Subsection (7) of this section says that the examiner may apply to the court to determine any question arising in the course of his office. I wonder how often does the Minister envisage that being necessary because it is going to be very expensive. Subsection (6) gives the examiner the right to stop any act, any omission, change any course of conduct or alter a contract, etc., in certain circumstances. Subsection (6) seems to be extremely complicated and restrictive. Does it actually give him enough power or clear enough power, to act? He has to show that otherwise what was going to happen was likely to be to the detriment of the company or any interested party. Is the section in itself so worded, that, if he does invoke the powers under subsection (6), he is likely to be brought to court by people who are adversely affected, including the directors, on the basis that they would claim that what they were doing was not to the detriment of the company?
SECTION 160.
I could give a detailed breakdown of this section but I think in fairness to the Committee it would delay the meeting.
Do not worry about that.
I feel that this is a useful provision to have. Deputy Bruton is bringing certain points forward. If he feels, having considered this matter, that he wants to put in a reminder it will give us an opportunity between Committee Stage and Report Stage——
That is what we are doing here.
That is what we are here for.
Section 160 (6) confers an important power on the examiner to take action when he becomes aware of something in the affairs of the company which may adversely affect the company or any interested party. Basically, the examiner is being given power in such circumstances to take whatever steps are necessary to rectify the situation. It could happen, for example, that the company proposed to enter into a contract to purchase equipment or machinery which, in the opinion of the examiner, the company just would not be in a position to pay for. In such circumstances the transaction would clearly be to the detriment of the potential creditor who is an interested party by definition, and the examiner would have power to prevent a contract being entered into. Such action by the examiner could have important implications for the survival of the company and this is the reason why it was considered necessary to give him these powers.
I do not know how often the examiner would be applying. This is something that will only arise when the Bill is enacted. We would not be able to give any estimate of that situation. It is very useful to have that provision in the Act, and that is why it is there.
I feel — I could be entirely wrong — that subsection (6) is too complicated to be useful and I am wondering would it not be better to have a much shorter subsection (6) which simply said something like "where an examiner becomes aware of any actual or proposed act, omission or course of conduct, decision or contract, he shall have full power to take whatever steps are necessary to halt, prevent or rectify the effects of such act, omission, course of conduct, decision or contract". Cut out the whole middle, and go down from the second line to the second last line.
Whilst the terminology might look very complicated, basically what is says, when you take the legal jargon out of it, is that he can do anything except in respect of those who act in good faith. That is what it says and all this "act, omission or course of conduct" is to cover every possible commercial reality that he has to deal with, subject only to those who acted in good faith or who bought goods for value for consideration. The legal jargon, unfortunately, I agree, looks terrible, but that is to ensure that no counsel can restrict it in a way that would be prejudicial to the sort of powers we want the examiner to have.
Would the Minister agree to consider, between now and Report Stage, whether subsection (6) is too complex and could be simplified?
On a point of clarification, if the directors or the management of company X had entered into a contract to purchase something, and if that contract had been completed and the examiner thought it was not a brilliant idea, would he still be liable to meet the contractual obligations of the contract in full?
We have actually made provision in the Part for the scenario painted by Deputy Barrett. When we get through Committee Stage of the Bill, when there is a point like this being raised, I will try to give clarification in detail. We felt there was a need to safeguard the rights of third parties under this Bill. That is why the provision is there. In fairness to the point made by Deputy Bruton, it is a specific matter. The Department will look at the situation, and if it can be refined in any way, we will do that. We are trying to protect third parties and so on. Again, it is a specific point put forward by Deputy Bruton; I assure him that when we come to Report Stage we will give a brief note on it, but I am not saying at this stage we will amend it.
A final question on the section. I notice that in subsection (4) an examiner shall be entitled to reasonable notice of, to attend and be heard, at all meetings of the board of directors and all general meetings of the company. The examiner himself under subsection (3) has the power to convene such meetings and he is not subject, as I understand it, to any of the provisions of the Companies Act relating to notice. Where is the obligation on the examiner, when he is convening a meeting, to give reasonable notice etc.?
Section 160 (4), as Deputy O'Dea has outlined, entitles the examiner to be given reasonable notice of and to attend and to be heard at all meetings of the directors and all general meetings of the company. The subsection is supplementary to subsection (3), which allows the examiner to convene meetings and also to preside at meetings which he has convened. However, the purpose of the present subsection is to give power to the examiner to attend board meetings and general meetings of the company which may be convened by the directors themselves, so we are providing that he can call a meeting but where other meetings are called he must be notified and have the right to attend.
I just want to find out where in the Bill——
Actually, under subsection 3 (h), notwithstanding any provisions of the Companies Act relating to the notice of general meetings, there are different criteria for the examiner in relation to the calling of meetings.
What criteria are they?
I suppose he must move fast and act fast. He cannot be waiting around if things are to happen, but it is a fair point that he must be reasonable in conducting his affairs as well.
Amendment No. 225a is in the names of Deputies Bruton and Barrett. It is on the white list of additional amendments dated 24 May. Technically they are supposed to be in before 12 o'clock on the previous day but we will not make an issue of that.
I move amendment No. 225a:
In page 125, subsection (1), line 29, after "examiner" to insert "or at the time of presentation to it of a petition under section 155".
I would like to thank you for allowing the inclusion of this amendment. It arises from the suggestion I made this morning that perhaps there was a danger that we would have too many court hearing in the operation of the examiner's responsibilities and that these would tend to be costly and defeat the purpose of the system which is to save money and jobs.
The purpose of the amendment is to allow the court when considering a petition under section 155 to appoint an examiner in the first place to decide at that stage if it thinks it is wise without waiting for a further application from the examiner after his having taken office to grant him ab initio the powers which can be granted to him under section 161 subsequently. This amendment is designed essentially to improve the effectiveness of sections and of the whole Part. I hope the Minister will see it as worthwhile.
I am sure this point was considered when drafting the Parts.
I have a very detailed response to the amendment. The effect of the amendment will be to enable the court to give the examiner the power to take full control of the company from the date of the presentation of the initial petition.
I am reluctant to agree to this amendment. There are a number of reasons for this. My main problem with the amendment is that I want all the parties mentioned in section 156 to be prepared to use this Part of the Bill. The directors of a company are closest to the company's affairs and therefore ought to be the first to know if the company is heading for the rocks. Thus in many cases at present, for example, it is the directors who ask a bank to appoint a receiver. If I accepted the Deputy's amendment the directors would clearly see that the first thing the court might do is to remove them. In such circumstances, I suggest that they would be very reluctant to present a petition in the first place if by so doing they would effectively be removing themselves from the management of the company.
My second problem with the amendment is that at the time the petition is being presented, the information available to the court, particularly from an independent source, would be unlikely to be of any great use, if any would be available then. This contrasts with the present text of the Bill where the examiner would have some time to assess the situation of the company. The whole concept of the examiner could best be likened to a doctor who examines a patient and prescribes a remedy. If the examiner is to be caught up in managing the company from the start, it reduces his scope to perform his primary task.
On the other hand, I wonder whether this amendment is really necessary. Section 161 provides that where the examiner thinks he ought to have full power to run the company he can apply to the court to do so on the grounds listed in subsection (2). We are not limiting the time within which the examiner can go back to the court. In some cases he could go back to the court the day after his appointment if any of the paragraphs of subsection (2) apply.
At first sight the amendment is unnecessary and it would be damaging to the prospect of saving the company if we put any discouragement in the path of some of the people we want to encourage to make applications to the court in the first place. Therefore, I would prefer not to accept the amendment although I am prepared to think further about this.
I am sorry to hear the Minister rejecting this amendment for the simple reason that all it is doing is giving the court an option. There will be cases where it is quite clear that an examiner should have full powers from day one. If the court does not feel that the examiner should have full powers from day one then the option remains that they may not give the full powers and leave it until later. The purpose of the exercise here is to try to reduce delays and costs. Running in and out of court sounds great, but if you are talking about small businesses, every venture into a court is going to cost money. It is not as if the court has to give all the powers on day one. The court can decide to wait if it so wishes. The option is there. The obvious case is where it is quite clear that problems rest with management or directors.
When a petition comes before the court for the first time it would be open to a judge, having appointed an examiner, to wait for the full hearing which might be a few days or a few weeks afterwards during which time the examiner would have had time on foot of the petition to get the necessary information so that when the full hearing would come up, he could adjourn it. The practical effect may well be that the judge would say: "On the basis of the information before me I do not have sufficient information but I will adjourn it until next Monday and expect the examiner to be in a position to submit to me a detailed outline or analysis of what state this company is in, and whether these powers are required or not." A judge would be very reluctant upon the petition being submitted to say he would give all the powers to an examiner. He could say: "I will adjourn it for a week and if, apart from just the petition which simply seeks for the appointment of an examiner with the agreement of the directors, you come back within a week with substantive evidence that the powers are required you will get them." I do not think any judge will give those powers on foot of simply a petition to appoint an examiner.
In addition to what the Chairman has said, the function of the examiner is two-fold. The first function is to go in and see if the company can be rescued and, if he decides an attempt can be made to rescue the company, then he is given other powers to do other things and to make other applications and so on, to effect that rescue. The initial function of the examiner is to examine the situation to see if a rescue can be effected in the case in question.
I would point out to the Minister and to Deputy O'Dea that if the amendment is accepted the court would still have to take account of all of the matters contained in subsection (2) before granting an application at that stage. The court would have to be satisfied that the company was likely to be conducted in a manner calculated or likely to prejudice the interests of the company or of its creditors as a whole. The court would also have to have regard to whether it was expedient to give those powers from the point of view of preserving those assets and so forth. It is not a question of the court just granting these powers to an examiner off the reel. The court would have to satisfy itself. The directors, presumably, if they had made this petition and the court was contemplating this course of action, would be able to rebut such formation of view by the judge in the light of the criteria contained in subparagraph (2). I would also think — one does not know this for sure — the Minister is probably greatly exaggerating the danger that, because of this suggested additional power, directors of a company that is unlikely to pay its debts, would be reluctant to apply for protection simply because this possibility exists. Remember they can only apply if they are directors of a company that is likely to be unable to pay its debts. You are not talking about people with a lot of cards in their hand. If they thought their company could be saved by applying for protection they would be more than willing to take the risk that the judge, in the light of considerations in subparagraph (2), would directly decide to give the examiner these extra powers. I think the Minister should look at this again. We do not want to have a situation where the examiner has to go in and spend a long time going through all the stuff and then come back to court looking for these extra powers. That is a waste of time.
It might not actually be in the interests of the company as a whole that the examiner be given these extra powers. The matter would have to be looked into. I can see Deputy Bruton's point, and I can see what he is trying to get at. He has a legitimate complaint about the costs, etc, particularly in relation to small companies. Following from the Chairman's earlier point, Deputy Bruton is trying to achieve a situation where the extra powers and the appointment of the examiner can be part of the one hearing. In other words, that there would not have to be a separate application made later. Maybe something can be done to make these two issues part of the one hearing — that the initial petition is heard and decided upon and maybe a week or two later, the matter can be brought back into court again, not by going through the whole procedure of a separate application, but as part of the initial application.
Chairman, I accept the arguments you put forward; they were quite interesting but I still think it changes the role of the examiner somewhat from being an examiner to someone who has these particular powers. I would prefer to give this lull, whether it is days or hours, or to go back to the court and say the situation is as such and I want additional powers. That is all I am asking. I do not think it is unreasonable. It makes the appointment of an examiner much more attractive to directors and others in the company that an independent examiner would come in to examine and analyse the state of the company. They may or may not be required to go back to the court for additional powers if you give them additional powers at the start. I do not think it is appropriate at this stage. I am still not convinced I should change the section to company with the amendment.
I think there should be a brake put on the examiner when he is first sent in. It might be in the interest of the company not to give extended powers which he can go back to the court to seek if he sees fit. Strictly speaking he is not a receiver and he will not be acting as a receiver. He will have to tread cautiously if he is not to do any sort of damage to the company he has gone in to try to protect and preserve. Let us look at this as a two stage process: first the court allows him to go in and secondly if he feels, as an examiner, that he must have wider powers to enable him to operate as he is expected, then it is as well that he go back to court to get those powers.
I do not want to get into repetitious argument but this point has been made. The Minister has stated that he is not inclined to accept the amendment. Perhaps, he could come back on Report Stage and clarify the position. On making a petition, would it be possible to seek further relief under the same pleadings which would incorporate the powers Deputy Bruton has in mind for the examiner? This is precisely the point we are talking about which could actually take place on that day, or it could take place at an adjournment hearing subsequently. It would not require drastic new pleadings and all the rest of it. I would like to get clarification on that point. The amendment has been proposed very late in the day and there is an initial reservation about it. This is probably natural and I take the concept of the examiner adopting an examination process rather than a hands on approach from day one. If the Minister could come back on Report Stage to clarify that point on the pleadings he would give the Department a bit more time to think about it. Deputy Bruton can show his intention to bring a similar type of amendment on Report Stage. That is the best way to handle it as of now.
Chairman, I would like to go along with your proposal but I feel at this stage the issue is quite easily clarified because the concept of the amendment Deputy Bruton and Barrett are putting forward is easily sorted out. The examiner has to consent to be appointed an examiner, then after doing a quick preliminary examination before the day of the court hearing, he can, in turn, seek to have the powers given to him by the court, on the day. There is nothing in this legislation that says he cannot go back to that day and seek those powers.
Do there not have to be new pleadings?
No. That is my information; you do not need new powers. At this stage I do not think we are going to accept the amendment but if you want further clarification on it, after reflection by everyone, I will give it on the debate on the section. At this stage I am quite happy but I will clarify that situation later if need be.
It may be in the interest of the effectiveness of the examiner to have this option, for the simple reason that creditors might be more likely to continue trading with the ailing company if they though the examiner could have these powers, because creditors, or indeed a bank, may not have the confidence in the existing structures and the fact that the court can straightaway give the examiner powers may help to save the company, because of the confidence factor——
I would agree with Deputy Barrett and the points that have been put forward will be part of our consideration on Report Stage.
[Loss of text due to technical fault]
. . . . will cast a certain light on the deliberations so we will have a chance to have a full discussion at that time.
Subsection (1) states that the examiner can ask the court for an order that some of these powers or all of these powers that are vested in the directors should be exercisable only by the examiner. It would appear that that is a little inflexible. It might be in the best interests of everybody that some or all of those powers should be exercised in conjunction with the board of directors, with the existing management. The use of the word "only" seems to provide an either or situation when the examiner was making his application to the court. He cannot ask the court: "can I exercise some of those powers in conjunction with the present board of directors?". He is asking the court, in effect: "can I take those powers exclusively to myself to the exclusion of the people who have them at present?" If the board of directors or part of the management object, if they are unhappy with the fact that the powers are going to be transferred to the examiner, who has the right to be heard in such an application?
The section clearly says "all or any of the functions"; so the court may decide "all or any of the functions" is quite clear.
It says that all or any of the functions should be exercised only by the examiner.
Again, the Deputy made a very good point and we are not able to knock it. We will fine-tune that section if we can to make it comply with what the Deputy is suggesting — that we might want to share certain powers between the examiner and the directors.
Just leave out the word "only".
I cannot give a quick response to this——
On Report Stage.
In the meantime, Deputy O'Dea might have a suggestion to make when he has examined this and we would be delighted to hear from him.