The Companies Bill, which will introduce significant reforms in company law in Ireland, has completed a substantial part of its legislative journey and is likely to be enacted later in 2014. It seems likely that a public awareness campaign will then follow and that most of the provisions of the Bill will come into effect early, or in the middle of, 2015. This briefing is based on the Companies Bill 2012 as it has been passed at Committee Stage in Seanad Éireann (17 June 2014).
When enacted and commenced, the Companies Bill 2012 (the “Bill”) will:
- provide for new types of company;
- require many companies to migrate types;
- codify directors’ fiduciary duties;
- permit mergers of Irish companies;
- permit divisions of Irish companies; and
- ease the prohibition on giving ‘financial assistance’.
When enacted, the Bill will consolidate the existing 16 Companies Acts and many of the related statutory instruments into a single statute and will introduce significant reforms to Irish company law1. The Bill is intended to make it easier for a company to
do business in Ireland, whether domestically or by using Ireland as a regional or a global base.
Although the Bill emphasises efficiency and simplicity, it is itself substantial: currently, it contains 1,436 sections set out over more than 1,100 pages. Further amendments and additions to the Bill seem likely during the remainder of the legislative process, so that it may grow even larger before it becomes law.
Structure of the Bill
The Bill regards the private company limited by shares (the “CLS”) as the paradigm type of company. The Bill is drafted to apply primarily to a CLS, with modifications to that default law being made in respect of each other type of company, grouped together in a part of the Bill dedicated to the relevant type of company.
For example, the provisions dealing with the winding up of a company (Part 11) apply to a CLS and, unless modified by any other part of the Bill, apply to each other type
of company also. The modifications to the general provisions applicable to a CLS are then arranged in a part of the Bill that deals only with a particular type of company, such as a public limited company (a “PLC”) (Part 17) or a designated activity company (a “DAC”) (Part 16).
The key changes include provision for new types of companies as well as
changes to those companies’ constitution, governance, capacity, organisation and procedures.
The Bill provides for several new types of company, into one of which every existing company will have to migrate when the Bill comes into effect:
1 However, not all companies-related enactments are being consolidated in the Bill: some areas of legislation (such
as the accounting rules for credit institutions and for insurance undertakings) will remain in separate enactments.
Companies Bill 2012
- a CLS (the new form of the private company limited by shares);
- a DAC (a company with restricted objects, including what is currently a company limited by guarantee and having a share capital);
- an unlimited company with a share capital (a “ULC”);
- a public unlimited company with a share capital (a “PUC”);
- a public unlimited company not having a share capital (a “PULC”); and
- a company limited by guarantee not having a share capital (a “CLG”).
The PLC will continue to be recognised.
These company types will be indicated in new suffixes to company names, such as “NewCo designated activity company” or “NewCo dac”, replacing the current “Ltd” and “Teo”. Slightly confusingly, a CLS will use the suffix “Limited” / “Ltd”, currently designating what under the Bill is a DAC.
The Irish Collective Asset-management Vehicles Bill 2014 was published on 29 July 2014 and will establish a legislative framework in Irish law for open-ended investment companies. The provisions of the Bill relating to investment companies will not be affected.
A CLS will have a single constitutional document, effectively amalgamating the memorandum of association and the articles of association of a current private limited company.
The Bill will permit a company of any type to be incorporated with a single member (a company other than a CLS will continue to require at least two directors).
A CLS will be permitted to have a maximum of 149 members (compared with 99 for a private limited company, currently).
- Single director: A CLS will be permitted to have a single director (the existing entitlement to have a single member will be retained), but a sole director will not be permitted to be the company secretary, therefore requiring a second person to perform that role.
- Fiduciary duties of a director: The fiduciary duties of a director will be codified (including the duties to act in good faith in what the director considers to be the best interests of the company and to avoid any conflict of interest between the director’s duties to the company and the director’s other (including personal) interests,
unless released from the director’s duty to the company in relation to the matter concerned). The duties will apply to all directors whether formally appointed or not (ie shadow directors). A director will
be subject to an objective standard of care, skill and diligence rather than by reference only to his or her actual knowledge and experience. In a related change, a director will have to be at least 18 years old.
- Powers of the board: By default, the directors will have a power to borrow money and to charge the property of the company as security.
- Company Secretary: The directors must ensure that the company secretary has either the skills or the resources necessary to discharge his or her statutory and other legal duties.
- Compliance statements: The Bill will require the board of a company that exceeds specified financial thresholds2 to prepare a statement of compliance with companies legislation and tax law and to adopt related legal compliance measures.
2 Generally, a balance sheet total exceeding €12.5m and annual turnover exceeding €25m.
Companies Bill 2012
- Annual general meeting: Subject to conditions, a CLS (whether having a single member or multiple members) will be entitled to adopt written procedures in place of an AGM.
- Disclosure of interests: The obligations of a director to disclose certain interests in the shares of the company (aggregated with those of connected persons) will be eased: a new threshold will be applied (1% in nominal value of the company’s issued share capital of a class of shares carrying voting rights).
- Decision-making: Subject to conditions, the members of a CLS will be entitled to adopt majority written resolutions (both ordinary (>50% of the total voting rights) and special (>75% of the total voting rights)).
- Legislating for governance: The Bill will recast many of the optional provisions that are suggested for the constitution of a company (often called “Table A” in current law) as requirements of law.
- Objects: A CLS will not be permitted to have an objects clause, so that a CLS will have the same unqualified legal capacity to do anything that a natural (ie a human) person may lawfully do. Therefore,
the doctrine of ultra vires (“beyond the legal powers”) will no longer apply to
a CLS3, and a CLS will – by default – be empowered to do anything lawful that its directors determine.
- Ultra vires: Where a company (necessarily other than a CLS) retains an objects clause, a third party dealing with the company
in good faith will not be prejudiced if the company exceeds its capacity.
- Corporate authority: A CLS will have to register with the CRO the name of every person who has unqualified legal
authority to bind the CLS and to authorise others to do so. Once authorised by the board of directors and registered with the CRO, “registered persons” are taken to be
duly authorised until the CRO is notified to the contrary (notwithstanding any resolution by the board of directors).
- Public offers: A CLS will be prohibited from offering securities (equity or debt) to the public.
- Place of business: The Bill will abandon the concept of a “place of business” and will provide only for the EU-mandated concept of a “branch” of a non-Irish company in the State.
- Group company relationships: The Bill will, effectively, combine the definitions of holding and subsidiary companies in s155 of the Companies Act 1963 and the separate definitions of “parent undertaking” and “subsidiary undertaking” in the Group Accounts Regulations4to produce complex new definitions of “holding company” and
“subsidiary company”. A “wholly owned subsidiary” will be defined for the first time in companies legislation.
- Mergers and divisions: The Bill will introduce procedures for the merger and division (within Ireland) of companies of any variety. Currently, this is restricted to PLCs and, for private companies limited by shares, to a cross-border merger.
- Liquidation (members’ voluntary): If, in a members’ voluntary liquidation, a copy of the directors’ declaration of
solvency is not delivered to the Registrar of Companies within 14 days, the winding up will be invalid, subject to an application being made to the High Court to avoid this rule if the court determines that it is just and equitable to do so.
• Liquidation (creditors’ voluntary):
If a company resolves to commence a creditors’ voluntary liquidation, it
must within 14 days give notice of the resolution in Iris Oifigiúil.
- It will not be possible for a CLS to have an objects clause, but the constitution of a DAC will include specific objects, ie describing the “designated activities” of the company.
- European Communities (Companies: Group Accounts) Regulations 1992 (SI 201 of 1992) (as amended).
Companies Bill 2012
- Liquidation (unclaimed dividends and balances): Unclaimed dividends and unapplied balances in a winding up will be lodged to an account to be nominated by the Minister and will be treated in a manner similar to unclaimed policies
of life assurance, defaulting to the Exchequer after seven years but subject to any court order to restore the money to any person who satisfies the court that he or she is the rightful owner.
Practice and Procedure
- Summary approval procedure: The Bill will introduce a simplified written approval process (a “whitewash”) by directors and/or members, not requiring any court order, for certain transactions with a director, a capital reduction, a members’ voluntary winding-up, the use of pre-acquisition profits, etc.
- Financial assistance: The Bill will relax the prohibition on giving financial assistance for the acquisition of a company’s own shares by focusing on the provision of financial assistance for
the purpose of an acquisition of shares in the company or of its holding company, rather than, as currently, prohibiting financial assistance “in connection with” such a purchase or subscription.
- Charges and debentures: The definition of a “charge” will be modified (including removing from it a charge created over an interest in cash or in
the balance of a financial account or a deposit), and registration procedures will change considerably. A single-stage procedure will be similar to the current system, but a new two-stage procedure will permit a lender, by filing an advance notice with the Companies Registration Office (the “CRO”), to improve the priority of its security by the time that the detailed notice is filed (within 21 days of the charge being created). Also, unless the priority of a charge is governed by another legal regime (such as Property Registration Authority rules), the priority of a charge will be determined by reference to the date on which the CRO receives the prescribed particulars.
- Accounts (Financial Statements): Accounts will be referred to as “financial statements”; reference to proper books of account will be to “adequate accounting records”; and “financial year” will be defined (it will not be permitted to exceed 18 months). The Bill will permit the voluntary revision of defective accounts (“financial statements”), and the audit exemption will be extended to dormant companies and may be available in group situations.
- Accounting: In certain circumstances in which a company acquires another company through a share issue, it
will not be necessary to create a share premium. In effect, this will be a form of merger relief and will facilitate companies using merger accounting rules. It will be possible to disapply the prohibition on a company using
as its realised profits the profits of a subsidiary relating to the period before the subsidiary became a subsidiary of the relevant company.
- Audit Exemption (Conditions): A CLS and a DAC may avail of the audit exemption where merely two (and not all three) of the prescribed conditions are satisfied (ie any two of (a) balance
sheet ≤€4.4m, (b) turnover ≤€8.8m or (c) employees ≤50).
- Audit Exemption (SPVs): No “relevant securitisation company” may avail of the small company audit exemption.
- Capital Reduction: A CLS will be permitted to reduce its capital in a relatively straightforward procedure, not requiring an application to court.
A reserve arising from a reduction of capital will be treated as realised
profits, including for the purposes of distributions.
- Unlimited Companies: The statutory rules on distributions will be disapplied in the case of an unlimited company, and the existing exemption for certain types of unlimited company from having to file accounts with the CRO will continue.
- Offences: The Bill will provide for a new four-tier categorisation of offences for breaches of the Bill, although
even the least serious breach would carry a maximum penalty of a fine not exceeding €5,000.
Migration of Existing Companies
The Bill will provide for an 18-month migration period for companies that exist at the date on which it comes into force, provided that companies formally resolve to do so no later than three months before the end of the migration period.
If, by the end of that period, a company has not itself converted to a type that is recognised under the Bill (see above), the company will automatically become a CLS. Thereafter, a company of any type may, by following the relevant procedures in the Bill, re-register as a company of any other type for which the Bill provides.
The Progression of the Bill
The Bill has been amended at various stages to date as it has progressed through the Houses of the Oireachtas. We are maintaining a separate overview of amendments (available here ) at each key stage which will be useful to those who are
tracking the evolution of the Bill as it passes through the parliamentary process.