Kathleen Lynch (Cork North Central, Labour) | Oireachtas source

I am pleased to bring the Companies (Miscellaneous Provisions) Bill 2013 before the House on behalf of Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton, and I thank Senators for facilitating an early debate on the urgent issues it addresses. This is the second Bill which has been introduced this year to amend the Companies Acts. It 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.

Senators will be aware that the full suite of existing Companies Acts - amounting to 16 in all - was the subject of a major reform and consolidation exercise in recent years. The Companies Bill 2012, a landmark legislative project, introduced to the Dáil in April this year, not only consolidates the corpus of company law since 1963 but also overhauls and restructures the legislative framework. The Bill consolidates, simplifies and reforms company law to provide a state-of-the-art framework for all businesses operating in Ireland, whether domestic or foreign. It brings coherence, structure and accessibility to the canon of company law which will greatly assist businesses and others with an interest in these matters. It is the product of a lengthy period of collaboration between officials in the Department of Jobs, Enterprise and Innovation, the Company Law Review Group, CLRG, and the Office of the Parliamentary Counsel.

The CLRG is a statutory body that was set up in February 2000 and its role is to advise the Minister for Jobs, Enterprise and Innovation on the reform and modernisation of company law. The group includes all relevant stakeholder interests, with members from Government Departments, professional bodies - solicitors, barristers and accountants - employer and business interests, regulatory bodies, trade union interests and individual legal and finance practitioners. The Companies Bill 2012 completed Committee Stage in the Dáil on 6 November. I assure Senators that the provisions in the Bill before the House will also be incorporated into the consolidation exercise.

It may seem somewhat unusual that another Bill from the company law stable is being brought forward while the Companies Bill is still before the Houses. However, given the priority the Government attaches to supporting businesses, it was decided to expedite the measures relating to Circuit Court examinership, as well as a small number of others that are included in the consolidation Bill. In the view of the Minister, Deputy Bruton, it is imperative that these be progressed more speedily than would be the case if they were part of a very large Bill requiring a great deal of consideration on the part of the Oireachtas and which would, as a consequence, be required to be dealt with at a more measured pace. These measures are set out in sections 2 to 5, inclusive, of the Bill before the House and I will outline them in more detail shortly.

The additional measures in sections 6 and 7 are significant in terms of the improvement of audit quality. These will strengthen oversight of the audit process and should provide better protection for shareholders, investors and creditors. It is important that they be progressed at this time, particularly in light of the focus on audit in the aftermath of the financial crisis. The imposition of a levy on relevant statutory auditors and audit firms, auditing public interest entities will enable the Irish Auditing and Accounting Supervisory Authority, IAASA, to defray the costs of carrying out quality assurance on them once this function has been transferred from the recognised accountancy bodies to IAASA. The transfer of the quality assurance function implements an EU recommendation on this matter. Separately, the implementation of the member state option in a Commission decision will enable the competent authority to apply its investigation and penalty systems to a particular cohort of third country auditors. I will now explain what each of the provisions in the Bill is designed to achieve.

The provision on examinership arises from a recommendation made by the CLRG that the Companies Acts be amended to allow small private companies, meeting the criteria which define a "small company" in company law, the option to apply directly to the Circuit Court for examinership.

A "small company" is one that meets two out of the following three criteria - turnover of a maximum of €8.8 million, balance sheet of a maximum of €4.4 million and 50 or fewer employees. The Companies (Amendment) Act 1990 allows the remission of an examinership from the High Court to the Circuit Court subject to certain criteria. However, the provision in section 2 eliminates the requirement for any High Court involvement with the associated costs pertaining to this. It is hoped that the immediate impact of this change will be lower costs and greater accessibility for small private companies to the examinership process. This means, for example, that companies based outside Dublin will be able to apply for examinership to their local Circuit Court, thus reducing costs and travel time.

Access to a more affordable mechanism for restructuring makes it more likely that more small companies will avail of examinership, thus providing them with a greater chance of economic survival. In particular, businesses with potential for growth and job creation which are being held back by legacy debt problems, are expected to benefit. This, in turn, should feed into an improvement in the general employment and economic situation within the State.

Sections 3 and 4 deal with electronic filing and provide another measure which is being proceeded with ahead of the Companies Bill 2012. This will facilitate the electronic filing of the documents with the Companies Registration Office relating to the financial statements of a company, which a company is required to file with the Companies Registration Office as part of its annual return. Each of the two sections caters for the obligations of a different category of company, as regards their filing of annual return obligations.

Electronic filing of annual returns has, in a sense, unintentionally, been hampered by the need to file a copy of the accounts related documents which has been certified as a true copy or a true written copy and which contain copies of the signatures of the two directors who signed those accounts. Currently, if a company wishes to file those documents electronically it must manually scan in every page of the hard copy of those documents so that there will be a copy of the signature of the two directors. In the experience of the Companies Registration Office, this discourages electronic take up of company filing.

The amendments proposed here, to provide that a "copy" can now include a document which is signed using typeset signatures, that is typed names of the directors which means that the entire document can be created electronically and which should facilitate a far larger uptake of electronic filing. The proposed amendments also provide for the safeguard that in the case of such submissions, the copy documents must be accompanied by a certificate signed by a director and the secretary of the company stating that the copy of the accounting documents is a true copy of the originals except for the signature. This certificate can be signed either manually or using an electronic signature.

The provision in section 5 on the disclosure of information to the Office of the Director of Corporate Enforcement, ODCE, relating to offences under the Companies Acts by certain regulatory authorities is the final one extracted from the 2012 Bill for more rapid consideration here. It deals with exchange of information between regulatory bodies regarding suspected breaches of legislative provisions and is an essential element to a properly functioning regulatory environment. Under section 18 of the Company Law Enforcement Act 2001, CLEA, the Revenue Commissioners, the Competition Authority and the Garda Síochána are entitled to disclose information to the Director of Corporate Enforcement or an officer of the Director of ODCE, which "may relate to the commission of an offence under the Companies Acts".

However, section 77 of the Finance Act 2011 inserted a new section, section 851 A into the Taxes Consolidation Act 1997 which has impacted adversely on the enforcement activities of the ODCE in that it has unintentionally affected the utility of information exchanges from Revenue to the ODCE. This provision has served to restrict the amount of Revenue information which the ODCE can properly obtain and use; in particular, it is an obstacle to the ODCE in its use of such information in support of its investigative and civil enforcement work under the companies Acts. The impact of the provision in the Finance Act is taken sufficiently seriously to warrant inclusion of this remedial provision in this Bill. The opportunity is being taken in section 5 also to further clarify that information may be disclosed to the Director which would assist the ODCE in investigating whether the grounds for bringing disqualification proceedings against a person, who was a company director, existed at the time the company was struck off the register for failure to file its statutory returns.

Section 6 refers to the levy on statutory auditors-audit firms of public interest entities, PIEs, to defray the costs to the Irish Auditing and Accounting Supervisory Authority, IAASA, of carrying out the functions of external quality assurance in respect of these PIEs The term "quality assurance" is given to the process of inspection, on a regular basis of statutory auditors and audit firms to ensure that systems are in place that will allow for consistently high quality audits. The scope of inspections includes an assessment of auditors' compliance with applicable auditing standards and independence requirements, a review of the internal quality control system of the audit firm and the testing of selected audit files.

International best practice as regards the external quality assurance of audits, in particular of those companies classified as public interest entities is that this should be carried out by the public oversight bodies for audit and not by the recognised accountancy bodies of which these audit firms are members. Public interest entities are, in broad terms, "systemic entities" - credit institutions and insurance undertakings, in combination with listed companies. While it is not required by current EU legislation that this scrutiny is an obligation, this matter is being considered under audit proposals at present at EU level.

The Government has decided that Ireland should move to the model of independent inspection of the audit of public interest entities based on the model set out in an EU Commission recommendation in the matter. It was also decided that the Irish Auditing and Accounting Supervisory Authority, IAASA should carry out these functions, instead of the recognised accountancy bodies, so called "RABs". The RABs currently operate these functions under the powers vested in them by the regulations transposing the latest EU Audit Directive. The EU Commission recommendation referred to specifies that quality assurance inspections must be executed by a public oversight body, either exclusively or together with another appropriate body that is accountable to the public oversight body. Accordingly, it is necessary to provide, through primary legislation, for a levy on the relevant statutory auditors and audit firms auditing public interest entities in order to defray the costs to IAASA for carrying out these functions. Additional functions are proposed to be conferred on IAASA in the Companies Bill 2012, while the balance of the related functions can be provided to IAASA by amendment to existing regulations. The transfer of the important quality assurance function to an independent oversight body such as IAASA will strengthen oversight of the audit process in Ireland as regards these public interest entities.

The transfer of the function to IAASA is to be fully funded by the relevant statutory auditors and audit firms with no cost to the Exchequer, apart from once off start-up costs. This is a very worthwhile project which should greatly assist with raising the calibre, independence and rigour of the audit process and enhance confidence in it and audit reports in relation to public interest entities, and significantly improve Ireland's reputation in this area.

Section 7, the final item, relates to the application of investigation and penalty systems to certain third country auditors and audit entities which carry out the audit of companies incorporated in specific third countries and territories whose transferable securities are admitted to trading in the State.

The provision is audit based and quite technical. It relates to regimes drawn up by the EU Commission based on evaluations carried out by it on the public oversight, quality assurance, and investigation and penalty systems for auditors and audit entities of particular territories. The evaluation has caused the EU Commission to draw up two lists in respect of certain countries outside of the EU that are deemed equivalent to corresponding EU audit oversight systems and those that are deemed not to be equivalent at the moment but may be deemed so at some future date. On foot of this, the Commission goes on to prescribe in Commission decisions, specific treatments by member states in respect of each of the two categories in question. For the record, the references to these decisions are Commission Decision 2011/30/EU, as amended by Commission Decision 2013/288/EU, that set out regimes to be applied by member states to the auditors, and audit entities, that carry out audits of the annual or consolidated accounts of companies incorporated in certain third countries, whose transferable securities are admitted to trading in the State.

The category of exclusive relevance in the present context is that relating to countries whose audit oversight systems, arising from the EU Commission's exercise, are deemed not to be equivalent to those of the EU. The treatment of these by member states is referred to as a "transitional period" regime and applies for the periods specified in each of the two Commission decisions. The countries subject to this are Bermuda, Cayman Islands, Egypt, Mauritius, New Zealand, Russia, and Turkey.

A member state option is provided in these Commission decisions and the present provision proposes that this option be availed of. Taking the option will allow the competent authority in Ireland responsible for implementing these Commission decisions to apply its investigation and penalty systems to the third country auditors and audit entities that are subject to the transitional period regime.

The audit oversight regimes of the countries in question, based on evaluations carried out by the EU Commission, are not equivalent to that in the EU. Accordingly, the audits of undertakings from third countries that are admitted to trading in Ireland may not be as robust as an audit carried out in Ireland or another member state operating under higher quality oversight systems and practices. This means that for persons investing in, or contemplating such investment in such entities, a greater degree of risk is entailed. Conferring such powers on the competent authority would enable it to pursue the auditors in question and subject them to its investigation and penalty systems, and indeed the prospect of this may focus these auditors on producing high quality audits to avoid the consequences of the application of these powers. That is why it is considered prudential to take this option.

The measure also proposes to provide that where future EU Commission equivalence evaluations are undertaken, that result in a differing set of countries being provided for under a future Commission transitional period decision, the Minister should have the power to adjust the list as currently constituted, thus enabling the competent authority to apply its investigation and penalty systems in line with the revised list of transitional period countries. This is considered a prudent measure that avoids the need for recourse to primary legislation each time the EU Commission draws up a new decision resulting in a change in the composition of the lists.

The Minister for Jobs, Enterprise and Innovation intends to make regulations to confer the role of competent authority to the Irish Auditing and Accounting Supervisory Authority. He considers that it is entirely appropriate for IAASA to be enabled to employ its powers in these instances, thus affording safeguards to parties placing reliance on the audit reports in question.

The approach taken in sections 6 and 7 is consistent with the developments on audit at EU level. The oversight of the audit process in Ireland as regards public interest entities will be strengthened with the transfer of the important quality assurance function to an independent oversight body such as IAASA. Also, it is critical to give greater international credibility to Ireland's audit process, particularly regarding entities that participate on the global stage. Overall, the effect of the two sections is that audit quality and confidence in audit reports will be enhanced.
As I mentioned at the outset, company law must remain dynamic and responsive to meeting emerging opportunities and challenges. In order to meet that goal, I wish to inform Senators that the Minister for Jobs, Enterprise and Innovation intends to bring forward another important proposal on Committee Stage. The amendment will provide for an officer of the director of corporate enforcement to take over the statutory duties set out under section 20(2F) of the Companies Act 1990, in circumstances where the incumbent designated officer is no longer in a position to carry them out. The duties, under section 20(2F), arise if a named officer of the director has been issued with a section 20 search warrant under which "extended powers of seizure" are exercised. It is proposed that the new section will provide that if a designated officer named in a search warrant has ceased to be an officer of the director of corporate enforcement, or is otherwise unable to act, another designated officer may apply to a judge of the District Court for an order that his or her name be substituted for the original designated officer's name on the search warrant. The section is contained in the Companies Bill 2012 but is being brought forward to ensure that the process is in place should the need for it arise.

I also wish to inform Senators that the Minister intends to bring forward a small number of technical amendments to the Personal Insolvency Act 2012 and the Bankruptcy Act 1988, designed to improve the operation of those Acts. The amendments are at the request of the Minister for Justice and Equality and are being prepared by the Office of Parliamentary Counsel.

That brings me to the end of this overview of a package of very important measures that the Minister for Jobs, Enterprise and Innovation wished to expedite due to the significant positive and immediate impact they will have for business and the enforcement of company law. There is also scope for the measures to contribute to the enhancement of audit quality in Ireland. I commend the Bill to the House.