mark regan, solicitor alison gray, accountant · • the act is now in force and has been since 1st...

COMPANIES ACT 2014 PRESENTATION; 26th JANUARY 2016

Mark Regan, Solicitor Alison Gray, Accountant

THE COMPANIES ACT 2014

AN INTRODUCTION

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The Companies Act 2014; An Overview – National Manufacturing and Supply Chain Conference; 26th January 2016 2A Joint Presentation by Regan Solicitors I www.regansolicitors.ie I 01 6874100 and BCK Accountants I www.bck.ie I 01 6765333

• New Company Types – elect to ensure correct type

• New Constitution – draft to ensure appropriate

• Abolishment of Ultra Vires in some cases

• Directors Duties codified

THE COMPANIES ACT 2014 – BRIEF OVERVIEW

MAIN CHANGES (1)

• Audit Exemption extended

• Extension of scope for Personal Liability of Directors

• Directors Compliance Statement

• May register a “registered person” with the CRO

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THE COMPANIES ACT 2014 – BRIEF OVERVIEW

MAIN CHANGES (2)

• Company Secretary must have requisite skills

• New Summary Approval Procedure

• Priority of Securities

• New Company Law Offences

• Increase in mandatory electronic filing

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NEW COMPANY MODELS

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There will now be 5 main forms of Company in Irish Law :-

• Private Company Limited by Shares (LTD)

• Designated Activity Company (DAC)

• Company Limited by Guarantee (CLG)

• Public Limited Company (PLC)

• Unlimited Company (UC)


NEW COMPANY LANDSCAPE

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NEW COMPANY STRUCTURES – A COMPARISON

Existing Private Limited Companies LTD Companies DAC Companies

Minimum of Two Directors – One may act as

Company Secretary

Minimum of One Director – Separate Company

Secretary Requires

Minimum of Two Directors – One may act as

Company Secretary

No requisite skills for Company Secretary Company Secretary must have Requisite Skills or

Access Thereto

Company Secretary must have Requisite Skills or

Access Thereto

Two Document Mem & Arts Single Document Constitution Has a Two-Document Constitution

Capacity Limited by powers in Memorandum.

Must have Objects Clause

No Objects Clause; Doctrine of Ultra Vires does not

Apply

Must have an objects clause

No requirement to register authorised corporate

agents

Option to register those entitled to bind the company

Written Resolutions must be passed by all

members

May pass written resolutions by the Relevant

Majority

May pass majority written resolutions

Only single member companies may dispense

with AGM

Does not need to hold an AGM in certain

circumstances

Must hold an AGM where two or more members

Maximum of 99 Members Maximum of 149 Members Maximum of 149 Members

Limited by Shares Limited by Shares Limited by Shares or Guarantee

May decide not to have an authorised share capital Must have an authorised share capital

May not list or have securities admitted to trading May list or have admitted to trading certain

securities

• The Act is now in force and has been since 1st June 2015• All New Companies must take one of the new company forms• All existing private limited companies now operate under Part 16 of the Act – i.e. are treated as DACs until they convert

• There is a transition period of 18 months in which private limited companies may elect to convert to a LTD or re-register as aDAC - The transition period ends on 30th November 2016

• Within this period, companies have 15 months to convert by ordinary resolution; thereafter it will only be possible to convertby special resolution;

• 31st August 2016: all existing private limited companies wishing to become a DAC must have initiated the conversion process bythis date

• 30th November 2016: At the end of the 18 month transition period, existing private limited companies which have not takenany steps to convert will automatically be deemed to have become an LTD, unless it is required by law to become a DAC, inwhich case it will be bound by the rules applicable to a DAC

• 30th June 2016: all Public Guarantee companies must have changed their company name, to include new company type, by thisdate


CONVERSION: TIMELINES & TRANSITION PERIOD

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DIRECTORS’ LIABILITY

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• Company Law Offences have now been categorised on a sliding scale, with each statutory offence accorded a specific penalty.The most serious offences are contained in Category 1, with the least serious offences set out in Category 4.

• Category 1 Offences – Fine of up to €500,000 and/ or maximum 10 years Imprisonment• Knowingly being a party to the carrying on of the business with intent to defraud creditors

• Category 2 Offences – Fine of up to €50,000 and/ or maximum 5 years Imprisonment• for any officer of the company – to enter into an arrangement that breaches the prohibition on loans (etc) to directors• company contravenes the general prohibition on a Company Limited by Shares (CLS) issuing shares or debts to the public

• Category 3 Offences – Fine of up to €5,000 and/ or maximum 6 months Imprisonment• Non-Filing of Annual Returns• Failure to Hold an AGM• Failure by directors to notify of any interests in the company

• Category 4 Offences – Fine of up to €5,000 (no liability for imprisonment)

• Failure to make routine filings


NEW COMPANY LAW OFFENCES

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• Act in Good Faith

• Act Honestly & Responsibly

• Have Regard for the Interests ofMembers as well as Employees

• Not to use Company Property UnlessApproved by the Members or theConstitution


DIRECTORS’ DUTIES NOW EXPRESS RESPONSIBILITIES - IMPACT OF THE NEW LEGISLATION

• Avoid Conflicts of Interest

• Exercise Due Care and Diligence

• Act in Accordance with the Company’sConstitution and Exercise ThosePowers only for Lawful Purposes

• Not to Fetter Discretion UnlessPermitted by the Constitution orUnless in the Company’s Interest

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• Breach of certain directors duties can result in the director having to personally indemnify and/ or compensate the company

• Account to the company for any gain / indemnify Company for any loss or damage resulting from the breach

• Shadow Directors and De Facto Directors will be considered to be properly appointed directors

• Board of Directors’ acting under the direction of disqualified Directors may be guilty of a Category 2 Offence

• A Court Judgment that is wilfully disobeyed by a Company may be enforced by attachment against personal assets of a Director – s.53


DIRECTORS’ LIABILITY (1)

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• Specific duty under s.330 to ensure that auditors have all relevant information-confirmationthat each director has taken all necessary steps to make himself aware of the relevant auditinformation

• The Act significantly increases the penalties where a company and its directors contravenethe obligation to keep accounting records; the offence for not doings so is elevated to aCategory 1 offence

• Directors may be criminally liable for untrue statements and exposed to a maximum penaltyof €50,000 and/ or 5 years in prison

• Directors of insolvent unliquidated companies at higher risk of disqualification proceedingsfrom 2015 onwards – s.160(2)(h)


DIRECTORS’ LIABILITY (2)

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• Directors Compliance Statements- to be included in Directors Report

• Private companies (including both LTDs and DACs) must also include such a statement where their balance sheet total exceeds €12.5 million and turnover exceeds €25 million.

1 Acknowledge in Directors Report that directors responsible for securing company’s compliance with its ‘relevant obligations’

2 Directors must confirm that the company has a policy on compliance 3 Confirm structure and arrangements in place to ensure compliance4 Confirm a review during the financial year has been done of the

structure and arrangements in place to ensure compliance


DIRECTORS COMPLIANCE STATEMENTS

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THE EFFECT ON FINANCIAL STATEMENTS

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FINANCIAL STATEMENTS

• There is no longer a requirement for the directors to sign off on the Profit & Loss Account

• The Balance sheet must state the name of the Directors as well as being signed by them

• If an item is material it must have an accounting policy

• Directors may only approve financial statements if they are satisfied that they give a true & fair view and otherwise comply with the Act

• Failure to comply is a category 2 offence• Staff wages note will now be disclosed on the abridged financial statements.

• In respect of every item shown in the balance sheet, or profit and loss account, or notes, the corresponding amount to beshown

• Interest on directors loans

• Auditor is no longer required to opine in the same manner on whether the company has complied with requirements inrelation to accounting records.

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THE EFFECT ON AUDIT EXEMPTION

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A small company can avail of the audit exemption, “small” defined in S.350

Must fulfil 2 or more of the following criteria for current and previous year (previously for purposes of audit exemption had to meet 3 out of 3)

–Turnover of the company does not exceed €8.8m –Balance sheet does not exceed €4.4m –Average number of employees does not exceed 50

Group Audit Exemption:

All Irish companies in the group must have filed their annual return on time (for current year and preceding year)


EFFECT ON AUDIT-EXEMPTION

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Not Available for:

– A small company/group on which a notice under S.334 of the Cos Act 2014 has been served – Rights ofmembers to require audit despite audit exemption otherwise being available (10% of members)– Audit exemption not available unless annual return filed in time (S.363 and S.364). An application for a timeextension can be made by a company to the District Court

Key Considerations

CLGs can now avail of the audit exemption – if a registered charity then the requirements of the CharitiesRegulator will apply

• Consider carefully the rights of the shareholders (10% of shareholders or one member of a CLG) torequire an audit

• Rights of shareholders, are they sufficiently safeguarded by– S.23 MUDS Act (OMCs), S.212 Companies Act2014? - For consideration by company directors

• Dormant company cannot retrospectively avail of the audit exemption


EFFECT ON AUDIT-EXEMPTION

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STRIKE OFF AND RESTORATION

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• Statutory Recognition for the Voluntary Strike Off Process for the First Time

• Members must pass a Special Resolution for the Strike Off to be Effective

• Involuntary Strike Off will be on Similar Grounds to Present Position

• ODCE will have power to require directors of a company being struck off to produce a statement ofaffairs

• The timeframe for administrative restoration will be extended by an extra three months – ie to 15months

• A company which has been struck off the registrar can presently apply to the Court for restorationwithin a period of 20 years. Under the Companies Act 2014, this period has been reduced to 2 yearsfor Investment Companies


STRIKE OFF AND RESTORATION

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A SUMMARY

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SUMMARY

• Operative since 1st June 2015 & consolidates existing law into one Act and introduces new company law regimes and concepts• Memorandum and Articles of Association replaced by single document Constitution• Two new types of company (LTD and DAC) replace the current single form of private limited company.• 18 month transition period during which to convert to preferred Company type.• Failure to convert will result in automatic conversion to LTD together with deemed Constitution• Existing private limited companies can convert to a DAC by passing a simple shareholder resolution• Corporate governance provisions as set out in the Act will apply by default where Constitution is silent on an issue.• Directors Duties have been codified• Company Law Offences have been revised• AGMs may be replaced by Written Resolutions in certain cases• Abolition of concept of Ultra Vires for LTD – no requirement for an Objects Clause• Registered Person may bind company in contract without need for passing of board resolution.• Audit Exemption threshold has been reduced for LTD and DAC type companies & an Audit Statement requirement introduced• Members and creditors satisfying the 15% threshold requirements may petition the High Court to Order a conversion to a DAC• The Act removes the concept of a “place of business” and only recognises the EU derived concept of a “branch”• The Act introduces the concept of a Directors’ Compliance Statement, which applies to companies of a certain size or type.


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• No amendments to existing Memorandum and Articles of Association are permitted; If there is a requirement to amend theMemorandum and Articles of Association, this should be done in the normal manner before conversion and adoption of aConstitution

• Once the amended Memorandum and Articles of Association are accepted by the CRO, you should then file the newConstitution document on conversion

• For compliance considerations, all references to previous legislation should be changed to the corresponding provisions in thenew Act

• While Table A no longer exists, most of its provisions are now found in various sections of the new Act, and again as a matter ofgood corporate governance, on conversion all references to Table A should be changed to reflect the present statutoryprovisions

• However, it is important that the corresponding sections on the new Act are cross-referenced with the old, as thecorresponding new section may cover the provisions of more than one old section

• Therefore it may not be appropriate to simply delete the new provision in its entirety solely on the basis that the old provisionwas so excluded, and a revised wording or conditional exclusion may be required.


PRACTICAL CONSIDERATIONS ON CONVERSION

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• While many of the CRO Forms have retained the same numbering post commencement of the 2014 Act, given the completeoverhaul in statutory framework, naturally there changes to every CRO Form. You should therefore ensure that only currentversions of each Form are used when making submissions to the CRO.

• Having regard to the new company types and the requirement to convert, the following are the key forms to be aware of;


CRO FILINGS; KEY FORMS

Private Limited Companies (Limited)

• Form N1 - conversion• Form G1 – Special Resolution• Form G5 – if applying for exemption

from requirement to use suffix

Designated Activity Companies (DAC)

• Form N2 - conversion• Form G2 – Ordinary Resolution• Form G5 – if applying for exemption


Companies Limited by Guarantee (CLG)

• Form N3 – change of name• Form G5 – if applying for exemption


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• Section 237 – Loans from a Company to a Director not evidenced in writing are repayable on demand with a deemed interest rate;

• Section 238 – Loans from a Director to a Company not evidenced in writing are subordinated behind all prior debt:-i.e. last to be paid;

• Section 205 (Minority Shareholders) is now Section 212:-there is a very high onus on Directors as there is now a presumption that they have acted with prejudice against Members;

• Directors must disclose and vote on conflicts of interest, or funds received from/ contracts given by the Company;

• Section 60 (Financial Assistance for Purchase of own Shares) is now Section 83;

USEFUL POINTERS

• Table A is now law and codified;

• The current time limit of 5 years for Allotment/ Renewal is gone:- allotment must now be authorised by Ordinary Resolution or by the Company’s Constitution;

• Section 559(1)(9) – If a Court is satisfied, then on the application of the ODCE it may order the wind up of the Company. ODCE is now a proactive watchdog;

• Section 634 – a debt of €10,000 or more which is 21 days late, satisfies the definition of a Company which is unable to pay its debts as they fall due;

• Section 614(3) – a Provisional Liquidator will be limited in their actions on a wind up to the Court Order.

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CONCLUSIONS

• There are dangers and pitfalls in failing to undertake an audit of your company and how it may be affected by the new Act.

• Failure to make a conscious and informed decision as to how to move forward may result in obligations and restrictions being imposed upon you by default.

• Careful consideration should be given to which form of Company yours should take in the context of the new codification of Directors’ Duties.

• While the Act simplifies many corporate regulation matters, this is a double-edged sword given the potential liability that may be imposed on the company’s officers.

• The stated aim of the Act was to make it easier for companies to do business; however this needs to be balanced against the reality that Directors will continue to be liable to shareholders, creditors and investors.

• Directors need to be aware of lacuna created by the Act between the lowering of audit thresholds and easing of corporate governance requirements on the one hand and potential accusations of reckless trading despite technical compliance on the other.

• Many of the benefits of the Act are really only appropriate for and applicable to very small, director-shareholder companies.

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Managing Partner: Mark [email protected] 238 3776

38/39 Fitzwillam Square, Dublin 2.01 687 4100www.regansolicitors.ie

The Companies Act 2014 – An OverviewWe Look Forward to Assisting you with all of your

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mark regan, solicitor alison gray, accountant · • the act is now in force and has been since 1st...

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