The Companies Bill 2012, 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 in November 2014 and, we understand, to come into effect on 1 June 2015.
These notes are based on the Companies Bill 2012 as it has completed Report Stage and Final Stage in Seanad Éireann (on 30 September 2014). It next will
return to Dáil Éireann which will consider the amendments that have been made in the Seanad.
When enacted and commenced, the Bill will:
- provide for new types of company;
- require many companies to migrate types;
- codify directors’ fiduciary duties;
- permit mergers of all types of Irish company;
- permit divisions of Irish companies; and
- ease the prohibition on giving ‘financial assistance’.
An Overview of
the Companies Bill
When enacted, the Bill will consolidate the existing 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 the largest piece of legislation in the history of the State.
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:
- 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).
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.
An Overview of
the Companies Bill
- 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 Bill proposes to place the fiduciary duties of a director on a statutory basis, but not all director’s duties. This is a significant qualification: while the Bill will bring the common law fiduciary
duties into legislation the many statutory duties (under the Companies Acts and otherwise) that currently exist will not
be affected by the Bill. The duties will apply to all directors whether formally appointed or not (eg including 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.
- The Bill provides that where a company director acts in breach of any of his or her statutory fiduciary duties (with the exception of the duty to act honestly and responsibly in relation to the conduct
of the affairs of the company), then he or she is liable to account to the company for any gain which he or she makes directly or indirectly from that
breach of duty and /or may be required to indemnify the company for any loss or damage resulting from the breach.
- Director’s personal details: The Minister may by regulations provide that the usual residential address of a director or secretary need not appear on a company register or on a register kept by the Companies Registration Office (“CRO”) if, following stipulated
considerations, it is determined that the circumstances of the relevant officer’s personal safety or security warrant such an exemption.
- Director’s duty of disclosure: The Bill imposes a duty on a director of a company who is, in any way, whether directly or indirectly, interested in a contract or proposed contract with the
company, to declare the nature of his or her interest at a meeting of the directors of the company. In the case of a proposed contract, the Bill requires a director
to make a declaration at the directors’ meeting at which the question of entering the contract is first considered and, in the case of a director becoming interested in a contract after it being made, be made
at the first meeting afterwards. The Bill requires such declarations to be entered on to the register within three days (of making or giving the declaration).
- The Bill states that the duty to disclose does not apply in relation to an interest that is reasonably considered as not giving rise to a conflict of interest. A Dáil amendment to the Bill introduced a further exemption from disclosure of
any contract the decision to enter which is taken or falls to be taken other than by the board of directors or by a committee of which the director is a member. It may be that the latter exemption is intended to curtail this broad obligation by excluding contracts of which the board of directors is already aware or, which have previously been approved by the board or by a committee (for example the audit or risk committee).
- 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: Under the Bill, company secretaries will no longer be obliged to ensure compliance with the Companies Acts, a change that appears to acknowledge that company secretaries
lack the powers or authority to ensure such compliance. Instead, the Bill provides that the directors have a duty to ensure that
the company secretary has the skills or resources necessary to discharge his or her statutory and other duties and includes the case of an appointment of one of the directors of the company as secretary.
An Overview of
the Companies Bill
- The statutory duties under company law of company secretaries include co-signing with a director the annual
return and the attached annual accounts.
Other duties under company law include administrative duties such as maintaining the company’s statutory registers, keeping minutes of board and general meetings and filing documents correctly with the CRO and the Revenue Commissioners. In addition, powers of and duties on the company secretary will comprise of those which may
be delegated to the secretary by the directors. The Bill continues to allow the appointment of another company as company secretary, so directors may seek to appoint a reputable corporate service provider as company secretary.
- Compliance statements: The Bill provides that directors of a PLC (other than an investment company), a CLS, a DAC and a CLG the balance sheet of
which exceeds €12.5m and the turnover of which exceeds €25m must prepare
a compliance policy statement (the “Statement”). Unlimited companies are not subject to this requirement.
The Statement must set out the company’s policies (that, in the opinion of the director), are appropriate to
the company on its compliance with its obligations under the Bill, the contravention of which is a category 1 or 2 offence, or a serious Market Abuse or Prospectus offence, and tax law (the “Obligations”).
- Directors of an in-scope company must include, with their directors’ report
for every financial year, a statement acknowledging that they are responsible for ensuring the company’s compliance with the Obligations, confirming that the company has drawn up a Statement and has put in place appropriate structures to secure material compliance with the company’s Obligations and reviews those structures during the financial year. If these actions have
not been taken, an explanation of the reasons why must be provided. Failure to comply with these compliance
statement-related obligations (separate from compliance with the underlying Obligations) is a category 3 offence.
- In relation to putting in place the structures referred to above, the Bill recognises that the advice of specialists (outside of the company) on compliance with the Obligations may be required. The structures must provide a reasonable assurance of compliance in all material respects with the Obligations.
- The obligations provide companies with an opportunity to promote and advertise their compliance with good corporate governance and are an improvement on the more onerous obligations (in the Companies (Auditing & Accounting) Act 2003) which, in face of opposition, were never brought into force.
- Annual general meeting (“AGM”): 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. Any DAC, PLC, company limited by guarantee and unlimited company having more than one member will not be allowed to dispense with the requirement to hold an AGM.
- Disclosure of interests: Directors and secretaries of a company are obliged
to disclose certain interests in shares or debentures in the company and in associated companies. The Bill eases
this obligation and exempts de minimis interests from the requirement to disclose under the Bill. This means
that where shares held by a director or secretary (aggregated with those of
connected persons, such as spouses and children) are in aggregate one per cent or less in the share capital of the company’s issued share capital of a class of shares carrying voting rights or where the shares or debentures do not carry a right to vote at general meetings (save a right to vote in specified circumstances), such interest need not be disclosed under the Bill. The Bill also extends the ‘one per cent or less’ threshold to apply to share options.
An Overview of
the Companies Bill
- 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 CLS, 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: The Bill introduced a requirement to register with the CRO the name of every person who has unqualified legal authority to bind a CLS and to authorise others to do so. Once authorised by the board of directors and registered with the CRO, a “registered person” is taken to be duly authorised until the CRO is notified
to the contrary (notwithstanding any resolution by the board of directors).
- As a result of Seanad amendments to the Bill, this requirement is no longer obligatory.
- Public offers: A CLS will be prohibited from offering securities (equity or debt) to the public.
- Bearer shares: A bearer instrument in relation to shares of a company
(“bearer shares”) entitles the holder of the instrument (for example, a share warrant) to transfer the shares specified in the instrument by delivery of the instrument. A public company can, if its articles of association so expressly provide, issue bearer shares. Under current companies legislation a private company’s articles of association must restrict the company’s right to transfer its shares and the issue of bearer shares would be contrary to this restriction.
The Bill now specifically prohibits bearer shares and states that a private company will not have the power to issue any bearer instrument and that if a company purports to issue a bearer instrument, the shares that are specified in the instrument will deemed not to have been issued or allotted and the amount subscribed for shall be due as a debt of the company to the purported subscriber. Comments in the debate
stages of the Bill suggest that this would enhance Ireland’s reputation in respect of combatting money-laundering.
- 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 section 155 of the Companies Act 1963 and the separate definitions of “parent undertaking” and “subsidiary undertaking” in the Group Accounts Regulations2 to produce complex new definitions of “holding company” and “subsidiary company”. However, definitions in agreements existing when the Bill comes into force and which incorporate by reference the Companies Acts definitions in section 151 of the 1963 Act (but not that in section 155) will not be affected, unless the parties agree otherwise. A “wholly owned subsidiary” will be defined for the first time in companies legislation.
- Mergers and divisions: The Bill will
An Overview of
the Companies Bill
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.
- Members’ voluntary liquidation: If, in a members’ voluntary liquidation, a copy of the directors’ declaration of solvency is not delivered to the CRO 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.
- Creditors’ voluntary liquidation: If a company resolves to commence a creditors’ voluntary liquidation, it
must within 14 days give notice of the resolution in Iris Oifigiúil.
- 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 a charge over shares, bonds or debt instruments), 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 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 and Auditing
- 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
An Overview of
the Companies Bill
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 at least two (and not
all three) of the prescribed conditions in respect of the particular year are satisfied (ie any two of (a) the balance sheet total of the company does not exceed €4.4m,
(b) the amount of the turnover does not exceed €8.8m; and (c) the average number of persons employed by the company does not exceed 50.
- The Bill was amended in the Seanad to oblige a company that has availed
itself of the audit exemption in respect of a financial year to provide to the Director of Corporate Enforcement, if requested, such access to and facilities for inspecting and taking copies of the books and documents of the company and to furnish to the Director any such information as the Director may
reasonably require to satisfy himself that the company was entitled to avail of the audit exemption.
- Audit Exemption (SPVs): No “relevant securitisation company” may avail of the small company audit exemption.
- 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.
- The Minister has the authority to grant an exemption to an unlimited company from having to use the words “unlimited company” (or the Irish language equivalent) at the end of its name.
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.
A company with a share capital (for example, a CLS) states the amount of its authorised share capital in its memorandum of association. Any reduction in the share capital would
therefore require a shareholders resolution and, under current law, a court order. The Bill will allow most companies to reduce share capital using the Summary Approval Procedure without any court involvement or to use the current procedure of passing a resolution to be confirmed by court.
The reduction in capital can happen by extinguishing or reducing the liability of any of the members on any of its shares in respect of share capital not paid up
or by paying off paid up share capital. Such a reduction is categorised by the Bill, pursuant to a Seanad amendment, as a distribution and, as such, will have to be made out of profits available for that purpose (or distributable profits). The Bill provides that, subject to any provision to the contrary in a court order or resolution
or in the company’s constitution, a reserve arising from the reduction of a company’s company capital is to be treated as a realised profit.
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 private limited 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