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GAZETTE JULY/AUGUST 1988
In
this
Issue
Getting into America
-Legally 167
Correspondence 169, 170
Straying Animals:
the Burden of Proof 171
Presentation of Parchments 173
People + Places 174
Sporting Events • 177
Committee News:
Professional Purposes 179
Registrars 180
Technology 183
Training in Advocacy
— how it works 183
•
Executive Editor:
Mary Gaynor
Committee:
Geraldine Clarke, Chairman
Seamus Brennan
John F. Buckley
Gary Byrne
Michael Carrigan
Jim Hickey
Nathaniel Lacy
Frank Lanigan
Charles R. M. Meredith
Desmond Moran
Daire Murphy
John Schutte
Maxwell Sweeney
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^ H INCORPORATE D
I / I / L I L LAW SOCIETY
h H / r I I r 0 F M
^ ^ I f f l ^ M ^ M I I B I B ™.82 No. 6JulyAugust'
Viewpoint
The need to up-date legislation
concerning limited companies has long
been a major debate. How do you stop
dishonest business men from closing
down one company and starting a new
one the very next day? How do you
ensure that books of account reflect the
true financial circumstances of that
limited company?
The harsh economic climate which has
been experienced in Ireland has brought
these and other topics to a stage where
action is being demanded. The
Companies (No 2) Bill, 1987, is the Gov-
ernment's response. Will it solve our
problems or add to them?
The Company Law Committee of the
Society has given serious consideration
to the Bill's proposals and has already
made two submissions to the Depart-
ment. No less than 75 different aspects
of the Bill have been covered in the
submissions. While some of the points are
technical there are some very practical
issues which are well worth noting.
Much of the Companies (No 2) Bill,
1987, is based on recent United Kingdom
legislation which may not be, in all
circumstances, suitable for the
commercial life of Ireland which is on a
completely different scale to the business
environment of the United Kingdom and
particularly the City of London. The Com-
mittee has called for greater simplification
of most parts of the Bill so as to ensure
that the development of business would
be strengthened under ajust and practical
law and not ensnarled in a maze of never-
ending legal procedures.
As drafted, the Bill would penalise a
person for being a director of a company
which has failed. This would be so
whether or not the particular director was
in any way at fault. There are many
business people who bravely struggle to
keep in business but fail. Furthermore
there are many professional directors such
as accountants and solicitors who are
non-executive directors on the Boards of
numerous companies but who contribute
greatly to those Boards. From time to time
such persons may find themselves direc-
tors of companies which have failed. The
Committee believes that it would be very
difficult for any reputable professional
person to accept a directorship if this leg-
islation were enacted. The professional
person could not afford to risk running the
consequences which would arise if the
company were to fail.
The Bill also lays down rules for the
conduct of company's audits. These new
rules are too rigid. Under Section 176 the
auditors would be obliged, in order to
avoid committing an offence, to accuse
the management of a company publicly
of committing an offence if they formed
the opinion that the standard of book-
keeping infringed the provisions of
Section 180 even in a minor way. The Bill
makes no distinction between grave and
minor infringements of that section.
Furthermore it does not give the auditors
an opportunity to suggest and monitor
improvements in bookkeeping. An
additional problem is caused by the fact
that no distinction is made between major
public companies and small "one man"
companies. The fact that the notice must
be served and filed with the Registrar of
Companies will only increase the em-
barrassment caused and the damage
done. The requirements of the Bill in
Section 180 are unrealistically rigid for
small companies. Furthermore the
requirements are uncertain in their
meaning. What does the keeping of books
for account on "continuous and consis-
tent basis" mean? How will it be decided
whether the books will "at any time"
enable the financial position of the
company to be ascertained.
Under the Bill, companies may be put
under Court protection with a view to
saving the company from liquidation.
However under the Bill the examiner is not
given sufficient power to act in an effec-
tive and decisive manner and no provision
is made for his payment. The examiner is
not to be empowered to carry on the
business of the company nor to take
effective control of the management of
that company pending the consideration
of a plan because each time the examiner
wishes to exercise managerial functions
he must obtain the approval of the Court.
These controls and the substantial delays
which will ensue may frustrate the examiner
in his attempts to preserve the business
and the goodwill of the company.
The concept of "shadow directors" is
also one about which there are grave
reservations. The definition is imprecise
and depends to a large extent on the
conduct rather than conscious choice.
Provisions of this type are disconcerting
and damaging to promoting Ireland as
having a good legal environment for
international business. The onus on a
"shadow director" to complete all the
particulars prescribed by Section 195 of
the 1963 Act as amended by Section 47
of the Bill would be extremely onerous
since a person may not be aware that he
is a "shadow director".
Despite the problems with the proposed
Bill the spirit behind these changes is to
be welcomed and encouraged. We hope
that many of the proposals made by the
Company Law Committee will be accep-
ted and incorporated in amendments to
the Bill so as to ensure an effective Act
which will improve rather than sabotage
commercial life in Ireland.
159