Overhaul of Ireland’s Companies Acts
January 6, 2015
After 15 years of preparation, consultation and revision, a comprehensive new Companies Act 2014 was enacted on 23 December 2014. With 1,429 sections and 17 schedules, this is the largest piece of legislation ever enacted by the Irish Parliament and will be commenced on 1 June 2015.
Focus on the Private Company
Up to now, Irish company law was based on the needs of large public limited companies, but the great bulk of Irish business is done by small private companies. The new law focuses on the private limited company with shares and simplifies the law considerably.
Company Law as you have known it, but made easier
The law in relation to companies remains substantially the same and has its roots in UK company law, but there are some significant changes and differences from UK law.
Companies limited by shares
Most existing Irish private companies will, after a transition period of 18 months, convert automatically into a new type of company. This will be called a company limited by shares or “CLS” and will have a number of advantages:-
- Full capacity (the existing rule of ultra vires (or beyond its powers) will no longer apply).
- Needs only one director and shareholder.
- A simplified constitution.
It may be useful to convert earlier and that option is available.
Designated Activity Companies
Some companies will have to, or may choose to become a Designated Activity Company, where the company is limited to carrying on a specific activity, an example would be a joint venture company or a management company.
The formalities associated with a great number of transactions will be easier: written majority resolutions, approval of some transactions (such as loans to directors, or the company giving financial assistance for purchases of its own shares), AGM business in writing.
Directors’ duties codified
Judges have, over the years, decided what are the fiduciary and care duties of directors, these are now restated and codified in eight rules. These include the obligation to act in good faith in what the director considers to be the interests of the company and to act honestly and responsibly. The bill imposes an objective standard of care, skill and diligence on a director. There are also a number of rules dealing with the diversion of the company’s property information or opportunities and conflicts of interest. Usefully, however the bill allows the company to relax certain of these rules.
The constitutions of companies will need to be drafted to take advantage of these options.
Irish companies and their owners have become familiar with the restrictions on companies making loans, in favour of directors or connected persons. There is a new simplified procedure for approving or “whitewashing” such loans.
However, it is important that properly drafted loan agreements are put in place, because under the new rules undocumented loans between a company and a director/connected person are to be treated adversely.
Each director will be required to confirm that all relevant audit information of which they are aware (having made reasonable enquiries) has been conveyed to the auditors. This is a significant additional responsibility. Directors will need to take advice on what steps they need to take to ensure they comply.
Mergers and Divisions
There are new arrangements which will make it easier to merge companies, or to divide the business of an Irish company. This may be a useful device in dealing with family succession, or in the disposal of part of the business conducted by a company.
Time line to commencement
It is expected that the Companies Act 2014 will be brought into force on 1 June 2015. During a transition period existing companies must file an amended constitution to reflect the new rules.
What should businesses do?
Decide whether your company should convert to a CLS.
- Review your company’s Memorandum and Articles of Association and consider how the standard constitution should be adjusted to suit your requirements.
- Put proper agreements in place to document directors’ loans.
- Put in place a system to show that directors have made proper enquiries to identify relevant audit information and to disclose that information to the auditors.
Sean Nolan is a member of the Law Society’s Business Law Committee.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.