Dáil Éireann - Volume 523 - 05 October, 2000
Company Law Enforcement Bill, 2000: Second Stage.
Ms Harney Ms Harney
Tánaiste and Minister for Enterprise, Trade and Employment (Ms Harney): I move: “That the Bill be now read a Second Time.”
I am pleased to bring this Bill before the House. It might be helpful if I were to outline briefly the background to the introduction of this Bill. The main provisions of the Company Law Enforcement Bill, 2000, flow directly from recommendations in the report of the Working Group on Company Law Compliance and Enforcement, which was published in March 1999. Mr. Michael McDowell, Senior Counsel and now Attorney General, chaired the working group and its report is commonly referred to as the McDowell report.
The mandate of the working group was to advise on how best to improve compliance with the provisions and the enforcement of company law in Ireland. Ireland's reputation as a safe and well-regulated place in which to do business has in recent times been seriously damaged by the emergence of strong indications of widespread abuse of company law. The work of the tribunals of inquiry established by the Oireachtas and the reports prepared on foot of company investigations carried out at my behest did much to uncover and throw light on these abuses. It is fair to say that these revelations have led to widespread public disquiet.
The extent to which the integrity of the system of company regulation was being undermined needed to be investigated urgently and the working group's efforts were directed at this task. It is well known that the McDowell report confirmed many of the worst fears as to the state of corporate governance in Ireland. In short, it concluded that company law was greatly underenforced and that those who sought to deliberately subvert the system of company regulation had little reason to fear that they might be apprehended and punished. In regard to companies' statutory obligations to file returns with the Companies Registration Office, the low level of compliance suggested a culture of widespread non-compliance and disregard for the law.
To address the serious deficiencies in the enforcement regime for company law, the work ing group made a number of recommendations, which were accepted by the Government. The central recommendation of the group was the establishment of an independent statutory officer, to be known as the Director of Corporate Enforcement, who would have general responsibility for the enforcement of company law in Ireland.
To discharge this responsibility effectively, the group recommended that the director have at his disposal sufficient legal, accountancy, investigative and administrative expertise to investigate fully and enforce the provisions of the Companies Acts. The group was strongly of the view that the establishment of the Office of Director of Corporate Enforcement with the necessary powers and resources was the best way to ensure the enforcement of company law on a consistent and independent basis.
The Company Law Enforcement Bill provides a range of powers for the Director of Corporate Enforcement to support the performance of the functions assigned to him under the Bill. These can be categorised into four main areas – investigation, prosecution, injunction and prevention.
The director will have the general function of investigating suspected offences under the Companies Acts. Specifically, the director will take over the functions which I, as Minister for Enterprise, Trade and Employment, currently exercise regarding company investigations under Part II of the Companies Act, 1990.
The provisions of Part II allow for the investigation of a company's affairs by the High Court on the application of the Minister, and for the direct investigation by the Minister of company and share ownership and the examination of company books and documents. These powers will, henceforth, be exercised by the Director of Corporate Enforcement. The Director will also have available to him the general investigative powers and experience of An Garda Síochána.
The director will have the power to prosecute offences under the Companies Acts by summary proceedings and, where appropriate, to refer cases for prosecution on indictment to the Director of Public Prosecutions. With the allocation to the director of sufficient resources to properly and effectively investigate suspected offences under the Companies Acts, I expect that this power of prosecution will result in a far greater number of offences under the Acts coming before the courts and in many more convictions being secured.
The director will have the power to apply to the High Court for injunctions restraining companies or their officers from continuing to breach the Companies Acts. This will allow the director to take immediate action to prevent ongoing breaches of company law and, by so doing, to protect the interests of creditors and others whose rights may be affected by such breaches. The director will have the power to apply to the High Court for orders to restrict or disqualify company directors and other officers where the  conduct of the persons concerned in the management of the affairs of the companies warrants such action. This will prevent or restrict the ability of unscrupulous persons from continuing to use the vehicle of limited liability companies for reckless or illegal purposes to the detriment of their creditors and others.
The Registrar of Companies has an important role to play in the ongoing supervision of companies' compliance with their statutory filing obligations under the Companies Acts. In recent years the registrar has made great strides in the enforcement of filing obligations through an enhanced regime of striking from the register those companies which fail to make the necessary returns. However, this work is hampered by the absence of a satisfactory and enforceable system for determining the precise date in each year when a company is required to file its annual return.
The Bill provides a remedy for this problem through the introduction of the concept of an annual return date specific to each company, which will be used to calculate the exact date by which a company must file its annual return. This measure will introduce a far more transparent and enforceable regime for the filing of annual returns.
In addition to its recommendations in the area of ongoing company law enforcement, the working group recommended the establishment of a statutory company law review group. The purpose of the review group is to advise me, as Minister, on all matters relating to the implementation, amendment and consolidation of company law in Ireland. Such a group will prove very important in ensuring that the Companies Acts are kept under continual review with a view to ensuring that Ireland has a first class system of company law. This will facilitate the operation of companies already established in the State and serve to attract international companies to locate here.
The Company Law Enforcement Bill provides for the establishment of a company law review group on a statutory basis. In anticipation of the legislation and in order to allow the review group to commence its work as quickly as possible, I established the group on a non-statutory basis in February of this year under the chairmanship of Mr. Tom Courtney, solicitor and company law author, one of the country's most eminent experts in company law. The remaining membership of the group combines company law experts and members of representative bodies to provide the best possible advice on the ongoing refinement of the Companies Acts.
I wish to present a brief overview of the main provisions and to highlight those of particular significance. Part 1 contains standard general provisions necessary to the interpretation, commencement and operation of the Bill. Definitions of certain important terms are provided for in section 3. Part 2 provides for the establishment of the Office of the Director of Corporate Enforce ment, his appointment, his terms and conditions of service and the arrangements for reporting by him to both the Minister and the Oireachtas.
Section 7 establishes the separate legal identity of the director as a corporation sole with perpetual succession. This will allow for continuity in the operation of the office of director notwithstanding changes in the holder of the office. The section also provides that the director shall be appointed following the holding of a competition by the Civil Service Commission. In this regard, the Civil Service Commission has selected a person for appointment as director designate on the understanding that the person concerned will be appointed as director of corporate enforcement following enactment of the Bill. This will ensure that once the legislation is enacted there will be no delay in getting the office up and running. I am pleased to inform the House that Mr. Paul Appleby of my Department has been selected for appointment. Mr. Appleby has extensive experience of the company law area and has been closely involved with company investigations that I have ordered pursuant to the provisions of the Companies Act, 1990.
Section 8 provides that the term of appointment of the director shall be for a period of not more than five years and that appointments shall be renewable at the discretion of the Minister. This will facilitate regular review of the performance in office of a serving director of corporate enforcement. Section 10 provides for the removal from office of the director by the Minister for stated reasons. The general functions of the director are set out in section 12 and include enforcing and encouraging compliance with the Companies Acts and investigating suspected offences under the Acts. The director is also given a general supervisory role in respect of liquidators and receivers. The section expressly provides that the director will be independent in the performance of his functions.
Section 14 provides for the transfer to the director of certain functions of the Minister under the Companies Acts. The functions concerned include those relating to the investigation and prosecution of offences under the Acts. Section 16 sets out the director's reporting requirements. The director will be required to produce an annual report of his activities as well as being required to appear before an appropriate committee of the Oireachtas to account for the overall performance of his functions, subject, of course, to the general independence of his office and the confidentiality obligations attendant thereon.
Part 3 of the Bill relates to the function of the director of corporate enforcement of investigating suspected offences under the Companies Acts. The powers of company investigation that I exercise, as Minister, pursuant to Part II of the Companies Act, 1990, are transferred to the director in this Part. This will allow the director to seek to have the High Court investigate com panies pursuant to section 8 of the Companies Act, 1990, or to inquire directly himself into company ownership under section 14 of that Act. The director will in future exercise the power to examine books and documents of companies under section 19 of the 1990 Act. Members will be aware that this is the provision under which I have directed examinations of books and documents in a number of high profile cases. In addition to transferring the function of company investigations to the director, this Part also amends a number of provisions of Part II of the 1990 Act to enable their more effective application, having regard to the practical experience of operating these provisions in recent years.
Section 29 gives the director the right to seek a search warrant from the District Court where the director considers that there may be held on any premises information, books or documents relating to offences under the Companies Acts. This will be a key tool of the director in investigating such offences.
Section 32 provides for the exercise by the director of any of his powers on behalf of company law enforcement agencies from other jurisdictions. In view of the international nature of modern business, this will allow the director to facilitate the inquiries of such agencies where those inquiries require to be pursued in Ireland. It will give the director a firm basis for seeking reciprocal assistance with his own inquiries from agencies outside the State.
Part 4 of the Bill relates to the power of the court to order the restriction or disqualification of persons from acting as company directors or other officers or being involved in any way in the promotion, formation or management of companies. The powers to restrict and disqualify persons are central to maintaining the integrity of the system of company regulation. Sections 38 and 39 empower the director of corporate enforcement to seek to have persons restricted and disqualified by the High Court. In addition, the restrictions imposed by section 150 of the Companies Act, 1990, and the grounds for disqualification under section 160 of that Act are both extended by these sections.
Part 5 of the Bill contains provisions relating to the winding up of companies and, in particular, those companies that are wound up insolvent. The provisions of this Part are aimed at addressing the so-called phoenix syndrome whereby companies go out of business leaving debts unpaid and their members or directors immediately start up new companies without having to account for their previous failures and debts. They also provide for action against companies and their officers where the resources of the company have been so depleted that there are insufficient assets for the company to be wound up. Such actions greatly undermine confidence in the system of company law.
The director is given a range of powers in this Part of the Bill to intervene in company liquidations or, where the company is not liquidated  because of the insufficiency of its assets, to ensure that persons responsible through recklessness or otherwise for company failures are brought before the courts to account for their actions. The director may seek to have such persons made liable for the debts of their companies or that they be ordered to return assets wrongly transferred from those companies.
Sections 50, 54 and 55 give the director powers to perform the function assigned to him under section 12 of exercising a supervisory role over liquidators and receivers. These people play a key role in ensuring that the provisions of the Companies Acts are properly applied in company liquidations and receiverships and the director will be in a position to ensure they meet their statutory obligations in this regard.
Section 53 provides for reporting by liquidators to the director of corporate enforcement on the conduct of directors of insolvent companies in relation to the management of those companies. This will be a key source of information to the director and will form the basis for decisions by the director as to whether the High Court should be asked to apply restriction orders to such directors under section 150 of the Companies Act, 1990.
Part 6 of the Bill provides for the improvement of the existing system for monitoring and enforcing the statutory filing requirements of companies. Section 57 provides for the introduction of the concept of an annual return date which will be used to calculate the exact date in each year on which a company is due to file its annual return. This will greatly facilitate the enforcement by the Registrar of Companies of the annual return filing requirement.
Section 62 provides for the imposition of on-the-spot fines by the registrar in respect of failure to file returns within the time allowed. This will form part of a suite of measures available to the registrar, including late filing penalties, on-the-spot fines and prosecutions, in his attempt to improve filing rates.
Part 7 of the Bill provides for the establishment, terms of reference and membership of the company law review group. It is proposed that the review group will operate on a bi-annual work programme and that a reforming companies amendment Bill will be brought forward every two years based on the relevant report of the review group. In this way the group will serve to facilitate the ongoing review, reform and updating of the Companies Acts.
Part 8 of the Bill deals with company accounts and auditors. The House will be aware that since the Bill was published the report of the review group on auditing has been completed and made available for public comment. Final submissions on the report are awaited. I will shortly bring proposals to Government on this matter. It is likely that significant further changes will be made to company law in a separate Bill next year flowing from the recommendations of the audit review group.
 I regard the report of the auditing review group as a distinct set of measures, the drafting of which will require careful consideration separate from this Bill. That said, there are a small number of measures dealing with auditing and enforcement which are included in this Part of the Bill. These provisions, which derive from the recommendations contained in the McDowell report, will allow the director of corporate enforcement to ensure that auditors comply with their statutory obligations under the Companies Acts.
Section 69 of the Bill introduces revised arrangements to facilitate prosecutorial action by the director of corporate enforcement in respect of offences in the auditing area. Sections 70 and 71 impose on auditors and on the recognised accountancy bodies obligations to report to the director where they believe that certain breaches of the Companies Acts may have occurred.
Part 9 of the Bill deals with financial transactions between companies and their directors and persons connected with those directors. Provisions governing such transactions are contained in Part III of the Companies Act, 1990, and this Part of the Bill is concerned with amending those provisions. The need for these amendments arises from difficulties in the implementation of the existing provisions that have, in certain cases, restricted bona fide commercial transactions between companies and their directors, including the provision of loans and credit guarantees. These provisions are not related to the work of the director of corporate enforcement.
Part 10 contains a number of miscellaneous provisions relating to this Bill, the Companies Acts generally and other enactments. Section 89 amends section 371 of the Companies Act, 1963, and provides an important power to the director of corporate enforcement. Under this section, the director will be given the power to seek orders of the High Court restraining companies or their officers from persisting with ongoing breaches of the Companies Acts. This injunctive power will be a key weapon of the director in his efforts to ensure compliance with the Companies Acts.
Section 92 redefines the term “officer in default” for the purposes of its interpretation in the Companies Acts. The revised definition will make it clear that it is the duty of company directors to ensure that the company complies with the requirements of the Companies Acts.
Sections 93 and 94 provide for the amendment of provisions of the Companies Acts relating to the purchase of shares and share options in a company by its directors or other persons connected with the company. The amendments are required to ensure that there is no conflict between the provisions in question and provisions of the Tax Acts permitting company directors and employees to participate in Revenue approved savings-related share option schemes. These provisions are not related to the work of the director of corporate enforcement.
Section 95 amends section 240 of the Companies Act, 1990, which deals with the penalties that  may be imposed in respect of convictions for offences under the Companies Acts. The amendment has the effect of increasing the maximum fine in respect of a summary conviction under the Acts to £1,500 from the current figure of £1,000. The maximum prison sentence in respect of a conviction on indictment is increased from three to five years. These measures are intended to strengthen the sanction available to the courts in respect of company law offences.
Section 98 provides a mechanism whereby the director of corporate enforcement may impose on-the-spot fines in lieu of the institution of proceedings in respect of offences under the Companies Acts. The director will use this power in appropriate cases to impose penalties in respect of such offences, short of criminal prosecution, thereby obviating the need to take up court time. Persons accused of offences will, of course, have the option of going to court but in so doing they will risk incurring a conviction.
Section 99 provides that the Freedom of Information Act, 1997, will not apply to the director of corporate enforcement, other than to a record concerning the general administration of the director's office. This provision is required in view of the sensitive and confidential nature of the information that will be held in the director's office. A similar exemption applies in respect of the Director of Public Prosecutions.
The measures contained in the Company Law Enforcement Bill, 2000, represent the most radical action taken by any Irish Government to reform the enforcement regime in operation in respect of the Companies Acts. The establishment of the office of director of corporate enforcement signals a clear intention on the part of the Government to seriously address corporate crime and malpractice in Ireland. The director will lead a dedicated team of accountants, lawyers, civil servants and gardaí in a concerted effort to bring to book those who flout our company laws and damage our international reputation. Never before have such resources been applied to this task.
I thank the House for its co-operation in arranging this debate and I look forward to hearing the contributions of Deputies. I commend the Bill to the House.
Mr. Naughten Mr. Naughten
Mr. Naughten: I welcome the introduction of this legislation, the focus of which is on the enforcement of company law and the establishment of the company law review group, both of which are timely and the principle behind which I warmly welcome.
To many the old adage of business and ethics never mixing has been reinforced by the revelations of the various tribunals since the early 1990s. Irish company law has been characterised by a culture of non-compliance with only 30% of companies filing returns on time to the Companies Office in 1997. In the past, the approach of State agencies in relation to the enforcement of  company law has at best been patchy and reactive. This led to a perception on the part of some that compliance with company law was an option rather than a rule.
A similar attitude was highlighted during the DIRT inquiry where enforcement was seen to be haphazard. An analogy to this ethos is that which pertains in our road traffic legislation. It sets a maximum driving speed but poorly resourced enforcement has led to 50% of drivers breaking the law.
An effectively regulated business environment is essential if we are to maintain a successful and growing economy. Consumers and businesses want to know that the rules of the game are being complied with and that the State is fairly, effectively and actively enforcing those rules. Reform of company law is long overdue and was first proposed by the former Minister, Justin Keating, in the 1970s. In the intervening years similar proposals re-emerged and were subsequently buried.
The report which finally gave rise to this change in the legislative framework was published 19 months ago and will, hopefully, encourage a change in the approach to date of turning a blind eye to white collar crime. The Companies Registration Office claims that it has doubled the compliance rate in the past two years from a situation where only one in every three companies complied with companies legislation. However, if we take into consideration that during this period over 40,000 companies were struck off the register for non-compliance and that the number of companies is consequently reduced, can we say that the rate has improved significantly?
Taking this figure at face value, it still demonstrates that four out of ten companies are non-compliant after a two year campaign by the Companies Registration Office. Is the threat of being struck off sufficient penalty to ensure compliance? The evidence shows that it is not having the required impact. On the contrary, unscrupulous directors have availed of the strike off provisions to evade paying creditors and are essentially encouraging the registrar to strike off their companies for failing to make the required annual returns. This allows directors of insolvent companies to renege on their obligations under the law.
Nevertheless, the change in the policy of the registrar's office to focus on company directors by taking cases against them must prove to be a more successful avenue. I hope this new approach, the establishment of the director of corporate enforcement and the powers in Part 5 of the Bill will see a significant reduction in the phenomenon of phoenix companies where individuals close down one operation, leaving significant creditors, only to open a similar business down the road within a few weeks.
In 1999 the Companies Registration Office prosecuted no directors claiming a lack of resources, despite the introduction of a new computer system and a staff of 120. Will the situation differ at the office of the director of corporate  enforcement with approximately 30 staff, excluding gardaí? The directorate will be provided with wide-ranging powers of investigation and enforcement under the Bill. However, it would be a fallacy to call them wide-ranging unless the resources and staff to police the legislation are provided.
The Tánaiste has been derelict in her duty to resource the current watchdog over company practices, namely, the Competition Authority, which has damaged its credibility. She has made great play about the future availability of lawyers, accountants and special groups of gardaí to assist the new agency in its work. However, because of her failure to meet the operational needs of the Competition Authority, resignations have been the order of the day over the past year. Demands last year for specially assigned gardaí are still being met with stony silence. The Competition Authority has been surviving on temporary arrangements for legal advice and there are still a number of vacancies for other specialist staff. Why is the Tánaiste starving the authority of these resources? What will be so different about the resourcing of the Director of Corporate Enforcement?
It is essential that the directorate be provided with adequate resources, particularly in the area of staff with accounting and legal skills. The directorate cannot be expected to operate on a shoestring if it is to be effective. Is £3 million and approximately 30 staff adequate to meet the demands which will be placed on the directorate? Two inquiries established by the Tánaiste have swallowed up approximately £3 million in a two year period, namely, the Ansbacher inquiry, which is estimated to cost £1.4 million, and the NIB investigation, which to date has cost approximately £1.5 million. Similar investigations in future would leave the directorate with no flexibility to pursue other cases. If the Companies Registration Office, with £4.3 million, claims its funding is inadequate to meet the requirements to enforce the provisions of the Companies Acts, how can the Director of Corporate Enforcement be effective on £3 million? Where will we get the professional staff, such as lawyers and accountants, when the Competition Authority is having difficulty recruiting and retaining such staff?
Compliance with legislative requirements is achieved partly because of the size of the potential penalty but mainly because of the belief that the transgression will be detected and appropriate penalties consistently applied. Going on the track record of other bodies under the control of the Department of Enterprise, Trade and Employment, this directorate will have insufficient resources and inadequate expertise to perform the investigations demanded of it. What guarantees can the Minister of State give that this body will have the resources and staff to fulfil its obligation? Without copperfastened guarantees, the directorate's aim to enforce company law will be a futile exercise.
The principle is welcome but achieving the  goals set for the directorate is seriously questionable. The inclusion of the gardaí as part of the directorate is a welcome element and will provide it with additional teeth. It is also important, however, to have a balanced approach. Comments were made by the Attorney General in which he stated that the era where serious fraudsters can tell investigating gardaí to contact their solicitors is over and going to end with a bang. How do we interpret the term “serious fraudsters”? This is a fundamental question if we are restricting the right to legal representation as indicated by the Attorney General. Furthermore, the Bill fails to define the term “fraud”. Can the Minister of State enlighten me as to the Attorney General's interpretation of these powers or what constitutes fraud? What measures are being put in place to ensure the protection of the rights of the individual? The Minister of State must assure the House that additional powers are not open to abuse and are not enforced for any reason other than those outlined in the Bill.
The directorate will have extensive powers to enforce the law by way of civil injunctions as well as criminal sanctions. The Attorney General claims that this would do for company law what section 27 of the Local Government (Planning and Development) Act, 1976, has done for the enforcement of planning laws. It is obvious from such a statement that Mr. McDowell knows little about the planning process. If this is the great white hope for the Director of Corporate Enforcement, then we have failed before we have even started. While the 1976 Act provided the powers to the local authority, unfortunately, it has not assisted in the enforcement of these laws due to the lack of resources available to the local authorities to invoke these powers. Is this to be the future for corporate enforcement? The Minister of State, Deputy Wallace, can support that claim because one-third of vacancies in local government planning offices throughout the country remain unfilled. How can this provision be enforced when the staff are not available?
The introduction of this Bill will remove power from the Minister for Enterprise, Trade and Employment to initiate investigations into the breaches of the companies Acts and will transfer these powers to the Director of Corporate Enforcement. The Bill also provides for the transfer of current investigations to the remit of the new directorate. It is of the utmost importance that through this transfer the Dáil does not lose its powers to seek updates on the progress of any such investigations. I hope such powers will not be removed from the Members of this House or from Dáil Éireann.
Currently five departmental investigations are taking place and taxpayers are unaware of the progress or possible completion date of these inquiries. The Tánaiste stated in the Dáil on 13 June that she expected all these reports to be completed by her authorised officers within the next few weeks. Yet we still await an announcement on these investigations. While many of  these investigations were established in a fanfare of publicity, the Tánaiste is slow to comment on the reason for the delay in completing the reports. The Tánaiste stated also on 13 June that she intended to make a decision on the Irish Intercontinental Bank Limited report within the next couple of days, following discussions with her legal advisers. Yet, four months after the completion of the report, we still remain unaware of the actions, if any, the Tánaiste is taking. The Tánaiste stated at the Committee of Public Accounts ten weeks ago that she would shortly be making an announcement relating to one of the inquiries she initiated into malpractice in the corporate area. What does “shortly” mean because we are still unaware of any decisions or announcements she has made? While the Tánaiste was very vocal initially, ensuring all the facts surrounding these investigations would come into the public domain, she is now not even willing to brief the public as to the progress, if any, which is taking place. I am, however, led to understand that the Tánaiste has indicated to some people that she has the winning of the next election on her desk. Is she putting the survival of the Progressive Democrats before that of the public interest? The Tánaiste must not forget that she received her seal of office from the President, on behalf of the Irish people, and not from the Progressive Democrats. I, therefore, warmly welcome the fact that, through the director of corporate enforcement, these investigations and any future investigations are taken out of the political arena and are not used as a political tool to keep in the war chest until required. While these investigations must be thorough, they must also be seen to be transparent.
This Bill also provides for the establishment of the Company Law Review Group, which I believe will have a positive impact on compliance if given the correct terms of reference. It is vitally important that such a group focuses on the consolidation of current Companies Acts to streamline and simplify company law which in itself will promote compliance. The group should also provide on an ongoing basis proposals for amending legislation to reform company law in line with best practice and continue developments both within the EU and further afield. The current situation where there are 278 possible offences under the Companies Acts needs to be reviewed. In a modern, continually evolving business environment, are all the provisions dealing with these offences still relevant? Such a review would identify redundant requirements which should subsequently be removed without delay as this in itself would enhance both compliance by companies and enforcement by Government. At present small and medium sized companies have a huge burden in ensuring they are compliant with the law. Compliance costs on average are 4% of turnover for small and medium sized companies. However, such costs are less than 1% of turnover for a large company meeting the same  requirements. To put this into perspective a company with eight employees would require 50% of one job to deal with issues related to compliance. Streamlining company law without streamlining paperwork will not promote compliance. When reviewing company law we must take into account compliance procedures, commercial realities and the needs of small business.
While some State bodies such as Revenue – a primary role model using 21st century technology to simplify its procedures – have been proactive in streamlining compliance procedures, the Central Statistics Office is the opposite given the amount of red tape it generates which is choking enterprise. Companies claim the information requested by the CSO is never clear, often ambiguous, time consuming and difficult to collate and there is usually a duplication of requests for similar information from both the CSO and other State bodies.
The Companies Registration Office should also take a leaf out of the Revenue Commissioners' book and should be proactive in providing clear and concise information on responsibilities under the Companies Acts. It should also develop a software package to facilitate the compilation and return of more widely used forms. Ireland needs to bring company law into the new millennium but it also needs to ensure that the arms of the State are proactive in simplifying procedures.
This is why the strategic management initiative introduced by the rainbow Government is of fundamental importance. However, the Government has failed to recognise the need for these bodies to become more consumer-focused and to streamline their procedures. Rather than use a sledgehammer to try to crack a nut, procedures must be simplified and greater compliance encouraged. Government must promote business by acting as a business. Any additional burdens imposed on business as a consequence of changes to Government policy or legislation should provide clear evidence of the enhanced benefits to commercial life. Such an ethos can run in tandem with increased enforcement if the political will exists.
Our legislation must be enterprise proofed to ensure that it simplifies the position for small business and, consequently, the review group has a fundamental role to play in reforming the current legislation and ensuring there is greater compliance in future so that the four out of ten companies which are not compliant currently will be in future and small businesses will not be drained of resources to provide relevant documentation to meet compliance laws.
I will refer to a number of sections into which I will go into more detail on Committee Stage. Section 16(4) states that the director of corporate enforcement cannot be questioned on individual cases and the progress being made on them. While nobody wants to know the specifics of an investigation, it is of fundamental importance that the public, which is paying for such investigations,  is provided with updates on progress. Those powers are available now. The Minister of the day who carries out the investigations can be called before the House to answer questions on them. However, the new director of corporate enforcement will have powers similar to those of the Director of Public Prosecutions. He or she cannot be questioned on specific investigations.
It is important that there is a mechanism to elicit such information so that the House can review investigations and ensure progress. It is also important to ensure taxpayers' money is being used properly and that resources are provided. I believe the director of corporate enforcement will not have adequate resources. That has been the case in regard to other bodies under the control of the Tánaiste.
Section 32 provides for the director to provide assistance to similar bodies internationally. What assistance does the Department receive from other countries? Has the Tánaiste held discussions with her European counterparts regarding co-operation throughout Europe and the possible implementation of a broader directive which could result in greater co-operation in the enforcement of corporate law? As boundaries within the European Union continue to fall and there is free movement throughout the EU, the broader aspects of implementing such legislation should be examined to ensure it is applicable throughout the EU so that the same information can be obtained from other countries.
Section 43 provides that the courts, on proof or probable cause, can arrest any person involved in a company if it believes he or she may leave the country and evade payments that are due. This is a welcome development and will ensure that highwaymen will not run off to the south of France, Spain or the Canaries, which has happened in the past. We have experienced this in my county within the beef and insurance industries and with investment brokers. I hope this power is used extensively where that threat exists. It is crucial for small companies that may have liabilities because they could go to the wall if such highwaymen left the country. Companies and individuals will be protected.
Section 44 provides that the creditors' nominee for liquidation shall be selected on the basis of the majority in value only of creditors as opposed to the majority in number, which is currently the case. This amendment is necessary because of abuse of the system. The section needs to be reformed but it is also important that the rights of small creditors are protected within it because they have more to lose in terms of liquidation. It is likely that large creditors can draw on greater resources. Smaller creditors may be much more reliant on particular customers and ensuring they get something from the liquidation.
Section 57 introduces the concept of an annual return date. The reason behind this is that the Registrar of Companies will know when annual returns will be made. At present the return date is within 60 days of the company's annual general  meeting but because the registrar is unaware of the date of a company's annual general meeting he or she cannot count the 60 days to ascertain when the returns should be made. Would it be simpler to ensure that companies should inform the registrar of the date of the annual general meeting? It would be easy to count the 60 days rather than introducing this section. Will the Tánaiste comment on that?
Section 71 provides that auditors must give notice of major breaches of company law, but it would be useful if we could define what exactly is meant by the term “major breaches”. Some 278 different regulations can be broken under the Companies Acts and one cannot expect an auditor to be aware of all of them. There must be an element of reality in this matter and I would like the Minister to clarify that point.
The Bill is welcome as it strengthens the powers of enforcement of company law. It is important to ensure that we get greater compliance but there is a serious question mark over what will happen once the directorate is established because the Bill is weak on funding. The Registrar of Companies has a current budget in excess of £4 million but even with a staff of 120, cases have not been taken in the past because of a lack of resources. The new directorate will have a budget of £3 million with a staff of only 30. The Competition Authority has a staff of 29 but finds that it cannot fill vacancies which account for one third of staff positions at present. The authority cannot function because it is missing five out of seven economist posts and three out of five legal advisers. What will be so different about the directorate of corporate enforcement? We can spend all day talking about the need for enforcement because compliance is not taking place, but unless this body is given sufficient funding, proper resources and teeth, it will not be able to implement this legislation. The Minister should reply to this debate providing concrete proposals on funding for the directorate, as well as for the Registrar of Companies and the Competition Authority, which have been starved of resources to date. I commend the Bill to the House.
Mr. Rabbitte Mr. Rabbitte
Mr. Rabbitte: I also welcome the Bill which is important legislation and long overdue. Going back over the years, reform of company law has not been at the top of the political agenda, perhaps because there is not much political dividend to be gained from it. Company law is regarded by many as a somewhat arcane and complex area which has not kept pace with other practices we have seen in recent years.
It is perhaps understandable that over a decade of tribunals and investigations of scandals the focus has been on some leading politicians and, to some degree, on the practice of politics generally. However, if one examines newspaper reports of any of these tribunals or investigations into scandals currently under way, in almost all cases one finds that companies or their directors or executors are implicated. Yet, this seems to attract a  great deal less comment and analysis than the involvement of a small number of politicians. I understand the fact that politicians are in a somewhat unique position of public trust and that it is a betrayal of such trust to become the subject matter of the kind of inquiries that are now going on in a small number of cases. The complicit conduct of certain directors and executives of certain companies, however, seems to attract a great deal less analysis. Yet, without the collusion of certain senior executives in some companies – some of them leading companies – these scandals could not have occurred in first instance.
The McDowell report of the working group on company law compliance and enforcement, to which the Minister referred, was quite blunt in acknowledging the culture of non-compliance with company law that exists in this country. From memory, I think the Minister said that in many ways the report bore out our worst fears about the extent of non-compliance and the culture that has grown up, including the failure of directors and executives to meet their obligations under the Companies Acts.
All the way from Goodman, Greencore and Century to Bovale, Brennan and McGowan, and Dunnes Stores – not excluding, as Deputy Naughten said, some of the leading financial institutions in the State – the pattern seems to be that company law could be ignored with impunity. Yet, there appears to have been an ambivalence in certain quarters of authority towards corporate laxity, malfeasance and even fraud. At the DIRT hearings people had the opportunity to view for themselves some of the most powerful figures in corporate Ireland professing non-knowledge of the DIRT evasion and demonstrating how little concerned they were with tax compliance.
Almost every day at Dublin Castle the public have enjoyed the occasional belly laugh at the arrogant incompetence, if not wilful neglect, of their duties and legal obligations by certain directors and senior executives of companies whose affairs are being inquired into. At the end of the day, however, the laugh is on the tax compliant citizen. One has the impression that some people at the top of Irish business do not appreciate that incorporation or limited liability is a privilege.
That is pretty clearly set out in page 5 of the McDowell report where, in setting out the framework of the working group's approach to the task given to it by the Minister, it records that:
Limited liability is designed to encourage and foster honest enterprise by permitting people to promote and invest in ventures and activities, and at the same time to limit the consequences of failure. Of its nature, limited liability acknowledges the inevitability of some commercial failures in an enterprising society. The purpose of company law is neither to prevent nor to insure against – still less punish – commercial failure. Our company law confers limited liability on the members of an arti ficial person to foster continuity and to encourage enterprise in the face of risk.
The point I am making is that incorporation or limited liability is a privilege conferred by the State. The McDowell report says “The law demands in return that such a privilege be confined to those who act in good faith and who abide by a minimum discipline of corporate governance and commercial probity.” We have listened for a number of years to a litany of cases and a parade of prominent individuals for whom that has no meaning. They manifestly abused the privilege and appear to believe that they could do so with impunity.
The question needs to be asked whether some of the individuals recently paraded in the investigatory limelight should be free to set up a web of companies. In Germany, for example, a citizen has to establish that he or she is qualified before he or she gets the benefit of the protection of limited liability. Yet, in Ireland, one can go in and buy a company off the shelf; for the purposes of this discussion, let us call it Harney Homes Limited. One can purchase it exclusively for the purpose of a particular project or development. In this case, the company liquidates as soon as the houses are built.
When the householders move in and find the estate, as is frequently the case, unfinished or defects in the houses and they go to the Harney Group plc, it will say to them, “sorry, that is none of our business, that was done by Harney Homes and it has nothing to do with us”. One will find that Harney Homes has gone out of business. I have experience of that phenomenon and, apparently, it is completely legitimate under our company law and its non-enforcement. Such a company may disown responsibility.
Up to now in Ireland, there has been a general presumption of compliance. If one talks to any of the people in charge of the regulatory authorities, one is told there is an automatic presumption of compliance when a company is incorporated. Every day that presumption was abused and this Bill dilutes that presumption. For that reason above all others, I welcome it. The regulatory regime will now be supervised by a statutory officer known as the director of corporate enforcement who will have responsibility for the enforcement of company law.
The statutory code in Ireland has been entirely inadequate to combat this culture of non-compliance. The Companies Registration Office used to be no more than a registry for company returns. Serious under-resourcing hampered its effectiveness for years. Essentially, it had no role in policing compliance with company law or concerning itself with what constitutes good corporate citizenship. Other than that, the extent of the statutory code has gone no further than certain powers in the Companies Act that reside with the Minister. These powers have sometimes been shown to be cumbersome and inadequate.
During my time as Minister with responsibility for commerce I put seven Bills, some of them  major legislation, through the Oireachtas. However, more needed to be done. For example, in the short time that I was in office, I could not deal with some of the proposals contained in the first report of the company law review group that I wished to address. Yet, my civil servants at the time advised me that no other Minister with responsibility for commerce had enacted seven Bills.
It is not an area that pays an electoral dividend. Yet, it is a crucial area. The company law code is a crucial aspect of the structure of the modern state. The rights of incorporation and limited liability are important for the proper functioning of the modern economy. However, these rights are granted – licensed, as it were – by the State. The limited liability company is an artificial construct and with the right of incorporation and limited liability go the duties of those who avail of the licence and also of the State. If incorporation and limited liability are to work effectively, companies and their directors and managements must comply with the code. The State must efficiently and readily ensure its proper and transparent working and full compliance with the code.
Compliance is crucial because the limited liability company is so central to our economic life. The company is not simply its members or shareholders. Customers, creditors, staff, bankers and the wider community can all be considered stakeholders in the enterprise and all have certain rights to information – even the basic and limited information that is required to be filed at the Companies Registration Office.
Deputy Naughten referred to the inadequacy of the traditional service supplied by the Companies Registration Office. When I was Minister and visited the CRO, I was completely taken aback at the manner in which it apparently had been either deliberately or otherwise relegated to a concealed role and how it was inadequately financed and hampered by space considerations. It was operating in impossible circumstances and it was understaffed and under financed No priority was given to the Companies Registration Office being able to do the job with which it was charged.
The changes I put in place are now beginning to bear fruit. I established a major investment programme in terms of information technology. I significantly increased the staff and we purchased a new premises at Parnell Square that is now the headquarters of the CRO and the Competition Authority. I intended that the Registrar of Friendly Societies would also be located there. I have not visited it since and I have not received an invitation to do so. However, if I did receive one, I would check out that this is the case. I do not know if the Registrar of Friendly Societies has relocated to there but the intention was that it would be “Commerce House”.
Nevertheless, they are tremendous new facilities. They provide staff with the opportunity to work in conditions that are consistent with modern requirements. Above all, the investment in information  technology means that they can provide the service to which the public is entitled and also monitor the accurate and timely filing of returns, etc. For that reason, I welcome the annual date of return notion contained in the Bill. It is a small reform that will produce tangible results.
The Bill will also set up on a statutory basis a type of permanent company law review group which presumably will stay abreast of company law and make recommendations from time to time. That is a good idea but I caution about the need to take steps to ensure it is modelled more on the Law Reform Commission instead of permitting it to become a lobby for special interest groups. There is a danger with such a group that it takes on board a few hobby horses, which are not ideologically neutral and are in favour of certain vested interests, and that it continues to plough this furrow until the law is changed.
Dáil Éireann 523 Company Law Enforcement Bill, 2000: Second Stage.