I move amendment No. 23 :
In subsection (1), page 52, line 9, to delete " which is not a private company ".
The section at present confines the issue of redeemable preference shares to public companies and continues the preference included in the amending Act of 1959. I think this should be amended so as to allow the preference to be given to companies whose shares are not quoted on the stock exchanges and to extend it to private companies.
The section as it stands is new and was introduced, first, to meet the point of an amendment by a Deputy—it may have been Deputy Cosgrave—during the passage of the 1959 Bill, and also to meet other representations made in this connection. It was with some reluctance that I went as far as I have gone to allow public companies the right of redeeming irredeemable shares, but I am afraid I have to resist the amendment in regard to private companies because it would be open to some degree of abuse. Take the example of a private company whose shares may be nominally worth £1 and are held by an individual. The market value might be 10/-. The directors of that private company might easily induce that person, who might not be very well versed in company law or in the value of the shares, to part and, having acquired a block of shares at 10/6 or 11/- each, could then make a nice profit out of them by having the company redeem them at £1. This difficulty could hardly arise in the case of a public company whose shares are quoted on the stock exchange. My view is that it would be wrong to extend this facility to private companies, as it could give rise to abuses.
If the safeguards in the section in respect of public companies were included in respect to private companies whose shares are not quoted on the stock exchange, I think they would be adequate.
The main safeguard is there in paragraph (b) of subsection (1):
No such shares shall be redeemed unless a quotation for such shares had been granted by the Dublin or Cork Stock Exchanges before the 5th day of May, 1959, and such quotation has not been withdrawn before the date of the passing of the special resolution referred to in paragraph (e);
If the amendment were accepted, there would be nothing to prevent any directors of private companies going around quietly and buying up these shares and eventually making handsome profits.
Is that not the position in regard to any shares issued since 5th May, 1959?
Such shares are issued specifically as redeemable shares.
The mere fact that they are quoted on the stock exchange is a guarantee. Many of us can think of quite a number of examples in which shares are quoted at lower prices which do not reveal the true value of the shares.
Is not the fundamental difficulty what the Minister has said—the use of somebody on the inside, who has special knowledge, to get the shares cheaply? In this case, what the Minister has in mind is a case where shares are depressed, and I take it directors can possibly do something in that direction. Then if a director or someone else acquired these shares they would make a profit. What I mean is that the protection you are giving the shareholder who is not on the inside is through preventing people on the inside making profits straight away.
It is just making it difficult for a director of a private company to do this, whereas in the case of a public company the directors' transactions are subject to public comment. They are generally known, and if they are not anybody who makes an inquiry can get the information easily, whereas nobody can get information on a private company.
The whole thing, in the Minister's view, is the possibility of stock exchange quotations. Why could we not deal with it in this way : where there is a stock exchange quotation, Section 65 will run as it is; where there is no stock exchange quotation, the public or private sale parity will operate but with the sanction of the court. Then the people concerned, if it is desirable to have the reconstruction, can go to the court ?
There is a section which will give power to redeem, in any event, with the sanction of the court.
You mean a reduction section ? Reduction is generally considered more in relation to a whole reconstruction of the ordinary shares. It is usually restricted to the cases where the company is travelling badly. There is the case where a company is travelling well but wants to put through a reconstruction for other reasons. I can see the Minister's point about the stock exchange quotations. By all means that will ensure matters are dealt with properly, but give an opportunity to people to go to court if they think they can make out to the court's satisfaction a proper case for redemption.
It would probably involve the same procedure. The court would have to make the same inquiries if you introduce that facility under Section 65 for a private company.
Would the Minister consider it ?
The only consideration I might give it is in relation to whether I would withdraw the section altogether.
Would the Minister explain what is the reason for this. Why is he hesitant about granting it ?
It has been represented to me that in the case of public companies it will help them to carry on their business in a better way. If they decide to take advantage of this section to redeem shares, everybody will know about it. If a similar thing occurred in a private company nobody might know about it and abuses could easily come about.
What I find difficult to understand is the circumstances in which a company would seek to redeem its shares.
Is the Deputy referring to a public company?
Yes.
The representations I received were to the effect that some public companies hold large blocs of preference shares in other companies, which all concerned would wish to have converted into cash on agreed terms.
Is it not a fact that the pattern of share capital in the 30's was a pattern of preference and ordinary shares, that that pattern now has virtually ceased to include preference shares except where they are redeemable; and why should we not try to conform to the new pattern, having provided all safeguards, one being the stock exchange quotation, another being the courts ? It seems to be the feeling that there is something not quite respectable about making an application under Section 72.
I can see the purpose of permitting the issue of redeemable preference shares but I find it hard to see the argument in favour of permitting a company to redeem shares which at the time of their issue were known to be irredeemable. I anticipate certain difficulties such as the Minister suggests and I am trying to find out what the arguments are in favour of this clause.
The principal reason for the section as it stands is that I got representations from the Industrial Credit Company in this respect. They hold blocs of preference shares which are not easy to dispose of.
Nobody is interested in buying preference shares nowadays.
This money is tied up when it could be used for other capital development purposes. This section is in the national interest really, especially since it affects the Industrial Credit Company.
It is not the Industrial Credit Company's shares I am thinking of but shares in other companies.
Of course it would benefit the other shareholders in these companies as well. They could get cash for their shares.
The Industrial Credit Company does not actually limit its advances to companies with a stock exchange quotation ?
Oh, no, they are very much a minority of its holdings.
So that it does not really meet the case.
Does Section 72 only apply where there is a reduction in shares ?
Reduction can be the same thing as redemption.
There are no similar provisions for setting aside the special account, the capital redemption reserve fund. I think it is desirable for the capital reserve fund to be there and you should not go under Section 72 if the option is open to you to do so in a reasonable way under Section 65 because under section 65 you have to keep the capital reserve fund. You have not to keep it if you go under Section 72. I think that is a mistake. Section 72 is intended to cover the case where a company has lost a large part of its share capital and wants to wipe off its losses and to bring its capital down to an approximate reality.
Yes.
I think the section goes a bit beyond that because it specifically says in line 21 that it may " reduce its share capital in any way ".
Yes.
I can easily get over this impasse by suggesting to Deputy Cosgrave that I would look at it again but if I do, I do not think I can come back with any easement of the position as far as private companies are concerned.
There are two different problems involved, the problem of the unquoted public company and of the private company.
Is the Minister suggesting that in fact what Deputy Cosgrave is urging can be done under Section 72?
Yes, I am suggesting——
I wonder is that certain, it says here——
I am sorry. Deputy Sweetman suggested that the difficulty in extending section 65 to private companies might perhaps be got over by providing for application to the court. That can be done under Section 72.
The application to the court ?
" A special resolution under this Section is, in this Act, referred to as ‘ a resolution for reducing share capital '". Does it follow it would be confined to a case where it is proposed to reduce it only?
Would not the redemption of preference shares be a reduction ?
I want to ensure that the capital is kept there and will be put into a capital reserve fund. In Section 72 there is no obligation to have a capital reserve fund.
It can be paid back to the shareholders.
It can be and I think that that would be wrong. That is why I want to provide that it can be done by means of the capital redemption fund.
If it is possible under Section 72 to obtain this redemption for a private company or a public non-quoted company, then it would seem to defeat the whole objective of Section 65.
Except that you have to go to court.
But you can by-pass these stringent provisions in Section 65 by going to Section 72.
By going to court and that seems to be undesirable.
And the court is not given any directive in the case.
You could lay down certain provisos.
You mean in Section 72?
No, if we put in an amendment to Section 65, or a larger section, but I think you would really have to bring in a new section instead of Section 72.
Does the Minister not accept that if a company were, under Section 72, to redeem its pre-1959 preference capital, it might be desirable in such an application to the court to provide a capital redemption reserve fund ?
I would suggest that that would be a matter for the court.
I do not think the court has any power to do it under Section 72.
No.
I do not think the terms of the order could import that into it and if the terms of the order did import that into it there would be no obligation on the company if it has got its order to keep its capital redemption fund.
I think the occasion could be met by saying : " Will you give me your undertaking to do this and I will give you the order."
Yes, and that is not desirable.
Under Section 72, if there is a resolution all that the judge would be concerned with would be a reasonable idea that there was an abuse and to say no.
And he could not say he will agree provided there is a capital redemption reserve fund set apart.
I do not want to initiate a general discussion on this but what is the fundamental objection to reducing capital ? That is the first question we have to ask and Section 72 will have to be related to this while Section 65 deals merely with a particular question of redeeming non-voting shares.
The general objection to reducing capital is that you are making less provision for the creditors of the company.
Quite. That is the general provision to which the court will have regard, the public standing of the company, and it will not be concerned with other aspects of the case and in particular it would not be concerned with such an aspect as the Minister raised as an objection here.
It could not.
If it is safeguarding the public and the creditors the court would not go behind to see whether anyone was making a profit out of the deal. Therefore Section 72 does not in one sense cover the gap, about which Deputy Cosgrave was talking, in Section 75. On the other hand, it is a much wider power for another purpose altogether. Is that not so ?
I am not admitting that there is a gap. Section 65 is a new easement in regard to the public company.
I am not disagreeing with the Minister, what I am saying is that I agree with the Minister in regard to Section 65 and that Section 72 is completely distinct from Section 65.
It is of course.
And that there is no intention that Section 72 should cover up for any shortcomings in Section 65.
None. Section 72 is there since company law was established.
Section 65 is a new thing.
Quite.
And you are not prepared to enlarge it further than you have gone.
If there was an issue on it I would prefer to drop it rather than extend it.
I should like the Minister at some stage to give us the reasons for introducing Section 65.
In regard to the Industrial Credit Company they take up preference shares in other companies in order to assist them in their particular businesses and in doing so they further the national interest. Some of the shares they have taken up as preference shares in these companies are irredeemable and they want to get their money so that they can turn over that money for other purposes of a nationally important nature.
This will not ensure that they will get more money—that will depend on action at the other end—but it enables action at the other end to be taken.
Yes. It is as far as they want to go. They are satisfied with the provision as it stands.
Is there not something to be said, nowadays that there is a departure from the issue of preference shares, or at least a tendency—
I agree with the Minister. His general attitude seems to be that shares which were issued as redeemable should not now be changed to redeemable shares but he is prepared to go a little bit along the road.
I would go even further than the Minister went because I think there is no apology needed for special enabling powers like that for State companies which are a very peculiar form of public company and which are subjected to the public limelight and control in a way that the private company is not. I would certainly be prepared to support that and I think the public company is entitled to support.
This will not only be for the benefit of that public company but for other companies and individuals as well who hold preference shares.
In any event, the Industrial Credit Company have been established for a general national purpose and they have fulfilled that and no apology is needed.
Amendment 23 ?
I hope Deputy Costello is satisfied. That is the only explanation.
I rather differ from my colleague, Deputy Cosgrave, because I am rather worried about these powers. I think there could be an abuse even though you have this safeguard because it could easily be that people could purchase shares on the stock exchange in a quiet way and then bring in the special resolution. Frankly I am worried about Section 65.
The words " which is not a private company " are unnecessary because paragraph (b) rules out a private company.
It makes it clearer.
It just makes it clearer.
I do think that this committee should consider this more carefully because it leaves it open perhaps to unscrupulous directors to buy shares and then subsequently put a resolution to the company. I do not know if there is any way of safeguarding that. Would it be desirable to have this confirmed by the court?
Will this have the effect, when it becomes law, of putting up the value of all preference shares?
That is a point I am worried about.
I am sorry to interrupt but I have allowed the discussion to range very far and we are now dealing with the section rather than with the amendment.
We will deal with the amendments first—is that the idea?
Am I right in thinking that what we are really doing here on the section is reversing what we did in 1959?
No. It is extending it.
Extending it retrospectively.
What is the extent of the extension?
From 1959 onwards it was possible to issue redeemable preference shares. Now we are providing for the redemption of preference shares issued as irredeemable.
This Bill provides for a register of directors' shareholdings and, on that account, in so far as directors dealings would be open to inspection the danger envisaged by Deputy Costello is unlikely to arise.
There is some safeguard there, but apart from that, the section is rather circumscribed by the conditions set out in paragraphs (a) to (g), and (g) states specifically that " no holder of such shares shall be obliged to accept redemption thereof." If a price is offered to him it is up to him to take it or leave it.
That comes now to the point about the stock exchange. The quotations would not be forced above par or their nominal level.
I must confess the more I look at the section the more I feel inclined to press the Minister to make this section applicable to all companies and to make it obligatory on all companies to go to the court. Leave out any quotation, or anything else, and say " Any company that wants to do this, can do it, but it must go to the court " and, if it does go to the court, it must set up a capital redemption reserve fund.
Alternatively, do not extend the power—no, that would not meet the Minister's case—excepting State companies. But that would not meet the point raised.
I think the application to the court is the way round this.
That could very well mean more gambling in the shares for possible redemption. I think it should apply to every company. Every company should go to the court. Instead of clause (b), have sanction by the court.
Otherwise the quotation of all preference shares would go by the board when this section becomes law.
It looks to me as if this would take the good out of it as far as the Industrial Credit Company is concerned, because every company would have to go to the court, and few companies are willing to go to the court in these circumstances. However, I think it is worth looking into and, if Deputy Cosgrave will withdraw his amendment, I will look into the whole matter and, if necessary, introduce something on Report.
On the section the repercussions on the actual market value of preference shares generally should be considered, should it not? It certainly would tend to abuse in preference shares.
It would naturally, of course.
Because if there was any chance at all that you were going to get a redemption, if they were under at all, they would be bought.
Oh, sure.
I do not understand why subsection (5) visualises a possibility that a company would offer to redeem only some of the preference shares of the class. That seems to be entirely wrong. It seems wrong that they could pick out certain shares and say " We will redeem any of the preference shares held by Deputy de Valera and Deputy Booth but we will not tell Deputy Byrne and Deputy Sweetman that we are doing that." If, of course, Deputy Byrne and Deputy Sweetman find out, then they have the right under subsection (5) to come in but there is no obligation to make an offer, as I understand it, to everyone and there should be an absolute obligation to make the offer to every holder of that class.
Yes.
And at least make the redemption proportionate if they do not want to redeem the whole lot.
It should be proportionate. Everybody should be offered redemption of 25 or 30 per cent. of the holding.
One shareholder cannot be allowed to have that kind of preference over another.
As it is now, it specifically permits directors to say, on behalf of the company, that they will offer to redeem the shares we, say, own and they will not tell anybody else until the accounts come along. When the accounts come along the three months' period provided at the top of page 53 has gone. That is all wrong. It is as clear as anything to me why the provision is there, but that does not make it right. It is all wrong and I certainly would press the Minister very hard in relation to this.
Of course, subsection (4) gives the holders of, if I may so describe them, excluded preference shares the right to come in on this deal, if they want to. They must get notice.
The Minister knows very well that if an ignorant person—I use the term " ignorant " in no derogatory sense, but merely as indicating one who is not experienced in these matters—who does not know very much about shares and shareholding, gets a notice like that, he will not take any notice of it; on the other hand, if he gets a specific offer, he will bring it to someone like his bank manager, or his stockbroker, and seek advice.
I think, in principle, you have to keep it to classes.
And you say the entire class should be redeemed.
Or 15, 20 or 30 per cent. of it.
You spread your offer over.
Spread it over.
Whatever percentage you can afford to pay.
There is a very definite principle involved. I should like to raise this point of principle at this stage: Are we going to adhere to the principle that, if facilities, or benefits, shall I say, are being conferred on any existing class of shareholders, these benefits must be equally distributed over all shareholders of that class proportionately or equitably?
All that is required by subsection (4) is that notice will be given.
Before we go into details, are we or are we not accepting that principle? Are we accepting the principle that all shareholders of a class are equal before us irrespective of who they may be?
I certainly accept it.
I think we have got to accept it. If you are dealing with ordinary shares, then all ordinary shareholders; if it is preference shares, then all preference shareholders of that class, and so forth. I think we have to be very firm on that principle and, in order to meet the point about the money it would have to be pro rata.
Paragraph (c) provides for a special resolution; it must be approved by special resolution. It can happen, and it has happened, in many cases that the preference shares have votes even though the dividend is not in arrear; the preference shareholders might be able to come in and, by virtue of their voting power, put through that special resolution against the will of the ordinary shareholders and, by so doing, penalise the ordinary shareholders. There should be a provision, at least, that preference shareholders who are seeking redemption should not be entitled to vote.
That is a separate issue from the one with which we are dealing here. I agree it is a point, and I am not disagreeing with it, but it is a separate point as to whether this right, if we are going to give this power to redeem preference shares bought before 5th May, 1959, whether that power of redemption will be exercised equitably in favour of all preference shareholders of a class. Take the particular case here. Suppose it were the Industrial Credit Company that was in case here. Surely it is not envisaged that some companies, unspecified, whose preference shares are held by the company the Minister mentioned, that these shares would be redeemed while other equal preference shares in the same undertaking would not be. Surely that is not suggested.
Oh, no.
Would that be possible under this? Would it be possible that a company has issued preference shares before 5th May, 1959, and they are redeemable, and these preference shares are held by a State company, such as the Minister mentioned, and this company, as the Minister so frankly admitted, would welcome a provision that would enable it to realise that investment. Suppose the Industrial Credit Company held X per cent. and 100-X per cent. of the same type of preference shares are held by others, surely it is not proposed that it would be possible to redeem the X per cent. for the benefit of the Industrial Credit Company and there would be no redemption of the 100-X per cent. of the preference shares held by others. I do not think that is intended. I do not think it could be intended. The question then is whether that effect could be got within the meaning of the subsections referred to here.
Is it not possible, when you do not redeem the whole, to redeem a proportion and to have a refund made on the same basis with no discrimination against any one class?
Absolutely, if it is a percentage, and provided the offer is equal in time, and in all respects, to all the preference shareholders of the class. Provided that condition is there, it is all right.
That would mean the deletion of subsection (4) altogether.
Is there anything wrong with the argument?
Offhand, I cannot see much wrong but, on the other hand, I should like to consider the implications of it. As I have said, I propose to give consideration to the amendment proposed by Deputy Cosgrave together with the suggestions that were made about reference to the court, and my consideration will also extend to the whole of Section 65 as it stands, and to the various points made on the different subsections, to see whether or not it is worth retaining if the views of the Committee are implemented in full.
I certainly agree with the Minister's initial approach, but I am raising the question as to whether there is not a danger here that the company the Minister mentioned would not be put in an invidious situation. In other words, whether it is the Industrial Credit Company, or any shareholders who get the benefit of the section, that they do not get it to the detriment of fellow-shareholders in the same class.
Deputy de Valera refers to subsection (5). The committee will see that the other shareholders of the same class can ask to have their shares purchased at the same time.
That is Deputy Sweetman's point. I want to go further. I think the offer should be made on the level of equality to all the class.
The Minister might consider the question of preference shares issued after 1959. As the section is drafted, it refers to preference shares before the 1959 Act came into force.
Since 5th May, 1959, anybody could have issued redeemable preference shares.
Are we agreed then toaccept Section 65, subject to what the Minister has said?
