We bring you an update on the long-awaited publication of draft legislation which will considerably broaden the requirement for Irish unlimited subsidiary companies to publicly file financial statements.
What has happened?
The Irish government has just published draft legislation which will abolish 'non-filing structures' in their current form for Irish unlimited companies. In addition, accounting and disclosure requirements for smaller companies will be relaxed and a number of technical amendments will be made to the Companies Act 2014.
This means that certain types of private unlimited company ("non-filing ULCs") which, up to now, were exempt from filing their financial statements with the Irish Companies Registration Office ("CRO") will be required to file those financial statements with their annual returns, making them publicly available.
Who is affected by the filing changes?
Irish registered unlimited companies which have a (direct or indirect) limited liability holding company or subsidiary company.
Under existing law, non-filing ULCs are unlimited companies with at least one member that is:
- an unlimited liability entity (an unlimited company, or partnership whose partners have no limit on their liability) formed under the laws of a jurisdiction outside the European Economic Area, even where the ultimate shareholders of that entity themselves have limited liability; or
- an individual.
Under the draft new law, the following entities come within the filing requirement:
- An unlimited company that at any time during the relevant financial year:
- has been a subsidiary undertaking of an undertaking (being an Irish or non-Irish body corporate, partnership or unincorporated body of persons engaged for gain in the production, supply or distribution of goods, the provision of services or the making or holding of investments) which was at that time limited;
- has had rights exercisable in respect of it by or on behalf of 2 or more undertakings which were at that time limited, being rights which if exercisable by one of the undertakings would have made the unlimited company a subsidiary undertaking of it; or
- has been a holding company of an undertaking which was at that time limited.
- An unlimited company which is a credit institution or an insurance undertaking or holding company of a credit institution or an insurance undertaking.
- An unlimited company, all of the members of which are:
- companies limited by shares or by guarantee (Irish or non-Irish);
- unlimited companies (Irish or non-Irish), each of whose members is a limited company (Irish or non-Irish);
- partnerships (Irish or non-Irish) which are not limited partnerships, each of whose members is a limited company (Irish or non-Irish);
- limited partnerships (Irish or non-Irish), each of whose general partners is a limited company (Irish or non-Irish); or
- any combination of the entities in (a) and (c).
- An unlimited company, the direct or indirect members of which comprise any combination of unlimited companies and bodies referred to in (c) above such that the ultimate beneficial owners enjoy the protection of limited liability.
Where are the legal changes to the non-filing regime?
In the Companies (Accounting) Bill 2016 which will transpose Directive 2013/34/EU into Irish law and amends the recently introduced Companies Act 2014.
Section 76 of the Companies (Accounting) Bill 2016 (the "Bill") expands considerably the definition of "designated ULC" in section 1274 of the Companies Act 2014 (the "2014 Act"), effectively bringing more unlimited companies within the requirement to file audited financial statements on an annual basis.
Section 1274 of the 2014 Act exempts non-designated unlimited companies (ie. unlimited companies falling outside the "designated ULC" definition) from the requirement under sections 347 and 348 of the 2014 Act to file financial statements and related reports with their annual returns filed with the CRO.
When do the new filing requirements come into effect?
The draft legislation does not specify to which financial year the changes first apply but the expectation is they will apply to financial statements for years beginning on or after 1 January 2016 in line with Ireland's requirements under Directive 2013/34/EU.
Confirmation of the financial year to which the changes first apply, including any possible deferral due to delay in publishing the legislation such that it would apply for periods commencing on or after 1 January 2017, will only be available once the Bill is enacted and the relevant section commenced by ministerial order.
If the terms of the Directive are followed, companies with a 31 December 2016 year end will be required to publicly file their 2016 financial statements by late November 2017 as the Act essentially requires financial statements to be filed with the CRO within an 11 month period following a company's previous financial year end.
On this basis, financial statements for non-filing ULCs for periods up to 31 December 2015 will not be filed with the CRO. However, figures in relation to financial year ended 31 December 2015 will be visible in the comparatives in the 2016 financial statements.
Why the change?
Directive 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings (the "Directive") amends earlier EU directives in this area. It was due to be transposed into Irish law by 20 July 2015 but this was delayed.
Article 30 of the Directive set out the general publication requirement obliging Member States to ensure that undertakings publish financial statements and related information within a reasonable period of time after the balance sheet date. The Directive states that it is principles-based and should ensure that it is not possible for an undertaking to exclude itself from the Directive's scope by creating a group structure containing multiple layers of undertakings established inside or outside the European Union. It was in this context that Ireland moved to abolish the non-filing structure.
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