The Companies Act 2014 has brought about changes to the disclosure obligations relating to the interests of directors and secretaries in shares, debentures and share options. These changes provide welcome administrative relief for such officers and reduce the likelihood of the rights and interests attaching to such shares and debentures being unenforceable.
The Companies Act 2014 (the "Act") has significantly overhauled corporate law in Ireland. As part of this overhaul, some important changes have been introduced to the disclosure obligations imposed on directors and other individuals relating to certain interests in shares or debentures in a company or a related group company. This area of the law is difficult to navigate but we have briefly outlined some of the noteworthy changes for you.
Disclosure of Interests
Under the Act an officer, that is a director or secretary, is still required to disclose to the company interests held by directors, secretaries, the director or secretary's spouse, civil partner or children in the company or a related group company. However, some changes to the strict disclosure requirements have been introduced. Chapter 5 of Part 5 of the Act has relaxed the disclosure requirements slightly by prescribing a new threshold for disclosure. Below this level, an interest in relevant shares does not need to be disclosed.
Interests of 1% or Less
No disclosure is required in the following circumstances:
- when the shares in certain companies held by an officer represent an interest totalling 1% or less of the nominal value of the company's issued share capital of voting shares; or
- if the shares or debentures carry no voting rights.
In calculating the percentage interest held by an officer any interest held by connected persons, such as spouses and children, is taken into account. This new exemption will have a significant impact on those officers holding small interests. Previously, such officers would have been required to disclose every interest held in a company and any related group company.
The Act also extends an exemption to share options. There is no longer an obligation on an officer of a company to make any notification to the company in respect of options granted to them to subscribe for shares in, or debentures of, the company.
Remedies for Non-Disclosure
Previously, a failure to disclose relevant interests within the prescribed timeframe had significant consequences. The rights and interests of the officer in the shares and debentures held were rendered unenforceable, unless an application to remedy the situation was made to the High Court. Two new provisions have been introduced under the Act which may save an officer the expense of making such an application.
In brief, there are two circumstances in which the interests will not be rendered unenforceable:
- where details of the relevant interest are apparent on the face of certain statutory registers of the company, or on documents made available with those registers, within 30 days of the date upon which the officer's duty to notify arose; or
- if the company passes a certain form of resolution which will provide protection to third parties who are trying to purchase the relevant share or debentures.
Reduction in the Sanctions Applicable for a Breach
The Act has reduced the sanctions applicable to officers for failure to disclose their interest. The penalty for failing to disclose is now a maximum fine of €5,000, or imprisonment for a term not exceeding 6 months or both.
The overall effect of these changes is that the disclosure obligations for officers will be considerably reduced and in many cases eliminated. These changes are a welcome relief to officers as the obligations are now considerably less burdensome from an administrative perspective. In addition, officers who have failed to fulfil their disclosure obligations may be able to rely on new saving provisions introduced by the Act, and avoid the expense of having to make a High Court application to have their rights or interest in the shares or debentures reinstated.
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.