The Companies Act 2014 (the “2014 Act”) which, for the most part, comes into effect on 1 June 2015, represents a significant overhaul of Irish company law. Its purpose is to consolidate, simplify and modernise company law in Ireland and so to improve Ireland’s competitive position as a business investment location. The 2014 Act will have significant implications for Irish fund managers and special purpose vehicles (“SPVs”) but will also affect collective investment schemes established as investment companies under either the Irish UCITS Regulations 2011 or under Part XIII of the Companies Act 1990 as well as directors of those entities. The 2014 Act repeals all existing company law statutes and some related statutory instruments.1
Although the 2014 Act emphasises efficiency and simplicity, it is in itself the largest piece of legislation in the history of the State. It provides for a number of new company types, in particular the private company limited by shares (“LTD”) and the designated activity company (“DAC”). An existing private company limited by shares (“EPC”) must convert to either a DAC or an LTD or re-register as another company type. The 2014 Act also provides for a number of key efficiencies, as well as codifying directors’ fiduciary duties and reforming the law on corporate capacity.
The 2014 Act is structured around the LTD which is the “default” company type under the 2014 Act. The LTD has a single constitutional document and is no longer permitted to have an objects clause, meaning that it has the same unqualified legal capacity to do anything that a natural person may lawfully do. The DAC is a private limited company and must have a memorandum and articles of association (“M&A”) and its activities are governed by an objects clause. EPCs have an 18 month transition period from 1 June 2015 during which to decide whether to convert to an LTD or to another type of company under the 2014 Act. If an EPC decides to convert to a DAC then it must do so within 15 months from the 1 June 2015.
The 2014 Act introduces a number of changes which will facilitate the management of companies. These include permitting paper-based annual general meetings in many circumstances, a “summary approval procedure” that will enable a company to undertake otherwise restricted transactions (such as financial assistance, returns of capital, and mergers and divisions) without the approval of the courts and the possibility of making an anticipatory filing of the intended creation of a charge by the company.
As mentioned, the 2014 Act has significant implications for UCITS management companies and Alternative Investment Fund Managers (“ManCos”). Specifically, prior to the end of the transition period ManCos which are currently established as an EPC must convert to either an LTD or a DAC.
It appears that ManCos have a choice as to whether to convert to an LTD or a DAC and that the Central Bank of Ireland (“Central Bank”) does not intend to require ManCos or other financial entities to adopt a particular company type. It is, however, noteworthy that existing Central Bank requirements will continue to apply to ManCos. For example, while under the 2014 Act, an LTD may have a single director, the Central Bank requirement for a ManCo to have at least two Irish resident directors will remain in force for so long as the relevant Central Bank rules remain unchanged.
Directors of a ManCo should engage with relevant stakeholders in order to decide on how to proceed with the conversion process. The conversion of an EPC to either an LTD or a DAC needs to be approved by the shareholders: this requires a decision by special resolution in the case of a conversion to an LTD and an ordinary resolution in the case of a DAC. The Companies Registration Office has stated that no fees will be charged to companies undergoing the conversion process. However, ManCos will need to review their existing M&As prior to converting and/or adopt a standard M&A for a DAC or an LTD, if the standard is appropriate for the ManCo. Pending the end of the 18-month transition period or re-registration as an LTD or DAC, the law governing ManCos will be that applicable to a DAC. Failure to convert to an LTD or a DAC during the transition period will mean that the ManCo will default to an LTD and will be deemed to have a standard constitution in the form applicable to the LTD.
Most of the considerations set out above in relation to a ManCo will also apply to an SPV except that, as SPVs are unregulated by the Central Bank, it is not expected that that the Central Bank will have the power to determine whether an SPV elects to be an LTD or a DAC. However, an Irish SPV other than a public limited company (“PLC”) which has issued, or intends to issue, listed debt securities must re-register as a DAC, as an LTD cannot list debt or equity securities. Since most SPVs used in a funds context do not issue debt listed securities, it is expected that the vast majority of these SPVs will convert to LTDs.
Existing companies which are incorporated as investment companies under either the Irish UCITS Regulations 2011 or pursuant to Part XIII of the Companies Act 1990 are less affected by the 2014 Act than EPCs. Specifically, Part 24 of the 2014 Act largely consolidates and restates the existing
law applicable to Part XIII investment companies. In addition, as a Part XIII investment company will automatically be deemed to be an investment company to which Part 24 applies, it need not take any action following the commencement of the 2014 Act. Moreover, the M&A of an existing Part XIII investment company will continue in force under the 2014 Act, except to the extent that any provisions are inconsistent with the mandatory provisions set out in that Act. UCITS investment companies will continue to be authorised pursuant to the UCITS Regulations and will continue to be subject to the same general principles of company law as is currently the case.
It is also noteworthy that an existing investment company (either UCITS or Part XIII) has the option of converting to an Irish Collective Asset-management Vehicle (“ICAV”), which is a corporate vehicle governed by a separate statutory regime set out in the ICAV Act 2015. This vehicle is likely to be a particularly attractive option for collective investment schemes with US-based investors as it has certain tax advantages as compared to the traditional investment company.
The 2014 Act consolidates directors’ fiduciary duties under Irish law for the first time as well as setting out directors’ general duties. While the consolidation of directors’ duties should provide directors, and others, with increased clarity regarding what is required of directors, it is noteworthy that the 2014 Act does not provide a comprehensive statement of all the duties to which directors are subject, as these may also arise under other legislation.
The 2014 Act requires directors of certain companies to prepare an annual compliance statement regarding the company’s compliance with the 2014 Act and its tax obligations and to include this as part of their Directors’ Report for each financial year. This requirement applies to the directors of all PLCs, with the exception of investment companies and companies excepted under ministerial regulations. It also applies to directors of other types of company, including an LTD or a DAC which meet certain financial thresholds.
In their compliance statement, the directors must acknowledge that they are responsible for securing the company’s compliance with various legal and regulatory obligations, and confirm that the company has drawn up a compliance policy statement in relation to these obligations and put in place appropriate structures to secure material compliance with them. The directors must also confirm that those compliance structures have been reviewed during the financial year to which the Directors’ Report relates. If these measures have not been taken, the directors need to explain why not.
Once the 2014 Act commences on 1 June 2015, EPCs and ManCos will have several months in which to determine whether to become an LTD, a DAC, or some other model of company envisaged under that Act. Nevertheless, there are advantages in registering as a particular model sooner rather than later and ManCos should approach the question of conversion with a degree of expediency. This is also true for SPVs.
A director of a ManCo, an SPV or of an investment company should familiarise him or herself with the requirements imposed on directors under the 2014 Act and, in particular, with their fiduciary and general duties. Directors should also determine whether or not they are required to prepare a compliance statement as, if they are, they will have to put in place the various measures to be referenced in that statement as soon as possible. As mentioned, the requirement to make a compliance statement does not apply to a director of an investment company.