The Companies (Accounting) Act 2017 (the “2017 Act”) amends, updates and supplements the Companies Act 2014 (the “Companies Act”). The primary purpose of the 2017 Act is to transpose Directive 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings (the “Accounting Directive”).
The 2017 Act came into force with effect from 9 June 2017 (other than the provisions in relation to external companies) with the new accounting requirements applying in respect of financial years which commence on or after 1 January 2017. The CRO has also confirmed that the related filing obligations will only apply in respect of financial years which commence on or after 1 January 2017. Some of the key changes made to the Companies Act are:
NEW DISCLOSURES FOR COMPANIES TRADED ON A REGULATED MARKET
The Transparency Regulations have been amended so that the directors’ report for companies with shares traded on a “Regulated Market” must be drawn up in accordance with the Accounting Directive. If the company has more than 500 employees the directors’ report must also disclose relevant and useful information on the company’s policies, main risks and outcomes relating to at least:
» environmental matters,
» social and employee aspects,
» respect for human rights,
» anticorruption and bribery issues, and
» diversity in its board of directors.
NEW REPORTING REQUIREMENT FOR LOGGING, EXPLORATION, MINING AND QUARRYING COMPANIES
New provisions have been added to the Companies Act which will require certain companies which perform any activity involving logging, exploration, mining or quarrying industries to prepare and file each year an ‘entity payment report’ (save where this is already done by the company or at a higher level in the group) setting out details of payments exceeding €100,000 made to governments.
PROFITS AVAILABLE FOR DISTRIBUTION
The provision governing the calculation of profits available for distribution has been amended so that ‘any provision or value adjustment’ is now required to be treated as a realised loss. Where the company prepares Companies Act entity financial statements, this does not apply to a value adjustment in respect of any diminution in value of a fixed asset appearing on a revaluation of all the fixed assets or of all the fixed assets other than goodwill.
NON-FILING EXEMPTION WITH A PARENT COMPANY GUARANTEE
The Companies Act allows an Irish subsidiary an exemption from filing its financial statements where there is an irrevocable guarantee in place for the financial year in question from its parent company fulfilling specified requirements (“Parent Guarantee”). The 2017 Act provides that the Parent Guarantee must now extend to all “commitments entered into by the company, including amounts shown as liabilities in the statutory financial statements”. In addition, in order to avail of a Parent Guarantee, the consolidated accounts of the parent company must be drawn up in accordance with the requirements of the Accounting Directive or IFRS and audited in accordance with the Accounting Directive.
NON-FILING EXEMPTION FOR UNLIMITED COMPANIES
Under the Companies Act, only “designated ULCs” are obliged to file financial statements in the CRO. The
2017 Act widens the parameters for classification as a “designated ULC”, as a result bringing significantly more unlimited companies within the filing regime, including many of those who to date have availed of the exemption from filing by virtue of having a member who is a non-EEA incorporated unlimited liability company or an individual.
The 2017 Act provides that unlimited companies which are holding companies of undertakings whose members have limited liability are “designated ULCs” but this provision will take effect for financial years commencing on or after 1 January 2022.
DISCLOSURE OF PAYMENTS TO THIRD PARTIES
The Companies Act already required that the notes to the statutory financial statements of a company disclose remuneration details of its directors (on an aggregate basis). The 2017 Act creates an additional obligation to provide details of any consideration paid or payable to third parties for the services of any person as a director of the company or of any of its subsidiaries, or otherwise in connection with the management of the company’s affairs or that of any of its subsidiaries. Where disclosure obligations in respect of directors’ remuneration and payments to third parties are not complied with, the statutory auditors now have a duty to include the required particulars in their audit report.
UNLIMITED COMPANIES: NAME CHANGE EXEMPTION
The Minister will no longer be able to grant exemptions in relation to an unlimited company having “unlimited company” or “UC” in its name. ULCs currently availing of the exemption will not be able to renew it on expiry of the 5 year exempt period.
The exemption surrounding the treatment of share premium in circumstances involving an acquisition or merger (known as “merger relief”) has been amended so that transactions involving the acquisition of a body corporate now also fall within this exemption, extending the application to transactions involving non-Irish entities.
OTHER ACOUNTING CHANGES
The 2017 Act contains a number of amendments and additions to the provisions on financial statements, audits and annual returns in the Companies Act, including the introduction of a new “micro company” and amending the qualification criteria for small, medium, large and relevant companies.
The definition of “credit institution” in the Companies Act is amended to refer to an undertaking “engaged in the business of accepting deposits or other repayable funds from the public and granting credit for its own account”. This removes any doubt that may have existed as to whether LTDs which engage in intra-group lending or treasury activities, might at a stretch be considered to be “credit institutions”.
GRANDFATHERING OF DEBT ISSUANCES
Debt issuances by LTDs, DACs, CLGs and UCs have all been “grandfathered” so that the Companies Act’s restrictions and prohibitions do not apply to securities (or interests in them) which were, prior to 1 June 2015, admitted to trading or listed on any market, whether a regulated market or not, in the State or otherwise.
DEFINITION OF CHARGE
The Companies Act has been amended to make clear that a charge created by an Irish company over shares it holds in a foreign company, is not required to be registered in order to be enforceable.
PREFERENTIAL CREDITORS IN WINDING UP
The Companies Act is amended in relation to preferential payments in a winding up to clarify that the priority of preferential creditors ranks ahead of charges (which may now be fixed charges) where they were originally created as floating charges, reversing the effects of the decision of the Supreme Court in Re JD Brian Ltd  IESC 62.
BRANCH OF EXTERNAL COMPANY
A foreign limited liability body corporate is required to register (and as a consequence file financial statements) with the CRO where it has an operation in Ireland which would constitute a “branch”. The 2017 Act extends this obligation to any foreign unlimited liability entity that is a subsidiary of a limited liability body corporate. This provision of the 2017 Act has not yet come into force, but once it does it will have the effect of bringing more foreign companies within the branch filing regime.