Companies Bill 2012 update
The Report and Final stages of the Companies Bill 2012 were completed on 30 September 2014 in the Seanad, when all of the 164 amendments tabled by the Department of Jobs, Enterprise and Innovation were agreed to.
The next step will be for the Bill to be sent back to Dáil Eireann for approval, although no date has yet been announced for this. This is because the amendments proposed and made in the Seanad, though introduced by the Government, have to be approved by the Dáil before the Bill can be formally passed by both Houses of the Oireachtas.
As was the case with many of the changes previously proposed and agreed during the passage of the Bill through both the Dáil and the Seanad, many of the changes dealt with were of a technical nature, or were inserted for the purposes of clarification.
The following is a list of some of the key amendments which were made to the Bill during the course of the Seanad (Report and Final Stage) debate:
- The current requirement in the Bill for a company to be obliged to notify the Registrar of Companies where the board of the company has authorised any person (including a director) to bind the company generally, is to be amended so that the obligation ceases to be mandatory and instead will be permissive. This amendment will be very helpful, as the provision as it stood would have required the managing directors of many Irish companies to be registered with the Companies Registration Office (CRO). The amendment also means that where a person within the company but below board level is similarly authorised to bind the company generally, it will not be a mandatory requirement for that person to be registered, although the company will have the power to do so if it wishes.
- A company will be able to empower any person to be its attorney to execute deeds or do any other matter inside or outside the State without the appointment of the attorney having to be under its common seal. Similarly, a deed signed by the attorney on behalf of the company need not be under the attorney's seal. These are useful amendments, which will simplify the process of appointing attorneys and the execution of documents by attorneys.
- The members of a company in general meeting are to be given the power to approve the imposition of a restriction on the power of a director to exercise an independent judgment, in addition to this being permitted by the company's constitution, or a case where the director considers that the restriction is in the interests of the company.
- The circumstances in which a director will be liable to account to his company for any gain made for a breach of his statutory fiduciary duties, and to indemnify his company for any loss or damage resulting from that breach, are to be extended so that they will cover all of these duties, apart from the duty to act honestly and responsibly in relation to the conduct of the affairs of the company.
- The Minister is to be given a new power to grant an exemption to an unlimited company from the obligation to ensure that its name ends with the words "unlimited company" or its Irish language equivalent (or an appropriate abbreviation).
- In the case of private unlimited companies (ULCs) and public unlimited companies (PUCs), it will be necessary for an instrument of transfer of a share to be executed by or on behalf of the transferee, as well as the transferor, in all cases.
- Designated activity companies (DACs), PLCs, companies limited by guarantee, and unlimited companies, in each case having two or more members, will not be permitted to dispense with holding an AGM.
- The current disapplication in the Bill to DACs of the standard and long-established private company governance provisions enabling directors to hold any office or place or profit under their company, or to vote and be counted in the quorum in relation to contracts in which they are interested, is to be removed. This is a very welcome amendment, as the proposed disapplication would have been problematic for certain types of companies which will be obliged to convert to DACs, such as insurance companies and "Section 110" special purpose companies.
- An express statutory right is being given to the Director of Corporate Enforcement to access books and documents, and obtain such information as he may reasonably require, in respect of a company that has availed of the audit exemption, in order that the Director may satisfy himself that the company has complied with the relevant conditions to enable that exemption to apply.
- Useful technical changes are being made to the sections of the Bill dealing with mergers and divisions of companies, including a new provision which will extend the obligations of the keepers of various registers in the State (for example, the register of members of a company, the Land Registry, the Registry of Charges kept by the CRO, etc.) to enter the name of the successor company in the relevant register on production of a court order to the effect that the requirements in relation to the relevant merger or division have been met.
- A new provision is being inserted in the Bill, similar to Regulation 84 of Part 1 of Table A in the first schedule to the Companies Act 1963, which was inadvertently omitted. This is another welcome amendment which will enable directors of PLCs to vote on certain contracts or arrangements etc. in which they are or may be interested (e.g. company share option or pension schemes), as is currently the position.
- Directors of Part 24 Investment PLCs are not required to produce a directors' compliance statement or related statement, as required by Section 225 of the Bill.
- Companies incorporated outside the State which, if they were incorporated in the State, would be Part 24 investment companies (other than migrating companies), are not to be prohibited by provisions currently contained in the Bill from advertising or marketing their shares without Central Bank of Ireland approval.
- It will be possible to deposit an instrument of proxy with a company by sending it by electronic means as well as by sending or delivering it by other means such as post or by delivery of the physical instrument.
- It is to be clarified that State-sponsored "Companies Act" companies will be subject to the law governing DACs, and that they will be able to convert to DACs.
We understand that the Government are now working towards having the Bill formally approved in the Dail and ready for signature by the President within the next two months, and having the Act commenced and in force by June 2015.
Company directors fined €10,500 for unlawfully obtaining personal data
Bray District Court recently fined a firm of private investigators, and its two directors, €10,500 for unlawfully obtaining personal data. The court found that the directors had used "subterfuge" to unlawfully obtain the addresses of credit union clients in arrears. The directors posed as a VEC, and hospital worker, to obtain the information, via telephone calls, from employees at the Department of Social Protection (seven cases), and the Health Services Authority (HSE) (sixteen cases), respectively.
The Data Protection Commissioner (DPC) prosecuted the firm of private investigators, for twenty-three counts of breaches of section 22 of the Data Protection Acts (DPAs) 1988 and 2003. Pursuant to section 22, it is an offence to obtain access to personal data without the prior authority of the data controller by whom the data is kept and to disclose the data to another person.
The DPC further prosecuted the two directors of the firm for twenty-three counts of breaches of section 29 of the DPAs, for their part in the offences committed by the company. Section 29 provides for the prosecution of directors, or other officers of a company, where an offence by a company is proved to have been committed with the consent or connivance of or to be attributable to any neglect on the part of the directors or other officers.
The court imposed a fine of €1,500 for each of seven counts, including five counts on behalf of the company, and one each for both company directors who had pleaded guilty to unlawfully obtaining personal data.
This is the first time company directors have been prosecuted by the DPC for their part in the commission of data protection offences by their company. The outcome of these prosecutions shows that the DPC will not hesitate to prosecute directors and other officers of companies for offences committed by their companies.
In addition, it demonstrates the risk to the security of personal data which is held by large organisations, and the importance of training staff in order to prevent unlawful soliciting of personal data by private investigators.
The Financial Reporting Council (FRC) in the UK has issued an updated and revised version of the UK Corporate Governance Code (the Code) which applies to accounting periods beginning on or after 1 October 2014.
According to the FRC, the revised Code is designed to enhance the quality of information investors receive about the long-term health and strategy of listed companies, and to "raise the bar" for risk management.
Boards will be required to include a ‘viability statement’ in their strategic report to investors. This measure is expected to provide an improved and broader assessment of long-term solvency and liquidity and it is expected that this statement will look forward significantly longer than 12 months.
The other key change in the Code is in relation to remuneration - boards of listed companies will now need to ensure that executive remuneration is designed to promote the long-term success of the company and demonstrate how this is being achieved more clearly to shareholders.
According to the FRC, the other key changes to the Code include:
Going concern, risk management and internal control
- Companies should state whether they consider it appropriate to adopt the going concern basis of accounting and identify any material uncertainties to their ability to continue to do so;
- Companies should robustly assess their principal risks and explain how they are being managed or mitigated;
- Companies should state whether they believe they will be able to continue in operation and meet their liabilities taking account of their current position and principal risks, and specify the period covered by this statement and why they consider it appropriate. It is expected that the period assessed will be significantly longer than 12 months;
- Companies should monitor their risk management and internal control systems and, at least annually, carry out a review of their effectiveness, and report on that review in the annual report; and
- Companies can choose where to put the risk and viability disclosures.
- Greater emphasis be placed on ensuring that remuneration policies are designed with the long-term success of the company in mind, and that the lead responsibility for doing so rests with the remuneration committee; and
- Companies should put in place arrangements that will enable them to recover or withhold variable pay when appropriate to do so, and should consider appropriate vesting and holding periods for deferred remuneration.
- Companies should explain when publishing general meeting results how they intend to engage with shareholders when a significant percentage of them have voted against any resolution.
The FRC has also highlighted the importance of the board’s role in establishing the ‘tone from the top’ of the company in terms of its culture and values. The directors should lead by example in order to encourage good behaviours throughout the organisation.
In addition the FRC has emphasised that key to the effective functioning of any board is a dialogue which is both constructive and challenging, and by having sufficient diversity on the board, including gender and race. Nevertheless, the FRC believes, diverse board composition in these respects is not on its own a guarantee. Diversity can be just as much about difference of approach and experience.
The FRC is considering this as part of a review of board succession planning and will consider the need to consult on these issues for the next update to the Code in 2016.
Note: There is no change to the Irish Corporate Governance Annex which continues to apply to Irish incorporated companies with a primary listing on the Main Securities Market of the Irish Stock Exchange.
FRC’s Corporate Reporting Review Annual Report emphasises areas of reporting focus for boards
The FRC in the UK has published the annual report of its Corporate Reporting Review (CRR) activities. The Report identified that corporate reporting by large public companies is generally of a high standard, particularly among FTSE 350 companies. However, the FRC continues to see a higher proportion of poorer quality accounts produced by smaller listed and AIM quoted companies.
The FRC’s assessment is based on a review of 271 sets of reports and accounts in the year to 31 March 2014, of which 100 (37%) companies were approached for further information and explanation.
As well as summarising the FRC’s findings, this year the report emphasises areas of reporting focus for Boards in the next reporting season. These include the need to:
- Assess the accounting effect of any changes in the structure of pension arrangements;
- Analyse the effect of new accounting standards that will apply in the next few years, in important areas such as consolidation and revenue;
- Take account of the FRC’s press notice on ‘Exceptional Items’;
- Make a step change in the quality of disclosure of critical judgements and estimates around accounting policies; and
- Identify all the relevant intangible assets arising in recently acquired businesses.
The CRR report contributes to the FRC’s Clear & Concise initiative by providing examples of where it has challenged companies on whether their reports contained immaterial or unnecessary disclosures.
Women on boards - latest monitoring report published
The Department for Business, Innovation and Skills in the UK has published the latest edition of its monitoring report in respect of women on FTSE350 boards: The report has identified that women now account for 22.8% of board directorships in FTSE100 companies.
The key findings of the report are as follows:
- Women now account for 22.8% of overall board directorships, up from 20.7% in March 2014 and 12.5% in 2011 - Of this, women account for 27.9% of non-executive directorships and 8.4% of executive directorships.
- Women directorships account for 249 of the 1,094 FTSE 100 board positions.
- There are now no all-male boards in the FTSE 100, there were 2 in March 2014 and 21 in 2011.
- 24 new women appointments need to be made to reach Lord Davies’ 25% target
- 39 companies now have 25% or better women’s representation on their boards, up from 36 in March 2014. However, 7 companies have moved from above 25% representation to below since March 2014.
- Overall, there are 17 companies in the FTSE 100 whose women’s representation figures have fallen in the last 6 months.
- There have been 27 new female appointments in the last 6 months; there were 33 in the previous 6 months.
- 31.8% of all new appointments went to women in the last 6 months, down from 35.5% in the previous 6 months.
- Women now account for 17.4% of overall board directorships, up from 15.6% in March 2014 and 7.8% in 2011 - Of this, women account for 22% of non-executive directorships and 5.1% of executive directorships
- Women directorships account for 349 of the 2,008 FTSE 100 board positions.
- There are now 28 all-male boards in the FTSE 250, there were 48 in March 2014 and 131 in 2011.
- 64 now have 25% or better women’s representation on their boards, up from 51 in March 2014.
- There have been 44 new female appointments in the last 6 months; there were 33 in the previous 6 months.
- 24.3% of all new appointments went to women in the last 6 months, down from 33.3% in the previous 6 months.
Women on corporate boards – new statistics from European Commission
The European Commission has published updated statistics in a factsheet which show that the average share of women on the boards of the largest publicly listed companies in the EU has risen to 18.6%. This level represents an increase of nearly one percentage point since the last data collection six months earlier (17.8%).
The European Commission's draft Directive aiming for a share of 40% of female non-executive members on the boards of listed companies is currently being discussed by the Council of the EU.
Consultation paper on revised corporate governance principles for banks issued by the Basel Committee
The Basel Committee has published a consultation paper outlining a set of revised guidelines on corporate governance at banks. Building on the Committee's Principles for enhancing corporate governance below published in 2010, the proposed guidelines:
- strengthen the guidance on risk governance, including the risk management roles played by business units, risk management teams, and internal audit and control functions (the three lines of defence) and the importance of a sound risk culture to drive risk management within a bank;
- expand the guidance on the role of the board of directors in overseeing the implementation of effective risk management systems;
- emphasise the importance of the board's collective competence as well as the obligation on individual board members to dedicate sufficient time to their mandates and to remain current on developments in banking;
- provide guidance for bank supervisors in evaluating the processes used by banks to select board members and senior management; and
- recognise that compensation systems form a key component of the governance and incentive structure through which the board and senior management of a bank convey acceptable risk-taking behaviour and reinforce the bank's operating and risk culture.
The Committee states that while there is no single approach to good corporate governance, the revised principles provide a framework within which banks and supervisors should operate to achieve robust and transparent risk management and decision-making and, in doing so, promote public confidence and uphold the safety and soundness of the banking system.
Comments on the proposals can be uploaded here. The deadline is Friday 9 January 2015.
European Council adopts directive on disclosure of non-financial and diversity information
On 29 September 2014 the European Council adopted the proposed directive amending the Accounting Directive as regards disclosure of non-financial and diversity information by certain large companies and groups.
The new measures will require certain large EU companies to draw up, on a yearly basis, a statement relating to environmental, social and employee-related matters, respect for human rights, anticorruption and bribery matters. The statement will have to include a description of the policies outcomes and the risks related to those matters.
Where a company does not pursue policies in relation to these matters, it will have to explain why this is the case. The new measures are aimed at strengthening the company's transparency and accountability while limiting any undue administrative burden, and ensuring a level playing field across the EU. They will be incorporated into the directive on the annual financial statements and reports of certain types of undertakings, which was adopted on 26 June 2013.
Member States will have two years to incorporate the new provisions into domestic law, which will be applicable in 2017.