The Companies Act 2014 Ireland

Legal Notice

The material in this document is for information purposes only and is not intended as, and does not constitute, legal advice. Any information in the document is prepared as at the date of publication, and we accept no duty to update the information as the law or facts change, or to do so accurately or comprehensively.

Although we aim to ensure the content in this document is up-to-date, there may be delays, errors or omissions that could affect its currency or accuracy.

This document and its content are provided entirely "as is". To fullest extent permitted by law, we exclude all implied conditions and warranties with respect to the document and its content. Your use of the document, or the receipt of any information from us or this document, is not intended to create, nor does it create, a solicitor-client relationship between you and us. You should not act or rely on this information without seeking professional advice in advance. Your use of this document, and your reliance on its content, is entirely at your own risk. LK Shields Solicitors is not responsible for the contents of any third party material which can be accessed through this document or which appears in the document.

This Legal Notice and any use that you make of our website are governed by the laws of Ireland.

Introduction

The Companies Act 2014 came into effect on 1 June 2015. The comprehensive Act is the largest reform of company law the state has seen in half a century and is intended to make running a business in Ireland easier.

This microsite provides an overview and guidance on the main parts of the Act and what you need to do to prepare. The information will be updated regularly so please subscribe to our alerts and follow us on twitter so that we can keep you informed.

www.companiesact.ie

Compliance Statements: What Directors Need to Know

Last updated on 15th February 2017

The Companies Act 2014 introduced a requirement on directors of certain types of Irish company to include an annual compliance statement (Compliance Statement) in the directors’ report accompanying the company's financial statements.

 

What companies are affected?

The requirement to complete a Compliance Statement applies to all Irish public limited companies and all Irish private companies with a balance sheet of over €12.5m and turnover of over €25m.

The obligations do not apply to unlimited companies or companies which are operating in Ireland which are not Irish registered companies.

A Compliance Statement should be included in the financial statements relating to all financial years commencing on or after 1 June 2015. Many companies that have December year ends have recently come through their 2015 audit and are now focusing on this new requirement, which will apply to them for the first time in respect of the year ending 31 December 2016.

 

What should be included in the compliance statement?

The Compliance Statement is a simple paragraph to be included in the directors’ report:

  1. The directors acknowledge their responsibility for securing the Company’s compliance with its relevant obligations (set out below).
  2. The directors confirm, on a “comply or explain” basis, that the assurance measures have been undertaken.

 

What are the relevant obligations?

The relevant obligations include all obligations under Irish tax law and certain obligations under the Companies Act 2014, a breach of which could give rise to serious criminal sanctions under the Companies Act 2014.

The obligation to acknowledge compliance with Irish tax law is clearly broad in its scope and affected companies will need to consider this in the context of their own particular circumstances, as not all tax obligations will be relevant to every company.

The relevant legal obligations are those under Companies Act 2014 that could give rise to serious criminal sanctions including:


The directors of affected companies must confirm that:


The Companies Act 2014 does not set out any requirements that these actions have to be taken, and provides that the directors can instead choose to explain why the actions have not been undertaken, but this may be difficult in practice.


Consequences of failing to comply

A failure to include a Compliance Statement or to adequately explain why actions have not been taken, carries a maximum personal fine for each of the directors of €5000 and/or a maximum prison sentence of six months.

 

What processes can be put in place to secure material compliance?

There are three assurance measures identified in the Companies Act 2014 which companies can use to secure compliance with their relevant obligations.

  1. Drawing up a compliance policy statement, setting out the company’s policies designed to ensure material compliance with the relevant obligations.
  2. Putting in place appropriate arrangements or structures that, in the directors' opinion, provide “a reasonable assurance of compliance in all material respects”.
  3. Conducting a review, in respect of the financial year to which the Directors’ Report relates, of the arrangements or structures referred to above.

The compliance processes may include reliance on the advice of employees and service providers who appear to the directors to have the requisite knowledge and experience to advise on compliance with the relevant obligations.  If the relevant statements, confirmations and reviews have not been made or carried out by the company, the directors must specify the reasons why in the annual directors’ report.


What steps should directors take?

We would recommend that directors take the steps listed below:


How we can help

The degree of involvement required by directors will vary and will depend on factors such as the nature, scale and the complexity of the company’s business as well as its legal and tax framework. The continuing nature of the obligations and the need to establish structures and arrangements will require ongoing involvement by directors. LK Shields would be happy to assist companies and their directors in ensuring compliance with these new obligations.


David Brangam is an Associate in the Corporate and Commercial Department at LK Shields Solicitors.  For further information, please contact David at dbrangam@lkshields.ie.
 

The Conversion Deadline Has Passed ... What’s Next?

Last updated on 7th February 2017

The eighteen month transition period provided for in the Companies Act 2014 (the “Act”) has passed and you did nothing. So what should you do now?

You may have been surprised to have recently received a new certificate of incorporation from the Companies Registration Office and wondered why it had been sent?  It is likely that the new certificate was issued at the end of the transition period provided for under the Act.  At the end of that defined period of time, all private limited companies that had not previously elected to become a designated activity company or a private limited company under the Act, were deemed to have converted to private limited companies.

 

How has this affected my company?

If you failed to take any positive action prior to the end of the transition period, your existing memorandum and articles of association will have been deemed to have been merged with the objects clause deleted.  This means that your new deemed constitution may be out of date as it is likely that it  refers to legislation that is no longer relevant or in force.

 

What do I need to do?

Any company that has automatically converted would be advised to update its constitution to bring it in line with the Act.  This will make it easier to interpret and avoid any confusion that may arise from conflicting provisions.  It also presents an opportunity to give wider consideration to the constitution and any existing shareholders' agreement that is in place to ensure that it is fit for current purposes.

 

What can we do 

At LK Shields, we can assist in preparing the relevant documentation, including a new constitution tailored to your requirements, to bring your company in line with the Companies Act 2014.

 

For further information please contact Alan Browning at abrowning@lkshields.ie or any member of our Company Secretarial and Compliance Team at cosec@lkshields.ie.

New Rules on Beneficial Ownership: What you need to know

Last updated on 20th December 2016

On 15 November 2016, far reaching provisions on the beneficial ownership of companies and other legal entities in Ireland came into force with immediate effect.

Previously, the identity of the beneficial owners of Irish companies and legal entities could remain largely private, but this is no longer the case.

 

Headline Points

 

When do the Regulations come into force? 

The Regulations are already in force – since 15 November 2016 – and without any transitional periods.

 

Who do the Regulations apply to?

The Regulations apply to all Irish companies and other corporate bodies, including, for example, ICAVs and industrial and provident societies (Relevant Entities).

Companies that are listed on a regulated market and which are subject to existing disclosure requirements consistent with EU law (including companies that are subject to the Transparency Regulations 2007), are exempt from the Regulations. Additionally, companies that are subject to equivalent international standards that require disclosure of their beneficial ownership are exempt.

The Regulations only apply to incorporated entities and so do not affect trust structures or limited partnerships. However, as set out below, certain trust structures may become subject to similar beneficial ownership requirements in the future.

Beneficial owners of Relevant Entities also have obligations under the Regulations.

 

What is a beneficial owner under the Regulations?

A "beneficial owner” under the Regulations means any natural person who ultimately owns or controls a Relevant Entity, through direct or indirect ownership of a sufficient percentage of the shares, voting rights or ownership interest in the Relevant Entity.  A shareholding interest of 25%, plus one share, will be evidence of ultimate ownership or control.  Indirect ownership will include ownership through other corporate entities.

In certain circumstances, a Relevant Entity's senior management officials may have to be listed as its beneficial owners.

 

What steps must a Relevant Entity take to ascertain beneficial ownership?

Every Relevant Entity must take all reasonable steps to obtain and hold adequate, accurate and current information in respect of its beneficial owners.

The Regulations require Relevant Entities to serve notice on any natural person whom it has reasonable cause to believe to be a beneficial owner, and to request the necessary information, as detailed below. Any person served with such a notice is required to comply with the request for information within one month of the date of such notice.

The Relevant Entity may (but is not required) to give notice to any other person (whether or not a natural person) which it has reasonable cause to believe has knowledge of the identity of any beneficial owner of that Relevant Entity. A person who has been served this type of notice must comply with the notice within one month.

 

What information must Relevant Entities obtain on beneficial ownership?

The Regulations require Relevant Entities to ascertain the name, date of birth, nationality, address, statement of nature and extent of interest held by each beneficial owner, together with details of the date on which a person became or ceases to be a beneficial owner.

It is not stipulated how frequently that a Relevant Entity must check to see that the beneficial ownership information is “current”.

 

How are beneficial ownership details to be kept by Relevant Entities?

Relevant Entities are required to record the above information in a register of beneficial ownership (Register). The Regulations are not prescriptive on the form of the Register.

Unlike with a Relevant Entity’s existing register of members, no statutory inspection rights apply to the Register.

A Relevant Entity must take measures to update its Register where it has reasonable cause to believe that: a person listed as a beneficial owner in its Register has ceased to be a beneficial owner; or the particulars set out in the Register are outdated.

Where this occurs, the Relevant Entity must give notice to the person concerned requiring them to  confirm whether or not the suspected change has occurred; and  if it has occurred, to provide the date of the change, confirm or correct the details set out in the notice and supply any details that are missing from the notice.

Where the name of a person is incorrectly entered in or omitted from a Register, or where unnecessary delay occurs in noting that a person has ceased to be a beneficial owner, an application can be made to the High Court to rectify the Register.

 

What if beneficial ownership cannot be ascertained?

Where a Relevant Entity has taken all reasonable steps to ascertain its beneficial owner(s) but has been unable to do so, it must keep records of the actions which it took in order to try and identify its beneficial ownership.

In circumstances where a Relevant Entity is unable to ascertain its beneficial ownership or where there is any doubt that an identified individual is a beneficial owner, the Relevant Entity's senior managing officials (including its director(s) and CEO) must be inserted into the Register instead. This is the case even where such senior managing officials hold no interest (legal or beneficial) in the Relevant Entity.

 

Are obligations imposed on individuals?

The Regulations impose certain obligations on beneficial owners.

A person who is a beneficial owner, or who ought to know that they are one, is under a duty to notify Relevant Entity that they are a beneficial owner (i) if the Relevant Entity's Register does not contain the relevant details regarding that person; or (ii) if they have not received a notice from the Relevant Entity requesting this information.

A beneficial owner’s duty to notify arises where the above circumstances have continued for a period of at least one month. The individual then has one month in which to send the notice which must confirm their status (as beneficial owner), the date on which the person acquired that status and the information required under the Regulations.

There is also a duty on individuals, in certain circumstances, to notify relevant changes in beneficial ownership.

 

Do any group exemptions apply?

The Regulations do not provide for a group exemption. Therefore, each Relevant Entity within a corporate group must establish its own Register, even where the ultimate beneficial owner of all the Relevant Entities in that group is the same.

 
What are the sanctions for noncompliance?

Failure by a Relevant Entity to comply with any requirement of the Regulations regarding obtaining and maintaining information on beneficial ownership, creating and maintaining the Register, serving notice on individuals and confirming any change in a beneficial owner’s details is a criminal offence.

A Relevant Entity that commits such an offence can be liable for a fine of up to €5,000 on conviction.

It is also a criminal offence for an individual to fail to comply with their obligations under the Regulations, to comply with the terms of any notice sent to them or makes a statement that is false in a material way, knowing or being reckless as to whether this is the case. A person that commits such an offence can be liable for a fine of up to €5,000 on conviction.

 

Will information on beneficial ownership be publicly available?

The Regulations partially implement an EU Directive into Irish law: the Fourth Anti-Money Laundering Directive (MLD4). It is considered likely that the remainder of MLD4 will be implemented into Irish law by June 2017 and that it will ultimately result in the Companies Registration Office maintaining a central register of beneficial ownership.

It is not clear what form the central register will take.  At a minimum, the central register must be accessible to competent authorities, financial intelligence units and those carrying out certain forms of due diligence under MLD4 in a timely and unrestricted manner.

Whether the central register will be publicly accessible, remains to be decided.  Currently, under MLD4, EU member states have discretion on the extent of accessibility of the central register.

The European Commission is currently considering a number of amendments to MLD4 (those changes are commonly referred to as MLD5). Most notable among the changes proposed by MLD5 is a proposal that information on the beneficial ownership of companies be publicly available. If adopted, these changes are likely to be implemented  into Irish law, with the rest of MLD4, in June 2017.

Relevant Entities should therefore keep in mind that the new regime on beneficial ownership is likely to be subject to further amendments in the coming months.

 
What impact do the Regulations have on trusts?

The Regulations do not have any impact on trusts. However, MLD5 proposes that the beneficial ownership of trusts also be made available to those with a legitimate interest. Therefore, if MLD5 is adopted, trustees and beneficiaries will likely be subject to similar obligations to those contained in the Regulations.

 

How we can help

LK Shields is available to advise you on the Regulations and the steps you need to take to ensure compliance. Further developments in relation to beneficial ownership can be expected  in the coming months and we will be providing regular updates.

David Brangam of our Corporate and Commercial Department appeared live on Newstalk Business Breakfast on Thursday 8 December 2016  to talk about the new regulations in relation to Beneficial Ownership.  David discusses the reasons behind the introduction of these new regulations, the types of companies that the new regulations apply to and what is required of them. To listen to the segment, please click here.
 

If you would like to know more about our services or have any queries on the matters discussed in this guide, please contact Damien BarnavilleDavid Brangam or your usual contact in LK Shields.

Mandatory e-filing at the CRO from 1 June 2017

Last updated on 7th December 2016

The Companies Registration Office (CRO) is introducing mandatory e-filing of certain submissions from 1 June 2017. 

It will then be compulsory to electronically file the forms listed below.

As of 1 June 2017, the CRO will not accept these returns in paper format. 

 

Will these changes affect my company?

The changes will directly affect all companies registered under Irish law.

So far in 2016 over 87% of all annual returns were filed online.  Therefore 13% of companies will need to review how they file annual returns – we estimate that approximately 35,000 companies still file their annual returns manually in a paper format. 

But the changes do not just apply to annual returns.  Filings that are required to notify the CRO of changes to the officers of the company, the registered office of the company and the variation of the annual return date, must all be made electronically.  Moreover,  these filings are not usually made by the same people as the annual return.  So companies should review how all of their CRO filings are made:  the people involved and the processes and procedures.

 

Why are the changes being made?

The move to electronic filing should increase the speed, efficiency and accuracy of filings being made.  It should also reduce the administrative burden placed on the CRO for the processing of paper returns and, with increased accuracy, it should reduce the likelihood of those returns being queried. 

The benefit to the company of electronic filings is that they are less cumbersome and mean that companies are less likely to miss their submission deadlines.  It also improves the accuracy of the return and reduces the need to deal with queries.  

In addition there is a reduced cost of filing returns electronically with the cost of filing an annual return being reduced to €20, while the other returns referred to can be made at no cost.

We anticipate that these changes will be  part of a series of changes to filing procedures at the CRO, and  we expect that most, if not all, filings will eventually have to be made electronically.

 

What do I need to do?

Given that all Irish companies are obliged to file at least some of the forms listed, it is imperative that all Irish companies make any necessary changes to ensure that they are prepared and have the capability to submit electronic filings from 1 June 2017. 

 

What can we do to help you?

At LK Shields, we can assist you by processing your CRO filings by acting as e-filing agent for your company and filing the above statutory forms using specialist software. Our team of Chartered Secretaries can advise you on your options in relation to registration as an e-filing agent.

 

For further information, please contact our Company Secretarial and Compliance team at cosec@lkshields.ie or visit www.lkshields.ie
 

Conversion Under The Companies Act 2014: Time Is Running Out

Last updated on 19th October 2016

The Companies Act 2014 provided for a period of transition for private companies limited by shares and incorporated under the Companies Acts 1963-2013 (LC) to facilitate their orderly transition from the old law to the new.  This transition period will end on 30 November 2016.

Companies wishing to convert in an orderly fashion to the new simplified type of private company limited by shares (LTD) should ensure that the necessary action is taken before the deadline of 30 November 2016.

We recommend that this decision should be taken and implemented as soon as possible.

LCs will cease to exist on 1 December 2016.  By that date, LCs will either have converted to an LTD or DAC voluntarily, with a tailored constitution prepared in accordance with the Companies Act 2014, or will have converted to an LTD by default, with less than perfect constitutional documentation, as discussed below.

 

What if I do nothing?

The failure to make a decision to convert to an LTD by the deadline will mean that an existing LC will be deemed to be an LTD with a one document constitution containing a hodgepodge of the existing provisions in its Memorandum and Articles of Association, which may have a knock on effect on the terms of the relations between the shareholders.

Furthermore, by doing nothing, the directors could be in breach of their duty to ensure that they have complied with the Companies Act 2014 or could be presented with an action for oppression by any shareholders who believe that they have been prejudiced by the new default constitution.

 

Timelines  

While 30 November 2016 is the statutory deadline, directors should also note that the Companies Registration Office (CRO) needs time to process applications.  The CRO  has encouraged companies to file their conversion application with the CRO by the end of October at the latest in order to allow time for the conversions to be processed before the 30 November deadline.

An existing LC will only become an LTD upon the issue of the new Certificate of Incorporation on conversion and not the passing of the required resolution.

 

How can we help?

LK Shields can assist you in converting your company to an LTD and we can advise you on your  options and  obligations in relation to conversion.  We have an experienced team of Chartered Secretaries with in depth knowledge of the implications of conversion and would welcome hearing from you at your earliest opportunity.

 

For further information on the Companies Act 2014, please contact our Company Secretarial and Compliance team at cosec@lkshields.ie

Companies Act 2014:  Change of Name Requirements

Last updated on 30th August 2016

Certain companies in existence on 1 June 2015 are required to observe the new naming requirements provided for under the Companies Act 2014 (the Act).

If your company is affected then you will need to take action to be ready for this change.
 

Which companies are affected?

Under the Act, and unless exempted, all companies must include their company type in their company name. For some companies this will not have any immediate effect, but others will be required to change their name to comply with this requirement. 

The types of companies immediately affected are:

  1. Companies Limited by Guarantee: the words "Company Limited by Guarantee" or the Irish equivalent must replace "Limited".
     
  2. Unlimited Companies: the words "Unlimited Company" or the Irish equivalent must be inserted after the existing company name.
     

This requirement will apply from 30 November 2016.  The Companies Registration Office (CRO) has advised that once 30 November 2016 has passed, it will not accept any documentation featuring the incorrect form of company name.
 

Action Required

If your company is affected, you have two options:

  1. Be proactive and control your company’s destiny by making the change now and updating your company's stationery, company seals and registers and notifying contractual counterparties and third parties.
     
  2. Do nothing and brace yourself for 30 November 2016 when the Registrar of Companies will automatically change the name of your company and issue an amended certificate of incorporation.
     

Companies are advised to be hands-on and take the necessary steps to comply with the new requirements and also ensure that the relevant amendments are made to their stationery, etc.
 

Next Step

Our experienced team has made numerous change of name submissions to the CRO under the new provisions and would be happy to assist you with the process and also to provide advice regarding the legal requirements in relation to your business stationery.

Should you have any questions please contact a member of our team at cosec@lkshields.ie.

Companies (Accounting) Bill 2016 – New Rules on Non-Filing Structures

Last updated on 23rd August 2016

The Companies (Accounting) Bill 2016 (the "Bill") was published on 5 August 2016.

The main purpose of the Bill is to transpose Directive 2013/34/EU (the "Directive") on financial statements and related reports of certain types of undertakings into Irish law.

A major change introduced by the Bill, once enacted, will be to abolish so-called "non-filing structures" in their current form.  These structures had been used to limit the amount of financial information Irish unlimited companies had to publicly file while at the same time preserving limited liability status for the shareholders.

Current law and proposed changes

Currently, section 1274 of the Companies Act 2014 (the "Act") provides that Irish unlimited companies must file financial statements in the CRO where the relevant unlimited company is of a designated type ("Designated ULC").  Irish unlimited companies with at least one member being an unlimited company incorporated outside the EEA are not Designated ULCs and therefore are not required to publicly file financial statements in the Companies Registration Office (the "CRO").

Section 76 of the Bill proposes to amend section 1274 of the Act by significantly expanding the categories of Designated ULCs required to publicly file financial statements. In effect, the change will negate the effectiveness of existing non-filing structures.

Timing of enactment of the Bill

The Oireachtas is currently in recess and will not sit again until 27 September 2016 consequently the timeframe for debate of the Bill and the ultimate enactment is still unclear. Ireland is already late in complying with its obligations to transpose the Directive into Irish law as it was due to be transposed by 20 July 2015. Therefore we expect that the Bill will be enacted without significant further delay.

When do the new filing requirements come into effect?

It is as yet unclear as to from when the changes will apply, however, a reasonable presumption is that the changes will apply to financial years beginning on or after 1 January 2017. On this basis, financial statements for non-filing companies for financial years ending 31 December 2016 or before will not have to be filed with the CRO.

The above being the case, the Act requires the inclusion of comparative information relating to the preceding financial year in the financial statements. This means that financial information relating to the previous financial year will nonetheless appear in the first set of financial statements filed after the enactment of the Bill.

Actions required

Directors of non-filing companies should consider the potential impact to their business of the requirement to publicly disclose company's future financial statements, particularly sensitive financial information. Additionally, such companies should evaluate their corporate structure to assess the impact of the new rules and speak with their legal advisers to identify and implement arrangements that are appropriate to each group to address these imminent changes.

As lawyers active in providing assistance for company restructurings we will continue to monitor the Bill's development and keep you informed of its progress.

This article was written by Ruairi Mulrean, Partner in Corporate and Commercial and Gabriel McGuinness, Trainee Solicitor.

If you would like further information, please contact Ruairi Mulrean at rmulrean@lkshields.ie.

Audit Committees under the Companies Act 2014

Last updated on 19th July 2016

Which companies are subject to this obligation and what does it entail?

The Companies Act 2014 (CA14) introduced an obligation to form audit committees on a 'comply or explain' basis that applies to private limited companies meeting thresholds set out in Section 167 CA14 and also to certain PLCs.  This article will focus on the new obligation placed upon a private limited company.

Commencement

The commencement order that brought CA14 into force, provides that the requirements specified under Section 167 for a company, shall come into force for that company, on the first day of its first financial year beginning on or after 1 June 2015.

The Thresholds

The audit committee obligation applies to a 'large company'.  There are two circumstances in which a company will be deemed a 'large company' for the purposes of Section 167. 

The first is where both of the following thresholds are met in each of the previous two completed financial years.

  1. The balance sheet total for that company in the most recent financial year and in the immediately preceding financial year exceeds €25,000,000 in each of those years; and
     
  2. The amount of turnover of that company in the most recent financial year and in the immediately preceding financial year exceeds €50,000,000 in each of those years.

The second is where a company, when taken on a consolidated basis with its subsidiary undertakings, meets the thresholds set out above.

The Minister for Jobs, Enterprise and Innovation has the power to amend these thresholds.

The Comply or Explain Basis

Section 167(2) creates a positive obligation on the board of a large company to either establish an 'audit committee' as defined in that section, or to make a decision not to establish an audit committee.

Section 167(3) requires the board of a large company to state in their directors' report whether the company has established an audit committee or whether it has decided not to do so.  If they have decided not to do so, they are further obliged to state in that directors' report "the reasons for that decision".

If any director of a large company fails to take all reasonable steps to comply with the requirement under Section 167(3), shall be guilty of a "category 3 offence".  It is an offence where on summary conviction a person shall be liable to a Class A fine – presently limited to a maximum of €5,000 – or imprisonment for a term not exceeding six months or both.

It is worth noting that Section 167  does not specify any test regarding the merit of the reasons stated for a decision not to establish an 'audit committee'. Therefore, the question of the level of merit required for the reasons given for a decision not to establish an audit committee should be considered in a holistic fashion, rather than a purely legal one.

From a legal perspective, if the board of a company has made a decision not to establish an audit committee, which should be recorded in minutes of a meeting or in a written resolution of the board; and has stated this decision, and provided any reasons for that decision in the directors' report; it would appear that they would have complied with the requirement in Section 167. 

Responsibilities of the Audit Committee

An audit committee set up pursuant to Section 167 must assume at least the following responsibilities:

  1. the monitoring of the financial reporting process
     
  2. the monitoring of the effectiveness of the company’s systems of internal control, internal audit and risk management
     
  3. the monitoring of the statutory audit of the company’s financial statements
     
  4. the review and monitoring of the independence of the statutory auditors and in particular the provision of additional services to the company

If an audit committee is established, any proposal of the board of directors of the company with respect to the appointment of statutory auditors to the company shall be based on a recommendation made to the board by the audit committee.

In addition, the auditors are required to report to the audit committee of the company on key matters arising from the statutory audit of the company, and, in particular, on material weaknesses in internal control in relation to the financial reporting process.

Independent Director Requirement

Section 167 sets out a specific requirement for at least one independent director to be a member of such an audit committee.

Specifically, such an independent director must:

  1. be non-executive, which means that he/she is not engaged in the daily management of the company
     
  2. have the requisite independence to contribute effectively to the committee's function, and in particular must satisfy the conditions set out below in this regard and
     
  3. have competence in accounting or auditing.

The conditions regarding the minimum level of independence referred to above are that the director does not have, and at no time during the period of three years preceding his/her appointment to the committee had, a position of employment in the company, or a material business relationship with the company; either directly, or as a partner, shareholder, director (other than as a non-executive director); or as a senior employee of a body that has such a relationship with the company.

It is worth noting that the requirement for independence set out in Section 167 does not require that the person is previously unknown to the company.  Indeed, the board may already have a member who satisfies the requirements to be appointed as the independent director of the audit committee.

Audit Committees at Group Level and Public Interest Entities

In the context of audit committees, it is interesting to note the position in respect of a 'public-interest entity' pursuant to the Statutory Audits Regulations (SI 312 of 2016).  Broadly speaking a 'public interest entity' is one which has its securities traded on a stock exchange, an entity which is a credit institution or an insurance undertaking.

The Statutory Audits Regulations require a public-interest entity to establish an audit committee but also provides certain exemptions from this obligation.  In particular, Regulation 115(10)(a) in effect provides that such an entity will be exempt if that entity is a subsidiary undertaking and the requirement for an audit committee is fulfilled at group level.

If you have any questions in relation to any of the above please contact Emmet Scully at escully@lkshields.ie or James Byrne at jbyrne@lkshields.ie.

Fraudulent CRO Filings – Company Officers Take Note

Last updated on 21st June 2016

Company Officers need to be vigilant in monitoring the filings being made on behalf of their company at the Companies Registration Office (CRO). 

It is possible for unscrupulous individuals to abuse the current system for filing of statutory returns for their own advantage.

An Honour Based System, Open to Abuse

The current system for filing statutory returns in Ireland is an honour based system which, by its nature, is open to abuse.  There is currently no means or mechanism to enable the CRO to verify the authenticity of filings being made in respect of any company registered in Ireland.  Therefore an unscrupulous person would be able to present fraudulent and unauthorised filings that may, for example, make changes to the details of company officers or the registered office of the company on the company's public file.

A specific process that had the potential to be abused was the system for the registration of charges in the CRO.  This potential was recognised and addressed in the Companies Act 2014 which created a new two stage system, similar to that operated in the UK, for the registration of charges.  However, the opportunity to put safeguards in place for the making of other filings was not taken. 

Why Abuse the System?

There are a number of reasons that someone may decide to abuse the system.  For example, a shareholder in dispute with the company, or other shareholders, might wish to appoint themselves to the board, or purport to remove other directors from the board. However, it is the more sinister actions of a person intent on committing fraud using the good name of a company that can be most damaging, costly and time consuming. 

Removal of Fraudulent Filings

As mentioned above, there is no verification mechanism for filings at the CRO, and, in addition, there is no simple means of removing a fraudulent or unauthorised submission which has been registered in the CRO. 

The CRO policy in relation to rectification of the Register is set out on the CRO website and states:
 

The Registrar of Companies has no general power under the Companies Act 2014 to administratively amend the CRO Register or to allow amendments to be made to registered documents.  Neither does the Registrar have a statutory power to remove registered submissions from the Register.  The High Court, by virtue of its full original jurisdiction under the Constitution to deal with all justiciable matters, has power to direct rectification of the CRO Register, including the removal of registered submissions in appropriate cases and their replacement by a different submission.
 

The only option currently available to a company seeking to remove documents, including those fraudulently filed, is to seek an Order from the High Court directing rectification of the Register and the removal of the fraudulent filings made.

What if my Company is Affected?

If your company becomes a target of fraudulent filings at the CRO, we can help you to act quickly and decisively to deal with them. Given the potential damage that can be caused by such fraudulent activity, it is imperative that any company affected takes the appropriate course of action, and importantly, ensures that it does not take any action that could be construed as confirming the authenticity of any fraudulent or unauthorised filings.

For further information please contact Ruairí MulreanNiamh Hackett or a member of our team at cosec@lkshields.ie.

The Companies Act 2014 - It is Time to Take Action

Last updated on 7th June 2016

It is now a year since the Companies Act 2014 (the Act) came into force.

The deadline for taking action is fast approaching, so it is an opportune time to revisit the main call to action made by the Act to pre-existing private companies limited by shares (LC).

The Act requires all existing LCs to convert to a new type of limited company.  In particular, LCs as we knew them, have been phased out by the Act, and the following conversion options are available to LCs.

  1. Convert to the new simplified type of private company, an LTD
     
  2. Convert to the new company that is most like an LC, a Designated Activity Company (DAC)
     
  3. Convert to another type of company

The Act provided for a period of transition for LCs to facilitate their orderly transition from the old law to the new, during which LCs will continue to exist.  This transition period is coming to an end and the deadlines for making the decision to convert are:

  1. 30 November 2016 if converting to an LTD
     
  2. 31 August 2016 if converting to a DAC

We recommend that this decision should be made as soon as possible and definitely well in advance of these deadlines.

From 1 December 2016 there will no longer be LCs as every LC will either be converted to an LTD or DAC voluntarily, or will have converted to an LTD by default.

Differences between an LTD and a DAC

LTD DAC
May have just one director and a separate secretary. Must have at least two directors.  One can also act as secretary.
Full and unlimited capacity:  no objects clause required.  Must have an objects clause.
Will have a single document constitution. Will have a two part document constitution.
The name must end in "limited", "ltd" or the Irish equivalent. The name must end in "designated activity company", "DAC" or the Irish equivalent.
May dispense with holding an AGM. Cannot dispense with holding an AGM unless a single member company.
May decide not to have an authorised share capital. Must have an authorised share capital.
May not list or have securities admitted to trading. Will be able to list or have admitted to trading certain securities.

 

So what should you do?

You should now consider which type of company, private or otherwise, that best suits your needs.  Are the more simplified administrative requirements of an LTD desirable or are the provisions relating to a DAC, which is the most similar to current private limited companies, preferable?

We also suggest that this process is an opportunity for you to look at the current structures and arrangements that are in place to see if they need to be updated and/or changed.  For example, larger organisations with many group companies may undertake a housekeeping exercise with a view to simplifying their structures in order to assist with the transition.  Less complicated companies should consider whether the more simplified corporate governance regime would best suit the members and directors and future business needs. 

While some companies will be obliged to convert to a DAC, those carrying on the activity of a credit institution or insurance undertaking, we would anticipate that the benefit of the simplified corporate governance requirements for LTDs will be appealing,  and that most private companies will convert to LTDs. 

The DAC might be more suitable where the company has been established for a specific purpose and it is important to the shareholders to restrict its activities, i.e. a joint venture company.

Once you have made the choice of which type of company you want, we can provide advice and guidance to ensure that your constitution meets the requirements of your new company model. 

What if I do nothing?

If a company fails to make a decision to re-register as an LTD or DAC by the deadline an existing private company will be deemed to be an LTD with a one document constitution consisting of the existing provisions of its Memorandum and Articles, excluding its objects clause and any clause prohibiting alteration of the M&A.

This may have consequences in that if the existing Articles contain specific provisions which have been negotiated, the company may end up with a constitution which does not reflect the arrangements which have been negotiated between the shareholders.

Furthermore, by doing nothing, the directors could be in breach of their duty to ensure that they have complied with the Act and there may be a challenge by shareholders or creditors who could seek remedies, including payment of compensation.

Name Change

If a company is converting to a DAC it will also need to change its name to end with the words "Designated Activity Company" or this can be abbreviated to DAC.  The LTD company name will still end with the word "Limited".

Timing

As well as being aware of the deadlines of 30 November 2016 for an "LTD" and 31 August 2016 for a "DAC", directors should also be mindful of the time taken to process applications by the CRO.  As we get closer to the deadline the number of applications will increase and the wait time which is currently three weeks for a conversion, may well increase.

An existing LC will become the relevant type of new company only upon issue of the new Certificate of Incorporation on Conversion.  Directors should be cautious of this as if a filing is made close to the deadline an existing LC will default to the new LTD on 1 December 2016 rather than by election of the directors and where a company is electing to become a DAC it will have defaulted to an LTD until the CRO has processed the registration.

How Can We Help?

LK Shields can assist you in converting your company to an LTD or a DAC or some other type of company and we can advise you on the options for, and your obligations, concerning conversion.  We have an experienced team of chartered secretaries with in depth knowledge of the implications of conversion and would welcome hearing from you at your earliest opportunity.

For further information on the Companies Act 2014, please contact our Company Secretarial and Compliance team at cosec@lkshields.ie

Annual Compliance – Developments under the Companies Act 2014

Last updated on 12th April 2016

The Companies Act 2014 (the Act) introduced a number of changes to annual filing requirements.

For example, your company can no longer file two annual returns with the same set of financial statements, but there are a number of ways in which your company can change its annual return reference date (ARD). If your company is part of a group, it can align its ARD with its holding company or other subsidiaries. Furthermore, your company may also alter its financial year end (FYE) under the Act.

Filing two annual returns with the same set of accounts now disallowed

Prior to the commencement of the Act, companies could change their ARD to the maximum nine months from the FYE by filing the same set of financial statements twice in the same year. Since 31 March 2016 however, this is not possible as each set of financial statements must now start on the first day after the period covered by the last set of financial statements filed with the Companies Registration Office (CRO).

Change of ARD

Despite the limitation outlined above, companies can still change their ARD in one of the following ways. 

  1. Under section 346(1) of the Act, your company may file its annual return early and tick a box on the Form B1 to change its ARD to the date that the B1 is made up to.
  2. Under section 346(2) of the Act, your company may, once in every five years, extend its ARD by up to six months by filing a Form B73 together with a Form B1 within twenty-eight days of the company’s existing ARD.
  3. A new provision, under section 356(5) of the Act provides that if your company is a member of a group, it may align its ARD with its holding company or other subsidiaries by filing a Form B78A with the CRO, with no five year restriction.

Change of FYE

The Act has introduced new parameters for financial periods. Now, under the Act, FYEs must not exceed eighteen months for the first financial year and twelve months (give or take seven days) for subsequent financial years. Under section 288(4) of the Act however, there is now an option for a company to, once in every five years, alter its FYE by filing a Form B83 with the CRO, as long as the new financial year does not exceed eighteen months.

If your company is a subsidiary or holding undertaking of another EEA undertaking, the five year rule in relation to this change to your FYE does not apply.

Impact

While the Act now provides flexibility for your company in providing ways to alter your ARD and/or FYE, your company should bear in mind that it must strictly adhere to the Act.

Our experienced team will be happy to assist you to ensure that your company complies with these obligations.  Please contact a member of our team at cosec@lkshields.ie.

Directors’ Compliance Statements: A practical guide for directors

Last updated on 10th April 2016

The Companies Act 2014 (“Act”) introduces a requirement on directors of the following types of Irish company to include an annual compliance statement (“Compliance Statement”) in the directors’ report accompanying the company's financial statements:

In the Compliance Statement, the directors must (i) acknowledge their responsibility for securing the Company’s compliance with its relevant obligations (set out below); and (ii) confirm, on a “comply or explain” basis, that the assurance measures (set out below) have been undertaken.

A Compliance Statement should be included in the financial statements relating to all financial years commencing on or after 1 June 2015. For example, if a company’s most recent financial year commenced on 1 December 2015, the first Compliance Statement which it would be required to provide would be for the financial year from 1 December 2015 to 1 December 2016.

What are the relevant obligations?

The relevant obligations in the Act are outlined below. 

  1. Obligations under the Act where a failure to comply would amount to:

    (a)  A category 1 or category 2 offence which mainly relate to

     i)    unlawful financial assistance;
     ii)   unlawful acquisition of a company’s own shares;
     iii)  a subsidiary holding shares in its parent company;
     iv)  failure to maintain proper accounts;
     v)  provision of information to an expert for their report on a
          statutory merger or division;
     vi) certain obligations on a winding up or dissolution; and
     vii) acting in contravention of a restriction notice from the
          Director of Corporate Enforcement.

    (b) A serious market abuse offence.

    (c) A serious prospectus offence under Irish prospectus law.
     
  2. Obligations under tax law, including the Customs Acts; statutes relating to excise duties and the management of these duties; the Tax Acts; the Capital Gains Tax Act 2003, the VAT Acts, the Capital Acquisitions Tax Consolidation Act and the Stamp Duties Consolidation Act 1999.

Assurance measures to secure compliance

There are three assurance measures identified in the Act which companies can use to secure compliance with their relevant obligations.

  1. Drawing up a compliance policy statement, setting out the company’s policies designed to ensure material compliance with the relevant obligations.
     
  2. Putting in place appropriate arrangements or structures that, in the directors' opinion, provide “a reasonable assurance of compliance in all material respects”.
     
  3. Conducting a review, in respect of the financial year to which the Directors’ Report relates, of the arrangements or structures referred to above.

The arrangements or structures referred to above may include reliance on the advice of persons employed or retained by the company who appear to the directors to have the requisite knowledge and experience to advise on compliance with the relevant obligations. 

If the relevant statements, confirmations and reviews have not been made or carried out by the Company, the directors must specify the reasons why in the annual directors’ report.

Recommended steps for Directors

We would recommend that directors take the steps that are listed below:

The continuing nature of the obligations and the need to establish structures and arrangements will require ongoing involvement by directors. LK Shields would be happy to assist companies and their directors in ensuring compliance with their obligations.

David Brangam is an Associate in the Corporate and Commercial Department at LK Shields Solicitors.  For further information, please contact David at dbrangam@lkshields.ie.

Amended Already? The Companies Act 2014

Last updated on 17th March 2016

Despite the huge effort invested in the planning, consolidation and revision of over fifty years of legislation which led to the Companies Act 2014 (CA14), it has already been amended a number of times, and it's likely that there will be further amendments before too long. 

Some of the more notable amendments to the CA14 so far are outlined below. 

Workplace Relations Act 2015.

All compensation payable to an employee under Part 4 of the Workplace Relations Act 2015 shall, under section 49(1) of that Act, rank among the debts that are distributed in priority to all other debts under section 621 of CA14.

Legal Services Regulation Act 2015.

When it comes into force, section 132 of the Legal Services Regulation Act 2015 provides that the restriction in CA14 in which only limited liability companies may use the word 'Limited' in its name, or any abbreviation of that word, shall not apply to a limited liability partnership within the meaning of the Legal Services Regulation Act 2015.

Companies Act 2014 (Section 1313) Regulations 2015.

These Regulations apply certain provisions of Part 17 of CA14 to any unregistered company that is a traded body under Part 22 of CA14.  These provisions relate to transfers of securities, the acquisition of own shares, notice and voting at meetings of securities holders, exemptions that apply to credit institutions or insurance undertakings and the acquisition of uncertificated securities from dissenting shareholders.

Companies Act 2014 (Section 1313) Regulations 2016.

Further to the previous Regulations, since 1 February 2016 further provisions relating to the disclosure of directors' transactions and remuneration have been applied to a traded body under Part 22 of CA14.

European Union (Bank Recovery and Resolution) Regulations 2015.

These Regulations implement the Bank Recovery Resolution Directive in Irish law.  A significant number of amendments were made to fourteen sections of CA14 along with smaller technical changes, the general effect of which is to limit the effects of those sections when Part 4 of these Regulations is being applied or exercised.

European Union (Traded Companies – Corporate Governance Statements) Regulations 2015.

These Regulations amend subsection 1373(7) of CA14 with the effect that where a traded company prepares a corporate governance statement, the obligations of the statutory auditor of a traded company in respect of their report under section 391 of CA14 have been altered.

Further Amendments

The Law Society has compiled a list of anomalies in CA14 that they will seek to have rectified. 

It is also thought that the non-filing structures that are available for unlimited companies will be removed in a Companies Accounting Bill, which is expected to be published in 2016 and to necessitate further amendments to CA14.

If you have any questions in relation to any of these changes please contact James Byrne at jbyrne@lkshields.ie.

Companies Act 2014: Conversion - Time to Take Action!

Last updated on 9th March 2016

Eight months have passed since the Companies Act 2014 (the “Act”) commenced on 1 June 2015.

Time is ticking for private limited companies and their requirement to convert to one of two new company types before the deadlines of August and November 2016. You need to take action now.

We have produced a useful infographic that provides guidance on conversion.

Please contact our Company Secretarial team at cosec@lkshields.ie if you would like more information on the topic.

 

Companies Act 2014 – Changes regarding the disclosure of Directors’ residential addresses

Last updated on 28th February 2016

Under the Companies Act 2014, an officer of a company can apply to have his/her residential address exempt from appearing on the register of companies.

Previously there was no such exemption available and officers of a company were required by law to disclose their residential address.

What’s involved?

To obtain the exemption the Director must prove by way of statement from An Garda Síochána that the publication of their residential address on the register of companies would pose a personal safety or security risk.

Then, an application with the supporting statement from the Gardaí must be sent to the Registrar of Companies accompanied by a Form T1.  Where successful, the applicant must provide the address of the company’s registered office in place of his/her residential address.  A separate application requesting an exemption must be sent to the Registrar in respect of each company that the officer wishes to obtain such an exemption for.

What should I bear in mind?

The exemption takes effect from the date that the Form T1 is registered and will apply to information submitted on forms to the CRO after this date.  Any previous documents submitted to the CRO containing the officer’s residential address cannot be removed.

Furthermore, where an officer of a company subsequently includes their usual residential address on any form required by the Registrar, an automatic cancellation of the exemption will be triggered.

Officers who have been granted the exemption should notify the company, who will then also remove the officer’s residential address from the Register of Directors and Secretaries and Register of Members if applicable.

Next Step

Our experienced team has made successful applications to the Companies Registration Office under these new provisions and would be happy to assist you with your application.

Please contact a member of our team at cosec@lkshields.ie.

Conversion of Existing Regulated Private Companies under the Companies Act

Last updated on 19th February 2016

We anticipate that the Central Bank will make it a condition of authorisation that certain regulated entities register as DACs - watch this space.

Types of private companies under the Companies Act 2014

The Companies Act 2014 introduces two new types of private companies limited by shares to replace the existing single type of private company limited by shares:

- A company limited by shares (CLS)

- A designated activity company (DAC)

Decision time for Directors and Shareholders

Directors and shareholders need to decide if the CLS or the DAC is more suitable for their purposes.  We have other articles that discuss the pros and cons of each, so I don’t propose to re-examine those in this note, but I am going to talk about another factor of relevance for regulated private companies:  the requirements of the Central Bank of Ireland (Central Bank).

Central Bank requirements in relation to the Companies Act

Credit institutions and insurance undertakings (which are regulated by the Central Bank) cannot be established as a CLS pursuant to Section 18(2) of the Act.  Presumably, the requirement that credit institutions and insurance undertakings are to be registered as DACs is a consumer protection measure designed to ensure that such entities are both bound by regulation and the limitations of the capacity set out in their constitutive documents (a ‘belt and braces’ approach).

Other entities regulated by the Central Bank, include the following:

Such entities are expected to notify the Central Bank of any changes to their Memorandum and Articles of Association.  It would be useful for regulated private companies if they knew what the Central Bank's policy was in relation to becoming a CLS or a DAC as the Central Bank’s view will probably be the major factor in determining whether, as a CLS, they have a simple one document constitutive document or, as a DAC, they retain their Memorandum and Articles of Association.

Watch this Space

Unfortunately, we do not know what the Central Bank’s view is as to whether regulated private companies should elect to become a DAC as they have not yet issued any guidance on what it expects regulated private companies to do (if anything).  However, applying the belt and braces approach referred to above, we would be inclined to expect that the Central Bank would make it a condition of authorisation that other regulated entities (i.e. those not subject to Section 18(2) of the Act) would register as DACs.

The Act provides for an eighteen month transition period from the date of its commencement during which the directors and members of an existing company will need to decide whether to re-register as a CLS or a DAC.  During this time current private companies will l be treated as DACs.

As we said at the outset - watch this space.

Author:

Trevor Dolan is a partner in the Financial Services team at LK Shields Solicitors. For further information you can contact Trevor at tdolan@lkshields.ie.  

Have you made an error on your accounts?

Last updated on 15th February 2016

Having filed your accounts with the CRO have you ever subsequently realised that they contain an error? There was previously no way to correct those errors.

New provisions have been introduced under the Companies Act 2014 (the Act) which provide for the revision of financial statements. Directors may now voluntarily correct defective financial statements even though they have already been presented to the members and filed with the Companies Registration Office (CRO).

The Act offers two options for revision of the financial statements and director’s report depending on the type of error.

  1. Supplementary Note.
    A supplementary note may be used where amounts and the presentation of the profit and loss account and balance sheet or other statements are not affected by the revision.
     
  2. Revised Financial Statements or Director’s Report. 
    In any instance where the primary statements or the director's report are impacted, then the revised financial statements or director's report must be filed with the CRO. The revised statements or report will replace the original and become the company’s statutory financial statements or director's report. In addition, a statement from the directors, must be included, in a prominent position, stating that they replace the original statements or report and that they are correct to the date of the original report and do not deal with events since that date.

The revised financial statements or director’s report must be submitted to the CRO within 28 days of the date of revision. The next set of financial statements must refer to the revision and must also provide the particulars of the revision and an explanation as to why the revision was necessary.

This change is a welcome development. Revisions of the director’s report or statutory financial statements to correct errors were not previously permitted.  Practical changes such as these are an example how the Companies Act 2014 has made it easier and more cost effective to operate a company in Ireland. 

If your company becomes aware of an error in its financial statements and/or director’s report after they've been submitted to the CRO, you may want to consider one of the options outlined above.

If you require assistance with filing the revised financial statements and/or director's report, our experienced Company Secretarial team will be happy to assist you. 

Please contact us at cosec@lkshields.ie.

Audit Exemption:  Changes Introduced by the Companies Act 2014

Last updated on 27th January 2016

The Companies Act 2014 (the Act) has introduced a number of cost saving measures. One such measure concerns the extension of the scope of audit exemption provisions for companies that meet certain criteria. 

In the past, all companies had to have their accounts audited; but an audit exemption was introduced in the Companies (Amendment) (No.2) Act 1999, which enabled private limited companies to avail of this option for the first time.  The Act has extended the scope of this exemption to additional types of companies and your company may qualify.

What are the benefits?

Although a company still has to file accounts in the Companies Registration Office, an audit exemption has benefits for a business:  savings are likely to be made in relation to the time and costs that were taken up in the preparation of annual accounts and dealing with the audit process.

What has changed?

Since the Act came into force in June 2015, the following additional types of company may qualify for an audit exemption as long as the financial statements of such companies have been approved on or after 1 June 2015:

What are the criteria to avail of the exemption?

If your company meets certain criteria, an audit exemption may be an option.

Small Company Criteria

A company must qualify as a small company in respect of a financial year by meeting two of these criteria:

  1. The turnover of the company does not exceed €8.8m
  2. The balance sheet total does not exceed €4.4m
  3. The average number of employees does not exceed fifty

Group Company Criteria

The company must qualify as a small company as above and the group must then qualify as small by meeting two of these following criteria:

  1. The turnover of the holding company and other group companies taken as a whole does not exceed €8.8m
  2. The balance sheet of the holding company and other group companies taken as a whole does not exceed €4.4m
  3. The average number of employees of the holding company and other group companies taken as a whole does not exceed fifty

Continuing Obligations

Notwithstanding the above criteria and no matter which category your company falls under, the most important requirement for audit exemption eligibility is for your company to file its annual return on time every year.  Under the Act, this requirement has been extended to include a company’s first annual return.

Steps to take

With the year end audit about to commence for many companies, it may be a good time for directors to consider whether or not their company qualifies for audit exemption. This exercise should be undertaken in advance of the commencement of the audit in order to avoid any unnecessary costs and to allow the company to benefit from the cost saving changes contained in the Act.

If you would like to discuss this in more detail please do not hesitate to contact a member of our team who will be happy to assist in explaining the criteria. Please contact us at cosec@lkshields.ie.

Board meetings - What has changed?

Last updated on 30th November 2015

Board meetings are an essential part of running your business. Recent changes to legislation mean that it is now an offence if minutes of board meetings are not recorded and retained.

The laissez faire approach often adopted by companies is no longer acceptable. Furthermore, if your company holds board meetings by electronic means, there are now certain criteria for the location of these meetings. Alternatively, your company may pass a board resolution in writing in place of holding a meeting.

The Companies Act 2014 (the “Act”) provides for these changes which we outline below.

Minutes

Minutes are often treated as an afterthought  however, for the first time, it is an offence if a company and any officer fails to record and retain them. Furthermore a company must facilitate the inspection and copying of minute books by the Director of Corporate Enforcement.

Company directors should also bear in mind that minutes are a formal written record of the business transacted at a meeting and can be submitted in court as evidence of the business being run properly.  Therefore each director present at the meeting recorded by the minutes should take time to consider the content and provide their input before the minutes are  signed by the Chairperson.  Board minutes constitute evidence that meetings have been duly held and convened, that all proceedings recorded have taken place and that all appointments recorded are valid.

By keeping adequate minutes, your company and its officers will ensure that it complies with its obligations and avoid the possibility of committing a category 4 offence.

Meetings held using electronic communications:  where should they take place?

Directors can participate in board meetings by telephone, video or using other forms of electronic communication, provided that there is sufficient sound and audio quality. For the first time the criteria for determining where these meetings take place is set out in legislation. There are three criteria to consider:  firstly, where the largest group of participants is located; secondly, if participants are scattered across various locations, then the next option is to stage the meeting where the chairperson is located; finally, if the first two options don't apply, the group may determine the location for itself.

Written Resolution

Where it is not practical for the directors of a company to hold a meeting, and where all of the directors agree on the proposed action, it is possible for them to pass a written resolution in place of holding a meeting.

As long as the written resolution is signed by all the directors of a company then it is as valid as if it had been passed at a full board meeting. It can be signed in counterpart and takes effect from when it is signed by the last director.

Impact

While the Act now requires that board minutes be recorded and retained, it also permits for flexibility and transparency by allowing the meetings to be held using electronic means while giving guidance on the location of these meetings. In addition, further flexibility is provided for via the written resolution alternative.

Our experienced team will be happy to assist you to ensure that your company complies with these obligations.  Please contact a member of our team at cosec@lkshields.ie or visit www.lkshields.ie.

Did you know… the AGM process has been simplified?

Last updated on 10th November 2015

We have outlined below some of the more practical changes which your company may choose to take advantage of.

1.     AGM optional.

Subject to certain conditions a single member or multi-member LTD company may dispense with holding an AGM where all the members entitled to attend and vote sign a written resolution dealing with certain matters normally dealt with at an AGM. This process must be repeated in each year that the company decides that it will not hold an AGM.

2.      Other company types.

A DAC, PLC, CLG and unlimited company having not more than one member may also dispense with the requirement to hold an AGM using the procedure set out above for LTD companies.

3.      Service by email.

If a company is duly authorised, and has obtained written consent from the member(s), it may serve notice by email or other electronic means.

4.      Circulation on the web.

Financial statements may now be circulated to the members, and persons entitled to receive copies, through a website, subject to certain specified conditions being met.

5.      Holding your AGM abroad.

An AGM may be held inside or outside of the State. If held outside the State, the company must make all necessary arrangements to ensure that members can participate in the meeting, through the use of technology, without leaving the State.  Members located in two or more locations can participate in these AGM’s using any technology that provides them with a reasonable opportunity to participate.

The cumulative effect of these changes will make the administration of AGM’s easier and at the same time bring them more in line with modern technology.

Our experienced team will be happy to assist you to ensure that your company complies with its statutory obligations.  Please contact a member of our team at cosec@lkshields.ie.

Companies Act 2014: Implications for Funds and their Management Companies

Last updated on 7th October 2015

The Companies Act 2014 (the Act) came into force on 1 June 2015. In this briefing we assess the impact of the Act on existing Irish investment funds, both UCITS and AIFs, established as public limited companies (PLCs) and Irish fund management companies, established as private limited companies.

We also outline some recommended steps for investments funds and their management companies to consider in relation to the Act.

Implications for Irish Investment Companies

While the Act introduces substantive changes to the law applicable to private limited companies, the changes that apply to investment companies are minimal, and the relevant parts in the Act are largely a consolidation and restatement of the existing law. 

Section 1393(5) of the Act provides that the Memorandum and Articles of Association (M&A) of an investment company registered before 1 June 2015 will remain or continue in force, except if they are inconsistent with a "mandatory provision".  We expect that the majority of M&A of investment companies would not contain any inconsistencies with the Act, unless they contain very specific and/or unusual provisions.  Notwithstanding this, as a matter of good corporate governance, all existing investment companies should review their M&A to ensure that no provisions contained therein are inconsistent with a mandatory provision under the Act.

An investment company which is authorised as a UCITS is currently, and will continue to be, subject to the UCITS Regulations rather than the Act, which minimises the impact of the Act on UCITS funds. However, the UCITS Regulations also apply and disapply certain provisions of the Companies Act 1963, which have been carried through to the Act, so the Act will still have some bearing on UCITS investment companies.

There are also some general changes under the Act which directors should be aware of, including:

  1. The period after which a company which has been struck off the register can apply for restoration has been reduced from twenty years to two years for investment companies.
  2. The Act sets out certain fiduciary duties of directors and it has a codification of many of the duties of directors that exist at common law. The codification is not exhaustive and directors will still have other duties under common law and equity, but directors should be familiar with the duties that are specified in the Act.
  3. The Act abolishes bearer shares and all holders of existing bearer shares must be entered in the register of members of the issuing company by the end of December 2016.
  4. The Act categorises and classifies the offences for breaches of the Act into four tiers, which should provide clarity and certainty in relation to company law offences.

Recommended steps

We recommend that the Board of directors take the following steps in light of the commencement of the Act:

  1. Review the existing M&A of the company to ensure that they do not contain any mandatory provisions that are inconsistent with the Act.
  2. Update the references to the Companies Acts in the existing M&A at the next suitable opportunity.

Implications for Management Companies

Existing private limited companies, such as UCITS Management Companies and AIFMs (ManCos), have to decide which type of private limited company they will opt for.  We recommend that this decision should be made as soon as possible.

The Act provides for the creation of three types of private limited companies.

  1. A private company limited by guarantee.
  2. A private company limited by shares (LTD). These companies are expected to be the most widely used corporate vehicles.
  3. A designated activity company (DAC). These most closely resemble current private limited companies.

We have set out the primary differences between a LTD and a DAC in the table below.

LTD DAC
May have just one director and a separate secretary.  Must have at least two directors, one of whom can also act as a secretary. 
Full and unlimited capacity- no objects clause required. Must have an objects clause listing the designated activities which the company has capacity to undertake.
Will have a single document constitution. Will have a two part document constitution.
The name must end in "limited", "ltd" or the Irish equivalent. The name must end in "designated activity company", "DAC" or the Irish equivalent.
May dispense with holding an AGM. Cannot dispense with holding an AGM unless it's a single member company.
May decide not to have an authorised share capital. Must have an authorised share capital.
May not list or have securities admitted to trading. Will be able to list or have admitted to trading certain securities.

 

Existing private limited companies will have a transitional period of eighteen months from the commencement of the Act during which they can re-register as one of the two new types of private limited company. If an existing private limited company does nothing, it will automatically be considered to be a LTD upon the expiry of the transitional period.

The Central Bank has stated that it is a matter for each ManCo to determine which type of private company form it prefers. The prevailing view is that it would be prudent for ManCos to choose to re-register as DACs. The characteristics of DACs, including the retention of an objects clause, are considered to be more appropriate to a regulated entity than the characteristics of LTDs.

If you would like to discuss any of these areas relating to the Companies Act 2014, please contact Daragh O'Malley at domalley@lkshields.ie or any member of the Financial Services Team.

Companies Act 2014 - Conversion

Last updated on 28th September 2015

The Companies Act 2014 provides for a transition period of eighteen months, which will end on 30 November 2016 (the Transition Period).

During the Transition Period all private limited companies must convert to a particular company type.  Most will wish to convert to either a Company Limited by Shares (LTD) or a Designated Activity Company (DAC).

The LTD

The LTD company can have just one director and will have a single document Constitution with no requirement to have an objects clause.  The LTD can dispense with Annual General Meetings (AGM) irrespective of the number of members.

The DAC

The DAC company must have objects clauses and the name of the company must end in 'designated activity company' or DAC, so a change of name will be required.  Multi member DACs cannot dispense with holding an AGM and must have a minimum of two directors.

Timing

Four months have already passed since the Act came into force, which leaves just eleven months to convert to a DAC, and fourteen months to convert to an LTD.  Many existing private limited companies have already begun the process of converting to an LTD or a DAC; we recommend that you make the time to deal with this now rather than waiting until nearer the end of the Transition Period.

What should you do?

You will need to choose between the LTD or DAC (or some other company type) in order to ensure you have a company type that best suits your business requirements.  If it's helpful, we can advise you on which company type is the best fit for your business, and once you make a decision, we can assist you with the drafting and preparation of a Constitution that meets your needs.  

If you choose to do nothing, private limited companies will automatically convert to an LTD at the end of the Transition Period.  This may be the wrong option for your company, and you may be left operating with the current memorandum and articles of association which do not serve the company's requirements, and which may conflict with the mandatory provisions of the Act.

Benefits in making an early decision

There are several benefits to converting sooner rather than later.  By converting now it shows that the company is pro-active and keen to comply with the requirements of Company Law.  Conversion is an opportunity for companies to review their current structures and to see if their constitution still meets their needs.  Furthermore, it brings transparency to existing or potential customers, because the new Constitution will be available to the public.

Companies who have not yet made a decision are strongly advised to take action and contact us and we can assist in converting your company to one that is most suited to your needs. 

For more information please contact Alan Browning at abrowning@lkshields.ie

LTD or DAC: Directors’ Duties to Re-register

Last updated on 28th July 2015

What should directors be doing from now until 30 November 2016?

The directors of a private company limited by shares incorporated before 1 June 2015 (an existing private company) have duties under the Companies Act 2014 (the Act) to re-register the existing private company as a designed activity company (DAC) or a private company limited by shares (LTD) no later than 30 November 2016.

Directors concerned to carry out these duties properly should:

1.   Consider whether the existing private company must be re-registered as a DAC

An existing private company must be re-registered as a DAC if it has debt securities that are traded or listed on any market.  Re-registration can be achieved by directors' resolution, adding a statement to the current memorandum of association that "the company is a designated activity company limited by shares" and replacing all references to "limited" in its company name with "designated activity company" or "DAC" in its current memorandum and articles of association, followed by appropriate Companies Registration Office filings.

2.   Identify who has rights affected by re-registration as LTD where DAC re-registration is not mandatory

The principal effect of re-registering as a LTD will be that the existing private company will cease to have an objects clause and its ability to transact business will be similar to that of an adult individual.  Stakeholders in the existing private company may be concerned that it should continue to carry on the business being conducted by it when they became stakeholders, and the objects clause gives comfort that the existing private company will only carry on business permitted by that objects clause.

The Act recognises that shareholders and certain loan creditors should be entitled to prevent an existing private company from discarding the business restrictions set out in its objects clause.

Shareholders:  Shareholders who have more than 25% of all share voting rights may give a written direction to the existing private company to re-register as a DAC.  If an existing private company fails to re-register as a DAC by 30 November 2016, shareholders with 15% or more of all share voting rights may apply to court under Section 57 of the Act for an order directing re-registration as a DAC, which will be made unless the court is convinced that it should not be made.  Any shareholder, who considers rights have been prejudiced because of the directors' exercise or non-exercise of re-registration duties, may bring court proceedings for oppression and/or disregarding of interests.  The court will presume, until satisfied otherwise, that an applicant shareholder has been oppressed or had its interests disregarded if the existing private company becomes a LTD by operation of law.  Therefore directors should canvas and respect shareholder views in the re-registration process.

Lenders:  When assessing the position of shareholders on re-registration, the directors should consider whether the shareholders, as is often the case, have granted share charges in favour of a lender as security for the liabilities of the existing private company to that lender.  That share charge may entitle the lender to intervene in place of the shareholder where the lender's rights will be affected by a proposed shareholder resolution.  In this situation, it is usual for lenders to stipulate that changes to the memorandum and articles of association must have prior lender approval.

In addition, where an existing private company becomes a LTD on 1 December 2016, Section 57 of the Act allows for an application to court for an order requiring re-registration as a DAC to be made by holders of not less than 15% of the existing private company's debentures, entitling the holders to prevent changes to the objects clause.  The definition of "debentures" in the Act seems to refer to debenture stock, bonds and debt securities, rather than a debenture drafted by a lender to secure a loan agreement.

Even where a lender does not have a share charge or rights under Section 57 of the Act, that lender may have stipulated in the loan agreement with the existing private company that changes to its memorandum and articles of association require prior lender approval.  Should the directors and shareholders decide to adopt a new constitution as part of the re-registration process, they may trigger a loan agreement event of default if they do not get this lender approval before making the changes.

Others:  Finance companies, debt factors/invoice discounters and other creditors may also have rights under their contracts with the existing private company to approve in advance changes proposed to its memorandum and articles of association.

Directors should respect approval rights held by lenders and other creditors by requesting approval from the relevant contractual counterparty to change the constitution of the existing private company before the shareholders resolve to change that constitution.

3.   Consult with shareholders

The Act expects that shareholders of an existing private company will participate in its re-registration, apart from when an existing private company must re-register as a DAC because it has trading or listed debt securities.

As a result, the directors should consult with shareholders on re-registration prior to recommending re-registration.  As part of that consultation, directors should advise shareholders of the rights of lenders and any other parties that will be affected by re-registration.  Other relevant considerations should also be brought to the attention of shareholders.  For example, if the existing private company is a credit institution or insurance undertaking, the directors should inform the shareholders that it can only continue to carry on that activity if re-registered as a DAC.

The directors should ask the shareholders to indicate re-registration preferences and assess whether there is sufficient agreement for re-registration as a DAC or LTD.  The required shareholders engagement levels are 75% or more of all share voting rights for re-registration as a LTD, and more than 50% of all share voting rights for re-registration as a DAC.  For DAC re-registration, the relevant shareholder engagement level must be achieved by 31 August 2016.

4.   Request third party consents if a sufficient percentage of shareholders support a re-registration option

If sufficient shareholders support re-registration as a LTD or DAC, the directors should request consent to re-registration from those identified as having pre-approval rights on changes in memorandum and articles of association.  Where a DAC re-registration is proposed, the directors should inform those with pre-approval rights that no substantive change to the memorandum and articles of association of the existing private company is proposed.

If any person with pre-approval rights objects to the re-registration proposal, the shareholders should be informed and advised of the consequences of proceeding to re-register without the required consent.  The shareholders should then decide whether they wish to proceed.

5.   Defer a re-registration decision until 31 August 2016 if a re-registration strategy is not supported by a sufficient percentage of shareholders.

Where re-registration as a LTD or DAC is not supported by a sufficient percentage of shareholders, it remains open to shareholders with more than 25% of all share voting rights to direct re-registration as a DAC until 31 August 2016.  Therefore, the directors should not make a unilateral decision to re-register as a LTD prior to that date.

6.   Prepare LTD constitution and re-register as LTD where another re-registration obligation does not apply by 1 September 2016

For an existing private company that (a) does not have listed or trading debt securities, (b) has not received a DAC re-registration direction from shareholders with more than 25% of all share voting rights before 1 September 2016, and (c) has not passed a shareholder resolution to re-register as either a DAC or LTD before 1 September 2016, Section 60 of the Act requires that directors of that existing private company prepare a LTD constitution and send it to shareholders before 30 November 2016.  The directors should include in the LTD constitution all provisions of the memorandum and articles of association of the existing private company except for the objects clause of the memorandum of association and any provisions in the memorandum of association that prohibit alteration of the memorandum or articles of association.

The shareholders may approve the LTD constitution prepared by the directors and sent to the shareholders or another constitution preferred by the shareholders by special resolution (shareholders with 75% of all voting rights) at any time until 30 November 2016, but, if a LTD constitution is not approved in that way, the directors are obliged to file the LTD constitution prepared by them with the Companies Registration Office no later than 30 November 2016.

For more information please contact Alan Browning at abrowning@lkshields.ie.

New Rules of the Superior Courts deal with changes introduced by the Companies Act 2014

Last updated on 30th June 2015

The Rules of the Superior Courts (the RSC) have been amended to facilitate the operation of the Companies Act 2014.

The amendments, which come into force on 1 July, 2015, are set out in the Rules of the Superior Courts (Companies Act 2014) 2015.

Some examples of the changes to the RSC are discussed below.

Definition of the “company” and the “Director” (Order 74, Rule 1)

Specific reference has now been made to abbreviating the title of Director of Corporate Enforcement to the "Director" in Order 74 (Rule 1(1)).  However, the full title of the Director of Corporate Enforcement appears in certain rules under Order 74 to avoid confusion or to provide clarity.

The definition of a company is slightly different in Order 74B to its definition in the original and amended Order 74.

Order 74 defines “the company" as "the company which is being wound up or in respect of which proceedings to have it wound up have been commenced”.  Whereas, the “company” is defined for the purpose of Order 74B as “the company to which any application” [under Order 74B] relates but also includes “a related company of that company".

Interest charged to a liquidator for delay in paying in moneys (Order 74, Rule 67)

This was previously dealt with under Order 74 Rule 117.

Previously, if the liquidator failed to pay moneys received by him into the bank account of the liquidator of the company in accordance with a Court Order, unless the Court directed otherwise, interest “shall be” charged at a rate of 0.5% on the amount retained by him for every seven days during which it was retained contrary to the Court Order and the Court "may", for any such retention, disallow the salary or remuneration of the liquidator or any part thereof.

Now, if the liquidator does not “promptly” pay the moneys received by him into the account of the liquidator in accordance with a Court Order, he shall, unless the Court directs otherwise, be required to pay the interest which would have been received from the financial institution had the moneys been paid promptly into such account. It remains to be seen how the Court will interpret “promptly”.

No reference is made in the new Rule to disallowing (in whole or part) the liquidator's remuneration or salary.

Payment in of moneys to an account of a liquidator (Order 74, Rule 69)

This was previously dealt with under Order 74, Rule 119.

Order 74, Rule 119 provided that where a party was served with an Order for the payment of moneys into an account with a financial institution, to the account of the liquidator of the company, the liquidator was required to serve notice on that party, informing the party how the payment was to be made.  This requirement remains under new Order 74, Rule 69.

However, the liquidator was also required, before the time fixed for the payment in of the moneys, to furnish a certificate to the cashier of the bank, which was to be signed by the cashier and delivered to the party paying in the money.  This requirement is no longer found in the new Order 74, Rule 69.

“Originating Notice of Motion” (Order 75, Rule 3)

The previous Order 75 dealt with applications to Court which were to be made by way of Petition, for example, to confirm a reduction of capital or to restore a company’s name to the register.  Now, certain applications to be made under new Order 75 are by way of an "Originating Notice of Motion" and no reference to Petition or Petitioner is found in the precedent Originating Notice of Motion.  The Originating Notice of Motion is to be grounded on Affidavit verifying the accuracy of any factual matter referred to in the Motion.

For further information, please contact Rachel Murphy at rmurphy@lkshields.ie or visit www.lkshields.ie.

Existing Private Companies Limited by Shares

Last updated on 24th June 2015

Have you thought about re-registration under the Companies Act 2014? Should you be talking now to your shareholders and key creditors?

The Companies Act 2014 (the Act) came into force on 1 June 2015.

Under the Act, the existing form of private company limited by shares (an existing private limited company) will be replaced by two different types of private company limited by shares:

   (a)   a company limited by shares with flexibility to act similarly to
          an individual (LTD); and

   (b)   a designated activity company with an object clause and
          stricter corporate governance rules (DAC).

The Act provides for a transition period of eighteen months, which will end on 30 November 2016 (the Transition Period).  During the Transition Period, existing private limited companies should decide whether to re-register as a LTD or a DAC.  Some of the principal differences between a LTD and a DAC are set out in the table below.

 

                                  LTD DAC
Directors/
Company Secretary
May have one director only, but must have a company secretary different to a sole director. Must have at least two directors and a company secretary, who can be one of the directors.
Constitution Single-document Constitution

No objects clause
Memorandum and Articles of Association

Must have an objects clause
Company Name Must end with "Limited" or "LTD" Must end with "Designated Activity Company" or "DAC"
Corporate Capacity Full unlimited capacity Directors must ensure activities are within the objects clause
AGM May dispense with the holding of an AGM May only dispense with the holding of an AGM if it is a single-member company
Listing of securities Cannot list securities (debt or equity) May list securities (debt only subject to certain restrictions)
Credit institutions/
insurance undertakings
Cannot be a credit institution or an insurance undertaking May be a credit institution or an insurance undertaking

 

Options

Unless required to re-register as a DAC, existing private limited companies have two options.

  1. Up until the end of the Transition Period, it may re-register as a LTD by a special resolution of its shareholders.  75% approval is required.
     
  2. Up until 31 August 2016, it may re-register as a DAC by an ordinary resolution of its shareholders.  A simple majority approval is required.

Obligation to Register as DAC

An existing private limited company must re-register as a DAC before 31 August 2016 if:

Where there is a requirement to register as a DAC, a directors' resolution must be passed for that purpose and included as part of the registration application.

Status during Transition Period

During the Transition Period, an existing private limited company will be treated as a DAC, even though its company name may end in "Limited" or "LTD", until it re-registers as a DAC or LTD.  If it does not re-register during the Transition Period, it will become a LTD on 1 December 2016, which is when the Transition Period expires.

Recommendations

The decision to re-register as a LTD or a DAC should be made with reference to the existing private limited company's requirements and those of its shareholders and creditors.  For example, it must register as a DAC if it has debt securities listed on a stock exchange or requires the flexibility to list debt securities.  Creditors or shareholders may require it to be a DAC so that it has an objects clause limiting the directors' authority to transact business to that acceptable to the creditors or shareholders.

We recommend that directors of existing private limited companies should consult with the company's shareholders on the shareholders’ requirements.  It may also be prudent and/or necessary to consult with key creditors, particularly banks and debenture holders.

For further information, please contact Liam Carney or visit www.lkshields.ie.

Bearer Shares will be abolished by the Companies Act 2014

Last updated on 17th June 2015

If your company has issued bearer shares and does not convert them into registered shares within eighteen months of the 2014 Act coming into force, the Minister for Finance will become your shareholder!

Bearer shares are a type of share that function very similar to cash in that they are each represented by a piece of paper that has a value and which can be given to another person simply by handing it to that person.  In legal terms, bearer shares are shares of a company, which are evidenced by a share certificate and which entitle or purport to entitle the bearer of the shares to transfer the ownership of those shares by delivery of the share relevant share certificates.  Originally used for administrative convenience, bearer shares are less common than they used to be as, unlike registered shares where ownership is evidenced by entry on a share register, bearer shares are subject to the risk of loss or theft.  Their main uses now are for investors with concerns in relation to confidentiality and/or anonymity.

The move away from bearer shares is in line with a global trend towards greater transparency.  In January 2011 an OECD body charged with in-depth monitoring and review of the implementation of the OECD’s international standards of transparency and exchange of information for tax purposes, conducted a review of Ireland and recommended that “Ireland should take necessary measures to ensure that appropriate mechanisms are in place to identify the owners of share warrants to bearers…”.  Similar measures will be implemented in the UK in the near future through the Small Business, Enterprise and Employment Act 2015.

Until now, an Irish PLC, if authorised to do so by its articles, could issue bearer shares under section 88 of the Companies Act 1963 (1963 Act).  Private companies were not expressly prevented by the 1963 Act from issuing bearer shares, although the prevailing view is that Section 33 of the 1963 Act, which requires that a private company restrict the right to transfer its shares in its articles of association, means that bearer shares are not possible for private companies.  This view is supported by Regulation 2 of Table A, Part 2, of the 1963 Act, which states that "the company shall not have power to issue share warrants to bearer".

The Companies Act 2014 (2014 Act) removes any doubt in relation to the capacity of a private company to issue bearer shares, as such shares are expressly prohibited by Section 66(9).  The 2014 Act also includes at Section 66(10) an anti-avoidance provision which provides that any purported issuance of a bearer shares will be treated as a debt of the company to the purported subscriber for the bearer instrument.  Section 1019(3) and (4) of the 2014 Act imposes similar restrictions in relation to the issuance of bearer shares on PLCs.

PLCs that have issued bearer shares have until the end of December 2016 to procure the entry in their registers of members of the names of the holders of those bearer shares.  Failure to do so will result in the Minister for Finance becoming the full beneficial owner of those bearer shares!  Additionally, the right to transfer bearer shares by delivery shall cease twenty-one days before end of December 2016.

For more information contact Trevor Dolan or visit www.lkshields.ie

Companies Act 2014 - Time to Consider Your Options

Last updated on 22nd May 2015

The Companies Act 2014 came into force on the 1 June 2015.  The Act affects all companies incorporated under Irish law, in particular private limited companies. 

Specifically, private limited companies as we know them will be phased out and therefore you will have a decision to make as to whether:

(i) to convert to the new simplified type of private company - Company Limited by Shares (LTD);

(ii) to convert to the new company most like existing private limited companies  - Designated Activity Company (DAC);

(iii) to convert to another type of company.

 

It is our recommendation that this decision should be made as soon as possible following the commencement of the Act.

Differences between a LTD and a DAC

 LTD DAC
May have just one director and a separate secretary.  Must have at least two directors. Once can also act as a secretary. 
Full and unlimited capacity - no objects clause required. Must have an objects clause.
Will have a single document constitution. Will have a two part document constitution.
The name must end in "limited", "ltd" or the Irish equivalent. The name must end in "designated activity company", "DAC" or the Irish equivalent.
May dispense with holding and AGM. Cannot dispense with holding an AGM unless a single member company.
May decide not to have an authorised share capital. Must have an authorised share capital.
May not list or have securities admitted to trading. Will be able to list or have admitted to trading certain securities.

Contrary to the current position, the Act will for the first time establish two types of private limited company under Irish Law: the LTD and the DAC.  In order to assist you in coming to this decision, above is a table identifying some of the key differences between a LTD and a DAC.

Timing

Companies will have eighteen months from 1 June 2015 (until 31 December 2016) to effect a change to either a LTD or a DAC.  In the case of a DAC, members must begin the process no later than three months prior to the expiry of the transition period (i.e. 1 September 2016).  So the conversion can be done on a timely basis, we would strongly recommend that you give this matter your immediate consideration.

So what do I do?

You should now give consideration as to the type of company, private or otherwise, that best suits your needs.  Are the more simplified administrative requirements of a LTD desirable or are the provisions relating to a DAC (being most comparable to current private limited companies) preferable?

We also suggest that this process is an opportunity for you to look at the current structures and arrangements that are in place the see if they need to be updated and renewed.  For example larger organisations with many group companies may undertake a housekeeping exercise with a view to simplifying their structures in order to assist with the transition.  Less complicated companies should consider whether the more simplified corporate governance regime would best suit the members and directors and future business needs. 

While some companies will be obliged to convert to a DAC, we would anticipate that for most the benefit of the simplified corporate governance requirements for LTDs will be appealing with the result that most private companies will convert to LTDs.     

Once you have made the choice of what type of company you want, we can provide advice and guidance to ensure your constitution meets the requirements of your new company model. 

What if I do nothing?

If a company fails to make a decision to re-register as a LTD or DAC by 31 December 2016 an existing private company will be deemed to be a LTD with a one document constitution consisting of the existing provisions of its Memorandum and Articles (excluding its objects clause and any clause prohibiting alteration of the M&A).

In addition, the provisions of the Articles derived from Table A of the Companies Act 1963 will continue to apply unless they are inconsistent with any mandatory provisions contained in the Act.  This may have consequences in that if the existing Articles contain specific provisions which have been negotiated, the company may end up with a constitution which does not reflect the arrangements which have been negotiated between the shareholders.

Furthermore, by doing nothing, the directors could be in breach of their duty to ensure that they have complied with the Act and there may be a challenge by shareholders or creditors who could seek remedies, including payment of compensation.

How Can We Help?

LK Shields can assist you in converting your company to a LTD or a DAC or some other type of company and we can advise you on the options for, and your obligations, concerning conversion.  We have an experienced team of chartered secretaries with in depth knowledge of the implications of conversion and would welcome hearing from you at your earliest opportunity. 

If you would like more information, please call me at +353 1 6371529 or email abrowning@lkshields.ie

Effect on Annual General Meetings

Last updated on 4th April 2015

Although an important requirement for all companies incorporated in Ireland, the annual general meeting (the “AGM”) is one that is often seen as a formality and overlooked by many private limited companies.  The Companies Act 2014 (the “Act”) seeks to address this and lift the additional administration burden in certain circumstances.

Current Irish company law imposes a general requirement that every company is to hold an AGM once in each calendar year, with no more than fifteen months between each meeting. This requirement is relaxed in the case of a newly incorporated company which can wait up to eighteen months before holding its first AGM.  In the case of a single member private limited company, the sole member may, at any time, decide to dispense with the holding of an AGM. The Act extends the ability of the members to waive the requirement that a company must hold an AGM.

Dispensing with AGMs

The Act will change this to permit both single and multi-member private limited company to dispense with the requirement to hold an AGM.  The Act provides that a private company need not hold an AGM in any year where all voting members, sign a written resolution before the latest date for the holding of that meeting:

Serving Notice on Members

Helpfully the Act also contains provisions which will allow private companies to send notices to members by electronic means, provided that the member has consented.  Current Irish company law provides that notices of members’ meetings may be given to any member either personally or by post by sending it to the address on the register of members.

By providing companies with an option to dispense with AGMs and to serve notice on members electronically, the new provisions introduced by the Act will help to reduce the cost and administrative burden currently placed on companies.  One of the overarching intentions of the Bill is to make it easier and cheaper to operate a company in Ireland.  Practical changes such as this are an example of that aim being put into practice and generally are to be welcomed. The Companies Act 2014 is expected to come into force on 1 June 2015.

Author:

For further infomation, you can contact Alan at abrowning@lkshields.ie.

Majority Resolutions

Last updated on 2nd April 2015

Current legislation provides that where shareholders wish to pass a resolution of the company they may be passed either:

The Companies Act 2014 (the Act) provides for the introduction of significant changes to the way written resolutions can be passed by the shareholders of a company removing the requirement for unanimity and enabling the passing of such resolutions by majority.

The Act sets out the requirements in relation to the requisite majorities required to pass various types of resolutions and the time-frame that must be observed before the relevant resolution becomes effective. In the case of:

The Act states that the officers of the company may face criminal penalties if they do not notify every member of the fact that the resolution was signed by the requested majority and of the date the resolution will be deemed to be passed, within three days of the required signatures being received.

This change is a welcome development and recognises the modern business landscape, where physical meetings are often neither practical nor desirable, and the shareholders may be based in diverse locations.

Author:

For further infomation, you can contact Alan at abrowning@lkshields.ie.

Incorporation under the Companies Act

Last updated on 1st April 2015

Part 2 of the Companies Act 2014 deals with the incorporation and registration of companies.

The new Model Company will have a one document constitution in place of the current Memorandum & Articles of Association. The limit on the number of members a new Model Company may have has been increased to 149. Employees and former employees are not counted when determining the total number of members.

The constitution will state the name, that it is a private company limited by shares registered under Part 2; any supplemental regulations, the authorised share capital of the company and the number of shares taken by each subscriber. It must be signed by the subscriber(s) and will be in a form as set out in the First Schedule to Part 2.  The new Model Company will have full and unlimited capacity the same as that of a natural person as it will not have an objects clause and so it will not be subject to the doctrine of ultra vires.

A prescribed form detailing the person who is or the persons who are to be the first director or directors of the company, the secretary, the registered office, the place where the central administration of the company will normally be carried on, details of the activity of the company being carried on in the State and the place in the State where it is being carried on must be prepared as part of the incorporation process.  This form will be signed by the directors(s), secretary and the subscriber(s) and shall include an unsworn declaration which must be made by one of the directors or the secretary or a solicitor acting on behalf of the company, and is submitted with the constitution to register the company. Where there are no directors resident in the EEA, a bond must be provided with the prescribed form to incorporate the company. Where a director named on the prescribed form is disqualified, a separate statement in a prescribed form must be signed by that director specifying the jurisdiction in which and date they became disqualified together with the period of disqualification.

In addition to the one document constitution one of the fundamental changes proposed by the new legislation is to reduce the number of directors required by a company to just one. The Act preserves the requirement to have a secretary of a company who cannot also act in the role of sole director. This will do away with the need to have a passive nominee director and increase the level of accountability on the one director.

Upon registration of the constitution of the company, the Registrar will issue a Certificate of Incorporation. The Certificate of Incorporation is conclusive evidence that the company is registered.

The last word of the name of the company shall be ‘Limited’ or this can be abbreviated to ‘Ltd’.  Trading under a misleading name shall subject any officer of the company who is in default to a category 3 offence.

The provisions applying to the reservation of a name when incorporating a company or changing a company name are preserved.  Similarly the provisions applying to any change of name or alteration in the constitution will still require a special resolution.

Part 2 also deals with the authorisation of an electronic filing agent which facilitates the electronic signing of documents and the delivery of those documents to the Registrar by electronic means.  A company may also revoke the authorisation of an electronic filing agent.

Finally the new legislation also provides that on request any member is entitled to receive a copy of the constitution from the company. Failure to provide a copy is a Category 4 offence.

In summary, the provisions relating to the incorporation of a company are broadly similar to those currently in existence.  The main difference being the introduction of the new one document constitution and the provision that a limited company other than a designated activity company (DAC) may only have one director. The Companies Act 2014 is expected to come into force on 1 June 2015.

Author:

Alan Browning is head of the Company Secretarial and Compliance team at LK Shields Solicitors. For further information, you can contact Alan at abrowning@lkshields.ie.

Top 10 things businesses should know about the Companies Act 2014

Last updated on 30th March 2015

Ruairi Mulrean outlines the top 10 things every company director needs to know about the Companies Act 2014.

After nearly a decade in the making, the Companies Act 2014 commenced on 1 June 2015.  The Act includes a number of radical reforms. 

It is the largest overhaul of company law the state has seen in half a century and is intended to make running a business in Ireland easier.

All businesses need to understand the implications of the Act:

1. The Act provides for the creation of two types of private limited company:

- a company limited by shares - these companies are expected to be the most widely utilised corporate vehicles; and

- a designated activity company - these most closely resemble current private limited companies

During an 18 month transition period starting from the commencement of the Act, existing private limited companies will have to decide to whether to convert into a company limited by shares or a designated activity company.  

2. Private limited companies will be entitled to have a single director but all companies must retain the office of the company secretary.

3. Private limited companies will have a single document constitution to replace the existing memorandum and articles of association and will be deemed to have full and unlimited capacity in the same manner as human persons.  All other companies, including designated activity companies, will have to retain a two document constitution similar to their existing two document memorandum and articles of association.

4. Provisions relating to shareholder meetings have been greatly simplified with the requirement to hold an annual general meeting being optional and the delivery of notice of general meeting by electronic means being permitted.

5. The existing common law duties of directors are codified into eight principle duties which will apply to all directors including shadow directors and de facto directors.

6. The Act reintroduces the requirement that directors provide directors compliance statements.  This obligation applies to all plcs and certain large private limited companies.

7. The Act introduces a single summary approval procedure that may be followed in order to permit companies to partake in certain transactions which might otherwise be restricted or prohibited.

8. Certain holding companies will be exempted from the obligation to prepare group financial statements where they and their subsidiaries do not exceed certain thresholds.  The audit exemption has been extended to holding companies and their subsidiaries where together they are treated as small companies and in respect of dormant companies.

9. For the first time the Act introduces mechanisms whereby mergers and divisions of Irish companies may take place.

10. For the first time the Act categorises and classifies the various offences for breach of the provisions of the Act. 

Ruairi Mulrean is a partner in the Corporate and Commercial Department at LK Shields Solicitors. Ruairi specialises in Corporate Law and is the key contact for the Companies Act at LK Shields.

This article was published by www.businessandleadership.com in March 2015.

Negative Pledges - Floating Charges Further Devalued

Last updated on 29th March 2015

Changes Under The Act

The Companies Act 2014 (the "Act") stipulates that the Companies Registration Office ("CRO") will not be permitted to record details of a negative pledge or the crystallisation events for a floating charge when recording particulars of a charge created by a company.

The delivery of such details to the CRO will have no legal effect except where the charge holder is the Central Bank and the charge is a floating charge to provide or secure collateral.

Position Before Commencement Of The Act

The Companies Acts 1963 to 2013 do not require companies and charge holders to include particulars of a negative pledge (typically, agreements by the company not to borrow from, or create security in favour of, any person other than the charge holder) with the particulars of registerable charges that are required to be delivered to the CRO.  Nonetheless, solicitors have developed a practice of including negative pledge particulars whenever notifying the CRO of a floating charge created in favour of a client.  This practice has resulted from court decisions that the granting of security should be considered to be within the ordinary course of business of a company thereby permitting a company to create a fixed charge even after giving a floating charge. In such circumstances and where the floating charge prohibits the company from doing so, the floating chargeholder merely has recourse to the company for breach of covenant.

The solicitor's objective in delivering particulars of the negative pledge for registration by the CRO is to put potential lenders on notice that the company is not permitted to create further security.  If the subsequent lender has actual notice (as opposed to mere constructive notice) of a negative pledge in a floating charge and proceeds to take a fixed charge from the company, the subsequent fixed chargeholder cannot use its fixed charge to cause loss to the floating chargeholder.  Without actual notice, the lender will take the fixed charge free of the claims of the floating chargeholder because the lender is entitled to rely on the apparent authority of the company to deal by way of creating fixed charges.

New Regime

The new regime essentially removes the ability of a floating chargeholder to fix notice (via the CRO) on a subsequent fixed chargeholder of the negative pledge.  Section 412(8) defines a negative pledge as any agreement entered into by the company and any other person that provides that the company shall not, or shall not otherwise than in specified circumstances:

Section 412(6) of the Act specifically provides that the CRO will not register particulars of the creation of a negative pledge where such particulars are delivered to it.  It also provides that if a charge holder elects to deliver to the CRO particulars of such a negative pledge or the crystallisation events of floating charges, doing so will have no legal effect.

Section 412 (7) excepts the Central Bank from these provisions and particulars of a negative pledge on a floating charge given to the Central  Bank for the purpose of providing or securing collateral must be registered by the CRO if delivered to it.

The new regime does not affect the crystallisation of floating charges and, accordingly, any lender seeking to put in place a fixed charge after a prior floating charge is best advised to still seek a letter from the floating chargeholder confirming non-crystallisation of their floating charge.

Conclusion

Lenders ought be best advised to review their lending policies and template security documentation in light of these changes.  It is suggested that lenders that previously relied upon floating charges ought to rely upon the legislative changes to insist on “all assets” debentures incorporating fixed charges over suitable assets and floating charge where fixed charges are not legally possible.  Alternatively, if a mere floating charge is made available by a borrower the lender might consider incorporating provisions therein that effectively creates a contingent equitable security interest on the date of the charge over specified assets, which interest will attach if the borrower breaches their negative pledge.  The old Irish mortgage decision in Re Hurley's Estate (1894) 1 I.R. 488 can be seen as support for this approach.

Following on from the judgement in Re JD Brian Ltd (2011) 3 I.R.244 the above changes under the Act undermine the floating charge in a manner that significantly contrasts with the UK.  Given the widespread use to date of mere floating charges in the SME sector, for cost and other reasons, lenders must give consideration as to how their lending policies and security documentation must change accordingly.

Author:

Neil O'Keeffe is a partner in the Banking team at LK Shields Solicitors. For further information, you can contact Neil at nokeeffe@lkshields.ie.

Certificate of Registration of a Charge

Last updated on 28th March 2015

Changes Under The Act

The Companies Act 2014 (the "Act") proposes to amend existing company law provisions that stipulate that a certificate of registration of a charge issued by the Companies Registration Office ("CRO") constitutes conclusive evidence that compliance has been made with statutory requirements to deliver particulars of that charge to the CRO.

The effect of the amendment will be that the certificate will not constitute conclusive evidence of a charge over any property or properties where the particulars delivered to the CRO in respect of that property or properties fail to meet the required standard.  In this regard, the section stipulates that "property" includes an interest in, or a right over, property.  The Act does not give significant guidance on what particulars of property must be delivered except for stipulating in Section 414 (1) (e) that the particulars required to be registered by the CRO include "short particulars of the property charged".

Current Position

The current position is that a certificate of registration of a charge constitutes conclusive evidence of compliance with the charge registration requirements in the Companies Acts 1963 to 2013.  The courts have been asked to decide on what "conclusive evidence" means in this context on a significant number of occasions.  As a result, the courts have decided that, because of the conclusiveness of the certificate, the mortgage or charge to which that certificate relates is effective against all interested persons according to the terms of that mortgage or charge, even if the particulars of it submitted to the CRO are inaccurate as to the amount secured, or the property secured by the mortgage or charge, or the name or identity of the company which has created the mortgage or charge, or the date on which it was created.

New Regime

As a result of Section 415 (3) of the Act, if the required particulars of a property secured by a charge are omitted from the particulars submitted to the CRO, then the certificate of registration of the charge will not be conclusive evidence that compliance has been made with the registration requirements with respect to the charge as it extends to that property.  More fundamentally, Section 409 (2) of the Act stipulates that if charge particulars received by the CRO omit required particulars in respect of one or more properties to which the charge relates, the charge as it extends to that property or properties will be rendered void (as against the liquidator and any creditor of the company) but not otherwise.

Conclusion

It is the practice of solicitors at present to deliver comprehensive particulars of charged property to the CRO with a view to discharging the obligation to ensure that the CRO receives "short particulars of the property charged".  Solicitors may well attempt to be even more comprehensive as a result of the changes proposed under the Act.  It is conceivable, however,  that the courts will interpret these changes in a restrictive manner given the large body of case law that exists in relation to the conclusiveness of certificates of registration at present.  For example, it may well be held by the Courts that inaccurate particulars of property will not result in the charge being rendered void with respect to the relevant property given that there has not been an omission to provide particulars but  merely inaccuracies in the particulars provided.  Arguably, this would be a sensible approach for a court to take in circumstances where the property secured by the charge is clearly identifiable from the particulars provided. Equally, if the property cannot be identified by the particulars provided, the court may, and indeed should conclude that there has been an omission to provide the required particulars of it.

It remains possible that a zero tolerance approach will be taken by the courts and solicitors should take care to ensure that particulars delivered by them to the CRO describe properly every property secured by the charge.  Given that Section 415 (4) stipulates that property includes an interest in, or right over, property, a prudent solicitor will likely describe the extent of the interest held by the charging company in the relevant property when preparing the particulars of the charge to be delivered to the CRO.

Author:

Andrew Power is an associate solicitor in the Banking team at LK Shields Solicitors. For further information, you can contact Andrew at apower@lkshields.ie.

Companies Act 2014: 10 Frequently Asked Questions

Last updated on 4th March 2015

The Companies Act 2014 introduces significant reforms to Company Law in Ireland.

What does the Companies Act 2014 mean for your business and what are its practical effects?

Here are the answers to just a few of the more frequently asked questions posed by our clients about the Companies Act (The Act).

1. What steps do I need to take to prepare my Company for the changes under the Companies Act?

At this stage you should be reviewing your existing company or group structure to identify which companies are public, private or unlimited, because different rules will apply to these once the legislation takes effect.  In particular, you should consider whether a private company should become a DAC or LTD, referred to below. Additionally, it is an opportunity for you to do some housekeeping and in this regard you should identify what companies are now dormant and will no longer be required as there may be a possibility of winding some of them up.

2. What are the new Company types for Private Companies?

The Act provides for two new forms of Private Limited Company.

- A Private Company Limited by shares ("LTD"). The LTD will be a new form of simplified private company limited by shares and will have a single constitutional document.

- A Designated Activity Company ("DAC"). The DAC will more closely resemble the existing form of private limited company and will continue to have a Memorandum and Articles of Association.

3. Should I convert to a LTD or DAC?

The decision to register as a LTD or DAC will depend on what is best suited for your company and the purpose for which it is incorporated. Some companies such as banks, insurers and companies with debt securities listed on an exchange, which wish to continue as private limited companies  must  convert to a DAC.  In most other cases it is a decision as to which type will best suit your needs.   We anticipate that most companies will become LTDs. As these are types of companies that enjoy the benefit of most of the innovations intended to simplify their administration e.g. the ability to have a single director.

4. What is the transition period?

The transition period is an eighteen month period that applies to private companies that exist at the date the Act came into force (1 June 2015).  During this period companies will need to decide whether to convert to a LTD or DAC or some other type of company. The decision should be taken no later than three months before the end of the transition period.  If a private limited company is not converted to a type of company recognised under the Act the company will automatically and by default become a LTD which may not suit the requirements of that company.  Therefore we recommend that you take positive steps to consider your options and to make the decision your own.

5. How will the Companies Act impact on annual compliance requirements?

The Act, in the main, restates the existing requirements in relation to filing an annual return and audited accounts.  However a new imposition for certain companies under the Act will be the requirement to prepare a Directors Compliance Statement.  This obligation will apply to a PLC (other than an investment company) and a LTD, a DAC and a Company Limited by Guarantee (CLG) which meet certain Balance Sheet and turnover thresholds.  Unlimited Companies (ULC) are not subject to this requirement.  The statement must set out the company's policies on its compliance and obligations under the Act and under tax Laws.

6. Will the Companies Act change any of the duties and obligations of Directors?

For the first time in Irish law the Act sets out in statue the eight principle fiduciary duties of directors and so codifyies the existing common law duties of directors.  A director will continue to have statutory duties and responsibilities and these will not be affected by the Act.  The duties will apply to all directors including shadow directors.

7. Does the Companies Act change any of the disclosure requirements for Directors?

The Act contains a new exemption for directors regarding their interest in shares or debentures in a company.  A director is not now obliged to disclose the interests of that director or of a connected person, where those interests in aggregate do not represent more than 1% in nominal value of the company's issued share capital.  This should substantially reduce the disclosure obligations for directors.

8. Does the Companies Act impact on our approach to holding Board or Shareholder Meetings?

The Act does not envisage any substantial changes to the law regarding Board Meetings.  However multi-member private limited companies will be able to dispense with the holding of an AGM, this is an option that's currently only available to single member companies.  In addition, it will also be possible for shareholders to pass a majority written resolution, as well as the unanimous written resolution currently required, subject to certain conditions.  However it should be noted that the effectiveness of majority, written Resolutions are subject to certain time delays (referred to below) while the unanimous Resolution will continue to be immediately effective.

9. Can I still avail of an audit exemption?

Audit exemptions may still be availed of by a LTD or DAC where they meet certain criteria.  Certain Unlimited Companies will also be able to avail of such an exemption.  Where a company is part of a group they can also avail of the exemption provided the group meets the "small group" criteria laid down in the Act.  The Act also introduces the concept of a dormant company to which the audit exemption provisions will also apply.

10. How does the new Companies Act help in making matters more efficient for my company?

There are many ways in which the Act makes life easier for the administration of private limited companies. To list them all here is beyond the scope of this article but a good example is the introduction of the ability to pass written resolutions by majority. The majority resolution will be valid and effective where it is signed by a member or members representing 50% (ordinary) and 75% (special) of the total voting rights and will take effect seven and twenty-one days respectively after the last member has signed.  The text of the resolution must be circulated to all the members.

Authors:

Alan Browning is head of the Company Secretarial and Compliance team at LK Shields Solicitors. For further information, you can contact Alan at abrowning@lkshields.ie

Ruairi Mulrean is a partner in the Corporate and Commercial Department at LK Shields Solicitors. Ruairi specialises in Corporate Law and is the key contact for the Companies Act at LK Shields.

Companies Bill 2012 Passes Final Stage

Last updated on 10th December 2014

After much debate, the highly anticipated Companies Bill is expected to be enacted into law shortly. It passed final stages on 10 December 2014 and is now ready to be signed into law by the President with the expectation that he will do so later this month.

The comprehensive Act consolidates all existing company law into 17 Schedules. It is the largest reform of company law the state has seen in half a century. It is expected to come into effect on 1 June 2015 and is intended to make running a business in Ireland easier.

What now?

Operators of Private Limited Companies now have an important decision to make.

While the Act restates much of the current Irish company law, it also modernises much of the legislation making it more accessible and user friendly.

One of the major changes within the Act is the provision for two new types of private limited company to replace existing private limited companies. Those involved with private limited companies will have to decide whether they are best served by converting their existing private companies to:

  1. private company limited by shares (CLS); or
  2. the designated activity company (DAC).

The majority of the innovations are to be found in the CLS structure, making them more user friendly, and it is anticipated that this will prove to be the preferred option for most.  A DAC more closely resembles existing private limited companies inheriting some of its traits. 

It is important that some consideration is given to the options available under the new regime so that the decisions made are informed ensuring a smooth transition from the existing to the new rules.  The main differences between a CLS and a DAC under the new regime are:

CLS DAC
Only required to have one director. Must have at least two directors.
The shareholders of a CLS can dispense with the formality of holding an AGM by passing a written resolution to that effect. Unless it has one shareholder, a DAC must formally hold an AGM each year.
Will have a single document constitution with no objects clause. Will have a two part constitution comparable to the existing memorandum and articles of association
Not required to have an authorised share capital. Must have an authorised share capital.
May not list debt securities for sale to the public. May do so.

 

There will be an 18-month transition period during which existing private limited companies can choose one of the following options:

  1. opt-out: a company can pass an ordinary resolution up to three months before the end of the transition period resolving to become a DAC.
  2. opt-in: the members or directors of a company can choose that a company becomes a CLS before the end of the transition period.
  3. do nothing: following the 18-month transition period, any existing private limited company that has not taken active steps to re-register as either a DAC or a CLS will be automatically deemed to have become a CLS.  During the transition period, existing private limited companies that have not re-registered will be subject to the law applicable to DACs.

For more advice on the steps that you need to take now, please contact Ruairi Mulrean.

Companies Bill Reaches Report Stage

Last updated on 30th September 2014

The Companies Bill 2012 completed the report stage in Seanad Éireann on 30 September 2014.  As the Seanad made 164 amendments, those amendments must be considered by the Dáil.  If the Dáil approves the amendments, the Companies Bill will have been passed by both Houses of the Oireachtas. 

At that stage, the President will be asked to sign the Companies Bill into law, which may occur as early as November of this year. The Companies Bill provisions will not come into operation then, however,  as Section 1(2) stipulates that the Minister for Jobs, Enterprise and Innovation must appoint a commencement day or days by statutory instrument. At present, it is anticipated that the first statutory instruments commencing provisions of the Companies Bill will stipulate a June 2015 commencement date. 

Definition of a Charge

We had concerns that the exclusions from the definition of charge in the Companies Bill would mean that its security preservation and priority provisions would not apply to charges created by a company over its trade receivables and other debts owing to it, which would usually be a valuable item of company property that features in the determination of the amount and term of borrowings.  The charge definition provisions have been amended at the Seanad report stage so that claims to cash (such as trade receivables and other debt claims) will no longer be excluded from the charge definition and can benefit from the security preservation and priority provisions of the Bill as a result.  While this change is helpful, we continue to have concerns with the charge provisions of the Companies Bill which we will outline in due course.

Author:

Liam Carney is a partner in the Banking team at LK Shields Solicitors. For further information, you can contact Liam at lcarney@lkshields.ie.

Rotation of Directors

Last updated on 29th September 2014

Currently the Articles of Association (Articles) of companies provide for some or all of the directors to retire automatically by rotation at the company's Annual General Meeting (AGM).  In addition the Articles may require, any director who has been appointed by the board to fill a casual vacancy during any given year to retire at the next AGM and stand for re-election.

The intention of these provisions, which in the case of a private limited company are adopted through Table A of the Companies Act 1963, is generally to promote good corporate governance. They also are intended to ensure that the directors continue to be answerable to the shareholders of the company as its owners and avoid the board becoming self-perpetuating.

While rotation of directors is commonly adopted by public limited companies it is less common in private limited companies and is commonly disapplied. However, it can happen that the Table A provisions for rotation of directors have not been disapplied and a company fails to re-appoint directors on or before the date by which they are due to retire.  Failure to deal with this issue properly can create doubts as to whether such directors are entitled to hold office thus calling into question the effectiveness of decisions made by the board of directors of a company which includes such a director.  An English Court* found that where a director should have retired by rotation at an AGM of the company but failed to do so that director was deemed to have vacated his office automatically at the end of the last day on which the AGM should have been lawfully held.  While a similar case has not arisen as yet in Ireland, Irish courts may follow this decision. 

The Companies Act 2014 (the Act) does not include similar provisions to Table A of the Companies Act 1963 for private limited companies requiring directors to retire by rotation at the AGM. This is in recognition of the general position that they are often not practical and they do not serve the purposes for which they were initially intended. Also it avoids the problems that can arise where compliance with these provisions is simply overlooked.

However, the Act continues to include provisions requiring that those appointed by the board of directors during the year offer themselves for re-election. This ensures that all directors will have been elected or will be subject to election to the board by the company's members at some stage. 

In practice, the rotation provision can be inconvenient and often does not fulfil its original intention.  One of the overarching intentions of the Act is to make it easier and cheaper to operate a company in Ireland.  Practical changes such as this are an example of that aim being put into practice and generally are to be welcomed. The Companies Act 2014 is expected to come into force on 1 June 2015.

* Re Zinnotty Properties Limited [1984] 3 All ER 754

Author:

For further infomation, you can contact Alan at abrowning@lkshields.ie.

Charges and Debentures

Last updated on 17th September 2014

Changes Under The Act

The Companies Act 2014 (the "Act") will make significant changes to the categories of charges that are affected by company law when its provisions become effective, which is expected to occur in June 2015.

Section 408 of the Act will introduce a definition of "charge" for the purposes of the charge registration and priority provisions of the Act.  The definition of "charge" is drafted broadly to include any mortgage or charge in any agreement (written or oral) that is created by a company over an interest in any property of that company, and includes a judgment mortgage where the provisions of the Act have relevance to judgment mortgages, but the definition excludes mortgages and charges created over certain specified categories of assets and claims ("excluded charges").

There is a substantial overlap between the excluded charges and financial collateral within the meaning of the European Communities (Financial Collateral Arrangements) Regulations 2010 (as amended) (the "Financial Collateral Regulations").  As the Financial Collateral Regulations contain provisions to simplify enforcement of a financial collateral arrangement and exempting financial collateral arrangements from registration requirements (including the requirement to deliver charge particulars to the Companies Registration Office ("CRO")), it makes sense to exclude financial collateral arrangements from the priority and registration provisions of the Act.  Unfortunately, the Act appears to exclude from its protections charge arrangements that are not protected under the Financial Collateral Regulations.  This position could result in changes in the measures that recipients of security take to protect security rights where it is not clear that they benefit from the protections of the Act or those of the Financial Collateral Regulations.

Current Position

Under the Companies Acts 1963 to 2013, specified categories of charges must be registered within 21 days of their creation in order to be enforceable as against a liquidator of the company creating the charge or any creditor of that company.  The categories of charges include charges on land, book debts, a ship or aircraft, goodwill, intellectual property and floating charges.  If a charge does not come within a specified category, it is not registerable.

Solicitors are cautious about whether a charge could come within a specified category.  For example, charges on shares and rights (principally, dividend rights)  deriving from shares are registered typically because of a concern that a declared dividend on a share could constitute a book debt or that permission to use dividends until the charge holder becomes entitled to enforce the share security could result in the share charge having a floating charge element.  This practice has persisted even after introduction of the Financial Collateral Regulations, possibly because of concerns that insufficient control is being taken over dividend entitlements to bring that element of the charge within the control requirements of the Financial Collateral Regulations.

New Regime

Section 408 of the Act provides that "charge” for its registration and priority provisions (Part 7 of the Act) means a mortgage or a charge created by a company, in an agreement (written or oral), that is created over an interest in any property of that company (and in section 409(8) and sections 414 to 421 of the Act includes a judgment mortgage) except for the "excluded charge" categories, which are a mortgage or a charge, in an agreement (written or oral), that is created by a company over an interest in –

While the excluded charges correspond substantially to financial collateral arrangements within the meaning of the Financial Collateral Regulations and benefit from the Financial Collateral Regulations as a result, there are significant respects in which excluded charges encompass security arrangements that are not covered by the Financial Collateral Regulations.  In particular, excluded charges given by one trading company to an individual or another trading company (where neither party to the security arrangement is a central bank, financial institution, public authority or other regulated financial services provider) will not have the benefit of the Financial Collateral Regulations.

Also, the Financial Collateral Regulations stipulate that security protected by them should be "in the possession or under the control of" the recipient of the security.  Arguably,   the holder of a floating charge does not have sufficient control over debt proceeds paid into a bank account for the Financial Collateral Regulations to apply.  The debt proceeds when credited to a bank account will also be an excluded charge under the Act and will not benefit from the registration and priority protections in the Act as a result.  Where the recipient of the charge is also the bank providing the account to which debt proceeds are credited, that bank may make its claim to the debt proceeds more certain by adding set off provisions and contractual provisions permitting the charge recipient to cancel the charge provider's right to make withdrawals until payment of the debt secured by the charge.  Where the recipient of the charge is not the bank providing the account to which the debt proceeds are credited, it is likely that the charge recipient will require that bank to give a written acknowledgement of the interest that the charge recipient has in the account balance.

It is possible that recipients of excluded charges will seek to protect those excluded charges by means other than CRO registration.  For example, when the Act takes effect, charges on shares (including rights, such as dividends, related to the shares) will be excluded charges, but it is possible that recipients of share charges will take the precaution of serving a stop notice on the company that has issued the charged shares to prevent dealings in the charged shares without prior notification to the charge recipient.

Conclusion

There is merit in introducing a charge registration system for companies that deals comprehensively with charges and mortgages created by a company regardless of the company assets affected by those charges and mortgages.  These merits have been undermined to an extent, however, by introducing categories of excluded charge, particularly as the excluded charge categories do not correspond exactly with financial collateral arrangements protected by the Financial Collateral Regulations.  Where solicitors doubt that either the Act registration and priority provisions or the Financial Collateral Regulations protections apply to their client's charge, they may well explore other ways to protect the charge.

Author:

Liam Carney is a partner in the Banking team at LK Shields Solicitors. For further information, you can contact Liam at lcarney@lkshields.ie.

Investment Companies

Last updated on 8th September 2014

Investment companies incorporated pursuant to the provisions of Part XIII of the Companies Act 1990 are commonly referred to as Non UCITS funds, as distinct to those investment funds (including companies) which are governed by the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (the UCITS Regulations).

Impact of Companies Act

With a small number of exceptions, Part 24 of the Act is largely a consolidation and restatement of the existing Companies Act legislation applicable to Non UCITS investment companies.

The Act gathers together in one place the legislative provisions governing investment companies which are currently spread across several different pieces of legislation, including:-

Companies Act 1963

Companies Act 1990

Companies (Amendment) (No 2) Act 1999

Investment Funds, Companies and Miscellaneous Provisions Act 2005

Companies (Miscellaneous Provisions) Act 2009

EC (Directive 2006/46/EC) Regulations 2010

While Part 24 deals specifically with investment companies, the provisions of Parts 1 to 14 and 17 of the Act are also applicable to investment companies, save where specific provisions are disapplied to public limited companies or disapplied or modified within Part 24 (for example certain requirements in relation to share capital which are inconsistent with the workings of an investment company).

New company law features

Investment companies authorised under Part XIII of the Companies Act 1990 should note some of the new features of the Act which will be applicable to them:-

Implications for Investment Companies

Part 24 provides that, those investment companies which are already incorporated under the current Companies Acts will be deemed to have continued in existence as investment companies to which the new legislation applies.

For the first time, a model form Memorandum and Articles of Association for investment companies is provided for under Irish company law (see Schedule 16 of the Act). The existing model constitutions set out in the Schedule to the Companies Act 1963 did not specifically provide for investment companies.

The constitutions of existing investment companies are deemed to continue in force, save to the extent that they are inconsistent with what are called "mandatory provisions" (i.e. provisions that are not "optional provisions" under the Bill).

Prospectus, Market Abuse and Transparency law

For those investment companies which have securities admitted to trading on regulated markets, it will also be necessary to comply with certain provisions of Part 23 of the Act which relate to the implementation into Irish law of the EU Prospectus, Market Abuse, and Transparency Directives.

Proposed ICAV legislation

It will be interesting to see the impact of the new ICAV legislation, once enacted, on investment companies. The ICAV will be a new corporate structure specifically designed for Irish investment funds. Existing investment funds set up as companies will have the option to convert to the new ICAV structure, while new funds may choose to incorporate under the ICAV legislation rather than the new Companies Act. Thus, Part 24 may well become less significant for the Irish investment funds industry.

Author:

For further information, you can contact Trevor at tdolan@lkshields.ie.

Re-Registration of an Unlimited Company as a Limited Company

Last updated on 7th September 2014

Under the 1983 Act, limited companies which had previously converted to unlimited companies could not convert back to limited companies.

This was because S 53(I) of the 1983 Act only permitted an unlimited company to convert to a limited company where the company had not already converted from a limited company to an unlimited company by virtue of Section 52 of the 1983 Act.

Under the Companies Act 2014 there are no restrictions in Part 20 to such re-registrations.  This will be helpful if a group of companies want to unravel a non-filing structure where they had previously converted limited companies to unlimited companies which is something that could not be done under prior legislation.

Author:

Philip Daly is a partner in the Corporate and Commercial Department at LK Shields Solicitors. For further information, you can contact Philip at pdaly@lkshields.ie.

Written Resolutions making Corporate Transactions Easier

Last updated on 7th September 2014

The Companies Act 2014 (the Act) will make a significant positive impact on the way corporate transactions are concluded and on corporate governance in general. Members (shareholders) of a company will be permitted by default to pass written resolutions signed only by the requisite majority.

Under the Companies Acts 1963-2013, members must hold a meeting to pass members' resolutions unless the company's articles of association provide for resolutions to be passed in writing without holding a meeting. Where written resolutions are provided for, they must be signed by all members entitled to vote at a meeting.

The Act provides the default position that, without a meeting, members may pass resolutions in writing which can be signed in counterparts. This significant change recognises the modern connected business landscape, where physical meetings are often not practical nor desired.

A written resolution will only require the requisite majority to sign for it to be valid, i.e. a simple majority to be passed as an ordinary resolution or a three quarters majority for special resolutions.

Written resolutions may not however be used for the removal of directors or the removal of the auditor.

This process is not without risk of abuse and the Act provides safeguards and procedures, with criminal penalties in some cases, to ensure that this process is not abused. For example, a member must forward at least a scan of their signed counterpart to the Company within 14 days of a written resolution that has been passed unanimously, or potentially face criminal penalties.

Where a resolution is passed only by majority, be it ordinary or special, a company must wait 7 days or 21 days respectively from the date the last requisite signature is received before the resolution takes effect. This allows a moratorium period for dissenting members to take action. Moreover, officers may face criminal penalties if they do not notify members of the date the resolution will be deemed to be passed within 3 days of the requisite signatures being received.

The introduction of these majority written resolutions will significantly improve many Irish companies' ability to transact quickly in corporate matters, particularly given the high level of foreign direct investment and venture capital in Irish Companies leaving numerous shareholders based across the globe. LK Shields can advise on the procedures and safeguards to ensure full advantage of these changes can be applied.

The Companies Act 2014 is expected to come into force on 1 June 2015.

Author:

Jennifer McGuire is a partner in the Corporate and Commercial Department at LK Shields Solicitors. For further information, you can contact Jennifer at jmcguire@lkshields.ie.

Codification of Director’s Duties

Last updated on 7th September 2014

The increased focus on corporate governance, and the development of corporate governance regimes generally, has placed an even greater spotlight on directors to ensure that they closely adhere to their duties and obligations.

Introduction

There are severe consequences for directors who have not taken their duties seriously and have not carried out their duties to the best of their ability, which may result in them being found personally liable and subject to civil or criminal sanctions.

Part 5 of the Companies Act 2014 (the Act) consolidates the duties and responsibilities of directors in in one unified code for clarity and transparency.

Who will the regime apply to?

The new regime will apply to all directors, including those that have been formally appointed, de facto directors (a common law concept now given legislative recognition under the Act), shadow directors and secretaries.  Secretaries are also dealt with in the Act but they are not subject to the same duties as directors, reflecting the fact that their duties are those that have been delegated by the board of directors.

Main fiduciary duties of a director

When the Act is commenced it will have a significant impact on company law.  For the first time, the Act lists the eight main fiduciary duties of directors in one place and these are listed below:

The last point will be particularly relevant to directors who are shareholders themselves, or who may have been appointed to look after a shareholder, or a group of shareholders' interests, under the constitution of the company or a shareholders' agreement.  They will have to act in the interests of the shareholder group as a whole and not simply their own or that of the shareholder who appointed them.

General duties of directors

The Act also includes a number of general duties for directors.

Directors who are found to be in breach of their duties will be liable to account for any gains accrued and must indemnify companies for losses resulting from any breaches of duties.  A court may grant relief from liability where it is satisfied that a director acted honestly and reasonably at all times.

The Act sees the reintroduction of the compliance statement:  directors of companies, who meet certain thresholds, will be required to produce a compliance statement confirming compliance with company law and tax law for inclusion in the directors' report.  This requirement will only apply to the larger private companies or publicly-quoted companies and we will be in contact with those clients that are caught by these provisions.

Conclusion

The Companies Act 2014 is expected to come into force on 1 June 2015. The codification of directors' duties in one place will greatly assist directors in identifying what is required of them. If you require any further information regarding this matter please let us know and we would be happy to assist you in interpreting these requirements.

Author:

Alan Browning is head of the Company Secretarial and Compliance team at LK Shields Solicitors. For further information, you can contact Alan at abrowning@lkshields.ie.

Reduction of Share Capital at a Premium in Unlimited Companies

Last updated on 7th September 2014

The Act provides that an unlimited company can reduce its share capital by the passing of a special resolution (S 1252).  This is already the case under the existing companies acts.

S 1255 provides that no restrictions (being those contained in Chapter 7 of Part 3 of the Act dealing with distributions) shall apply in relation to the making of distributions out of the assets of a UC.  The Act by doing so seeks to correct a current legislative issue as regards the applicability of part of the capital maintenance rules applicable on distributions comprised in the Companies (Amendment) Act 1983 (the "1983 Act") to unlimited companies.

Section 51 (2) of the 1983 Act defines distribution as "every description of distribution of a company's assets to members of the company, whether in cash or otherwise, except distributions made by way of…(c) the reduction of share capital by extinguishing or reducing the liability of any of the members on any of its shares in respect of share capital not paid up or by paying off paid up share capital".

It is arguable that the repayment of the premium paid on shares when issued falls within the definition of share capital under S 62 of the Companies Act 1963 for the purposes of share capital reductions and, therefore, can be paid back without the need for matching reserves.  However, if the redemption of shares in an unlimited liability company involves a redemption at a premium above the price paid for the shares including the initial premium paid, this would certainly involve making a distribution to a member for the purposes of Sections 45 and 51 of the 1983 Act and can only therefore be made out of profits available for distribution by reason of the provisions of Section 45 (1) of the 1983 Act.

S 1255 of the Act helpfully appears to removes this problem.

Author:

Philip Daly is a partner in the Corporate and Commercial Department at LK Shields Solicitors. For further information, you can contact Philip at pdaly@lkshields.ie.

Strike Off and Restoration

Last updated on 24th July 2014

The Companies Act 2014 (the Act) brings together the many diverse provisions in the Companies Acts dealing with strike off and restorations, introduces a clear distinction between voluntary and involuntary strike off and gives voluntary strike off statutory recognition.

Strike Off

The Act details specific grounds that must exist before a company can be struck off involuntarily and the conditions that need to be satisfied for a company to avail of the voluntary strike off process.

The Act also sets out the procedure that the Registrar must comply with where he intends to strike a company off the Register. It provides that:

Restoration

This section of the Act is an amended re-enactment of the current legislation regarding the restoration of a company to the Register. As was the case previously the Act provides for restoration in certain cases on application to the Registrar, and in other cases on application to the court.

The Act provides that in cases of restoration by application to the Registrar such an application may be made by “a person who was a member or an officer of the company at the date of its dissolution.” This differs from current legislation which provides that an application may be made by a company that “feels aggrieved by having been struck off the Register”.

The provisions in the Act relating to the restoration of a company on application to the court remain largely unchanged.

These changes are welcome developments, particularly the statutory recognition be given to voluntary strike off.  The Act is intended to make it easier and cheaper to operate a company in Ireland.  Practical changes such as this are an example of that aim being put into practice.

Author:

For further infomation, you can contact Alan at abrowning@lkshields.ie.

Categories of Offences

Last updated on 24th July 2014

Part 14 of the Companies Act 2014, for the first time, streamlines all offences under company law and introduces a new four tier categorisation of offences with Category 1 being the most serious offence. It is hoped that this part of the Act will simplify the offence provisions and introduce a more structured and consistent process.

The categories of offence and associated penalties are as follows:

A Class A fine is that within the meaning of the Fines Act 2010 and is a fine not exceeding €5,000.

There will however, be a small number of exceptions to the four tier categorisation scheme in the case of some very serious breaches such as fraudulent trading and prospectus and market abuse offences.

Similar to the current regime, all summary prosecution may be brought by the Director of Public Prosecutions or the Director of Corporate Enforcement. The Registrar of Companies will also be able to prosecute a number of specific offences.

Finally the bill introduces a further new provision whereby the Court may, following a conviction for an offence under the bill, order that a convicted person must remedy any breach of the bill for which they were convicted.

Author:

Ruairi Mulrean is a partner in the Corporate and Commercial Department at LK Shields Solicitors. Ruairi specialises in Corporate Law and is the key contact for the Companies Act at LK Shields.

Revision of Defective Financial Statements

Last updated on 24th July 2014

Under the Companies Acts 1963 - 2013 there is currently no facility for rectifying statutory financial statements where an error is discovered following filing in the Companies Registration Office. The Companies Act 2014 introduces new provisions allowing the voluntary revision of financial statements.  These new provisions mirror the current position in the UK.

The new regime will allow directors of a company to prepare revised financial statements and/or a revised directors’ report.  Where the amounts and presentation of the profit and loss account, balance sheet or other statements are not affected by the revision, the revision of financial statements may be done by way of a supplementary note.  In all other cases, revised financial statements must be filed.

The requirements attaching to the original financial statements apply similarly to any revised financial statements, for example:

This change is a welcome development.  The Companies Act 2014 is intended to make it easier and cheaper to operate a company in Ireland.  Practical changes such as this are an example of that aim being put into practice. 

Author:

Ruairi Mulrean is a partner in the Corporate and Commercial Department at LK Shields Solicitors. Ruairi specialises in Corporate Law and is the key contact for the Companies Act at LK Shields.

Exclusions and exemptions relating to the filing of financial statements

Last updated on 24th July 2014

Part 6 of the Companies Act 2014 (the “Act”) contains a number of exceptions and exemptions relating to the preparation of financial statements that can be availed of by companies if certain criteria are satisfied.

Holding companies will qualify for an exemption from filing group financial statements if at the financial year end, and at the one immediately prior to that financial year, the holding company and all of its subsidiaries taken as a whole satisfy at least two of the following three conditions:

These thresholds represent an increase from those currently in force.

Small and medium size companies, who satisfy the necessary conditions, will be able to avail of certain exemptions from public disclosure of financial information in certain circumstances. Such companies are permitted to file abridged financial statements in certain circumstances. The Act outlines the criteria in order to qualify as a small or medium sized company.

In order to qualify as a small size company, a company must meet two of the following criteria in a financial year:

In order to qualify as a medium size company, a company must meet two of the following criteria in a financial year:

The thresholds for medium size companies represent an increase from the current position while the small company criteria represent a re-statement of the new criteria adopted in 2012.

It should be noted subsidiary undertakings are exempted under the Act from the requirement to annex financial returns to their annual return if their holding company gives a guarantee over their liabilities for that year.

The Act carries forward the existing provisions relating to audit exemption subject to some slight changes. The Act proposes to extend audit exemption in certain situations to: (a) holding companies and its subsidiaries; (b) companies limited by guarantee (subject to certain thresholds and criteria); and (c) dormant companies.

The extension of the audit exemption to group situations is a significant development. In order to avail of this exemption, the company must be a small company or must be a group of companies that, taken together, fall below the threshold requirements for a small company. However, if 10% or more of the members of the company request that an audit take place, then the exemption may not be availed of.

As is currently the case, public limited companies, public unlimited companies and companies with securities listed on a regulated market in an EEA state will be prohibited from availing of audit exemption. Finally in order to avail of an audit exemption, it is essential that a company file its annual return on time (or in the case of a group claiming exemption, that the annual returns of all the companies are filed on time).

Author:

For further information, you can contact Ruairi Mulrean at rmulrean@lkshields.ie.

Director Compliance Statements

Last updated on 23rd July 2014

The Companies Act 2014 sees the reintroduction of annual director compliance statements.

Introduction

The requirement for directors to file such a statement was first legislated for in the Companies (Auditing and Accounting) Act 2003 but the section was never enacted due to significant industry lobbying and recommendations from the Company Law Review Group that the requirements were disproportionate and excessively onerous.

The Act reintroduces a more targeted and proportionate approach to compliance statements.

Who does it apply to

The obligation will apply to:

The obligations do not apply to unlimited companies.

What is the obligation

The Act will require directors to adopt a "comply or explain" approach. In the compliance statement, directors will be required to acknowledge their responsibility for securing the company's  relevant obligations under law (primarily the Companies Act and the Tax Acts) and will be required to confirm that certain things have been done (or if they have not an explanation will be required explaining why these things have not been done).

Companies will have general and specific obligations by law. General obligations would include its obligations under company law and tax law, while specific obligations may arise due to the sector or activity that a company is engaged in.

The things which directors must do or alternatively explain why it has not done so are as follows:

The Act states that these three measures are likely to secure a company's compliance with its relevant obligations. In putting such measures in place the directors may rely on the advice of any employee or consultant who appears to the directors to have requisite knowledge and experience to advise the company on compliance with its relevant obligations.

Failure to include a compliance statement is a criminal offence and each director will be guilty of a category three offence.

Conclusion

The Act imposes significantly stricter obligations on directors and the reintroduction of compliance statements confirms that it is the duty of directors to ensure compliance with the Companies Acts. While the Act will not be commenced until June 2015, it is vital that directors and companies start the preparation process now for these imminent obligations. This will involve establishing appropriate structures and arrangements and familiarising with the relevant obligations under law. LK Shields would be happy to assist companies and their directors in complying with any of these new requirements.

Author:

Ruairi Mulrean is a partner in the Corporate and Commercial Department at LK Shields Solicitors. Ruairi specialises in Corporate Law and is the key contact for the Companies Act at LK Shields.

Conversion of Existing Private Companies - Glossary

Last updated on 22nd July 2014

Part 2 of the Companies Act 2014 (the Act) will not only consolidate all the Companies Acts 1963 to 2013 it will also introduce two new types of private companies limited by shares to replace the existing single type of private company limited by shares.

Therefore shareholders and directors of all existing private limited companies will have to decide whether to register as a company limited by shares ("LTD") or become a designated activity company ("DAC").

This is a decision that will effect approximately 90% of Irish registered companies which are currently private limited companies.

LTD’s and DAC’s

There will be a number of differences between the two types of private limited companies which will need to be considered when making this decision including:

LTD companies will be able to have a single director while DAC’s will need to have more than one;

LTD’s will be governed by a single constitutional document and will not be bound by the ultra vires rule while a DAC will retain the two document constitution in the form of the memorandum and articles of association and will be bound by the ultra vires rule (albeit in a restricted form); and

LTD’s will not be entitled to list debt securities for sale to the public whereas DAC’s will.

Transition Period

The Act provides for an eighteen month transition period from the date of its commencement during which the directors and members of an existing company will need to decide whether to reregister as a LTD or a DAC. During this time current private companies will continue to be governed by the Companies Acts and be treated as a DAC.

Options

There are three options available to private limited companies during the transition period:

Companies can convert to a LTD by submitting a Form N1 together with a special resolution and a copy of the new constitution.

Companies who do not wish to change to a LTD can choose to convert to a DAC by submitting a Form N2.

Where no action is taken during the transition period a company will default to a LTD and its existing memorandum and articles of association will be deemed to have merged into a single document constitution. This approach is not recommended as under the Act it could expose the directors to a claim from shareholders that their rights were being oppressed.

The Companies Act 2014 is expected to come into force on 1 June 2015. The Act will give rise to a more simplified company law regime where all legislation relating to LTD’s is dealt with in one part of the Act and all legislation relating to all other types of companies in another part of the Act. Directors and members will need to carefully consider what is appropriate for them and their company. The Act is intended to make it easier and cheaper to operate a company in Ireland.  Practical changes such as this are an example of that aim being put into practice.

Author:

Alan Browning is head of the Company Secretarial and Compliance team at LK Shields Solicitors. For further information, you can contact Alan at abrowning@lkshields.ie.

Single Director Companies - The Buck Stops With You

Last updated on 22nd July 2014

Presently, under the Companies Acts 1963-2013, a company is required to have at least 2 directors at all times.

Under the Companies Act 2014 due to come into effect on 1 June 2015, an individual will be able to set up a company and name themselves as sole director. From a corporate governance perspective, this would render the sole director solely responsible for the company. The individual would not share their director's duties with another and therefore have the sole responsibility to ensure compliance with regulations and attend to all filing requirements most notably the annual return. The change is also recognition of the reality that often a sole individual's entrepreneurship leads to successful businesses and the second director often does not participate in the day-to-day management of the company and is only there to fill a legal requirement.

However, a company will still be required to have a secretary and a sole director cannot also be the secretary. The director will have a duty to appoint someone with the requisite skills for the role. This can be a corporate body, such as a company secretarial ("CoSec") services provider. Using a CoSec provider would allow the individual to set up a company without needing to entice a second individual into the venture.

It will remain the case that a corporate body cannot be appointed as a director.

These changes will particularly assist start-up companies by reducing the barriers to entry and encouraging growth in the economy. Individuals will require a separate company secretary; LK Shields can assist by providing companies with the CoSec services they require.

Author:

Ruairi Mulrean is a partner in the Corporate and Commercial Department at LK Shields Solicitors. Ruairi specialises in Corporate Law and is the key contact for the Companies Act at LK Shields.

Directors’ Meetings Taking Advantage of Modern Communications

Last updated on 22nd July 2014

The Companies Act 2014 will bring welcome development and modernisation to the Irish corporate governance landscape.

The fundamental process of a company approving a transaction by a directors' resolution will be simplified. Meetings will by default be properly constituted through electronic communications and alternatively resolutions may pass by default as a resolution in writing, without the need to convene a meeting.

Under the Companies Acts 1963-2013, directors must hold a meeting in person to pass directors' resolutions unless the company's articles of association provide for resolutions to be passed in writing without holding a meeting or unless they provide for a meeting to be duly constituted through electronic communications.

The common law supplements this position providing in effect that where all directors' can be shown to be in agreement, a matter can be deemed to be approved by the directors.

The Companies Act 2014 deals with directors’ meetings and provides the default position that directors may pass formal resolutions in writing without a meeting, signed in counterparts by all directors. A company can, if it chooses, derogate from this default position by providing otherwise in its constitution. This provision recognises the modern reality that business is often conducted through electronic means which can significantly improve a company's ability to transact quickly.

The Act further provides for a situation where one or more (but fewer than half) of the directors are prohibited from voting at a meeting under the company’s constitution or a rule of law, e.g. due to a conflict of interest. The remaining directors may pass the written resolution themselves and the resolution must state the name of each director who did not sign it and the basis upon which he or she did not sign it. All directors no so prohibited from signing, must sign a written resolution for it to be valid.

Electronic communication provisions for attendance at directors’ meetings are also included as default in the Act.

These changes are much needed and will go a long way to reducing the risk that an action of a company is invalidated due to poorly drafted articles of association.

Author:

Ruairi Mulrean is a partner in the Corporate and Commercial Department at LK Shields Solicitors. Ruairi specialises in Corporate Law and is the key contact for the Companies Act at LK Shields.

Glossary of Director’s Duties

Last updated on 22nd July 2014

Part 5 of the Companies Act 2014 (the Act) will for the first time, codify in legislation the eight main fiduciary duties of directors in one place.

Introduction

Currently the main sources of director's fiduciary duties are derived from common law relating to companies as created and developed by the courts. These common law duties include a duty to act in the best interests of the Company, not to abuse their powers and to act with due care and skill. In addition Directors must comply with statutory duties and obligations arising under the Companies Acts 1963-2013.

Proposal

The Act consolidates the duties and responsibilities of directors in in one unified code for clarity and transparency. The new regime will apply to all directors, including those that have been formally appointed, de facto directors (a common law concept now given legislative recognition in the Act) and shadow directors.  The fiduciary duties to be adhered to are the following:

Directors Liability

Directors who are found to be in breach of their duties will be liable to account for any gains accrued and must indemnify companies for losses resulting from any breaches of duties.  A court may grant relief from liability where it is satisfied that a director acted honestly and reasonably at all times.

Secretary

Secretaries are also dealt with in the Act but they are not subject to the same duties as directors, reflecting the fact that their duties are those that have been delegated by the board of directors.

Conclusion

The Companies Act 2014 is expected to come into force on 1 June 2015. The codification of directors' duties in one place will greatly assist directors in identifying what is required of them. The Act is intended to make it easier and cheaper to operate a company in Ireland.  Practical changes such as this are an example of that aim being put into practice.

Author:

Alan Browning is head of the Company Secretarial and Compliance team at LK Shields Solicitors. For further information, you can contact Alan at abrowning@lkshields.ie.

Directors’ New Duty - Skilled Secretaries

Last updated on 22nd July 2014

Presently, under the Companies Acts 1963-2013, only the directors of a public limited company had a duty to ensure the secretary had the necessary skills.

While one of the Companies Act 2014's major reforms is to permit single director private companies, it retains the requirement that private companies must have a company secretary. The secretary may however be a body corporate so a single director company may exist without requiring a second individual. In so doing, the Act does not follow the position in the UK where the office of company secretary is an optional one.

While a director might currently also be the secretary (which continues to be the case for multi-director companies), under the Act the sole director of a single director company must appoint a separate person to act as the company secretary.

Whether the role of company secretary is fulfilled by one of the directors or a separate person, under the Companies Act, all of the directors have a duty to ensure that the person appointed as secretary has the skills necessary to discharge the statutory and other legal and delegated duties of the office.

The introduction of this new duty on directors of private companies seeks to ensure that companies comply with their internal record keeping and external filing requirements under law. This area of compliance has become increasingly enforced. It is common for companies that do not file annual returns to be struck off. The office of the Director of Corporate Enforcement has also taken court actions against directors for not keeping proper books of account which resulted in personal liability for the debts of the company being placed on the directors.

Flaws subsequently found in the appointment or qualification of a secretary will not affect the validity of acts done by that secretary.

To be sure that a company's secretary is fully compliant and this duty has been discharged, a company may appoint a company secretarial ("CoSec") services provider. LK Shields can assist by providing companies with the CoSec services they require.

Author:

Ruairi Mulrean is a partner in the Corporate and Commercial Department at LK Shields Solicitors. Ruairi specialises in Corporate Law and is the key contact for the Companies Act at LK Shields.

Satisfaction of Charges

Last updated on 22nd July 2014

Changes Under The Act

The Companies Act 2014 (the "Act") proposes to introduce criminal penalties for company directors and the company secretary if they sign a statement that is received by the Companies Registration Office ("CRO") that confirms that debt secured by a charge has been satisfied in whole or in part or that property has been released from that charge ("a statement of satisfaction or release") when they know that that statement is false.

In addition, if a director or secretary signs a statement of satisfaction or release without honestly believing on reasonable grounds that that statement is true, the court may make an order that results in the relevant director or secretary being personally liable for all or part of the debts and liabilities of the company.

Current Position

Currently, in order to register the satisfaction of a charge, two directors or one director and the company secretary must file a sworn statutory declaration (in the form of a CRO Form C6) in the CRO declaring that the charge has been satisfied.  Upon receipt of the sworn Form C6, the CRO notifies the secured creditor and, unless the secured creditor contacts the CRO to object to the CRO registering the satisfaction within 21 days, the CRO will proceed to register it.  This process was criticised by the company law review group as being highly susceptible to abuse by dishonest directors who are intent on giving a false impression of the company's ability to raise debt by creating security.   While there are criminal penalties for swearing statutory declarations known to be false, neither the Director of Corporate Enforcement nor the Director of Public Prosecutions has relied on the offence of swearing a false statutory declaration to any significant extent in practice.

 New Regime

Section 416 largely re-enacts the existing procedure whereby two directors or one director and the company secretary are required to sign a statement in the prescribed form that a charge has been satisfied and submit that statement to the CRO by way of request that the satisfaction should be registered by the CRO.  A significant amendment under Section 416, however, is that the statement need no longer be made as a statutory declaration (as is currently the case).

Section 416 of the Bill aims to reform, and eradicate abuse of, the registration of the satisfaction of charges through the imposition of the following criminal and civil penalties:

If a person signs a statement of satisfaction or release, knowing it to be false, and that statement is submitted to the CRO, that person can be convicted of a category 2 offence under the Act, which on summary conviction will result in the person being liable for Class A fine and/or 12 months imprisonment or on conviction on indictment will result in the person being liable for a fine of up to €50,000 and/or imprisonment for up to 5 years; or

if a person signs a statement of satisfaction or release without honestly believing on reasonable grounds that the statement is true, and the court considers that the making of that statement either:


The court can then declare that the person who signed the statement of satisfaction or release without an honest belief on reasonable grounds that it was true should be personally liable for all or part of the debts of the company on an application made to the court for such a declaration by a liquidator, examiner, or any creditor or contributor, of the company or a receiver of company property.

Conclusion

The introduction of civil and criminal penalties for company officers in breach of the provisions of the Act will be welcomed by secured lenders in that it provides an additional safeguard against abuse of CRO process by dishonest or careless company officers.  However, it should be relatively easy for company directors and the company secretary to eliminate the risk of civil or criminal consequences for them as a result of signing a statement of satisfaction or release if they only do so where they have received an executed deed of release from the charge holder.

The removal of the necessity for the form of statement to be a statutory declaration will be welcomed by directors as its will become less cumbersome and time consuming to complete the form of statement.

Author:

Andrew Power is an associate solicitor in the Banking team at LK Shields Solicitors. For further information, please contact Andrew at apower@lkshields.ie.

Priority of Charges

Last updated on 21st July 2014

The Companies Bill 2012 (the "Bill") proposes significant reform to the current rules that determine which of two registerable charges created by a company over the same property should be given priority. 

The Bill will introduce, for the first time, statutory priority rules under which priority will be conferred by reference to the date of receipt by the Companies Registration Office ("CRO") of those particulars of the charge that are required to be delivered to the CRO.  For any company charge, if that date of receipt is earlier than the date (or time, if particulars of two charges are received on the same date) on which particulars of a competing charge are received by the CRO, that charge will have priority over the competing charge even if the date of creation of the competing charge will have been earlier than the date of creation of that charge. This rule will apply regardless of existing judicial rules for determining priority, but (a) the rule will be excluded to the extent that other legislation sets out rules for determining the priority of security interests over property of the type affected by the competing charges and (b) charge holders will be permitted to agree priorities different to those resulting from the Bill provisions.

Current Position

The provisions of the Companies Acts 1963 to 2013 do not deal with priority between competing charges created by a company over the same property but do require particulars of each registerable charge to be delivered to the CRO within 21 days of creation of that charge if that charge is to be enforceable against a liquidator of the company and its creditors.  Therefore, where the issue of priority of competing charges arises at present, the courts determine that issue by reference to judicial rules that have developed as part of the common law.

Generally, priority is given to security interests by reference to date of creation (first created ranks first) but there are exceptions to this rule, notably when the first charge holder has failed to take measures that a prudent charge holder would take to put others on notice of the security held and another person has given value (typically, by way of loan) for a subsequent charge and has taken that subsequent charge without notice of the charge given in favour of the first charge holder.  In addition, priority of security interests over certain types of property may be determined on the basis of statutory rules specific to that property. For example, the priority of security interests over registered land is determined by date of registration under the Registration of Title Act 1964 and the Land Registry rules.

New Regime

Section 412 of the Bill provides that the priority of charges created by a company will be determined by reference to the date of receipt by the CRO of the particulars of that charge that are required to be delivered to the CRO (the "prescribed particulars") except where statutory provisions other than those of the Bill determine priority and subject the rights of the charge holders to agree between themselves that different priorities will apply to the charges.

Therefore, whenever the CRO will receive prescribed particulars of a charge on a date (or a time if particulars of two charges are ever received on the same date), that charge will have priority over every other charge affecting the same property for which the CRO will receive prescribed particulars at a later date or time irrespective of the dates of creation of the charges. 

The priority that the Bill gives to receipt by the CRO of the prescribed particulars of a charge will become very clear where a company or potential lender will decide to avail of the two stage registration process by sending particulars of intention to create a charge to the CRO within 21 days of the date on which it will be created followed by a notice stating that the charge has been created which must be received by the CRO  not later than 21 days after receipt by the CRO of the particulars of intention to create that charge.  The Bill provides in Section 412 (3) that priority of the charge will relate back to the date on which the CRO will have received particulars of the intention to create it even though there will be no charge in existence on that date.

Conclusion

The introduction of statutory rules for determining the priority of competing security interests based on earliest receipt of prescribed particulars of a charge by the CRO is to be welcomed as it simplifies the determination of priority considerably and in a manner that should be within the control of the company and the charge holder.  The new rules are also consistent with rules that apply already to registered land.  It is likely that delivery of the prescribed particulars of the charge to the CRO will become a standard completion condition so that the CRO will receive those prescribed particulars contemporaneously with the first advance of the loan secured by the charge.

While the Bill will give the option to deliver particulars in advance of creating the charge, it is possible that that option could prove to be an unwelcome complication.  Section 410 (2) of the Bill (if enacted as drafted) would permit a potential lender to deliver to the CRO particulars of an intention by a company to create a charge.  Doing so could (a) have a detrimental impact on negotiations that the company could be conducting with other lenders, (b) undermine the confidentiality required for the company to successfully complete acquisition negotiations and  (c) possibly interfere with the company's ability to deal with its assets given the concerns that third parties dealing with the company will likely have that the priority of a security interest will relate back to a time prior to completion of their dealing when the CRO first received particulars of the intention to create that security interest.  Therefore, with a view to ensuring that interference with the company's business is kept to a minimum until such time as the company has contracted for a loan and security, it might have been preferable for the drafters of the Bill to stipulate that it is only open to the company itself to deliver particulars of an intention to create security.  That system could be open to abuse by the company, however, as companies in distressed financial circumstances could elect to deliver particulars of an intention to create security with a view to giving a misleading impression of the credit worthiness and financial health of the company.

Generally, the option to register before security has been created does not seem to be a response to failings in the current system and introduces (without defining) uncertain concepts such as "the company's intention to create the charge", which could conceivably be exploited to the disadvantage of the company or its creditors.

Author:

Liam Carney is a partner in the Banking team at LK Shields Solicitors. For further information, you can contact Liam at lcarney@lkshields.ie.

Will the Companies Bill damage your access to credit?

Last updated on 20th July 2014

The issues raised in this article have been addressed in the Companies Act 2014.

The new Companies Bill is likely to become law later this year or early in 2015. Changes in the Bill to rules setting out lenders' security over companies and their assets are set to create uncertainty that may well lead to less, rather than more, lending. That unintended consequence would run counter to Government strategy which has focused heavily on initiatives to make credit more readily available to business. However, there is a significant risk that the Companies Bill changes will undermine this objective.

The Companies Bill maintains the existing system that allows lenders to preserve entitlement to significant categories of loan security by filing particulars of their security in the company's public register kept by the Companies Registration Office. This system enables any member of the public to see whether there is a priority claim over a company's assets before dealing with that business. Under the new Bill, where two lenders have security over the same company assets, legal priority is given to the first lender who files their charge with the Companies Registration Office.

In most cases the enhanced security filing rules should allow lenders to safeguard loan security when the provisions of the Companies Bill apply. But, those provisions will only apply when the loan security is a "charge" as defined in the Companies Bill. This "charge" definition is new and very broad, but it excludes security over specified categories of assets, notably cash and claims to cash.

Generally, the excluded security categories are protected under a European Union initiative to simplify and harmonise rules for preserving and enforcing financial collateral in money market transactions. This initiative is now law in Ireland. However, those regulations only protect "cash" claim security if the claim is to "money credited to an account, or a claim for the repayment of money (for example, money market deposits)". "Cash" does not have this restricted meaning under the new Companies Bill.

As a result, the courts will likely give "cash" claim its everyday meaning of "any right to payment". That interpretation will mean that a lender will not have the benefit of the security preservation and priority rules under the Companies Bill for security over a company's customer debts (known as trade receivables) or any other payments owing to the company, even though they might be specifically included in the lender's security document.

Typically, lenders give significant weight to the value of a company's trade receivables in assessing its capacity to repay debt. So, the receivables influence the amount that a lender will be willing to lend and the duration of the loan.

Given this link, lenders have developed a variety of strategies for ensuring they get the benefit of the trade receivables book in the event the loan defaults. That includes taking a fixed charge on book debts or buying the trade receivables at a discount under debt factoring arrangements. Lenders may also rely on registering a floating charge, if satisfied that potential leakage to preferred creditors (principally the Revenue Commissioners and employees) won't prevent recovery of the loan.

If those security preservation and priority provisions are thrown into doubt when the new Companies Bill becomes law, lenders are likely to question the value of their charge - fixed or floating - over trade receivables.

The alternative, debt factoring or selling on invoices, may not work for all companies.Doubts about the recoverability of loans will translate into less credit being made available.

The Companies Bill will make other security changes that could prove controversial or cause uncertainty.That includes conferring statutory priority to a floating charge that has been filed prior to a fixed charge with the Companies Office.

Such changes introduce uncertainty, at least at the outset, which will not encourage lenders to lend.In lending and security law, change should only be introduced when the resulting gains outweigh the benefits that commercial parties derive from certainty.

This article first appeared in the Irish Independant on 28 August 2014.

Author:

Liam Carney is a Partner in the Banking team at LK Shields Solicitors. For further information, you can contact Liam at lcarney@lkshields.ie.