Companies Bill 2012 - Landmark reform of Irish Company Law

Companies Bill 2012 - Landmark reform of the Irish Company Law

Publication of the Companies Bill 2012 by the Minister for Jobs Enterprise & Innovation on 21 December 2012 moved Ireland a significant step closer to radical reform of our company law regime.  In his press release, the Minister emphasised the key practical benefits in that the Bill would "make it easier for companies to know and understand their legal obligations…implement a series of major reforms to reduce red tape... make it easier and cheaper to run a company in Ireland and…make a real difference to our international competitiveness.  It will save businesses across Ireland many millions of euro in reduced professional fees, compliance costs and red tape and will ultimately make it easier to create jobs".

What does the Bill do?
The Bill is a mammoth legislative project, the largest substantive piece of legislation in the State's history and is largely the product of over a decade of work by Company Law Review Group on whose General Scheme it is based.  It consolidates into one statute all existing Irish companies legislation (16 Companies Acts and a significant body of secondary legislation dating from 1963 to 2012), re-organises company law in a user-friendly and practical structure and reforms & modernises it to eliminate outdated provisions and align more closely with the realities of the 21st century business & regulatory environment.  To link to a copy of the Bill, please right-click here: Companies Bill 2012 (Entire Bill as Initiated)

Private company limited by shares (LTD) (+90% of Irish companies) becomes the model company type, at the centre of Irish company law and all relevant provisions are ring-fenced in Parts 1 to 15 of the Bill which follows life-cycle of LTD from incorporation through operation to winding up.  Every other company type (incl. PLCs, guarantee companies, unlimited companies, LTDs) also has its own dedicated section. 

What impact will the Bill have? 
The Bill once enacted will impact every Irish company & every director/shareholder of & advisors to Irish companies.  Key ways in which Bill achieves its aims to modernise, simplify, streamline & reform include:

• Simplified incorporation process - LTD to have one document constitution in place of  memorandum & articles of association.
• Private company which has or wishes to list debt securities or retain objects clause must re-register as designated activity company (DAC). 
• Elective regime where all private companies will either register as a DAC or adopt a new form of constitution and be registered as a LTD within transitional period.  Otherwise, company deemed a LTD & default form of constitution deemed to have replaced its M&A.
• Ability for LTD to have one director which will be welcomed by both small companies and large corporate groups.
• Contractual capacity of LTD to engage in any lawful activity confirmed, eliminating need for objects clause & old doctrine of ultra vires and simplifying transacting with companies.
• Decision-making flexibility as written procedure can replace physical AGM/majority written resolutions. Summary Approval Procedure for validation of restricted actions replaces varied procedural requirements – e.g., High Court approval no longer required for capital reductions by private limited companies.
• More flexibility for Re-orgs/M&A – domestic mergers & divisions so transfer of assets, liabilities, corporate identity of company by operation of law to another or division of undertaking of an Irish company between two other companies/High Court approval not required for capital reductions/ financial assistance restriction narrowed/share buy-backs simplified/form of merger relief.
• Increased director accountability & compliance requirements incl. codification of directors' duties, increased disclosure requirements, reintroduction of less onerous form of directors' compliance statements for all PLCs and for LTDs, DACs, CLGs whose b/s exceeds €12.5m and t/o exceeds €25m, directors' audit statements for companies not availing of audit exemption (the scope of which is being expanded). 
• All company law offences streamlined & categorised into 4 categories, with Category 1 the most serious (max fine of €500,000 &/or max 10 year imprisonment).
• Extensive list of other changes, incl. modernisation & streamlining of law on winding up, changes to law on priority & registration of charges & debentures, new voluntary strike-off procedure, updating of law on financial statements & audit & increased thresholds for SME exemptions.

What happens next?
The Bill is expected to be enacted later in 2014 as the Companies Act, 2014 and it is crucial that Irish companies and the directors and shareholders of and advisors to Irish companies are prepared for the new regime, not least because all private limited companies will need to either opt in or out of the elective regime and decide whether to become a LTD or DAC during the transitional period.

How can ByrneWallace help?
ByrneWallace will provide regular information & analysis regarding key changes and reforms in the Bill as well as updates on the progress of the Bill through the legislative process and timeline for enactment.  We can also provide valuable advice and assistance to business, organisations and directors on navigating the new company law regime, assessing how it is likely to impact and how it can benefit your business or organisation, how it will change your legal obligations and what you need to do to prepare. If you would like to receive a copy of our e-bulletins and other updates in relation to the Bill, please send an email to newsletters@byrnewallace.com 

For further information, please contact:

Gillian O'Shaughnessy,  Partner, Corporate & Commercial Department

John Fitzgerald, Partner, Head of Corporate Resturcturing