The Gazette 1974

conceivable business in which the company might

engage. The Company Law' Reform Committee agreed

with the English Cohen Committee, and proposed that

the

ultra vires

rule should be reformed. This proposal

led to the enactment of Section 8 of the Companies

Act which allows a third party to enforce a contract

against the company if it cannot be shown that he had

notice that the contract he entered into with the com-

pany was

ultra virew.

Senator Fitzgerald has praised this

section from the professional standpoint—as I quote :

"one of the real innovations in the Act". Undoubtedly

Section 8 does modify the hardships which the rule

could cause to outsiders dealing with the company—

although it does nothing for the coke merchant as

exemplified in

re Jon Beauforte

(London)

Ltd.

(1953)

Ch. It is my conviction that this section and its further

modification in the form of the recent E.E.C. Directive

only serves to grant companies wider powers to alter

their stated objects. I would be inclined to give com-

panies the normal capacity of individuals by abolishing

the objects clause, and, with it, the

ultra vires

rule, so

that even if authority is initially lacking, it could be

granted by sub:equent ratification. In this way a grey

area of the law would be eliminated as also Senator

Fitzgerald's possible objection to the extension.

The Companies Act 1963 is a highly technical piece

of legislation consisting of 399 sections and 13 lengthy

schedules. Bulky though the Companies Act undoubt-

edly is, it deals mainly with details, and many of the

fundamental principles of company law are nowhere

enshrined in it.

It is now a decade since that Act was passed. Britain

has acknowledged in its recent White Paper, in Mr.

Heath's reference to the "unpleasant and unacceptable

face of capitalism" and in the Queen's Speech at the

opening of the present session of Parliament, the urgent

need for the reform of company law. Specific gaps in

the law at present which could be filled by reform here

in Ireland are those relating to "insider dealings" and

"warehousing".

Insider dealings

Insider dealing is the practice of speculators of using

inside knowledge, not generally available to the investor,

to make a quick profit. There are many difficulties of

definition in the control of insider trading. There is a

danger that people may not know whether they are

breaking the law or not, which, like so many modern

laws, produce a situation that inhibits the honest and

cautious but can leave room for the sharp operator to

keep much of their activities going and gain a further

trading advantage.

Without implying that malpractice has been sub-

stantial, abuses such as these may discourage the investor

from going into the market; and the feeling that the

ordinary shareholders are bound to lose to the insider

must eventually lead to a loss of confidence in its fair-

ness. Moral pressures seem of little value when money

is the ultimate goal; and market forces, alone, are

hardly enough to give shareholders adequate protection.

Wise legislation is, therefore, necessary, and overall

I believe if the Jenkins Committee proposals were im-

olemented, then the required balance, between the need

of private freedom for the directors to manage the com-

pany effectively and the need to protect the members of

the company, would be achieved.

For it is time that what is now merely considered

unethical practice was made the subject of a criminal

sanction. There should also be a civil remedy for per-

sons who can establish that by reason of the misuse of

materially significant information they have suffered an

identifiable loss. Similarly, the law should preserve the

present position whereby an insider may be accountable

to the company for his profit. Normally dealings are

wholly innocent, and publicity is the best means of

ensuring that this is so; for the efficient operation of the

market depends on all relevant information being

fairly available.

Apart from insider trading it is probably "ware-

housing" and the associated surprise bid, often the pre-

lude to a nasty asset stripping job, that has caught the

public's imagination as the main defect in need of legis-

lative reform. This is a crucial matter because a large

minority is often powerful enough to determine the

destiny of a company, and may do so not only to the

detriment of employees, but also of shareholders. A

means should be found whereby the compulsory dis-

closure of significant shareholdings acquired through

the nominees in a company could be enforced, rathei

than abolish nominees altogether, for in many circum-

stances it is convenient on both commercial and per-

sonal grounds to hold shares in this way. This could be

achieved by legislation which compelled disclosure a t 3

low threshold percentage; which percentage, when

achieved, should be indicated to the company in the

quickest practicable time. Furthermore companies feel-

ing that a warehousing situation wasdeveloping ought

to have the right to inquire as to the real identity

its shareholders.

Disclosure essential

If one word were to be used as the key to how these

specific lacunae in our law were to be filled it would be

"disclosure". Disclosure is also the means whereby the

more radical reform necessary for company law can be

achieved. For private enterprise must keep in touch

with contemporary conditions and ideas in some way

that leaves its dynamism unimpaired while becoming

more readily accountable for its activities.

The purpose of the company is to fulfil the funda-

mental aspirations of those who devote their efforts to

it. This is a right of participation based on natural law,

necessarily linked with the right to found a company-

The underlying theoretical philosophy of British and

Irish company law is that disclosure of all matters wil'

prevent abuse. Justice must not only be done, it must b

seen to be done. This is supported by the recent Whit

Paper in Britain, which states : "Disclosure of informa-

tion is an essential part of the working of a free and

fair economic system . . . the bias must always be m

favour of disclosure, with the burden of proof thrown

on those who defend secrecy."

In their capacity as shareholders, subscribers to &

company have a fundamental right to information, and

a very full disclosure is needed to steer real

r e s o u r c e s

to the points of highest prospective return. The

u s u a l

argument against disclosure is that it gives competitors

an unfair advantage. However, to quote the

C o h e n

Committee :

" We

do not believe that publication

w o u l d

have so completely one-sided conscquences. In any

event, stimulation or elimination of the inefficient

desirable. Moreover, if the disclosure be made

g e n e r a l

by making it obligatory the objection is overcome."

We must realise that limited liability is a privileg

conferred by the State upon companies and directors-

This specific privilege, grants the company certain

100