The Companies Act 2014, already signed into law, is expected to commence in June 2015. It consolidates the Companies Acts, which until now spanned from 1963 to 2013. Further, it is a reforming Act, and it is intended to make operating a business in Ireland more straightforward.
Throughout Volume 1 of the Act, the private company limited by shares is used as the model company type. Given that over 90% of companies in the State are private companies, this is a welcome change, because the PLC is the model company type under the Companies Acts 1963 - 2013. Volume 1 follows the life cycle of the private company limited by shares. It starts at the point of incorporation and registration, then on to provisions regarding shares, corporate governance, directors duties, financial statements, charges, receivers, reorganisations, examinerships, winding up, strike off and restoration, and finally regulatory matters.
Volume 2 deals with all other company types, including the public company limited by shares, the new Designated Activity Company (“DAC”), the guarantee company and the unlimited company. These Parts apply sections from Volume 1 to the other company types, taking into account any relevant differences.
Some of the reforms introduced by the Act are as follows:
- The introduction of a simplified incorporation process for the “LTD Company” (i.e. the new model private company limited by shares): This new company type will have a one-document constitution in place of a memorandum and articles of association. It will be a very short document, compared to the average “memo and arts” currently in use. It will contain just four clauses, stating the name of the company, the fact that it is a private company limited by shares, any additional regulations to be specified and finally the share capital information. This “LTD” company will have no objects clause, and so will have the contractual ability to engage in any lawful activity.
- Many of the model regulations contained in Table A of the 1963 Act have been incorporated into the Act. These are currently found in companies’ articles of association. So, once the Act is commenced, where an LTD’s constitution is silent on any issue, the default position is in the Act.
- The “LTD” company may have only one director if this is desired. While a director may also act as a secretary, where there is only one director, that person may not hold the office of secretary. For the first time there will be statutory recognition of directors’ duties. There is also a new concept of a “registered person”, who will be a person who is recorded in the CRO as having the power and authority to bind a company.
- Because of the simple structure of the “LTD company”, there will be a new form of private company provided for in Part 16 of the Act, which may wish to list debt securities or retain an objects clauses, and this will be called a “Designated Activity Company” (or a “DAC”).
- The rules concerning the priority of charges created by a company are amended. The position under the Companies Acts 1963 - 2013 is that the particulars of each registerable charge must be delivered to the CRO within 21 days of the creation of that charge, for it to be enforceable against a liquidator of the company and its creditors. Priority is then given to charges by reference to the date of creation. The Act of 2014 provides for an optional two stage process: firstly, notice of an intention to create a charge may be delivered to the CRO within 21 days of the date before it is to be created, then secondly, a notice stating that the charge has been created will be delivered. The second notice must be received by the CRO not later than 21 days after the CRO received the “notice of intention.” The priority of a charge will relate back to the date on which the CRO received the notice of intention.
- There will be a new procedure through which to validate certain categories of transactions that are restricted, by ensuring that the persons those restrictions are designed to protect are protected. The procedure will involve shareholder approval, the directors swearing a statutory declaration as to the company’s solvency, and if required, a report of an independent person. This procedure will apply to: Financial Assistance for acquisition of own shares, Reduction of Company Capital, Variation of capital in reorganisations, Loans to directors and others, Mergers, and Voluntary Windings up.
- In relation to company reorganisations, new provisions for mergers and divisions of domestic private companies have been introduced. Further, the procedure involved in what is known as the s. 201 (of the 1963 Act) scheme of arrangement, which is used a little more regularly in the High Court in recent years, will be amended, in that the initial meeting to approve a scheme of arrangement will not need prior permission of the High Court.
- All Company Law offences will be streamlined and categorised into 4 categories, with category 1 the most serious (carrying a maximum fine of €500,000 and or a maximum 10 years imprisonment).
Options for a private company limited by shares during the “Transition Period”
During the Transition Period which is currently envisaged to be a period of eighteen months following commencement of the Act, there will be an elective regime whereby all private companies limited by shares may do one of the following three things:
- Adopt a new form of constitution and be registered as a “LTD” during this period. Until this is done, the company will be treated as a “DAC”.
- Register as a “DAC”, by filing a Form N1, with a special resolution and a copy of the new constitution, or register as another type of company.
- If no action is taken, at the end of the transition period, the private company will be deemed to be a LTD and the model form of constitution as set out in section 19 will be deemed to have replaced the memo and arts.
There is of course concern that a company who would wish to retain its objects clause will “miss the boat”. This should be avoided. In considering what action to take, individual companies’ circumstances should be examined carefully and the appropriate advice should be taken. It is hoped that the all parties will be fully aware of their options and act accordingly in the best interests of their companies, and for members and creditors.
Augustus Cullen Law have been providing company law advices for over 125 years. For any questions or queries in respect to the above, or any company law matters please do not hesitate to contact Barbara Lydon, David Lavelle, or Ray Fitzpatrick.
09 March 2015