Billy Kelleher (Cork North Central, Fianna Fail)

I move: "That the Bill be now read a Second Time."

I am pleased to introduce this Bill in the Dáil and I thank Deputies for facilitating an early debate on the urgent issues it addresses. I will explain as I move to the specific sections of the Bill the urgency attaching to them. This is the second Bill this Government has introduced this year to amend the Companies Act. Like its predecessor, the Companies (Amendment) Act 2009, this Bill focuses on making a small number of timely, focused changes to company law. These amendments are required immediately so that company law remains dynamic and responsive to emerging opportunities and challenges.

As Deputies will be aware, work on drafting the consolidation Bill, which will incorporate all existing 14 Companies Acts into a single text, is currently under way. I expect to publish that Bill, which will have some 1,300 sections in September 2010. The provisions of the Bill we are debating today will be incorporated into the consolidated Bill.

The measures in today's Bill can be summarised under four headings. First, it will allow for the use of US Generally accepted accounting principles, known as US GAAP, in the preparation of the accounts of a specified category of companies. It will also give the Minister for Enterprise, Trade and Employment the power to prescribe other internationally recognised accounting standards should this become appropriate in the future. The second measure will allow the Minister to make regulations recognizing stock exchanges outside the State for a specified purpose. Third, the Bill will limit the potential exposure of the Exchequer to costs that could arise from court appointed inspectors carrying out investigations into the affairs of a company. Fourth, the Bill will ensure continuity of membership by directors of committees of inquiry established by the Irish Auditing and Accounting Supervisory Authority.

The Companies Acts should respond swiftly and appropriately to emerging opportunities. To meet this goal, I am currently finalising another significant company law proposal which is at an advanced stage. I hope it will be brought to a point where it is ready for inclusion in this Bill and I therefore wish to advise Deputies that I intend to seek the permission of the House to include it by way of Committee Stage amendment.

On the first of the Bill's provisions, which I will refer to as the US GAAP proposal, I wish to make some introductory comments. Attracting and developing foreign direct investment in the State is a major strand of the policy of this Government. Foreign direct investment has played a pivotal role in Ireland's economic growth over the past decades and will continue to do so into the future. The nature of the investments we have attracted has changed significantly over the years. While in the past, we were a location that concentrated primarily on manufacturing, we have become a centre for educated young Europeans. Ireland now plays a key role in the smart economy, which is built on the dual strengths of our innovativeness and entrepreneurship. The appointment last week of Ms Maire Geoghegan Quinn as European Commissioner for Research and Innovation clearly demonstrates that Ireland's commitment to the innovation agenda is well-recognized internationally.

I offer my best wishes to future Commissioner Ms Geoghegan Quinn. We look forward to the role she will play in promoting research and innovation, which is a key component of the Irish strategy and of the Lisbon agenda in the context of job creation and making sure we move Europe forward in terms of investment in research and development, innovation, commercialisation and other such areas.

Ireland's readiness to adapt and respond to changing circumstances has contributed significantly to the fact that, notwithstanding the economic downturn, we continue to be an attractive location for foreign direct investment. To date the IDA has made 48 announcements, with a combined investment in excess of €650 million and a potential to create 3,300 jobs. It is encouraging that so many companies are prepared to undertake and announce these investments in Ireland given the current global economic environment. The more optimistic economic forecasts for 2010, globally and for Ireland, should help the IDA to make a significant contribution to economic recovery and continue to secure foreign direct investment for Ireland.

However, to attract investors, industrial promotion policy needs to be agile, flexible, imaginative and continuously evolving. This is particularly the case where the attraction, integration and retention of foreign investment projects in Ireland are concerned. This is paramount at times like now where the global economy is facing almost unprecedented challenges and where there is intense competition for a restricted pool of foreign direct investment. In times like these foreign investments do not come easily and there is intense competition, so we should try to remove as many obstacles as possible while at the same time making sure our integrity is protected.

Multinational companies also face challenges as they seek to adjust and adapt to a changed and changing economic situation worldwide. Those who wish to survive, not to mention prosper, simply cannot afford to stand still. For many, this means restructuring and reconfiguring their global operations to the best advantage. Such strategies have the potential to result in opportunities or disadvantages for investment locations around the world. This is the challenge facing Ireland. It is possible that in the context of the reconfiguration of multinationals globally we may be the beneficiary of such moves or the companies concerned may move elsewhere. That is something of which we have to be conscious. The pool is currently shrinking. Multinationals are experiencing difficulties. They are realigning all their operational bases, and consolidation and takeovers are taking place. We have to be responsive to their needs.

Ireland does not have the luxury of passively watching as multinational investment disappears to competitive destinations which have kept up with or anticipated new trends and developments. We cannot afford to miss out on these possibilities if we are to work our way through our current economic difficulties. The Government is aware that openings must be created and availed of and it is committed to doing all that is possible to meet this goal.

The US GAAP proposal is the broad policy context in which the US GAAP measure, contained in the Bill before us today, can be seen. The Bill is designed to facilitate multinational companies which have operations in Ireland to continue to add activities and substance to such operations. This will further contribute to economic activity here and provide valuable employment opportunities. This measure will assist in attracting specific categories of companies from abroad to establish in the State. Certain multinational companies, which already have a substantial investment presence in Ireland, have further integrated their activities here by transferring their parent undertakings to Ireland. As these companies are listed on US stock exchanges and report to the US Securities and Exchange Commission, they will continue to have to prepare US accounts using US accounting standards to remain compliant in the United States.

In addition to this obligation, as Irish registered companies, these multinational parent undertakings also have to prepare Irish accounts. The accounting standards followed by most companies in this State are Irish generally accepted accounting practices, known as Irish GAAP, or international financial reporting standards, known by the acronym IFRS and which were adopted by the EU. It would be particularly onerous and expensive for a company if the obligation to convert to Irish GAAP or EU IFRS were to arise over a compressed period, and inordinately so, if this requirement arose during a company's current financial year. This is the prime reason for the urgency of this Bill, so I would appreciate the co-operation of both sides of the House to pass it. It is based on the need to address the accounting year for 2009. The companies concerned need to have formal confirmation as soon as possible of the nature of their reporting requirements in Ireland for the current year.

The legislation I am now introducing provides for the use by this restricted category of companies of US GAAP for a limited period. The arrangement will apply for a maximum of four financial years and will expire on 31 December 2015 at the latest. This measure will facilitate an orderly transition by these companies to the use of Irish GAAP or IFRS. There is a precedent for this. When IFRS was introduced by the EU, a transitional period was allowed so that the various parties could make the necessary preparations.

Another point I make is that companies will be subject to Irish company law generally, including all the provisions which relate to accounts. My objective is that Irish company law will override any provision of US GAAP if it conflicted with the Companies Acts.

Allowing these companies to prepare their Irish accounts using US accounting standards for a limited period would eliminate the significant duplication of cost and effort of preparing two sets of accounts under two different sets of accounting standards. It will also create a bridge roughly spanning the period during which significant international developments are expected regarding the convergence of US and international accounting standards. In the interests of providing for future flexibility in this area, I am including an enabling provision for ministerial prescription of other specified internationally recognised accounting standards if such a demand arose and it was considered appropriate to do so. Any such regulations will apply for the same transitional period as the US GAAP measure.

The second measure in the Bill is one I introduced by way of Committee Stage amendment in the Seanad. It is designed to allow Irish registered companies which are listed on foreign stock exchanges to exercise a right to buy back their own shares on that exchange on a similar basis to that permitted when they buy back their own shares through a stock exchange operating in this State. It will also facilitate international groups relocating their parent undertaking to Ireland but who are not listed on the Irish stock exchange and that wish to make market purchases of their own shares. This will result in significant internal administrative simplification for those companies.

To briefly outline the impact of this measure, at present the Irish stock exchange is the only exchange recognised for market purchase of own shares. Market purchases must be authorised by the company at a general meeting and this authorisation is sufficient for all contracts for purchase of own shares for the period of the authorisation, which is usually 18 months. For the purchase of own shares on stock exchanges that are not recognised, the terms of each individual contract for purchase of the shares must be authorised in advance by a special resolution of the company. The measure included in today's Bill will enable the Minister for Enterprise, Trade and Employment to make regulations recognising stock exchanges outside the State for a new type of purchase called an "overseas market purchase". An overseas market purchase is similar to a market purchase but with a new obligation on the company to publicise its purchase of own shares on the company website for the purposes of informing the market.

The third measure in the Bill addresses a potential exposure of the Exchequer to costs of inspectors appointed by the High Court under section 7 of the Companies Act 1990. That Act contains two related powers which allow the court to appoint inspectors to investigate the affairs of a company. Section 8 facilitates such an appointment at the request of the Director of Corporate Enforcement, while section 7 provides that a variety of specified interested parties can petition the High Court to have inspectors appointed. Those parties include the company itself, a director of the company, a creditor and a group or block of shareholders of the company.

As the law stands at present, there is an upper limit of €317,435 on the amount that those who petition for such an appointment can be required to pay towards these costs. This limit applies both to the security they can be asked to advance before the investigation commences and to the amount of the eventual costs of the investigation that the applicants would be required to bear. Unless the court decides that a company should meet all or some of the costs of the investigation, the balance of those costs, namely the amount above the applicants' statutory ceiling of just over €317,000, would need to be borne by the State. On the basis of previous experience, the cost of a wide-ranging investigation could amount to €10 million.

It is necessary to take immediate action to protect the taxpayer from having to meet the very significant costs of such investigations, some of which could conceivably duplicate investigations happening elsewhere in the State system, for example by the Office of the Director of Corporate Enforcement, the Financial Regulator or the Criminal Assets Bureau. This requirement needs to be balanced with the competing duty of the State to ensure shareholders and others have suitable access to justice. To ensure an optimum balance would be achieved I considered a number of alternative policy responses to this question. Having regard to wider safeguards provided for in company law that are available to prospective applicants under section 7, I have concluded that the fairest and most balanced way of approaching this issue is to remove the absolute limit on costs currently applicable to applicants.

This will leave total discretion to the court on the issue of costs and will place applicants under this provision on the same general footing as other parties initiating court proceedings in that they can be held liable for the full costs if the court so decides. The costs of investigations initiated by the ODCE, under section 8 of the Companies Act 1990, would continue to be met in the first instance by the Exchequer through the Department of Enterprise, Trade and Employment's Vote.

The final measure in the Bill was also introduced on Committee Stage in the Seanad, which proves the usefulness of the Seanad. It provides for continuity of membership by directors of committees of inquiry established by the Irish Auditing and Accounting Supervisory Authority, IAASA. This measure addresses the problem that arose regarding one of the current directors of IAASA whose term of office was due to expire in January 2010. That director was a member of a committee of inquiry by virtue of being a director. Therefore if the work of the committee continued beyond January 2010 the director would no longer have entitlement to his place on the committee. This would cause the make-up of the committee to change during the inquiry, which could raise questions of due process and fair procedures, and might leave the process open to challenge by way of judicial review.

The measure I have included in the Bill therefore provides that a person who is a director at the time of the formation of such a committee will be entitled to continue on that committee until the inquiry is completed. The amendment will also provide that inquiries already ongoing will not be affected by the proposed changes in the Bill. The amendment will also ensure that staff of IAASA can make preliminary inquiries into matters that come to the attention of IAASA before deciding whether such matters should be submitted to the board for full inquiry.

I shall now outline the details of the Bill. Section 1 provides that a true and fair view of a parent undertaking may be given by the use of US GAAP by certain parent undertakings. These relevant undertakings are tightly defined in the section. This is subject to the proviso that the use of those principles in the preparation of the undertaking's accounts does not contravene any of the provisions of the Companies Acts or any regulations made under those Acts. The accounts in question are the company's group accounts and the individual accounts of the parent company. This arrangement will be limited to a specified category of companies. These are defined as parent companies incorporating in Ireland for the first time whose securities are not traded on a regulated market in the European Economic Area, whose securities are registered with or which are subject to reporting to the US Securities and Exchange Commission, and which, on the date that this Bill passes into law, have not already incurred an obligation to file their first accounts with the Companies Registration Office.

The section also provides for this arrangement to apply in respect of a relevant undertaking for a maximum of four financial years and it expires on 31 December 2015 at the latest. Where accounts are prepared under this section, the notes to the accounts are required to state that this is the case.

Section 2 gives the Minister the power to make regulations that may prescribe other specified internationally recognised accounting standards under which specified categories of companies may prepare accounts for a maximum of four financial years or to end by 31 December 2015. Any such regulations shall specify the accounting standards, which shall be internationally recognised, and generally accepted accounting principles or practices of a jurisdiction where a majority of the subsidiaries of the parent undertaking have a substantial connection or where the market is situated on which the shares of the parent undertaking are primarily admitted to trading. In preparing accounts using other internationally recognised accounting standards, companies must not contravene any provision of the Companies Acts or any regulations made under these Acts. Where accounts are prepared under this section, the notes to the accounts are required to state that this is the case.

Section 3 makes a number of amendments to the Companies Act 1990 to facilitate two of the measures already mentioned which are contained in this Bill. All but two of the amendments in this section relate to the recognition of stock exchanges outside the State. This has required some technical amendments such as to the definition of a "recognised stock exchange". The new concept of an overseas market purchase that I referred to earlier is contained in this section, as is the requirement to publish particulars of the purchase of its own shares on the company website for the purposes of informing the market.

In addition to these amendments section 3 also removes the current upper limits that applicants can be asked to contribute towards the costs of court investigations initiated on foot of their applications under section 7 of the Companies Act 1990. This amendment involves removing the statutory limit in the two sections of the 1990 Act where it appears - section 7 dealing with security for costs and section 13 which deals with the final costs of the completed investigation.

Section 4 amends the Companies (Auditing and Accounting) Act 2003 to provide for the continuity of committees of inquiry of IAASA and for staff to make preliminary assessments of matters that come to the attention of IAASA without the need for immediate reference to the board of directors.

Section 5 is standard drafting and simply contains the short title and the fact that the Act and the Companies Acts shall be read as one.

The measures in the Bill are evidence of the Government's commitment to ensuring that company law remains responsive to any emerging challenges and opportunities. I commend the Bill to the House.

The consolidation of the 14 Companies Acts is at an advanced stage. It is major undertaking. This legislation and the previous one the House passed will be incorporated into the consolidated companies Bill when it is published.

See this speech in context