Report No. 8 of Joint Committee on the Secondary legislation of the EC — 14 Statutory Instruments: Motion.
Thursday, 9 February 1989
Seanad Éireann Debate
Mr. S. Brennan: The European Communities (Mergers and Divisions of Companies) Regulations implemented the 3rd Company Law Directive on Mergers of public limited companies (plcs) and the Sixth Company Law Directive on Divisions of plcs. The regulations came into operation on 1 June 1987.
I should stress that while the type of operation covered by the regulations is apparently common on continental Europe, I am not aware of any such operation having taken place in Ireland to date. In the usual merger operation in Ireland, the acquiring company acquires a controlling interest in the target company. As the directives which the regulations implemented do not deal with this type of operation, and as they do not apply to private companies, the practical implications for Ireland are, in my view, not significant.
The types of operations covered by the regulations are certain types of mergers and divisions of companies. In relation to mergers, the regulations apply to an operation whereby all the assets and liabilities of one or more companies are transferred to another company, that is, the acquiring company, the shareholders of the company being acquired become shareholders in the acquiring company and the company or companies being acquired are dissolved.
Coming then to divisions, the regulations apply to an operation whereby all the assets and liabilities of a company are transferred to more than one other company, the shareholders of the company being acquired become shareholders in the acquiring company or companies and the company being acquired is dissolved. What I am actually doing here is saying a few words about each of the 14 or so regulations — perhaps not them all but five of them in particular — with which I am directly concerned.
As regards the implementation of the Tourist Assistance Directive [EC (Non-Life Insurance) (Amendment) Regulations, 1986 (S.I. No. 309 of 1986], I  think that the Joint Oireachtas Committee's concern that Irish citizens might be easily induced to effect this class of insurance with an unauthorised insurer is unfounded. My Department have no evidence of such inducement. Also, I would like to allay the fears of the Joint Committee that section 9 of the Insurance Act, 1936 seems to constitute an unjustifiable trap for the unwary. I must point out that the prohibition on unauthorised insurance applies both to insurers and clients alike. My Department have already replied to the Joint Committee on this particular topic.
Under section 9 of the Insurance Act, 1936, it is unlawful for a person to effect or to endeavour to effect a contract of insurance with an unauthorised entity. However, section 9 cannot be taken in isolation from the other legislative provisions relating to the prohibition of unauthorised insurance business, particularly sections 8 and 10 of the Act. Section 8 of the Insurance Act, 1936 prohibits anybody from carrying on insurance business in the State unless authorised by the Minister. Anybody carrying on insurance business in contravention of this section is guilty of an offence and liable to a fine on conviction. Quite clearly then, this places an onus firmly on an insurer carrying on insurance business in the State to be duly and fully authorised.
The provisions contained in sections 8, 9 and 10 of the Insurance Act, 1936 were intended to give a high level of protection to the authorised insurance market and to ensure that their dealings were businesslike. It is the case, however, that the freedom to insure with duly authorised insurers in the Community will be permitted in a regulated manner for large risks initially, once the Non-Life Insurance (Freedom of Services) Directive becomes fully operative here. Separate EC proposals on the further liberalisation of mass risks insurance will be published by the Commission at a later date. Draft directives dealing with freedom of services in life assurance (as previously mentioned) and motor insurance have already been published  by the Commission. All of these proposals will be implemented through Irish law.
As regards the European Communities (Life Assurance, Accounts, Statements and Valuations) Regulations 1986 (S.I. No. 437, of 1986), in considering these regulations the Joint Committee asked the Department to justify the provisions of rules, prescribing the particular forms of Account in a Statutory Instrument under section 3 of the European Communities Act, 1972. In the light of the Department's response the Joint Committee concluded that the Minister in prescribing the from of account had made reasonable use of the powers conferred on him by the aforementioned Act.
The Joint Committee also questioned the powers conferred on the Minister by Article 4 of the regulations. This Article allows the Minister limited flexibility in granting exemptions from specified provisions in the regulations. The Department contended that such limited flexibility was necessary for the administration of the regulations. The Joint Committee concluded that the terms of Article 4 went beyond limited flexibility and that the Minister should not assume such powers in a Statutory Instrument made under section 3 of the European Communities, Act, 1972.
The provisions contained in Article 4 of these regulations were included, based on legal advice sought at the time. However in the light of the Joint Committee's final opinion that specific authority for the retention of Article 4 should be sought in primary legislation, it is now proposed to review the legal advice relating to this Article. Such a review will be carried out at the earliest possible opportunity. I thank the Joint Committee in particular for their help in this area.
Mr. Hogan: Dealing with this report, and the large number of instruments that have formed part of it, makes us realise the impact of many EC directives on the day-to-day activities of company law, life assurance, non-life assurance, transport, water pollution and quality, and materials and articles involved with the  ingredients in foodstuffs. Those are the main instruments by which the daily lives of the people of Ireland will be affected by the implementation of these directives. It indicates, of course, the urgency by which many of the EC directives are being implemented in member states, particularly in the debate that is leading up to the completion of the internal market in 1992. It signals to all of us the enormous contribution the EC will make on the day-to-day activities of the Irish State after 1992 and the movement we are seeing towards European integration.
The first directive the Minister spoke about — the Third and Sixth Council Directives on company law, mergers and divisions of companies — deals with plcs. There are a small number, relatively speaking, in this country. Nevertheless, after 1992 and in the lead up to it I suggest that there are a number of companies quite active on the Stock Exchange at the moment and seeking opportunities, not only in this country but outside it, to acquire shares and portions of companies through the issues of shares in the UK and elsewhere.
The best example we have seen of that is the rapid expansion of Food Industries plc of Larry Goodman, who is the main mover behind this particular activity. With the surge in his business activity and the rapidity with which he has moved in the past few months — and, indeed, in the past few years — we will see him becoming very involved in looking at acquisitions relating to food that are at present on the Stock Exchange. Reports are emanating, even in the context of the debate that is going on at the moment in the Irish Sugar Company, even though that is not a public limited company as far as I know, but is a semi-State company, of the merger activity that can take place in so many areas of food production. We will see a lot more activity in that area in the coming months and years.
The question of special rights was mentioned in the Joint Oireachtas report. I would certainly like the Minister to elaborate on the type of protection the courts will give to special rights and holders of  securities as defined by the Central Bank Act, 1971. I know there has been some concern expressed by members of the Joint Committee in relation to the definition and meaning of securities and the type of decision the courts might be expected to give in relation to special rights. Also, I think the recent impact of mergers and takeovers in the context of foreign companies coming into Ireland to take the controlling interest in Irish companies that are on the Stock Exchange — particularly the Irish Distillers case — has brought it home to us that after 1992 as a nation we are certainly going to be very vulnerable to this type of takeover and merger activity. We have to ensure that Irish business is geared up in the most efficient way possible in order to withstand that type of competition.
It would be wonderful to see more companies in Ireland lead the onslaught on many of the companies in Europe to gain further acquisitions in the European marketplace, particularly in the food industries, a niche we have carved out for outselves so wonderfully over the past 20 or 25 years, and particularly since our entry into the European Community in 1973.
The second directive the Minister spoke about related to tourist assistance and the non-life insurance amendment. In my experience — and I would like clarification on this — a separate policy would have to be taken out by tourists going into any European country. Such cover is at present available under motor and accident insurance while engaged in tourist activity abroad. Policyholders in the motor insurance area automatically have cover if they travel on holiday within a member state of the European Community. This directive is seeking to segregate that particular portion of non-life assurance cover from the motor and accident cover that they at present enjoy to a more definitive tourist assistance policy in relation to cover that would be required while on holiday. If that is the case, that will generate a lot of confusion among Irish citizens who are noteworthy because they like to have all their policies  in a very compact form. If there is a further policy to be enacted while they are on holiday and while involved in tourist activity and if they are not made aware of it before they go by the tour operators, they could run into difficulties while on holidays. I might be misunderstanding the directive but I would like clarification on that.
I am also aware of great difficulties that insurers, particularly in the international haulage business, are having on the Continent in relation to getting satisfaction in the event of cases being taken before foreign courts. I am aware of international hauliers who, if involved in a third party claim in a foreign country, are finding it very frustrating to deal with the various different legal systems. For example, in France there is a different legal system to ours. There are different interpretations of various cases within the European context, depending on which country you are involved in. I would like to take this opportunity of asking the Minister to investigate whether there is any way under the European Community in which we can have a commonality of arrangements in the insurance area, uniform directives and claims procedures between the member states. This would speed up the necessary claims experience and the processing of a particular claim. In my experience many insurers in this country in the international haulage business have to wait a number of years before they get compensation for that particular type of claim. There is great frustration at the moment. This is something which we should be taking up with the European Community.
The life assurance directive that the Minister spoke about gives power to the Irish Minister to get a statement of assets and liabilities of foreign companies. In the Insurance Bill which we passed through the Seanad and which is at present going through the Dáil, various provisions in Part III of the Bill gave the Minister extra powers to get necessary information in relation to accounts which are to be furnished to the Minister for Industry and Commerce by foreign companies. It is a timely directive because it  can be incorporated in the legislation that is at present going through the Dáil and through the Houses of the Oireachtas in the Insurance Bill 1987.
I welcome the review of Article 4 of this directive which was strongly recommended by the Joint Committee. The review of the legislation and of the legal procedures the Minister has undertaken to give is certainly very welcome. I hope that it will make the implementation of this particular aspect of the directive more palatable.
The term “foodstuff” and the definition of “foodstuff” is something that has come up for discussion by the Joint Committee. What is included under the term “foodstuff”? Does it include food and beverages? What is the definition of what is termed “unacceptable”? The directive speaks about various penalties being imposed if there is an “unacceptable” change in the composition of foodstuffs or if it deviates from what is laid down, not only by State legislation but also in the various European directives. I want to know what impact the existing Irish regulations under the Food Standards Act, 1974 and the various Health Acts will have on this particular directive. In 1985 we passed an Act which asked all manufacturers of foodstuffs, particularly in the animal feed area, to stamp the ingredients of each product on the bag so that it would be easily noticed by the consumer. What impact will that legislation have in relation to this Directive? It is worth exploring.
I welcome the implementation of the directives and the report. I know that part of the process has already been put in train in order to bring about the progress of these directives into Irish law. The questions the Joint Committee have sought from the Department have been largely explained in the various appendices that have been outlined at the back of the report, so I am not going to go over that ground again. Nevertheless, I hope that the concerns they have expressed will be treated in a most flexible way in order to ensure that the various aspects of Irish industry, whether it is in manufacturing, wholesale or retail,  are fully aware of their content. More directives will be coming as the years progress in the lead up to the completion of the internal market. We will have full information made available by the Department in order to ensure that all sectors of industry and business are fully aware of their obligations.
Mr. S. Haughey: I speak as a member of the Oireachtas Joint Committee on the Secondary Legislation of the European Communities. I would like to say that it is, indeed, a very interesting committee. I have been a member of it since 1987. It is particularly interesting to be a part of that committee at this time with the coming of the European elections and also with the preparations for 1992. The committee is doing great work. However, it is generally known that this committee, like the other Oireachtas Joint Committee, has a problem, in that they are short of staff. The committee have undertaken to discuss this matter further with the Minister for Finance with a view to getting more staff to service the committee. That is extremely important. I would ask the Minister of State here to use his good offices to bring that request to the Minister for Finance in order to allow this committee and also the other Oireachtas Joint Committees to continue with their very worthwhile activities.
These statutory instruments are minor and technical. Nevertheless, it is important that they do not go unnoticed in the Oireachtas. It is important from the point of view that the European Communities have now a major impact on our legislative process that these directives and so forth be discussed in terms of their impact on Irish law.
I welcome the Minister's contribution in this regard. From his speech it is clear that his Department are firmly in control and fully aware of what is contained in these statutory instruments. It is clear, in fact, that everything is under control. It is also clear from the Minister's contribution that we are fully prepared for 1992 and that we will be able to take on that challenge in the years ahead.
The first Statutory Instrument the  Minister talked about was concerned with mergers. I gather it is not of much relevance to Ireland, given that it relates to public companies. Nevertheless, it will be relevant at some stage if the current trend in economic activity continues and the business sector, in particular, continues to expand in the context of 1992. It is important that we get our legislation in order in relation to mergers and assets for the 1992 process.
The other Statutory Instruments mentioned by the Minister are also, I believe, fairly minor and technical. They are concerned with insurance and also assurance. Senator Hogan mentioned the Insurance Bill. That is a major piece of legislation now before the Oireachtas. Many of these important issues are covered in that. This highlights how the Government are firmly in control of the necessary Statutory Instruments which need to be implemented with regard to the EC. Again, I welcome that.
I would like to thank the Minister for coming into the House today. On a personal note, I would like to thank him for the tremendous work he is doing in relation to our exports. We have seen terrific statistics in the last two years in relation to our exports. Long may that continue. I would like to congratulate his Department for the work they are doing there and to fully support the motion before the Seanad today.
Minister of State at the Department of Industry and Commerce (Mr. S. Brennan): I would like to thank Senators for their contributions. May I just say before I cover some of the details that I echo strongly what has been said regarding the importance of preparation for 1992. On a daily basis now I remind Irish industry — and I do so again now — that 1992 is an opportunity. It is not a threat. We are trying to build in Europe the largest, richest market in the world — a market which has twice the GDP of Japan and a marketplace that is substantially larger than the United States of America. I would like us to raise our eyes occasionally from the minutiae of what we are  doing in adopting regulations and directives, and feel a sense of excitement in what we are trying to do in Europe, which is to put together a new marketplace for some 320 million people. It is important that we focus on preparing for that.
The Government are engaged in the European campaign. We have conducted a large number of seminars. We have been meeting industry on an industry by industry basis. I work very closely with the insurance industry, for example. My colleague Ministers work very closely with other industries. We are under no illusions as to precisely what each industry has to do to prepare. We are ensuring that each industry knows the directives and regulations that affect it and that it is prepared to meet the challenges of 1992. Industry here, I would argue, is as advanced as industry in any other of the 12 Community countries. Certainly our information and campaign, despite criticism, is as well advanced — if not more advanced — as most other European countries. That is a credit to industry, but it is also a credit to the people's interest in developing the European marketplace, an interest which perhaps is not as richly shared in other countries as it is here.
The Joint Committee has recommended that the term “securities”, which is used in regulations 18 and 34 should be defined in the regulations. I would not have any fundamental objection to the inclusion in the regulations of such definition. However, I do not think it would be in the interests of the people that Regulations 18 and 34 are designed to protect. Regulations 18 and 34 deal with the rights of the holders of securities other than shares in the event of a merger or division. As the House is probably aware, the whole area of securities and financial instruments is changing very rapidly with new types of securities being developed all the time. Indeed, at a symposium on the subject of new financial instruments held by the OECD last year one speaker pointed out that new instruments were being developed every single day. It seems to me, therefore, that it would be very unwise for us to try to define a term which the EC commission  refrained from defining in the Third and Sixth Directives. To do so could, in my view, reduce the protection afforded in the directives to the holders of securities as it would be extremely difficult, if not impossible, to cover all possible forms of securities.
My Department in replying to the Joint Committee's queries on this subject indicated that they felt the definition of securities in the 1971 Central Bank Act would be relevant. While the definition in the 1971 Act would probably cover most types of securities, it is very difficult to judge whether it would cover all the categories of securities which are available to day. More importantly, there is no guarantee that that definition, or indeed any other definition, which we might formulate on the basis of this practice would still be comprehensive in a year's time.
Perhaps I could assist Senators by giving them some examples of the type of securities being used at present. Besides the more familiar instruments such as debentures, options and futures, other forms of securities in common use are swaps, transferable loan facilities, forward contracts, debt with equity warrants and so on. Even within each category of security there are numerous variations. In relation to swaps, for instance, there are match swaps, hedged ones, unhedged ones and so on. I understand that what are known as second tier securities are now being developed. These are instruments resulting from the refinement of traditional instruments to meet specific emerging market needs.
To conclude on this point, I would repeat that I am not opposed to the principle of defining securities in the regulations but I find it difficult to see how it will be possible to formulate a definition which will cover all the types of securities which are in operation at present and which are likely to be developed in the future.
Senator Hogan asked me about the regulation of foodstuffs. The purpose of this regulation is set out in Statutory Instrument No. 60 and the purpose of it is to give legal effect to a number of EC directives on the approximation of the  laws of the member states relating to materials and articles intended to come into contact with foodstuffs, that is for example, food packaging materials. They require now that such materials and articles must be manufactured in compliance with good manufacturing practice so that they do not transfer their constituents to the foodstuffs themselves in quantities which could endager human health or bring about an unacceptable change in the quality of food.
I read the Oireachtas Joint Committee's report on these regulations with some interest. The committee raised a number of issues which I will respond to very quickly in a constructive fashion. The committee questioned whether it was necessary to impose the same strict liability on sellers and users as on manufacturers and importers. The probibition on the use of materials and articles which do not comply is a strict one and it is not qualified in any way. In practical terms, the placing of an onus on the prosecutor to prove that a vendor or user knowingly sold or used materials which do not comply would be impossible to enforce against the seller or user. It is, I suggest, reasonable that a seller or user check that materials and articles used do comply with the directive particularly in view of the dangers to human health.
The committee also commented on the need for a definition of “foodstuffs” in so far as it relates to beverages. It is clear from the provisions of the directive that foodstuffs in the general term does include beverages intended for human consumption. In the view of the committee, a definition of “unacceptable”— and that is in Article 2 — was required. In this instance I have some sympathy with the committee's viewpoint. However, in relation to this issue, and to the other two issues I referred to earlier, may I say that I am prepared to have the matter examined again in the light of future EC developments in this area. It is expected that further specific directives relating to other food packaging materials will be adopted in due course.
Senator Hogan also referred to insurance in the tourist area. I want to  say in that regard that prior to the making of the 1986 regulations, assistance cover was treated as insurance in Ireland and was underwritten by insurers authorised under the European Communities non-life insurance regulation of 1976, that is Statutory Instrument No. 115 of that year, under for example, their accident or motor authorisations. The European Communities non-life insurance amendment regulations of 1986 — that is Statutory Instrument No. 309 of that year — gave effect to the tourist assistant directives and introduced a new class of insurance which became known as assistance, that is class 18. This new class 18 is essentially the same type of assistance insurance formerly written by insurance companies under their accident or motor authorisation. The purpose and effect of the directive and the regulations was to subject assistance organisations mainly operating in continental Europe which were carrying on assistance activities of a quasi-insurance nature to the same type of supervision as is applied to general insurance and that basically is the purpose there.
May I, in conclusion pay a special word of thanks to the Joint Committee on EC Secondary Legislation? I served on that committee at one time and I know my postman was going crazy — and I am sure Senators who are on that committee find this is the case — because every morning a veritable paper mountain arrived on my doorstep of regulations and directives. Sometimes the children got to them before I did, but mainly I got to them. I want to pay a tribute to and salute the members of that committee because the amount of work and the amount of excruciating detail that is involved in these regulations which they managed to get through was a major task indeed.
Senator Haughey, in particular, referred to the committee and the need for additional staffing. I will give an undertaking to discuss that matter as soon  as possible with the Minister for Finance. We must be able to tackle that in the context of 1992. Senator Haughey referred to making sure that directives and regulations did not go unnoticed: I think that is put very well indeed because most of these directives and regulations arguably will affect our lives and our industries to an extent far beyond perhaps what is envisaged by existing policy and existing domestic legislation. It will affect our lives and our business lives in general very, very deeply indeed so it is quite correct to say that we must make sure they do not go unnoticed.
There are some 100 of the 300 approxomately directives currently adopted, that means that between now and 1992 we have to agree another 200 directives. It is essential that we have a watchdog committee here like the Joint Committee on the Secondary Legislation of the EC, a strong watchdog committee which can assist Government and assist the Oireachtas in wading through the plethora of proposals that come before this country. Were we not to support that committee and give it every possible assistance and encouragement I think it would be very tragic indeed. For that reason I have no hesitation in saluting the committee's work and assuring it of my personal support. I am involved very much now as Minister of State in this area in preparing for 1992 and I look to the committee for an increasing amount of assistance and advice which I can assure them I will be taking on board.
I thank the House for debating this motion. I think it is important if the Joint Committee is going to prepare reports that the House makes time also to debate them, otherwise I think it will be a futile exercise.
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