Michael Ahern (Cork East, Fianna Fail)
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I move: "That the Bill be now read a Second Time."

This amending legislation responds to a number of issues, some of which have been raised by industry as matters of concern for Irish companies. In particular, the development and growth of the securitisation industry, which has enormous potential, has been placed at a significant disadvantage by the reluctance of insurers to underwrite risks that their international competitors would not be similarly required to undertake. The provision on dematerialisation is necessary to allow Irish companies to continue to compete in international markets, thereby allowing us to maintain our competitiveness in key areas where it has been established. The need to increase the audit exemption threshold for companies also requires priority treatment.

In addition, key provisions are included to allow for the smooth and effective transposition of the EU transparency directive which deals with the disclosure of information by certain listed companies on an ongoing basis. This directive is due to be transposed by January 2007.

Provisions are also included relating to the amendment of the Irish Takeover Panel Act 1997. Some of these provisions are consequent on the transposition of the EU takeovers directive on 20 May last in line with the EU target date.

It is necessary to amend the Consumer Information Act 1978 to allow for the appointment of a person to perform the functions of the Director of Consumer Affairs for a period of more than six months. The need for this arises as a result of the resignation of the previous incumbent and in order to allow the functions of the director to continue to be carried out by a temporary appointee until the National Consumer Agency is established on a statutory basis.

In summary, the amendments proposed in this Bill are designed to facilitate business development, copperfasten our competitiveness in key sectors where it has been developed and ease the regulatory burden on business while facilitating the giving of full effect to EU directives we must transpose.

Ireland is now a modern, highly globalised, credibly regulated, competitive economy. We need to ensure we retain our attractiveness as a place to do business and as a location for foreign direct investment vis-À-vis competitor jurisdictions.

We will achieve this objective by committing ourselves to fostering the conditions which support enterprise and in meeting the challenges and opportunities of an increasingly knowledge-based, regulated, globalised and environmentally sustainable economy.

Dublin today is recognised as a global centre for securitisation. It is ranked only second to London and ahead of Frankfurt in terms of asset-backed securities. The aggregate amount of asset-backed securities investments, managed by Dublin-based investors, has experienced considerable growth in recent years. In 1999, the aggregate amount of asset-backed securities investments was around €6 billion. This grew to between €30 billion and €35 billion in 2003 and today the figure is at least €80 billion. These figures demonstrate the position and importance of securitisation in terms of the domestic economy and the tremendous strides made in recent times.

The strong track record that Ireland has developed in the asset-backed securities sector is a result of many factors. These include a conducive business environment, a common law system and the presence of skilled personnel with considerable international experience. All of these factors, together with Government support, have fuelled the growth I have described.

Existing developments in securitisation afford us the potential to develop as a primary centre for specialist debt-financing products. Business regulation in the field of company law feeds into improvements to our national competitiveness, through high standards of corporate governance, and brings about a stable and predictable environment in which entrepreneurs can establish businesses, investors can invest, creditors can lend and the interests of the employees, consumers and other stakeholders are protected.

Ireland's economic future is inextricably bound up with the global economy through investment, trade, people and business generally. We must be at the top of the game in every aspect that affects competitiveness.

I will now turn to the provisions of the Bill and explain in greater detail what each is designed to achieve. Part 1 of the Bill, which covers sections 1 to 5, contains some preliminary technical matters, including the commencement of the legislation, interpretation, the making of orders and regulations and how parts of the Bill will relate to the existing Companies Acts.

Part 2, which covers sections 6 to 8 of the Bill, provides for various amendments to company law legislation.

Section 6 amends section 32 of the Companies (Amendment) (No. 2) Act 1999 to increase the audit exemption limits for turnover and balance sheet totals, which will allow more companies to avail of the audit exemption.

Exemption from audit removes the need for companies to engage an independent, external auditor and is allowed under EU law since 1978. Audit exemption was introduced in Ireland in February 2000 under Part III of the Companies (Amendment) (No. 2) Act 1999. The provision in this Bill increases the turnover limit to €7.3 million and the balance sheet total limit to €3.65 million. The existing thresholds are €1.5 million and €1.9 million, respectively.

The background to this initiative is that, in July 2005, a small business forum to was set up to consider the environment in which small businesses operate in Ireland. Among the topics the forum examined was the current level of audit exemption allowable in Ireland. Its examination focused on the disparity between the turnover threshold in Ireland of €1.5 million and that in the UK and a number of other member states where it was pitched at the EU maximum permissible threshold of €7.3 million. It reasoned that increasing our audit exemption threshold to €7.3 million would bring Ireland into line with its nearest competitor and a number of member states, and this formed the basis for one of the recommendations in its report of April 2006.

I am most anxious that the new thresholds should be available to companies for the financial year beginning on 1 January 2007. However, one will note from the text of the measure that a minimum two-month gap has been provided for between commencement of the provision and the financial year in which it can take effect. This delay has been inserted to allow for a stipulated minimum minority of shareholders to object to a company availing of the audit exemption. With the provision as drafted at present, and given how close we are to the end of the year, it is unlikely that the Bill could be enacted in sufficient time to enable companies to avail of the new exemption thresholds for the financial year beginning on 1 January 2007.

Rather than simply accepting this, I have asked officials of my Department to re-examine the measure to determine whether it could be refined in such a way as to make it capable of being availed of from the desired date. As a result, a formula that I hope will achieve this objective is being worked on and it will, I hope, form the basis of an amendment to address this issue on Committee Stage.

Section 7 amends section 239 of the 1990 Act to allow the Minister to provide by regulations for the introduction of mandatory dematerialisation of securities of listed or unlisted PLCs. Dematerialisation is an electronic system to replace paper share certificates and stock transfer forms. These will be replaced by a paper shareholder statement and shareholder reference number. The provision also allows the regulations to provide for any necessary consequential provisions to implement this requirement. Securities markets worldwide are undergoing significant changes as to the manner in which transactions are processed with a view to providing a more efficient and harmonised processing of securities transactions. An extensive consultation carried out by the Irish Stock Exchange in late 2004 established that dematerialisation should be pursued as a matter of priority for the Irish equity market.

As many Irish equities are listed on both the Irish and UK markets, it is desirable from an Irish perspective that dematerialisation is implemented in as similar a manner as possible in both markets. The Irish market generally is keen to ensure that Ireland responds appropriately and immediately so that it is in line with best international practice. Failure to progress this issue will be a competitive disadvantage to the Irish market in an increasingly harmonised European securities market. Both retail and professional investors in the Irish equity market would directly experience the benefits of dematerialisation.

The removal of share certificates from the Irish equity market is a strategic imperative in order to meet the best practice benchmarks of the global market. Dematerialisation will facilitate ease and speed of trading by investors; enhance the international competitiveness of Ireland for securities trading; reduce the current costs associated with the cumbersome process of managing paper-based transactions; and avoid the risk of the escalation of the current settlement costs for Irish certificated transactions, which would occur if there was a successful implementation of dematerialisation of UK securities, with share certificates still remaining for Irish securities.

The European Commission's financial services action plan is the legislative backdrop to a considerable amount of change fundamentally impacting the operation of securities markets. One of the core themes of the next phase of the European Commission's policy drive is clearing and settlement. In order to prosper in this changing global environment, markets need to continually critically assess and develop their offerings to ensure they are meeting the demands of their customers.

Dematerialisation has already taken place in many other countries such as France, Denmark, Sweden, Italy, India, Australia and New Zealand. I understand it is being considered in the UK, Belgium, the Netherlands, Spain and the US. It is important to reiterate that dematerialisation will not impact in any way on the legal ownership rights of shareholders, as those who currently hold shares in certificated form and who are on a share register will continue to hold securities on the share register in their own name. Shareholders will also continue to retain the right to receive information that is currently provided to those whose names appear on the share register of the company, such as annual reports and corporate action information as well as dividends. This information will continue to be provided directly by the company, or its registrar, to the shareholder.

Section 8 amends section 43 of the 2005 Act relating to prospectuses in order to limit the obligations of a guarantor in respect of statements included in, or omitted from, a prospectus relating to non-equity securities, apart from those that relate to the guarantor or the guarantee. This amendment is designed to address an issue which is causing great concern for the securitisation industry. The current wording of the law relating to prospectuses which was introduced last year has created a potential liability for financial guarantee insurers known as "monoline insurers". This has resulted in the monoline industry advising issuers that it is not willing to insure their products listed in, or issued out of, Ireland. Business lost to other jurisdictions as a result of this will be difficult to attract back, so swift action is required to deal with this situation.

Part 3 covers sections 9 to 14 of the Bill. It contains provisions designed to facilitate the smooth and effective transposition of the EU transparency directive. The directive applies to certain listed companies, those whose securities are admitted to trading on a regulated market, and is due to be transposed into Irish law by January 2007. The transparency directive will raise the quality of information available to investors on companies' performance and financial positions as well as on changes in major shareholdings. This should contribute to better investor protection, enhanced investor confidence and a better functioning of European capital markets. The provisions of Part 3 mirror similar provisions included in the Investment Funds, Companies and Miscellaneous Provisions Act 2005 in connection with the transposition of the market abuse and prospectus directives last year. Section 9 provides for definitions used in Part 3.

Section 10 gives the Minister power to make regulations to give effect to the transparency directive and any other supplemental measures. Regulations to implement the transparency directive are being prepared. However, certain provisions must be made in primary law. Section 11 provides for penalties on conviction on indictment for offences under Irish transparency law.

Section 12 gives the Financial Regulator, who is being designated competent authority for purposes of the directive, the power to make supplementary rules to allow the regulator to fulfil his or her role as competent authority.

Section 13 amends the Central Bank Act 1942, as amended, to include the transparency directive in the list of directives which the Central Bank and Financial Regulator have responsibility to enforce. This deals with confidentiality of information obtained by the competent authority and effectively prohibits its disclosure except by virtue of Irish transparency law.

Section 14 provides that the Minister may, by order, cite the markets to which transparency law shall apply. It is important that requirements under the transparency directive be capable of being applied to markets outside the scope of the directive, for example the Irish Enterprise Exchange market, and to any new market that may be established in the future.

Part 4, which covers sections 15 to 21 deals with miscellaneous amendments to the Takeover Panel and Consumer Information Acts.

Sections 15 and 16 amend section 2 of the Irish Takeover Panel Act 1997. Under section 2 of the Irish Takeover Panel Act as originally enacted, the provisions applied to companies whose securities were quoted on markets regulated by a recognised stock exchange. The Irish Stock Exchange was the only prescribed recognised stock exchange. Moreover, the focus of the Act was on securities that gave the holders voting rights — that is, enabled them to effectively control a company. By virtue of the Irish Takeover Panel Act 1997 (Relevant Company) Regulations 2001, SI 87 of 2001, Irish companies whose securities were not listed on the Irish Stock Exchange, but were listed on a number of specified foreign markets, were brought within the scope of the Irish Takeover Panel. The 2001 regulations applied in respect of companies which, while no longer being listed on any of these markets, had been listed on any one of them in the previous five years. In view of the fact that the focus of the Irish Takeover Panel Act is on those securities that give effective control over the affairs of a company, as represented by the holding of securities carrying voting rights, and as the Financial Services Funds Industry has increasingly used the company structure as one of its entities of choice in developing investment projects, principally through the issue and listing of debt securities, where the control of the company through voting rights is not an issue, section 75 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005 exempted such companies from the remit of the Irish Takeover Panel, but only in so far as they were listed on the market operated by the Irish Stock Exchange. These provisions make similar changes in respect of debt securities listings on the markets brought in by the 2001 regulations. These provisions were inserted on Committee Stage in the Seanad.

Section 17 amends section 8 of the Irish Takeover Act 1997 to allow the Takeover Panel to make provision in its rules to give effect to EU law in this area. The need for this amendment to be made in primary law only arose quite recently in the context of the transposition of the EU takeovers directive which came into effect on 20 May 2006. The Takeover Panel, which has been designated as the competent authority for purposes of the directive, already has the power to make rules under section 8 of the Irish Takeover Panel Act 1997. This power is not, however, wide enough to enable the panel to make rules directly to give effect to changes in this area arising from the takeovers directive, and such power must be provided separately and in primary law, to reflect a number of judicial decisions of recent years.

Section 18 amends the Schedule to the Irish Takeover Panel Act 1997 to align the general principles in the Schedule to the 1997 Act with those of the takeover bids directive as transposed in Regulation 7 of SI 255 of 2006, except for the Substantial Acquisition of Securities General Principles, which is being retained. The objective here is to have one set of general principles to apply to all the transactions comprehended in the 1997 Act.

Section 19 is a consequential provision to sections 15 and 16. It revokes the 2001 regulations I mentioned earlier and was inserted on Committee Stage in the Seanad.

Section 20 is a consequential provision on section 18. It amends regulation 7 of SI 255 of 2006 — the regulations which transposed the general principles of the Takeover Bids Directive. The purpose of the amendment is to effectively repeal the general principles in regulation 7, as these will be reflected in the amended Schedule in section 18, and to remove any confusion which may be caused by the existence of two sets of general principles.

Section 21 amends the Consumer Information Act 1978 by repealing section 9(11)(b). The amendment is required to allow for the appointment of a person to perform the functions of the Director of Consumer Affairs for a period of more than six months. The need for this arises as a result of the resignation of the previous incumbent and to allow the functions of the director to continue to be carried out by a temporary appointee until the National Consumer Agency is established on a statutory basis.

The Government is committed to supporting industry by responding in an appropriate way to the new challenges which are presented by this ever-changing global marketplace. The Bill is evidence of this commitment and I commend it to the House.