New law from 1 June 2015
The Companies Act 2014 (the "Act") was signed into law in December 2014 and is expected to commence on Monday, 1 June 2015. Until then, companies remain subject to the existing Companies Acts 1963 to 2013. This combined and reformed single piece of legislation will make it easier for companies to carry on business and for directors to read and understand their obligations.
Part 5 of the Act deals with the duties of directors and other officers and will apply to all directors of a company, including de facto and shadow directors, both of which are defined in the Act. It is significant that the Act, in keeping with the current law, does not distinguish between the duties of executive and non-executive directors.
What are the main changes made by Part 5 of the Act to directors and secretaries?
Codification of Common Law Duties
One of the most important changes which the Act introduces is a codification of the existing common law fiduciary duties of directors. Eight duties, including an obligation to act in good faith, to act honestly and responsibly and to avoid conflicts of interest, are set out, which greatly enhances clarity. The Act provides that these duties are owed by directors to the company and are enforceable by the company.
The Act also sets out certain general duties of directors and the company secretary. The Act seeks to distinguish between directors and secretaries in terms of their ability to achieve compliance with the Act. The existing statutory responsibility of the company secretary to ensure compliance with the Companies Acts has been removed and it will be the responsibility of the directors. Therefore, under the Act company secretaries will have responsibility to discharge the duties that are delegated to them by the directors and other statutory duties that are imposed on them. Their duties will include the obligation to convene meetings, record their proceedings, be custodian of the registers and be the person to whom the directors are permitted and expected to delegate their responsibility to make all necessary filings.
Furthermore, there is a new duty imposed on directors in respect of the company secretary. Directors will be required to ensure that the secretary has the suitable skills or resources necessary to discharge his or her statutory and other duties, ie to maintain the records required by the Act.
Directors' Compliance Statement
The Act introduces a requirement for a directors' compliance statement. The requirement is that 1) all directors of all public limited companies and 2) directors of private limited companies, designated activity companies and guarantee companies having both:
- a balance sheet total of more than €12.5m; and
- a turnover exceeding €25m
must include a compliance statement or explain why they do not have one in the directors' report that accompanies the annual audited accounts. All unlimited companies and investment companies are excluded from the scope of this requirement.
The compliance statement is a confirmation by the directors that they have:
- drawn up of a compliance policy statement as to compliance by the company with its 'relevant obligations'. 'Relevant obligations' being defined to include the company's obligations under the Act and under tax law;
- put in place appropriate arrangements or structures designed to secure material compliance with that law; and
- conducted a review, during the financial year of those arrangements and structures.
Part 5 introduces new evidential provisions in respect of loans and other transactions between a company and its directors, the directors of a holding company or connected persons ("Relevant Persons"). In any proceedings which are brought concerning loans made by or to Relevant Persons, the Act introduces certain presumptions. If a loan is made to a Relevant Person by a company, and is not in writing or its terms are ambiguous, it shall be presumed that it is repayable on demand and is interest-bearing. However, a loan made by a Relevant Person to a company which is not in writing will be presumed not to be a loan (i.e. a gift), thereby placing an onus on the director to prove that it was not a gift, or if there was a loan, but the terms are ambiguous, it will be deemed, until the contrary is proven, to be unsecured or bear no interest (as the case may be). These provisions are company friendly and once they become law, directors should fully document the terms on which the loans are made or received.
The current provisions restricting the provision of loans and quasi-loans to Relevant Persons, the entering into of credit transactions, or the provision of security or guarantees in connection with such a loan by a company are echoed in the Act. A welcome addition to the provisions which allow a company to avoid breaching this is the ability to avail of the new summary approval procedure to permit such a transaction.
Disclosure of Interests in Shares and Debentures
Pursuant to Part 5, directors are required to continue to disclose any interest they have in their company's shares and debentures. However, Part 5 introduces some exceptions whereby directors are not required by the Act to disclose any interest they have in the shares of the company if they hold less than 1% of the issued share capital or hold such shares in the capacity of an attorney or proxy. Furthermore, where directors are given options they will not be required to disclose to the company that they have options in its shares.
What do directors need to be aware of?
The content of this article is provided for information purposes only and does not constitute legal or other advice.
- Directors of public limited companies and other large companies need to know about the compliance statement, what exactly it means for them in terms of the confirmation being given and what needs to be done in the background in terms of policies and procedures.
- Directors need to familiarise themselves with the new and varied obligations that the Act imposes on them including the codification of the fiduciary duties of directors and their obligation to ensure that the company complies with the Act (in all respects).
- Directors should document the terms of any loans made or received between the company and them.
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.