Wednesday, 5 July 2006
Investment Funds, Companies and Miscellaneous Provisions Bill 2006: Second Stage.
I am very pleased to bring this Bill before the House.
The necessity for this amending legislation arises from a number of issues which need attention, mostly in the area of company law. Some of these issues 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. Another of the provisions is necessary to allow Irish companies to continue to compete on 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 consequent on the transposition of the EU takeovers directive on 20 May last in line with the EU target date.
Finally, 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 it will 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.
Generally the amendments proposed in the 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 second only 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 witnessed huge growth in recent years. In 1999 the aggregate amount of asset-backed securities investments was approximately €6 billion. This grew to between €30 billion and €35 billion in 2003. 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 where we are the only English-speaking member of both the EU and the eurozone. A common law system and the presence of skilled personnel with considerable international experience is also very important. All of these factors have fuelled this growth, together, it must be said, with Government support.
lDA Ireland is also committed to developing both the breadth and depth of the international financial services industry in Ireland. While continuing to market Ireland as a centre of excellence for transaction processing, IDA Ireland is also targeting other sophisticated revenue generating activities. Existing developments in securitisation give us the potential to develop as a primary centre for specialist debt financing products. This is in line with lDA Ireland's strategy to drive the development of knowledge-intensive, high-value investments.
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 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 have to 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 of these is designed to achieve. Part 1, which covers sections 1 to 5, contains 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, 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 3 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 proposed levels are the maximum allowable under EU rules. This section will apply to a company in respect of a financial year that commences at least two months after the commencement of this provision.
The following is the background to this amendment. In July 2005, the Minister, Deputy Martin, set up a Small Business Forum to look at the environment in which small business operates in Ireland. Among the topics the forum examined was the current level of audit exemption allowable in Ireland. The Small Business Forum report dated April 2006 recommended that the audit exemption threshold limit be increased to the maximum allowable under EU rules. The report also pointed out that this would bring Ireland into line with the UK and a number of other EU member states that allow the maximum limit.
Section 7 amends section 239 of the 1990 Act to allow the Minister to provide by regulation 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 a 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 the Irish market 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 for the Irish market 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 the considerable change which is 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.
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 position 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 this part. 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 it to fulfil its role as competent authority. Section 13 amends the Central Bank Act 1942, as amended, to include the transparency directive in the list of directives for which the Central Bank-Financial Regulator has 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 market or 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 the directive, for example, the Irish enterprise exchange market, and to any new market that may be established in the future.
Part 4 covers sections 15 to 18 and deals with miscellaneous amendments to the Irish Takeover Panel Act 1997 and the Consumer Information Act 1978. Section 15 amends section 8 of the Irish Takeover Panel 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 the 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 16 amends the Schedule to the Irish Takeover Panel Act 1997 to align the general principles in the Schedule to the 1997 Act with the general principles 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 17 is a consequential provision to section 16. It amends regulation No. 7 of SI 255 of 2006, the regulation which transposed the general principles of the takeover bids directive. The purpose of the proposed amendment is to effectively repeal the general principles in regulation No. 7 as these general principles will be reflected in the amended Schedule at section 16 and to remove any confusion which may be caused by the existence of two sets of general principles.
Section 18 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 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. The Government is committed to supporting the 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.
I welcome the Minister of State and his officials to the House and I welcome this Bill, particularly the increase in the audit exemption levels. I was one of the first to mention this and to discuss it with the Minister of State. My call went unheeded for a long time but I always knew from my chats with the Minister that his heart was in the right place. He and I agreed on this matter from day one. This was first proposed by the Institute of Chartered Accountants in Ireland, a body that knows more than most about the need for us to sharpen our competitiveness levels. The absolute need for this increase arises from the British Government's decision to increase the threshold in its jurisdiction, including Northern Ireland. The introduction this year of a new suite of auditing standards which are more complex and rigorous than their predecessors also necessitates it. These standards were clearly developed to meet the needs of global capital markets and not the SME sector. However, because the Irish threshold figure is currently so low, it impacts adversely on the small companies in this jurisdiction.
Small businesses already face significant impositions in this high-cost economy and we need the Government to at least act as a facilitator, rather than an obstacle, to the advancement of the sector. We cannot sustain an auditing regime that differs so much from that of our nearest neighbours and competitors. It behoves us to provide a fair and equitable system which at least means a level playing pitch with the British.
I want to raise the issue of consumer rights, about which the Minister said that until they are put on a statutory basis there will be serious concerns. The consumer strategy group published a report in May 2005 which recommended that a new national consumer agency should be established. The legislation was due to be presented to the Oireachtas in December 2005 under the timetable set out by the consumer strategy group and the agency was meant to be operational by the end of June 2006. However, there is no sign of the legislation either in draft form or otherwise. In this Bill the Minister has made provision for a temporary replacement of the Director of Consumer Affairs for a period in excess of six months. As Members may be aware, the former Director of Consumer Affairs, Ms Carmel Foley, resigned some time ago to take a new position in the Garda Ombudsman body and her position has been taken on an interim basis by a civil servant from the Department of Enterprise, Trade and Employment. This is yet another indication of the lip service paid by the Government to consumers' rights. It is unfortunate that we must wait and perhaps the Minister of State's response will tell us when he envisages its being put on a statutory basis.
Small businesses are the lifeblood of the Irish economy. They pay half of VAT on services, 11% of corporation taxes and 37% of income taxes. The future of Ireland as a knowledge-based economy depends on the small, indigenous business sector. We must ensure we are equipped to facilitate its growth. Small and medium enterprises are the lifeblood of the economy. Some 170,000 businesses and 650,000 jobs are in the small and medium sector and it is vital that the little guy has a voice in Government. That is why we believe a Minister for small enterprise would lead to long-term strategic thinking, a point of contact for the entrepreneur and a gateway into the decision making process. We welcomed the publication of the report of the small business forum. However, as ever, the Minister for Enterprise, Trade and Employment, Deputy Martin, is still one report away from positive action.
After nine years it should not be necessary for the Government to publish a report highlighting the issues affecting small businesses. The small business sector has been hardest hit by 50 stealth charges and taxes imposed by the Government in the last four years. There is now a danger that the Minister will use this report as an excuse to talk shop and do little. Given that this report is still necessary, we will hold the Minister personally accountable for the success, or otherwise, of implementing the proposals.
The Minister must now state when, and how, he will implement the report's recommendations, as they cannot be allowed to gather dust like so many of his other initiatives. I am also concerned that many of the recommendations rely on co-operation between all Departments. The Government has shown time and again that its various Departments cannot work together, whether on the excessive regulation of businesses, or co-ordinating penalty points.
The Minister must set up a new mechanism to co-ordinate cross-departmental co-operation. Many of the report's recommendations were addressed by us at our recent Ard-Fheis, including the need to slash regulation and control local authority charges. We also called for all new legislation to be business-proofed before being passed into law. All these proposals are included in a plan of action for small enterprise, which we will roll out immediately on entering Government.
As the report states, action is necessary in order to overcome the many hurdles faced by the small and medium enterprise sector, the single most important sector of the economy. Action is necessary to combat Government-fuelled inflation, ensure widespread access to broadband, overcome the infrastructural deficit, and open up sheltered sectors to competition. None of these areas is being actively addressed by the Minister and the danger is that few of them ever will be.
Although this Bill is a recognition that the Companies Acts are in dire need of reform, it does not go far enough. I regret that the opportunity was not taken for more root and branch reform in this area, which would help the small and medium sector fulfil its potential. In respect of public sector tenders why do we not introduce an exemption on withholding tax for those below the new audit threshold? What about allowing companies to pay their corporation tax one year in arrears in order to improve the cash flow of small businesses? We again call on the Government to amalgamate the eight employment bodies and consolidate the 25 Employment Acts and 11 Companies Acts to lessen the burden on SMEs.
One of the main regulatory burdens that affects smaller businesses is the process required for compliance with employment laws. Employment issues are currently regulated by 25 Acts and eight separate bodies. According to IBEC almost 50 new labour Acts have been introduced during the past five years. As small businesses tend by nature to be labour intensive and involve a greater hands-on commitment from the owner-managers, they are hit hardest by the need continually to play catch-up with new employment legislation. The Minister of State feels as strongly about this as I do. I welcome his initiative in respect of the audit exemption threshold and appeal to him to use his influence, whatever about that of the Minister, Deputy Martin, to alleviate these burdens which cripple business.
This employment legislation can deter new businesses hoping to enter the market or existing businesses contemplating expansion, causing them to think again which slows up the process. We also call for the establishment of a branch of the Small Claims Court that will allow businesses whose turnover is lower than the audit exemption threshold to deal with disputes in a more simple and cost-effective manner.
It is unfortunate that the Bill has come to us so late because it will not pass before the summer recess and small businesses must wait many more months before they can avail of its provisions. Nevertheless, I welcome the Bill.
As a Government Senator and nominee of the Irish Exporters Association, and as the co-founder of a medium-sized business employing 100 people, which will rise to 130 by the end of the year, I am pleased to speak on this legislation. Given my experience, I can speak on the significance of this Bill for small and medium-sized businesses. The proposed measures are progressive in that they ease the regulation burdens on business and facilitate its more efficient participation in today's international economy.
The Minister of State and the officials in his Department have listened and responded to the concerns of small and medium-sized businesses. I commend him and his officials on their approach to these important issues. The legislation incorporates as many recommendations from businesses as fall under the remit of the Minister of State, and that is representative of the partnership-style of Government which has been so successful for our economy over the past ten years. The most welcome development in the Bill for small and medium business is the raising of the audit exemption threshold to the maximum allowable under EU rules, namely, €7.3 million turnover, up from €1.5 million.
The Bill will ease the additional administrative burden of annual audits for some thousands of businesses, and create a parity in the audit exemption thresholds with businesses in the North, in the United Kingdom and other EU states. This also affects voluntary and community organisations which will be relieved of the time and regulation burden of being audited because they fall under the new threshold.
The roll-back of the regulation has a symbolic significance in that the process of more and more regulation will henceforth be tempered. The important message to business people who participate on business fora, committees, etc., is that they will be listened to. The report of the Small Business Forum, published last April, recommended that Departments should formally assess the merits of exempting small businesses from new regulations, or of modifying such regulations to make allowance for the special needs of small business. The forum was set up by the Minister for Enterprise, Trade and Employment, Deputy Martin, and chaired by the general manager of Microsoft Ireland, Joe Macri.
Raising the audit exemption threshold to €7.3 million will ease the regulatory burden and obligation on many small and medium sized businesses to conduct a costly and burdensome annual audit. This was a key recommendation in the Small Business Forum's report.
When we started our business we had to do the audit every year which was wearisome and costly. It is hard on small businesses starting up because customers such as Senator Quinn, who is present, like to see a blue chip auditor. When we started up it cost us £1,000, a large sum of money. Now we pay approximately €15,000 and will not be exempt because we exceed the €7.3 million threshold. In addition, if a business does not have an in-house accountant it must pay for accounts management, etc., so it pays on the double. That is what makes this a dramatic initiative which sends out the message that the Government supports business and enterprise.
The Small Business Forum pointed out that while there are advantages in obliging companies to undertake statutory audits, these advantages can be outweighed by the enormous cost of an audit, in the region of €10,000 to €20,000. IDA Ireland is committed to developing the breadth and depth of the international financial services industry in Ireland. While continuing to market Ireland as a centre of excellence for transaction processing, IDA Ireland is also targeting other sophisticated revenue generating activities. Existing developments in securitisation give us the potential to develop as a primary centre for specialist debt and financing products. This is in line with lDA Ireland's strategy to drive the development of knowledge-intensive high value investments.
Business regulation in the field of company law feeds into improvements to our national competitiveness through high standards of corporate governance. This 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 have to be at the top of the game in every aspect that affects competitiveness. The progressive changes in securities trading, and transposition of two EU directives will bolster Ireland's competitiveness, helping us attract foreign investment in an ever more competitive global market.
In the securities trading industry the Bill makes it mandatory to hold in electronic form share certificates and stock transfer forms, bringing us in line with international norms. This will assist greater ownership of listed Irish securities by foreign investors, reduce costs associated with share dealing and enhance Irish securities competitiveness. Given that many Irish companies are listed on the Irish and London stock exchanges, this will be a beneficial and progressive move forward.
The Bill also seeks to limit the obligations on guarantors in respect of statements in the prospectus content — a prospectus being the legal document which outlines what a company has to offer participants and buyers. The Bill legislates for the conversion of the transparency and takeovers directives into Irish law. The transparency directive will raise the quality of information available to investors on the company's performance and financial position and any changes in shareholder policy. Ultimately, it will protect investors and enhance confidence in shareholding and the market.
The Bill will also give effect to the new takeovers directive of May this year. The Bill reflects the Minister of State's and his Department's and Government's recognition of the fact that the economic future depends on maintaining and furthering our competitiveness in an ever-evolving global marketplace. It is all about being competitive. Small and large companies will not survive if they are not competitive. I thank the Minister of State for sending a signal to our businesses and international business colleagues that Ireland is playing its part in globalisation, is not over-regulated, wishes to do business and wants its businesses to succeed.
I welcome the Minister of State, Deputy Michael Ahern, to the House. I am pleased that this Bill, which I welcome, has been introduced. On previous occasions, the Minister of State listened carefully to what was said in this House and he and his officials responded to the points which were made. I am in favour of this legislation because it provides for an attack on red tape, which is high on the agenda at EU level. Shortly after Mr. Barroso became the President of the European Commission, he said the EU needed to wipe out approximately 70 pieces of legislation which he felt were no longer necessary. He was not referring to statutes which are over 100 years old, like those being made obsolete in this country, but to legislation which were passed in more recent times.
Last Monday, I became the chairman of Eurocommerce, which acts as the voice of commerce in Europe. It represents 5.5 million businesses, the vast majority of which are small businesses of the type Senator White spoke about. If we are to solve Europe's problems in the years to come, we will have to concentrate on services rather than on agriculture and manufacturing. While there is a place for the latter sectors, I predict that the importance of small businesses will increase. I am enthused about the steps being taken in this regard in this legislation. I am also a member of the Business Regulation Forum, which is a Government committee that is working with civil servants to try to find a way to reduce red tape in a manner that is attractive to small businesses.
I welcome this legislation, which is necessary. In particular, I welcome two aspects of the Bill which will simplify life for businesses and investors. The provisions in question represent a recognition of the urgent need to reduce the red tape that is affecting the survival of businesses. I refer first to the increase in the exemption level for company audits, which is very important. This measure will assist the many small businesses which constitute the backbone of our entrepreneurial infrastructure. The second aspect of the Bill I particularly welcome, and to which Senators White and Coghlan have referred, is the provision that will facilitate the removal of paper share certificates in favour of electronic records of ownership.
An increase in the exemption level for company audits has been sought for a long time. The Minister has been quite receptive to the proposal in the past, but it has not been easy to get it done. Nonetheless, it is now welcome because it has become a fact. The higher exemption level placed an unnecessary burden on many small companies. It cost them a relatively large amount of money and took up a disproportionately large amount of their management time. It took a long time for the State to realise this requirement was not achieving much other than getting in the way of people who were doing business and creating jobs.
While I welcome the abolition of red tape in this regard, I would like to sound a note of caution. It is vitally important that small businesses do not interpret this measure as a signal that they do not have to bother with good book-keeping. If such a message takes hold, this potentially positive move could have quite a disastrous outcome. The law will continue to require those who are involved in business to keep proper books of account. That is as it should be. I stress that it is in the interests of those who are running businesses to ensure they do their book-keeping properly and keep their accounts up to date. The keeping of proper books is a technical matter that is best entrusted to those who have the proper training to do that kind of thing. This Bill will mean that very small businesses will no longer have to employ professionally qualified accountants to verify their books at the end of each year. That will lead to very useful savings for such businesses. I hope the small businesses which do not already do so will use the resources freed up by this provision to put in place a proper day-to-day book-keeping system.
While I am handing out free advice, perhaps I should mention another matter I often noticed in my dealings with small businesses over the years. When I was studying commerce in UCD way back, 200 years ago, I was reminded of the importance of cash flow. If one wants to stay in business, it is important for one to be aware of the distinction between profit and cash flow. People who run small businesses are generally very good at reckoning their profits, which is important, but many of them fail to realise the similarly crucial importance of getting their cash flow right. As the Minister of State is aware, many inherently profitable operations have gone to the wall when they have run out of cash. This usually happens when business people do not take into account the time lag between incurring expenses and getting paid.
My free advice to small businesses — this is financial management 101 — is that they should not forget that such a gap exists. One will not be helped with this necessary aspect of business survival during a company audit. By the time the auditor arrives on the scene, the damage will already be done and the business may already have gone to the wall. While company audits have a role in the overall scheme of things, they are almost useless as safety nets for small businesses. Few people will mourn their passing, which I am inclined to celebrate.
The second provision I have chosen to highlight, which has been mentioned already, is equally important in terms of encouraging investment. I refer to the provision that will eventually make possible the total elimination of paper share certificates as records of ownership of company shares. It is somewhat brave of the Minister of State to introduce this measure at a time when electronic voting is not getting a good name and people are expressing worries about paper trails, etc. I can understand the concerns which have been raised in that regard.
Anybody who has ever bought shares will be familiar with the cumbersome administrative process that follows every transaction in the stock exchange. That process culminates in the arrival through one's letterbox, long after the event, of a fancy and usually glossy bit of paper that certifies the number of shares one owns. This document has to be carefully preserved as proof of ownership because one has to hand it back when one sells the shares, if one can find it at that stage. If one sells part of a holding, the certificate has to be surrendered and rewritten with the new amount of shares entered into it. Such activity creates a vast amount of paperwork that is totally unnecessary in this day and age, when every company's register of shares is maintained in electronic form. The Oireachtas has a lot to learn in this regard. I have spoken previously about the amount of paperwork, such as envelopes containing Order Papers, we end up with each morning.
Given that Bills, etc., are available in electronic form, it is sinful that we use such a huge amount of paper in this building. I am not sure what happens to it all, but I assume it goes somewhere.
For some years, investors have had the option of dematerialising their shares. No share certificates are issued to those who take up this option — everybody in the transaction relies on electronic forms and records to prove their ownership of shares. The system has been in operation for long enough to have proven itself fully. The provisions of the Bill mean we are preparing to move out of the transaction stage in which both systems exist side by side.
I welcome this measure because we need to move with the times if we are to benefit fully from the potential of new technology, which makes it possible for us to exist perfectly well without paper share certificates. We all know that old habits die hard and we do not find it easy to adjust to change. There is a tendency to continue with practices long after they have stopped serving any useful purpose. This provision is similar to changes which are being made in the conveyancing of houses and other real estate.
While this measure will not deliver the same level of cost savings to customers, it will lead to some worthwhile savings. It will also offer added convenience to share owners because it will make it impossible for them to lose, damage or destroy paper certificates by mistake. I imagine that many such certificates are lost in fires, for example. There was a fire in one of my offices 20 years ago. The damage was minimised, luckily enough, because we had a fireproof safe, but we had to search through a great deal of paperwork nevertheless. Share certificates can be lost and not found again. Apart from the fact that one may want to sell some of the shares, one has to change the share certificates because it does not cover the correct amount. Much of the legislation passed in the House is of a technical nature. Bills concerning financial measures are particularly rarefied. For a change, this Bill includes two down-to-earth provisions that will make people's lives easier and save money at the same time.
I recall a seanfhocal from my schooldays — éist le fuaim na habhann agus gheobhaidh tú breac; listen to the sound of the river and you'll get a trout. I congratulate the Minister of State. He has listened to the sound of the marketplace and the needs of small businesses and investors.
I welcome the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Michael Ahern, to the House. I congratulate Senator Quinn on his recent appointment as chairman of EuroCommerce, which is of vital importance to the country and brings Ireland great prestige.
I also congratulate him on his award of an honorary doctorate of law from NUI, Galway. I had the honour to be present on this wonderful occasion and he received a wonderful citation. I also had the pleasure of being appointed Minister of State at the Department of Posts and Telegraphs when Senator Quinn was interim chairman of An Post. He modernised that organisation, making it more business-oriented. He has not only done the State some service, he has done it great service along with Michael Smurfit who was interim chairman of Telecom Éireann at the same time. It is good for the Oireachtas to have Members with such experience.
I welcome the Investment Funds, Companies and Miscellaneous Provisions Bill 2006. It is a technical Bill, one with which the Minister of State will have no difficulty because of his previous occupation. The raising of the audit exemption threshold arises from the Companies (Auditing and Accounting) Act 2003. Many points made then have been taken on board by the Minister of State. He now has a stronger hold on the commerce and trade side of the Department of Enterprise, Trade and Employment and he knows Ireland must be competitive with no barriers. He has a particular role with his brief as Minister of State with special responsibility for trade and commerce.
Was this legislation discussed prior to the report of the Small Business Forum? It is vital for the continuing development of our economy that enterprise and innovation is promoted. If there exists a situation where entrepreneurs face restrictions and expenses that their counterparts in the UK do not, then we must act quickly to remedy it, particularly as we share a border with the UK. Although we are working closer together since the Good Friday Agreement, there should be no restrictions between the role of both administrations in business matters.
Yesterday, it was reported that Exchequer returns were €880 million more than projected, an indicator of how the economy continues to boom. The Minister of State should not be shy in taking some credit for this as he has played an important role as trade Minister. The increase in Exchequer returns is due to the construction sector and domestic demand continues to be the key driver of the economy. Bord Bia reports that domestic growth was estimated to account for all GDP growth in 2005. This assessment is backed up by the Irish Exporters Association 2005 year-end review. It reported that Irish manufacturing industry marked time in 2005 with an increase of 2.5% in export output, only sufficient to match the inflation rate. This is not particularly good news but it is a wake-up call for the economy and the Government. I caution against resting on our laurels.
We must ensure the economy is one in which small businesses can flourish. The Bill is very much in keeping with the submissions made. The Minister of State proved to be listening in this regard. Since his appointment in 2002, he has gained much experience in this area. The Oireachtas Joint Committee on Enterprise and Small Business has assigned me to draw up a report on exports. I note the recent trade mission to Japan and China by the Minister for Enterprise, Trade and Employment, Deputy Martin. His opening of a trade office in China is to be welcomed. We must also bear in mind our links with Taiwan which has an economic mission in Ireland.
The Bill has been widely accepted by both sides of the House. Senator White's personal experience of industry is welcome as it brings a particular insight into legislation dealing with small companies. The cost of an audit for her company is €15,000 a year, a considerable amount of money. Without those costs, it would significantly reduce her company's overheads. The Bill will assist in this regard.
I wish the Minister of State continued success. Last year, I attended a trade mission in Milan and was delighted to see the work of Enterprise Ireland. It is wonderful that the work of the former trade board, Córas Tráchtála, continues through Enterprise Ireland. The contacts built up by Ireland Inc. have been worked on and the Minister of State has added to that by his personal attendance at these overseas events. Over the next 12 months, he may have to restrict his overseas ventures. I did not do so when I was a Minister of State, which I regretted in later elections.
The role of the Seanad is important in these trade exhibitions and the Minister of State should encourage spokespersons from the House to attend them. It is important trade missions are supported by the Oireachtas. The Minister of State has worked with the Oireachtas Joint Committee on Enterprise and Small Business, with the chairman attending trade missions in India and South Africa. A Senator on a trade mission to the US is very much appreciated. I am sure Senator Coghlan was delighted to be involved in such events. I thank the Minister of State for introducing such detailed legislation. I hope he has continued success in his Ministry and beyond that.
I thank Senators for their valuable contributions to the debate. Their useful contributions covered an important area for small businesses. I thank Senators Coghlan, White, Quinn and Leyden for their kind words.
The proposal to increase the audit exemption threshold was highlighted in the recommendations of the Small Business Forum. When the 2003 Act was introduced, this was something which we indicated we would keep under review. At the time, Senator Coghlan and his colleagues emphasised that they felt it should be increased. The officials took this on board and this move has been welcomed by all sides.
Senator Quinn signalled a note of caution in terms of businesses that may consider they do not need to have a proper set of accounts prepared, as this could result in business slippage. I concur with this point. The position is that the exemption that may apply to companies would relate to the need for an external auditor. Company directors would continue to have a statutory obligation to prepare accounts that give a true and fair view of a company's financial situation and to lay them before AGMs. Companies are also required to file accounts with the Companies Registration Office. The level of detail required varies according to the size of companies. Effectively, the Bill is removing the requirement for an independent, external auditor but it is not removing the requirement to prepare a true and fair set of accounts. Neither is it removing the requirement for compliance with companies' legislation and regulations. People should be aware of this.
Senator Quinn also referred to cash flow as opposed to profit in respect of successful small companies. In my former job as an accountant, at times I was almost reduced to tears when I saw people making book profits but having no cash because they would not go out and collect money owed to them. Senator Quinn has rightly highlighted this problem. People should ensure they look after their cash flow.
Another point raised by Senator Quinn related to dematerialisation. When this issue came to my attention regarding shares, the first thing that crossed my mind was electronic voting and a lack of a paper trail. There will be a paper trail in this area as a shareholder statement of the shares held will be kept. Shareholders will have up to date information about the dealings that take place. Even though the information will be kept electronically, there will be paper evidence of what is happening in regard to the shares, which is important.
Senator Coghlan referred to the establishment of the national consumer agency. This is at an advanced stage. I hope the Bill concerning it will be available in the next session. He also referred to small, indigenous businesses being the backbone of the economy. Senators Quinn, White and Leyden reiterated this point. If I am correct, in 2005 the number of jobs created in small, indigenous industries was greater than the number of jobs created by multinationals. That has been a feature of job creation in recent years and it is in line with Government policy. Everyone involved in this area has focused on growing indigenous companies and this policy is now coming to fruition.
A reference was also made to co-operation between Departments. I assure the House that is the case in the area of trade. The Department of Enterprise, Trade and Employment works closely with the Departments of Foreign Affairs, Finance and Agriculture and Food. It is not the case that Departments do not co-operate, there is great co-operation across these Departments. A lack of co-operation certainly does not apply in the area of trade. It is important to have all the strands working together in order to be successful.
The provision of broadband is very important for the growth of industry. It is interesting to note that broadband accessibility has been extended to 75% of the country although it is not possible to have 100% on-line accessibility. I am pleased to see greater progress is now being made than was the case heretofore.
Regulatory impact analysis is essential to ensure that any regulations being introduced would not be unduly restrictive or result in burdens being placed on entrepreneurs. The first regulatory impact analysis that was carried out related to directors' compliance statements. That worked well. The discussions that took place in that regard resulted in a formula that ultimately got broad agreement. This shows the importance of having an impact analysis and giving everyone a say.
Before concluding, I wish to add my congratulations to Senator Quinn on his appointment as chairman of Eurocommerce and also on his doctorate. They are well deserved. I am currently reading his book, Crowning the Customer. It is very good and I think everybody should read it.
The provisions of the Bill are about facilitating business development and securing our competitive edge in key sectors where it has been developed. Where possible, we should ease the regulatory burden on businesses. That is already happening here where a flexible, responsive and business-focused regulatory system is developing. This is vitally important because, as has been stated, like all developed economies, our economy depends increasingly on services as it moves away from basic manufacturing to higher upscaled manufacturing and services. If we do not have a system which will allow people to be flexible and respond quickly to changes in the marketplace, we will lose out. I believe we will continue to be successful.
Since the Bill was approved by Government, a number of issues were raised which may require the introduction of amendments. I have asked my officials to consider those proposals over the summer months and to seek input where necessary from the Company Law Review Group, as most of the proposals are in the area of company law. Accordingly, I propose to introduce amendments on Committee Stage for those suggestions that are deemed to merit consideration by the Oireachtas.
I thank all Senators who contributed to this most useful and informative discussion. I hope I have clarified most of the points raised. It will be necessary to reflect on some issues between now and Committee Stage. I thank my officials for the excellent work they have done in preparing this legislation and for being so receptive to suggestions coming from many different quarters.
I join with the Minister and other Senators in offering my congratulations to our colleague, Senator Quinn. I was unaware of his honorary doctorate until now. Well done to him, it is well deserved. I also congratulate him on the position to which he was deservedly elevated at European level.