Companies Bill 2012
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.
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 one director but the secretary must be a separate individual.
- 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.
- 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, variation of capital on reorganisations and distribution of pre-acquisition profits.
- 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.
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.
Default position. 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.
Maples and Calder will hold a client symposium shortly on the practical implications of the proposals for shareholders and directors of Irish companies and those contemplating transactions in or through Ireland. Further details to follow.