COMPANIES ACT 2014 - PRACTICAL IMPLICATIONS FOR IRISH COMPANIES
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UCITS FOR INVESTMENT MANAGERS 2014
COMPANIES ACT 2014 -
PRACTICAL IMPLICATIONS
FOR IRISH COMPANIES
1
WILLIAM FRY 2
CONTENTS
THE ACT 3
BENEFITS OF THE ACT 3
NEW COMPANY TYPES 4
CONVERSION PROCESS 5
THE ADVANTAGES OF THE NEW LTD COMPANY 6
WHY CONVERT TO A DAC? 6
OTHER COMPANY TYPES 7
FOREIGN COMPANIES 8
COMPANY CONSTITUTIONS 8
PARTICULAR ISSUES FOR DIRECTORS 9
CORPORATE TRANSACTIONS 11
ACCOUNTS 12
ACTION REQUIRED 13
TIPS 15
EXPECTED TIMELINE 15
HOW WILLIAM FRY CAN HELP 16
1WILLIAM FRY
PHOTO TBCCOMPANIES ACT 2014 - PRACTICAL IMPLICATIONS FOR IRISH COMPANIES
THE ACT BENEFITS OF THE ACT
The Companies Act 2014 is due to be The Act has many benefits, including:
commenced on 1 June 2015 and will affect all
Irish registered companies. • Consolidating all company law provisions
into one piece of legislation, rather than
Although much of the current law will remain being spread over 17 Acts and numerous
the same, the Act introduces some significant Statutory Instruments;
changes, many of which are designed to make
it easier to operate a corporate business in • Making legal obligations clearer and
Ireland. easing the administrative burden on
companies;
• Simplifying procedures for carrying out
certain corporate transactions, removing
the need to obtain court approval in
certain instances (for example when
reducing company capital); and
• Widening the audit exemption to include
dormant companies, qualifying group
companies and guarantee companies and
expanding the exemption thresholds.
3WILLIAM FRY
NEW COMPANY TYPES
One of the most significant features of the Act is that it provides for two new forms of private Although the Act provides for an automatic
company limited by shares. default to a LTD at the end of the transition
period, it is not recommended that existing
private companies take no action and merely
LTD DAC rely on the default provisions in the Act to
convert to the new company type for the
following reasons:
(Limited) (Designated Activity Company)
A new form of simplified Similar to existing form of 1. If the directors fail to prepare a new
constitution for the company as required
model private company private limited company. by the Act, they will be in breach of a legal
limited by shares, having Will continue to have a obligation, although this does not carry any
a single constitutional memorandum and articles of specific sanction under the Act;
document and unlimited association, with an objects 2. The memorandum and articles of
legal capacity. clause limiting its legal association of the LTD on the public record
will, on the expiration of the transition
capacity.
period, be deemed to be its constitution,
although it will not include the objects
clause or provisions inconsistent with
The current form of private company limited by shares will cease to exist 18 months after the
mandatory provisions of the Act. However,
commencement of the Act (known as the ‘transition period’).
those provisions will not be physically
To deal with this situation, existing private companies limited by shares have three options: redacted from the constitution as available
on the public register, with the result that
1. Convert to a LTD; the constitution on the public record will
not reflect the actual constitution of the
2. Convert to a DAC; or company; and
3. Do nothing and be deemed a DAC during the transition period and a LTD thereafter. 3. References in the constitution to the old
Companies Acts will remain, possibly
causing confusion.
4COMPANIES ACT 2014 - PRACTICAL IMPLICATIONS FOR IRISH COMPANIES
CONVERSION PROCESS
It is relatively straightforward to convert to as a DAC. In addition, a company which has
either of the new company types. been deemed to have converted to a LTD at the
end of the transition period can subsequently
To convert to a LTD the members should convert to a DAC should it so wish using the
pass a special resolution (75%) authorising standard conversion provisions in the Act.
the conversion (and putting in place a new
constitution) before the end of the transition Upon successful conversion to either of the
period. If the members of the company do new company types, a new certificate of
not resolve to convert to a LTD (or a DAC), incorporation will be issued, with the company
then there is an obligation on the directors to retaining its original registration number.
prepare a new constitution for the company
in the form of a LTD before the end of the For more detailed information on conversion
transition period and to deliver it to each options for your company please see our
member of the company and the CRO. publication entitled ‘The New Forms of Limited
Company and How to Convert’ which is
To convert to a DAC the members can pass available on our website.
an ordinary resolution (50%) within the first
1
15 months of the transition period. Where an
existing private company limited by shares has
debentures admitted to trading or listed on any
debt market, it must convert to a DAC by way
of a director’s resolution before the end of the
transition period if it has not already converted
using the member’s ordinary resolution
process. 1
Alternatively a member or members holding more than 25 per
cent of the voting rights in the company can serve a notice in
Where an existing private company limited by writing on the company requiring it to re-register as a DAC before
the end of the transition period.
shares does not re-register as a DAC before
the end of the transition period, certain of its 2
Member(s) holding not less than 15% in nominal value of the
2 company’s issued share capital or any class thereof or creditor(s)
members or creditors may apply to court for
holding not less than 15% of the company’s debentures entitling
an order directing the company to re-register them to object to alterations to its objects.
5WILLIAM FRY
THE ADVANTAGES WHY CONVERT
OF THE NEW LTD TO A DAC?
COMPANY The following companies cannot be a LTD agreement instead, although as the
It is expected that the majority of existing under the new legislation and must convert shareholders agreement is a private document,
private companies limited by shares will to a DAC if they wish to continue as a private third parties dealing with the company may not
become a LTD under the new law given the company limited by shares:- be aware of such business restrictions.
advantages associated with that company type.
• Credit institutions
A LTD, for example:
• Insurance undertakings
• Will not have an objects clause and so will
• Companies that have (or wish to have)
have unlimited legal capacity to carry on
debentures admitted to trading or listed
any lawful business or activity;
on a market
• Need not have an authorised share
It is possible that the Central Bank of Ireland
capital;
may require other regulated entities falling
• May have a single director; and within its remit to convert to a DAC, although
this has not yet been confirmed.
• May dispense with the need to hold
a physical AGM each year, whether it In addition, minority shareholders and
is a single member or multi-member shareholders of joint venture companies and
company, dealing instead with the relevant special purpose vehicles may wish to convert
matters by way of written resolution. to a DAC to ensure that the company in which
they have invested continues only to carry on
The benefits associated with the LTD cannot be a particular business. If they convert to a LTD,
availed of during the transition period until the the company will have unlimited capacity to
company has converted to that new company carry on any business the directors decide
type. Otherwise, the law applying to the DAC to pursue. However, such restrictions on the
will apply to all private companies limited by nature or scope of a company’s business could
shares until the end of the transition period. generally be achieved by way of a shareholders
6COMPANIES ACT 2014 - PRACTICAL IMPLICATIONS FOR IRISH COMPANIES
OTHER COMPANY TYPES
Aside from the private company limited by These companies may wish to review Guarantee companies and unlimited companies
shares, all other company types - for example, their existing memorandum and articles will be obliged to change their name, and
public limited companies (PLCs), guarantee of association to assess whether optional therefore their memorandum and articles of
companies (CLGs) and unlimited companies provisions in the new Act should be disapplied association (as set out below), unless they have
(UCs) will continue in their current corporate by the company3 and also update references to been granted an exemption.
form following the commencement of the Act the old Companies Acts.
without the need to convert to a new company
type.
The following are the main features of those other company types:
PUBLIC LIMITED COMPANIES GUARANTEE COMPANIES UNLIMITED COMPANIES
Will retain objects clause Will retain objects clause Will retain objects clause
No name change required Name change may be required (see below) Name change may be required (see below)
Can now have single member Can now have a single member Can now have single member
Minimum of 2 directors Minimum of 2 directors Minimum of 2 directors
Can offer shares to the public Can now avail of audit exemption, provided company Can be a private unlimited company (ULC), a
falls within thresholds public unlimited company (PUC) or a public
unlimited company with no share capital (PULC)
3
For example, provisions of the Act on the automatic rotation of directors, shareholder approval of director remuneration and voting by directors on matters in which s/he is interested will apply by default to PLCs
and CLGs if these provisions are not disapplied or modified by the constitution of the company. For some PLCs, these provisions will already have been disapplied by existing articles of association.
7WILLIAM FRY
FOREIGN COMPANY
COMPANIES CONSTITUTIONS
The Act abandons the concept of ‘place of The new LTD company will have a simplified
business’ in the context of foreign companies one-document constitution. All other company
with a presence in Ireland. The CRO has types will retain a memorandum and articles
confirmed that the registration numbers of of association, with these documents being
existing places of business will be cancelled collectively referred to as a ‘constitution’.
upon commencement of the Act.
The Act differentiates between mandatory
Existing foreign companies with a place of and optional provisions. Optional provisions
business registration in Ireland may wish are ones which can be disapplied or modified
to consider whether they would be more in the constitution of a company, for example
appropriately registered as a branch, provided provisions contained in the Act in relation to
they meet the registration requirements. Only how board meetings are to be conducted. A
limited liability companies may register as mandatory provision is one which cannot be
a branch. Companies should be aware that disapplied or modified by the company in its
a foreign company registered as a branch in constitution, for example the requirement for
Ireland must file whatever financial statements directors to keep minutes of their meetings.
it is required to file in its home country with the Following commencement, any provisions
CRO, unlike a company registered as a place of in the constitution of a company that are
business. inconsistent with a mandatory provision of the
Act will be invalid.
8COMPANIES ACT 2014 - PRACTICAL IMPLICATIONS FOR IRISH COMPANIES
PARTICULAR ISSUES FOR DIRECTORS
The following changes introduced by the Act are of particular relevance to company directors.
• The Act codifies directors’ duties, bringing together duties from the common law, equity and statute for the first time in a concise
manner. The duties listed are non-exhaustive.
• On taking up office, both directors and company secretaries are now required to make a statement acknowledging their duties under
the law.
• The duty of ensuring the company complies with company law now rests with the director(s) alone and is no longer the obligation of
the company secretary.
DIRECTORS’
DUTIES • The duties of the secretary are those which are delegated by the board of directors, in addition to any other statutory and legal duties.
• There is now an obligation on the directors of private companies to ensure that the individual (or company) acting as company
secretary has the skills or resources necessary to carry out the role. While a person can still act as both a director and secretary of a
company, the same person cannot hold both these roles in a single director LTD.
• For more information on directors’ duties under the new Act, see our publication on the topic on our website.
• If a loan has not been documented, the following will be presumed to apply:-
LOANS 4
- Loans to a director from a company will bear interest and be repayable on demand; and
TO/ FROM
DIRECTORS - Loans from a director to a company will be considered not to be a loan and will not bear interest.
4
Interest is calculated at the “appropriate rate”, such rate being 5% per annum or such other rate as may be specified by the Minister by way of order.
9WILLIAM FRY
PARTICULAR ISSUES FOR DIRECTORS, continued.
5
• Requirement for directors of all PLCs, in addition to ‘large’ private companies and guarantee companies to produce a compliance
statement on an annual basis. Unlimited companies and investment companies are not required to produce such a statement.
• Compliance statement must acknowledge the directors are responsible for securing the company’s compliance with its ‘relevant
obligations’.
• ‘Relevant obligations’ means the company’s obligations under the Act where a breach of those obligations is considered to be a
serious offence (including Market Abuse and Prospectus offences), in addition to the company’s obligations under tax law.
DIRECTORS’
• In the statement, directors must confirm that:-
COMPLIANCE
STATEMENT (i) the company has a compliance policy statement;
(ii) appropriate arrangements or structures are in place to ensure compliance with the company’s obligations; and
(iii) a review of these arrangements or structures has taken place during the previous year.
• If the directors cannot provide these confirmations, they must explain why the specified actions have not been carried out.
• Failure to include a compliance statement in the director’s report of a company where required to do so is a criminal offence.
• Directors to make a statement confirming there is no relevant audit information not disclosed to the company’s statutory auditors.
AUDIT • Each director must confirm that he/she has taken all the steps they ought to have in order to make himself or herself aware of any
INFORMATION relevant audit information and to establish that the company’s statutory auditors have that information.
• This provision is new, but a similar statement is, in practice, often required by audit firms.
5
‘Large’ in this context means where the balance sheet total for the year exceeds €12,500,000 and the turnover for the year exceeds €25,000,000
10COMPANIES ACT 2014 - PRACTICAL IMPLICATIONS FOR IRISH COMPANIES
CORPORATE TRANSACTIONS
The Act sees the introduction of a number of changes to procedures for certain corporate transactions as part of an overall drive to make it
easier for companies to do business.
• There is a new streamlined procedure known as the Summary Approval Procedure involving a director’s declaration and shareholder
approval (and an independent auditor’s report in certain circumstances) which can be used to authorise a number of ‘restricted
activities’.
SUMMARY
• ‘Restricted activities’ include the provision of financial assistance for acquisition of own shares, reductions of company capital, the
APPROVAL provision of loans to directors, the treatment of pre-acquisition profits in a holding company’s financial statement as profits available
PROCEDURE for distribution and the completion of a merger.
• It is no longer necessary to obtain court approval for certain restricted activities (for example, reduction of capital) where the
Summary Approval Procedure is used.
• Prohibition in current law on the provision of financial assistance for the acquisition of own shares often causes problems in banking
FINANCIAL transactions.
ASSISTANCE
FOR • Act eases the prohibition so that the restriction will only apply to financial assistance used ‘for the purpose of’ the acquisition of
ACQUISITION shares, and not financial assistance used merely ‘in connection with’ such a transaction.
OF OWN
SHARES • In addition, there are a number of new exemptions from the prohibition, for example, where the giving of the financial assistance is
only an incidental part of some larger purpose.
• New optional two-stage registration for charges created by a company designed to ‘lock-in’ priority at an earlier date.
REGISTRATION
OF CHARGES • Will provide increased certainty for lending institutions as regards priority of charges.
• Act introduces statutory framework for mergers and divisions between private companies in a purely national context for the first
time under Irish law.
MERGERS
AND DIVISIONS • Currently, mergers between private companies may only be implemented if there is a cross-border element to the transaction and by
OF PRIVATE obtaining court approval.
COMPANIES
• Summary Approval Procedure (see above) can be used to carry out a merger of private companies under the Act, without the need for
court approval.
WRITTEN
• Both a DAC and a LTD will be permitted to pass majority written resolutions of shareholders under the Act.
RESOLUTIONS
11WILLIAM FRY
ACCOUNTS
The following changes will apply to the preparation and filing of financial statements:
• Small companies will only be required to meet two of the three size criteria (turnover of under €8.8m, balance sheet of under €4.4m
and less than 50 employees) to qualify for an audit exemption.
AUDIT
EXEMPTION • Audit exemption extended to qualifying group companies, dormant companies and qualifying guarantee companies.
MEDIUM • Increase in the thresholds to qualify as a medium sized company for the purposes of filing abridged accounts.
SIZED
• New thresholds are turnover of under €20m (currently €15.24m), balance sheet total of under €10m (currently €7.62m) and less than
COMPANIES 250 employees (no change). The company need only meet two of the three thresholds.
APPROVAL OF
FINANCIAL • Only necessary for the directors to sign the balance sheet and not the profit and loss account.
STATEMENTS
DEFECTIVE
FINANCIAL • Will be permitted to revise defective financial statements already filed with the CRO.
STATEMENTS
• Company may now only change its financial year once every 5 years.
FINANCIAL
YEAR • However, a company may change its financial year end by 7 days either side without being affected by this restriction.
6
AUDIT • Large companies and all PLCs must put in place an audit committee or explain why
7
COMMITTEES they have not done so.
• It is expected that certain provisions in the Act in relation to financial statements will
COMMENCE- only apply to financial years beginning on or after 1 June 2015.
MENT
• This is subject to confirmation.
6
Large company in this context means where, in both the most recent financial year and the preceding financial year, the balance sheet total exceeded €25,000,000 and the turnover exceeded €50,000,000.
7
Currently, ‘public interest entities’ (i.e. banks, insurance undertakings and listed companies) must have an audit committee in place.
12COMPANIES ACT 2014 - PRACTICAL IMPLICATIONS FOR IRISH COMPANIES
ACTION REQUIRED
The Act is expected to come into effect on 1 required changes to the memorandum and Companies should assess whether they will
June 2015, with an 18 month transition period articles of association of a company and file a be affected by the provisions of the Act dealing
designed to provide private limited companies new constitution with the CRO. with the establishment of audit committees.
with an opportunity to decide whether to Large companies and all PLCs will be obliged
convert to a LTD or a DAC. However, companies All company types should examine their to decide whether to establish an audit
should be aware that, aside from the existing memorandum and articles of committee and to explain the basis of their
requirement for such companies to convert to association. Companies should determine decision. See footnotes 6 and 7 on page 12 for
a new company type, most of the new law will whether such documents are still fit for more information.
come into effect immediately on 1 June 2015. purpose and identify if any provisions contained
in them conflict with mandatory rules in the Companies should examine whether they will
Therefore, we would recommend that new legislation. It would also be preferable to be in a position to avail of the extended audit
companies give some consideration to the update any references to the prior Companies exemption. Companies that do not currently
following matters:- Acts in such documents. Consent from third qualify for the audit exemption may qualify in
parties (e.g. banks) may be required to convert future given the amended provisions in the
For existing private companies limited by to a new company type and make changes to Act increasing the thresholds and extending
shares, a decision should be made as to constitutional documents. the exemption to qualifying group companies,
whether to convert to a LTD or a DAC. We dormant companies and qualifying guarantee
recommend that a company be proactive in Companies should look to document any companies.
this regard, rather than relying on the default existing loans to and from directors. This
conversion provisions in the Act. If a company will ensure the disapplication of the new Certain companies will be required to change
is deemed to convert to a LTD at the end of presumptions in the Act highlighted above and their name before the end of the transition
the transition period, the memorandum and ensure that the terms of the loans actually period.
articles of association on the public record will reflect the intention of the parties.
be deemed not to include an objects clause - The name of a DAC must end with the
or provisions inconsistent with mandatory Directors should determine whether they will words ‘designated activity company’ (or
provisions of the Act. However, those provisions be obliged to produce a directors’ compliance the Irish language equivalent or permitted
will not be physically redacted from the statement. The company should also assess abbreviations thereof).
constitution as available on the CRO register, whether the appropriate compliance policies
and this may cause confusion. It would and structures are in place to satisfy the new
therefore be sensible to proactively make the requirements under the Act.
13WILLIAM FRY
- The name of a guarantee company must
end with the words ‘company limited
by guarantee’ (or the Irish language
equivalent of permitted abbreviations
thereof).
- The name of an unlimited company must
end with the words ‘unlimited company’
(or the Irish language equivalent or
permitted abbreviations thereof).
- Companies changing their name will
be obliged to update their company
stationary, company seal and signage etc.
to reflect their new name.
- Certain exemptions are available from the
above requirements for all three company
types.
Foreign companies registered as a place of
business in Ireland should bear in mind that
their registration will lapse on 1 June 2015.
Such entities may wish to consider whether
it would be more appropriate to register as
a branch, if the requirements for branch
registration are met.
14COMPANIES ACT 2014 - PRACTICAL IMPLICATIONS FOR IRISH COMPANIES
TIPS
Group companies may wish to take the opportunity to review their general group structure to
assess whether there are any dormant or unnecessary companies in the group which could be
wound up or struck off the register before the end of the transition period. This will avoid the time
and cost of converting such companies to a LTD or a DAC.
Where companies are considering undertaking a restricted transaction (for example, a reduction
of company capital) that is not time critical, it might be advisable to delay the transaction
until after commencement of the Act. In this way, the company may be able to avail of the new
Summary Approval Procedure (as outlined above) to validate the transaction, which would be less
costly and time-consuming than the procedure available under the current law.
Guarantee companies should consider whether they are in a position to apply for an exemption
from using the words “company limited by guarantee” after their name. If an existing guarantee
company has already obtained an exemption from the requirement to use the word “limited”
following its name, this exemption will be carried over under the Act.
The Act envisages a specified scope to be given to the company secretarial function on its role,
stating that the duties of a secretary (in addition to statutory and legal duties) are those which
have been delegated by the board of directors. This should be an item for consideration by the
board of directors, in order that it can be described and delegated appropriately.
EXPECTED TIMELINE
23 Dec 2014 01 Jun 2015 31 Aug 2016 30 Nov 2016
ENACTMENT COMMENCEMENT DEADLINE FOR END OF
CONVERSION TO TRANSITION
DAC PERIOD
15HOW WILLIAM FRY
CAN HELP
The William Fry team is happy to help on any
queries arising from this briefing.
In particular, we can:
• Advise on conversion options for existing
private companies limited by shares
• Provide new constitutional documentation
where required
• Draft the necessary shareholder
resolutions to convert to a new company
type and deal with Companies Registration
Office filings
• Review existing memorandum and articles
of association
• Advise directors on their new obligations
under the Act
• Assist with the annual compliance IMPORTANT NOTE
statement process
This document represents a high level summary
William Fry will shortly be publishing a more of the changes brought about by the Companies
extensive booklet on the Act which will examine Act 2014. It does not present a comprehensive
the new law in greater detail. This will be summary of the Act or its implications and
available on the Companies Act 2014 section of does not constitute specific legal advice for any
our website in due course. particular client or company.
16DUBLIN • LONDON • NEW YORK • SILICON VALLEY
Tel: +353 1 639 5OOO • E- mail: info@williamfry.com
www.williamfry.com
This publication is for general information purposes only and does not constitute and should not be regarded
as a substitute for taking legal advice. While every care has been taken in the preparation of the information in this publication,
readers are advised to seek specific legal advice in relation to any decision or course of action. The information does not take
account of specific circumstances and is not legal advice. Please contact any of the individuals listed or your regular William Fry
contact if you require legal advice on any of the issues raised in this publication.
WF-L.FID830665 / Published by William Fry
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