Currently the Articles of Association (“Articles”) of a company may provide for some or all of the directors to retire automatically by rotation at the company's Annual General Meeting (“AGM”). In addition to directors retiring by rotation, any director appointed by the board to fill a casual vacancy since the last AGM are required to retire at the next AGM and stand for re-election by the shareholders.
The intention of these provisions, which in the case of private limited company are adopted through Table A of the Companies Act 1963, is generally to promote good corporate governance. They also are intended ensure that the directors continue to be answerable to the shareholders of the company as its owners and avoid the board becoming self-perpetuating.
While it is an exercise commonly adopted for public limited companies it is less so for private limited companies. In practice given the size and make up of their board these provisions are viewed as not always being appropriate for private limited companies. As such they are normally disapplied or, where not disapplied, often overlooked. Where the provisions apply, a failure to deal with this issue sufficiently at an AGM can raise questions as to whether certain directors are entitled to hold office or not.
The Companies Bill 2012 does not include similar provisions requiring directors to retire by rotation at the AGM. This is in recognition of the general position that they are often not practical and they do not serve the purposes for which they were initially intended. Also it avoids the problems that can arise where compliance with these provisions is simply overlooked.
However, the Bill continues to include provisions requiring that those appointed by the Board during the year offer themselves for re-election. This ensures that all directors will have been elected or will be subject to election to the board by the company's members at one stage or another.
In practice, the retirement provision can be inconvenient and may not in itself fulfil its original intention. One of the overarching intentions of the Bill is to make it easier and cheaper to operate a company in Ireland. Practical changes such as this are an example of that aim being put into practice and generally are to be welcomed.