The Companies (Accounting) Act 2017 (the "2017 Act") was signed into law on 17 May 2017 and came into force on 9 June 2017, except for section 80 which deals with certain filing and registration requirements for external companies). Section 80 will commence at a later date.
The main purpose of the 2017 Act is to transpose Directive 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings (the "Directive") into Irish law. It also amends the Companies Act 2014 (the "Companies Act").
The changes introduced by the 2017 Act, for the most part, deal with the form and content of financial statements as well as related filing obligations. It is hoped that the 2017 Act will reduce cost and simplify the procedure associated with the preparation of financial statements for companies.
In addition, the 2017 Act also made a number of amendments to the Companies Act unrelated to the implementation of the Directive and addresses certain anomalies in the Companies Act that had become apparent since its introduction.
A summary of the key changes is set out below.
The 2017 Act introduces the concept of a "micro company". Companies that qualify as "micro" will be subject to a simplified process for the preparation and filing of financial statements.
To qualify as a micro company, subject to certain exceptions, a company must meet the criteria for a small company (see below) and, in addition, two or more of the following criteria: (i) its balance sheet total must not exceed €350,000; (ii) its turnover must not exceed €700,000; and/or (iii) its average number of employees must not exceed ten.
The 2017 Act also increased both the small and medium company qualifying thresholds. In the case of small companies, the turnover threshold has been increased from €8,800,000 to €12,000,000 and the balance sheet total from €4,400,000 to €6,000,000. For medium companies, the turnover threshold has been raised from €20,000,000 to €40,000,000 and the balance sheet total has been raised from €10,000,000 to €20,000,000. Small and medium companies also benefit from being subject to less onerous financial statement obligations.
Changing financial frameworks
Prior to the 2017 Act, a company could only change its financial reporting framework from IFRS Standards, to Companies Act requirements on the occurrence of a "relevant change in circumstances". Now, regardless as to whether a change in circumstances has occurred, a company may alter its financial reporting framework to IFRS once every five years.
Group financial statements
Medium sized companies will no longer be able to avail of the exemption from the requirement to prepare group financial statements. The exemption will apply to small and micro companies. Nonetheless, such companies may still elect to prepare group financial statements if they wish.
Abridged financial statements
Similarly, the 2017 Act removes the exemption previously available to medium companies to file abridged financial statements. The exemption now only applies to small and micro companies.
Third party director services
The 2017 Act introduces an additional disclosure requirement in respect of directors' remuneration. Most companies are now obliged to disclose any consideration paid to third parties for making available the services of any person as a director of the company or any subsidiary, or otherwise in connection with the management of the company's affairs or that of its subsidiaries (for example, where a company engages a corporate service provider to provide directors to a company).
The 2017 Act introduces a new requirement for investment companies (such as UCITS and AIFs) to file annual financial statements with the Companies Registration Office (the "CRO"). Previously, they had not been required to do so. An investment funds specific update on the changes can be found here.
Extractive industries and logging
Certain companies in the exploration, mining, quarrying and logging industries are now required to prepare and file annual reports with the CRO on payments exceeding €100,000 made to governments.
Under the Companies Act, unlimited companies that were not "designated" could avoid filing their accounts with the CRO while maintaining the limited liability of their ultimate owners. The 2017 Act has widened the range of "designated" private unlimited limited companies.
The effect of this is that unlimited companies with a typical non-filing structure in place will now be obliged to file financial statements in the CRO for financial years commencing on or after 1 January 2017. "True" unlimited companies that do not create a structure of limited liability for their ultimate beneficial shareholders may continue to avail of an exemption from filing financial statements.
The new criteria will not apply to unlimited holding companies with limited liability subsidiaries until their financial years commencing on or after 1 January 2022 provided that the relevant company does not otherwise fall within the designated categories under the revised provisions.
Branch Registration - External Companies
Under the Companies Act, a foreign incorporated limited liability body corporate is required to register any branch established in Ireland with the CRO and file annual accounts. Section 80 of the 2017 Act extends this requirement to include any foreign unlimited body corporate that is a subsidiary of a body corporate with limited liability. This means that a wider net of foreign entities will be required to register as a branch and file certain information and documentation (including accounts) with the CRO. However, as previously mentioned, this section is not yet operational.
Unlimited Company Name
The Companies Act introduced the requirement that unlimited companies use the words "unlimited company" in their name unless granted an exemption by the Minister for Jobs, Enterprise and Innovation. The availability of such an exemption is removed under the 2017 Act. Companies that were granted an exemption prior to the commencement of the 2017 Act however should not be affected.
Definition of Credit Institution
Under the Companies Act, a company that falls within the definition of a "credit institution" must be a designated activity company ("DAC") (as opposed to a private company limited by shares ("LTD"). However, the definition of credit institution in the Companies Act was broad and potentially captured a variety of companies not carrying out traditional banking activities such as those engaged in intra-group lending or group treasury functions. Such companies were not intended to fall within the definition.
The 2017 Act amended this to provide that a company must be engaged in the business of accepting deposits or other repayable funds from the public and granting credit for its own account to fall within the definition of credit institution.
Under the Companies Act, merger relief was only available where the company being acquired in the merger was Irish incorporated. The 2017 Act introduced a new definition of "company" for these purposes and extended merger relief to all bodies corporate acquired in a merger, including foreign companies. In short, merger relief is now available where an Irish company acquires a 90% or greater interest in another body corporate in exchange for the allotment of shares in itself at a premium and provides that the issuing company is relieved from transferring the relevant premium to its share premium account.
The Companies Act prohibits LTDs having, or applying to have, securities admitted to trading or listed on any market, whether a regulated market or not, in Ireland or elsewhere. This provision caused significant confusion and concern around debt securities that had been listed by Irish companies prior to the commencement of the Companies Act (1 June 2015). The 2017 Act confirms that the restrictions under the Companies Act do not apply to debt securities admitted to trading or listed by LTDs before 1 June 2015.
Holding Company Guarantee
The Companies Act provides that a subsidiary company can file consolidated financial statements of its holding company (rather than file its own financial statements) with the CRO with its annual return, on the condition that its holding company provides an irrevocable guarantee in respect of the liabilities of the subsidiary (other conditions also apply). The 2017 Act introduces an additional requirement and that parent company guarantee must now cover “commitments” as well as “liabilities”. Accordingly, the irrevocable guarantee must apply to all amounts shown as liabilities and commitments in the financial statements of the subsidiary company for the relevant financial year.
Priority of Creditors
The 2017 Act amended the Companies Act to provide that, in relation to priority of creditors, preferential creditors will take priority over all charges that were created as floating charges, regardless of whether those floating charges have crystallised into fixed charges prior to the commencement of the relevant insolvency event.
This update is a summary only of some select key changes introduced by the 2017 Act and a number of other changes have been made.