. I have answered that question. The measure is not designed as a massive inducement for companies, rather it is designed to facilitate companies already located here. It is to be hope other companies may decide to move their operations here in the future.

Some Senators asked about the companies involved. I do not want to name the ones involved but they are well known and have a substantial presence here. One of them is one of the largest accounting companies in the world.

Senator Donohoe asked some very interesting questions on numbers. We do not want to put numbers on this measure. A handful of companies made representations and it is to be hoped others can be facilitated in the fullness of time. The Senator also asked if we had introduced the Bill because we anticipated a series of further section 7 investigations. That is not the motivation for the change in the legislation, rather it is simply a cost saving measure. We do not want the cost of investigations to go out of control. We have seen this happen with the tribunals of inquiry initiated by the Oireachtas. We want to reduce the exposure of the State or the Exchequer in relation to these substantial investigations. As I said in my opening remarks, these investigations are costing approximately €10 million.

Senator Donohoe also asked whether these companies can be said to be resident, or registered, in Ireland. Residency is related to tax. The companies in question have to be registered here. He also asked whether this legislation will facilitate brass plate operations, or allow companies to have a nominal presence here. We are very anxious not to facilitate that. The Senator is aware that Ireland has an enviable reputation as an overseas destination of choice for financial and other companies.

The media often does a great deal of damage to Ireland by depicting it as some sort of tax haven. It is important to state that Ireland is not a tax haven. Our low rate of corporation tax is very attractive to overseas investors. Articles expressing all sorts of fear and loathing were published in the Irish media in advance of last year's US election. It was suggested that Ireland was one of the tax havens against which Mr. Obama would move in the event of his election. The purpose of the legislation that has been introduced in the US is to move against traditional tax havens in the Caribbean and elsewhere. It is not a move against Ireland, which is not on the black list of international tax havens. I accept that our low corporation tax regime is attractive.

Senator Donohoe asked whether this legislation will give Ireland a competitive advantage. I do not want to overstate the case. This legislation is a tidying up exercise, at best. It is not something that IDA Ireland will include in its brochure as a great advantage.

I hope I have answered all the interesting questions that were asked by Senators. I thank them for their interest in this complex area, which does not lend itself to being easily explained as an example of the worthy work of the Seanad. Members have asked sharp questions and expressed genuine concern about this complex legislation. I do not think the viewing public will take a particular interest in it. I thank Senator Donohoe, in particular, for his sensible contribution.

Question put and agreed to.

When is it proposed to take Committee Stage?

Sitting suspended at 1.05 p.m. and resumed at 1.30 p.m.
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