Seanad Éireann - Volume 167 - 26 June, 2001
Company Law Enforcement Bill, 2000: Second Stage.
Question proposed: “That the Bill be now read a Second Time.”
Mr. Molloy Mr. Molloy
Minister of State at the Department of the Environment and Local Government (Mr. Molloy): I am very pleased to be given the opportunity to bring this Bill before the House on behalf of the Tánaiste and Minister for Enterprise, Trade and Employment. Enactment of the Company Law Enforcement Bill, 2000, will represent a landmark in the Government's drive to combat corporate crime and malpractice and should help restore public confidence in the manner in which business is conducted in Ireland. Revelations that have emerged from the various tribunals of inquiry established by the Government and from investigations under the Companies Acts initiated by the Tánaiste provide clear evidence that many people in business have an entirely insufficient regard for the requirements of company law.
The main provisions of the Bill flow directly from the recommendations in the report of the working group on company law compliance and enforcement, which was published in March 1999. The working group's report confirmed many of the worst fears as to the state of corporate governance in Ireland. It concluded that company law was greatly underenforced and that those who sought to deliberately subvert the system of company regulation had little reason to fear that they might be apprehended and punished. In regard to companies' statutory obligations to file returns with the Companies Registration Office,  available data suggested a culture of widespread non-compliance and disregard for the law.
The working group made a number of substantive recommendations aimed at combating the culture of non-compliance. Most importantly, it recommended the establishment of an independent statutory officer, to be known as the Director of Corporate Enforcement, who would have general responsibility for the enforcement of company law in Ireland. The group recommended that the director be resourced with legal, accountancy, investigative and administrative expertise to investigate and prosecute offences under the Companies Acts. The establishment of the Office of the Director of Corporate Enforcement with the necessary powers and resources is seen as the best way to ensure the enforcement of company law on a consistent and independent basis.
The Company Law Enforcement Bill provides a range of powers for the director of corporate enforcement to support the performance of the functions assigned to him under the Bill. The director will have the function of investigating suspected offences under the Companies Acts and will assume the powers that are currently exercised by the Minister for Enterprise, Trade and Employment in relation to company investigations. The director will be given power to prosecute offences under the Companies Acts by way of summary proceedings and to refer cases for prosecution on indictment to the Director of Public Prosecutions. The director will be given the power to apply to the High Court for injunctions restraining companies or their officers from continuing to breach the Companies Acts, where the director can establish the breach to the satisfaction of the court. This will allow the director to take immediate action to prevent ongoing breaches of company law and, by so doing, protect the interests of creditors and others whose rights may be affected by such breaches.
The director will have the power to apply to the High Court for orders for the restriction or disqualification of company directors and other officers, where the conduct of the persons concerned in the management of companies warrants such action. This will prevent unscrupulous persons from continuing to use the vehicle of limited liability companies for reckless or illegal purposes to the detriment of their creditors and others.
The Bill also makes important changes to the arrangements for the filing of statutory returns with the Registrar of Companies. The registrar plays an important part in the ongoing supervision of companies' compliance with their statutory filing obligations under the Companies Acts. In recent years the registrar has made great strides in the enforcement of filing obligations. However, this work has been hampered by the absence of a satisfactory and enforceable system for determining the precise date in each year when a company is required to file its annual return. The Bill provides a remedy for this problem through the introduction of the concept of an  annual return date specific to each company which will be used to calculate the exact date by which the company must file its annual return. This measure should provide a more transparent and enforceable regime for the filing of annual returns.
In addition to its recommendations in the area of ongoing company law enforcement, the working group recommended the establishment of a company law review group to advise the Minister on all matters relating to the implementation, amendment and consolidation of company law in Ireland. The establishment of such a group will ensure that the Companies Acts are kept under continual review with a view to maintaining a first class system of company law in the State. This will facilitate the operation of companies already established here and serve to attract more international companies to locate here.
The Bill provides for the establishment of such a company law review group on a statutory basis. In anticipation of the legislation, and in order to allow the review group to commence its work as quickly as possible, the Minister established the group on a non-statutory basis in February last year under the chairmanship of Mr. Tom Courtney, solicitor, and one of the country's most eminent experts in company law. The membership of the group combines company law experts and members of representative bodies to give the Minister the best possible advice on the ongoing refinement of the Companies Acts.
On the detail of the Bill, I propose to highlight some of the more important provisions of the Bill, and particularly to highlight some of the more significant changes made to it in its passage through the Dáil. Part 2 provides for the establishment of the Director of Corporate Enforcement, the appointment, terms and conditions of service of the director and the arrangements for reporting by the director to both the Minister and the Oireachtas.
Section 7 provides, among other things, that the director shall be appointed following the holding of a competition by the Civil Service Commissioners. In this regard, the Civil Service Commissioners have selected a person for appointment as director-designate on the basis that the person concerned will be appointed as Director of Corporate Enforcement following enactment of this Bill. Mr. Paul Appleby of the Department of Enterprise, Trade and Employment has been selected as director-designate. Mr. Appleby has extensive experience of the company law area and has been closely involved with company investigations being undertaken under Part 2 of the Companies Act, 1990.
Section 12 sets out the general functions of the Director of Corporate Enforcement. These include enforcing and encouraging compliance with the Companies Acts and investigating suspected offences under the Acts. The director is also given a general supervisory role in respect of liquidators and receivers. The section expressly  provides that the director will be independent in the performance of his functions.
Section 16 sets out the director's reporting requirements. The director will be required to produce an annual report of his activities as well as being required to appear before committees of the Oireachtas to account for the overall performance of his or her functions subject to the proviso that this reporting and accountability should not prejudice the performance by the director of any of his or her functions.
This section was amended in the Dáil to assuage Members' concerns that following the establishment of the director the Oireachtas might have access to less information concerning company investigations than it has currently. Significantly, the provision at section 16(5) in the Bill, as initiated, whereby the director was exempted from the provisions of the Committees of the Oireachtas Compellability (Privileges and Immunities of Witnesses) Act, 1997, has been removed. Through this amendment, and a further amendment later in the Bill, the director will be required to attend before a committee with compellability powers and to provide relevant documentation.
Part 3 of the Bill relates to the function of the Director of Corporate Enforcement of investigating suspected offences under the Companies Acts. Section 28 of the Bill is a new section introduced during Dáil Committee Stage. It provides for the amendment of section 18 of the Companies Act, 1990, which deals with the admissibility in evidence of statements required to be made by persons pursuant to various provisions of the Companies Acts. Section 28 reflects judgments both of the Supreme Court and the European Court of Human Rights in relation to a person's privilege against self-incrimination. Section 28 now provides that statements made by persons under compulsion may not subsequently be used against them in criminal proceedings. Similar provisions have been provided for in sections 29, 44 and 49 of the Bill.
Section 29 repeals and replaces section 19 of the Companies Act, 1990. Section 19 provides for the examination of a company's books and documents. The replacement section 19 will give further scope to the Director of Corporate Enforcement to examine books and documents, including, in specific circumstances, the private papers of an individual whom the director believes to have documentation relevant to the books and documents of a company under investigation. This latter provision was introduced during the passage of the Bill through the Dáil. Section 29 also introduces a new provision whereby a person who knowingly conceals, destroys or falsifies documentary evidence relating to an investigation of an offence under the Companies Acts is guilty of an offence.
Section 31 amends section 21 of the Companies Act, 1990, which provides for the persons to whom, and the reasons for which, confidential information obtained under sections 19 and 20 of  that Act may be disclosed. This section has been significantly amended arising from contributions of Members during Dáil Committee Stage. It now provides for disclosure of information by the director both to the Competition Authority and to a committee of the Oireachtas that has been granted powers under the Committees of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act, 1997.
Section 34 is a new section introduced during Committee Stage in the Dáil. It provides for the continued exercise by the Minister or an authorised officer of powers under section 19 of the Companies Act, 1990, in respect of particular companies, notwithstanding the transfer to the Director of Corporate Enforcement of the relevant powers. This is to allow the completion by the currently appointed authorised officer of certain examinations of books and documents that are at an advanced stage.
Part 4 of the Bill relates to the power of the court to order the restriction or disqualification of persons from acting as company directors or other officers or being involved in any way in the promotion, formation or management of companies. The powers to restrict and disqualify persons are central to maintaining the integrity of the system of company regulation.
Part 5 of the Bill contains provisions relating to the winding up of companies and, in particular, those companies that are wound up insolvent. The provisions of this Part are aimed at addressing the so-called “phoenix syndrome”, whereby companies go out of business leaving debts unpaid and their members or directors immediately start up new companies without having to account for their previous failures and debts. This greatly undermines confidence in the system of company law and is one of the issues that the Director of Corporate Enforcement must seek to address urgently.
The director is given a range of powers in this Part of the Bill to intervene in company liquidations to ensure that persons responsible, through recklessness or otherwise, for company failures are brought before the courts to account for their actions. The director may seek to have such persons made liable for the debts of their companies or ordered to return assets wrongly transferred from those companies.
Part 8 of the Bill deals with company accounts and auditors. Since the Bill was published, the Report of the Review Group on Auditing has been completed and significant further changes will be made to company law in respect of auditors in a separate Bill later this year. These will be separate and distinct from the measures dealing with auditing and enforcement that are included in this Part of the Bill. These provisions, which derive from recommendations contained in the Report of the Working Group on Company Law compliance and enforcement, will allow the Director of Corporate Enforcement to ensure that auditors comply with their statutory obligations under the Companies Acts.
 Sections 73 and 74 impose on auditors and on the recognised accountancy bodies an obligation to report to the director instances where they believe certain breaches of the Companies Acts may have occurred. Section 74 was amended in the Dáil to clarify the circumstance in which auditors will be required to report apparent offences under the Companies Acts on the part of their client companies and to remove the requirement on auditors to report instances of fraud both to the director and to the Garda. This latter requirement is adequately provided for in the Criminal Justice (Theft and Fraud Offences) Bill, 2000, which is currently before the Dáil.
Part 10 contains a number of miscellaneous provisions relating to this Bill, the Companies Acts generally and other enactments. Sections 93, 94 and 108 are all new sections introduced in the Dáil. They relate to investment companies provided for at Part 13 of the Companies Act, 1990. These are essentially collective investment or mutual funds products that use the company structure provided for under the Companies Acts. The effect of these sections is, first, to provide a mechanism whereby a trustee of such a company may resign and have the company wound up with the consent of the court and, second, to disapply certain prospectus provisions of the Companies Act, 1963, in respect of these companies. These changes are being made to support the Central Bank as regulator for such companies.
Section 96 amends section 371 of the Companies Act, 1963, and provides an important power to the Director of Corporate Enforcement. Under this section, the director will be given the power to seek orders of the High Court restraining companies or their officers from persisting with ongoing breaches of the Companies Act. This injunctive power will be a key weapon of the director in his efforts to ensure compliance with the Acts.
Section 109 provides a mechanism whereby the Director of Corporate Enforcement may impose on the spot fines in lieu of the institution of proceedings in respect of offences under the Companies Acts. Persons accused of offences will have the option of going to court but in so doing they will risk incurring a conviction. Section 110, which was introduced during Dáil Committee Stage, provides for the provision of certain documentation to a jury in a trial on indictment of an offence under the Companies Acts. The purpose of the section is to allow a trial judge to provide a jury with documentation, including transcripts of evidence, where the trial judge feels that such information may assist the jury in its deliberations.
Section 111 was also inserted in the Bill during its passage through the Dáil. It provides for an exemption from certain provisions of the Companies Acts that prohibit the purchase by a subsidiary of shares in its parent company. The exemptions will apply where the subsidiary is a professional dealer in securities and will need, in the course of its normal business, to purchase  shares in other companies, including from time to time in its parent company.
The measures contained in the Company Law Enforcement Bill, 2000, represent a significant step on the road to addressing the deficiencies that have been identified in the enforcement of Ireland's company law regime. In particular, the Bill provides the powers necessary to the performance by the Director of Corporate Enforcement of the functions assigned to him. He will be resourced with a dedicated team of accountants, lawyers and gardaí who will bring their particular competencies to bear on the task of investigating and prosecuting offences under the Companies Acts.
The Government is providing the legislative framework within which the director will operate and the resources to allow him to operate effectively. On establishment, the challenge facing the director will be to use his powers effectively to make a telling impact on the Irish corporate landscape. I thank the House for its co-operation in arranging this debate on the Bill and I look forward to hearing the contributions of Members. I commend the Bill to the House.
Mr. Manning Mr. Manning
Mr. Manning: I welcome the Minister of State to the House. This is important, significant and almost milestone legislation. It is also somewhat unusual in that it has clearly been very significantly amended during its passage through the Lower House. This indicates that the Minister for Enterprise, Trade and Employment had very definite views and convictions and an open mind on the legislation. There is a level of expertise and knowledge in the Lower House to which she listened and which allowed very significant changes to be made to the legislation which the Minister of State has outlined. I hope the same open-mindedness will prevail on Committee Stage in this House.
We may say it has taken a very long time to get to the stage of discussing this legislation and of, I hope, seeing it on the Statute Book early next month but at least the legislation is welcome and probably better for the long period of gestation and discussion which preceded it. The major aim of this legislation is to fill a major lacuna in our legislation and administration to ensure that the company law, which we so laboriously passed in these Houses over many years, which was added to with each passing year and which keeps thousands of lawyers, accountants and others in lucrative lifestyles, is enforced. That is the nub of this legislation. If it succeeds in doing that, it may well be one of the most significant Bills in the lifetime of this Government.
For far too long we will have lived with a culture which said that for every new law, there was a loophole, a climate in which the clever evasion of law was seen as part of the natural and, indeed, national way of doing business and something to be applauded, something real men did. Mrs. Helmsley, the famous American millionairess,  may not have had this country in mind which she famously said, “Only the little people pay taxes” but she could well have been talking about certain aspects of the way life was lived and business was done in this country. That was the way things were done as we now know only too well. It may only have been done by a small minority, a minority maybe small in numbers but big in their net worth and huge in the amount that was cheated from law-abiding taxpayers.
It is too easy to blame selfish individuals or people who thought they were acting in their own best interest or the best interest of their families when a great deal of the blame for the failure of compliance lay with the Governments and administrations of the day which simply refused to allocate the resources to the State agencies charged with compliance. It was almost as if once a law was passed, compliance was assumed. One had to prove one was not complying rather than that one was complying.
One of the biggest examples of this over the years was the way in which the fraud squad was starved of resources. The fraud squad, which was small in number and had very little expertise, was pitted against the smartest accountants money could buy, the sharpest lawyers this side of “LA Law” and the slickest of public relations machines. The fraud squad was locked in an utterly unequal struggle. It did not have the accountants as it could not pay the salaries for top accountants, it did not have the lawyers and did not have the forensic skills needed to begin to even tackle the huge and often diabolically clever range of white collar crime going on in our midst.
I sometimes listen to journalists say that the reason we did not have proper investigative journalism, or the reason charges were not brought, was because of the libel laws. That may well be true, I am not too sure about that, but what I am certain of is that if we had a properly equipped fraud squad capable of following money trails with even a fraction of the expertise those who were evading the law had, we might very well have uncovered much of what subsequently was uncovered at a much earlier date. It may not be the responsibility of the Minister of State but I would like to ask him whether the fraud squad yet has the resources it needs.
Looking at another area, has the Competition Authority, another vital cog which up to now existed on starvation rations and was housed in poor conditions with little independence in the recruiting of its staff, the resources required? From what I see and hear, the traffic in the Competition Authority is all one way. It is out of the Competition Authority because for some reason or other – some say it is because of a departmental mindset which does not want to lose control of the authority, which may or may not be true – the Competition Authority does not seem to have the resources required.
Failure of compliance in the past was in many ways a failure of the whole political system. I include in this the permanent Government, the  civil servants, as much as I include ourselves, the politicians. We are now reaping the whirlwind. What has happened has also been a very good thing. It is good we are reaping this whirlwind. It is good that we have had, and are having, the tribunals, the DIRT inquiry and the various other inquiries that are going on. It is good that we are having a long debate among ourselves on these matters. At least now there can be clarity and certainty about the rules, about what is right and what is not right. For far too long that was not the case. The rules may have been there, but there was no great clarity about them. There were assumptions that certain rules did not have to be obeyed and were not expected to be obeyed and that they were there for some reason not easily explained.
In the present climate, where in the media especially it is very easy to get a sort of mob justice after the latest name emerges and where presumptions of guilt are made before even half the evidence is heard, it is very easy to create a climate in which everybody involved in evasion in the past is dubbed a criminal. That is unfair. Many people were lulled by the culture of the time into practices which seemed to have been sanctioned by official indifference. Many were encouraged by people in banks and financial institutions to whom they went for advice and from whom they might legitimately have expected honest advice, to do what was the cute thing at the time, never mind that it was illegal. As far as they were concerned, they were breaking a law that was not going to be enforced and probably was not meant to be and which probably ranked in gravity in their minds as akin to drinking a pint after hours or driving at 50 miles an hour in a 40 mile per hour zone. They know differently now, many to their great cost and embarrassment. There is much more financial pain and social embarrassment ahead for many of these people.
I am trying to put into perspective how we got to where we are today. In getting there much of the blame lies with a State which made more and more laws ever more detailed and complicated and then made no provision to ensure they could be enforced. One of the lessons we have learned in recent times is that it is not good enough to pass a complicated law; that law must be explained to the people, particularly those whom it will affect. We have debates here, but to many people the language of our debate is arcane and obscure. A certain expertise is needed to fathom a detailed Committee Stage debate. Laws were made in the past, but the State or relevant Department or agency did not take the trouble to publicise them or explain them to the people. We have learned a lesson from that. Today the extent to which Departments and official bodies advertise on television or in newspapers to make sure the public are aware of the law is part of what needs to be done to ensure people cannot claim, rightly or wrongly, they were not aware or did not know what they were doing was against the  law and that it is also made clear to people that laws, once passed, will be certainly enforced.
Some of us still believe in original sin, but the ways in which laws were made in the past, and no attempt was made to enforce them, took little cognisance of the fact that if people are left alone, they will probably follow their more self-centred instincts.
Today we are a more honest and certainly a more compliant society. We are not necessarily a more moral society, but at least we are more aware of our responsibilities and more inclined, for whatever reason, to be compliant. We are more honest because of the degree of publicity and awareness of consequences of not being. There is a much stronger sense of openness about the way in which we do our public business, a greater awareness that if people are caught there will be consequences, that the system of accountability is open and above board and that political pressure and political cronyism will not work to a person's advantage any more. Our society is much the better for that.
The realisation that the law will be enforced is at the centre of this Bill. Enough has been said of what has happened in recent months and years for us to know that the enforcement of company laws has been patchy and ineffective up to now, which is why the Office of the Director of Corporate Enforcement and powers under this Bill, especially in Part 5, go a long way towards meeting these needs, and I look forward to going into the detail of some of that on Committee Stage. How long is it since a company director has been prosecuted? How many people have been brought to court on charges of insider trading? How easy is it still for the phoenix syndrome to exist? These are some of the issues being tackled in this Bill. I hope that once it is enacted we will see a change in the culture and in the practice, but that will only happen if proper resources are provided to make sure this new office works. The Minister and the Tánaiste guaranteed in the other House that proper resources would be provided. There will be no forgiveness if they are not. We have it on the word of the Tánaiste and she is hardly likely to set up what may well be one of her lasting legacies to public life and then leave it starved of resources. We have to take it on good faith that the necessary resources will be provided. The sums mentioned in the Dáil do not seem to be enough, but I will not go into that now.
I welcome the change made to section 16 in the Lower House, that the director will report to an Oireachtas committee. It is right that should be done. I enter one caveat – we need to examine seriously how Oireachtas committees are resourced. If they are not adequate to the task of dealing with reports, if they do not have the necessary expertise and back-up, they may fall into disrepute. The Houses need to examine the way in which Oireachtas committees have been set up and resourced.
 The Minister of State mentioned in passing the Company Law Review Group. He might indicate what preliminary work it has done in the four months since it was established. In dealing with reform, it is not a question of only proposing ideas, it is also important we have this group to clarify and simplify the legislation and to eliminate outdated and fussy offences.
I look forward to Committee Stage. This is important legislation. I welcome the open mind the Tánaiste had on this legislation when it went through the Dáil. A genuine contribution was made there and I look forward to that process being continued here.
Ms Cox Ms Cox
Ms Cox: I welcome the Minister of State to the House and the opportunity to speak on this Bill. It is important that I make clear my stance on corruption and abuse of power. Deliberate corruption and abuse power are wrong in any circumstances. To echo the words of Senator Manning, we are ensuring that the clever evasion of law will not be tolerated. I welcome that.
It is also important to ensure that we do not concentrate on the headlines but take account of the full picture. It is necessary to think about what has gone on here during the past 50 to 70 years when times were difficult and trying. I am not talking about what is happening at the tribunals but about the ordinary individual who held a business together through many of the tough times, came out the other end and managed to make a significant contribution to the overall prosperity we enjoy. I notice from the thrust of the legislation, and I believe the Tánaiste has accepted this, that it is important we do not place the focus on ensuring that everyone complies with administrative procedures but that we focus on eliminating corruption, of practices being done deliberately wrong by companies and that we do not use this legislation only to ensure that all “i”s are dotted and “t”s crossed. We should not concentrate on people for that reason, but we should concentrate on companies and the enforcement of company law in the overall context to ensure companies operating in Ireland do so on the firm understanding that we expect them to be proper corporate citizens, to pay their taxes, be fair to their suppliers and their employees and be proper and upstanding members of the community and the economy.
The Minister gave detailed reasons for the introduction of the Bill. It represents a landmark in the Government's drive to combat the corporate crime and malpractice we read about every day in the reports on the tribunals. I hope the Bill will help to restore public confidence in the manner in which business is conducted and, in the majority of cases, has been conducted. We must acknowledge, and we have seen the evidence, that people have abused the trust placed in them by shareholders, other business people and the public, and did not have sufficient regard for the legal requirements under which they were sup posed to operate. It is true, as the Minister and the Minister of State have acknowledged, that the enforcement of company law has been under-resourced and it was reasonable for anybody operating in such a manner to believe there was little fear of being apprehended and punished.
With regard to the statutory obligation to file returns, the date by which returns had to be made was not always clear – one of the sections in the Bill deals with this – and there was no follow-up by the Companies Registration Office. However, in the overall measurement of what was wrong in this area, not filing paperwork on time is a far smaller offence than deliberately corrupting and defrauding the system and the people with whom one does business. Over time, nevertheless, there has been non-compliance in dealing with returns. The Minister and the Department should bear in mind that it is sometimes difficult to operate in this economy due to the enormous burden placed on small and medium-sized enterprises in terms of filling out forms and ensuring that every piece of paper is returned to the relevant authorities. I acknowledge the work the Minister and the Department of Enterprise, Trade and Employment have done to streamline the process but there is still room for improvement. I hope this legislation will not muddy the waters further or make it more difficult to operate a business by transforming it into a paper pushing exercise.
I welcome the role of the new director. If anything is to be given a sense of importance and greater recognition by the Government and by industry it is the allocation of adequate legal, accountancy, investigative and administrative resources. That indicates a commitment to ensuring the legislation will do what it is supposed to do. I welcome that. This is one of the few Bills I have seen where there is recognition of the fact that the law enforcement being put in place must be resourced and where resources are provided to allow enforcement to proceed.
The Bill outlines the functions of the director. He or she will have the power to investigate, prosecute, take out injunctions and protect the interests of the people involved in companies, such as the employees, suppliers and the Revenue Commissioners. That is welcome. The issue of prevention is extremely important. The director has the power to apply to the High Court for orders for the restriction or disqualification of company directors and other officers where the conduct of the persons concerned in the management of the companies warrants such an action. I hope this will prevent unscrupulous persons from abusing the system and the vehicle of limited liability companies for reckless and illegal purposes to the detriment of their creditors and others.
One of the failures of Irish society, however, in the context of running a business is that we fail to recognise that those who do not try do not succeed and those who try often fail. There is no shame in failing if one gets up and does one's best to try to succeed in the future. In the United States, a country we are usually keen to emulate,  success and failure can be equally accepted. That is something we need to learn as this country matures. There should not always be the element of begrudgery one sometimes sees. Just because what one tried the first time does not work, it does not mean everything else one tries will not work and that one should not get some support and recognition for at least taking the initiative and the risk and putting one's time and effort and, perhaps, that of one's family into that initiative. We should recognise that if one does not try, one will not win but that when one tries there is a chance one will not succeed.
With regard to the Companies Registration Office, there can be a simple system with the technology available. It is important that the system works in a clear and unambiguous way and that the uses and resources of technology are made available to the office. There have been significant improvements in this area to date and this legislation will improve matters further. The clarity in terms of the annual return date is important but it is vital it does not just become a vehicle for fining and making a criminal of somebody who, for one or other, did not return a document on time.
The company law review group is an important innovation in the Bill. I do not profess to be an expert on company law – it is a highly complex area. The Bill provides for a first class system which has the laudable objective of trying to set up a framework that allows us to work while ensuring there are the rules and regulations which mean we can operate in an honest and trustworthy environment. The Minister, in accepting the recommendation of the working group and establishing a company law review group, is taking a huge step forward in ensuring company law is kept under continuous review. We must maintain the system we are now putting in place. The review group was set up on a non-statutory basis in February and has commenced its work. It will now be put on a statutory basis.
With regard to the reporting requirements in section 16, the reporting process in relation to how the director reports to the Houses of the Oireachtas is clear. I welcome the changes made in the Lower House. It is important the Oireachtas does not continue to push its powers into the hands of directorates and agencies. It is vital that the elected Government of the country does the job it is elected to do and that where agencies and directorates are established, the type of reporting and accountability we wish to see in place is made clear. I welcome the changes made by the Lower House in this area.
Part 4 deals with restrictions and disqualifications. It is important to refer again to risk takers. I would not like to see a situation arise whereby a person who has not been successful on the first try will not be able to try again in the future. We need to explore this matter further on Committee and Report Stages in terms of how people conduct their business and what will disqualify them. I take this opportunity to say to the  Minister that we are clear in this area of company law about the types of people who should be accountable or who should take up roles as directors, but there are other areas where in enacting legislation we need to look similarly at the types of restrictions we put in place for people applying to do business in the State. I do not mean this as a criticism but as an observation which has caused me great concern recently.
Senator Manning spoke about the failure of the State to enforce legislation, the failure of the various institutions to enforce and investigate and the lack of resources, etc. I want to particularly compliment the Criminal Assets Bureau on the fine work it has done. The focus of its work is on clearing up criminal activity and that is the way we should be moving forward.
It is vitally important that we maintain and ensure that we recognise the real difference between administrative failures and failures to return document, and fraudulent activities which are either criminal in nature or which hurt, damage and cause people harm in their businesses. I would not like to see this legislation placing too much emphasis on crossing the “t”s and dotting the “i”s, and I would expect that there should not be such a danger. The directorate should take that on board.
I welcome the legislation. It sends a strong message regarding the deliberate corruption and abuse of power. It is important that there would not be such corruption and abuse of power in the future. However, I would suggest that we have much more to do in restoring public confidence in our business world than just enacting these pieces of legislation. Perhaps that is the challenge for us as we move forward.
Mr. Quinn Mr. Quinn
Mr. Quinn: I welcome the Minister of State, Deputy Molloy, and thank him for bringing this Bill before the House on behalf of Tánaiste and the Minister for Enterprise, Trade and Employment, Deputy Harney.
While at a conference attended by over 1,000 people on the Continent during the week I was impressed at the number of people who now know something about Ireland. I remember 20 years ago when the attendees at this sort of conference did not know of the existence of Ireland. Now their knowledge of Ireland is partly due to the success of our economy and of our achievements in other areas and partly due to the opportunities which exist for them to consider investing in Ireland which might not have existed in the past. Therefore, I agree with the Minister of State that this is landmark legislation and I commend it to the House. I say this in spite of the fact that in the past we steered away to a certain extent from enacting legislation for precisely the reason to which Senator Cox referred, that it might create more bureaucracy and therefore act as a deterrent for others to come in and invest. We recognise now that there are a number of reasons we must enact this legislation.
 I welcome this Bill which is clearly long overdue. The question of its timing and the lack of urgency associated with it is a matter to which I wish to return. First, I want to emphasis the importance of having a clear, transparent and fair company law regime which is backed up by prompt and reliable enforcement. This economy, let there be no mistake, depends critically on foreign direct investment. Our economic future depends on retaining existing investment and continuing to attract more investment in an increasingly competitive investment marketplace. I say this as a champion of indigenous Irish industry, but the fact remains that the development of our own industries also depends on foreign direct investment. Irish companies piggy-back on foreign investment and sometimes this has resulted in very considerable success. Senator Cox touched on this also.
Since the 1959 Whitaker White Paper we have been seeking to attract foreign investment and the playing field has changed in those 40 years. We started off with a package which relied heavily on abundant cheap labour supplemented with grants and tax incentives. That was enough to get us started in the 1960s but it would not get us very far these days.
Thankfully this is no longer a low cost economy. Other countries now must offer incentive packages which rival those available here and they do so. Therefore, the ground on which we must compete for foreign investment has shifted and we must change with it. Tax incentives remain an important part of our package and it is one of the areas which is referred to continually, but they are not enough on their own. Potential investors now look at a whole raft of issues before coming to a decision on whether they will invest here. They look at the quality of the workforce, not just at the abundance and price of labour. They look for well developed research institutions with which they can work in partnerships, and we have been doing something about that in recent years. They look for a highly developed physical infrastructure capable of sustaining continued growth. Increasingly they look for a well thought out regulatory framework which is well policed, which is what is we are providing now. This framework applies to the environment, the legal framework, competition policy and company law.
It is a myth that foreign investors always look for a location with the least regulation. That is what we used think. They know that good regulation provides them with protection if it means that decisions are open and transparent. They know that the absence of effective regulations leads to corruption and uncertainty. Uncertainty is the one element of business practice which investors seek to avoid around the world and they will continue to do so.
Ireland has always projected itself as a clean destination for foreign investment where there is no corruption or crony capitalism and where  everything is done according to the book, a book which is open to all. That picture was true, by and large. However, various incidents over the past decade have greatly undermined Ireland's reputation as a clean investment destination. Nowadays Ireland is not perceived in the international world in the same way it was ten or 15 years ago. Whereas once we were above suspicion and such thoughts did not even enter people's minds, the international community is now much more ready to believe every stray rumour. The world tends to see us not as an island of saints and scholars but as a refuge for cowboys. This is a matter which should concern us greatly because reputation is a priceless asset in all matters to do with business. Reputation is something we never appreciate enough until we have lost it and once we have lost it, it is almost impossible to regain.
This problem was clear when the Government came into office four years ago. I was among those who hoped that, by firm and decisive action, the Government would put the national house in order and leave the world in no doubt that our rightful place was on the side of the angels, as we had always claimed. Unfortunately little has been done to grasp that nettle in the interim. If anything, our international reputation is lower than it was in 1997. Everything which has happened since has worked to reinforce the negative image of Ireland rather than to fight against it.
It is in this context that I must criticise the pace at which the Government has approached the introduction of this legislation. The McDowell report, which should have acted as a wake-up call, was published early in 1999. This Bill, which aims to implement that report, took more than a year to prepare. That was hardly an indication that the Government attached a high priority to the legislation and that impression was heightened by the fact that it has taken a further year to reach this House. This delay is an important signal in itself but it is even more significant in what it tells us about what is likely to happen once the legislation is enacted. If, as has been the case in the past couple of years, there is not an air of determination and urgency, my real concern is whether this is likely to change.
The key issue is not what is contained in the Bill but whether its provisions will be enforced promptly, efficiently and fairly. The most serious fact highlighted by the McDowell report was the almost complete absence of enforcement in the area of company law. The widespread culture of non-compliance sprang directly from this. Like in any other area compliance with the law is determined by the seriousness with which it is enforced. Laws do not enforce themselves. If the State cannot be bothered to police a law it does not take long for it to fall into disrespect. Examples include the law on alcohol and speed driving.
The structure envisaged in the Bill is a huge step forward from the almost laughable situation where the entire policing of company law was in the hands of two people who were not even  assigned to it on a full-time basis. However, the new structure will not be enough if it is not properly resourced. For example, the hands of the Competition Authority have been tied not by the legislation controlling it but because the Department of Finance has consistently refused to allocate it the necessary resources to staff its operation effectively. The authority has told committees of the Houses that it has not been able to do its work properly because of inadequate staffing levels. Will this new directorate be any different?
The Government could have sent a signal of its urgent intent by the way it processed this legislation, however, it has sent the opposite message. While I do not doubt the personal commitment of the Minister for Enterprise, Trade and Employment and the Minister for Finance to the legislation, I doubt if it is widely shared by their colleagues. In view of this I question if it will be given the necessary resources to do its job.
To make this legislation work and to help the directorate change the perception of Ireland as a place to do business the Government must give a highly visible commitment, accompanied by action, to establishing the directorate. I welcome the appointment of a new director on a non-statutory basis in advance of the legislation being passed. This will enable the new structure to hit the ground running rather than having to begin with preparatory work.
However, no matter how talented and able the director is he cannot achieve much on his own. The directorate will not become a going concern until it is fully staffed with all the specialist expertise that has been correctly identified as necessary. Even when it is fully staffed it will be some considerable time before it can show results in terms of investigations and prosecutions. In view of this it is essential that the establishment of the directorate is accompanied by a targeted information campaign the aim of which should be to let everybody know that the game has changed regarding company law and that henceforth the State will take very seriously the policing of the law.
The issue of credibility arises among those who operate under company law and in the international arena among potential investors and their advisers, the people who consider where they will invest, be it in Ireland or elsewhere. For both these audiences the critical task is not just passing the legislation or establishing the new directorate, it is to convince those audiences that, at long last, the State means business with company law. If that task is carried out well this legislation, which we fully support, will have succeeded. If we fail it will prove to be as useless as many of the laws preceding it. I urge the Minister to use all the power he has to ensure not only that the directorate becomes established when the law is passed but that it is well enough resourced to ensure that the enforcement of company law sends out a message to all involved that the State means what it plans to do in this legislation.
Mr. Mooney Mr. Mooney
 Mr. Mooney: I welcome this legislation. It is instructive to listen to my distinguished colleague, Senator Quinn, who is involved in the area of business, outlining what he considers to be the necessary prerequisites if it is to be effective. I bow to his greater expertise in this area. My contribution will probably be more political than corporate in scope.
This is very significant legislation but I am sadly of the view that a wide gulf has developed between corporate Ireland and those who are, as a colleague in the House said at one time, “the plain people of Ireland who eat their dinner in the middle of the day”. A culture appears to have been in place over the past decades, more evident since the country's economic development over the past 15 years, which suggest that some agree with Leona Helmsley, the owner of the multi-million dollar hotel corporation in America, who, when charged with the non-payment of tax said that paying tax was for “the little people”.
Like most others, I am appalled by what has unfolded at the tribunals and in other areas of society. A significant element of those who voted “No” in the Nice treaty referendum did so as a protest against the culture they have witnessed. Their vote had little to do with the relevance or provisions of the treaty. It is a sad state of affairs that the country is being accused of not having a proper regulatory regime that will not only put in place a legal framework but one that will be enforced.
According to an analysis in The Irish Times the Bill will address the so-called phoenix syndrome where companies go out of business leaving unpaid debts while the directors establish a new business and have no responsibility for meeting them. I was taken aback by this because I was a Member of the House several years ago when the Companies Bill was passed. It was the largest Bill to be put before the House, containing over 350 sections. I recall the Minister and the House acquiescing to the view that it would address the phoenix syndrome and would finally regulate the market and corporate Ireland. Yet, we are now being told this legislation will achieve that purpose.
From my experience in this House I take the view that this is wonderful country for passing laws. Regardless of the Administration, there is a penchant for a knee-jerk reaction to events. Whatever flavour of the month emerges in the media requiring legislative provision will be agreed to by a Minister. The ensuing legislation is passed by both Houses and then consigned, like party manifestos, to the dustbin of history. I hope that will not be the case with this Bill.
Like the other Members of this and the Lower House, I am a democrat but I reluctantly believe we face a threat to all that we hold dear in this society, to all the traditional values of honesty, ethics in business and a fair day's pay for a fair day's work. This has not been the agenda by which certain business people have operated over recent years. Perhaps that has only been the case  since significant amounts of money started flowing into corporate Ireland over the past 15 years, but undoubtedly this culture has existed for many years. Nevertheless, there was a wide chasm between political and corporate reality. Politicians got on with their business, but corporate Ireland went merrily on its way, denuding and defrauding people and taking as much money as possible out of the system.
Corporate carpet-baggers, who trailed after political parties, particularly the Fianna Fáil Party as the largest party in the country, have intensely annoyed me and many of my colleagues in the House. These people saw a chance and if the Fine Gael Party was entering Government, they followed it. They went after who they considered were the political winners and they inculcated and ingratiated themselves by giving significant political donations to individuals and parties. The quid pro quo was that they would be chosen when a State or infrastructural contract was awarded or a job on the bench was available because they had made their contribution and they were there when they were needed. The elimination of this culture from society is long overdue.
I hope sufficient resources will be provided to enforce the Bill because one of the elements of the debate in this and the other House is that it is not enough to provide the legislative framework. We must be serious this time and provide the necessary resources and expertise in the context of gardaí, accountants and the other paraphernalia required to combat white collar crime. The perpetrators of white collar crime are much more insidious and expert than the ordinary decent criminal that shimmies up a drain pipe or breaks a window to open a door. That is a simple way of taking money and property from people and it does not require any great brain power. However, it requires an enormous amount of brain power to defraud the State and it has been put at the disposal of many people who have hidden behind shelf, shell and other types of companies that are addressed in the Bill.
The events unfolding at the tribunals are a disgrace to corporate Ireland. I have no doubt that the people are lying in wait for all political parties. There was an example of this in the recent Nice referendum and we may see it in the next general election. I am sure members of the Opposition, who might find themselves in Government in the future given the nature of democracy, do not find any great advantage or political benefit in sniggering on the sidelines at the difficulties the Government might be facing in this area.
There is a threat to the democratic structures of this country and it will involve a fight to the death. I am not referring to the body politic of corporate Ireland, but the rotten apples who have laughed and treated the political system with the greatest contempt in recent years. The Government had enjoined this war and the implication of the Bill is that it at last will grapple with this thorny issue and say to those in corporate Ireland  who have treated us with contempt that enough is enough, the game is over and it is time they got their affairs in order.
Mr. Molloy Mr. Molloy
Minister of State at the Department of the Environment and Local Government (Mr. Molloy): I thank the Senators for their contributions and the general expression of welcome for the Bill. The debate highlighted the importance of the Bill in the context of investment in Ireland and the ongoing creation of jobs which are necessary to ensure the population has satisfactory employment opportunities at home. The success that has been achieved could be easily threatened if the wrong impression is conveyed about the way business is done here.
The criticism expressed in the House ignored the fact that many steps have been taken by the Government to clean up this area. Many of the ongoing tribunals and company investigations will, I hope, result in a general clearing out of the old attitude and bring about a renewal that will be a credit to our reputation abroad. It is essential to maintain the integrity of the way we do business with each other and with people who wish to invest in Ireland.
As I outlined, the Bill covers an important area. The establishment of the Office of the Director of Corporate Enforcement will, with the extra powers and functions being given to it, result in a major improvement in the attitude of business people in terms of their general business methods. All the views expressed will be considered by the Department. As was evidenced in the debate in the other House, the Minister for Enterprise, Trade and Employment, if she takes Committee Stage, will be open to the views expressed in any amendments that are tabled. She showed her willingness in the other House to accept a number of amendments from Opposition spokespersons which greatly strengthened the Bill. This is good for democracy. If Senators believe there are further ways in which the operation of the Bill can be improved, I invite them to table amendments.
Senator Cox and Senator Quinn referred to the need to avoid unnecessary regulation. Our desire is to have the best company law in the world so that Ireland is considered an attractive place from which and in which to carry on business. With that desire in mind, two initial tasks were given to the company law review group. The first was to consolidate all our company law and the second was to seek to simplify the company law code to ensure it is more user friendly and clear so companies and their officers can be sure of their obligations and responsibilities in this area. Senator Quinn highlighted this area when he referred to Ireland's attractiveness for new investment and the need to ensure there is a clear and well regulated economy. As he said, investors abhor uncertainty.
Senator Manning sought further information on the current work programme of the company law review group. The group, which is currently  established on an interim, non-statutory basis, held its first meeting on 7 February 2000. It will be placed on a statutory footing following enactment of the Bill. It is chaired by Thomas P. Courtney, a solicitor and a company law author. He is the head of legal affairs of the ICS building society and he is one of the country's most eminent experts on company law. We are pleased and honoured to have the services of such an eminent person.
It is proposed that the review group will operate to a biannual work programme and that a reforming companies amendment Bill will be brought forward every two years based on the relevant report of the group. In the first two-yearly work programme assigned to the group, it was asked to examine a number of issues and it has advertised for submissions to assist that process. The issues being considered include simplification of company law; a review of the law on company directors; consideration of the desirability of a statutory licensing scheme for liquidators, examiners and receivers; a review of company law in the light of new technological developments; consideration of the case for dedicated treatment of commercial cases within the court system; and duties and regulations of auditors, having regard to the report of the review group on auditing.
Senator Cox's comment that restrictions should be used sparingly and should not penalise people for honest business failure is, I believe, a view shared by all Senators. The Companies Acts provide that restriction and disqualification may only be applied by the courts and that a person should not be restricted where the court is satisfied he or she has acted honestly and responsibly in the management of his or her company's affairs.
Senator Manning highlighted the need for awareness of the law and for a public information campaign. Senator Quinn spoke extensively on the same point. One of the functions of the Director of Corporate Enforcement will be to encourage compliance with the provisions of company law. As part of this function the director will, no doubt, launch a public awareness campaign aimed at informing people of their obligations under the Companies Acts. This will be particularly relevant to people who agree to become directors of companies without fully understanding the serious responsibilities this brings.
Senator Manning also raised the issue of the number of prosecutions the Minister for Enterprise, Trade and Employment has initiated under the Companies Acts. Since 1 January 1999, 100 prosecutions have been initiated under the Companies Acts, resulting in 47 persons or companies being successfully prosecuted in criminal convictions. Senator Manning acknowledged that the Bill had been significantly amended in the Dáil. This was because of the desire of the Minister for Enterprise, Trade and Employment to present the best possible Bill to the Oireachtas.
My ministerial colleague, Deputy Dempsey, who has responsibility for company law matters will tease out the detailed provisions of the Bill  with Senators if he takes Committee Stage in place of the Minister for Enterprise, Trade and Employment.
We are all aware of the need to ensure that the provisions of the Companies Acts are enforced so that those who do business with or through corporate entities can feel secure in the knowledge that the rules are obeyed by the vast majority of companies, if not by all. However, in the past it has been the case that insufficient resources were deployed to enforce the provisions of the Companies Acts, and I accept the point made by all Senators, particularly by Senators Manning, Cox and Quinn. It is the Government's intention to ensure that adequate resources are provided. There is now a much fuller acceptance of the necessity to protect the integrity of our business regime and it will require extensive resources to ensure that the provisions of the Bill work efficiently.
Resourcing of the Garda bureau of fraud investigation is not a matter which comes within the scope of this Bill or within the remit of the Department of Enterprise, Trade and Employment. The Government recognises the necessity to ensure that the work of the fraud squad and the Competition Authority is adequately resourced. It is the Minister's firm intention to see that this is done as soon as possible and there is general acceptance of the need for such resourcing. The points made by Senators were well made and are accepted.
May I inquire if the division bell ringing in the Dáil applies to me?
Dr. Henry Dr. Henry
Acting Chairman (Dr. Henry): The Minister is automatically paired for votes while addressing the Seanad. He may speak for as long as he likes.
Mr. Molloy Mr. Molloy
Mr. Molloy: I am delighted to hear that. I would not like to be the cause of an untoward happening in my absence. I recall a former Ceann Comhairle, Deputy McCormack, telling me that when he was a young Deputy he once became bored with what was happening in the House and went to the pictures for the afternoon. When he returned he found that not alone had he missed a vote but that the division had been lost and Mr. de Valera had called a general election. I believe Mr. de Valera was only looking for the excuse. Deputy McCormack has gone to his reward since those days.
The level of staffing and resources of the Competition Authority is kept under continuous review by the Department which is in close consultation with the authority. Since the enactment of the Competitions (Amendment) Act, 1996, the total authorised staff level of the authority has increased from about 17 to the present level of 29. Arising from a review carried out by Deloitte & Touche, the Minister proposes to increase this number to 44, a level sufficient for the authority's staff to meet its future responsibilities. Even then, the level of staff will continue to be kept under review.
 In the past the authority has experienced difficulties in retaining staff but the situation has improved considerably in the past year, mainly as a result of improvements in staff terms and conditions. With regard to the impact of staffing difficulties on searches, while some problems were experienced in late 1999 and early 2000, these have been resolved.
I do not accept Senator Quinn's contention that there was an unacceptable delay in putting in place the office of the director. It was necessary to ensure that the legislation adequately provided for the powers and functions of the director. A director designate was established nine months ago and, as Senator Quinn acknowledged, the director has hit the ground running. I assure the Senator that the State means business in all the areas we are discussing.
The Director of Corporate Enforcement will have a staff of 37, including seven members of the Garda Síochána seconded to the office to facilitate its criminal investigative role. The non-Garda personnel will comprise people with administrative, legal and accountancy expertise who will be assigned to the director's office by recruitment or redeployment from the Department of Enterprise, Trade and Employment. It may also be necessary on occasion for specialist expertise or advice to be available to the director by way of consultancy contracted services. I have every reason to believe these staffing arrangements will be in place at an early date.
I hope and expect that once the Office of the Director of Corporate Enforcement is in operation there will be a greater willingness by those involved in corporate activity to abide by the provisions of the Companies Acts and that enforcement by way of prosecution or other court action will be necessary only in very rare cases.
I thank Senators for their interest and contributions to the debate. I invite their consideration of the terms of the Bill, as amended, which has been brought before them. Any amendments which are brought forward will be welcomed and carefully examined. I commend the Bill to the House.
Mr. Manning Mr. Manning
Mr. Manning: Did the Minister of State say that the Minister for the Environment and Local Government, Deputy Dempsey, was responsible for company law?
Mr. Molloy Mr. Molloy
Mr. Molloy: Did I say that? I meant, of course, the Minister of State, Deputy Treacy. My senior colleague at the Department of the Environment and Local Government is not planning to move, although he is taking a rest at present.
Mr. Manning Mr. Manning
Mr. Manning: The Minister of State had me confused for a while. Thank you.
Question put and agreed to.
 Committee Stage ordered for Wednesday, 27 June 2001.
Sitting suspended at 4.30 p.m. and resumed at 6 p.m.
Seanad Éireann 167 Company Law Enforcement Bill, 2000: Second Stage.