Thursday, 28 June 2012
Companies (Amendment) Bill 2012 [Seanad]: Report Stage
I move amendment No. 1:
In page 3, between lines 11 and 12, to insert the following:
"(2) In this Act "Act of 1999" means the Companies (Amendment) (No. 2) Act 1999.".
The Minister of State will be aware that SMEs are not compelled - and are exempt from the requirements - to have an audit if they have a turnover of €8.8 million per annum or less, and if they are employing fewer than 50 employees. Unfortunately, this situation does not apply to brokers because they are covered by different legislation, albeit perhaps for good reasons.
Brokers are compelled to have an audit regardless of turnover, which has created great unfairness in this business. Brokering is largely an advice-based business. Generally speaking, brokers do not handle clients' money or premiums except in specified limited circumstances where the relevant insurer is anyway responsible for the moneys. Therefore the risk of insolvency is extremely limited. In so far as consumers have money with brokers, they are also protected through ICCL and professional indemnity insurance. A broker who might only have a turnover of €100,000 or less is compelled to have an audit. Brokers in my own home city of Limerick say that an auditor will not conduct an audit for less than €5,000. However, another type of business with 100 times that turnover is not compelled to have an audit. This is blatantly unfair.
I will cite a case study from my own area. In the wider Limerick region there are 52 brokerage firms, which are responsible for several hundred jobs. This amendment seeks to reduce the cost on those small businesses so that they can maintain the jobs. Limerick city and the Limerick region generally has been ravaged by unemployment. The mid-west was reliant to an extraordinary, above-average degree on low-skilled manufacturing, tourism and related businesses that have been especially affected by the recession. We have lost a number of white-collar jobs in the brokerage business, but I am trying to hold on to what we have left.
Due to a combination of bad planning, poor decisions by local authorities and the recession, Limerick city centre is physically scarred by unemployment. There are run-down and derelict buildings as well as closed shops. Every time I walk down the main street, I see another shop closed. I often take a walk around the city centre at 8 p.m. or 9 p.m. at night and it reminds me of Goldsmith's "Deserted Village". We must get activity back into the city centre therefore.
Many of the white-collar brokerage jobs are based in the city centre, while others are based in retail parks and shopping centres that have sprung up outside the city. They tell me, however, that if there was sufficient activity back in the city centre they would relocate there. It is not a matter of helping people to make extra profits, or catering for one particular business sector; it is a question of correcting a glaring anomaly in so far as the requirement for audit is concerned. As I have explained, somebody with a turnover of €100,000 or less, and is making no profits, is compelled to pay €5,000 for an audit, whereas somebody with a turnover of €10 million is exempt from that requirement.
This amendment is about protecting jobs. Brokers throughout the country, not just in Limerick, are responsible for providing thousands of jobs within the economy as a whole. Nonetheless they are under severe pressure and have been badly squeezed by the recession. I am seeking to assist them to retain jobs by reducing costs on them. In my view, this is an unnecessary cost.
I too have spoken to industry representatives about this issue. This industry, which employs thousands of people across the State, is under great pressure. Many of the companies involved are small. For a small business to have to meet the cost of a €5,000 audit on a regular basis is an imposition. Also, this cost is generally passed on to customers. One of the major elements in terms of competitiveness in this State and, at the times, the lack thereof is the high cost of insurance. The State should be doing everything possible to reduce costs.
I do not support regulation for regulation sake. I do, however, support regulation where it safeguards the public and businesses. The Central Bank has communicated the opinion that it does not see any reason this change could not be made. This is important. I do not believe we should jettison regulation easily but the Minister needs to come up with good reasons for the imposition of this particular cost on brokers.
I too raised this issue on Committee Stage. I also raised the issue of charitable organisations, many of which are involved in communities throughout the country, who are required to have their books audited despite that their turnovers are relatively small. I am involved in a charitable organisation, the biggest expense of which every year is audit fees in respect of which we fund raise in the community, although we would rather funds raised in that way were spent for the benefit of the community.
I hope the Minister of State will take on board some of the views expressed today and that his response in that regard, including on the suggestion I made, will be positive.
I thank Deputies O'Dea, Tóibín and Lawlor for their comments thus far in the debate.
The purpose of the amendment tabled by Deputy O'Dea is to provide for the removal of the prohibition contained in the Companies (Amendment) (No. 2) Act 1999 on insurance intermediaries incorporated as limited companies availing of the exemption provided for at section 32 of that Act from the requirement to have their accounts audited. Insurance intermediaries are regulated by the Central Bank under the Investment Intermediaries Act 1995, as amended. This is because of the nature of the activities in question. The prohibition on availing of the audit exemption in the company law measure to which I have just referred is on prudential grounds and at the behest of the Central Bank and the Department of Finance. It would not be appropriate for the Minister for Jobs, Enterprise and Innovation to vary or remove this prohibition in company law unless expressly requested to do so by the Central Bank and Department of Finance, or with their agreement. No such request or agreement has been made or given by either regarding the making of a proposed audit exemption at this time.
The cohort of insurance intermediaries prohibited from availing of the audit exemption under company law represent not the totality of insurance intermediaries but those incorporated as limited liability private companies. All entities outside that category are and will continue to be subject to the obligation to have an audit under the Investment Intermediaries Act 1995, as amended. The Department of Jobs, Enterprise and Innovation has consulted with the Department of Finance and Central Bank on the amendments proposed by Deputy O'Dea. The Central Bank responded to the Professional Insurance Brokers Association, PIBA, stating that the financial regulator had noted its proposal, to which it was sympathetic, but cannot exempt its members from a statutory requirement. There is a legal obligation on investment business firms, including insurance intermediaries, to submit audited annual accounts as provided for in the statutory provisions contained in the Investment Intermediaries Act 1995, IIA. Those provisions apply to all investment business firms, subject to the IIA and are not applied on a case by case basis. Insurance intermediaries will fall for regulation under the supervisory framework set out in the Insurance Mediation Regulations, IMR, 2005, which transpose the insurance mediation directive into Irish law only when the IMRs have been revised to ensure proper transposition of that directive. One fully transposed, insurance intermediaries that do not provide investment services would no longer be subject to the legislative and supervisory requirements applying under the IIA.
The Central Bank would not object to insurance intermediaries being removed from the IIA in circumstances where they are covered by final insurance mediation regulations which have been transposed into law. Removing the requirement for insurance intermediaries to be audited under the Companies Act would conflict with the requirements set out under the IIA. Likewise, removal of insurance intermediaries from the IIA without suitable supporting regulations or legislation would result in these entities falling outside the scope of regulation, which is not a situation with which the Central Bank would be comfortable.
The Department of Finance states that further necessary detailed work on this matter requires to be undertaken by it. Consequently, it is unable to give its approval to the proposed amendment. Given the position of the Central Bank and the Department of Finance, based on prudential considerations, I cannot accept these amendments, which have no connection with the Companies (Amendment) Bill 2012. The proposed amendments relate to audit exemptions while the Bill specifically focuses on US generally accepted accounting principles. The Companies (Amendment) Bill 2012 is an urgent measure, which needs to be enacted with delay.
On the specific points raised, the following information may be helpful to the Deputies concerned. The companies in question are subject to requirements and supervision which are outside the company law policy remit of the Department of Jobs, Enterprise and Innovation. Obligations and requirements of a prudential supervisor, such as a Central Bank, are in place to provide the protections to safeguard the integrity of the systems in question and to protect the public. The Department of Jobs, Enterprise and Innovation has a public duty, in so far as the legislation for which it has responsibility is concerned, to uphold and maintain safeguards of which it is the custodian, in this case, the restriction applying to audit exemptions. Only when clearance to change the eligibility criteria has been received from the Department of Finance and the Central Bank can the Department of Jobs, Enterprise and Innovation consider amending this legislation. In the event that the position of the Department of Finance and the Central Bank in regard to audit exemptions for insurance intermediaries changes, the Department of Jobs, Enterprise and Innovation would be prepared to consider making amendment to those provisions in a manner acceptable to the prudential supervisors. Such amendments will be considered in the context of an appropriate company law Bill. I hope that information is helpful to the Deputies concerned.
In the event that the position of the Department of Finance and Central Bank in regard to audit exemptions for insurance intermediaries changes, the Department of Jobs, Enterprise and Innovation would be prepared to consider making amendment to these provisions in a manner acceptable to the prudential supervisors. Such amendments will be considered in the context of an appropriate company law Bill.
I think it was Oscar Wilde who once said that when trying to make excuses for not doing something one excuse is more believable than several. The Minister of State has given several excuses for not accepting these amendments, the first of which is that this is the wrong legislation in which to make this change, which is nonsense. The Investment Intermediaries Act is not before the House. We are dealing with company law legislation, which is the appropriate legislation to make the amendment if the will existed. The Minister of State has told us that the Department of Finance and Central Bank are not in agreement with this proposed change. I would like to put on record the information available to me in this regard. I challenge the Minister of State to deny this.
Some three years ago in 2009 the then Minister for Finance, who was acting on the advice of the Department, promised that this legislation would be changed to accommodate the type of situation I am seeking to address.
In a letter to PIBA dated 9 May 2012, the Central Bank confirmed the issue was considered by the Department of Finance during 2009 but was not finalised. The letter states:
The proposed amendments included removing insurance intermediaries from the scope of the Investment Intermediaries Act 1995. I confirm that the Central Bank had no objections to this proposal.
Could anything be clearer than this? We are now told the Department of Finance and the Central Bank have not made up their minds. They both had their minds made up three years ago. Has the situation changed in any material way since? Has a different decision been made? Have they reconsidered their position since 2009 and, if so, why?
The position of investment intermediaries has worsened considerably. Many of these white collar jobs have been lost since 2009 and people are under greater pressure now than they were then. The Department of Finance and the Central Bank were willing to change in 2009 but the Minister of State expects us to believe this is no longer the case. We are also expected to swallow the canard that this is the wrong legislation. This is pretty pathetic. I would have imagined the Government could have come up with a more substantial excuse than this.
I take the view of the Central Bank with regard to this issue but from the response it seems everybody involved realises there is an onerous burden on the industry, particularly on the smaller players. If these individuals were allowed to operate without the current auditing procedure, the Central Bank would not feel directly confident, but I believe the Central Bank looks sympathetically at the idea that something needs to be done. The Minister of State has said this will be done when an appropriate companies Bill comes before the House. When will this happen? How long more must these businesses struggle under the weight of this burden which almost everybody agrees is unfair?
The Minister of State was asked a question with regard to the various outputs of the accountancy codes. If we have two codes, the likelihood is they will not give exactly the same answers. I would like the views of the Minister of State on this.
I welcome the points made by the Deputies and I am happy to clarify the issues. With regard to the letter referred to by Deputy O'Dea, it contains other paragraphs which I will read into the record. I do not know whether the Deputy has a copy of it. Deputy O'Dea's quote from the letter was: "The proposed amendments included removing insurance intermediaries from the scope of the Investment Intermediaries Act 1995. I confirm that the Central Bank had no objections to this proposal." This is not the full context of the letter as it also states:
The Financial Regulator has noted your proposal and does look on this matter sympathetically. However, it cannot exempt your members from a statutory requirement. The position remains that the legal obligation on investment business firms (including insurance intermediaries) to submit audited annual accounts derives from the statutory provisions contained in the Investment Intermediaries Act, 1995. Those provisions apply to all investment business firms subject to the IIA and are not applied on a case by case basis. Insurance intermediaries will fall for regulation under the supervisory framework set out in the Insurance Mediation Regulations of 2005, which transposed the Insurances Mediation Directive into Irish Law only when the IMRs have been revised to ensure proper transposition of the Directive. Once fully transposed, insurance intermediaries that do not provide investment services would no longer [be] subject to the legislative and supervisory requirements applying under the IIA.
The Central Bank would not object to insurance intermediaries being removed from the IIA in circumstances where they are covered by final Insurance Mediation Regulations which have been transposed into law. Removing the requirement for Insurance Intermediaries to be audited under the Companies Act would conflict with the requirements set out in the IIA. Likewise, removal of Insurance Intermediaries from the IIA without suitable supporting Regulations or Legislation would result in these entities falling outside the scope of regulation which is not a situation the Central Bank would be comfortable with at all.
With regard to the issue raised by Deputy Tóibín, more than likely the companies Bill, which the Department hopes to publish towards the end of the year, will be the appropriate vehicle or context in which to consider these amendments. The Department has a clear intention to take on board all of the issues raised and, if appropriate, to place them in legislation to be published by the end of the year so the Central Bank, the regulators and the Department of Finance are all happy with what we are doing. This is pretty quick considering the legislation before us and our commitment to having an appropriate vehicle for the regulations.
The Minister of State stated that it will be appropriate to deal with this in the next companies Bill. This is a companies Bill but it is not appropriate to deal with it in this legislation. In the meantime these businesses are under pressure and jobs are being threatened and lost. However, we must wait for the next companies Bill, whenever that will be, and I do not see the logic in this quite frankly.
The Minister of State quoted from the full letter from the Central Bank in 2009. If I understood what he said, the letter indicated it would not be appropriate until the relevant regulations were in place. This was three years ago. We are now being told the relevant regulations will be in place by the time of the next companies Bill, whenever that will be. When will the relevant regulations be in place? People were sympathetic in 2009 and all that had to be done was to put in place these regulations. Three years later we are still sympathetic but there is no sign of the regulations.
I did not interrupt Deputy O'Dea and I ask him to listen to me as I listened to him.
The Government of which he was a member did not do it when it was in power and we are doing it now. We are making a commitment with regard to the appropriate vehicle when the regulations are in place.
Members of the public receive services from these companies. The public must be protected. The Central Bank is not happy at this stage for it to go ahead. It wants everyone to move forward together and put through this Bill. The previous Government did not do it and we are saying that we will do it. It is as simple as this. It is very clear to all objective commentators what we are doing and when we are doing it.
The Dail Divided:
For the motion: 14 (Dara Calleary, Niall Collins, Barry Cowen, Timmy Dooley, Séamus Kirk, Micheál Martin, Charlie McConalogue, Mattie McGrath, Michael McGrath, Éamon Ó Cuív, Seán Ó Fearghaíl, Willie O'Dea, Brendan Smith, Robert Troy)
Against the motion: 87 (James Bannon, Richard Boyd Barrett, Tommy Broughan, Joan Burton, Ray Butler, Jerry Buttimer, Catherine Byrne, Eric Byrne, Ciarán Cannon, Áine Collins, Michael Colreavy, Seán Conlan, Marcella Corcoran Kennedy, Michael Creed, Seán Crowe, Clare Daly, Jimmy Deenihan, Pat Deering, Pearse Doherty, Regina Doherty, Stephen Donnelly, Robert Dowds, Andrew Doyle, Bernard Durkan, Dessie Ellis, Alan Farrell, Frank Feighan, Anne Ferris, Martin Ferris, Charles Flanagan, Luke Flanagan, Brendan Griffin, Dominic Hannigan, Noel Harrington, Brian Hayes, Martin Heydon, Heather Humphreys, Kevin Humphreys, Derek Keating, Colm Keaveney, Paul Kehoe, Seán Kenny, Seán Kyne, Anthony Lawlor, Ciarán Lynch, Eamonn Maloney, Peter Mathews, Mary Lou McDonald, Nicky McFadden, Finian McGrath, Joe McHugh, Sandra McLellan, Tony McLoughlin, Olivia Mitchell, Mary Mitchell O'Connor, Michelle Mulherin, Catherine Murphy, Eoghan Murphy, Gerald Nash, Dan Neville, Caoimhghín Ó Caoláin, Aodhán Ó Ríordáin, Jonathan O'Brien, Kieran O'Donnell, Patrick O'Donovan, Fergus O'Dowd, John O'Mahony, Willie Penrose, John Perry, Ann Phelan, John Paul Phelan, Ruairi Quinn, Shane Ross, Brendan Ryan, Alan Shatter, Seán Sherlock, Róisín Shortall, Arthur Spring, Emmet Stagg, Brian Stanley, David Stanton, Billy Timmins, Peadar Tóibín, Joanna Tuffy, Liam Twomey, Jack Wall, Alex White)
Tellers: Tá, Deputies Charlie McConalogue and Seán Ó Fearghaíl; Níl, Deputies Emmet Stagg and Paul Kehoe.
Amendment declared lost.
I move amendment No. 2:
In page 4, between lines 10 and 11, to insert the following:
"4.—Section 32 of the Act of 1999 is amended—
(a) in subsection (3), by adding the word "either" at the end of the opening phrase after the words "are that", and
(b) by adding a new subsection (3)(b) as follows:
"(3) (b) in respect of the year concerned—
(i) the company is a company referred to in paragraph 4 or paragraph 19 of the Second Schedule hereto; and
(ii) the amount of turnover of the company does not exceed €1,000,000; and
(iii) the company does not receive and hold payments of money on behalf of third parties or only does so on the basis of being fully indemnified by those third parties for any loss incurred as a result.".".
The Dail Divided:
For the motion: 14 (Dara Calleary, Niall Collins, Barry Cowen, Timmy Dooley, Séamus Kirk, Charlie McConalogue, Mattie McGrath, Michael McGrath, Micheál Martin, Éamon Ó Cuív, Seán Ó Fearghaíl, Willie O'Dea, Brendan Smith, Robert Troy)
Against the motion: 87 (James Bannon, Richard Boyd Barrett, Tommy Broughan, Joan Burton, Ray Butler, Jerry Buttimer, Catherine Byrne, Eric Byrne, Ciarán Cannon, Áine Collins, Michael Colreavy, Seán Conlan, Marcella Corcoran Kennedy, Michael Creed, Seán Crowe, Clare Daly, Jimmy Deenihan, Pat Deering, Pearse Doherty, Regina Doherty, Stephen Donnelly, Paschal Donohoe, Robert Dowds, Andrew Doyle, Bernard Durkan, Dessie Ellis, Alan Farrell, Frank Feighan, Anne Ferris, Martin Ferris, Luke Flanagan, Brendan Griffin, Dominic Hannigan, Noel Harrington, Brian Hayes, Martin Heydon, Heather Humphreys, Kevin Humphreys, Derek Keating, Colm Keaveney, Paul Kehoe, Seán Kenny, Seán Kyne, Anthony Lawlor, Ciarán Lynch, Michael McCarthy, Mary Lou McDonald, Nicky McFadden, Joe McHugh, Sandra McLellan, Tony McLoughlin, Eamonn Maloney, Peter Mathews, Olivia Mitchell, Mary Mitchell O'Connor, Michelle Mulherin, Catherine Murphy, Eoghan Murphy, Gerald Nash, Dan Neville, Caoimhghín Ó Caoláin, Aodhán Ó Ríordáin, Jonathan O'Brien, Kieran O'Donnell, Patrick O'Donovan, Fergus O'Dowd, John O'Mahony, Willie Penrose, John Perry, Ann Phelan, John Paul Phelan, Ruairi Quinn, Shane Ross, Brendan Ryan, Alan Shatter, Seán Sherlock, Róisín Shortall, Arthur Spring, Emmet Stagg, Brian Stanley, David Stanton, Billy Timmins, Peadar Tóibín, Joanna Tuffy, Liam Twomey, Jack Wall, Alex White)
Tellers: Tá, Deputies Charlie McConalogue and Seán Ó Fearghaíl; Níl, Deputies Emmet Stagg and Paul Kehoe.
Amendment declared lost.
In my Second Stage speech, I welcomed the Bill and outlined why my party strongly supported it. It is about foreign direct investment and keeping the country as attractive as possible for such investment on which my region, in particular, is heavily dependent. From that point of view, I support the general purpose of this Bill. I regret that the Government did not take the opportunity to make the amendment I suggested but I strongly support the general thrust of the Bill.
I welcome this important Bill. It is important that we give foreign direct investment all the support we can, but it also important that we make sure that foreign direct investment does not operate as an enclave in this State, which it does in many ways. Some 80% to 90% of the inputs into chemical and pharmaceutical industries, which make up 60% of our exports, are brought into this State and serious work needs to be done to create the necessary links between the domestic economy and foreign direct investment. While we do good work in attracting foreign direct investment, the domestic economy is sick and has fallen off a cliff, so to speak. Until that is dealt with, the jobs issue will not be addressed. That is why it is important the Government lives up to the promise it has made today in regard to the insurance brokers association to develop a Bill before the end of this year that will include a proviso to reduce the regulation burden on its members shoulders and the cost to them of audits. It should bring in the insurance brokers to discuss with them what is necessary to drive their industry forward.
I am pleased to stand in for my colleague, the Minister of Jobs, Enterprise and Innovation, Deputy Richard Bruton, for the taking of Report and Final Stages of this Bill, which is compact and focused in nature and proposes a small number of changes to an existing company law measure. It is proposed in the interest of maintaining a dynamic and flexible operating environment for the commercial enterprises in question. I thank the Deputies for their support for the Bill.
This proposal can be viewed as an element of the Government's policy of stimulation and facilitation of foreign direct investment. Those companies with a presence in Ireland and availing of the US GAAP facility under the 2009 Act provide significant employment here which the current measure should help to consolidate with the possibility of future jobs being created particularly in the event of a pick up in the economic situation in export markets over the coming period. It is a facilitative measure which exemplifies the Government's practical and active approach to industrial promotion and stimulation of foreign direct investment. The extension of the timelines both in the US GAAP provision and in the scope to designate other internationally recognised accounting standards is a facilitative measure which tangibly illustrates the Government's practical and active approach to industrial promotion and the stimulation of foreign direct investment.
On behalf of the Minister, Deputy Bruton, I express appreciation for the contributions of Deputies to the debate and for their manifest support for this proposal.