NEW SUMMARY APPROVAL PROCEDURE
The Companies Act 2014 (the "Act") came into operation on 1 June 2015 and has introduced significant reforms in company law in Ireland. One of the key innovations under the Act is the summary approval procedure ("SAP"), a new streamlined process for the authorisation of up to seven different types of restricted activities that would otherwise be prohibited or, in some cases, require a High Court order.
SHARE CAPITAL REDUCTION
A share capital reduction is when a company reduces its capital to, among other things, create distributable reserves or return surplus capital to its members.
The Act allows private limited companies, designated activity companies, companies limited by guarantee and unlimited companies to carry out a capital reduction under the SAP without the need for court intervention (provided the company's constitution does not prohibits the company from reducing its capital), providing a quicker, easier and cheaper way to reduce share capital. This procedure is not available to PLCs which must obtain High Court approval for any proposed capital reduction.
SHARE CAPITAL REDUCTION USING THE SAP
In order to effect the reduction of capital by SAP, certain steps must be taken by the company:
The declaration made by the directors must be accompanied by a report in a prescribed form by a person who is qualified to be a statutory auditor of the company which states that the declaration is "not unreasonable".
The amount of work involved in preparing this declaration will depend on the complexity of the company's operations. One practical way to reduce the work involved would be for the auditor's declaration to be issued shortly after the completion of the annual audit.
Where a director makes a declaration without reasonable grounds for the opinion as to the solvency of the company, the director may be found to be personally liable for all of the debts of the company. If the company is wound up within 12 months after the date of making the declaration and its debts are not paid up or provided for within 12 months after the commencement of the winding up, it will be presumed, until the contrary is shown, that each director who made the declaration did not have reasonable grounds for doing so.
Practical steps that can be taken by the directors to help demonstrate the reasonableness of their actions include the review at board level of projected cash-flow and working capital for the coming 12 months. Depending on the timing of the capital realisation, this process could be done as part of preparing the annual financial statements.
The SAP reduces the complexity involved in the reduction of share capital and will allow certain Irish companies an efficient and cost effective mechanism for reducing share capital. This is a significant positive development for Irish companies. The facility for a making a capital reduction by court application continues to remain an option for PLCs.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.