Friday, 15 December 2006
Investment Funds, Companies and Miscellaneous Provisions Bill 2006: Report and Final Stages
I welcome the Minister of State to the House. This is a Seanad Bill which has been amended by the Dáil. In accordance with Standing Order 103, it is deemed to have passed its First, Second and Third Stages in the Seanad and is placed on the Order Paper for Report Stage. On the question "That the Bill be received for final consideration", the Minister may explain the purpose of the amendments made by the Dáil. This is looked upon as the report of the Dáil amendments to the Seanad. The only matters, therefore, which may be discussed are the amendments made by the Dáil. For Senators' convenience, I have arranged for the printing and circulation of the amendments. The Minister of State will deal separately with the subject matter of each related group of amendments. I have also circulated the proposed grouping. Senators may speak only once on each grouping. I remind Senators that the only matters that may be discussed are the amendments made by the Dáil.
The first group of amendments involves amendments Nos. 1 and 46. I am delighted to be returning to this House with the Investment Funds, Companies and Miscellaneous Provisions Bill, as amended in the Dáil. The amendments made have immeasurably improved the Bill and include, as I will explain when we come to discuss one of the later groups of amendments, some amendments tabled by me which were first suggested in this House by Senator Coghlan.
Amendment No 1 amends the Long Title to the Bill and is directly consequential on amendment No. 46, which amends the Netting of Financial Contracts Act 1995. The Netting of Financial Contracts Act 1995, as amended, provides certain "super-protections" in insolvency for certain netting and related credit support arrangements that come within its ambit. At its simplest, it allows for amounts owed to a party "A" under one or more financial contracts entered into by that party with another party "B" to be netted off, or offset, against any amounts due by party "A" to the other party "B" under separate financial contracts. The definition of who is a "party" for the purposes of the Netting of Financial Contracts Act is central in determining to whom the 1995 Act applies.
Last year, Part 2 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005 made provision for the formation and use of a new form of entity by the financial services industry called a common contractual fund that is not an undertaking for collective investment in transferable securities, for short called a non-UCITS CCF. This followed provisions in the 2003 UCITS regulations which first introduced the UCITS CCF. However, the nature of common contractual funds is such that each participant or investor shares in the assets and suffers liabilities up to a maximum of his, her or its investment in the proportion that the nominal value of their holdings of units bears to the aggregate nominal value of all of the units issued by the CCF. This means that neither investment vehicles constituted as UCITS nor those constituted as non-UCITS CCF can benefit from the Netting of Financial Contracts Act 1995.
Likewise, there is a legal doubt as to whether partnerships, whether constituted as an ordinary partnership or a limited partnership, including under the Investment Limited Partnership Act 1995, benefit from the Netting of Financial Contracts Act 1995. The amendment of the Netting of Financial Contracts Act 1995, which is now included in the Bill as a result of amendment No. 46, will address the issue by expressly providing that the definition of "party" in the Netting of Financial Contracts Act includes, and is deemed always to have included, the particular arrangements that I have described.
The second group of amendments covers amendments Nos. 2, 3 and 6 to 13, inclusive. A number of significant amendments were made in the Dáil to Part 2 of the Bill. These involve not only further refinements to the provisions as passed by this House but also the addition of new sections. The main changes made to existing provisions relate to the section providing for the increase in the audit exemption thresholds. The new provisions added deal with a number of matters, such as statutory declarations made abroad for the purposes of the Companies Acts, private companies and their ability to offer shares and debentures and amendment of the Investment Funds Companies and Miscellaneous Provisions Act 2005 relating to the consent of experts of material provided by them in prospectuses.
Amendment No. 6 relates to statutory declarations. In a number of provisions in the Companies Acts, documents that need to be filed in the Companies Registration Office, CRO, are required to contain a statutory declaration. Under general law, statutory declarations made in the State are required to be made under the Statutory Declarations Act 1938. They can be taken before a person authorised by law to take and receive statutory declarations such as a solicitor, a notary public, a commissioner for oaths or a peace commissioner. Statutory declarations made outside of the jurisdiction are required to be made under the Diplomatic and Consular Officers (Provision of Services) Act 1993. Essentially this Act requires that statutory declarations be made before a diplomatic or consular official.
For many years, the practice operated by the CRO permitted the registration of statutory declarations taken abroad when made before persons authorised to administer oaths in the jurisdiction in question, including in the case of Northern Ireland and the UK, before practising solicitors in those jurisdictions. However, as a result of a detailed analysis of the situation, it emerged that the existing practice was incorrect. Consequently, since April of this year, the CRO has changed its practice so that it now only accepts statutory declarations made abroad where they comply with the 1993 Act. The Law Society has strongly argued that the essence of the previous process and procedures should be restored. It also recommended that persons entitled under the Solicitors Act to practise as a solicitor in the State should be able to take statutory declarations abroad. It also recommended that all statutory declarations made and delivered for registration in the CRO under the old regime should be retrospectively validated. The CRO fully support these recommendations.
Amendments Nos. 7 and 8 relate to offerings of shares and debentures by private companies. Prior to the enactment of the Investment Funds, Companies and Miscellaneous Provisions Act 2005, and Part 5 thereof in particular, and the Prospectus Regulations 2005, SI 324 of 2005, practitioners were able to advise their clients that on the basis of existing law, and in particular a combination of sections 33, 51 and 61 of the Companies Act 1963 and section 21 of the Companies (Amendment) Act 1983, it was possible for a private company to make offers of their shares and debentures to potential investors provided the offer was structured in a particular way. Thus, while offers of the type that were permitted were not expressly spelt out in law, they could be made by private companies so long as they were considered as being, in the terms of section 61(2) of the Companies Act 1963 "regarded, in all of the circumstances, as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation, or otherwise as being a domestic concern of the persons making and receiving it".
Along with a number of others, however, this section was repealed with effect from 1 July 2005 as part of the transposition of the EU prospectus directive, and this has resulted in a degree of uncertainty as to what types of offers of their shares or debentures can be made by private companies. The issue of private companies making offers of their debentures or other debt instruments to raise capital has also been considered by the company law review group, CLRG. As part of its recommendations for the reform and consolidation Bill, the CLRG suggested that the proposed model private company — the company limited by shares, CLS — will not be able to offer shares or debentures in the manner under consideration.
However, the proposed private company that has an objects clause — a designated activity company, DAC — and which specifically provides for the matter in its constitution, will be able to make offers of this type, so long as the manner of doing so does not give rise to the need to publish a prospectus under the national law transposing the EU prospectus directive. This proposed approach is broadly in line with that adopted in several areas of company law in recent times, such as in transposing the prospectus directive and availing of the maximum audit exemption thresholds, as we propose in section 6 of the present Bill, where the limitations or thresholds set in European law are adopted in determining the appropriate boundaries for the application of national law.
The approach adopted in amendments Nos. 7 and 8 in respect of the proposed amendments to section 33 of the Companies Act 1963 and section 21 of the Companies (Amendment) Act 1983 is explicitly to permit a private company to make offers of the type that benefit from an exemption under regulation 9 of SI 324/2005, or which otherwise fall outside of the scope of the implementing regulations. The opportunity is also being taken to increase the permitted number of members a private company may have to 99, in line with the recommendations of the CLRG. This change would otherwise have to await the implementation of the main CLRG reform and consolidation Bill.
Amendments Nos. 9 and 10 provide for an increase in the audit exemption thresholds. Senators warmly welcomed the proposals in section 6 of the Bill to increase the audit exemption thresholds significantly when it was considered and passed by this House earlier this year. Arising from further examination of the text as passed by this House, and to meet the wishes of all concerned that the increased thresholds should be capable of being availed of at the earliest opportunity, I introduced several amendments in the Dáil on both Committee and Report Stages to address all aspects that were seen to arise.
In this regard, it proved necessary to make a larger number of amendments than might have been thought necessary. This is particularly so as the provisions of Part III of the Companies (Amendment) (No. 2) Act 1999, which first introduced the possibility for a company not to appoint an auditor, contain a number of interrelated and interdependent provisions, such that when one is changed, various consequential amendments must be made. The essence of the changes made in the Dáil will still enable a member or members holding not less that 10% of the voting shares of a company that would otherwise be eligible to avail of the exemption to notify the directors that the exemption should not be taken.
Amendment No. 9 replaces section 6 with an expanded section. A new section is inserted after this by amendment No. 10, to deal with transitional arrangements. The Dáil also accepted amendment No. 11 which amends sections 150 and 160 of the Companies Act 1990. The purpose of this amendment is to permit the High Court to order that the costs of investigating and prosecuting restriction or disqualification applications, or a proportion specified by the court, can be recovered from the restricted or disqualified company directors, rather than merely the legal costs as is the case at present.
Amendments Nos. 12 and 13 relate to prospectuses and expert consents. In recent weeks, a particular difficulty was raised by various legal practitioners who advise clients on the raising of capital through the issue of debentures, which involves the issue of a prospectus. The problem relates to the way in which the EU prospectus directive was transposed into Irish law through a combination of the Investment Funds, Companies and Miscellaneous Provisions Act 2005 and the separate transposing of regulations under SI 324 of 2005 which were made under section 46 of that Act.
The specific problem arose from the requirement in the original section 45(1)(a) of the Act that, where a prospectus includes a statement made by an expert, that expert must give his or her consent to the issue of the prospectus and that this consent must not be withdrawn before the issue of the prospectus. It has now emerged that this requirement, which was modelled on section 46 of the Companies Act 1963, goes beyond the requirements of the prospectus directive, which is a maximum harmonisation directive.
To address this problem, I moved amendments Nos. 12 and 13 in the Dáil. The first of these substitutes a new section 45 which specifies that an expert is only required to give his or her consent to the inclusion of the statement in the prospectus. As a result of the way Part 5 of the 2005 Act is structured, it proved necessary to make a large number of consequential changes to sections 38, 41, 42, 44 and 48 of the 2005 Act, and these were catered for in the second amendment.
Amendments Nos. 2 and 3 are designed to provide that certain provisions will come into operation on the passing of the Bill. These include the provisions relating to the increase in the audit exemption thresholds which will come into effect once the President signs the Bill into law on 1 January.
The primary national law relating to takeovers in this jurisdiction is the Irish Takeover Panel Act of 1997. This provided for the establishment, on a statutory basis, of the Irish takeover panel, which oversees extensive rules governing the many aspects of takeovers. The panel covers full takeovers as well as case of the acquisition of a substantial interest in a target company. Earlier this year, the European Communities (Takeover Bids (Directive 2004/25/EEC)) Regulations 2006, SI 255 of 2006, were signed into law by the Minister, Deputy Martin. These were designed to transpose into Irish law the necessary provisions to give effect to the EU directive in question. The regulations came into effect on 20 May 2006.
The directive has a narrower focus both as regards the range of companies covered compared with the current regime applying to takeovers here under the Irish Takeover Panel Act and the rules made by the panel for the exercise of its supervisory functions under the Act. The directive applies only to companies admitted to trading on a regulated market, which, in an Irish context means those companies on the official list of the Irish Stock Exchange, whereas the 1997 Act applies to a wider cohort of listed companies. In terms of transactions, the directive only applies to takeover bids whereas the Act also covers other transactions, including substantial acquisitions of shares and offers other than takeovers.
As a result of the transposition of the directive, certain differences exist as regards the takeovers regime applying here, depending on whether the company is a directive or a non-directive company. The primary purpose of the takeovers provisions in the Bill and the amendments made in the Dáil is to empower the panel to minimise these differences to ensure it can apply a single set of rules to all companies and transactions under its jurisdiction, if appropriate.
Perhaps the most significant of these amendments is amendment No. 31, which provides for the substitution of section 1(3) of the 1997 Act which is designed, as far as possible, to align the definition of "acting in concert" in that Act with that applicable in the 2006 regulations. This should provide greater clarity both for market participants as well as the Irish takeover panel and avoid undesirable confusion for all concerned.
Amendment No. 40 relates to the substitution of section 7D, being inserted by section 17 into the 1997 Act. The revised section 7D is expanded in content to spell out more explicitly the powers of the Irish takeover panel when making rules and the circumstances when these can be the same or different, depending on whether the proposed action is for a takeover bid or a takeover or other relevant action within the meaning of the 1997 Act. The remaining amendments in this group are all essentially self-explanatory technical or consequential amendments arising from what I have just described.
During the course of my contributions in this House, I explained that Part 3 was designed to partly transpose and partly pave the way for the transposition of the EU transparency directive. This directive deals with and requires disclosure of specific information by companies whose securities are listed on a regulated market. The directive is due for transposition by 20 January 2007. Due to the nature of some of the disclosure obligations arising, relating as they do to the financial situation of listed companies, it has been decided that the Irish Auditing and Accounting Supervisory Authority should be appointed competent authority in respect of these aspects of the directive. The other competent authority for the transparency directive will be the financial regulator, which is also the competent authority in respect of the transposing law for several related EU directives dealing with the publication of prospectuses and market abuse.
Amendment No. 14 provides for the amendment of section 9 of the 2003 Act to enable IAASA discharge the role of Irish competent authority arising from the requirements of Article 24(4)(h) of the EU transparency directive. Amendment No. 15 makes several amendments to section 10 of the Companies (Auditing and Accounting) Act 2003, which established IAASA, to facilitate it discharging the additional functions now proposed. In particular, IAASA will have the power to apply to the High Court to secure compliance with any of its rules relating to, or arising from, its new functions under transparency regulated markets law.
A further substantive amendment is being made by Amendment No. 16 by substituting section 29(7) of the 2003 Act in a way that accommodates the expanded grounds arising from these new functions that IAASA can petition the High Court to ensure compliance with its rules, etc. Several other amendments were made in Part 3 to deal with such matters as providing parameters within which civil liability may be provided for in regulations to be made by the Minister, and ensuring that any administrative sanctions regime will apply in instances of breaches of rules made by IAASA, as they will apply for breaches of rules made by the financial regulator. Section 87 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005 added the legislation which implemented the prospectus and market abuse directives last year to those enactments to which sections 33C and 33AN and Schedule 2 of the Central Bank Act 1942 refers.
Amendment No. 45 make provision for the addition of the proposed transparency (regulated markets) law to the 1942 Act. The purpose of the amendments to section 33C and 33 AN is to ensure the administrative sanctions which the regulator possesses under the Central Bank and Financial Services Authority Act 2004 for the separate purpose of regulating financial institutions do not apply to the transparency legislation. The purpose of the second part of the new section is to ensure the financial regulator can discharge the functions of the Central Bank and Financial Services Authority arising under Part 3 and the whole of the upcoming Regulations implementing the transparency directive.
Returning to amendments made to Part 3, I draw attention to the amendments made to the definition of what is termed "Transparency (regulated markets) law". Senator Coghlan had tabled several amendments on Committee Stage in this House seeking to have such changes made, as did Deputy Hogan in the Dáil, and the end result of the Parliamentary Counsel's reconsideration of this matter was the making of the amendments.
I am glad that following a prolonged period between the two Houses that the Bill will be passed. I am also glad the Minister of State reconsidered and accepted my amendments. The Minister of State was not personally opposed to the increase in the audit exemption threshold and I knew his heart was in the right place when I first raised it.
The system of regulation requires review. It is unacceptable that regulators are putting up prices and reducing competition. Do we need so many regulators without accountability to the Oireachtas? The Minister of State has heard that question not just from me. This side of the House does not accept empire-building organisations but rather lower prices for consumers. I thank the Minister of State and his officials for the consideration they gave to the Bill.
I thank the Minister of State and his staff. Unfortunately, I did not get a chance to attend the Order of Business this morning. I thank the Cathaoirleach for his work during the year. Several weeks ago in the heat of a debate I claimed he was unfair to me. It is the opposite. He is very fair, patient and reasonable, a commonly held view. My Labour Party local organisation often urges me to get thrown out of the Seanad so as to raise my profile. I always point out that it is impossible to get thrown out because the Cathaoirleach is so patient and reasonable. I wish him well over the Christmas and I look forward to working with him in the new year. I thank Deirdre, Jody and the staff of the Seanad Office. I also thank the Debates Office who work with us every sitting day. I wish all Members and staff a happy Christmas.
On behalf of Fianna Fáil and Progressive Democrats Senators, I thank the Minister of State, his officials and the Opposition for their support in getting the Bill passed. Very valuable amendments were tabled during its passage. It was important that the Minister of State took them on board to ensure the legislation will stand.
I thank Senators Coghlan, Tuffy, White and Moylan for their contributions on all Stages. It made for worthwhile discussion and many of their points were taken on board. I thank my officials for their tremendous work on the legislation, sometimes under severe pressure. I thank the staff of the Seanad and wish Members and staff a happy and peaceful Christmas.