The Companies Act 2014 (the “Act”) was signed into law on 23 December 2014 and it is expected that it will come into effect on 1 June 2015. The Act will introduce significant reforms in company law in Ireland.
For ease of reading only, this briefing assumes that the Act is fully in effect.
- Companies must decide on the type of company to which they want to migrate within 18 months from commencement of the Act.
- A private company limited by shares will default to a company limited by shares (LTD) unless, before the end of the 18 month transition period, it converts or re-registers as another company type.
- Consider whether existing constitutions are fit for purpose and identify if any provisions conflict with mandatory rules in the new law.
- If incorporating a new company, consider if the default constitution under the Act is adequate or whether it requires supplementary regulation.
- Unlimited companies should consider the need to apply to the Minister for exemption from the obligation to use “ULC” in the company name.
- Adapt existing practices and templates for holding board and shareholder meetings to provisions in the Act.
Existing companies have to decide, within a transition period of 18 months from commencement of the Act, whether to opt in to the new regime for private companies limited by shares (LTD) or opt out by becoming a designated activity company (DAC) or some other type of company. Companies must formally resolve to take any such action no later than three months before the end of the 18-month transition period.
If, by the end of that period, a private limited company has not itself converted to a type that is recognised under the Act, the company will automatically become a LTD. Accordingly, the transition period of 18 months will apply to facilitate existing companies, where necessary, to adapt their corporate structures to the structures contemplated by the new law.
It will be necessary for all those involved in advising on Irish company law, tax law, compliance and accounting to become familiar with the new law and its application to the different company types. It should be noted that Schedule 6 of the Act has specific savings and transitional provisions (e.g. continuation of restriction and other orders under previous company law, the restoration after commencement of the Act of a company dissolved under previous law).
This briefing sets out some key issues for consideration upon commencement.
Review each existing Irish incorporated company to determine what corporate action is required as to structure and constitution. Note that bank or third party consent may be required under contractual obligations before existing companies can take action.
For example, a private company limited by shares will default to a LTD (unless it converts or re-registers as another company type). If the company is a bank or insurance entity, for example, it cannot be a LTD, similarly if it has listed debentures on an exchange it cannot become a LTD. At a minimum, at the end of the transition period, many existing companies will need to change the corporate name to adopt the nomenclature in the Act (company stationery and signage etc. will need to change).
The benefits of a LTD (eg no objects clause, one director, dispense with AGM etc.) cannot be availed of unless an existing company re-registers as a LTD (until then the law relating to a DAC will apply). These and other factors will need to be considered.
- Consider whether existing constitutions are fit for purpose and in particular identify if any provisions therein conflict with mandatory rules in the new law (remember Table A can continue to be used and amended as part of a company’s constitution).
- Consider what persons (if any) ought to be registered in the CRO as having general authority to bind the company (note that this requirement to register is not obligatory).
- If incorporating a new company, consider if the default constitution under the Act is adequate or whether it requires supplementary regulation. For example, an indemnity for directors must be incorporated into the constitution. Similarly, some of the directors’ duties under the new law are subject to provisions in the company constitution so review what flexibility may be required.
- Review the relevant Parts of the Act that apply to a company type (other than LTD) to ensure that you are aware as to the exact application of the relevant sections in Parts 1 to 15 of the Act as may be modified by the Part of the Act applicable to a particular company type.
- If you are concerned with an unlimited company, consider if there is a need to apply to the Minister for exemption from the obligation to use “ULC” etc. in the company name (after the transitional period). For example, an unlimited company with foreign product sale registration rights (to enable products be sold in particular jurisdictions) will find it cumbersome and time consuming to have to change the registration to reflect the new corporate name.
- Adapt existing practices / templates for holding board and shareholder meetings to provisions in the Act and, where relevant, utilise reforms, eg majority voting and the section 20 authority upon the issue of shares will no longer be confined to five years duration.
- The company secretary must be suitably qualified (directors ought to minute this).
- Certain large companies will require audit committees and compliance policy statements.
- Dormant companies will not require audit.
- Single-member companies can dispense with AGM.
- Consider the relevance of the increased capital financial thresholds on having a restricted director on the board.
- Powers of attorney will no longer be required to be under seal of a company.
Branches / Place of Business
If corporate structure is an Irish registered place of business, review whether branch registration is possible (the Act will abandon the concept of “place of business” and will provide only for the EU-mandated concept of “branch” of a non-Irish company in the State).
Availing of Reforms to the Law
Identify reforms that may be useful to use (and transaction planning may need to be altered accordingly). Consider especially:
- summary approval procedure;
- domestic mergers and divisions;
- relaxation of the share premium rules in certain transactions;
- relaxation of some time periods for a company buying its own shares;
- changes to the distribution rules to facilitate transfers at book value;
- re-registering as any company type;
- certain directors need not register their residential address (note Ministerial regulations will be required); and
- the one per cent exemption regarding the disclosure of an interest in shares.
Transaction with Directors
Loans by directors to companies need to be documented properly to avoid presumptions in the Act applying (eg that the loan is interest-free, unsecured and subordinated to other creditors).
Note that greater exemptions are possible, including “whitewash”.
Banks and Providers of Secured Finance
Lenders will need to consider:
- the new regime governing company charges;
- the definition of holding company / subsidiary (existing separate legal and accounting definitions are combined);
- financial assistance rules relaxed;
- changes to the law on transactions with directors;
- changes to the capacity of many types of company with the abolition of the ultra vires doctrine for a LTD and for other company types relaxation of the rules governing the effect on third parties of a transaction being ultra vires;
- impact of the “registered persons” regime;
- receivership and examinership law changes;
- winding-up (eg financial thresholds for deemed insolvency increased).
There should be adequate time to identify relevant material implications for companies and directors arising from the Act if, as is expected, the Act is commenced in June 2015 (with the 18-month transition period referred to above, running from June 2015).