The Companies Bill 2012, which will introduce significant reforms in company law in Ireland, is likely to be enacted in November 2014 and come into effect on 1 June 2015.
This Briefing is based on the Bill as passed at Report Stage and Final Stage in Seanad Éireann on 30 September 2014. Although further changes may be made to the Bill in the Final Stage in the Dáil, no further substantive change is expected.
Following enactment of the Bill (into what will be the Companies Act 2014), an existing private company limited by shares (EPC) will have to decide, within a transition period of 18 months from commencement of the Act, whether to opt in to the new regime for private companies limited by shares (CLS) or opt out by becoming a designated activity company (DAC) or some other type of company. No filing fees will be charged by the registrar of companies for certain of the changes to company type outlined in this Briefing. A DAC is the company type under the Bill that most closely resembles an EPC.
- An EPC, unless expressly precluded from doing so, will default to the new model company (CLS) at the end of the transition period and will be deemed to have a constitution in the form applicable to the CLS.
- Pending the end of the transition period, or re-registration as a CLS, the law for an EPC will be that applicable to a DAC.
- An EPC can opt out of becoming a CLS by re-registering as a DAC or another company type.
- Where an EPC does not re-register, directors are obliged to file a new constitution extracted from the existing memorandum and articles of association.
- An EPC does not have to change its name during the transition period (unless it changes its company type).
- Re-registration of one company type to another company type is facilitated by the Bill and will be more flexible than under current company law.
CLS or DAC?
This Briefing may be read in conjunction with our client briefings on DACs and CLSs.
The table below outlines some key features of the CLS versus the DAC. Some companies, such as banks, insurers, semi-state entities and companies with debentures listed on an exchange cannot become a CLS and therefore will need to convert to a DAC or other company type. In other cases a decision will be required as to whether the features of a CLS are attractive to a company and its members or whether another company type under the Bill ought to be adopted. Dialogue will be necessary between directors, members and other stakeholders (including lenders) as to the structure to be adopted and the timing of the conversion/re-registration.
Click here to view the table.
Converting to the new model private company
The Bill provides for three ways in which an EPC can become a CLS:
- during the transition period a company can submit a special resolution, its new model constitution (discussed below) together with a form N1. The registrar of companies will upon registration of the documents issue a new certificate of incorporation.
- a company’s directors can submit a form N1 together with its new model constitution as drafted by the directors. The directors must send a copy of the constitution to each member of the company. The registrar of companies will upon registration of the documents issue a new certificate of incorporation. The directors must ensure that the constitution does not alter the rights and obligations of the members of the EPC. The new constitution will consist of the existing articles and also the provisions of its existing memorandum other than provisions that contain its objects or which provide for, or prohibit, the alteration of any of the provisions of its memorandum and articles.
- if the private company has failed to convert by the end of the transition period, the registrar of companies will apply the deeming provisions in the Bill and the company becomes a CLS. The registrar will then issue a new certificate of incorporation to the company. The constitution will comprise of the existing memorandum (other than the provisions thatcontain its objects or provide for, or prohibit, the alteration of all or any of the provisions of its memorandum or articles) and the provisions of its existing articles.
In all cases, the word Limited must appear in the company name so that any then existing exemption to omit Ltd from the company name will be lost.
Constitution of a CLS
The Bill requires the constitution of a CLS to state:
- the company’s name;
- that it is a private company limited by shares and registered under Part 2 of the Bill;
- that the liability of members is limited;
- particulars relating to its share capital;
- the number of shares (at least one) taken by its original subscribers; and
- any supplemental regulations which it is adopting.
While most of what was contained in the company’s articles of association will now apply by statute unless the constitution otherwise provides, companies will need to review their articles of association and ensure that tailored provisions, such as those dealing with pre-emption on transfer, are included in the new constitution or that some provisions in the Bill that will only apply if included in the constitution are adopted (such as an indemnity for directors).
At present many EPC’s rely on the regulations of Table A from the Companies Act 1963. Despite the proposed repeal of the previous companies acts, the regulations of Table A can continue in force (and will do so where the conversion process is that outlined at (II) or (III) above) provided they are not inconsistent with a mandatory provision of the Bill. Where Table A makes reference to any provision of the previous Companies Acts, that reference is to be read as being to the corresponding provision of the Bill. The provisions of Table A may be altered or added to by means of a special resolution.
Converting to a DAC
An EPC may opt out of the new regime as follows:
- if members pass a special resolution to convert to any other type of company (including a DAC) provided the requirements applicable to such a company as set out in the re-registration requirements of the Bill are satisfied.
- Up to 3 months prior to the expiry of the transition period, there are two re- registration options:
- an EPC may re-register as a DAC by passing an ordinary resolution (the consent of the relevant Minister will be required for a semi-state company),
- an EPC must re-register as a DAC if a member or members holding more than 25% of the voting rights serve a notice in writing on the company requiring it to re-register as a DAC.
- where an EPC does not re-register as a DAC before the end of the transition period, (whether it is obliged to do so or not) one or more of its members holding not less than 15% of its issued share capital, or one or more creditors holding not less than 15% of its debentures, entitling them to object to alterations in its objects clause, may apply to court for an order directing the company to re- register as a DAC.
Where an ordinary resolution is passed by the members to re-register as a DAC or where the directors resolve to re- register the EPC as a DAC (for example because a notice is served by qualifying members or it is ordered by the court or otherwise required) the effect is to alter the company’s memorandum of association so that it states that the company is to be a DAC. The company must file the resolution, the new memorandum and articles of association and a form N2 with the registrar of companies. The name of the company must include designated activity company or DAC or the Irish equivalent unless the company qualifies for an exemption to omit such designation.
As with a CLS the constitution of a DAC can adopt in whole or part the statutory rules in the Bill or continue to use its existing articles (including Table A) provided they do not conflict with mandatory provisions in the Bill.
Protecting members and creditors
If any member considers that his rights or obligations have been prejudiced by the exercise or non-exercise of any power under the parts of the Bill dealing with conversion, or of its exercise in a particular manner by the company or its directors, the member may apply to court for an order under the minority shareholder oppression provisions in the Bill. Creditors holding not less than 15% of debentures of a company, entitling them to object to alterations in its objects clause, may also apply to court for relief.
Once the Bill is enacted directors of an EPC should engage in dialogue with relevant stakeholders to decide which company types are available, and appropriate, under the Bill. That discussion should include a consideration as to whether the constitution of the company should adopt the statutory rules or retain, as fully as possible, existing articles of association. Whilst there is no immediate urgency on this exercise due to the transition period, the benefits of adopting a CLS can only be availed of upon conversion of an EPC to a CLS.