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 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 "warehousing". Insider dealings

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 e seen to be done. This is supported by the recent Whit 6 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 6 conferred by the State upon companies and directors- This specific privilege, grants the company certain 100