Dáil Éireann - Volume 685 - 18 June, 2009
Companies (Amendment) Bill 2009 [ Seanad ] : Second Stage.
Deputy Billy Kelleher Deputy Billy Kelleher
Deputy Billy Kelleher: I move: “That the Bill be now read a Second Time.”
I am pleased to bring the Companies (Amendment) Bill 2009 before the House. This is a targeted and focused Bill which deals with a small number of company law issues that require immediate attention. The Bill arises from recent experiences in the enforcement of company law in the banking sector in particular. In response to these developments, the Government decided earlier this year to introduce a small number of important changes to company law and determined that these should be put into action immediately.
Deputies will be aware that a major project is ongoing to consolidate and reform all existing company law into a single text. Work on this project is well advanced and it is my intention to publish a significant Bill containing some 1,250 sections early next year. However, the Government considered it necessary to implement the focused changes in today’s short Bill in advance of that. I thank Deputies for facilitating the early consideration of this legislation.
The objective of this short Bill is to provide in primary legislation a framework to support the Director of Corporate Enforcement in his efforts to enforce compliance with company law by ensuring he has the range of powers required to support him in this task. It will improve the transparency of loans made by licensed banks to their directors and persons connected with them. In addition, it will amend certain existing provisions relating to Irish-registered non-resident companies to deal with concerns of the European Commission.
In drawing up the amendments contained in this Bill, extensive consultation took place with the Director of Corporate Enforcement. His experience of the operation of company law on the ground and of the issues that arise when conducting investigations of possible breaches of these laws was a source of vital and practical feedback. His advice was that recent experience led him to conclude that company law could be enforced more effectively if a number of targeted legislative amendments were made.
I will elaborate on each of the amendments proposed in the Bill shortly but, in summary, the Bill will improve enforcement of company law through a range of measures that will either clarify or amend existing law. It includes provisions that clarify the right of the Office of the  Director of Corporate Enforcement, ODCE, to access certain company and third party records; it provides for extensions to search warrants granted to the office; it introduces a mechanism, together with appropriate safeguards, for an extended power of seizure so that large volumes of paper or electronic information that may contain relevant material can be removed for later examination; it lightens the evidential burden on the Director of Corporate Enforcement when taking action against companies in default of existing provisions regarding loans to their directors; and it amends existing requirements relating to the disclosure of loans to directors in the annual accounts of licensed banks.
With regard to the last provision, I must point out that while company law governs the disclosure of directors’ loans in the annual accounts and elsewhere, it does not extend to regulating bank lending and other banking activities. This task falls to the Financial Regulator, which is also empowered under the Central Bank Acts to make rules to change conditions attaching to bank licences. I understand the regulator is currently proposing to amend its rules on the disclosure of loans by banks to their directors and connected persons — areas that are at present covered by the Companies Acts. My proposed changes to the Companies Acts take account of the rule-changing powers of the Financial Regulator but do not seek to duplicate its role in determining how best to oversee prudential supervision of the banks.
To put just one of the measures contained in this Bill into a practical context — namely, the mechanism for determining legal professional privilege of records seized during an investigation — I will refer briefly to the ODCE’s experiences during one recent large investigation. This led to a court application, the outcome of which was covered by the media at the time. The company in this case was Anglo Irish Bank, and the ODCE reports that this has been the largest and most complex investigation it has undertaken since it was set up in late 2001. However, Deputies will appreciate that the issue that gave rise to this court case has general application and could be relevant to any large investigation.
The issue in question arose from the fact that during the ODCE’s investigation into Anglo Irish Bank on the bank’s premises, large numbers of documents and computer records were seized by the Garda. Before examining the seized material, the Garda must establish its legal professional privilege status. With this objective, the parties agreed a mechanism for determining such privilege, and on 13 March last the ODCE sought High Court approval for this. While the High Court judge stated that the mechanism proposed was “eminently sensible”, he did not believe that section 23 of the Companies Act 1990 as it stands gave the court statutory authority to outsource a function currently reserved to it. The judge could not therefore approve the proposed mechanism. As I will explain shortly, section 6 of the Bill will give legislative underpinning to an appropriate mechanism which is similar to the one proposed to the High Court.
I will now turn to the provisions of the Bill and explain what each is designed to achieve. Section 2 is a provision affecting the generality of companies and not simply the small number of companies that hold banking licences issued by the Irish Financial Regulator. Subject to certain restrictions, existing company law allows a director legitimately to have a private interest in contracts or proposed contracts with his company. However, he must declare any such interests to his fellow board members. Failure to do so could make him liable for a fine and oblige him to account to the company for any profits he has gained. The company is obliged to keep a record of directors’ declarations of interests in a book that is kept for this purpose. The amendment being proposed in section 2 will give the Director of Corporate Enforcement a specific right of access to this book. It will also provide a sanction in any case  in which a company fails to allow the director to access this information. This will assist in enforcing compliance with the provisions of the Companies Acts.
Sections 3 and 4 are linked and deal with the powers of the Director of Corporate Enforcement to require the production of records from a third party where these records relate to a company under investigation. This power is vital to the director when he is investigating companies whose books are incomplete, for whatever reason. The third party might typically be a director, auditor or employee of the company being investigated. However, it may be the case that other individuals possess relevant documentation and, if so, this provision could be relevant to them.
The right of the Director of Corporate Enforcement to access third party records has been already provided through section 19(3) of the Companies Act 1990 and the director has informed me that he has already used it successfully in a number of cases. However, he has requested that the provision be reworded to provide greater clarity and to avoid doubt in the future about what records can be sought from third parties. For the avoidance of doubt, the Bill stipulates that the clarification being introduced here will not invalidate any previous requests for access to third party records. This is important for the continuity of any ongoing investigations that rely on material discovered through the use of the existing powers.
Section 5 is another provision with general application. It deals with the entry and search of premises by the director or authorised officers of the Office of Director of Corporate Enforcement on foot of a search warrant issued by a judge of the District Court. At present, the Companies Act 1990 provides a limit of one month on the lifetime of such warrants. While this will be sufficient in some investigations, it may not allow sufficient time to conduct large and complex searches or where substantial amounts of information are contained in electronic format.
The amendments in the Bill provide for situations where an extension of the period of a search warrant can be sought from and granted by the court. This will allow the court to take account of the grounds given for seeking an extension and to use its discretion in deciding whether to allow the extension. This section of the Bill also makes provision for the removal of paper and electronic information from premises being searched, for subsequent examination elsewhere, to determine their relevance to the matters under investigation. This is referred to in the Bill as “extended power of seizure”. Appropriate detailed safeguards are also provided in the Bill to ensure this extended power is only used when appropriate.
For example, the Bill stipulates the issues that should be taken into account by the director in deciding whether it is reasonably practicable to determine the relevance of something on the company’s premises. It also provides for the arrangements he or she must put in place before the extended power of seizure can be used. These include the maintenance of confidentiality of seized information and granting the owner reasonable access to it. The Bill also provides for arrangements to be adopted in cases where the director considers it necessary to avoid possible concealment, falsification, destruction or disposal of relevant material.
The Bill as originally published required the director to deal as expeditiously as possible with the material seized and to return any material that proves not to be relevant to the owner as soon as possible. No specific timeframes were included on the basis that the Office of the Director of Corporate Enforcement fully intends to return any such records to their owners as quickly as possible. Furthermore, the Bill already included ministerial regulation-making powers that could be used to impose timeframes at a later date if this were found to be necessary.
 However, having considered this matter further and also taking account of the debate in the Seanad, the Tánaiste and I decided to strengthen the safeguards in this section by including prescribed timeframes within which determinations and separations of immaterial information must be made. Our Seanad-approved amendment also introduces a mechanism where the parties can apply to court, before the expiry of the prescribed time limits, seeking a direction on various issues. These are outlined in the new subsection 2G which is being inserted into section 20 of the Companies Act 1990 and provide maximum flexibility to the court in the directions it can give.
For example, the direction might result in a lengthening or shortening of the time available to the Office of the Director of Corporate Enforcement to conduct its determination. It might compel the office to alter the arrangements it has put in place on foot of its new powers of extended seizure and even require it to return seized material to its owner. The court direction could also, if it deemed appropriate, provide that the Office of the Director of Corporate Enforcement could retake possession of such returned material at a specified subsequent period. The amendment also includes an ability for the court to hear matters other than in public. This could be particularly important when the content of confidential company information is being discussed. In drafting the Bill, every effort was made to provide for all situations that might arise during the course of an extended search. However, should any new or unforeseen issue arise, the Minister for Enterprise, Trade and Employment is being empowered to make appropriate regulations.
Section 6 makes several amendments to section 23 of the Companies Act 1990 which at present protects a person from having to disclose certain information under Part II of that Act. The protected information in question is that which, in the opinion of the court, the person would be entitled to refuse to disclose on grounds of legal professional privilege. While the 1990 Act allowed for a blanket prohibition on the seizure of such material, the Director of Corporate Enforcement reports there are sometimes difficulties in deciding during a search whether privilege pertains to specific documents. The situation becomes even more problematic given the prevalence of electronic data storage. A legal solution is necessary which recognises the inevitability of legal privileged data being mixed up with information not enjoying that privilege.
The arrangement provided for in this Bill will permit the seizure of information, whether privileged or not, on a sealed basis. It will then be a matter for the court to decide on matters relating to privilege. Application to the court for such a ruling must be made by an officer of the Office of the Director of Corporate Enforcement or a court appointed inspector. It may also be made by any person from whom disclosure is compelled or material taken. The amendments also provide for the introduction of a mechanism where the court can be assisted by the appointment of an independent person with suitable legal qualification to examine the information and prepare a report with a view to assisting or facilitating the court in making its determination. This amendment addresses the concerns expressed by the High Court during the hearing on 13 March 2009 to which I referred earlier. To preserve confidentiality of sensitive information, the Bill provides that the court hearing can be held otherwise than in public.
Section 7 relates to the important provisions contained in section 31 of the Companies Act 1990. The section prohibits companies from making loans to their directors other than in certain defined circumstances. This limitation on the personal use of a company’s assets by directors and persons connected with those directors is to ensure the company has the available resources to pay its creditors as their debts fall due. This prohibition is an important safeguard in company law and is applicable to all 180,000 companies incorporated in Ireland. For this reason, breaches  of the provisions have been a particular focus of the work of the Office of the Director of Corporate Enforcement since it was established in late 2001.
Concerns were expressed that the success in prosecuting offending directors or companies might be affected by the current wording of section 40 of the Companies Act 1990, which puts an onus on the Director of Corporate Enforcement to prove a company director was aware that he or she was in default of the company law prohibition on loans to directors. Section 7 of the Bill, therefore, substitutes section 40 of the Companies Act 1990, which sets out the penalty for breaches of section 31 of that Act. The substituted provision will provide, in future, that if a company enters into a transaction or arrangement that contravenes section 31, every officer of the company who is in default will be guilty of an offence. This aligns the offence with numerous similar offences under the Companies Act, and replaces the existing requirement for a successful prosecution to prove wilful default. It also preserves a mechanism whereby an accused officer can defend his or her actions in appropriate circumstances.
Section 8 amends sections 41 and 43 of the Companies Act 1990 and deals with the disclosure in the annual accounts of loans, that is, transactions, arrangements or agreements, made by a company to its directors and to persons connected with them. To remove any doubt, the amendments include appropriate penalties for failure to disclose such loans and defences that can be made. Section 8 also makes amendments that relate solely to companies that are licensed banks. As section 9 also deals with this subject, I will address both sections together.
In providing for a disclosure regime for company loans to their directors and to those connected with them, the Companies Act 1990 treated companies that are licensed banks differently from the generality of companies. This different disclosure regime took account of the fact that lending is part of the day-to-day operations of a banking company and, unlike most other companies, the business of the banking sector was regulated and supervised. While most companies must disclose in their annual accounts details of loans to their directors on an individual named basis, the accounts of companies licensed as banks require a lesser degree of disclosure. Specifically, the banking company’s accounts can disclose such data in aggregate format and only include information on amounts outstanding at the end of the financial year. The banking company disclosure requirement is supplemented by a requirement to keep a register of relevant loans, details of which must be disclosed to shareholders in advance of the bank’s annual general meeting.
This Bill amends the disclosure requirements for banks in several ways. In future, loans to directors of companies that are licensed banks will be treated in the same way as non-banking companies. Specifically, all loans above a de minimis threshold to each individual named director must be disclosed separately in the annual accounts, as opposed to in aggregate format. The maximum amount outstanding during the year will also be disclosed, not simply the amount outstanding at the end of the financial year.
In so far as connected persons are concerned, the Bill provides for additional disclosure, but this is not as detailed as is required for directors. It retains the existing aggregate disclosure of favourable loans in the case of connected persons, but provides that the maximum amount outstanding during the year must also be disclosed. The Bill recognises that licensed banks may be required to make more detailed disclosures in their accounts under rules, directions or requirements imposed by the Financial Regulator.
The Bill retains the requirement for a statutory register because of its value as a source of up-to-date data on current loans, but provides that information that will be required to be published in the accounts — as a result of the Bill or other requirement, such as the Financial Regulator’s rules — need not also appear on the pre-AGM statement. The Bill provides a  specific right of access for the Director of Corporate Enforcement to the statutory register of loans to directors and connected persons, so that he or she can take enforcement action if necessary.
Section 10 amends sections 43 and 44 of the Companies (Amendment)(No.2) Act 1999 in order to meet the concerns of the European Commission that certain elements of the current provisions are not compatible with the EC Treaty. A company law amendment introduced in 1999 sought to deal with Irish-registered companies that were controlled and managed from abroad and were treated as non-resident for tax purposes. The 1999 Act required an Irish-registered company to have a director resident in the State or, alternatively, through a process involving the Revenue Commissioners and the Companies Registration Office, to show that it has a real and continuous link with economic activity being carried on in the State. The amendment proposed in the Bill replaces the necessity to have at least one Irish resident-director with a requirement that one director must be resident in the European Economic Area.
The Government is committed to supporting the work of the Office of the Director of Corporate Enforcement in every possible way, including through the provision of appropriate statutory powers and resources to the office. The Government’s objective in proposing these legislative changes to the Oireachtas is twofold. First, as we observed recent events unfold in the banking sector, the Tánaiste and I were anxious to ensure the Office of the Director of Corporate Enforcement has available to it an up-to-date suite of enforcement powers that are fit for purpose. Second, we wish to ensure, from a business perspective, that our body of company law is relevant, transparent and proportionate both as regards the facilitation of the conduct of business in Ireland and as regards good governance and penalties. Having a strong, transparent and proportionate legal framework is critical to our competitiveness and to our international reputation as a place in which to invest and conduct business. I look forward to hearing Members’ views in what I hope will be a wide-ranging debate. I commend the Bill to the House.
Deputy Leo Varadkar Deputy Leo Varadkar
Deputy Leo Varadkar: Fine Gael will be supporting the Bill and will be happy to co-operate with its speedy passage through the House. The Bill is relevant to certain investigations that are under way and it is important that the House should co-operate in the context of ensuring that those investigations are carried out to the fullest extent possible. We will, however, be tabling a number of amendments on Committee Stage and I hope the Tánaiste will look favourably on them.
The Bill is a response to a series of corporate and banking scandals which have damaged both the economy and the reputation of the State. I refer, for example, to the scandal involving loans to the directors of Anglo Irish Bank, the activities of Mr. Fingleton at the Irish Nationwide Building Society, the passage of moneys between Irish Life & Permanent and Anglo Irish Bank and, previously, the overcharging and tax evasion engaged in by some of the larger banks.
It might not have been necessary to introduce this Bill if such a lax approach had not been taken to financial regulation and if the Government had not been so soft on corporate crime. If one consults the Official Report, it is interesting to note the number of occasions on which Members on this side — including the current Minister of State at the Department of Agriculture, Forestry and Food, Deputy Trevor Sargent, who was then in opposition — raised the issue of the under-resourcing of the Office of the Director of Corporate Enforcement, ODCE. The response of the then Taoiseach was that the Director of Corporate Enforcement would be obliged to wait his turn to obtain additional staff. It is regrettable that such an attitude was adopted by the former Taoiseach and the Government.
 Another matter of interest is the delay in the introduction of the company law (consolidation) Bill, which has been promised for a long period. We understand, from the output statement issued yesterday, that it is hoped to publish the Bill next year. The Tánaiste has abandoned her target of having it enacted in 2010. I accept that this legislation is complicated and that, like the Taxes (Consolidation) Act, it will be a massive measure. It is, therefore, important that we get it right. However, I do not believe that we should accept the excuse put forward by the Tánaiste that any amendments to the Bill before us should wait until the company law (consolidation) Bill is brought forward. In light of her record, it is likely that the latter will not be enacted until 2011 or 2012. My party will not accept being told that we must wait two years before important amendments are made.
The Companies (Amendment) Bill 2009 builds on the Company Law Enforcement Act 2001. As the Minister of State indicated, it deals with three broad issues, namely, improving the transparency of loans made by companies that are licensed banks to directors and persons connected to them, supporting the Director of Corporate Enforcement in his efforts to enforce compliance with company law — regardless of whether the company being investigated is a bank — and amending existing provisions relating to Irish-registered non-resident companies to meet European Commission concerns. The latter relates to allowing company directors to be resident in EEA states and not just necessarily resident in the Republic of Ireland.
The Bill provides that companies which are licensed banks must in future disclose in their annual accounts prescribed details of all loans above a de minimis threshold made by their directors. This disclosure will be on the same basis which already applies in respect of non-banking companies. There will also be a disclosure regime for persons connected to those directors but this will not be as detailed as that which will apply in respect of the latter. Essentially, we will continue to be presented with aggregate figures in respect of favourable loans given to connected persons. The Bill also provides that the maximum amount outstanding during any given year will also have to be disclosed.
I am not satisfied with section 41(6) of the Companies Act 1990, which deals with the matters to which I refer, and I intend to bring forward an amendment to it on Committee Stage. Under the Bill as it stands, the loans that were taken out by Seán Fitzpatrick would have to be disclosed. However, preferential loans given to wives, girlfriends, husbands, boyfriends and other people connected to directors would not have to be disclosed. All that will be provided is an aggregate figure in respect of all the loans given to connected persons. As a result, we will not be in a position to know how many such loans were given, the identity of those to whom they were extended, the amounts involved or the level of repayments made. The legislation represents an advance on the existing law. However, it is unacceptable that we should allow the practices that occurred in the past to continue under the guise that they will relate to connected persons. In light of its experience regarding personal finances being routed through the bank accounts of wives and girlfriends, the main party opposite should know better when it comes to an issue of this nature.
The Bill also strengthens the enforcement of company law by making it an offence for companies, including banks and their directors, not to comply with the disclosure provisions in the Companies Act regarding loans, etc., to directors and connected persons and the material interest of such directors in company contracts. It clarifies and provides a specific right of access for the ODCE to the statutory register of directors’ interests in contracts made to a company. Furthermore, it modifies the evidential requirement of the ODCE when pursuing alleged breaches of company law rules in respect of company loans to directors. In future, the ODCE will not, therefore, be obliged to prove willful default in order to secure a successful prosecution. That is a major development.
 The Bill clarifies the right of the ODCE to access third party records in respect of companies under investigation. It also modifies the provisions of the Companies Act 1990 relating to entry and search of premises by the ODCE. In this regard, the Bill does not amend the provisions in the context of vehicles associated with a business. Given that this matter has been an issue in cases involving the Competition Authority, is there not a case for considering such an amendment?
The Bill also provides for situations where the extension of the period of a search warrant can be sought from and granted by a court. Furthermore, it makes provision for the removal of paper and electronic information, from premises being searched, for subsequent examination elsewhere in order to determine their veracity.
I support these various amendments to the company law. However, I am somewhat concerned with regard to the liability that will be imposed on directors in the context that they will be held collectively as well as severally responsible. This provision is quite far-reaching and non-executive or worker directors might be prosecuted in respect of decisions to which they were not party. However, the Bill makes provision for directors, should they be prosecuted, to enter a reasonable defence. I will not be proposing specific amendments to the relevant section but I wish to place on record my concern that this matter might be the subject of a court case in the future. Should a judge ever be obliged to hear such a case, it is important that the Oireachtas should state that it is not the intention to hold worker or non-executive directors liable for decisions to which they were not party.
I will be tabling an amendment in respect of extending the remit of the ODCE to investigate mutual societies and credit unions. I may be wrong but I understand the ODCE does not have the power to investigate mutual societies, such as Irish Nationwide, or credit unions in the way it has the power to investigate banks. We are all concerned with regard to what has been happening in some credit unions and building societies. In such circumstances, Fine Gael will not accept being told that we must wait for the enactment of the company law (consolidation) Bill before the power to which I refer is extended to the ODCE.
By and large, we welcome the Bill, which represents progress and improves existing company law legislation. However, we will be putting forward amendments in respect of the matters to which I refer. I hope the Tánaiste will give them favourable consideration.
Deputy Willie Penrose Deputy Willie Penrose
Deputy Willie Penrose: I welcome the opportunity to contribute to the debate on this important legislation, the general thrust of which the Labour Party broadly supports. As Deputy Varadkar and the Minister of State indicated, the Bill deals with three main issues relating to aspects of corporate governance and corporate law in general. Everyone is aware of the events which necessitated its introduction.
When enacted, the Bill will improve the transparency relating to loans made by companies that are licensed banks to directors and to persons connected to them. That was an area which had a less vigorous application of corporate governance as against what applied to the 180,000 limited companies across the country. It supports the Office of the Director of Corporate Enforcement, ODCE, in its efforts to enforce compliance with company law, regardless of whether the company being investigated is a bank. The third point is that it amends some existing provisions relating to Irish-registered non-resident companies, to meet concerns expressed by the European Commission in this area, and in particular the view that the current companies code is not compatible with the EC treaty.
The requirement that at least one director of a company must be resident in a state has been changed to require residence in a member state of the European Economic Area. We are  acutely aware of the background as to why this Bill is necessary and why this aspect of company law must be modified and amended so that compliance with company law can be enforced more effectively, and to facilitate any possible breaches of company law being investigated more effectively, rigorously and efficiently. There is no doubt that the Bill, when enacted, will greatly improve the overall enforcement of compliance with company law. The ODCE will now have a statutory right to access certain company and third party records. This permits applications for extensions to search warrants which have been obtained by the director’s office. The ODCE, as permitted under the legislation, will be able to seize large volumes of paper or electronic information that might contain significant relevant material for subsequent examination. I am concerned that the appropriate safeguards should be put in place.
We are all aware, from recent knowledge acquired, of the significant volume of records seized by the Garda Síochána as part of the ODCE’s investigation of Anglo Irish Bank. Notwithstanding broad agreement being arrived at by the relevant parties as to how it might be decided, on the question of legal and professional privilege, where this might arise in respect of seized material, the High Court judge, correctly in my view, decided that section 23 of the Companies Act 1990 did not permit the outsourcing of function — which is exclusively within the High Court’s remit — to determine the question as to whether particular information is privileged legal material. If a large volume of material is seized, how may it be determined what is relevant? I appreciate there are separation measures and so forth, but there are issues there about which I am concerned.
Will this be a widescale power to seize everything on sight and will there be no regulation? There are issues as to how material may be separated in the legislation. However, I always worry lest in our rush to give effect to a particular law that we go beyond what is required, and I have grave concerns in this area. Legal professional privilege applies to communications emanating from legal advice and litigation and it protects the confidentiality of the relationship between a lawyer and his or her client. This is a substantive right and such communications are important in the context of a fair trial, as specified under Article 6 of the European Convention of Human Rights. Thus, there are clearly public policy justifications for invoking same. In effect, we have a balancing of all the interests concerned, but the Minister in this Bill, by way of section 6, has amended section 23 of the Companies Act 1990 and in effect, has elevated the principle of the public interest in these circumstances to have the material made available as outweighing expectations that confidentiality will be reserved.
There is an important issue regarding intermixing of the information or data, some of which would attract legal privilege, while others which will clearly not. An officer on the spot does not enjoy the luxury of making an instant evaluation of what is privileged or not, nor should he or she do so. It now seems to be possible to seize all information, but only on what is termed a “sealed basis”. What triggers this, however? How will an officer on the ground be in a position to determine what material is relevant? What triggers the point where he or she, on the spot, decides what particular information should be seized? What will trigger the sealing of that information? Those are all practical issues which may well lead to a judicial determination in due course, but there will have to be some subjective basis for doing this. One cannot have somebody, willy-nilly, seizing all and sundry on a premises. I do not believe that is the intention of the legislation and I should like more clarification on those aspects.
Some information is in contemplation of legal proceedings. Mr. Justice O’Hanlon set out the issues involved in the Silverhill Duckling case. The Smurfit Paribas case also set out the issues involved. I should like to know somewhat more about this area and clarification should be forthcoming as to what allows an investigating officer to invoke this clause. I must emphasise, as a barrister, that legal professional privilege is extremely important. I know it can be set aside  if used to procure fraud or where criminal activity is involved, and rightly so. However, it has an elevated status akin to sacerdotal privilege and I am concerned lest the baby be thrown out with the bathwater in this regard.
The legislation provides for such intervention only on a “sealed basis”, where the contents remain confidential. The Supreme Court, in the case of Smurfit Paribas v. A.A.B. Export Finance, 1990, on the question of whether a party to a litigation was entitled to claim privilege to refuse to produce particular evidence, ruled that this was a matter within the sole competence of the courts. That is why the Minister has made this provision. It is clearly for the courts to decide which is the superior interest in the circumstances of a particular case and to determine the matter of privilege and disclosure accordingly.
Section 6 provides that the application of the court for such a ruling must be made by an officer of the ODCE or a court appointed inspector, or by any person from whom the disclosure is compelled or the material is taken. It is a two-way street, in effect, as regards the investigating officer or a court appointed inspector. The court appointed inspector method has been quite widely used in relation to the bank cases, as referred to by Deputy Varadkar.
Section 2 is applicable to companies in general and is related to the declaration of interests, such as an interest in contracts or proposed contracts with the company. That is important and is a useful provision. The company is obliged to keep a record of directors’ declarations of interests in a book kept specifically for this purpose. The ODCE will now have a specific right of access to this book and a sanction will apply if such access is denied to the director. That is a sensible provision.
Sections 3 and 4 enables the Director of Corporate Enforcement to require the production of records from a third party where those records relate to a company under investigation. It appears that anybody who might appear to have details in his or her possession, such as records or documents, whether a director or auditor, can be answerable in this regard. How is that determined? Has a further inquiry to be carried out in this regard? This appears to reiterate what has already been provided in section 19(3) of the 1990 Act. Section 4(2) is what may be termed the “belt and braces” provision, which retrospectively validates any acts done or steps taken in the course of an investigation that are already taking place or have been completed which sought access to third party records. Basically, the legislation is ensuring that the investigations are already up and running. I can see why there is need for such a belt and braces approach because it is clear that this would be open to a lawyer’s inspection. I can see where the Minister is coming from in that regard.
Section 5 is what is commonly termed the “entry and search” provision. It is of general application, while there may well be a specific purpose to be achieved. It allows for an extension to be sought from the District Court in respect of the limit of one month which applies under the 1990 Act in respect of warrants. The District Court is enabled to take account of the grounds given for seeking extension and to use its discretion in deciding whether to allow the extension as sought by the director.
There is a reference to an extended power of seizure and I have some concerns on this section. I am not in favour of the Minister being able to make regulations to deal with unanticipated situations which are not foreseen now. I do not subscribe to this mechanism of making law and it should be used very sparingly, if at all. A virtually untrammelled power of seizure, which is an infringement of confidence, particularly in respect of confidentiality of information and material, is being invoked. I would be very careful. I am approaching this from a barrister’s perspective, because I read it carefully last night and I may well have misinterpreted it, but I have concerns.
 I do not like the Minister having power. He devolved to himself the power to make regulations to deal with those unanticipated situations. Why would he make regulations? I like to think we would debate it here in the Oireachtas. If I have a wrong view or perception of what is involved, so be it. At least we can thrash it out. As Deputy Varadkar says, very often in statutory interpretation there are schematic reports, a teleological approach, a literal report and all sorts of approaches to interpretation of legislation. However, a judge can very often resort to what is discussed here on Second Stage to help him or her divine the particular intentions of the Oireachtas when it enacts legislation. I hold this dear and cherish it. Every one of the 166 representatives here and the 60 in the Upper House should cherish this because we are the ultimate arbiters and makers of legislation. I have always been against secondary legislation and the laying of things before the Oireachtas without discussion, and the Minister of State, Deputy Kelleher probably knows this. Any committee Chairman will know I always advocate and articulate that view so it is not new and is not due to this legislation.
Section 8 amends sections 41 and 43 of the Companies Act 1990 and deals with the disclosure of companies’ annual accounts of loans and transactional arrangements made by a company to its directors and persons connected with them. It includes penalty provisions for failure to disclose details of such loan arrangements and, quite rightly, provides for defences that can be made. Deputy Varadkar made a point that I have in my notes, namely, what about the non-executive directors and worker directors in various companies.
Thankfully we have worker directors now and many of them have made very significant impacts. One of my colleagues, former councillor Mark Nugent, is vice-chairman of Bord na Móna and made an invaluable contribution in that area. Those people who may not be associated with any particular decision, particularly worker directors who are elected by their work mates, will not be involved in those loans. It appears to lay liability with everybody in relation to any decision that was taken. How will the liability of non-executive directors or worker directors be determined? They have a different role. I concur with Deputy Varadkar’s view on this.
The Companies Act 1990 treated companies that are licensed banks differently from other companies, as the Minister said in his speech, in so far as the banks were not compelled to make the same level of disclosures in their annual accounts. From here on, future loans to directors of companies that are licensed banks will be treated in the same way as non-banking companies. From here on, all loans above €3,174.35, to each individual director will have to be disclosed in the annual accounts, as opposed to an aggregate format. Is that equivalent to £2,500? Yes. I had no time last night at 11 p.m. to calculate it. I wish the Minister had put £2,500 in brackets in the Bill. The Minister might as well have set a figure of zero as £2,500. It would be a very foolish director who would get only £2,400 because it would not be worthwhile making an application. The maximum amount that is outstanding at any time in the financial year will have to be disclosed.
There is a very good reason for that. I heard several people, including the Minister of State and Chief Whip, Deputy Pat Carey, on a radio programme, who were perplexed at the amount that was outstanding at one time of the year and when the end of the year came, very little was outstanding. This legislation will deal with that aspect and will avoid questions which leave a person mouth open, wondering and in awe. That has been dealt with.
The Director of Corporate Enforcement will have a right of access to the statutory register of loans made to directors and connected persons, and will be able to take appropriate enforcement action if it is not forthcoming. Deputy Varadkar mentioned the definition of connected persons, such as wives and partners. I am not as caught up about that as him. I was on the finance committee when it dealt with all the great legislation in the Ethics in Public Office Bill.  Former Deputy Ger Connolly was a very wise man. One should always listen to wisdom, especially when one is young, not necessarily in years but in terms of having been recently elected.
How far does this stretch? We stand for elections. Our wives, partners, daughters, sons, uncles or mothers do not stand. They would all be classified as connected persons, and the Minister would accept that. I understand what Deputy Varadkar is saying, that a loan could be taken in the name of Anne Penrose, rather than Willie Penrose. It would not be so handy because other legislation governs it now, but I can see why the connected person is not as widely defined in this legislation as Deputy Varadkar referred to. I understand the reasoning behind it. We must all treat people as individuals. Loans to people will appear in accounts and will be registered on the register of loans.
While I accept what Deputy Varadkar is saying and I know where he is coming from, I remember that legislation where there was an invasion of everybody’s rights on the basis that they were connected persons. There is no end to it. It could extend to my cousin or second cousin. How far does one stretch to this connected person? I have a view on this. I ran for election and it is fine if somebody takes a picture of me, but I have a concern about people taking a picture of my wife, children or anybody else who did not stand for election or have anything to do with it.
Section 10 amends sections 43 and 44 of the Companies (Amendment)(No. 2) Act 1999 to ensure compatibility of a company law provision with the EC treaty. The 1999 Act required a company that wished to register in Ireland to have a direct resident in the State or show it had a real and continuous link with economic activity that was being carried on in the State. This section will provide that one director of such a company must be resident in the European Economic Area. As I said at the outset, the Labour Party broadly welcomes the thrust of the Bill but there are issues, which I have set out here, that give one food for thought. Some of the provisions in the legislation, when enacted, must be used sparingly and as a matter of last resort, especially the extended power of seizure.
I would like the Office of Corporate Enforcement to lay a report before the Oireachtas annually setting out how often the Director of Corporate Enforcement has to resort to the use of certain provisions of this Bill as part of the investigative work, especially the use of sections 5 and 6 of this legislation. That would be useful information for Members and the wider interest in this. I look forward to facilitating this. Next Thursday we have Committee Stage. The Minister is obviously very eager to progress this Bill and we will not obstruct it. I made my points in a constructive fashion with no view to inhibit the Bill in any way. I know Mr. Paul Appleby and his staff very well. They are working very hard and carrying out excellent work on behalf of the country. Corporate governance is very important to our competitiveness and making Ireland attractive internationally as a place to do business.
In the next 12 to 18 months, I look forward to facilitating the company law consolidation and reform Bill. Deputy Varadkar is correct that it will take time given that it will contain almost 1,300 provisions. The sooner it becomes law, the better. It will be important for the public who will use it, and certainly for company directors and entrepreneurs. I appreciate that it is a mammoth task.
The Minister of State might need to get additional external help to achieve the time target. We will certainly help in that regard. If we need to establish a sub-committee of the Oireachtas Joint Committee on Enterprise, Trade and Employment, we would facilitate that in order to  ensure that the legislation can appear on the Statute Book as quickly as possible. We look forward to playing a constructive role in ensuring this legislation is passed as quickly as possible.
Dáil Éireann 685 Companies (Amendment) Bill 2009 [ Seanad ] : Second Stage.