Special Committee on the Companies (No. 2) Bill, 1987 díospóireacht -
Thursday, 24 May 1990

SECTION 175.

Mr. Leyden

I move amendment No. 235:

In page 134, subsection (7), line 28, to delete "Section 202", and substitute "Section 202, subsections (2) to (6),".

This is a straightforward drafting amendment. Section 175 of the Bill deals with the consideration of the examiner's proposals by meetings of creditors and members of the company. Subsection (7) applies the technical procedures in section 202 of the 1963 Act to the summoning of these meetings. These have to do with matters such as the circulation of proposals to those attending the meeting and so on; however, subsection (8) of section 175 is already a modified version of section 202 (1). Therefore, the correct reference in section 175 (7) should be to section 202 (2) and (6) of the Principal Act as provided in this amendment.

Amendment agreed to.

Question proposed: "That section 175, as amended, stand part of the Bill."

Mr. S. Barrett

Could I ask the Minister in relation to section 175 and the previous section 173 regarding the appointment of a creditors' committee, is it wise that secured or preferential creditors would be serving on that committee? Surely they would be compromising their position by doing so. Is there a danger that you would never get to the position outlined in section 175 (5) where, say, the Revenue Commissions would compromise?

Chairman

Does anybody else want to make a point?

Mr. S. Barrett

I support section 175 (5), but I wonder if we will ever get there?

Mr. Leyden

I think what Deputy Barrett is concerned about is the position of the Revenue Commissioners as preferential creditor. Is that correct? Is he worried if they would co-operate in the rescue arrangement?

Under section 175 where a State authority is a creditor of the company, such authority shall be entitled to accept proposals under this section notwithstanding that any claim of such authority as a creditor would be impaired under the proposal or any other enactment. Basically we are allowing them to co-operate.

Chairman

That must be a precedent in the history of the State that they are not looking for their full whack. We welcome that.

[Loss of text due to technical fault]

Mr. Flood

That is a very important inclusion in the Bill, as Deputy Barrett has pointed out. It gives the State an opportunity rather than looking for its pound of flesh at a critical stage to sit down with equal status with the other creditors and participate actively to devise a situation that would be helpful to the survival of the business.

Mr. J. Bruton

Is there a conflict here between the obligations of the Revenue Commissioners to collect all the moneys owing to them? This gives them the freedom to do it if they want to, but presumably they are going to act more in pursuit of their own legislation than in pursuit of the objectives of the Companies Acts. Is there any guarantee that they will act in that way?

Paragraph (b) states that "State authority" means the State, a Minister of the Government or the Revenue Commissioners. I think there is a provision for the employment fund under the Department of Labour to enjoy preference at the moment, that is, a fund which makes redundancy payments. Is that fund encompassed in the definition of "State authority" here?

Mr. Leyden

I am rather pleased that Deputies are welcoming this subsection of section 175 which, at the end of the day, would ensure that the Revenue Commissioners could not claim that they could not make allowances, or write down the debt due to them as preferential creditors. "State authority" means the State, a Minister of the Government or the Revenue Commissioners. In relation to the insolvency fund, another gate is being opened there. I would prefer at this stage to leave this as it is. As I said "State authority" means the State, a Minister of the Government or the Revenue Commissioners. That is pretty broad, is it not?

Chairman

On reflection, Deputy Bruton, if one were to include the insolvency fund, you are entitling them to reduce it. The statutory redundancy payments are inadequate as the fund stands and one would be glad that Revenue do not have an opportunity to reduce that.

Mr. Leyden

The insolvency fund would not come into play until the company is being wound up. At that stage it would not arise because the company is not being wound up. This is not part of this legislation this is really to do with the Revenue Commissioners. We have discussed this question of preferential creditors in the context of this Bill but in this section we are empowering the Revenue Commssioners to write down their actual debt in the interests of saving the company. That is a major development so far as this legislation is concerned.

Mr. J. Bruton

The following preference exists in regard to all local rates due from a company at the relevant date: debts owing to a local authority, there should be provision for the local authorities to enter into a scheme of arrangements; the "State authority" here means the State, a Minister of the Government or the Revenue Commissioners. That should be changed to read: the "State authority" means the State, a Minister of the Government, a local authority or the Revenue Commissioners".

Mr. Leyden

At the moment, as far as I know, most county managers have the power to write off rates, as it is a managerial decision. The point raised by Deputy Bruton is a good point; there would be a list of creditors as well. I feel that we would certainly concede that. I do not know at the moment whether there would be a restriction on a council or local authority coming to such terms. There is no point including them if they have the power to agree to those terms.

Mr. J. Bruton

As I understand it, the State does not have any restriction on it at the moment either. If the Revenue Commissioners want to write off part of the money due to them they can do so at the moment. The only reason they do not write off is that they continue to enjoy preference. What this section is saying is that where a State authority is a creditor it shall be entitled to accept proposals which involve writing off part of the debt. I am not so sure that they will want to, given that they still enjoy preference.

Mr. Leyden

I accept the point Deputy Bruton is making. I accept that as they are preferential creditors they may ask why they should write off what is due to them or why should they settle for less. We are enabling the Revenue Commissioners to cite this section in future dealings in relation to saving a company. Up to now the Revenue Commissioners would make it clear that they have a statutory responsibility to collect all taxes due to them; and they know there is no out for them under legislation. I strongly recommend to the Committee that we hold it at that. I do not want to have to go back for further clarification of local authorities, county councils, district authorities, urban district councils and so on. My experience of the councils is that the manager has the power to decide on the rates.

Deputies have been pressing the point about removing the preferential treatment of the Revenue Commissioners, and we had to take a certain stand on the Bill — that was on the advice of the Revenue Commissioners at the time. There is such a provision in this Bill and I am very pleased it is there.

Mr. J. Bruton

I think the bottom line here is that the Revenue Commissioners are afraid that the Comptroller and Auditor General will criticise them for uncollected taxes. Shock, horror, £500 million worth of taxes that the Revenue Commissioners did not collect because they wanted to allow rogue directors to continue in operation, using this rogue's charter for the reconstitution of unreconstructed rogues, namely Part XI of the Companies' Bill. These rogues are continuing in operation, to use the sort of jargon that you are likely to hear. I accept the Minister's point that this gives Revenue some cover when coming back to say they did it under sction 174 (5), where there is specific statutory reference, and they have an answer for whoever the Chairman of the Committee of Public Accounts is.

But there is also the local government auditor and he can ask exactly the same questions of local authorities that the Comptroller and Auditor General can ask of the Revenue Commissioners. If this sort of statutory cover is needed for the Revenue Commissioners, it should also be needed for local authorities because local authorities have exactly the same preference the Revenue Commissioners have at the moment: in fact, in the list of preferences they come in front of the Revenue Commissioners. The following preferential list is: (1) rates owned to a local authority, (2) income tax, (3) other taxes, etc. If, as the Minister says, this section is very important and I accept it is — then he should put in the words "local authority" also.

Mr. Leyden

If there is a statutory bar on them making arrangements, then I would try to release them but it has not been an issue in the winding up of companies or putting companies into receivership. Those authorities to my mind have never actually moved——

Mr. J. Bruton

With respect, that is not the point. There is not a statutory bar on the Revenue Commissioners making compromises either at the moment, but they are likely to be done by their auditor——

Mr. Leyden

The Revenue Commissioners say there is a statutory bar on them making a compromise. Local authorities to my mind, and I know from dealing with them over the years, in dealing with cases, can make arrangements for the reduction. There is a thing called a waiver of rates.

Mr. J. Bruton

My experience as a Minister was that the Revenue Commissioners were prepared to make compromises.

Mr. S. Barrett

This is a question of compromise with people sitting down to discuss issues. If the local authority are digging in their heels and saying, they will not make any compromise, the chances are that the Revenue Commissioners may take the same stand. The fact that these words are written into the legislation will not do any damage if they already have there powers, but it is part of the compromise approach to resolving a difficulty. I just cannot see how it is going to affect the legislation if you include the words "local authorities" as well as the "Revenue Commissioners". It is all part of a compromise package.

Chairman

The local authority would need to collect 100 per cent of the amount due to them — an awful lot more than the central Government would need. They are not in a position to do many deals if there is money available. Let us remember that we are talking about a going concern, not a winding up.

Mr. J. Bruton

The country is as bust as most local authorities if you really looked at it.

Mr. Leyden

I would not agree, but I could also ask what about the health boards? They may have a claim also.

Mr. J. Bruton

But they are part of the local authority.

Mr. Leyden

They come under the 1970 Act.

Mr. J. Bruton

The truth is the preference that is enjoyed under section 285 of the Principal Act is in respect of local rates due from a company at the relevant date. Rates, as I understand it, are payable to a local authority not to the health board.

Mr. Leyden

I do not think that will give rise to problems. I think the manager has powers to waive and make arrangements for rates. We will check it out and if that is not the case, we will give the manager of the local authorities powers under the legislation, with permission from this Committee, to do so, and I will come back on Report Stage with an amendment to include local authorities if they are not empowered at the moment under legislation to make arrangements to reduce or waive their liabilities. It is a good point and adds to the benefits and effectiveness of this section. I will come back on Report Stage on that.

Mr. J. Bruton

To be strictly accurate, I am not suggesting that they need the power necessarily to make settlements; what I am suggesting is that they need the statutory excuse as much as the Revenue Commissioners. That is why I think you should include them in here.

Question put and agreed to.

Progress reported; Committee to sit again.

The Committee adjourned at 4.30 p.m. until 2.30 p.m. on Tuesday, 29 May 1990.