Peadar Tóibín (Meath West, Sinn Fein) | Oireachtas source

Cuirim fáilte roimh an Bille seo agus molaim an obair atá déanta ag an Company Law Review Group. Tá sé tar éis Bille íontach, tabhactach and cuimsitheach a chruthú.

I fully endorse the approach taken. It is unusual that the Minister and I are on the same side for three Bills in a row. I am sure normal business will resume soon enough. The work done by the Company Law Review Group, CLRG, the Department, the Minister and previous Governments has led to this Bill. It is an impressive Bill with multiple facets facing companies and ensuring the highest standards in corporate governance. The best place to address issues is among those closest to the issues. The approach of bringing together such a diverse and inclusive group of legal practitioners, representatives of various strands and sectors of business, and trade unions to address a common concern is a new benchmark in developing legislation. It should be replicated elsewhere. I am sure many representatives who served on the CLRG never thought this phase would end but the legislation is now with us.

The CLRG had over ten years to develop the ideas and work with the Department on drafting of the legislation. Given the impact and scale of the legislation, I hope the Minister will allow significant time for its discussion and debate. The implications of the legislation are deep and profound for business, the community and the wider sector. It is reputed to be the largest item of legislation tabled in the State and we should give it due consideration.

Sinn Féin comes at this legislation from a positive perspective. We share the aims of the Bill and will work to ensure its timely process through the Oireachtas. The points we raise and the amendments we will propose are for the purpose of simplification and streamlining the process and reducing cost to business, while maintaining the highest level of commercial probity and governance. I hope the Minister will take on board the points we raise, provide clarity, review our contribution and, where possible, amend the legislation.

Over 12 years ago, the CLRG was tasked with the mission to bring forward proposals to develop company legislation. Its mission statement was "to promote enterprise, facilitate commerce, simplify the operation of the Companies Acts, enhance corporate governance and encourage commercial probity". The legislation, as presented, addresses these matters in a comprehensive and detailed fashion. Central to the legislation is the need to simplify the legal framework. For seven years, I worked in business consultancy with businesses starting off and plotting their way through every stage of commerce. For many businesses, it was very difficult to navigate the legal framework governing the area. This simplification is welcome.

Recent times are littered with cases in which corporate governance and commercial probity were secondary to the reduction in regulation and oversight and the elevation of the pursuit of profit at all costs. Society is paying a dear price for that. We have seen how the banking sector and property development benefited and profited from sharp practice. We have seen how auditors passed company accounts as solid only for the company to collapse shortly after, leaving huge debts and having an impact on downstream SME creditors that makes it impossible for them to struggle and survive. Through this, we saw workers losing their jobs and livelihoods. We see daily cases of directors in front of the courts pursued for assets that appear to be lost in myriad companies and subsidiaries. The business practices and ethos of the past brought this State to its knees. It provides cases studies to compare the effectiveness of the legislation.

The key test is the difference the legislation has on our society, on reigning in sharp practice and on promoting sustainable regulated frameworks for business. Will the legislation promote reasonable, responsible and open business? I am also mindful that entrepreneurs face major costs in business start-up. Start-up is the key time for enterprise in our society Many people have ideas but not the wherewithal to put the ideas into concrete and bring them to fruition. Each week, I am contacted by SMEs across Meath and across the State with regard to meaningless bureaucracy and replication of administration. There is a balance between proper oversight and regulation and bureaucracy.

The Minister stated this legislation would save €6 million per year in professional fees for start-ups. I would say the figure would be less. If businesses had been fulfilling previous guidelines and legislation and we were going into a different sphere, there probably would be a difference of that amount of money. However, in many cases, businesses changed their practices to suit the reality in which they were existing. The legislation had become archaic and businesses had moved on. The Government could do more to reduce costs in many other areas, including utilities, property and transport, but they are cases for another day.

I will focus on the role of private limited companies which account for 90% of company types and the simplification of the business constitution. The need for the bulk of businesses to have detailed objectives and articles of memorandum had been a hoop through which many business continually had to jump and it had become less relevant to their day-to-day work. The simplification of this process will promote greater flexibility for existing companies while easing the process for start-ups.

Given the flexibility offered by the new form of private limited company, will the Minister outline the benefit to companies of the designated activity company, which sectors would most benefit and the expected take-up levels? I can see the sense of, and agree with, the reduction of directors down to one as a business practice. People were just finding names to put down on paper. Many people agreed to become paper directors without knowledge of what this entailed and of their responsibilities or their liabilities. The allowance of a single director should end this practice and ensure the actual director is identified and has full knowledge of the business. However, writ large on this matter are the corporate governance issues that can arise with a single uncontested director. It is important to ensure it is not abused. How will the new system ensure a full separation from vested interests and the cross-payment of contacts to companies in which the director may have an interest? Who will hold the single director to account? Will this be the role of director of corporate enforcement? I will return to the issue of compliance later.

I welcome the inclusion of the full list of responsibilities of directors in the legislation and while there is considerable case law behind these responsibilities, I remain concerned as to the vagueness of some concepts. I refer to the behaviour of directors, such as the requirement to act "honestly an responsibly". These subjective terms will be further tested in case law but more could be done to enhance corporate governance and commercial probity.

One such aspect is the full disclosure of material and access to company information. Will the legislation provide that a director must list all other companies in which he or she may have a beneficial interest? Does it ensure that the contracts and payments between related companies are at market value? Will directors be personally liable to provide full information and access to all financial records to auditors in the preparation of annual accounts?

This point is central to the sharp practices which have been allowed to develop and the inaction between auditors and directors. The auditor process is seen to be an independent assessment of the business when, in fact, it is only a "true and fair" reflection of the information provided. Company directors can claim a clean bill of health by non-disclosure of material information and auditors can claim they were only working on the material provided. We have audits which can be free of responsibility or liability. As we have seen, the public has paid the price for this accounting and legal grey area in the past.

Surely the highest levels of corporate governance should entail that there is full disclosure of information and that the books are fully open for auditors. Will the Minister ensure the legislation fully reflects the need for openness and that responsibility for full disclosure rests with the directors with relevant legal sanction and that auditors are liable for their findings if they have failed to ask the right questions and make a full and accurate report?

It is clear that the defence of "true and fair", with the caveat of the information provided, has failed business, failed the economy and failed workers, consumers and creditors. It would be of benefit if, in addition to the annual accounts, the audit was to include an assessment of corporate governance and listing any labour court findings or other legal judgments in regard to the company directors. Such an approach to audit would be reflective of the scale of the enterprise. We are seeking a process that would be proportionate in cost and in terms of the size of the company.

In addition, while the legislation includes the criminal sanctions against directors, I hope the Minister and the Department will clarify the process by which a director will be liable for non-disclosure or abuse of position in regard to any vested interests. The business and organisation of companies has changed much in the past decade and this reflects the need for this legislation. The development of joint enterprises and the widening the investment bases is reflected in the legislation with increasing numbers of investors.

Directors of a company can be found on two or more continents. However, the legislation still holds with the practice of the company stamp signature. I understand a company must have a signature but this increasingly online world and the environment in which we live makes this physical manifestation of a signature a little bit outdated and obsolete. Will the Minister outline the reason for continued reliance on a company stamp and if the legislation will fully provide for electronic signatures?

More than 90% of all enterprises in this State are in the SME sector and account for 78% of employment. While they account for 50% of all turnover, this turnover has a greater impact on the domestic economy than the multinationals and financial sector because these SMEs are part of the ecosystem of the economy. When one business fails, it often has a far more negative impact on the rest of the SME sector, costing more jobs.

Most of this business is based on goodwill and reliance on audits and tax compliance to ensure payment is certain. Given how the current banking crisis is being played out in the SME sector, credit is tight and cash flow for many is on a knife edge. It is clear SMEs cannot carry any additional debt. Given that the Government has claimed that all policies will be SME-proofed to ensure they do not have an negative impact on the sector, I am concerned that this legislation has raised the level of winding-up petition to €10,000. Many SMEs would be out of business before they would reach this level as a creditor. Will the Minister review this level and reduce it to fully reflect the needs and recent experience of SMEs? This is not to promote a race to litigation but to ensure that businesses are paid and non-viable enterprises do not continue to trade and drag down other enterprises. This week I worked with a business which was sub-contracted to another firm which had not paid tax for approximately four or five years. The sub-contractor was never aware that was the case and had invested in his company while this process was occurring.

I had hoped the Bill would include a clause on prompt payments. This is another area causing significant problems in the economy. Many businesses are not getting paid on time and the larger companies are using more muscle to ensure they do not have to pay on time and are using that cash flow for their own purposes in their businesses. I urge the Minister to review this position and include a provision, as called for by the SME sector.

In regard to the credit crisis facing the SME sector, I raise the issue of mergers and divisions. We welcome the clarity the legislation will bring to the process. The process of mergers, as laid out, is sensible, straightforward and clear. I hope this will allow for companies to merge when it is in their best interests and in a fashion which is timely and cost-effective.

As the Minister will acknowledge, many viable businesses were encouraged to diversify into property and were incentivised to invest in developing their premises. These debts are now undermining enterprises and the relationship with the banking sector.

We heard Ms Fiona Muldoon state recently that half of the €58 billion in impaired debt was within the SME sector. Much of it is related to the construction sector but approximately 35% of the non-construction sector SME loans are impaired. Many good, healthy businesses with good products and customers are being dragged down by their marriage to that debt. In this legislation we are looking for a system for the separation of performing viable enterprises from their impaired property assets. Has the Minister a view on this? Could it form part of the process of dealing with legacy debt in the SME sector?

As I stated, Sinn Féin supports the objectives of this legislation and the majority of the proposals made in it. It supports fully the need to promote enterprise and ease the process of establishing and running a business. It is clear that the Irish, both here and abroad, are entrepreneurs, workers and businesspeople and, if given half a chance, will create, build and enjoy profits. We support a Government that creates an opportunity for the people concerned to establish businesses and promote employment here in Ireland.

This legislation begins to shape a legal framework for enterprise development. We need policies on investment by the Government to promote sustainable enterprise. In itself, a robust legal framework for the economy will not create growth or employment. In the recent past we have seen the growth of start-up businesses, but we have also seen, unfortunately, an increase in business closures. I fully accept that not all businesses will succeed and that the changing operating environments will make some businesses redundant. Business failure is a component of the enterprise culture. We should not stigmatise or be afraid of business failure; it happens and we need to provide legislation to deal with it.

With regard to this process, I have some concerns about the legislation that I hope the Minister will address. The legislation includes changes regarding charges, property and debentures. I would like the Minister to confirm that these changes will not materially affect the claims for redundancy by workers arising from business closures. Will he confirm that the position of the workers made redundant will be such that they will be regarded as priority creditors?

As the Minister will acknowledge, some businesses may face a challenge to survive. At times, we need to protect these businesses and give them a process of rebuilding, restructuring, etc. The process of examinership offers the protection of the courts during this period of business transition. Recently, many retailers have entered examinership as a way to address the cost base. B&Q is an example. Upward only rents undermined its business. In this case, the examinership process is an area in which the stakes are very high. The closure of the business and a large-scale loss of employment is one of the possible outcomes if the landlord fails to engage meaningfully in the examinership process. However, the process is extremely costly and not an option for many SMEs. I note that the Minister is aware of this. I hope that legislation will be brought forward to reduce the cost of the process such that some SMEs will be helped to continue to trade.

Will the Minister clarify whether he believes the legislation fully meets the need of SMEs for an examinership-lite option for smaller businesses. The other option for businesses in crisis is a process of receivership, which is the last option for many. However, the recent example of the publishers of The Sunday Business Postentering receivership and coming out at the other end over the period of a weekend is a concern. The outcome of the process appears to be that the beneficial ownership of the company remains but the printing contract was cancelled and reassigned to another provider. I am aware that this case is with the courts, but I hope the Minister will address the issue to ensure receivership does not become the norm for businesses seeking to break contracts without compensation and changes to beneficial ownership.

Given the time constraints and the size and import of this legislation, I have only had the opportunity to raise some of the technical matters of concern. I will address the other issues during Committee and Remaining Stages. I hope the Minister will provide support for the committee, through his Department, by way of advice and information.

The changes envisaged in the legislation can make the legal framework for business simpler and more cost-effective. The legislation also has the potential to enhance corporate governance and commercial probity. While the vast majority of businesses work well and to the highest standards, a few will pursue sharp practices for profit and other SMEs will pick up the cost. Central to the success of legislation will be the compliance and support of enterprises. I ask the Minister to resource fully activities such as those of the county enterprise boards, Enterprise Ireland and other organisations that support enterprise development. These bodies will make good the changes envisaged in the legislation. They will educate businesses in order that they will understand the legislation fully and run healthily.

I ask the Minister to re-examine the supports and information available for businesses to deal fully with this process of transition. He should ensure directors fully understand the changes. There is a need for robust compliance mechanisms to ensure the responsibilities of directors are met fully and adhered to. This should not be a matter for businesses at a time of crisis. It must include the auditing process and an overview of governance in an operating business.

Will the Minister confirm that additional resources will be made available to the Office of Corporate Enforcement? The annual report should list judgments, including Labour Court judgments against a company or directors, and also an assessment of corporate governance.

As I stated, Sinn Féin supports the objectives of the Bill which it approaches from a position of seeking practical changes that would improve it. It looks forward to many hours of discussion with the Minister on it.

See this speech in context