Willie Penrose (Longford-Westmeath, Labour)

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. 1 o'clock

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's 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.

See this speech in context