The Gazette 1991

GAZETTE

i SEPTEMBER 1991

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-

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

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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