Dáil Éireann - Volume 623 - 05 July, 2006

Building Societies (Amendment) Bill 2006: Second Stage.

  An Ceann Comhairle:I call on the Minister of State at the Department of the Environment, Heritage and Local Government, Deputy Noel Ahern, to move that the Bill be now read a Second Time.

[843]   Mr. Gilmore:I wish to raise a point of order before we proceed with Second Stage. I refer to Standing Order 136 which states:

A public Bill (not being a Bill to confirm a Provisional Order) affecting private interests in such a way that, if it were a private Bill, it would, under the Standing Orders relative to Private Business, require preliminary notices before its introduction, is known as a hybrid Bill and shall be subject to the provisions of Standing Order 60 of the Standing Orders relative to Private Business.

9 o’clock

As I read it, Standing Order 60 of the Standing Orders relative to Private Business requires that where a public Bill is ordered to be read a Second Time in either House on a day appointed and it appears to the Ceann Comhairle or the Cathaoirleach, as the case may be, that the Standing Orders relative to Private Business may be applicable to the Bill, the Bill shall be referred to the examiner who shall examine the Bill with respect to compliance with the Standing Orders relative to Private Business and shall proceed and report forthwith, and the order of the day relating to the Bill shall not be thereby affected. However, if the examiner reports that any Standing Order applicable to the Bill has not been complied with and the Joint Committee on Standing Orders reports that such Standing Order ought not to be dispensed with, the order of the day relating to the Bill shall be discharged.

Standing Order 1 relating to private Bills, states: “Every Bill promoted for the particular interest or benefit of any person of locality, as distinguished from a measure of public policy, shall be treated as a private Bill”. I submit that there is a particular interest or benefit relating to particular persons in the Bill and that, therefore, the issue of whether it is a private or public Bill arises. It appears that, in so far as there is a private interest dimension to the Bill, it is a hybrid Bill under Standing Order 136.

I wish to ask if the Bill has been referred to the examiner and if there is any report from the examiner in respect of its status as a private or hybrid Bill. If this has not been done, what consideration has been given to the issue of it being a hybrid Bill?

  An Leas-Cheann Comhairle:The order of the House takes precedence over what the Deputy says. Because it is an order of the House, we have no option but to proceed with the Bill. That is what the House ordered, notwithstanding anything in Standing Orders.

  Mr. Gilmore:Standing Order 118 requires the Ceann Comhairle to examine a Bill to establish if it complies with Standing Orders.

  An Leas-Cheann Comhairle:Notwithstanding anything in Standing Orders, the order of the [844] House takes precedence. The order of the House is that we proceed with the Bill.

  Mr. Gilmore:I do not want to make life unnecessarily difficult for you on this matter, a Leas-Cheann Comhairle.

  An Leas-Cheann Comhairle:The order of the House takes precedence over Standing Orders.

  Mr. Gilmore:I ask you to hear me out, a Leas-Cheann Comhairle, because I think there is an issue here. There are provisions in the Bill, specifically sections 19 to 21, inclusive, which relate to private interests. For example, there are issues relating to the division of whatever moneys will arise from the demutualisation of one building society. A separate set of rules is being established for a second building society. There are issues relating to the rights of individual members of building societies, as distinct from members of their boards. This is unusual legislation in so far as it relates to individual companies and individual members of those companies and in so far as it relates differently to different building societies.

  An Leas-Cheann Comhairle:We must proceed with the Bill in accordance with the order of the House.

  Mr. Gilmore:Can I get an answer to my question?

  An Leas-Cheann Comhairle:The order of the House takes precedence.

  Mr. Gilmore:I would like an answer to my question. I would like to know if the Bill——

  An Leas-Cheann Comhairle:The Chair has ruled on the matter. The ruling is that the order of the House takes precedence.

  Mr. Gilmore:May I ask one simple question? The order of the House was made this morning. The Bill has been published since 9 June. Was it referred to the examiner? It is clearly a hybrid Bill. I would like to know if it was referred by the Ceann Comhairle who, under Standing Order 118, has a responsibility to this House to examine Bills to ensure their compliance with Standing Orders. As I understand it, the requirement is that the Ceann Comhairle must refer a hybrid Bill to the examiner who will then report to the House. There is an entirely different process for dealing with a private Bill.

  An Leas-Cheann Comhairle:The Chair has ruled on what the Deputy has put forward. We will proceed with the Bill.

  Mr. Gilmore:I will return to the matter.

[845]   Mr. N. Ahern:I move: “That the Bill be now read a Second Time.”

The purpose of the Bill is to amend and update certain provisions of building societies legislation contained mainly in the Building Societies Act 1989. The Bill is based, to a large extent, on recommendations of a review group which contained representatives of relevant Departments, the Financial Regulator and three building societies. The group proposed a package of reform measures. It concluded that any building society wishing to demutualise and develop as a public company should not be unduly restricted as regards the conditions under which they could pursue that option. However, it also recommended that any society wishing to continue to develop as a mutual should be adequately protected in retaining its mutual status. In addition, it considered that various provisions of the legislation should be updated to widen the powers and flexibility of building societies, subject to an appropriate level of approval by the Central Bank.

The main legislative framework for the building society sector is the Building Societies Act 1989 which broadened the range of business a building society could undertake, including activities such as holding and developing land for residential and commercial purposes, investment and support of corporate bodies, a wide range of financial services, conveyancing and auctioneering services. These extended powers enabled building societies, subject to Central Bank approval, to compete more equally with banks which were becoming increasingly active in the mortgage market that had been largely the preserve of the building societies.

An important change introduced in the 1989 Act enabled a building society to decide voluntarily to demutualise, in other words, to drop its mutual society status and become a public company. The Bill is, in a sense, an extension of the process begun in the 1989 Act in extending both the powers of building societies and their options for demutualisation.

During the 1980s nearly two thirds of mortgages were provided by building societies, with their proportion of total mortgage lending reaching a peak of over 70% in the early 1990s. However, since the enactment of the 1989 legislation, there has been much change in this area. The number of building societies in Ireland now stands at three: EBS, Irish Nationwide and the ICS. They account for approximately 20% of the mortgage market. This has resulted mainly from mergers and demutualisations. Two societies have converted into public companies under the provisions of the 1989 Act. Irish Permanent demutualised in 1994 and now trades as Permanent TSB, while the First National Building Society, now First Active, converted in 1998. Both demutualisations took place under the so-[846] called “protective provisions” in section 102 of the 1989 Act precluding a takeover for five years which are being amended in the Bill.

Although the timescale for processing the Bill is tight, it is very desirable to avoid any uncertainty for the market and bring closure to the issues surrounding possible future building society demutualisations. This is a technical Bill consisting almost entirely of amendments to the 1989 Building Societies Act and dealing, as it does, with financial services issues, the subject matter is somewhat outside the mainstream of my Department’s functions. Its production has been very much a collaborative process between my Department, the Departments of Finance and Enterprise, Trade and Employment, the Financial Regulator, the building societies and the Attorney General’s office.

I shall outline briefly some of the main provisions of the Bill. A number of sections contain either standard provisions in a Bill or purely technical amendments to the principal Act. While the main focus of attention in this area has been on the change in the demutualisation provisions, the Bill also provides for a number of other reforms in the legislation governing the operation and regulation of building societies. These arise from matters considered by the review group and subsequent proposals from the sector which have been agreed with the relevant Departments and the Financial Regulator. These include amendments to increase the powers and discretion of societies, subject to approval by the Central Bank, as appropriate, in matters such as the range of services they provide, how they source funding, the bodies in which they can invest, categories of customers who can be given membership and the extent to which specific approval of society members and the Central Bank is needed in order to undertake certain functions. I will outline briefly some of the main changes.

Section 7 allows building societies to extend membership to additional categories of customers and establish loyalty schemes for members. Section 8 broadens the scope of building societies to raise funds from different sources in line with other financial institutions and also extends their power to provide security for borrowings by various bodies in which they are empowered to invest.

Section 9 brings the powers of building societies in regard to mortgages into line with those of other financial institutions, including clarification of powers relating to refinancing and top-up loans and allows mortgages to be provided without the society having a first charge against the property. Section 10 permits a building society to make unsecured or partly secured loans without first having to adopt the power specifically to do so. The Central Bank will have a general supervisory role with regard to the making of these loans rather than prescribing a specific loan limit as currently.

[847] Section 12 extends the existing powers of building societies to invest in or support other bodies, including investment in unincorporated bodies such as partnerships, as well as corporate bodies. Section 13 extends the range of financial services that can be offered by a building society, including any activities under the EU codified banking directive not otherwise permitted by the legislation. Examples of new services that could be provided arising from this include trading for the accounts of customers in money market instruments and other financial instruments and portfolio management and advice. Section 15 provides that powers ancillary or incidental and related to powers already adopted by members of a building society and approved by the Central Bank will not have to be separately adopted and approved.

Sections 19 to 27 provide for amendments of the legislative provisions relating to demutualisation. The main change in this area involves giving a building society discretion to decide to opt out of the five-year post-conversion protective provisions in existing legislation which preclude any individual or institution holding 15% or more of the shares of a demutualised society for five years. There are, in fact, two elements involved in this matter in the Bill. First, section 21 amends section 101 of the Building Societies Act 1989 to allow a building society, in specified circumstances, to propose a conversion scheme that will, effectively, disapply the provisions of section 102. This opt-out provision is designed to operate in a way that will not adversely affect any society wishing to retain mutual status. A society will only be able to disapply the protective provisions if it has, for the preceding five years, required a minimum of €10,000 to open a share account.

Section 19 contains a further provision to protect against pressure for demutualisation being brought to bear through members of a mutual building society. It extends an existing provision, in section 74 of the 1989 Act, precluding members from proposing conversion resolutions at annual general meetings. The reason for this change is that there were doubts as to whether certain types of resolutions referring to conversion were covered by the existing provision and also the need to cover resolutions relating to access to membership which, under the Bill, can constitute a route towards demutualisation. However, I have considered amendments tabled by Deputies to this section and accept that the current wording could be interpreted as being rather restrictive. In response to these concerns, I am prepared to bring forward an amendment on Committee Stage to ensure there will no be question of restricting the right of members to raise any issue for discussion.

The second element of the provisions relating to conversion and sale of a building society involves the insertion of a new section in the legislation providing for an integrated process of [848] conversion and immediate acquisition. Section 22 provides that a society opting to convert without the protection of the five-year post-conversion protective provisions will be empowered to do so through a combined “conversion-acquisition scheme” which will form part of the conversion scheme and as such, will be approved by the members of the society. This will enable the society to agree a trade sale of the company to be implemented immediately on demutualisation. If, for any reason, that acquisition does not proceed, for example, owing to some condition of the agreement not being fulfilled, the conversion will be terminated and the society will continue as a mutual building society.

These provisions merely provide additional options for demutualisation but they are not are not in any way prescriptive as to which, if any, of these options are taken. The Bill is primarily about giving building societies more options. It gives the existing building societies and any that might come into existence a greater range of options on their corporate status. As is well known, the Irish Nationwide Building Society has indicated a desire to be able to demutualise without the present five-year post-conversion restriction on conversion. It will, however, still be open also to any society to demutualise with the cover of the existing protective provisions. The Bill supports any society wishing to remain mutual, but allows any society which sees its future outside the mutual sector more ways to pursue that strategy. The decision rests entirely with each building society. That decision is ultimately made by its members who must decide whether to approve a conversion scheme. That will still be the case with the Bill.

It might be useful to outline a little more fully how the conversion process will actually operate. The demutualisation process is governed by a conversion scheme under the Act. While the scheme is drawn up by the directors of the society, it must be approved by its members and confirmed by the Central Bank which must consider any objections or representations made. There is also provision for members of the society to petition the High Court for cancellation of a conversion scheme. Where the conversion process is duly completed, the society must be registered under the Companies Acts, whereupon it will become incorporated as a public company; in effect, changing from a building society to a bank.

The intention of the Irish Nationwide Building Society to demutualise, following enactment of the changes provided for in this Bill, has been well signalled. The question of entitlements of members or borrowers of the society in the event of demutualisation has been the subject of media speculation. However, these entitlements are not prescribed in the legislation. The only specific provision in that regard in the legislation is a condition that any entitlements arising from a shareholding in a society are restricted to members who have held shares for at least two years. This [849] provision is being amended to make it absolutely clear that it does not restrict possible entitlements solely to shareholders.

As in the case of the two demutualisations that have already taken place, the details regarding entitlements are matters to be determined in the conversion scheme which governs the conversion process, subject to confirmation by the Central Bank. While the details of the conversion scheme are matters for the society and the Central Bank, I would be surprised if the precedents of the other two demutualisations did not generally apply, whereby qualifying shareholders and mortgage holders received entitlements, and where people qualified on both counts, they received dual entitlements.

I would like to clarify some of the proposed amendments. The criterion for opting out of the protective provisions has been formulated in a way that ensures sufficient protection for a society that wishes to remain a mutual society. This is achieved by making it a condition for opting out of the protective provisions that a building society has for at least five years prior to demutualisation restricted access to membership by requiring a minimum deposit of €10,000 to open a share account. In other words there will now be a five-year period of protection either before or after demutualisation, depending on whether a society wants to have the option of being sold following conversion to a public company. This is logical. The five-year buffer period prior to conversion is designed to discourage any potential predators and carpetbaggers, as opportunists trying to make a fast buck are termed, who could quickly emerge and have a destabilising effect if the post-conversion protection was dispensed with and nothing put in its place. This type of pre-conversion protection has, in practice, already been applied by the Irish Nationwide Building Society.

It is important to be clear that the Bill does not oblige any member of a society to have a total of €10,000 on deposit for a period of five years to qualify for entitlements on conversion, as some reports have wrongly suggested. The specific conditions to be satisfied by individuals to qualify for entitlements will be set out in the conversion scheme, which must be approved by the members and the Central Bank. The €10,000 provision is a technical provision that acts as the condition for allowing a society to opt out of the existing five-year post conversion restriction on takeover, while also providing protection against possible predators and carpetbaggers. This provision is also favourable to longer-term members. I know some people are looking forward to proceeds from conversion offsetting possible shortfalls in endowment mortgages.

I would also like to correct a report that if a society wants to remain mutual, membership will be restricted to those who deposit a minimum of €10,000. As I have indicated, this condition is merely the criterion for giving an institution the [850] option to demutualise without the protection of the five-year ban on takeover after conversion.

Contrary to what was implied in a recent newspaper article, a society that has not, up to now, restricted access to membership would not have to wait for five years to convert from mutual status to a public company if it were to decide to embark on a policy of demutualisation. It is immediately open to any society to pursue demutualisation, if it so wishes, under the existing 1989 Act provisions, in the same way as the two societies that have already successfully converted. The Bill does not alter this option. However, a society would have to restrict access to membership for five years before it could avail of the new option under the Bill to dispense with the five-year post-conversion protective provisions.

The Bill will result in building societies in future having four possible options with regard to their status, namely, to remain mutual, to demutualise under the existing protective provisions, to opt out of those provisions and be taken over immediately or to opt out and be sold at a later date.

There is no reason to assume that a building society should inevitably take the demutualisation route. The legislation is designed to ensure that, in opening up additional options for institutions that wish to convert, no new dynamic is created that might bring additional pressure for demutualisation to bear on a society that wishes to remain mutual.

The provisions in the Bill have been developed in response to proposals from the sector and deal largely with technical aspects of financial services. The Government has a broadly neutral position on these matters. The objective is to ensure that the legislative framework facilitates efficiency and flexibility while maintaining a proper regulatory regime. These reforms reflect the fact that significant changes have taken place in the financial services sector in recent years.

The position in that regard has changed considerably since the 1989 Act was enacted. At that time, prospective house buyers, particularly first-time buyers, were very much at the mercy of building societies. Waiting lists were the order of the day, not only for mortgages, but often even for the right to apply for a mortgage. Matters have improved beyond recognition in that regard. The 1989 Act, which we are now amending, played a role in that transformation. The lending institutions have also developed greatly and have facilitated hundreds of thousands of additional households into home ownership, especially during the past ten years or so of tremendous growth in the housing market.

I acknowledge the role that some of the lending institutions now play with regard to affordable housing. Originally, local authorities, through the Housing Finance Agency, were the sole providers of mortgage finance to affordable house purchasers. In recent times, Bank of Ireland Mortgage Bank, followed by the Educational Building [851] Society and IIB Homeloans entered the market with loans tailored to meet the needs of purchasers of affordable housing.

Today’s mortgage lending sector is not entirely without issues, but these are very different from the issues that were current in the 1980s and early 1990s. Since around the middle of last year, I have consistently expressed concern about the likely impact on house prices of increased lending and, in particular, 100% mortgages. In a recent quarterly bulletin the Central Bank commented that the gradual acceleration in house price inflation since last autumn had coincided with some easing of credit conditions and that this seemed, at least in part, to reflect an increased effort on the part of mortgage lenders to market some new products, specifically 100% mortgages.

As regards the longer-term evolution of building society legislation, this Bill is not, nor was it ever intended to be, a root and branch overhaul of building society legislation. Any more comprehensive updating of the legislation could best be looked at in the light of developments in legislation relating to the wider financial services sector and corporate governance generally. In this regard we are mindful that reviews of company law and financial services legislation are in progress. The far-reaching changes that have taken place in the mortgage lending market, including the much reduced number of building societies remaining, their smaller share of mortgage lending and the fact that they are now supervised by the Financial Regulator, in common with other financial institutions, have largely removed the rationale for a separate code of building society legislation. This point is reinforced by the fact that some of the changes being made by this Bill will further reduce the distinctions between building societies and banks.

The Government has, accordingly, decided in principle that the building societies legislative code should be brought within general financial services legislation at a future date. This will give a chance to reflect further on the role of the mutual sector and its continuing contribution to promoting diversity and price competitiveness in the mortgage market. Meanwhile, this Bill implements a number of important reforms and updating of building society legislation and brings clarity to the options available to societies regarding their future corporate status. Accordingly, I commend the Bill to the House.

  Mr. O’Dowd:This is important legislation which will fundamentally alter the rights of mutual building societies to demutualise or to stay as mutual companies. This is rushed legislation and only one hour and 20 minutes remains to deal with all Stages of the Bill.

This Bill is supported by the collective wisdom of the building societies, the Financial Regulator and the Department of the Environment, Heritage and Local Government. Fine Gael is not [852] opposed in principle to the Bill. The views of those who borrowed from the Irish Nationwide Building Society and have fought a campaign in the press and in the courts to win justice, equality and fairness before the law are strongly and sincerely held. These views have been reflected in some of the Fine Gael amendments to the Bill. I am concerned that there will not be sufficient time to discuss these amendments line by line. Proper legislation depends on proper scrutiny. Any error made at this stage will continue into the future. A rushed Bill is bad law. This Bill has been in preparation for many years. I suggest that the Bill should not be rushed through all Stages tonight.

Members of the Irish Nationwide Building Society have brought issues to my attention. Section 19 amends section 74 of the Building Societies Act 1989 to extend an existing exclusion of conversion resolutions from the scope of members’ powers to proposed resolutions at an annual general meeting, and to include also any resolutions relating directly or indirectly to the conversion or restriction of access to membership. The Minister of State’s amendment will not cause any change. He proposes to allow them discuss anything they wish except a resolution. They will not be allowed place a conversion resolution before the meeting. The Minister of State proposes that members may raise issues but they cannot legally propose a motion to mutualise or demutualise the society.

  Mr. N. Ahern:That is always there.

  Mr. O’Dowd:The Minister of State’s proposal will not change anything. I do not wish to accuse him of misleading the House but he is not being completely clear that there is no change and this is really window dressing.

I met the borrowers recently. They have endured trauma, penal interest rates and have been forced to fight their case in court. This Bill will not vindicate their rights. They want this Bill to be amended to put aside a special fund to meet any requirements which the courts may lay upon the new plc company when it comes into being. These people feel wronged and that they are not being listened to. The Minister of State has not listened to their views.

Fine Gael has three amendments to the Bill. I refer to the practice in the United Kingdom. A court procedure must be used before a company can be demutualised. The court may appoint an examiner to ensure the assets and liabilities of the company are in order. The company may even demutualise after that. Fine Gael proposes including this process in the Bill. Our amendment proposes that an application may be made to the High Court for an order sanctioning the conversion of a society into a company. It will propose that in any application, the Minister for Finance, the Minister for the Environment, Heritage and Local Government and any person, including an [853] employee who alleges that he or she would be adversely affected by the carrying out of this conversion, will have a right of audience. This right will be enshrined in law.

Fine Gael proposes that before the court can make any order, the court must be satisfied that all the assets and liabilities are in order. We propose that the court may appoint an independent actuary or other person who is deemed by the court to be sufficiently qualified for the purpose to investigate the society seeking conversion into a company and to report to the court on any issues arising from such investigation.

This is the current law in the United Kingdom. I ask the Minister of State the reason it is not the law here. The Bill should be amended to vindicate the rights of borrowers to ensure their case can be properly and independently heard and validated by a court.

  Mr. N. Ahern:That is done by the Financial Regulator.

  Mr. O’Dowd:We want the right to go to court, as is the procedure in the United Kingdom.

  Mr. N. Ahern:They are free to petition the court.

  Mr. O’Dowd:Fine Gael wants that provision in the Act. This would make a difference to these borrowers who have been treated so appallingly. They borrowed money, went to court and won their case. The costs were awarded against the building society but it passed the costs of €100,000 onto the borrower. Before there is a transition from a mutual society to a plc company, these issues must be properly examined.

It is clear that first-time buyers get a better deal from the mutual building societies. The mutual society puts profit and effort into the service of members. The Educational Building Society is one of the most competitive societies. It is important that mutuality is retained. Studies undertaken by the House of Commons have found that where mutuality does not exist in a market, consumers are worse off, rates are higher and the executives of companies that were formerly mutual societies are higher paid. It has been found that mutuals perform better than their plc rivals in a variety of financial performance indicators. The inquiry found that substantial increases in remuneration had been enjoyed by directors of those institutions which had been demutualised but there was no corresponding improvement in performance. It found that we need diversity in the financial market, we need a challenge and we need mutuality.

That is the issue in a nutshell. This Bill is attempting to face north and south at the same time. It is allowing the Irish Nationwide Building Society to demutualise. For the last five years, there has been a condition on new members that they would have a minimum figure of €10,000. [854] Having that money in place and having made the rule, it can go in for immediate conversion and acquisition if necessary, or conversion and takeover it that is desired.

On the other hand, the Bill is attempting to protect the only significant company that remains a mutual society. The issue is that the only main building society is the Educational Building Society. Under this proposed Act, if it wishes to demutualise, it can. It can do so in either of the ways that are currently available. If it wishes to demutualise tomorrow it will have to wait five years with regard to the rule of new members having €10,000 on deposit.

  Mr. N. Ahern:That would be before it would be taken over.

  Mr. O’Dowd:That is the point I am making. It can demutualise immediately but it cannot become a private limited company in terms of ownership of more than 15% of the shares for a period of five years.

  Mr. N. Ahern:It cannot be taken over.

  Mr. O’Dowd:Nobody taking it over may own more than the 15%. I do not object to the principle enshrined in what is being done. If the body wishes to stay mutualised, it can do so.

Pressure is clearly building from people which have been referred to as “carpetbaggers”. There is a feeling that they would like to get their hands on the EBS. Anybody who may have borrowings or shares in the EBS may want it to demutualise, and they may want to get their €15,000 or €20,000.

I have looked at the experiences in the United Kingdom in the 1990s. The amounts of money were smaller when such bodies demutualised, and the benefit to the individual, be it the borrower or investor, was quite small. It was approximately £2,000 or £3,000. The money amount proposed for the Irish Nationwide is much bigger, significant sum. It would mean much to many people.

I have been told that if the Educational Building Society demutualised tomorrow, the benefit for the membership would be quite small. It would be much smaller than the current figure for Irish Nationwide.

This Bill is being rushed through. We have put down serious amendments to it, as the Government’s amendment does not clarify anything. The future, particularly for the mutual building society, could be getting involved with credit unions nationally or international mutual banks. We need such market forces at play. We support the Bill in principle on the basis that we are neutral with regard to what building societies wish to do. We would like to see mutuality protected if that is the wish of a company.

The only issue which arises is in section 19, which we will return to. Perhaps the Minister of State will clarify on Committee Stage the ques[855] tion of resolutions. If, for example, at the next annual general meeting of the Educational Building Society, the management and directors do not place a resolution on demutualisation before the meeting, such a resolution cannot be discussed. The issue can be discussed. Is that the difference?

A member can stand up and seek the company to demutualise, and 1,000 people could agree. There would be a debate but a legal decision cannot be made if the resolution does not come from the top. That gives protection to the idea of mutuality. That is the reason it must come from the directors.

The argument then can be if a sufficiently large number of investors or members of the Educational Building Society wants to demutualise, the road for them is to sack the directors.

  Mr. N. Ahern:That is the rule as it stands. We are not bringing in a new rule.

  Mr. O’Dowd:I appreciate the point being made by the Minister of State. I am trying to clarify the debate. Perhaps the Minister of State has received e-mails also from people who would like the membership to be able to propose the resolution. I appreciate that is not covered in the Bill, and I am not arguing that it should be. I wish to clarify the matter with the Minister of State that it cannot be so.

  Mr. N. Ahern:My understanding is that rule existed as it was supposed to be. There has been concern about some discussions that have been evident at AGMs lately. Some people feel the discussions should not have got on the agenda. Some people wanted it made clearer that the issue could not be spoken on at all. The amendment allows its discussion.

At a finance committee in the Oireachtas, for example, a Member may want to put down a motion ordering the Minister for Finance to carry out an action. If it cannot be done, the Member may find a roundabout way to do it. The motion could relate to a report being brought forward, for example.

Under the amendment, the matter will be allowed to be discussed. The pure view of some people is that the issue should not even be talked of unless a directive came from directors.

  Mr. O’Dowd:We will have an opportunity to discuss it on Committee Stage. We will be pressing our amendments to a vote, but we will support the Bill in principle. I thank the Minister of State’s departmental officials and all the people in financial institutions to whom I spoke about this Bill. I was anxious to understand it fully, which I believe I do. We will be in favour of the Bill, but we will vote on Committee Stage for our amendments.

I urge the Minister of State to reconsider his position on them. We are trying to vindicate the [856] rights of the people who have been dispossessed of their finances, and their homes in some cases, by the building society.

  Mr. Gilmore:I am deeply unhappy at the way in which this Bill is being handled by the Government. It has been preparing this Building Societies (Amendment) Bill for at least three years. The world and his mother knew this Bill would facilitate the demutualisation of the Irish Nationwide Building Society.

I have no objection to the demutualisation of the Irish Nationwide Building Society, and I wish the members of the society well. The legislation which provides for it and which provides for other matters relating to building societies requires more scrutiny than is being allowed for in the House tonight.

The Government has been preparing this legislation for three years. I have a copy of the legislative programme of the Government for the spring session of 2004. It tells us that the Building Societies (Amendment) Bill would be published by Easter 2004. The Bill was not published until three weeks ago. The Government has deliberately chosen to have the Bill put through all Stages in this House in two hours, late at night on the penultimate sitting day of the session. It is no way to make law.

A Bill, particularly one of this complexity and in which there are issues of public interest arising, requires the kind of question and answer consideration and line by line examination that can only be given on a proper Committee Stage that we will not be afforded in tonight’s debate.

10 o’clock

Moreover, I believe this to be a hybrid Bill. Standing Orders provide for different rules for the treatment of public Bills and private Bills. A private Bill is defined in Standing Orders on private business as follows: “Every Bill promoted for the particular interest or benefit of any person or locality as distinguished from a measure of public policy shall be treated as a Private Bill”. As the Minister of State, Deputy Noel Ahern stated, there are issues in this Bill which are matters of public policy but there are also issues in the Bill which are clearly matters of private interest.

A set of rules is being established in the Bill specifically for one building society. For example, there is a rule which confirms a status on a rule already made by the Irish Nationwide Building Society on the deposit of €10,000 for the period of two years. That is something that does not apply generally to the population. It is not a matter of public policy. It is a private matter which applies only to the members of that society. Second, a separate set of rules is being established in this Bill in respect of members of the other building society which is also a private matter. Third, distinctions are being made in the legislation as between the rights of individual members of building societies and their board of directors which ultimately may have implications in terms [857] of beneficial interest and how it applies to directors as distinct from members. For example, it is known that in the case of the Irish Nationwide Building Society it is proposed that 15% of the so-called windfall will be reserved for the staff and directors of the building society. That involves significant financial implications, for the directors and staff of the building society and for the individual members. These are matters of private interest.

Matters of private interest being legislated for, I submit, are required to be dealt with by an entirely different procedure in this House than the normal procedure for a public Bill. Where there is a Bill which has both the private interest dimension and the public interest dimension, the Bill is regarded as a hybrid Bill.

I appreciate this is a matter for the Ceann Comhairle. The point I am making is not in any way a reflection on the Chair because the Chair has been put in a difficult position by the way in which the Government is rushing this legislation. The Chair of this House has a function in deciding whether a hybrid Bill is referred to the examiner, which is an office of this House established for the purpose of examining private Bills and determining how they are to be addressed. Let me explain what I mean by this, and its implications.

The first occasion on which a hybrid Bill appeared in these Houses was on 3 July 1924. It was the State Harbours Bill 1924 and there was a motion in the Seanad which referred that Bill to a joint committee for examination, in particular for its private aspects. I refer to what Senator Douglas, the then Leader of the Seanad, in explaining why that Bill was being dealt with as a hybrid Bill and why it was being referred to the joint committee, stated because it has relevance to this Bill. He stated:

This is the first case of what is known as a hybrid Bill, and a hybrid Bill is one which, having been introduced as a Public Bill, is, in the opinion of the Chairman of the Dáil in which it was introduced, one that should, nevertheless, as private interests were affected, comply with the Standing Orders relative to Private Business. Consequently the Ceann Comhairle referred this Bill on his own authority, as provided in the Order, to the Examiner, and the Examiner has sent a message that this Bill has complied with the Standing Orders relative to Private Business. When the Bill is a hybrid Bill it is treated, as far as the Committee’s examination is concerned, the same as a Private Bill, but in all other stages it is treated as a Public Bill. The object of that is that private interests may petition during the Committee Stage, which is proposed to be by Joint Committee, exactly the same as a Private Bill, and their interests can be heard.

In other words, the procedure which is laid down in the Standing Orders of this House for the treat[858] ment of either a private Bill or a hybrid Bill allows for a procedure, through a joint committee, whereby private interests who are aggrieved by their private interests being in some way compromised or affected by what are the private aspects of the Bill may petition that committee and may have it teased out.

I have received, during the course of the past couple of weeks since publication of this Bill, a number of submissions or pieces of correspondence from which it appears there are private interests which require to be heard in so far as the private issues in this Bill are concerned. Unfortunately, the way in which the Government is dealing with this Bill denies that right, which is provided for in the Standing Orders of this House and for which there is precedent going back as far as the early and dangerous days of the foundation of the State. In other words, in 1924, in those early the days when the Civil War was still a reality, the parliamentary practice and democratic practice upheld democratic rights of the individual citizen whose private interests were being affected by legislation which was going through the House and the ordinary citizen who was affected by that legislation could petition a joint committee, have his or her case heard etc. That right is being set aside by this Government.

Instead, we get this Bill, from which substantial amounts of money will accrue to individual pockets and by which other pockets may be deprived of part of that windfall, depending on the way in which it is distributed. Those people are being denied the right to have their case heard. The way in which the Government is dealing with this legislation is fundamentally undemocratic. It is in my view in breach of the Standing Orders of the House. It is, for whatever reason, literally rushing this Bill through the Oireachtas in the dead of night.

Reading the Long Title one would think that this Bill is designed to merely tidy up and perhaps update a little of the existing legislation governing building societies. The Bill is not designed to be one law; it is designed to be two laws, one for each of the existing building societies operating in Ireland. It is designed, not specifically as a matter of public policy but as a Bill to facilitate the demutualisation of one building society.

There are many questions to be asked about it, which, unfortunately, the time allowed for its debate will not permit. Why, for example, have we been presented with a Bill which deliberately and artificially creates different sets of rules for the two current mutual building societies? Why does the Bill facilitate the speedy demutualisation and sale of one building society, while effectively blocking the other building society from demutualisation? Why has the Minister of State not seen fit to prescribe, in even the broadest terms, some guidance on how this fast-track demutualisation and sale process should progress rather than give free rein to some interested parties? Why is the Minister of State proposing legislation which pur[859] ports something as undemocratic as disallowing the membership of a building society to decide on demutualisation? I appreciate the Minister of State is making an amendment in that regard but it is still an issue that must be addressed. Why does the Minister of State appear unconcerned that the management of a building society, which until recently used practices described by an Ombudsman ruling as being invalid and unlawful, may substantially be rewarded as a result of the demutualisation process? Why has no attempt been made to address the corporate governance issues associated with this financial sector within the legislation?

The origin of building societies lies in the struggle of working people to put a roof over their heads in the early 19th century. It is a struggle with which many in Celtic tiger Ireland can identify. Building societies first emerged in 19th century Britain as self-terminating savings co-operatives. Members, usually working men, could pool together to build their houses and when the last house was built, the society was disbanded. Later they became permanent societies that continued to admit new members. The essence of a building society is mutuality, that is, it is jointly owned by those borrowing and saving.

Ireland has only two remaining building societies, the Irish Nationwide Building Society, INBS, and the EBS. It has been well publicised that the board of the EBS wishes to retain its mutual status while the board of the INBS wishes to demutualise and then sell as soon as possible. Demutualising a building society turns it into a bank and, therefore, one of the questions the House must address is whether more banks are needed and whether building societies still have a role in the housing and mortgage market. The concept of mutuality has worked well for many people who could not have borrowed from other institutions. At a time when many families find it difficult to purchase a home, we should re-examine the concept of mutuality and question whether this is the time to engage in demutualisation as house prices escalate and more people are priced out of the market. The demutualisation of building societies in Britain is being re-examined.

Sections 19, 21 and 22 work together to facilitate the desires of the respective boards governing the two existing building societies, the INBS and the EBS and, in doing so, two sets of rules are created. According to the membership rules for the INBS, a customer must have at least €10,000 in his or her share account for five years to be deemed a member. Strangely, section 21 stipulates that a building society that wishes to avoid the five-year rule set down in the Building Societies Act 1989 needs to restrict membership to those who lodge that amount with the society for five years.

Who drafted the section? What input had the board of the INBS? The section is tailored to [860] allow the speedy demutualisation and sale of the INBS and, in the process, to enrich the corporate management at the expense of the membership. As well as identifying the INBS as an ideal candidate for fast-track demutualisation and sale, the section also prevents the EBS from doing likewise. Currently, the amount one must have in an account to be deemed a member of the EBS is €127. This means that to demutualise and sell while avoiding the five-year rule, the EBS would have to increase this sum almost by a factor of 100. Section 21 purports to protect building societies from carpetbaggers but it does much more because it protects the respective aspirations of the boards of the INBS and the EBS with scant regard for their customers or for the public.

Section 22 provides for a building society fulfilling the €10,000 provision under section 21 to avoid the five-year rule laid down in the Building Society Act 1989. The rule imposes a five-year waiting period between demutualisation and sale. Section 21 waives this condition for the INBS. Is it in the country’s interest or in the long-term interest of INBS customers that the five-year rule is not adhered to following demutualisation? The INBS and its management have been the subject of years of accusations — some substantiated — of bad business practices, lack of accountability and failing to pass on interest rate cuts. Late last year, the Ombudsman ruled against the INBS for its practice of charging early repayment penalties that were higher than a fair measure of the loss of the account to the building society. The ruling described the practice as “a penalty and amounted to a clog or fetter on the equity of redemption and, accordingly, was invalid and unlawful”. Other issues that borrowers were unhappy about were the very high penalties charged to borrowers in arrears, the failure to pass on interest rates cuts to non-home loan borrowers and the general lack of information provided by the society. It is incumbent on the society to iron out such problems and to remedy them prior to a sale taking place, and surely it is incumbent on the Minister, the Government and the Financial Regulator to ensure that happens in the public interest.

If section 21 is the “Nationwide” section, then section 19 is the “EBS” section or the section that seems to have been drafted by the EBS board. Under the Building Societies Acts 1989 and 1992, only the board of a building society could initiate demutualisation and the members of a society could not put forward a conversion resolution at a general meeting. Section 19 extends this stipulation by preventing a resolution from the membership to discuss conversion. I appreciate the Minister of State has indicated a willingness to amend and it is a great pity we will not have time for a fuller examination of his amendment on Committee Stage.

No provision in the Bill prevents the directors of a building society from taking a large slice of [861] the value of the society after demutualisation. The directors of the society can name their price. Recent press reports suggest 15% of the proceeds of the sale of the INBS could be earmarked for directors and employees. If this happens, it will mean the windfall each member receives will be approximately €2,000 less than the amount they would have received if the total amount had been distributed equally among members, employees and directors. If the directors and employees of the society receive 15% of the sale price, the legislation makes no provision to control how it is distributed within that group. It could very well be decided in proportion to salary and a director might receive a windfall up to €10 million. This means that, according to this legislation, on the one hand, members of one building society are being restricted from discussing demutualisation while, on the other, it is perfectly legal for the board of another building society to decide that individual directors can gain a large sum from the demutualisation process at the expense of society members and, ultimately, its borrowers. As a result of these shortfalls and the way in which the Bill is being progressed through the House, the Labour Party cannot support it.

  An Ceann Comhairle:Before calling Deputy Ó Caoláin, I wish to deal with the status of the Bill which Deputy Gilmore addressed in detail in his contribution. I am satisfied the legislation is not a hybrid Bill. In addition to the ruling made earlier by the Leas-Cheann Comhairle in respect of the primacy of the order of the Dáil of today, the Building Societies (Amendment) Bill 2006 is a public Bill as it is an instrument of public policy which was moved by the Government and proposes to amend the principal Act, the Building Societies Act 1989, itself a public Bill at the time.

Even if Deputy Gilmore’s contention were correct, in so far as it could be said to affect private interests, the Bill provides for public policy which would outweigh those interests and, accordingly, the Bill is a public Bill in any event, whichever way it would be interpreted. In this regard, I refer the Deputy to the ruling of some of my very illustrious predecessors. First, the Railways (Road Motor Services) Bill 1927, which applied to all railway companies, was a measure of public policy and, accordingly, was a public Bill — Official Report of Dáil Éireann, Vol. 19, col. 477. Second, while the Railways Bill 1933 affected private interests, a matter of public policy that outweighed those interests arose and the Bill, accordingly, was a public Bill. The fact the Government moved it, while not a test, strengthened the case for the ruling — Official Report of Dáil Éireann, Vol. 46, cols. 576-578.

  Caoimhghín Ó Caoláin:I propose to share time with Deputies Finian McGrath, Connolly and Cuffe.

I wish to put on record Sinn Féin’s opposition to the way this legislation is being rushed through [862] the Dáil. This legislation is primarily designed to facilitate one building society, the Irish Nationwide Building Society, in giving up its mutuality and enabling it to be taken over immediately.

While Irish Nationwide by its past treatment, including overcharging of members and the fact its chief executive had to be compelled to come before the Flood tribunal to explain why his society had not complied with a tribunal order, has done the reputations of building societies no service, neither should its record be used to advance the cause of demutualisation.

Before the demutualisation of the Irish Nationwide Building Society proceeds, measures must be taken to ensure those members who were scandalously treated in the past receive fair recompense. Mutual bodies, including building societies and credit unions, reflect the principle that our needs can often be satisfied by acting together rather than alone. Mutuals are usually formed so members can obtain goods and services which would otherwise be unavailable or prohibitively priced. When demutualisation happens, it is those disadvantaged communities whose needs are not met by banks which lose out.

A study of mutuality and corporate governance by the Centre for Business Research at Cambridge University found the beneficiaries of the wave of demutualisation which occurred across Britain during the 1990s included, “corporate managers whose earnings and status were enhanced following conversion, and speculative investors who profited from windfall gains”. The losers were borrowers who faced higher loan costs and communities left with a reduced diversity of service.

Private sector banks motivated merely by profit have, in recent years, pulled out of disadvantaged areas such as parts of inner-city Dublin and rural areas where, because of the low incomes of those living in the area or the small population, they foresee low profit margins from the retention of those services. These types of areas benefit from the development of mutuals and gave birth to the credit union movement, one of the great movements of our country.

Properly run true mutuals can provide a better service at a lower cost. Sinn Féin supports the sections of the Bill which enable building societies which do not wish to demutualise to expand the range of products and services they can offer. While we may discuss the demutualisation of building societies now, the experience of other states suggests credit unions are the next likely target for financial predators.

I wish to deal with an important related issue. The future viability of the credit union movement is undermined by the failure of the Government to make changes on restrictions on lending practices of credit unions under the Credit Union Act 1997. Under the 1997 legislation, credit unions are restricted as to the proportion of their loans to be repaid over five and ten year periods. These restrictions do not apply to banks and other fin[863] ancial institutions. It means credit unions find themselves in breach of the law and if nothing is done, they will have to refuse top-up loans and many loans of five years and over.

Many credit union borrowers are on low incomes and have no equity to offer as security for bank loans. The credit union is their only source of borrowing. These restrictions cause difficulties for low-income families attempting to reschedule loans. The Minister must make a statement to the House on this matter and must take action to change the restrictions on credit union lending practices without further delay.

Provisions under the Building Societies Act 1989 preclude 15% or more of the shares in a successor company being held by any individual or institution for five years after demutualisation unless the Central Bank directs that these provisions should not apply. This protective provision should be retained. It is not acceptable to remove it simply to facilitate one building society, in this case Irish Nationwide, whose central managerial track record is dubious to say the least.

What impact will this legislation have on the capacity of new mutuals to be formed in the confidence they will retain their proper function of enabling their members to engage in self-help? We should not make it easier or more attractive to demutualise. We should increase protection for mutuals, in particular protecting them from so-called “carpetbaggers”, individuals who join building societies and possibly in the future credit unions, to vote for demutualisation and share in the distribution of assets.

Where building societies choose to demutualise, increased protective provisions must be built into law to prevent individuals pushing for demutualisation because they are likely to gain a personal windfall. We cannot realistically expect those who would potentially make a huge personal gain from demutualisation to argue against it on the basis of the benefits of mutualisation for communities. By restricting the ability of directors and employees to make windfall gains from demutualisation, this conflict of interest is removed. I tabled an amendment to this effect and hope we will discuss it, although the time is extremely restrictive.

I fully endorse the position adopted by Deputy Gilmore of the Labour Party and the arguments he presented on the question of the procedures for addressing this Bill. Despite the Chair’s judgment a moment ago, real and serious questions are raised and I have no doubt they will continue to be discussed and debated. I intend to oppose the passage of this Bill for the reasons I outlined.

  Mr. F. McGrath:I thank the Leas-Cheann Comhairle for the opportunity to speak on the Building Societies (Amendment) Bill 2006. It is important we have an informed debate and I [864] regret the shortness of this debate. I also must admit I received mixed messages on this Bill.

Mr. Tom Doherty, the head of IT at the EBS, told me the Irish Nationwide Building Society can demutualise if it wishes. The position of the EBS is not weakened by the legislation. He stated it is put on a level playing field with the banks in the way they are regulated and run their business. That is one view. He also believes a scare story on demutualisation was put about during the week which could not be raised by members at the AGM. He stated that story is not true and no further restrictions will be applicable after the legislation is implemented than before.

I also heard an opposing view on this issue. People, including my constituents, are concerned and believe it appears from the proposals that members of the EBS, a mutual company owned by its membership as is the Irish Nationwide Building Society, will be discriminated against. In short, should this Bill be passed in its current form, it will restrict members of the EBS from having a future democratic influence on its destiny and will be a move to restrict the ability of the owners of the EBS to determine through democratic means and within the rules of the mutual society the future of the company. To propose to discriminate against such a group of people as the membership of the EBS, which numbers many thousands, cannot be permitted, given that it will differ significantly from the rights of Irish corporate owners.

Other concerns are raised about the proposal of a restriction based on an entry fee of €10,000, clearly referred to in the Bill. There is no common sense on how this figure was arrived at and, if anything, it suits the private agenda of the boards of directors of the Irish Nationwide Building Society or the EBS. I welcome the debate. However, it should have been longer and more detailed.

I also take this opportunity to commend the work of the staff of the credit union movement, who have done a vast amount of work throughout the State, particularly in disadvantaged areas. I will support any progressive amendments which come before the House.

  Mr. Connolly:The import of this Bill is that legislation will be updated so building societies will be enabled to demutualise and convert into companies while protecting the development of mutual societies. However, the Irish Nationwide Building Society will be the most immediately affected by the enactment of the Bill. As soon as the Bill clears the Oireachtas, the way will be paved for the demutualisation and sale of the Irish Nationwide Building Society. Under previous law the Irish Nationwide Building Society would have had to wait five years after demutualisation before it could be sold to another company. The Irish Nationwide Building Society will now be free to opt out of a five-year ban. The EBS will not have that option, however, as this is [865] restricted to building societies which have required a minimum deposit of €10,000 for five years to qualify for membership. After demutualisation, the Irish Nationwide Building Society will change from a company owned and controlled by policy holders to a public limited company. That will leave the company open to a stock exchange flotation or to be purchased by another company, which is the most likely scenario.

With such a stampede to pass legislation within the next 24 hours, it is most likely that the Irish Nationwide Building Society will be sold before the year’s end — some people reckon it will be before November. Under existing legislation, however, members could not propose a conversion resolution. Section 19 of the Bill does not even allow a discussion on conversion at annual general meetings. Members will never be allowed, therefore, to question the EBS’s policy of remaining mutual or even contemplate demutualisation. How can that be justified in a democracy? Section 19 must be amended to permit discussion or proposals to initiate a demutualisation.

The corporate governance question needs to be addressed but the Bill fails to do that. Building society boards have tended to be dominated by strong individuals, and the Irish Nationwide Building Society is certainly in that category, with a mere three non-executive directors. Such a small board will be able to dictate and decide the terms of the demutualisation and the way the proceeds will be distributed.

The Bill should be amended to set a minimum of seven non-executive and a maximum of two executive members of the board, in line with best corporate governance policy. Any board considering demutualisation should be required to have a minimum of nine members for the period during which demutualisation is being arranged. A members oversight committee should also be a prerequisite to review the demutualisation proposal.

  Mr. Cuffe:I was amused by the Ceann Comhairle’s reference to precedence under Standing Orders. He appeared to put significant emphasis on the railways legislation from the 1920s. It is no coincidence that this Bill is being railroaded through the House.

I feel a grave sense of unease at discussing a Bill for the first time at 10.30 p.m. on the evening before the Dáil rises for three months. That does not reflect well on the Government and it is not a good move for the legislators. It is not a good day for democracy to move legislation through the House at what is close to the 11th hour. This legislation should be debated fully and any proposal to make changes in the mutual status should be debated fully by all those who will be affected. I am concerned that we are simply pushing this measure quickly through the House

I propose that the Bill should only come into operation following a period of consultation with building society members and borrowers and fol[866] lowing an analysis of the likely advantages and disadvantages to all future building society members and borrowers and after all ongoing investigations by the Ombudsman for financial institutions into building societies’ charging practices are complete and the report published. We are moving too quickly on this issue. It is a bit like electronic voting — we buy all the equipment first and then do the testing. We are lashing this Bill through the House this evening not having had the in-depth period of consultation I believe is necessary.

Demutualisation should not be possible without genuine prior consultation with the members and borrowers. It should not be possible without a study of the way it will impact the Irish mortgage market. We need to see the results of the investigations under way. If charging practices while the company is not a mutual one are not fully investigated and acted upon before the company is sold, it would be damaging to Ireland’s reputation in the international financial area.

The Green Party opposes section 19. The current Act stops members from proposing a demutualisation motion but instead of removing this, the Bill would prevent members from even discussing demutualisation. It gives members even less of a role in running the society, which is not good.

There should be some greater element of equality in what may occur, and the expected sale profit of perhaps €1.5 billion should be divided in an equitable manner, but the Government’s Bill fails to provide for the way the profit will be divided and effectively hands the board a blank cheque. That is not the way to do business in this House or elsewhere. Furthermore, the Green Party believes that a members oversight committee should be appointed. That committee would review any demutualisation proposal. It is best practice in corporate governance that a members oversight committee be established to monitor a demutualisation proposal. Rather than putting legislation through the House that allows the directors to do what they want, we should carefully analyse any change. Any building society’s board of directors should have a minimum of seven non-executive members and a maximum of two executive members. Otherwise, we are simply handing over the blank cheque. Best practice and corporate governance would suggest that prior to considering any demutualisation proposal, the board of directors should be reformed to ensure it is not dominated by the interests of a small group of individuals.

I am concerned about putting legislation through the House that is clearly motivated by one or two cases. It would be more appropriate if we were passing legislation that had a wider remit. I am concerned that we are looking after the interests of particular companies and individuals in the type of legislation being put forward.

The Green Party opposes the Bill in its current form. We have submitted amendments on the [867] legislation and there is a risk, as Brendan Burgess points out, to our international reputation if, for instance, a foreign company buys the Irish Nationwide Building Society and then has to spend hundreds of millions of euro sorting out outstanding claims against it. We will be accused of not acting correctly and our financial reputation could suffer. We must reform this area but the legislation should be broader in its content and should not be seen to facilitate changes in any one organisation. To that end, the Green Party opposes the Bill.

  Mr. N. Ahern:I thank the Members for their views and comments, particularly Deputy O’Dowd who supported the principle of the Bill. It is a while since the question of the Bill was first raised and it has been discussed on and off for a number of years, but that does not mean it was drawn up in a day. There was a long process involving the Attorney General, Departments and the Financial Regulator, but it was difficult to come up with a formula that would take account of different circumstances for the different bodies involved.

As I said in my opening comments, the Bill amends the 1989 Act. The recommendations arose from a review group whose members were representatives of building societies, Departments, the Central Bank etc. They recommended greater discretion to building societies that wanted to opt out of the five-year rule. Listening to some Members I am not sure they fully grasped that but since 1989 it has been possible for building societies to demutualise. Some of them have taken that option but they were unable to sell on the company. They turned it into a public limited company but were unable to sell on for five years. I hear what Deputies have said they would like to see in the Bill. However, the Bill is not meant to cover everything. It is a framework Bill. The details of what happens afterwards or how building societies demutualise is covered in the individual conversion scheme and is subject to the rules of the building societies. Deputy Gilmore said that nothing could now stop the directors of the Irish Nationwide Building Society making a killing and they could take 15%. Somebody can stop them. The members of the building society can stop them. By passing the Bill we are not sanctioning any activity. We are giving options.

Up to now building societies had two options based on the 1989 Act. They could remain mutual or demutualise with the five-year rule. We have now extended the scope. Building societies can still remain mutual or can demutualise under the existing protective provisions, or they can now opt out of these provisions and be taken over immediately or opt out and be sold at a later stage. All we are doing is giving options. Any building society that decides to demutualise must [868] undergo a long and almost tortuous process. It is not just a case of the directors coming in and everybody rubber-stamping it.

The conversion process involves the preparation of a statutory conversion scheme by the society, on which the Central Bank must be consulted; the issuing of a statement to members outlining the proposals; the right to inspect the scheme; and approval of the scheme by members of the society. Members are required to give approval and if they are not happy they simply refuse. While they may not be able to bring forward the schemes themselves, they have the important right to refuse. The process also involves application to the Central Bank for confirmation of the scheme and the issuing of public notice of this, the right of any person to make objections or representations to the Central Bank, confirmation of the scheme by the Central Bank following consideration of any objections or representations, the right of members of the society to petition the High Court for cancellation of a conversion scheme and finally the registration under the Companies Act. Many procedural stages must be followed. While the process may be initiated by the directors, the members are very important. While some may be in a great hurry to take their money and run, I am sure they are good at looking after their own interests and if they do not feel they are getting a fair share, they can simply reject the scheme, which would deny the directors, staff and anyone else from getting more than they want them to.

Some Deputies spoke about credit unions. The Department of the Environment, Heritage and Local Government has no role regarding credit unions. In the future the Department may no longer deal with legislation such as this, which is a bit of a throwback to the days when mortgages were linked to housing or whatever. However, there is now much financial and banking legislation, which is more appropriate to the Department of Finance and its agencies.

Demutualisation has been allowed since 1989. Some Deputies spoke as if we were introducing that provision tonight. The Bill does not push any building society towards demutualisation: it gives them the option. It is then up to the members.

I have tried to amend one aspect over which some concern was expressed. Deputy Gilmore may have been correct in referring to different sections being for different groups. I have tried to be fair in that regard. While the proposal for demutualisation comes from the directors, some motions that reached the floor of a society’s AGM have been blocked. I have tried to loosen the provisions somewhat to allow it to be discussed. We all know from public meetings we attend in different walks of life that in discussion it is possible to get across the thinking of the floor to those in control without the need to pass a motion. I am making that change which gives it the flexibility it required. I would not like to be associated with trying to deny free speech — none of us could do that in our occupation.

[869]   Mr. O’Dowd:Except here on a Bill like tonight’s.

  Mr. N. Ahern:I thank Members for their views. I understand the Whips agreed to let the Bill pass tonight and I thank the parties for their co-oper[870] ation in that regard. I accept the points made that Members would like more time, but so be it.

  An Leas-Cheann Comhairle:As it is now 10.44 p.m., I am required to put the question in accordance with an order of the Dáil of this day.

Question put.

The Dáil divided: Tá, 100; Níl, 33.

    Ahern, Michael.

    Ahern, Noel.

    Allen, Bernard.

    Andrews, Barry.

    Ardagh, Seán.

    Brady, Johnny.

    Brady, Martin.

    Breen, Pat.

    Browne, John.

    Bruton, Richard.

    Callanan, Joe.

    Carey, Pat.

    Carty, John.

    Cassidy, Donie.

    Connaughton, Paul.

    Cooper-Flynn, Beverley.

    Cowen, Brian.

    Crawford, Seymour.

    Cregan, John.

    Cullen, Martin.

    Curran, John.

    Davern, Noel.

    de Valera, Síle.

    Deasy, John.

    Deenihan, Jimmy.

    Dempsey, Tony.

    Dennehy, John.

    Devins, Jimmy.

    Durkan, Bernard J.

    Ellis, John.

    English, Damien.

    Enright, Olwyn.

    Fahey, Frank.

    Finneran, Michael.

    Fleming, Seán.

    Fox, Mildred.

    Gallagher, Pat The Cope.

    Glennon, Jim.

    Grealish, Noel.

    Hanafin, Mary.

    Harney, Mary.

    Haughey, Seán.

    Hayes, Tom.

    Hoctor, Máire.

    Hogan, Phil.

    Jacob, Joe.

    Keaveney, Cecilia.

    Kehoe, Paul.

    Kelleher, Billy.

    Kelly, Peter.

    Kirk, Seamus.

    Kitt, Tom.

    Lenihan, Brian.

    Lenihan, Conor.

    Lowry, Michael.

    McCormack, Pádraic.

    McDowell, Michael.

    McEllistrim, Thomas.

    McGrath, Paul.

    McGuinness, John.

    McHugh, Paddy.

    Martin, Micheál.

    Mitchell, Olivia.

    Moloney, John.

    Moynihan, Michael.

    Mulcahy, Michael.

    Murphy, Gerard.

    Naughten, Denis.

    Neville, Dan.

    Nolan, M.J.

    Ó Cuív, Éamon.

    Ó Fearghaíl, Seán.

    O’Connor, Charlie.

    O’Dea, Willie.

    O’Donnell, Liz.

    O’Donoghue, John.

    O’Donovan, Denis.

    O’Dowd, Fergus.

    O’Flynn, Noel.

    O’Keeffe, Batt.

    O’Keeffe, Jim.

    O’Keeffe, Ned.

    O’Malley, Fiona.

    O’Malley, Tim.

    Parlon, Tom.

    Perry, John.

    Power, Peter.

    Power, Seán.

    Ring, Michael.

    Roche, Dick.

    Sexton, Mae.

    Smith, Brendan.

    Smith, Michael.

    Stanton, David.

    Timmins, Billy.

    Treacy, Noel.

    Twomey, Liam.

    Wallace, Mary.

    Walsh, Joe.

    Woods, Michael.

Níl

    Breen, James.

    Broughan, Thomas P.

    Burton, Joan.

    Connolly, Paudge.

    Cowley, Jerry.

    Crowe, Seán.

    Cuffe, Ciarán.

    Ferris, Martin.

    Gilmore, Eamon.

    Gogarty, Paul.

    Gormley, John.

    Gregory, Tony.

    Healy, Seamus.

    Higgins, Joe.

    Higgins, Michael D.

    Howlin, Brendan.

    Lynch, Kathleen.

    McGrath, Finian.

    McManus, Liz.

    Morgan, Arthur.

    Murphy, Catherine.

    Ó Caoláin, Caoimhghín.

    [871] O’Shea, Brian.

    O’Sullivan, Jan.

    Pattison, Seamus.

    Penrose, Willie.

    Quinn, Ruairí.

    Rabbitte, Pat.

    Ryan, Seán.

    Shortall, Róisín.

    Stagg, Emmet.

    Upton, Mary.

    Wall, Jack.

Tellers: Tá, Deputies Kitt and Kelleher; Níl, Deputies Stagg and Crowe.

Question declared carried.

[872]   An Ceann Comhairle:As it is now 11 p.m. I am required to put the following question in accordance with the order of the House today: “That the amendments set down by the Minister for the Environment, Heritage and Local Government for Committee Stage and not disposed of are hereby made to the Bill, in respect of each section undisposed of that the section or, as appropriate, the section as amended is hereby agreed to in Committee, the Title is hereby agreed to in Committee, the Bill as amended is, accordingly, reported to the House, that Fourth Stage is hereby completed and the Bill is hereby passed.”

Question put.

The Dáil divided: Tá, 100; Níl, 34.

    Ahern, Michael.

    Ahern, Noel.

    Allen, Bernard.

    Andrews, Barry.

    Ardagh, Seán.

    Brady, Johnny.

    Brady, Martin.

    Breen, Pat.

    Browne, John.

    Bruton, Richard.

    Callanan, Joe.

    Carey, Pat.

    Carty, John.

    Cassidy, Donie.

    Connaughton, Paul.

    Cooper-Flynn, Beverley.

    Cowen, Brian.

    Crawford, Seymour.

    Cregan, John.

    Cullen, Martin.

    Curran, John.

    Davern, Noel.

    de Valera, Síle.

    Deasy, John.

    Deenihan, Jimmy.

    Dempsey, Tony.

    Dennehy, John.

    Devins, Jimmy.

    Durkan, Bernard J.

    Ellis, John.

    English, Damien.

    Enright, Olwyn.

    Fahey, Frank.

    Finneran, Michael.

    Fleming, Seán.

    Fox, Mildred.

    Gallagher, Pat The Cope.

    Glennon, Jim.

    Grealish, Noel.

    Hanafin, Mary.

    Harney, Mary.

    Haughey, Seán.

    Hayes, Tom.

    Hoctor, Máire.

    Hogan, Phil.

    Jacob, Joe.

    Keaveney, Cecilia.

    Kehoe, Paul.

    Kelleher, Billy.

    Kelly, Peter.

    Kirk, Seamus.

    Kitt, Tom.

    Lenihan, Brian.

    Lenihan, Conor.

    Lowry, Michael.

    McCormack, Pádraic.

    McDowell, Michael.

    McEllistrim, Thomas.

    McGrath, Paul.

    McGuinness, John.

    McHugh, Paddy.

    Martin, Micheál.

    Mitchell, Olivia.

    Moloney, John.

    Moynihan, Michael.

    Mulcahy, Michael.

    Murphy, Gerard.

    Naughten, Denis.

    Neville, Dan.

    Nolan, M.J.

    Ó Cuív, Éamon.

    Ó Fearghaíl, Seán.

    O’Connor, Charlie.

    O’Dea, Willie.

    O’Donnell, Liz.

    O’Donoghue, John.

    O’Donovan, Denis.

    O’Dowd, Fergus.

    O’Flynn, Noel.

    O’Keeffe, Batt.

    O’Keeffe, Jim.

    O’Keeffe, Ned.

    O’Malley, Fiona.

    O’Malley, Tim.

    Parlon, Tom.

    Perry, John.

    Power, Peter.

    Power, Seán.

    Ring, Michael.

    Roche, Dick.

    Sexton, Mae.

    Smith, Brendan.

    Smith, Michael.

    Stanton, David.

    Timmins, Billy.

    Treacy, Noel.

    Twomey, Liam.

    Wallace, Mary.

    Walsh, Joe.

    Woods, Michael.

[873] Níl

    Breen, James.

    Broughan, Thomas P.

    Burton, Joan.

    Connolly, Paudge.

    Costello, Joe.

    Cowley, Jerry.

    Crowe, Seán.

    Cuffe, Ciarán.

    Ferris, Martin.

    Gilmore, Eamon.

    Gogarty, Paul.

    Gormley, John.

    Gregory, Tony.

    Healy, Seamus.

    Higgins, Joe.

    Higgins, Michael D.

    Howlin, Brendan.

    Lynch, Kathleen.

    McGrath, Finian.

    McManus, Liz.

    Morgan, Arthur.

    Murphy, Catherine.

    Ó Caoláin, Caoimhghín.

    O’Shea, Brian.

    O’Sullivan, Jan.

    Pattison, Seamus.

    Penrose, Willie.

    Quinn, Ruairí.

    Rabbitte, Pat.

    Ryan, Seán.

    Shortall, Róisín.

    Stagg, Emmet.

    Upton, Mary.

    Wall, Jack.

Tellers: Tá, Deputies Kitt and Kelleher; Níl, Deputies Stagg and Crowe.

Question declared carried.