The deadline for re-registering your private company limited by shares as a new form LTD or Designated Activity Company is fast approaching. We outline some practical points for consideration in the final days of the transition period, which expires on 30 November 2016.
LTD or DAC?
Private companies limited by shares, incorporated prior to 1 June 2015, need to take action to re-register as a new form LTD (a private company limited by shares as defined in Part 2 of the Companies Act 2014 (the "Act")) or a Designated Activity Company ("DAC") before 30 November 2016. Companies that take no action before then will automatically convert to an LTD with effect from 1 December 2016.
Re-registering as a DAC
The deadline for re-registration as a DAC by way of an ordinary resolution was 31 August 2016 and has therefore passed. However, re-registration as a DAC can still be done before 30 November 2016, by passing a special resolution to adopt a new Constitution, and submitting the necessary filings in the Companies Registration Office ("CRO") (Form D20 and Form G1).
Further practical advice on re-registering as a DAC can be found here.
Re-registering as an LTD
While companies can choose to simply wait for the transition period to expire on 30 November 2016 and rely on the default conversion provisions contained in the Act, we recommend that companies be proactive and file a new form Constitution as soon as possible for the reasons set out below.
Consequences of not taking action?
A company that does nothing will automatically become an LTD from 1 December 2016. If a company is automatically re-registered as an LTD, it may face the following issues:
(a) Old Form Memorandum and Articles of Association
It will be left operating with its current Memorandum and Articles of Association ("M&A"). The interpretation of the old form M&A will prove difficult and time-consuming, as it will have to be considered in the context of the new legislation and may contain provisions which conflict with the Act.
The transition period is a good opportunity for companies to review and update their Constitutions to bring them in line with the Act. This action will make the company's Constitution easier to interpret by the board, company secretary and shareholders in the future and will avoid confusion.
(b) Default by Directors
The directors will be in default of a statutory duty – even if there is no offence specified for breach of the duty, the directors may still be liable to adverse comment, such as in a liquidation scenario.
Shareholders could seek redress through the courts where they consider their rights to have been prejudiced by the directors' failure to act.
(d) Delays in the Companies Registration Office
The CRO anticipates that it will receive a large volume of
applications just prior to the expiration of the transition period.
Therefore, companies could face significant backlog and delay in
the filing of the relevant paperwork in the CRO as a
We recommend that any filings be made a number of days prior to 30 November to avoid unnecessary delays with the processing of the filings.
(e) Obligation to re-register as a DAC
Certain types of companies are obliged to re-register as a DAC,
for example credit institutions or companies that wish to continue
listing debt securities. Directors may be in breach of their duties
by not ensuring the Act has been complied with in circumstances
where the company should be re-registered as a DAC.
We recommend that companies be proactive over the coming days and opt to take all necessary steps to re-register as either an LTD or a DAC to ensure a smooth transition under the new Act.
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.