Mary Coughlan (Donegal South West, Fianna Fail)

The Senators have set out their position in respect of Senator O'Toole's proposal. The recommendations that directors of companies should be required to prepare an annual compliance statement was contained in the report of the review group of auditing, of which Senator O'Toole was chair, and was submitted to my predecessor in July 2000. Section 45 of the resulting Companies (Auditing and Accounting) Act 2003 contained the relevant provision. As we all know, that section was the subject of considerable comment during the Act's passage through the Oireachtas and significant changes were made before it was finally enacted.

Following enactment, the Office of the Director of Corporate Enforcement was requested by the then Minister of State, Deputy Michael Ahern, to develop appropriate guidance on how the provisions would be expected to operate in practice. This in turn led to the identification of a number of issues, which resulted in the Company Law Review Group being asked to examine the matter. Having conducted an intensive risk and regulatory analysis, the Company Law Review Group submitted its report in 2005. The report contained a more detailed analysis of the provision and the consequences that would flow from its commencement. One of the CRLG's most important findings was that commencement of the section in its enacted form would give rise to a cost to industry ranging from €377 million to €692 million in set-up costs and from €202 million to €343 million in ongoing costs.

As we all know, there were divided views within the CLRG with some interests recommending the provision be simply repealed, while at the other end of the spectrum it was recommended that the section be commenced as enacted. The majority of the CLRG recommended that a significantly revised provision be substituted while a minority of members supported a revised alternative proposed by the Director of Corporate Enforcement. In the event the Government decided to accept the alternative proposal by the majority of the CLRG and that has been included in the companies consolidation and reform Bill, which is being drafted by the Parliamentary Counsel.

The amendment tabled by Senator O'Toole is, as he indicated, essentially that recommended by the Director of Corporate Enforcement and I am not in a position to accept it. I appreciate that all the arguments I have brought to the House have been on the basis of his recommendations. This is not one he brought to my attention on the immediacy or the robustness of his legislative framework. The issues I have brought to the House have been on the basis of his recommendations to assure people during this time that he will have robust legislation available to him. However, I am prepared to review the issue to ascertain whether developments since the Government last considered the matter warrant refinement in the requirement for directors' compliance. In this regard, for example, the imminent transposition of EU directives, amending the fourth, seventh and eight company law directives contained elements requiring reporting by directors. The alternative to a directors' compliance statement will need to be aligned to these requirements to avoid unnecessary overlap and to remove potential inconsistencies.

I listened to what people had to say and I reread the company law reform group report. I do not wish to take from the argument that has been put to me, but at this time I am not in a position to accept it. I will read out statements that do not come from the regulatory people or the lawyers. As we all know, the food and drink industry is under severe pressure. Its main concerns were:

requirements out of step with international practice. As a small open economy, it is important to have best practice corporate governance practice however it is equally important not to gold-plate best practice standards

imposes a serious cost burden on industry; in particular the requirement will greatly reduce the profitability of SMEs

timing of legislation is problematic...

scope of legislation too broad in terms of thresholds applied and breadth of requirements placed upon directors.

IDA Ireland stated that the view of multinational companies was that it would increase the regulatory burden, give the perception of less friendly business environment, increase compliance costs and reduce competitiveness. It also referred to host versus home country regulation. Its submission stated: "When multinational companies contemplate investing in Ireland they are sensitive to changes in the respective regulatory and compliance environments between their home country, Ireland and competing locations." These are not statements from the regulatory people who, I appreciate, might sometimes look after their own agenda, but from people in industry.

This report was published in 2005 on the basis of the situation arising from 2002. I have had further discussions with the Minister for Finance on this issue, particularly as it affects the financial sector. There have been serious difficulties in the financial sector in the broadest sense over the years. There is existing legislation governing the activities of such companies that allows for the imposition of obligations effectively amounting to a requirement to prepare a directors' compliance statement. Section 25 of the Central Bank Act 1997 enables the bank to require a regulated financial services provider to provide a compliance statement to the bank within a specific period. I consulted the Minister for Finance who has announced his intention to reform radically the regulatory structure for credit institutions. It would be possible for further refinements to be introduced as they would apply to financial entities.

The provision on a directors' compliance statement as exists in draft form would contain relevant obligations of the Companies Act, which is contained in the Company Law Act anyway and in tax law. We ought to think about the other requirement that has been spoken about. I am happy to listen to other people's arguments and my view is that we should provide the best legislation we can, which reflects lessons learnt. I have a concern about the other aspect of relevant obligation. Section 11 of the Bill refers to "any other enactments that provide a legal framework within which the company operates and that may materially affect the company's financial statements". In a small sense this can be considered with regard to the financial institutions. However, are we expecting a director of a company, for example involved in some kind of environmental business, to bring in a professional with that expertise to allow him or her to sign off on a compliance statement even though the company itself would be obliged under the regulatory frameworks? It is the same for the pharmaceutical industry. Are we expecting that a director, before he or she signs off on the compliance statement, needs other expertise to assure him or her that he or she may sign off? It is not just the small things, we need to think about whether this is the appropriate approach.

The second aspect is the need to bring in an auditor to sign off. Sometimes we do not make good laws when people are under pressure. There are companies that are under serious pressure. They are beating down the door about regulation and surveys and asking to have some of this eliminated because they want to focus on doing their business. Their view is that compliance means being compliant with taxation law and other appropriate laws.

I appreciate Senator O'Toole's statement that I have received considerable guidance from the Director of Corporate Enforcement. The Senator must appreciate that, in the context of this legislation, which is almost an emergency Bill, the director did not raise this issue arising from his investigative work. I require convincing that the proposed measure is necessary. I regard compliance statements as necessary but I do not want to subject companies to excessive regulation.

The threshold set in the legislation is high. While it is important to have expectations of directors, as politicians we must also consider the likelihood that an insufficient number of people will be willing to become directors of companies because it will not be worthwhile for them to do so. We must strike a balance at this difficult time. Ireland is a small country and only a limited number of people have the capacity to do things.

Members frequently argue that politicians should not be discouraged from participating on boards. I am not sure this is the right time to accept the amendment. I remain open to argument, however, and I will leave open the door for further discussion on the issue. I will make a final determination on whether to proceed with the recommendation issued by the Company Law Review Group, which is a Government decision that I am not entitled to change, or whether I will bring to Government a different perspective. I am not in a position to accept the amendment.