FormalitiesDate of reorganisation
Can a corporate reorganisation be backdated or deemed to have already taken place, for example from the start of the financial year?
While the backdating of documents is not permitted, in some instances, it can be possible for parties to a corporate reorganisation to contractually agree to treat a transaction as having an effective date prior to the date on which it was formally documented such that the risk in, and benefit to, the assets, would contractually be apportioned between the parties from that earlier date (subject to this arrangement not prejudicing the rights of any interested third parties, including a tax authority, for example). It is worth noting the process for implementing statutory mergers between Irish companies requires common draft terms of merger to state the date on which the parties will consider the transactions of the transferor company as those of the surviving company for accounting purposes.
In some instances, companies will implement reorganisations operationally in advance of formally documenting such changes. In this instance, the typical practice is for the details of the revised arrangement to be memorialised in an agreement that states the effective date (in the past) on which the parties intended the arrangement to come into effect.Documentation
What documentation is required in a corporate reorganisation?
This will depend on the nature of the corporate reorganisation being undertaken. However, the primary categories of documentation required to be prepared as part of a corporate reorganisation involving an Irish company are typically as follows:
- preparatory or planning documents: step plans, document checklists, and legal, tax and accounting advice memorandums;
- operative documents: share purchase agreements, business and asset transfer agreements, contribution or distribution agreements, subscription agreements, common draft terms of merger or division, deeds, stock transfer forms and revised constitutions;
- corporate approvals: directors and shareholders’ meeting minutes or written resolutions, and powers of attorney; and
- post-completion documents: tax filings (including stamp duty returns and relief applications), CRO filings, share certificates and updated statutory registers.
Should representations, warranties or indemnities be given by the parties in a corporate reorganisation?
In most cases, there is little basis for representations, warranties or indemnities to be given by related parties as part of a corporate reorganisation, and it would be unusual for anything other than very basic representations as to capacity and title to be included in the documentation. In limited cases, there may a justification for including representations, warranties or indemnities where there is a specific need to demonstrate the arm’s-length nature of the transactions, meaning terms that would have been negotiated and agreed between unrelated third parties should be put place.Assets versus going concern
Does it make any difference whether assets or a business as a going concern are transferred?
The transfer of assets within Ireland would typically be subject to value added tax (VAT) and the transferor would normally be liable to pay the VAT to the tax authorities. Depending on the nature of the business of the transferee, VAT may or may not be recoverable and represent a cost. Such VAT obligations may not arise where the assets being transferred from a VAT-registered transferor to another VAT-registered transferee meet certain tests, primarily that they are a totality of a business’s assets that could constitute an undertaking capable of being operated independently. Where these tests are met, ‘transfer of business’ relief should apply and the entire transfer may take place without giving rise to VAT (although other obligations may arise, particularly with regard to immovable property).Types of entity
Explain any differences between public, private, government or non-profit entities to consider when undertaking a corporate reorganisation.
In most cases, there will be little difference to how reorganisations are restructured and implemented where public, private, government, or semi-state or non-profit entities are involved. Under the 2014 Act, PLCs are subject to certain restrictions over and above private companies under the 2014 Act, including the fact that the summary approval procedure is not available to validate financial assistance or share capital reductions (the latter can, however, be approved by way of a High Court order). In addition, restructurings involving publicly listed PLCs are subject to additional restrictions under the relevant stock exchange rules and the Irish Takeover Panel rules that may impact a reorganisation.
For government and semi-state entities, care should be paid at the planning stage to ensure that any requirements (in particular, any ministerial or other statutory consent) under the relevant governing legislation for the body are complied with as part of the restructuring.
As most non-profit entities are structured as companies limited by guarantee, particular care needs to be paid to the rules under the 2014 Act that apply to those companies as well the entity’s constitution, which may be prescriptive as to how any reorganisation can be effected. It will likely be important that any reorganisation is structured in such a way as to preserve the tax status of the non-profit entity.Post-reorganisation steps
Do any filings or other post-reorganisation steps need to be taken after the corporate reorganisation takes place?
Most corporate restructurings will require some form of post-completion filings and other action items, including the following:
- completion of any required valuations and any consideration adjustments required between the parties as a result;
- booking the transactions in the accounting records of the relevant companies, including any premium arising on the issuance of shares;
- CRO filings (in particular, documentation executed pursuant to the summary approval procedure);
- stamp duty returns and other tax filings at the Irish Revenue Commissioners (including relief claims); and
- updates to the statutory records of Irish companies to reflect changes to the share capital, directors, secretary or other details as well as any changes that need to be recorded in the company’s register of beneficial owners.
The authors would like to thank Catherine O’Meara, Matthew Broadstock, Deirdre Cummins and Aisling Parkinson for their contribution to this chapter.