The Companies Bill 2012 (the "Companies Bill") represents a major overhaul of Irish company law and is an attempt to consolidate all existing Irish Companies Acts and various statutory instruments into a single, and more simplified, piece of legislation. The Bill is the result of the first comprehensive review of Irish company law since the report of the Company Law Review Committee (1958) and, when enacted (expected in next 2 months), will radically reform the substance and structure of Irish company law.
For an Irish Fund Manager, the key changes will involve reregistering its company as a designated activity company ("DAC"), the introduction of a variety of operational flexibilities (how resolutions are passed, appointment of "registered persons" who can bind the company etc.), the codification of directors fiduciary duties, and (only in the case of large firms) new directors' compliance statement and audit committee requirements.
For Irish Investment Companies, there are far fewer implications as they have no re-registration requirement and are exempt from the directors' compliance statement and audit committee requirements.
It is currently anticipated that the Companies Bill will be enacted within the next two months, with its commencement date expected to be 1 June, 2015.
A number of major areas of reform are proposed, including:
- the private company limited by shares becoming the model company (rather than the public company, as is currently the case);
- the codification of directors' duties;
- new registration and priority of charges rules; and
- a requirement for liquidators to have appropriate qualifications.
2. New Forms of Company
The Companies Bill provides for several new types of company. These include a designated activity company ("DAC"), a company limited by shares ("CLS"), a public limited company/ societas europaea, an unlimited company, a guarantee company, an unregistered company and an investment company.
(i) CLS: Company Limited by Shares
The new model private company, the CLS, is intended to replace the existing private company limited by shares. There are many similarities between these legal entities, however there are some important distinctions such as that:
- the CLS will be capable of being formed with just one director (provided that there is a separate secretary);
- the CLS will operate with a single constitutional document, with no objects clause;
- the CLS will be able to pass majority written resolutions and will be able to dispense with the need to hold an AGM in accordance with the conditions set out in Part 4 of the Bill; and
- the CLS will have full and unlimited contractual capacity.
The "ultra vires" rule (i.e. the rule whereby a company's legal capacity was limited to the objects set out in its memorandum of association) is being abolished.
(ii) DAC: Designated Activity Company
The other form of private limited company provided for under the Companies Bill is the DAC. It is anticipated that Irish Fund Managers, and indeed all private companies regulated by the Central Bank of Ireland, will be established as DACs post the commencement of the Companies Bill.
A DAC will embody certain features which are different to those of a CLS, the key features being:
- the DAC will continue to have a memorandum in its constitution. This will state the objects for which the company is incorporated (the validity of an act done by a DAC shall not however be questioned on the ground of lack of capacity by reason of anything contained in the DACs objects);
- the DAC will have limited liability and will have a share capital or is a private company limited by guarantee;
- the DAC will have at least two directors;
- the DAC will be able to pass majority written resolutions but cannot dispense with the need to hold an AGM; and
- the name of the company must end in "Designated Activity Company" or "Cuideachta Ghníomhaíochta Ainmnithe", unless exempted.
Once the Companies Bill comes into force all existing private companies will have to make a decision whether to convert to:
- a company limited by shares (CLS); or
- a designated activity company (DAC); or
- another type of company (public limited company, societas europaea etc).
The Companies Bill provides for an 18 month transition period, commencing on the commencement date (expected to be 1 June 2015). At the end of that transition period, where an existing private company fails to elect to convert to some other type of company, that company will be deemed to have become a CLS.
3. Irish Fund Managers: To Re-register as a DAC
We expect that existing Irish Fund Managers (AIFMs and UCITS management companies) currently established as private limited companies will be required to re-register as DACs prior to the end of the transitional period.
The Companies Bill provides two straightforward mechanisms for re-registration as a DAC as follows:
- an existing private company may re-register as a DAC by passing an ordinary resolution not later than 3 months prior to the end of the 18 month transition period; or
- an existing private company shall be required to re-register as a DAC before the end of the 18 month transition period, if, not later than three months before the expiry of that period, a notice in writing requiring it to do so is served on it by a shareholder or shareholders holding in aggregate more than 25% of the voting rights.
The Companies Bill also makes provision for relief where a company does not re-register as a DAC before the end of the 18 month transition period. Essentially, one or more of a company's shareholders holding not less than 15% of its issued share capital, or one or more creditors meeting certain qualification criteria, may apply to the Irish courts for an order directing the company to reregister as a DAC.
4. Irish Investment Companies and ICAVs
Existing Irish Investment Companies established pursuant to Part XIII of the Companies Act 1990 (which this Companies Bill will repeal) will be deemed to be an "investment company" under Part 24 of the Companies Bill and will not be required to re-register.
It is anticipated that the new type of corporate fund structure known "ICAV" provided for under the draft Irish Collective Asset-management Vehicle Bill 2014 (the "ICAV Bill") will not be an "investment company" under Part 24 of the Companies Bill, albeit that certain provisions of the Companies Bill will apply to such ICAV vehicles as explicitly provided for in the ICAV Bill.
5. Directors' Duties: Implications for Irish Fund Managers and Investment Companies
One of the most significant changes proposed in the Companies Bill is the codification of directors' fiduciary duties contained. Part 5 of the Companies Bill lists a non-exhaustive list of fiduciary duties which a director owes to a company. These provisions will apply both to Irish Fund Managers (as DACs upon re-registration or establishment as DACs) and to Irish Investment Companies.
6. Requirement for a Corporate Governance Statement where the Company is a Traded Company
The Companies Bill introduces the requirement for a public limited company, a DAC, a company limited by guarantee or a public unlimited company to provide a corporate governance statement where it has shares or debentures admitted to trading on a regulated market in the EEA. This requirement will apply to an Irish Investment Company and to an Irish Fund Manager if it has shares or debentures admitted to trading on a regulated market in the EEA.
7. Directors' Compliance Statement: Implications for Larger Irish Fund Managers
Pursuant to Part 5 of the Companies Bill, the directors of the following types of companies will be obliged to sign a compliance statement acknowledging responsibility for compliance by the company with its "relevant obligations" under company and tax law:
- public limited companies; and
- "large" private companies limited by shares, designated activity companies and guarantee companies (i.e. which have a balance sheet total exceeding €12.5 million and a turnover exceeding €25 million).
"Relevant obligations" under the Companies Bill refers to an obligation under tax law or where failure to comply with company law would constitute a category 1 or 2 offence (i.e. the most serious offences), or a serious market abuse offence or prospectus offence (or in certain cases a serious transparency offence). In this regard, it should be noted that all company law offences will be categorised as being either category 1, 2, 3 or 4 offences and the penalties applicable to each type set out in one provision in the Companies Bill (Part 14).
The compliance statement must confirm that each of the following has been done, or if any has not been done, explain why not:
- drawing up of a compliance policy statement which sets out the company's policies to ensure compliance by it with its "relevant obligations";
- putting in place appropriate arrangements or structures that are, in the directors' opinion, designed to secure material compliance with "relevant obligations"; and
- conducting of a review, during the financial year to which the directors' report relates, of any such arrangements or structures that have been put in place.
Irish Fund Managers which have a balance sheet total exceeding €12.5 million and a turnover exceeding €25 million will therefore will be required to comply with these requirements.
Investment Companies under Part 24 of the Companies Bill are exempt from this requirement.
8. Audit Requirements: Implications for Larger Irish Fund Managers
The existing Companies Acts' provisions regarding audit committees are amended in the Companies Bill.
Those requirements will apply to Irish Fund Managers (re-registered or established as DACs), which have a balance sheet total exceeding generally €25 million and a turnover exceeding €50 million or in the case of a company which has one or more subsidiary undertakings, if the company (and its subsidiaries) exceeds the thresholds mention in the most recent financial year.
Irish investment companies are currently exempt from the requirement to have an audit committee and that position will remain under the Companies Bill.
9. Other Points of Note
A number of other provisions of the Companies Bill will be of interest to Irish Fund Managers (reregistered or established as DACs) and/or Irish Investment Companies (under Part 24 of the Companies Bill) as further described below.
(i) New concept of a "registered person"
Certain types of companies, including public limited companies, investment companies, CLSs and DACs (such as Irish fund management companies) may notify the Companies Registration Office ("CRO") of any person authorised by the board of the company to bind the company. Once authorised by the board of directors and registered with the CRO, such a person (a "Registered Person") will remain authorised to bind the company until the CRO is notified to the contrary (notwithstanding any resolution by the board of directors to revoke this authorisation).
(ii) Appointment of attorney
The latest amendments to the Companies Bill proposed by the Irish parliament in September, 2014 envisage an Irish company will be able to empower any person to be its attorney to execute deeds or do any other matter inside or outside the State without the appointment of the attorney having to be under its common seal. Similarly, a deed signed by the attorney on behalf of the company need not be under the attorney's seal.
(iii) Resolutions in writing currently require unanimity and AGMs
Under the Companies Bill, certain types of companies (such as CLSs and DACs) will be able to transact business by written resolution with requisite majorities to pass an ordinary resolution (simple majority) and a special resolution (75%). However, this will not apply to public limited companies nor to investment companies as these are specifically excluded. Further whilst a CLS can dispense with the need to hold an AGM, this is not the case for Irish fund management companies (re-registered or established as DACs), public limited companies and investment companies which are still required to hold AGMs.
(iv) Changes to the insolvency and corporate recovery regimes
The Companies Bill proposes a welcome consolidation and modernisation of the law relating to liquidations, receiverships and examinerships. The Companies Bill seeks to reduce the Court's supervisory role in Court liquidations such that it is more closely aligned to creditors' voluntary liquidations and introduces greater consistency between the three types of liquidations, being members' voluntary, creditors' voluntary and Court liquidations. The Companies Bill also proposes more extensive powers of intervention and scrutiny over liquidators for the Director of Corporate Enforcement. While the changes in relation to examinerships are relatively modest, the Companies Bill does also reform and consolidate the law relating to receivers.
(v) Priority of charges and registration of charges
The priority of charges created by any Irish company (irrespective of form) under the Companies Bill will now be determined by the date of registration rather than the date of their creation. Therefore priority will be given to the creditor who files first in time which is the system that has been applied in other jurisdictions such as the U.S., Canada and New Zealand for many years. In addition, whilst the existing procedure for the registration of the particulars of charges with the Companies Registration Office within a 21 day period will remain (the "one stage procedure"), a new "two stage procedure" will also be introduced for the registration of the particulars of charges. The one-stage procedure is similar to the current procedure, namely that particulars of all charges created must be delivered to the Registrar of Companies in the CRO within 21 days of their creation. The proposed two-stage procedure provides that a notice can be sent to the Registrar "stating the company's intention to create a charge" followed up by a further notification evidencing the creation of the charge within 21 days of the first filing. The charge will then take effect as to priority on the date of the first preliminary filing. In the absence of a second filing within 21 days, the first filing would lapse. In addition, the nature of the security required to be registered with the Companies Registration Office will change. In this regard, a new definition of a "charge" will be included in the Companies Bill. It will be defined so as to encompass security interests for non-possessory security over any real or personal property but excluding the type of assets referred to in the EU Financial Collateral Regulations.
10. Next Steps
The report and final stages of the Companies Bill 2012 were completed on 30 September 2014. It is anticipated that the Companies Bill will be enacted before year end with the commencement date thereof expected to be 1 June, 2015.
It is anticipated that the position for UCITS Investment Companies will be aligned with the position for non-UCITS Investment Companies (the latter being governed by Part 24 of the Companies Bill) through further Irish legislation in the near future.
Dillon Eustace will provide regular updates and briefing sessions on the Companies Bill as the effective date becomes closer.
|Irish Fund Managers||Irish Investment Companies|
|To re-register as Designated Activity Company ("DAC") under 1 of 2 conversion mechanisms.||No re-registration requirement will be an "investment company" under Part 24 of the Companies Bill.|
|Codification of directors' fiduciary duties.||Codification of directors' fiduciary duties.|
|Requirement for a corporate governance statement where the company is a traded company.||Requirement for a corporate governance statement where the company is a traded company.|
|Directors' compliance statement for large fund management companies (balance sheet of Euro 12.5 million; turnover exceeding Euro 25 million).||Exempt from compliance statement requirements.|
|Audit committee requirement for large fund management companies.||Exempt from audit committee requirements.|
|Must have two directors.||Can have 1 director (once a separate secretary).|
|Continues to have a memorandum of association (but not capacity issue).||Will operate with a single constitutional document, with no objects clause.|
|Able to pass majority written resolutions.||Able to pass majority written resolutions.|
|Cannot dispense with holding AGM.||Can dispense with need to hold AGM.|
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.