Conor Lenihan (Dublin South West, Fianna Fail)

I am pleased to bring the Companies (Miscellaneous Provisions) Bill 2009 before the House. The Tánaiste and I thank Senators for facilitating an early debate on the urgent issues it addresses.

This is the second Bill the Tánaiste has introduced this year to amend the Companies Acts. Like its predecessor, the Companies (Amendment) Act 2009, this Bill focuses on making a small number of immediate and targeted changes to company law which are necessary to continue to allow us to respond dynamically and flexibly to opportunities and challenges arising from changes in our operating environment because of the recession.

Senators will be aware that the full suite of existing Companies Acts, amounting to 14 in all, is currently the subject of a major reform and consolidation exercise. I will outline progress made in this regard later and I assure Senators that the provisions of this Bill will also be incorporated into the consolidation exercise.

This Bill covers two separate provisions. The first of these allows for the use of US Generally Accepted Accounting Principles, known for short as US GAAP, in the preparation of the accounts of a specified category of companies. It also enables the prescription of other specified internationally recognised accounting standards. The second provision limits a potential exposure of the Exchequer to costs that could arise from court investigations into the affairs of a company.

On the first of these provisions, which I will refer to as the US GAAP proposal, I make the following introductory comments. Attracting and developing foreign investment in the State is a major strand of the policy of this Government. Indeed, foreign direct investment has played a pivotal role in Ireland's economic growth over the past decades and will continue to do so well into the future.

In order to attract investors, industrial promotion policy needs to be agile, flexible, imaginative and continuously evolving and changing. This is particularly the case where the attraction, integration and retention of foreign investment projects in Ireland is concerned. This is paramount at times like the present where the global economy is facing almost unprecedented challenges to get back on track and where there is intense competition for a restricted pool of foreign investment. In times like these, foreign investments do not come easily. There is intense competition for this scarce investment resource.

A parallel imperative confronts multinational companies as they seek to adjust and adapt to a changed and changing economic situation worldwide. Those who wish to survive, not to mention prosper, simply cannot afford to stand still. For many, this means restructuring and reconfiguring their global operations to best advantage. Such strategies have the potential to result in opportunities or disadvantages for investment locations around the world. In such a context, a country's ability to maintain its attractiveness as a centre for investment largely depends on how, or whether, it responds to these developments.

Ireland does not have the luxury of passively watching as multinational investment disappears to competitive destinations that have kept up with or anticipated new trends and developments. We cannot afford to miss out on these possibilities if we are to work our way through our current economic difficulties. This Government is aware that openings must be created and availed of and it is committed to doing all that is possible to meet this goal.

It is encouraging to note that notwithstanding the economic downturn, Ireland continues to be an attractive location for foreign direct investment. IDA Ireland has already had a significant number of new investment projects approved and announced this year. To date in 2009, there have been 48 announcements, with a combined investment of in excess of €650 million and a potential to create 3,300 jobs. That is a remarkable achievement in these difficult times and I wish the IDA the best in its work. It always excels in the work that it does.

It is encouraging that so many companies are prepared to undertake and announce these investments in Ireland given the current global trading environment. The more optimistic economic forecasts for 2010, both globally and for Ireland, should help the IDA to make a significant contribution to economic recovery and continue to secure foreign direct investment for Ireland.

Ireland's foreign direct investment landscape has continually undergone its own transformation, scanning the horizons of enterprise focusing on and securing FDI using novel technologies, innovative business models and new markets. Ireland's landscape has evolved from that of a location based originally on manufacturing to a re-branding of ourselves as the young Europeans through to today's model of the smart economy built on the dual strengths of our innovation culture and our ability to be entrepreneurial.

As a member of the European Union, Ireland offers international investors a stable political and economic environment and a sophisticated, well-developed corporate, legal and regulatory environment. The Government recognises that the quality of economic regulation has a considerable impact on our competitiveness and growth and it is critical that we are capable of responding to changing economic circumstances in a way that is strategic and which reflects the evolving needs of business and investors.

This is the broad policy context in which the US GAAP measure contained in the Bill can be seen. The legislation is designed to facilitate multinational companies that have operations in Ireland to continue to add activities and substance to these operations. This will further contribute to economic activity here and provide valuable employment opportunities. This measure will assist in attracting specific categories of companies from abroad to establish in the State.

Certain multinational companies, which already have a substantial investment presence in Ireland, have further integrated their activities here by transferring their parent undertakings to Ireland. As these companies are listed on US stock exchanges and report to the US Securities and Exchange Commission, they will continue to have to prepare US accounts using US accounting standards in order to remain compliant in the United States.

In addition to this obligation, as Irish registered companies, these multinational parent undertakings will also have to prepare Irish accounts. The accounting standards followed by the generality of companies in this State are Irish generally accepted accounting practice, known as Irish GAAP, or international financial reporting standards, designated by the acronym IFRS, which are adopted by the EU. It would be particularly onerous and expensive for a company if the obligation to convert to Irish GAAP or EU IFRS were to arise over a compressed period and inordinately so if this requirement arose during a company's current financial year.

The legislation, therefore, provides for the use by this restricted category of companies of US GAAP for a limited period of time, namely, the arrangement will apply for a maximum of four financial years and it expires on 31st December 2015 at the latest. This measure will facilitate an orderly transition by these companies to the use of Irish GAAP or IFRS, the EU standard. There is a precedent for this. When IFRS was introduced by the EU, a transitional period was allowed so that the various parties could make the necessary preparations.

Companies will be subject to Irish company law generally, including all the provisions which relate to accounts. In fact, our objective is that Irish company law will override any provision of US GAAP if it were to be in conflict with the Companies Acts.

Allowing these companies to prepare their Irish accounts using US accounting standards for a limited period of time would eliminate the significant duplication of cost and effort of preparing two sets of accounts under two different sets of accounting standards. It will also create a bridge roughly spanning the period during which significant international developments are expected in regard to the convergence of US and international accounting standards.

In the interests of providing for future flexibility in this area, the Tánaiste is including an enabling provision for ministerial prescription of other specified internationally recognised accounting standards if such a demand arose and was considered appropriate to do so. Any such regulations will apply for the same transitional period as the US GAAP measure.

Some enforcement costs are likely to arise for the Director of Corporate Enforcement in respect of the US or other GAAP provision. Accordingly, the Tánaiste proposes to table a Committee Stage amendment to provide a mechanism that would allow the Minister for Enterprise, Trade and Employment, subject to the approval of the Minister for Finance, to make regulations for the purpose of defraying, or assisting in defraying, enforcement costs that may arise from this proposal to provide for the use of US or other GAAP.

The second proposal included in the Bill addresses a potential exposure of the Exchequer to costs of inspectors appointed by the High Court under section 7 of the Companies Act 1990. There are two related powers within that Act allowing the court to appoint inspectors to investigate the affairs of a company. Section 8 facilitates such an appointment at the request of the Director of Corporate Enforcement while section 7 provides that a variety of specified interested parties can petition the High Court to have inspectors appointed. Those parties include the company itself, a director of the company, a creditor and a group or block of shareholders of the company.

As the law stands, there is an upper limit of €317,435 on the amount that those who petition for such an appointment can be required to pay towards these costs. This limit applies both to the security they can be asked to advance before the investigation commences and to the amount of the eventual costs of the investigation that the applicants would have to bear. Unless the court decides that a company should meet all or some of the costs of the investigation, the balance of those costs, namely, the amount above the applicants' statutory ceiling of just over €317,000, would have to be borne by the State or the taxpayer. On the basis of previous experience, the cost of a wide-ranging investigation could amount to €10 million. The Tánaiste and I believe it necessary to take immediate action to protect the taxpayer from having to meet the very significant costs of such wide-scale investigations, some of which could conceivably duplicate investigations happening elsewhere in the State system, for example, by the ODCE, the Financial Regulator or the Criminal Assets Bureau.

This need has to be balanced with the competing duty of the State to ensure shareholders and others have suitable access to justice. To ensure an optimum balance would be achieved, I considered a number of alternative policy responses to this question. Having regard to wider safeguards provided for in company law that are available to prospective applicants under section 7, the Tánaiste concluded that the fairest and most balanced way of approaching this issue was to remove the absolute limit on costs currently applicable to applicants. This involves removing the statutory limit in the two sections of the 1990 Act where it appears, that is, section 7 dealing with security for costs and section 13 which deals with the final costs of the completed investigation. This will leave total discretion to the court in relation to the issue of costs, and will place applicants under this provision on the same general footing as other parties initiating court proceedings in that they can be held liable for the full costs if the court decides to do so. The costs of investigations initiated by the ODCE, under section 8 of the Companies Act 1990, would continue to be met in the first instance by the Exchequer though my Department's Vote.

Company law must remain dynamic and responsive to meeting emerging opportunities and challenges. To meet this goal, the Tánaiste, in her role as the Minister with responsibility for this area of law and in co-operation with my colleague, the Minister for Trade and Commerce, Deputy Kelleher, consistently seeks to make timely and appropriate amendments to the Companies Acts if this will support the development of business or the enforcement of our laws. I wish to inform Senators that the Tánaiste is finalising a small number of other important law proposals which I hope to include in the Bill. We would like the Seanad to consider these proposals on Committee Stage of this Bill if they can be finalised within a timeframe that would not delay its enactment.

On the details of the Bill, section 1 provides that a true and fair view of a parent undertaking may be given by the use of US GAAP by certain parent undertakings which are defined in the section. This is subject to the proviso that the use of those principles in the preparation of the undertaking's accounts does not contravene any of the provisions of the Companies Acts or any regulations made under them. The accounts in question are the company's group accounts and the individual accounts of the parent company. This arrangement will be limited to a specified category of companies. These are defined as parent companies incorporating in Ireland for the first time whose securities are not traded on a regulated market in the European Economic Area, whose securities are registered with or who are subject to reporting to the US Securities and Exchange Commission and who, on the date this Bill passes into law, have not already incurred an obligation to file their first accounts with the registrar of companies. The section also provides for this arrangement to apply for a maximum of four financial years and expires on 31 December 2015 at the latest. Where accounts are prepared under this section, the notes to the accounts are required to state that this is the case.

Section 2 gives the Minister the power to make regulations that may prescribe other specified internationally recognised accounting standards under which specified categories of companies may prepare accounts for a maximum of four financial years to end by 31 December 2015. Any such regulations shall specify the accounting standards, which shall be internationally recognised, and generally accepted accounting principles or practices of a jurisdiction where a majority of the subsidiaries of the parent undertaking have a substantial connection or where the market is situated on which the shares of the parent undertaking are primarily admitted to trading. In preparing accounts using other internationally recognised accounting standards, companies must not contravene any provision of the Companies Acts or any regulations made under them. Where accounts are prepared under this section, the notes to the accounts are required to state that this is the case.

Section 3 removes the current upper limits that applicants can be asked to contribute towards the costs of court investigations initiated on foot of their applications under section 7 of the 1990 Act. The upper limit currently applies both to the security applicants can be asked to advance before the investigation begins, provided for section 7(3), and to the amount of the eventual costs of the investigation the applicants would have to bear, provided for in section 13(1). Section 4 is standard drafting and simply contains the Short Title and the fact the Act and the Companies Acts shall be read as one.

I wish to brief Senators on the status of the ongoing major review and consolidation of the entire suite of Companies Acts. As Senators will be aware, the Company Law Review Group published its draft general scheme of the companies consolidation and reform Bill in 2007. The Government subsequently approved the drafting of a Bill along the lines of the general scheme and the Office of the Parliamentary Counsel is drafting the legislation. The proposed Bill will consolidate the existing 14 Companies Acts, dating from 1963 to 2009, as well as other regulations and common law provisions relating to the incorporation and operation of companies, into a single Act comprising more than 1,300 sections. The provisions of the general scheme cover the incorporation of companies, corporate governance duties of directors and secretaries, financial statements and auditors, receivers, reorganisations and examinerships, windings-up and compliance and enforcement. The provisions are brought together in a coherent manner which will facilitate business people in incorporating and operating companies day to day. The general scheme also modernises company law to reflect modern business practice. Given that 90% of companies in Ireland today are in the form of a private company limited by shares, the general scheme sets out in sequential sections all the provisions relating to that type of company. In subsequent sections the provisions for the private company are modified for other company types such as public limited companies.

Furthermore, to promote compliance with the law and to protect investors and creditors, the general scheme also sets out clearly the corporate governance duties of directors, company secretaries, auditors etc. The general scheme also sets out the functions of the Companies Registration Office, the Office of the Director of Corporate Enforcement and the Irish Auditing and Accounting Supervisory Authority in ensuring compliance with the law and brings together the provisions relating to compliance and enforcement such as company investigations, compliance and protective orders, disclosure orders, disqualification and restriction of directors, and prosecution, offences and evidential matters. The likely date of publication of the companies consolidation and reform Bill is September 2010.

I would make the following summary remarks on the Bill before us. The Government regards the US GAAP provision and the scope to designate other internationally recognised accounting standards as a practical measure. It demonstrates the Government's forward-looking approach to industrial promotion and stimulating foreign direct investment. We consider the provision removing the upper ceiling on court costs that can be recovered from applicants under section 7 of the Companies Act 1990 is a balanced and fair approach to this issue.

I commend the Bill to the House.