SECTION 157.

Thursday, 24 May 1990

Special Committee on the Companies (No. 2) Bill, 1987 Debate

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Question proposed: “That section 157 stand part of the Bill.”

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  This section was added by way of a Government amendment in the Seanad to address the situation where the company the subject of the rescue application——

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  You moved so fast. I had one or two questions that I wanted to ask on section 156, but it is too late now.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  Section 157 was added by way of a Government amendment in the Seanad to address the situation where the company the subject of the rescue application is a member of a group of companies. In such a situation it was considered that a standard practice could develop of multiple petitions to the court and the stimultaneous appointment of the examiner to more than one, or indeed all, of the companies in the group concerned. Section 157 was intended as a shortcut in this situation by giving the court more flexibility at the outset where the company the subject of a petition is a member of a group. It has been suggested that an examiner could be appointed to a related company only if it too is unable to pay its debts. This is a matter that I propose to examine in further detail and, if necessary, I may come back on Report Stage with an amendment to cover any such difficulties with this section which this examination brings to light.

Question put and agreed to.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  Amendment No. 222 in the name of the Minister; and amendment No. 223 is related. Therefore Amendments Nos. 222 and 223 will be taken together for discussion purposes. Is that agreed? Agreed.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  I move amendment No. 222:

Section 158 is, in a sense, the real meat of Part IX of the Bill since it is the section which restricts the rights of creditors once a petition for protection has been presented to the court. For example, from that point on no petition can be presented for winding up. Amendments Nos. 222 and 223 address themselves to subsection (2) (c) and (d) which contain other restrictions on the rights of creditors. Paragraph (c) provides essentially that debts cannot be legally executed. Paragraph (d) provides that charges on the company’s property cannot be enforced. However, while the thrust of subsection (2) is that while a company is under court protection it should be protected from its creditors, there may well be cases where the examiner feels that it would be more worthwhile and perhaps less expensive to cooperate with a creditor in disposing of company property rather than going to the expense and trouble of doing it himself under, for example, section 163 of the Bill. This present amendment would, therefore, give the examiner considerable freedom to manoeuvre in this respect.

Amendment agreed to.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  I move amendment No. 223:

Amendment agreed to.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  I move amendment No. 223a:

This amendment was mentioned at a meeting of the Committee by Deputy Tom Kitt. Amendment No. 223a is designed to close off a potential loophole in the present Part IX and to prevent parties who have supplied goods under what we call a hire purchase agreement from recovering possession of the goods without the consent of the examiner. A hire purchase agreement, for this purpose, is actually defined in section 163 (7) to include a normal hire purchase agreement itself, a conditional sale agreement, a retention of title agreement or an agreement for the bailment of goods which is capable of subsisting for more than three months.

While paragraph (c) of section 158 (2) prevents any attachment, sequestration, distress of execution being put into force against the property of the company, I have been advised that this would not prevent a supplier from relying on his right to recover goods supplied under a hire purchase agreement as I have just defined it. This could, obviously, completely undermine the ability of the company to continue to operate while the examiner completes his assessment. This would have undesirable consequences for the successful operation of Part IX in particular cases unless we prevented it. The Committee will note that the provision I propose will operate unless the examiner consents. This accords with the trust of amendments Nos. 222 and 223 which we have just discussed.

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  This is obviously a reasonable amendment as are the other two. The problem is going to be, what are the examiner and the company going to use for money in the meantime while they continue trading? This section is saying that nobody can take action against the assets of the company either in the form of repossession under a hire purchase agreement or by the other matters that we have discussed already.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  First we will deal with amendment No. 224 and then the Deputy can comment on the section as amended.

Amendment agreed to.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  I move amendment No. 224:

This amendment would insert a new version of section 158 (4) which, on reflection, does not yet quite get across the meaning originally intended for it. Subsection 158 (4) of the Bill restricts the rights of shareholders to apply to the court for relief under section 205 of the Principal Act in cases where the company concerned is under the court’s protection. Section 205 provides for relief in broadly two situations; first, where the affairs of a company are being conducted in a manner oppressive of the members of the company or second, the directors are exercising their powers in such a manner.

As regards shareholders rights under section 205 generally, it is quite conceivable that with the examiner holding the reins, some of the shareholders might be tempted to use section 205 for relief, perhaps even in the effort to unseat him and this is obviously something we would not want to happen. This was why the present subsection confined orders for relief to acts carried out before the examiner arrived. However, the problem with the wording of the subsection, as it is, is that all an aggrieved shareholder would have to do is to wait until after the period of court protection and then take an action under section 205. Amendment No. 224 is, I hope, clearer than the existing text and would simply provide that relief under section 205 of the Principal Act will not be available in respect of the conduct of the affairs of the company while it is under the protection of the court.

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  I must confess I have some worries about this. The purpose of section 205, as I understand it, is to protect minorities. What bothers me is that you might have a situation where a petition has been made to the court under section 205 to provide a remedy for minorities in regard to the conduct of a company and the directors might decide that the best way to stymie this was to make an application for the appointment of an examiner. I do not think that is the intention but I wonder could it be the effect? I also wonder whether the rights of minorities in any event should be superseded in these circumstances. Is it reasonable? I do not think the rights of minorities being vindicated within a company in any sense affects the solvency or the ability of the company if they continue to trade, unlike the previous amendments which do have that effect if people could seize goods back and so forth.

The protection of minorities is simply a matter of who is in charge and how they are running the company. I do not think protecting a company from its creditors requires that the minority shareholders within the company should have their rights to vindication against the majority taken from them because I do not think it is material to the issue. I am not quite sure that I therefore understand why this particular amendment is necessary.

Mr. O'Dea: Information on Willie O'Dea Zoom on Willie O'Dea  I can see a certain logic in what Deputy Bruton said. I presume the reason for the amendment is that if a section 205 action is instituted, it does tend in practice, whatever about the theory of it, to undermine the operations and the credibility of the company because it obviously gives rise to a situation where positions become entrenched. If what we are talking about is the appointment of an examiner to try to turn the company around, the last thing a company that is in the process of being turned around, or that we intend to turn around, needs is a section 205 action. That is what I think the idea behind the amendment is.

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  Why?

Mr. O'Dea: Information on Willie O'Dea Zoom on Willie O'Dea  Because as I have said, a section 205 action in a company that is already ailing will make it even more difficult to get the company turned around. That is the situation in practice. I take your point about the theory, but that is the situation in practice.

Mr. S. Barrett: Information on Seán Barrett Zoom on Seán Barrett  But the Deputy is forgetting that in the appointment of an examiner the examiner does not have any great powers and he is depending on the goodwill of creditors and finance houses to keep a company going. It is not like any other situation; so the more of this you put in the less goodwill is going to be there towards the operation of the examiner.

Mr. O'Dea: Information on Willie O'Dea Zoom on Willie O'Dea  I accept your point of view but I do not believe it.

Mr. S. Barrett: Information on Seán Barrett Zoom on Seán Barrett  The only way we will know whether this works is when we see it in practice. Unless we give the examiner extraordinary powers or else go the other road of softly, softly, this is going to fail.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  I think some Deputies are losing sight of the main objective of the appointment of an examiner, because if the company was wound up——

Chairman: Information on Brian Cowen Zoom on Brian Cowen  I am going to try to proceed on the basis that we stick to the content of the amendment first and then we can go back to the section as amended. If we can deal with the specific point where this amendment is supplementary to section 205 of the Principal Act and——

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  I am responding to queries raised by Deputies on this section.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  I would like to keep the discussion tight on the amendment so that we can make progress.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  I appreciate that. If the company was wound up, the shareholders would actually get nothing. That is the reality of life. Under Part IX they still have a hope of retaining their interest in the company and all we want to do is prevent minorities from upsetting the basic apple-cart, as it were. I genuinely feel that this Part on the appointment of an examiner is a very important part of the Bill. As Deputy Barrett said, we will have to see how it will work in reality but I would be very hopeful from the general provisions of the legislation, and Part IX in particular — and Deputy Bruton asked what the examiner will do for funding during the period of——

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  I was ruled out of order on that.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  Since I too will be ruled out of order I will not respond to that. I feel the point we put forward is reasonable and Deputy O’Dea has summarised it.

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  On the precise point, I would ask Members to look at amendment No. 224 and at subsection (4) of section 158 and compare them. To my mind, subsection (4) of section 158 which the Minister proposes to delete, is a much more sensible provision than the amendment, in the sense that it says that section 205 cannot be used to upset anything done by the company while it is under the protection of the examiner, but it say however, that something that happened prior to the appointment of the examiner which was in oppression of a minority within a company, shall still be something about which a person can vindicate their rights through the courts. I think that is reasonable; it is a very reasonable distinction to make in the existing subsection (4).

What the new subsection (4) does — and I think it is going too far — is to say that all rights of minorities are just set aside. Complaints concerning the conduct of the affairs of the company while it is under protection of the courts shall not constitute a basis for the making of an order for relief. I cannot see the advantage of the change.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  We are asking the creditors to stand aside for a while. The shareholders must also accept that they have to make certain sacrifices too. When the examiner is being appointed by the court — and now you have allowed shareholders to make applications to the court — the efforts of the examiner to rescue the company, I believe, will be put in jeopardy. That is the general theme or the thrust of the amendment. It is a very reasonable point of view.

The examiner has been appointed by the courts to rescue the company, to maintain the maximum number of jobs for everyone’s sake. Shareholders, creditors, employees and everyone involved would benefit, to my mind, by the appointment of an examiner by the courts. During that examination if we were bringing section 205 of the Principal Act in regard to minorities into operation, I believe that his or her work would be totally undermined during the course of the examination. On reflection, I do not see why there is such resistence to this provision.

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  Could I ask a question?

Chairman: Information on Brian Cowen Zoom on Brian Cowen  One second. To tighten up the discussion, what we are asking in this amendment is whether section 205 of the Principal Act should apply in cases where an examiner is appointed. That is the specific substance of the amendment before us. The general question of what should happen once he is appointed, once the petition is put before the court, is a matter for the discussion on the section, as amended. Specifically what I would like to direct your minds to is the feasibility of whether you agree or disagree that section 205 should or should not operate once the examiner is appointed.

Mr. S. Barrett: Information on Seán Barrett Zoom on Seán Barrett  That is not the issue.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  That is the issue under amendment No. 224.

Mr. S. Barrett: Information on Seán Barrett Zoom on Seán Barrett  With respect, the point made by Deputy Bruton is that we are being asked by this amendment to replace the existing subsection (4) with a new subsection (4). The net point is that the new subsection (4) as proposed in the amendment sets aside the provisions of section 205 of the Principal Act once the examiner is appointed. The existing section 158 sets aside the provisions of section 205 once an examiner is appointed, from the time that he is appointed, but it allows for action before he was appointed. It is a nett point. I do not see how the existing subsection (4) is going to damage the role of the examiner by such an extent that the creditors are going to kick up because somebody has power to take action in relation to events prior to the appointment of an examiner.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  That is precisely the point.

Mr. S. Barrett: Information on Seán Barrett Zoom on Seán Barrett  The only person in this exercise who is going to seek the appointment of an examiner will be a member of the company. I cannot see any creditor, as long as the Bill is framed the way it is, seeking the appointment of an examiner; I think they will then go straight for a receiver. The only person who will go for an examiner will be in member of a company, and it will be in his or her interest to do that because any actions they might be liable for before the appointment of an examiner are going to be scrubbed out.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  Up to the last minute, you were on the amendment and you were correct. There is a substantive difference between the new subsection (4) and the old subsection (4) as far as I am aware. It is up to the Minister to clarify that point, but we must stick to that specific point and then go on to the amended section.

Mr. T. Kitt: Information on Tom Kitt Zoom on Tom Kitt  I would prefer to wait for clarification.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  On a point raised by Deputy Barrett, lest we miss it as we go along due to the break, Deputy Barrett feels that only certain people will actually move for the appointment of an examiner. This is not the case. It would be possible, and very conceivable, that employees would move for the appointment of an examiner to protect their rights and to rescue the company. That is why I am very enthusiastic about this Part. I genuinely think it is a great Part and I am rather surprised that such reservations are being expressed about it, because it is put in with the intention of doing the best to save the company. That is our wish and also the wishes of the Deputies here who want to include it. If the court has decided that an examiner should be appointed, then that should be that. The court has made the decision. Do not forget that the whole operation would be under the supervision of the courts which would not want to see any valid rights of shareholders or anyone else abused.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  On section 205.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  I moved amendment No. 224.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  Can Deputy Kitt and Deputy O’Dea come in?

Mr. S. Barrett: Information on Seán Barrett Zoom on Seán Barrett  What about the Minister?

Chairman: Information on Brian Cowen Zoom on Brian Cowen  In due course when the Chairman calls him. I do not see why people should throw up their heads at that either, by the way. I will come back to that point. The Chairman will direct the discussion, without any question about it.

Mr. T. Kitt: Information on Tom Kitt Zoom on Tom Kitt  I have nothing to say.

Mr. O'Dea: Information on Willie O'Dea Zoom on Willie O'Dea  Briefly, in regard to what the Minister said, my understanding of the amendment is that under the original subsection (4), which we are replacing, an order can be made while the company is in examinership in respect of a petition under section 205. The new subsection provides that the order cannot be made while the company is in examinership. I see Deputy Bruton shaking his head. “Complaints concerning the conduct of the affairs of the company while it is under protection of the courts shall not constitute the basis for the making of an order for relief.”

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  As I see it, a complaint made about the conduct of the affairs of the company prior to its going under the protection of the court can be made while it is under the protection of the court so long as the conduct complained of occurred prior to the appointment of the examiner. That is under the new subsection also.

Mr. O'Dea: Information on Willie O'Dea Zoom on Willie O'Dea  The difference is that under the new subsection the order cannot be made. A petition can be pending, a case can be pending but the order cannot actually be made while the company is in examinership.

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  No. I do not think that is right.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  We will hear what the Minister has to say on that point.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  Actually, the order could not be made afterwards either, as it happens. It could not be made during or after.

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  Subsection (4) relates solely to what can constitute a basis for making an order. What it says is that complaints about the conduct of the affairs while under protection shall not constitute the basis for making an order, but complaints about other conduct prior to the company coming under protection shall and do continue to be the potential basis for an order at any time, including the time while the court is under protection.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  The specific point when it comes down to the amendment is that for the purposes of protecting a company once an examinership comes into being, it is proposed that that power Deputy Barrett alluded to, of bringing a petition in respect of prior conduct before the examinership came into effect, would no longer be available. Is that the situation?

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  That is it.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  I would like the Minister to clarify his own amendment and we will take a decision on it then.

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  I would like to say one thing as it may be helpful. We have had a bit of a problem trying to understand this amendment. In fact, my understanding of it has changed 180 degrees since I started the discussion. If I have had that difficulty, and Deputy O’Dea who is very practised in these matters and other Deputies have had difficulty in grasping what subsection (4) in this amendment means, it suggests that the Government might be better off leaving the existing subsection (4) in because it has the merit of greater clarity. It is easier to understand the existing subsection (4) than the new one. The existing subsection (4) is crystal clear.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  What you are saying is that on the question of prior conduct, the new subsection (4) is silent whereas the old subsection (4) is specific.

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  Yes.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  I accept that point; why are they silent on prior conduct? Is it left to a person to assume that one can still bring an action? It would seem now from what Deputy Bruton has said that the new subsection (4) is confined to the activities of the directors during the period when the company is in examinership. No section 205 application can be brought about that. There is nothing at all about the period prior to or the period after it ceases to be an examinership if it is still in existence.

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  Or before.

Mr. O'Dea: Information on Willie O'Dea Zoom on Willie O'Dea  Or before, so the natural assumption must be that section 205 still applies to situations before.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  That is exactly what we are trying to get at. I am glad it has been realised at this stage.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  The explanation has been given. The explanation is that section 205 — let us listen as we are all here as members of the Committee to decide exactly what the meaning of the provision is and I do not see why we should expect that the Minister would have all the knowledge in this matter. You have often asked us to take on your amendments on the basis that there is some merit in what you are saying also. I do not think that we should have to rely on the Minister to reply to everything to our satisfaction. We have worked out that if section 205 will not apply while the examinership is in existence, it will apply if it is not in existence. That is the net point that you are seeking clarification on.

Mr. S. Barrett: Information on Seán Barrett Zoom on Seán Barrett  Could the Minister explain what is the difference then between the existing subsection (4) and the new amendment that he is proposing?

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  I have explained this already and I would want to go through it again. As regards shareholders’ rights under section 205 generally, it is quite conceivable that with the examiner holding the reins some of the shareholders might be tempted to use section 205 for relief, perhaps even in an effort to unseat him. This is something we would obviously not want to happen. This is why the present subsection confined orders for relief to acts carried out before the examiner arrived. However, the problem with the wording of the subsection, as it is, is that all the aggrieved shareholders would have to do is to wait until after the period of court protection and then take an action under section 205. Amendment No. 224 is clearer than the existing text and will simply provide that relief under section 205 of the Principal Act will not be available in respect of the conduct of the affairs of the company while it is under the protection of the court and that is the primary situation.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  I am putting the amendment. We have discussed it. Is the amendment agreed?

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  I do not think the amendment is an improvement. The original section was actually clearer but it is not really a political matter. This is a legal matter of what is the best form of drafting to convey the intention. If the Minister is convinced, with the benefit of the advice available to him, that his wording is better, as there is no political content involved we should agree to it. But I do not think he is right.

Mr. O'Dea: Information on Willie O'Dea Zoom on Willie O'Dea  A very brief final comment. In deference to what Deputy Bruton has said — and we are all trying to be helpful here and trying to get the best legislation possible — can I make a suggestion to the Minister, that he has a chat with his officials between now and Report Stage. It would seem to me that the danger that I feared earlier on, that the launching of a petition could undermine the rescue of the company, is still there, because if somebody could bring a petition under section 205 while the company is in examinership and claim that the petition is in relation to the earlier conduct of the directors of the majority shareholders, I think that situation is still there under the new subsection. Maybe he could have a word with his staff on that.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  We are all trying to make this Bill as good as we can. I got certain advice here on this section and we have heard the views being expressed by Deputies here who are also experienced in this field. The idea of this amendment was to try to improve on what went through the Seanad. New points have been raised here by Deputies on specific points that could arise and what we are going to do now is to review this section on Report Stage, and come back with an improved amendment in the light of the contributions made here on Committee Stage today. What we want is an amendment of this section now, but I assure you we will come back with further elaboration on Report Stage.

Amendment agreed to.

Question proposed: “That section 158, as amended, stand part of the Bill.”

Mr. S. Barrett: Information on Seán Barrett Zoom on Seán Barrett 

An attachment cannot be levied against the property of the company during the period for which the examiner is appointed. Is there not a danger that monopoly suppliers may in practice override this protection by refusing to supply goods and services without payment in full of the debt outstanding up to the date of the appointment of an examiner. What proposals has the Minister to overcome that, which I see as a real difficulty here? The problem about this section or this Part as it is proposed is that you appoint an examiner but the same directors and the same staff continue on running a company and the real problem in that company may be bad managment or bad directorships, if you like. None of this changes. The examiner comes in, he does his best, he is depending on the goodwill of creditors, he is depending on the banks to continue supplying money, and we can be postponing the evil day and all that will have happened is that more money will have been used up in payment of fees to an examiner and all the rest of it for the period he was in situ. There is nothing in this section 158 which deals with the problems that I have outlined and that is that there is a real danger, particularly in the case of monopoly suppliers who would refuse to continue supplying a company unless they were paid up to the date of appointment of the examiner.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  During the Seanad debate I understand that very strong contributions were made in exactly the same light as Deputy Barrett has stated here at this meeting and we — the Department — have under section 162 put forward certain proposals in that regard. If Deputy Barrett will wait until we get to section 162 we will be able to elaborate further on the matter and indicate what steps we are taking.

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  As I understand it, that does not cope with the problem at all. Deputy Barrett has pointed out that nobody who is a supplier of goods is obliged to sell goods to anybody. If a company is under the protection of the court or has an examiner, the suppliers are not obliged to supply them with further raw materials and if for instance as a result of the appointment of the examiner they are not being paid for what they have already supplied they are under no obligation whatever to continue to supply. That means in fact that the appointment of an examiner will bring the company’s operations to a dead stop. It could happen under receivership also but this is supposed to be a method of preserving a company in being by some form of accommodation. Even if the creditors were prepared to enter into an accommodation in regard to the existing debts owed to them they still can stymie the whole matter by failing to supply more goods and incur further credit to them and——

(Interruptions.)

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  It does not have to be a monopoly supplier. Suppose you have 100 suppliers of a particular commodity and there is one of them who is owed a substantial sum of money. It is known that, as a result of the protection, he is going to have to take 80p in the pound. Any new supplier coming in will know that it is likely that he also is going to have to take 80p in the pound or that that is possible, and he is not going to be too keen to supply. As I understand it, the Minister has said, in referring us to section 162 — there are a lot of cross-references here — that the effect of it is that the examiner can incur liabilities and these liabilities, while the examiner is in being, shall be treated as proper expenses of the examiner. But, who is going to pay the examiner, under section 181, but the company? If the company has not got the money in the first place, the examiner will not incur the liabilities because he cannot be remunerated for them under section 162, and if the company cannot pay the examiner, it cannot pay the suppliers and if the suppliers cannot be paid they will not supply. That, to my mind, suggests that the whole procedure will be a bit of a charade.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  No, to be fair, there will be situations where, if there is a receivership a company may be saved and may have to be wound up; if there is a liquidation it will certainly be wound up; if there is an examinership it may be wound up and it may not be wound up. It will depend on the circumstances of each case, but the point about the examinership is that it gives a say to other parties within a company who at present have no say, for example employees, to petition for an examinership when, under present circumstances, a receivership may be set up and the company will certainly be wound up because there are financial interests which will dictate that it will be wound up. It will be arguable in certain circumstances whether that will happen anyway whether there is an examinership or not, but I do not think it is being put forward that this section will save every company that gets into trouble. What it is simply doing is providing another structure whereby, under certain circumstances, companies which would otherwise go to the wall may not go to. the wall. That is all that is being claimed for it. It is not being claimed that every company in trouble will be saved, that because they are being supplied by a person with a dominant trading position they are going to save them from the commercial reality of going to the wall. That is not the purpose of the Part. The Part simply provides another means under certain circumstances where companies which would otherwise go to the wall may not go to the wall. It is not claiming to be the panacea for every commercial disaster that befalls every private company.

Mr. S. Barrett: Information on Seán Barrett Zoom on Seán Barrett  We would all support that. It is grand to say that we would like to have that situation, but the realities of commercial life are such that if we are going to pass legislation which enables this new animal called an examiner to be appointed, the one danger we do not want to create is that of ultimately bringing about the downfall of a company that could have been saved if a receiver had been appointed. There is no reason why a company has to fold up because a receiver is appointed. There is one thing wrong with this. The examiner would be relying on individual directors to continue to fulfil their functions. Second, the examiner would be certifying liabilities, but who is going to pay for them? If we are going to pass legislation to give somebody power to certify liabilities, we have also equally got to say where those liabilities are likely to be met. There is none of that in this Part of the Bill.

What we are trying to do is good in theory, but in practice to put an examiner into a company where he does not have complete control over its operation for a defined period of time to try to sort it out is putting him in an impossible position. He can certify liabilities but he cannot say to those for whom he is certifying the liabilities that he is sure they are going to be paid. Who in their right minds will give you goods or services when they do not know that they are going to be paid and you are in under the control of an examiner? Let us be practical about this. At least a receiver can go in and sell property, he can sell the company, he can restructure, he can do various things that are necessary. This unfortunate individual goes in but he has absolutely no power to say that the managing director, the sales director, the production manager should all go. He cannot get rid of them. The real danger is that people will start moving before this examiner gets in, to try to save the situation and they will put the company into receivership and, ultimately, into liquidation.

If we want the examiner we should give him powers. The success in the case of the PMPA and the ICI was that the administrator could go in with power and money behind him and take over complete control of the running of that company. You are putting in an examiner who has no control and no money and you are expecting him to save a company. What I am saying is that before you get to the starting gate people will move so fast, to try to save what they are owed already, that the companies will be gone.

The last point I want to make here is that we compare this with Chapter II in the United States where we are talking about multinational companies, and where the power of the company alone and the debts they would have would force people perhaps to keep trading. Ireland is full of small companies and you are not talking about the same might of money. Therefore, to try to compare Chapter II with an examiner is ridiculous. If we want a situation — which I support incidentally — of having somebody who can sort out a mess rather than let a company go under, for goodness sake give that person the proper power, the proper controls and some financial backing behind them. We should also, incidentally, be satisfied that his examiner is going to have certain qualifications to be able to do this. There is nothing in this Part which say that an examiner should have basic qualifications in anything. It can be anybody.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  May I reply to some of the points that were made, as far as I can? The court will only appoint an examiner in the first place where it considers it is likely to facilitate the survival of the company. That is section 155 (2). Regarding existing suppliers, Deputies Bruton and Barrett and yourself, Chairman, were right: you cannot force any suppliers to maintain a continuous supply to a company, but their chances of getting paid are far better when you have an examiner going in to examine the company instead of putting the company into receivership or liquidation. The existing suppliers might get a greater benefit by continuing to supply to keep the company going and later agree to write down but not write off their existing debts. That is the possibility there. If the examiner is unhappy with the directors, he can apply to the court to take over the running of the company under section 161, so he has powers there.

Under amendment No. 233 the examiner can recommend changes in management in his report to the court. We are not saying that it is a perfect way of solving the situation, but it certainly is an alternative approach to an ailing company that could, at the end of the day, rescue that company. The supplier would be far better off maintaining the contacts with the company knowing that the examiner is there to at least be able to discuss the future. If he decides that a company has no chance of being rescued, then he goes back to the court and that is it. The natural course of events takes place after that. That is all it is. It is not the great saver. It may work in some cases; it may not. All I am saying is that it is an opportunity to save companies and jobs when it arises. I like the opportunity for employees to arrange for an examiner to come in, instead of having a company going into liquidation when they know that that company could be saved by some fresh blood coming in to look at the whole situation.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  Can we stick to this section, Deputies? We do not want to be talking about the powers of the examiners. That goes back to section 155 which has already been discussed. What we are simply talking about here is the effect of the petition to appoint an examiner on creditors and others.

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  I think we would be able to discuss the powers of the examiner.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  The power of the court to appoint an examiner. The powers of the examiner will come up, as the Minister says, in section 161 because they are consequent on the powers of the court in section 155.

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  I think we are talking here about the effect of the petition in terms of protecting the assets. To my mind assets are only useful if you can have a continuous supply of whatever raw materials the assets are being used to process. In view of the discussion we have had — and I think there is common ground now that there is a problem in forcing people to continue to supply — would the Minister consider it useful to empower the examiner to give to anybody who supplies a company with goods while it is under court protection preference over all existing debts including revenue debts. I think that would give the necessary assurance to people to continue supplying.

The other point I want to make is it seems to me that the reference in section 161 to giving the examiner full powers to dismiss people and so on can only be exercised if there is a further application to the court by the examiner. In other words there is going to be the cost of the initial application to the High Court; then the examiner goes in and there has to be a second application. I fully accept that there should be the ability to make an application later on under section 161 but would it not be useful if we had in section 158 an option to the court in considering the initial application to decide, without waiting for the examiner to go in and make a second application under section 161, to grant to the examiner ab initio the powers in section 161? I accept that that would not necessarily be done in every case and probably it would not be appropriate in most cases, but time could be of the essence, if you are talking about a process industry where, for instance, furnaces can go cold and cost a huge amount to restart and any delay in the continuance of supply could be crucial to the ultimate survival of the assets. The less continuous recourse to courts and the fewer delays we have the better.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  We are going ahead of the section being proposed but nevertheless I should respond straight away because otherwise we will lose track of this. Maybe we should discuss it now seeing that it was raised by Deputy Bruton.

Mr. Bruton:  What I am proposing is to incorporate the powers in section 161 into section 158.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  Under section 162 of the Bill as proposed — I will not go into it in too much detail — all expenses properly incurred for the purpose of the section by the examiner will be discharged before preferential creditors. Section 181 (3) is included in the Bill so we are jumping ahead of provisions coming up which go some way to try to deal with the problems being raised by Deputies Barrett and Bruton in relation to the continuation of the company when the examiner is appointed. Deputy Bruton has proposed under section 161 that in the first hearing the court would authorise all expenses incurred by the examiner to be discharged ahead of all preferential creditors including the Revenue Commissioners. I think those would be very far-reaching powers that the examiner could have by going back to the courts. Again under section 161, Chairman, I will be in a position to give further details of what we are proposing at that stage. The point I am making is that Deputy Bruton and Deputy Barrett are expressing concerns about the effectiveness of the examiner during the period of his examination, that he would be absolutely powerless to take any action, the suppliers would withdraw the supplies and the company would fold up. What I am saying is that under sections of the Bill coming forward later on we are endeavouring to give the examiner powers to continue supplies and the suppliers will be guaranteed payment above and beyond everybody else who has claims against the company. That is very far-reaching, Chairman, and I think it is a very good provision in the Bill.

Chairman: Information on Brian Cowen Zoom on Brian Cowen  Is the section as amended agreed? The point Deputy Bruton is making in relation to powers at the initial stages should be dealt with under section 161.

Mr. O'Dea: Information on Willie O'Dea Zoom on Willie O'Dea  Under subsection (2) (c) no attachment, sequestration, distress or execution should be put into force against the property or effects of the company while it is under the protection of the court. It would seem to me that an application can still be made, even while the company is under the protection of the court, for attachment, sequestration, etc. I wonder if we could tidy that up. I do not think it follows logically from some of the provisions earlier that people should be able to make an actual application. The section confines it to putting the application into effect. A person can still make an application which presumably will be frozen for the period of the examinership or the period of the protection of the court. I think that will be of no help to the examiner. We might look at that. Paragraph (c) refers to the property or effects of the company. What does “effects” mean? Is it something akin to property? Does it include income? Does it include the income of the company? Can you take a charge over the income of the company? You will notice that subsection (2) (e) refers to the property, effects or income of the company.

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  The point made by Deputy O’Dea goes to the very heart of the difficulties that there may be about this whole Part. A preferential creditor, who is the sort of person who can act under paragraph (c), while he cannot enforce his rights under this, his rights remain. I do not think he is going to be willing to enter into the sort of agreement to proposals under section 174 that is necessary to make everybody happy. What could prove to be fatal to the whole operation is that the banks will still have their security; they will not be able to enforce their security while there is an examiner in there but as soon as the examiner goes out they know that all they have to do is hang on to their security and they are going to get their money. Knowing that, they are going to be unwilling to enter into agreements. I think that is a profound problem and I wonder if there is any case to be made for saying that all of these rights shall be subject to court discretion to waive or vary them. If one were to make such a suggestion one would possibly run into problems with the constitutional protections to property and so on, but otherwise I am afraid it not work. I do not know what the provision is in Britain of course but if they do have such powers they do not have a written constitution to limit them.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  I am afraid again we are going ahead of the section under discussion. There are some points being raised now that would be best discussed on Second Stage. Under section 176, Confirmation of Proposals, the court can in certain circumstances make certain provisions forcing creditors to actually accept the write-down of their debts. If we come across something that we can refer back to another section of the Bill, I am sure we could deal with it on Report Stage, but I am saying that as we move forward down the line on this, the points raised by the Deputies will actually be addressed. I appreciate that there are so many interlocking sections here that it is very hard to read through the Bill from——

Mr. J. Bruton: Information on John Bruton Zoom on John Bruton  If we did not consider them important, we would not raise the points.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  I am just saying that we can deal with the points raised down the line. We should just wait for the section to come. In relation to Deputy O’Dea’s point regarding the word “effects”, subsection (2) was drafted as widely as possible. If there is a legal problem with the word “effects” we will certainly look at it on Report Stage. The word was put in to try to cover every possible contingency. Our legal officials will consider that word again and we will come back to you on Report Stage. It may be necessary to retain it.

Mr. O'Dea: Information on Willie O'Dea Zoom on Willie O'Dea  You might consider the launching of an Act.

Mr. Leyden: Information on Terry Leyden Zoom on Terry Leyden  Yes, we will look at it.

Question —“That section 158, as amended, stand part of the Bill”— put and agreed to.


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