A key innovation under the Companies Act 2014 (the "Act") is the summary approval procedure ("SAP"). This is the new streamlined process for the authorisation of up to seven different types of restricted activities that would otherwise be prohibited or, in some cases, require High Court approval. The seven restricted activites are outlined below:
|Variation of company capital on reorganisations|
|Share capital reduction|
|Financial assistance for the acquisition of shares|
|Prohibition on pre-acquisition profits or losses being treated in a holding company’s financial statements as profits available for distribution|
|Loans to directors and connected persons|
|Members’ voluntary winding up|
VARIATION OF COMPANY CAPITAL ON REORGANISATIONS USING THE SAP
Variation of company capital on reorganisation is when a company varies its capital by entering into a transaction to dispose of assets, undertakings or liabilities or a combination of both to another corporate body in return for shares or securities being allotted to the memebrs of the company.
The Act allows private limited companies, designated activity companies, companies limited by guarantee and unlimited companies to vary their company capital on reorganisation under the SAP without the need for court intervention (provided the company’s constitution does not prohibit the company from varying its capital). This provides a quicker, easier and cheaper way to vary company capital. This procedure is not available to PLCs which must obtain High Court approval for any proposed variation if company capital on reorganisation.
In order to effect the variation of company capital on reorganisation by SAP, certain steps must be taken by the company:
Variation of company capital on reorganisations using the SAP
The declaration made by the directors must be accompanied by a report in a prescribed form by a person who is qualified to be a statutory auditor of the company which states that the declaration is “not unreasonable”.
The amount of work involved in preparing this declaration will depend on the complexity of the company’s operations. One practical way to reduce the work involved would be for the declaration to be made shortly after the completion of the annual audit.
RISK OF PERSONAL LIABILITY
Where a director makes a declaration without reasonable grounds that the company is solvent, the directors may be found to be personally liable for all of the debts of the company. If the company is wound up within 12 months after the date of making the declaration and its debts are not paid up or provided for within 12 months after the commencement of the winding up, it will be presumed, until the contrary is shown, that each director who made the declaration did not have reasonable grounds for doing so.
To demonstrate the reasonableness of their actions, directors can review at board level the projected cash-flow and working capital for the coming 12 months. Depending on the timing of the capital variation, this process can be done as part of preparing the annual financial statements.
AN EFFICIENT AND COST EFFECTIVE MECHANISM
The SAP reduces the complexity involved in varying company capital on reorganisation and allows certain Irish companies an efficient and cost effective mechanism for such variation. This is a significant positive development for Irish companies.