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Companies Bill

  • Ireland
  • General

31-01-2013

The Companies Bill 2012 (the “Bill”), the largest substantive bill in the history of the State, was published, by Minister for Jobs, Enterprise and Innovation Richard Bruton, on 21 December 2012.

The Bill consolidates the existing 16 Companies Acts, which date from 1963 to 2012, into one Act, and will introduce significant reforms in a number of areas. Set out across 25 Parts, and containing 1,429 sections, and 17 Schedules, it aims to provide a state of the art company law code, as part of the Government's drive to make Ireland the best small country in the world in which to do business.

Parts 1–15 provide an exhaustive and comprehensive statement of the law governing the life-cycle of the new model default company, a private company limited by shares (“CLS”). The Bill recognises the commercial reality in Ireland where 90% of all companies, registered at the Companies Registration Office, are classified as a CLS.

It also contains a number of provisions which seek to simplify and improve the legislation relating to such companies, with the aim of reducing red tape, making it easier both to incorporate a company and to know and understand the various company law obligations under the code.

Parts 16–25 of the Bill, will provide each company type (for example, PLCs, guarantee companies, unlimited companies) with its own dedicated Part within the Bill, thereby improving the accessibility and visibility of the law for all users.

CLS Provisions

The Bill provides for following key changes to the governance of CLS.

  • Single Director Companies
    In a change that will be welcomed by many small private companies, which in reality are run by one individual alone, it will now be possible for a CLS to have one director.  There will no longer be a requirement to have a second director merely to comply with a requirement of the law. Accountability in governance will be increased as the requirement for nominee directors to make up numbers will fall away.  However, it will not be possible to have a single officer company.  Although the Bill includes a provision that one of the directors may also act as the company secretary, section 130(6) of the Bill provides that where a company has only one director, that person may not also hold the office of secretary of the company.
  • Full and Unlimited Capacity
    A CLS will no longer be required to have an objects clause setting out what the company does and does not have the capacity to do. A CLS will have the same legal capacity as a natural person.  This will effectively abolish the doctrine of “ultra vires” in relation to companies and will remove any concern companies or lenders may have as to a CLSs’ ability to perform a transaction or grant security.
  • One-document Constitution
    The requirement under the current law for every company to draft detailed Articles of Association will no longer apply; instead the Bill will contain provisions which will apply by default. Where a CLS wishes to vary any of these provisions it will be required to use an alternative form of private company, a designated activity company (“DAC”).
  • Annual General Meetings
    Under the proposed Bill, a CLS will not be required to hold a physical AGM. Instead the business required to be carried out at an AGM can now be completed by written procedure.
  • Summary Approval Procedure
    A new uniform procedure will allow a CLS to carry out certain restricted activities by means of a directors' declaration and a shareholders' resolution, (for example, certain transactions with directors, financial assistance, capital reductions, and solvent windings up). The Summary Approval Procedure ensures that those persons the restrictions are designed to protect, consent to the carrying out of the restricted activities.
  • Majority Written Resolutions
    The Bill proposes to dispense with the existing requirements to provide unanimous written shareholders resolutions, in favour a written resolution, signed by the ‘requisite majority of members’, for both ordinary and special resolutions.

Directors Duties

Part 5 of the Bill, codifies directors’ duties, drawing together for the first time in a single piece of legislation, the various common law duties developed by the courts. While, this is a welcome move, the reality is that interested parties will still have to look at case law to interpret what these duties entail. These duties will apply to all directors, regardless of whether whey are formally appointed, are de facto, or shadow directors.

Company Law Offences

In keeping with the stricter approach to enforcement of Company Law, all offences will be streamlined and categorised into four categories. While category 4 offences will be summary in nature and punishable by a Class A fine (a fine not exceeding €5,000), category 1 offences, being the most serious, will carry a maximum fine of €500,000 or a maximum term of imprisonment of 10 years on indictment.

Compliance Statements

Under the Bill, directors’ compliance statements, the subject of controversy to date, are to be re-introduced. Directors of a company meeting certain financial thresholds, will be required to prepare a directors’ compliance statement, whereby directors must include a statement that acknowledges that they are responsible for securing the company’s compliance with its obligations under both the Companies Acts, a contravention of which is a category 1 or 2 offence, and relevant provisions of the tax code.

Charges

The Bill introduces substantial changes to the registration and prioritisation of charges.  Unless the priority of charge is governed by some other regime, the Bill generally provides that priority of the charge created by a company will be determined by reference to the date filed with the Companies Registration Office.

Mergers

Although cross border mergers and divisions involving Irish companies have been possible for a number of years, for the first time in Irish law, the Bill introduces a statutory mechanism whereby two Irish companies can merge so that the assets and liabilities of one are transferred to the other before the former is dissolved.  The Bill also provides for an Irish company to be divided and its undertakings split between two other Irish companies. 

Conversion

It is important to note that an existing private company which does not wish to convert into a private company under the Bill will have a six month period from the time when the relevant section of the Bill is commenced to convert into a DAC by passing an ordinary resolution. After that six month period, every private company will have a 12 month “transition period” to adopt a new Constitution compatible with the Bill.

Companies will have an option to pass an ordinary resolution not less than 3 months before the end of the transition period to become a DAC and re-register with the CRO as a DAC.

It will be compulsory for a company to re-register as a DAC in certain cases, namely if the company offers securities to the public before the end of the transition period or if notice by member(s) holding more than 25% of voting rights directing re-registration as a DAC is served on the company not less than 3 months before the end of the transition period.

If no re-registration application has been filed by the end of the transition period, the company will be deemed to have a constitution comprising the provisions of its existing memorandum excluding its objects clause and of its existing articles of association.

A new certificate of incorporation will issue to all converted companies to provide legal certainty.

Timetable to Enactment

While Government has indicated that the Bill will be given priority status, given the sheer size of the consolidation, and the reforms contained therein, there is no current timetable for the passing of the Bill into law.

We will therefore provide our clients with regular updates as to the progress of the Bill, as it progresses through the parliamentary process, with particular attention being given to the any transitional regime for existing companies. 
 

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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