Companies Bill 2012
This article was first published in Accountancy Ireland.
The long-awaited Companies Bill 2012 ("Bill"), published on 21 December 2012, is the product of extensive work by the Company Law Review Group ("CLRG") and, in the words of Minister Bruton, “is the largest substantive Bill in the history of the State”. At this stage, it is expected that the majority of the Bill will be passed through both Houses of the Oireachtas by the end of 2013 with a view to enactment in early 2014.
It consolidates the Companies Acts 1963 -2012 and aims to simplify company law.
The Bill, which runs to 1429 sections and 17 schedules, is divided into two parts. Volume 1 covers a new legal entity, namely a simplified version of the private company limited by shares ("CLS"). Volume 2 deals with other forms of companies, including public limited companies, a new designated activity company (“DAC”) which is similar in structure and constitution to the current private limited company, companies limited by guarantee ("CLGs"), unlimited companies, external companies, unregistered companies and investment companies (funds). Any company will be able to convert from its existing company type to any other company type established in the Bill.
The CLS: Key Changes
- One constitutional document will replace the current memorandum and articles of association. A company will no longer have an objects clause and will have the same legal capacity as a natural person. It can no longer "act outside its powers" and this will aid commercial transactions as there will be no need to check that a company has the power to do what it needs to do, for example, borrow money for a particular activity.
- It will be possible to have just one director.
- The requirement to hold an AGM can be waived and a written procedure can be adopted instead.
- Eight codified directors’ duties are introduced for the first time but they are not exhaustive. Currently, many are imprecisely defined at common law. These duties can be summarised as follows:
- to act in good faith in the interests of the company
- to act honestly and responsibly in relation to the affairs of the company
- to act lawfully and in accordance with the company’s constitution
- not to use the company’s property unless permitted by the constitution or approved by shareholder resolution
- generally not to agree to a fetter on the exercise of directors’ powers unless permitted by the constitution
- to avoid conflicts of interest
- to exercise reasonable care, skill and diligence
- to have regard to the interests of company’s employees and its members
- Greater flexibility is introduced through the new “summary approval procedure” which will allow companies to carry out certain activities by directors’ declaration and a shareholders’ resolution that currently require High Court approval, such as share capital reductions and variation of capital on reorganisations.
- Certain defined mergers (merger by acquisition, merger by absorption and merger by formation of a new company) and divisions (division by acquisition and division by the formation of new companies) will be allowed.
- "Small companies" (which satisfy two of the following three conditions: turnover does not exceed €8.8 million; balance sheet total does not exceed €4.4 million; and/or average number of employees does not exceed 50) will be able to apply for examinership in the Circuit Court.
Other changes of note that may be of interest to accounting and tax professionals include:
- The introduction of merger relief on share-for-share exchanges or share cancellation schemes where the issuing company as a consequence acquires at least 90% of the equity share capital of the target company.
- The distribution of “pre-acquisition profits” will be permitted on the completion of the “summary approval procedure” referred to above. Under the current regime, this requires a certification from a company’s directors and auditors that to distribute such profits would be fair and reasonable and would not prejudice any person. In addition, the Bill provides for the distribution of assets in specie at book value.
- The reincarnation of the directors’ compliance statement, first introduced by the Companies (Auditing and Accounting) Act 2003 but, in the face of strong resistance, never brought into law. The new requirement addresses compliance with the more serious company, prospectus and market abuse laws as well as tax law and is a relaxation of the 2003 provision which included the potentially far-reaching concept of “enactments that provide a legal framework within which the company operates”.
- As well as generally consolidating the various provisions relating to financial statements, the Bill provides for audit exemptions for dormant companies and contains an important substantive change in that for the first time it sets out the rules for the revision of defective financial statements.
Transitional Arrangements for Existing Companies
The Bill envisages a transitional period of 18 months after it commences so that existing companies have time to adapt to the new regime. An existing private company limited by shares may, during this period, adopt by special resolution a new CLS constitution, register it and become a CLS. Alternatively, it may re-register as a DAC within three months of the expiry of the transitional period and retain its memorandum and articles of association (its “constitution” in the future) by passing an ordinary resolution. An existing private company must re-register as a DAC if members holding more than 25% of the voting rights in the company serve a notice in writing requesting the company to do so.
An existing private company which fails to re-register as a DAC or other company type during the transitional period will automatically be converted into a CLS and will be deemed to have a constitution that comprises its existing memorandum (other than its objects) and articles of association and also with the exception of any provisions of its constitution which would be inconsistent with a mandatory provision of the Bill. Where this occurs, certain shareholders or debenture holders who represent 15% or more of shareholding or class of shares or debt (entitling them to object to alterations of the relevant company’s objects) can to apply to court to have the company registered as a DAC.