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GAZETTE
i SEPTEMBER 1991
holding company (if any) of
Guarantor Ltd with the
shareholders of Borrowings
Ltd?
• Who are the directors
(including shadow dir-
ectors) of Guarantor Ltd
and of the holding com-
pany (if any) of Guarantor
Ltd?
Clearly, the foregoing are
certainly not definitive, and until
there is a Law Society recom-
mendation on this point providing
standard requisitions, it will pro-
bably be the case that a variety of
diverse sets of requisitions will be
put to the solicitor acting for
Borrowings Ltd and Guarantor Ltd.
10. Achieving Valid Security
Acquiring an enforceable security
for a lending institution without
contravening the provisions of S.31
of the Companies Act, 1990 will be
a difficult and hazardous task for
any solicitor. The basic problem is
to try to secure a facility with the
assets of not only the company
which is to receive the loan, but
also with the assets of another
company. One obvious means is to
try to bring Guarantor Ltd and
Borrowings Ltd within the S.34 and
S.35 exemptions, by attempting to
restructure the shareholdings in
both companies. However, in view
of the possible tax implications for
both companies and their
shareholders, extreme caution
must be exercised, and the
implications of any restructuring
fully considered. One of the other
solutions which may be employed
is for Big Bank pic to seek
additional security in the form of a
quasi-mortgage over the shares of
Guarantor Ltd. Neither of these
possibilities is without complica-
tion, and it is certainly the case that
the ingenuity of the legal profession
will be tested in devising a means
to acquire an enforceable security
in such circumstances.
11. Conclusion
From the foregoing, it is clear that
Part III of the Companies Act, 1990
has created a minefield for those
involved on either side of an inter-
company guarantee transaction. It
seems to the writer that this part
of the Act has been drafted without
reference to the realities of com-
mercial life. In particular, the ex-
clusion of guarantees from the
exceptions contained in S.32 and
S.37 seems incomprehensible. The
intention of S.31 of the Companies
Act, 1990 seems clearly to be
aimed at delinquent directors who
abuse their position by milking the
company to which they owe a duty
of its assets, in favour of another
company in which they have an
interest. However, because of the
applicaton of the provisions of Part
III to inter-company guarantees
" . . . the exclusion of guarentees
from the exceptions contained
in Section 32 and Section 37
seems incomprehensible".
involving companies "related" but
not legally related within a "group
of companies", the result is causing
great problems to solicitors having
to apply the black letter of the Act
to what are in most cases, bona fide
commercial transactions. The inclu-
sion of the exemptions in S.34 and
S.35 seems to have been motivated
by a desire to save guarantees, but
in fact it is quite normal for trans-
actions to be entered into
bona fide
by companies which do not come
within the definition of "group of
companies", and so are outside
these sections. Although the rele-
vant Part of the Act has only been
in force since 1 February, 1991, it is
hoped that the legislature might
look afresh at the implications of
S.31 on everyday, bona fide com-
mercial transactions and if neces-
sary, amend this Part, to accord
with such commercial realities.
NOTES
1. Part III of the Companies Act, 1990
has in the main been brought into
force by S.I. 10 of 1991,
commencing on 1 February, 1991.
S.28 (Contracts of Employment of
Directors), S.50 (Inspection of
Directors Service Contracts) and
S.51 (Register of Directors and
Secretaries) have also been brought
into force by S.I. 117 of 1991, save
in respect of subsection (8) of S.195
of the Companies Act, 1963, as
inserted by S.51 of the Companies
Act, 1990, and commenced on the
1 July, 1991.
2. Emphasis on "guarantee", added.
3. Which by virtue of S.25 (1) includes
an "indemnity".
4. See S.38 Companies Act, 1990
considered post.
5. Note, Keane,
"Company Law in the
Republic of Ireland"
(1991) at 29.17
and McCormack
"The New Com-
panies Legislation"
(1991) at p.78,
where the matter is considered, and
the point made only by implication.
In fact, these are the only
exceptions in the case of
guarantees.
6. The Pocket Oxford Dictionary.
7. See Lingard,
"Bank Security
Documents",
(1988) Butterworths
at 4.1.
•
Viewpoint
- Cont'd from p. 259
proper person to formulate and
promote such legislation.
In our view, the Competition Act
is very much in the nature of an
unguided missile. Nobody, at this
stage, seems to know precisely
what its effect will be. If there is to
be change, it may take a consider-
able period for the effect of the
new law to work its way through
the system. This may even involve
expensive litigation in the Courts.
We feel that it is appropriate to ask
whether this is the right way to go
about the business of legal change
and reform of the legal system.
Some very serious issues, vitally
important to barristers and solici-
tors, may be at issue. For example,
the Act may have implications for
the present general rule maintained
by the General Council of the Bar
which restricts the public from
having direct access to barristers.
If that is the case, and if that rule
is ultimately to fall as a conse-
quence of the introduction of this
legislation, what will be the effect?
It might mean, for example, that
barristers will be able to deal dir-
ectly with clients and handle
clients' money without a range of
protective measures of the kind
maintained by the Law Society in
relation to solicitors. Those
measures include strict rules about
the handling of clients' funds and
a statutory Compensation Fund to
make good any losses suffered as
a result of dishonesty. We doubt
very much that such a develop-
ment would be in the public
interest. Accordingly, we believe
that there is need for an urgent
public debate on the implications of
this Act and for a clear commit-
ment from the Government that
they will take steps to ensure that
the public are adequately informed
about what is likely to happen and
that, in the new order of things, the
public are also protected at least as
well as under the existing system.
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