Committee Reports > List of Committees > Joint > 1974 > Committee on the Secondary Legislation of the European Communities > Report No. 02 - Regulations 1973 (S.I. No 163 of 1973)

REPORT

1. The Joint Committee has examined the European Communities (Companies) Regulations, 1973, (S.I. No. 163 of 1973) and desires to report thereon to both Houses of the Oireachtas as follows.

2. The Regulations in question were made by the Minister for Industry and Commerce in exercise of the powers conferred on him by section 3 of the European Communities Act, 1972 (No. 27 of 1972) and purport to give effect to the Council Directive of the European Communities of 9 March, 1968 (68/151/EEC).

Their main provisions are that:—

(a) they are to be construed with the Companies Act, 1963 (No. 33 of 1963) (Regulation 2);

(b) they are to apply to registered companies with limited liability and certain unregistered companies with limited liability (Regulation 3);

(c) such companies shall provide for official notification of certain registered documents and particulars by means of publication in Iris Oifigiúil (Regulation 4) and,for the publication of additional information on a company’s business letters and order forms (Regulation 9);

(d) penalties are imposed for non-compliance with the provisions of Regulations 4 and 9 (Regulation 12);

(e) they modify the ultra vires rule in regard to the board of directors or any person authorised to bind the company (Regulation 6);

(f) extend to unregistered companies certain provisions of the Companies Act, 1963 (Regulation 8).

3. The Joint Committee desires to comment on five particular aspects of these Regulations, viz.:—

(i)the implementation of Regulations 4 and 10,

(ii)the application of Regulation 5,

(iii)the modification of the ultra vires rule,

(iv)the operation of the penalty clause, and

(v)the incorporation into the regulations of EEC Directive 68/151.

(i) The implementation of Regulations 4 and 10

Regulation 4 provides that a company shall publish in Iris Oifigiúil notice of the delivery to or issue by the Registrar of Companies of certain documents and particulars. The Joint Committee understands, however, that the Registrar of Companies arranges for publication of these items in Iris Oifigiúil, but that he accepts no responsibility for omissions or errors in publication. It has been represented to the Joint Committee that, under this arrangement, companies are experiencing great difficulty in discharging their responsibilities, as they are unaware of the issue of Iris Oifigiúil in which their own documents and particulars appear and that they find it almost impossible to trace them. The Joint Committee is of opinion therefore, particularly in view of the provisions of Regulation 10, that responsibility for publication and for its correctness should lie solely either with a company itself or with the Registrar of Companies. If this duty is placed on the latter the Joint Committee feels that he should, in addition, notify each company as soon as possible of the issue of the Iris Oifigiúil in which its documents and particulars appear and that he should at the same time be indemnified from any legal liability in the matter.

Regulation 10 outlines the circumstances under which a company may not rely on certain documents and particulars as against any other person. The Joint Committee is of opinion that the provisions of the Regulation are not sufficiently clear having regard to the doctrine of constructive notice and the general law of agency.

(ii) The application of Regulation 5

Under this regulation companies, where any alteration is made in its memorandum or articles of association, notice of which the company is required to publish under Regulation 4, must deliver to the Registrar of Companies, in addition to the alteration, a copy of the text of the memorandum and articles as so altered. It has been represented to the Joint Committee that compliance with this Regulation is causing great inconvenience to companies requiring as it does the furnishing of a revised memorandum and articles of association every time when even the most minor alteration is involved. The Joint Committee is of opinion that, provided its view does not conflict with Article 2 of Directive 68/151, compliance in full with Regulation 5 should only be required when matters of substance are involved and that in other instances the furnishing of the detail of any other alteration to the Registrar of Companies should be sufficient.

(iii) The modification of the ultra vires rule

Prior to the making of the European Communities (Companies) Regulations, 1973 the law in regard to the ultra vires rule was contained in section 8 of the Companies Act, 1963, as follows:—

8.—(1) Any act or thing done by a company which if the company had been empowered to do the same would have been lawfully and effectively done, shall, notwithstanding that the company had no power to do such act or thing, be effective in favour of any person relying on such act or thing who is not shown to have been actually aware, at the time when he so relied thereon, that such act or thing was not within the powers of the company, but any director or officer of the company who was responsible for the doing by the company of such act or thing shall be liable to the company for any loss or damage suffered by the company in consequence thereof.

(2) The court may, on the application of any member or holder of debentures of a company, restrain such company from doing any act or thing which the company has no power to do.”

It will be seen that this modification relates only to the objects of a company.

Amendment of this rule could have been effected in any of the following ways:—

(1) by amending section 8 either by way of—

(a) an Act amending the Companies Act, 1963, or

(b) a regulation under section 3 of the European Communities Act, 1972 or

(2) making a regulation as has been done in Regulation 6, which is to be construed with section 8 of the Companies Act, 1963.

Regulation 6 reads as follows:—

“Organs authorised to bind company

6. (1) In favour of a person dealing with a company in good faith, any transaction entered into by any organ of the company, being its board of directors or any person registered under these regulations as a person authorised to bind the company, shall be deemed to be within the capacity of the company and any limitation of the powers of that board or person, whether imposed by the memorandum or articles of association or otherwise, may not be relied upon as against any person so dealing with the company.

(2) Any such person shall be presumed to have acted in good faith unless the contrary is proved.

(3) For the purpose of this Regulation, the registration of a person authorised to bind the company shall be effected by delivering to the Registrar of Companies a notice giving the name and description of the person concerned.”

It will be seen that the modification thereby effected relates to the powers of organs of a company.

The Joint Committee is of the opinion that, for the avoidance of doubt, section 8 of the 1963 Act should itself have been amended to provide for the modification effected in Regulation 6 as the existence of the two provisions side by side would appear to have the following consequences;—

(a) third parties are protected under section 8 unless they can be shown to have actual knowledge, while under Regulation 6 they would appear to be protected only if they are not shown to have lacked good faith;

(b) section 8 expressly preserves the liability of any director who is responsible for doing any act or thing not within the powers of the company and also saves the right of any member or holder of debentures of a company seeking an injunction, while Regulation 6 does not expressly do so, and

(c) In Regulation 6 “organ” is defined as the company’s board of directors or any person registered under the Regulations as being authorised to bind the company. No reference is made to one of several members of a board of directors nor does it seem clear that the definition is intended to be exhaustive and to replace the existing law that those who express the mind and will of a company constitute an organ responsible for its actions.

The Joint Committee is of opinion that the liabilities of a company for the acts of its officers is a vast field and so important that lack of clarity on any point could have serious effects. It is of opinion, therefore, that its observations on Regulation 6 should be examined and, if as a result, amendment of the law is considered necessary that this should be done by amendment of section 8 itself and by primary rather than secondary legislation in order that the proposed law can be thoroughly studied and debated.

(iv) The operation of the penalty clause

The Regulations were made on 20 June, 1973 and were expressed to come into effect ten days later, i.e. on 1 July. Regulation 9 provides as follows:—

“9. (1) Every company shall have the following particulars on its letters and order forms —

(a) the place of registration of the company and the number with which it is registered;

(b) the address of the registered office;

(c) in the case of a company exempt from the obligation to use the word ‘limited’ or ‘teoranta’ as part of its name, the fact that it is a limited company;

(d) in the case of a company which is being wound up, the fact that it is so.

(2) If on any letters or order forms there is reference to the share capital of the company, the reference shall be to the paid-up share capital.”

Regulation 12 provides that in the case of failure to comply with Regulation 9 the company and every officer of the company who is in default shall be liable to a fine not exceeding £100.

It will be seen that companies were allowed 10 days only to comply with Regulation 9 in order to avoid the penalty imposed under Regulation 12—a virtually impossible task insofar as printing arrangements were concerned.

The Joint Committee wishes to draw attention to the difference which exists between penalties imposed under primary and secondary legislation. In the former case they are incorporated in proposals for legislation by way of a Bill, copies of which can be readily obtained, and which receive detailed discussion in its passage through both Houses before it is enacted into law. Affected bodies and persons are thus forewarned of impending penal provisions and consequently can make suitable arrangements beforehand for complying with the proposed new law. In the case of secondary legislation no such early warning signal is available, as the first intimation that a regulation, order, etc., has been made is usually by an announcement on the media or by notice in Iris Oifigiúil.

The Joint Committee appreciates that there may be occasions where, in the public interest, it is necessary that penalty provisions become operative immediately. It is of opinion, however, that in cases such as the present one a reasonable period of time should be afforded to interested persons to enable them to comply with any new provision before they become liable for penalties for non-compliance. In regard to such provisions as Regulation 12 it feels that a minimum period of at least three months should be allowed before they come into operation, due regard being had as to what is required and that Departments should take all steps possible to have regulations which contain penalty clauses brought to the attention of persons affected.

(v) The incorporation into the Regulations of EEC Directive 68/151

The Joint Committee is at present examining the whole question of the incorporation of Directives, etc., into those Irish instruments which implement them and hopes to make detailed recommendations to the Houses in a future Report. It is of opinion, however, that in instruments such as the present Regulations, which have such far-reaching implications, the Directive or other authority which it seeks to implement should be appended in full by way of a schedule. Such a procedure would help to overcome the difficulties of professional advisors and others who seek to discover their rights, would aid the Courts in interpretation and would facilitate the introduction into our own legal system of European legal concepts.

(Signed) CHARLES J. HAUGHEY,

Chairman of the Joint Committee.

1st May, 1974.