THE COMPANIES ACT 2014 – What’s New?
The Companies Act 2014 was designed to consolidate Irish company law by repealing the Companies Act 1963 and 17 other statutes and replace them with a singular act which would simplify the operation of company law in Ireland. It is primarily aimed at consolidating, rather than reforming Irish company law. However, it does make a number of changes a selection of which are outlined below.
New form of private company in Ireland
Two new forms of companies have replaced the old private company limited by shares (“private company”), which is currently the most common form of company in Ireland. It will be replaced by a private company limited by shares (“LTD“) or a designated activity company (“DAC“).
An LTD can choose to only have one director, although its secretary must be a different person if this option is chosen. In addition, a single document constitution will replace the memorandum and articles of association, which are currently required for a private company. An LTD does not require an objects clause in its constitution, giving it unlimited corporate capacity. The new position in the Act abolishes the ultra vires doctrine, enabling the company to enter into transactions without fear of the contract being rescinded. Previously companies were forced to draft objects clauses widely to ensure their actions were not ultra vires the objects clause of the company. It is envisaged that the LTD will become the standard company in Ireland, replacing the private company limited by shares.
A DAC retains a similar structure to the current private company. It retains the memorandum and articles of association as its constitutional documents and must have an objects clause, in contrast with an LTD. DACs are aimed towards those companies which wish to list debt securities on the stock exchange or where they wish the company to have an objects clause. Credit institutions and insurance companies must register as a DAC and cannot operate as an LTD.
Following the expected commencement of the Act on 1 June 2015 there will be an 18 month transition period. During this period existing private companies may elect which company form it wishes to continue with under the new legislation. It can convert to an LTD or DAC, or re-register as another type of company. However if no election is made the company automatically becomes an LTD at the end of the transition period. Therefore it will be deemed to have a one document constitution comprising of its existing memorandum and articles of association but without the objects clause. Any article which directly contravenes the new Act will be automatically void. In light of this company owners should review its old articles before entering a transaction to ensure an article relied upon is not void.
New categorisation of offences
Offences are now streamlined in one provision (part 14). A four tier categorisation of offences is created, with 1 being the most serious and punishable with up to 10 years imprisonment and/ or a €500,000 fine on indictment.
Director’s duties extended – audits etc & common law directors’ duties codified
Additional duties have been imposed on directors in relation to audits. Directors of PLCs and certain large private companies must include a statement of compliance with company and tax law in the director’s report in the annual accounts. This acts as confirmation that the directors have no relevant audit information of which the auditors are unaware. Non-compliance with these requirements are category 2 and 3 offences. This provision makes directors accountable for the accuracy of its company’s accounts. In addition, director’s common law duties have been codified (Chapter 2 of Part 5) which makes it more difficult for a director to plead ignorance or misunderstanding to his duties.
A “registered person” may be authorised to bind the company in contract and notified to the CRO . This allows the “registered person” to enter transactions on behalf of the company without obtaining a copy of a board resolution.
Summary Approvals Procedure
This involves “whitewashing” various transactions which may not otherwise be permitted under the Act. It is intended to be a simpler and more cost-effective method of approving certain activities without recourse to the courts. It is currently only available under section 60 of the Companies Act 1963, relating to providing financial assistance to a company to purchase its own shares. The Summary Approval Procedure under the new Companies Act 2014 allows the company to pass a special resolution and a statutory declaration of solvency (although this may have to be supported by an independent person’s report), to approve certain transactions.
Mergers and Divisions
The new model merger provisions have been modelled on EC (Cross-Border Mergers) Regulations 2008, which regulates mergers between Irish companies and companies from other EU member states. It will be the first time in Ireland that a statutory procedure allows two Irish companies to merge where the assets and liabilities of one transfer to another, after the which the former company is dissolved. A merger will be capable of being affected by absorption, by acquisition or by formation of a new company.
Do you need more Detail?
We are happy to provide more information should you wish to discuss how this new legislation will affect your business
Stephen Keogh – Partner
Corporate & Commercial Department
Keating Connolly Sellors