Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael) | Oireachtas source

I move amendment No. 1:

In page 7, line 17, to delete "This Act" and substitute "Subject to subsection (2)of section 78, this Act".

Amendment No. 1 is a technical amendment that is related to my Amendment No. 20. As Deputies know, Irish company law offers people the choice to establish either limited liability companies or unlimited companies. One consequence of creating a limited liability company is that the assets of the owners of the company are not necessarily available to meet any debts of the company. As a result, the only security that a limited company offers to third parties is the assets that the company owns itself. Therefore, the only way that a supplier, creditor or employee can know the financial position of the company is if the company is transparent about its finances. That is why the law requires limited liability companies to file financial statements in the Companies Registration Office.

The vast majority of people forming companies in Ireland choose to establish limited liability companies and, accordingly, the vast majority of companies in Ireland disclose their financial statements in public. They conduct their business in a transparent manner. The situation is different for unlimited companies. In the case of unlimited companies, the assets of the owners of an unlimited company are available to meet the debts of that company. Therefore, a supplier, creditor or employee can look to the owners of the company to pay any amounts that are owed to them by that company for the supply of goods or for fees, loans or wages. In that context, the Companies Act 2014 provides an exemption for unlimited companies from the general rules of transparency. Therefore, unlimited companies are not required to file financial statements with the Companies Registration Office.

It is important to recall that the Bill before us maintains that exemption. However, the current scope of the exemption has allowed it to be used in ways that are not in line with the principles underpinning company law and that have raised concerns with regulators. One of those concerns relates to the transparency of groups of companies. As a rule, company law requires group financial statements because they are an important part of the picture. Group financial statements are important as they add to the entity statements that the members of a group file by giving a clearer picture of the overall business of a group. Also, the picture of any one subsidiary given by its filed financial statements may well not correspond to economic reality. For example, all the staff might be formally the employees of one company, while most of the property might be in the name of another.

Without group financial statements, only part of the picture is available. However, the exemption for unlimited companies permits unlimited holding companies of groups not to file group financial statements. If all the companies in the group are unlimited, then the case for that is reasonable. However, the exemption applies even if the group conducts some or all of its trading through limited liability companies. In other words, once the holding company qualifies for the exemption, third parties will not have access to financial information on the business of the group as a whole even though they may be doing business with a group of companies that is virtually identical to a group of limited liability companies. In some cases, the only difference between this structure and any other group of limited companies is that the holding company is an unlimited company, yet this group is not obliged to file group financial statements as it would if the holding company was a limited liability company.

Given the importance of group financial information for protecting third parties, the Government considers that all groups with limited liability members should be treated equally and be required to file group financial statements. Therefore, one of the new criteria that section 76 introduces in order to qualify for the exemption is that the unlimited company is not a holding company of one or more limited liability subsidiaries. The new requirement is an important transparency measure. Nevertheless, I accept that it will be significant for those companies that are affected by it. Moreover, I have heard the concerns of some of those companies about the timing of this change. Many Deputies present will have heard the same concerns. I acknowledge that we are in uncertain times and that companies may need time to assess how various international developments will impact on their business.

Some companies have told me the exemption for unlimited companies is key to their ability to meet the challenges that they are facing in the next few years. They may need to restructure to meet the new rules if they wish to continue to use the exemption. That type of restructuring takes time. I believe a transitional period would be fair and appropriate in the circumstances. Accordingly, I have tabled an amendment to defer application of this particular provision until 2022. That will give the relevant companies nearly five years to put any restructuring in place in order to meet the new requirements for the exemption.

For those unlimited holding companies that do not own limited liability subsidiaries, they will continue to be able to avail of the exemption without making any changes to their corporate structures. Once the transitional period ends, any unlimited holding company that does not meet this new requirement and has not used the transitional period to restructure in order to qualify for the exemption, will start filing financial statements for years beginning in 2022 and those statements will show comparable figures for years beginning in 2021.

As I have said, I accept that will be a change for some companies so the transitional period also allows time for those companies to adapt to the new rules. I should point out that company law is kept under regular review by the Department and this change to the exemption for unlimited companies is no different in that regard.

Officials in the Department are always interested to hear the views of stakeholders.

I do not support Deputy Collins's approach on his amendment No. 21. The amendment would remove an important new transparency measure and if the amendment was accepted, people doing business with some groups of limited liability companies would not have access to the same protections as they would if they were doing business with other groups of limited liability companies. My amendment No. 20 proposes a fair transition period for companies to decide whether they wish to continue to avail of the exemption and, if so, whether they need to reorganise their affairs in any way. It is the appropriate solution to the genuine concern of the companies affected.

See this speech in context