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Special Committee on the Companies (No. 2) Bill, 1987 díospóireacht -
Wednesday, 20 Dec 1989

SECTION 49.

Amendment No. 74. Amendments Nos. 75, 87, 89 and 90 are related. Is it agreed to take those amendments together for discussion purposes? Agreed.

I move amendment No. 74:

In page 50, lines 39 to 49, and in page 51, lines 1 to 5, to delete subsections (13), (14) and (15).

When does the record of these proceedings become available to members of the committee to re-examine or whatever?

After Christmas.

Which Christmas?

Since we are dealing with legislation, could we be more precise?

I admire Deputy Rabbitte's anticipation of the proceedings but I would say in about a fortnight he will have more than enough to delve into.

These five related amendments are all designed first of all to tidy up section 49 and, secondly, to seek to align the provisions of that section with similar provisions in Part IV, Chapter 2, namely, sections 69 and 70. As currently drafted, section 49 sets out what is to be regarded as an interest for the purpose of Part IV, Chapter 1, of the Bill. Part IV deals with disclosures of interest in companies and Chapter 1 deals specifically with disclosure by directors and secretaries of their holdings of shares and debentures in a company. However, in addition to setting out what does constitute an interest under Chapter 1, section 49 also currently sets out what interests are to be disregarded. On the other hand, however, when we come to Part IV, Chapter 2, which deals with disclosure by all shareholders of interests over 5 per cent in a public limited company, the interests which must be notified are set out in one section, section 69, while the interests to be disregarded are contained in a separate section, section 70. I regard this as a preferable approach and I am proposing that this format should also apply in Chapter 1 in relation to directors' and secretaries' holdings.

I am also taking the opportunity in this amendment to align these provisions in Chapters 1 and 2 more closely. At present the types of interest which must be notified are not the same in each chapter, there are minor differences between them. By virtue of these three amendments, however, the provisions concerned will be much better co-ordinated.

Amendment No. 87 is strictly consequential on amendment No. 75 which inserts a new section 50 in the Bill. The new section 50 will contain details of what will not be regarded as a notifiable interest under Chapter 1 of Part IV and will incorporate for this purpose what are now subsections (13) to (15) of the present section 49. This means that the reference to section 49 in section 56 (7) of the Bill should be amended to include a reference to the new section 50 as well. Finally, amendment No. 90 to section 70 reflects the fact that in the revised section 50 I am proposing that interests held by a person in units of an Undertaking for Collective Investment in Transferable Securities — UCITS for short — will not be regarded as an interest for the purposes of Part IV of the Bill.

Is that agreed?

The question arises in regard to UCITS in Part IV. UCITS are a new instrument that have come in lately. Will the Minister explain briefly why Part IV, which I understand is in regard to court order disclosures, does not apply to UCITS? Is there a reason for this? Has the Minister had representations on the matter?

The reason it does not apply to UCITS is that it would be virtually impossible to identify the ownership. It would be futile to legislate for that purpose. A large number of units are held in blocks, it is a new concept of holding shares which is not in the Anglo/Irish tradition of company law. It is an entirely European, Continental form of holding which has its closest analogy in Irish law to Unit Trusts but it is somewhat different.

It is necessary for us under European Directives to have this and it is also necessary because those who will be trading in the International Financial Services Centre in the Custom House Dock would want to have access to a form of holding of shares which they are used to on the Continent.

Unit Trusts and UCITS are an indirect way into securities investment for investors who wish to achieve a wider spread of risk than they could do with the funds at their disposal by buying shares direct or who want to avail of professional management. A unit trust scheme usually involves investment, not only in shares or debentures, but also in gilt edged securities and rights in respect of money lent to or deposited with any industrial or provident society, friendly society or building society. That is the definition in section 1 of the Unit Trust Act, 1972. A person investing in a unit trust scheme has no say in the choice of investments, that is the job of the manager of the fund concerned. Thus it will be seen that although a unit trust scheme may include investment in shares or debentures it may not necessarily do so and an individual investor cannot know whether such is the case. Furthermore, the investment in the shares of debentures would form part of a unit and would thus be inseparable therefrom. It is reasonable, therefore, that such schemes should be excluded from the scope of the notification requirements under section 49.

Is there any risk that this would be a route used to avoid disclosure in view of the fact that disclosure is now being urged on others?

Both unit trusts and UCITS are very closely regulated anyway under their own legislation. I do not think that anyone could go to those lengths to avoid disclosure for the simple reason that if he invests in a UCIT he has no control over where that money, either his own part of it or the general fund of the UCIT, will go. That is entirely within the discretion of the manager. I do not think it is permissible — and it is certainly not usual — to have a UCIT where there would be only one or two investors and a very limited number of investments. There would be a large number of investors whose pooled funds would be widely spread among a large number of investments or companies and in gilts and so on to avoid the risks that might be inherent in putting all your eggs in one basket.

We will have to see if that is how it works out. The amendment refers to section 46 of the Charities Act, 1961. What sort of schemes are exempted?

What sectin is it?

There is a scheme under 46 of the Charities Act, 1961.

The reference under the Charities Act is to a scheme setting up a common fund which can, under that Act, be brought into effect by the High Court or by the Commissioners for Charitable Donations and Bequests.

Under such a scheme two or more charities can come together and transfer some or all their property to the common fund either on deposit or for investment by the fund. Each such scheme will have its own rules for investment, management and winding-up of the fund. The general idea is to provide a safe means by which a group of charities can manage, and indeed maximise, their funds within a legislative framework under the eye of the court and the commissioners. In the light of the aims of such schemes and the safeguards in the Charities Acts relating to them, it does not seem necessary to apply the general disclosure rules to them; hence the exemption in the subsection.

My impression is that there is a lot of worry about the accountability of charities in general and concerns have been expressed about the adequacy of the controls that exist in regard to them. I do not imagine that removing subsection (b) (ii) of this amendment will solve the problem but it would be wrong to assume that just because something is regulated under the Charities Acts it is necessarily regulated satisfactorily. I am sure the Minister, from his previous experience, is aware that concerns have been expressed in this area.

Yes, I am aware that concerns have been expressed from time to time but if anybody has a specific concern in regard to the funds of a charity they can go to the Commissioners for Charitable Donations and Bequests and ask them to investigate the matter and to satisfy themselves in regard to it. Notwithstanding that, continuing concern in respect of the application of the funds of some charities has been considered by the Minister for Justice and the committee will be aware that he established a committee under the chairmanship of Mr. Justice Costello to look into this question now in the light of the passage of time since the passing of the 1961 Charities Act and to take account of the slightly more high powered fund raising which seems to go on nowadays than might have been the case in the past. I understand that Mr. Justice Costello's committee are actively working on this matter at present and that they hope to report to the Minister for Justice on it in the near future.

I welcome that. I am glad to hear that this matter is being dealt with. I accept that companies legislation is not the place to deal with any problems there may be in regard to charities but perhaps the Minister could report to us when we come to Report Stage on the progress that has been made in regard to this. We might consider putting down an amendment for the purpose of discussion on this point, simply to allow the Minister to report back on how the improvements are being processed in regard to charities legislation.

I will be glad to do that. In addition to the matters I mentioned, Mr. Justice Costello's committee are looking into the general question of accountability of charities which it is thought needs some reassessment at the moment.

In accepting that this is a separate legal issue, it is timely that this committee should raise this question. There is no doubt that the Minister and Deputy Bruton are quite right to express concern about what the Minister described as high powered fund raising activity. Only yesterday I was one of many Dublin motorists approached at traffic lights by people with buckets, basically coercing or intimidating people into giving money for various charities. That is wrong and I am delighted to hear from the Minister that something is being done about this. In saying that, I appreciate that we have many aspects of this Bill to deal with and that it is proper for us to proceed as quickly as possible. However, it is proper at this time for this committee to express concern about high powered activity that is doing damage in general to the cause of some very legitimate charities.

In raising this issue, I am not criticising the fund raising methods of charities. Charities have a job to do and they are doing an excellent job, but one would wish to see effective legislation to protect the 95 per cent or more of charities which are doing a very good job from the possible damage that could be done by the activities of a small minority who are not behaving accountably. It is simply from that perspective and not to criticise particular fund raising methods or anything like that, that I raise the issue.

Amendment agreed to.
Question proposed: "That section 49, as amended, stand part of the Bill."

What is the point of subsection (3)?

This provision is basically a restatement of the existing position under section 190 of the 1963 Act. It re-establishes the basic principle that where shares in a company are held by some kind of trust and a director or secretary is the beneficiary of the trust concerned, he will in general be deemed to have interest for the purposes of the chapter. The basic policy in relation to a beneficiary under a trust, is that the question of whether the interests should be disclosed depends on whether the person has any discretion as to the exercise of rights arising by virtue of interests and shares held under the trust. Anyone who has discretion should be subject to the disclosure requirements. Subsection (3) accordingly, includes in the definition of "interest," the interest of any beneficiary under a trust not already included in other provisions.

Question put and agreed to.
NEW SECTION.

I move amendment No. 75:

In page 51, before section 50, to insert the following new section:

"50.—(1) The following interests shall be disregarded for the purposes of section 49 and sections 50 to 52—

(a) where property is held on trust and an interest in shares or debentures is comprised in that property, an interest in reversion or remainder or of a bare trustee and any discretionary interest;

(b) an interest of a person subsisting by virtue of—

(i) his holding units in—

(I) a registered unit trust scheme within the meaning of section 3 of the Unit Trusts Act, 1972;

(II) a unit trust to which section 31 of the Capital Gains Tax Act, 1975, as amended by section 34 of the Finance Act, 1977 relates;

(III) an undertaking for collective investment in transferable securities, within the meaning of the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 1989 (S.I. No. 78 of 1989);

(ii) a scheme made under section 46 of the Charities Act, 1961;

(c) an interest for the life of himself or another of a person under a settlement in the case of which the property comprised in the settlement consists of or includes shares or debentures, and the conditions mentioned in subsection (3) are satisfied;

(d) an interest in shares or debentures held by a member of a recognised stock exchange carrying on business as a stock broker which is held by way of security only for the purposes of a transaction entered into by the person or body concerned in the ordinary course of business of such person or body;

(e) such interests, or interests of such a class, as may be prescribed for the purposes of this paragraph by regulations made by the Minister.

(2) A person shall not by virtue of section 49 (4) (b) be taken to be interested in shares or debentures by reason only that he has been appointed a proxy to vote at a specified meeting of a company or of any class of its members and at any adjournment of that meeting, or has been appointed by a body corporate to act as its representative at any meeting of a company or of any class of its members.

(3) The conditions referred to in subsection (1) (c) are, in relation to a settlement—

(a) that it is irrevocable, and

(b) that the settlor (within the meaning of section 96 of the Income Tax Act, 1967) has no interest in any income arising under, or property comprised in, the settlement.".

Amendment agreed to.
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