The Companies Act 2014 (the Act) came into force on 1 June 2015. In this briefing we assess the impact of the Act on existing Irish investment funds, both UCITS and AIFs, established as public limited companies (PLCs) and Irish fund management companies, established as private limited companies.
We also outline some recommended steps for investments funds and their management companies to consider in relation to the Act.
Implications for Irish Investment Companies
While the Act introduces substantive changes to the law applicable to private limited companies, the changes that apply to investment companies are minimal, and the relevant parts in the Act are largely a consolidation and restatement of the existing law.
Section 1393(5) of the Act provides that the Memorandum and Articles of Association (M&A) of an investment company registered before 1 June 2015 will remain or continue in force, except if they are inconsistent with a "mandatory provision". We expect that the majority of M&A of investment companies would not contain any inconsistencies with the Act, unless they contain very specific and/or unusual provisions. Notwithstanding this, as a matter of good corporate governance, all existing investment companies should review their M&A to ensure that no provisions contained therein are inconsistent with a mandatory provision under the Act.
An investment company which is authorised as a UCITS is currently, and will continue to be, subject to the UCITS Regulations rather than the Act, which minimises the impact of the Act on UCITS funds. However, the UCITS Regulations also apply and disapply certain provisions of the Companies Act 1963, which have been carried through to the Act, so the Act will still have some bearing on UCITS investment companies.
There are also some general changes under the Act which directors should be aware of, including:
- The period after which a company which has been struck off the register can apply for restoration has been reduced from twenty years to two years for investment companies.
- The Act sets out certain fiduciary duties of directors and it has a codification of many of the duties of directors that exist at common law. The codification is not exhaustive and directors will still have other duties under common law and equity, but directors should be familiar with the duties that are specified in the Act.
- The Act abolishes bearer shares and all holders of existing bearer shares must be entered in the register of members of the issuing company by the end of December 2016.
- The Act categorises and classifies the offences for breaches of the Act into four tiers, which should provide clarity and certainty in relation to company law offences.
We recommend that the Board of directors take the following steps in light of the commencement of the Act:
- Review the existing M&A of the company to ensure that they do not contain any mandatory provisions that are inconsistent with the Act.
- Update the references to the Companies Acts in the existing M&A at the next suitable opportunity.
Implications for Management Companies
Existing private limited companies, such as UCITS Management Companies and AIFMs (ManCos), have to decide which type of private limited company they will opt for. We recommend that this decision should be made as soon as possible.
The Act provides for the creation of three types of private limited companies.
- A private company limited by guarantee.
- A private company limited by shares (LTD). These companies are expected to be the most widely used corporate vehicles.
- A designated activity company (DAC). These most closely resemble current private limited companies.
We have set out the primary differences between a LTD and a DAC in the table below.
Click here to view table.
Existing private limited companies will have a transitional period of eighteen months from the commencement of the Act during which they can re-register as one of the two new types of private limited company. If an existing private limited company does nothing, it will automatically be considered to be a LTD upon the expiry of the transitional period.
The Central Bank has stated that it is a matter for each ManCo to determine which type of private company form it prefers. The prevailing view is that it would be prudent for ManCos to choose to re-register as DACs. The characteristics of DACs, including the retention of an objects clause, are considered to be more appropriate to a regulated entity than the characteristics of LTDs.