Could Brexit affect your board of directors?Monday, 28 May 2018
This article addresses the potential impact of Brexit on Irish companies who fulfil their European Economic Area (“EEA”) resident director requirement by having one director who is resident in the United Kingdom.
What is the current position?
Currently all company types in Ireland are required to have at least one director who is resident in a member state of the EEA as per section 137 of the Companies Act 2014 (the “Act”).
The EEA consists of the twenty-eight1member states of the EU as well as Iceland, Liechtenstein and Norway.
There are many Irish companies that fulfil the EEA resident director requirement by having one director who is resident in the United Kingdom.
Impact of Brexit
As a result of Brexit, the future status of the United Kingdom’s membership of the EEA remains unclear.
If it is the case that the United Kingdom exits the EEA as a result of Brexit, any Irish company that fulfils its EEA resident director requirement by having just one EEA resident director who is resident in the United Kingdom will be in contravention of the Act.
A company and any officer of it that is in default of this requirement to have an EEA director in place shall be guilty of a category 4 offence. A company or person found guilty of a category 4 offence shall be liable, on summary conviction, to a class A fine, which is a fine not exceeding €5,000.
Exemptions to the requirement of having an EEA resident director
A company does not require an EEA resident director when it has a bond in place to the value of €25,000. The bond must provide that, in the event of a failure by the company to pay the whole or part of a fine and penalty imposed on the company in respect of:-
- an offence under the Act committed by the company;
- an offence under section 1078 of the Taxes Consolidation Act 1997 committed by the company; and
- a penalty which the company has been liable to pay under section 1071 or 1073 of the Taxes Consolidation Act 1997,
a sum of money will become payable under the bond in order to discharge any such fine or penalty sum owed by the company.
Such a bond must be valid for a minimum of two years. This period may commence not earlier than the occurrence of the event which gave rise to the requirement to effect a bond.
Companies having a real and continuous link with economic activity in the State
A company does not require an EEA resident director or a bond when it has been granted a certificate by the Registrar of Companies, following an application in the prescribed form (Companies Registration Office Form B67 accompanied by a statement from Revenue) being made by it in that behalf, stating that the company has a real and continuous link with one or more economic activities that are being carried on in the State.
In order for such a link to be established, the Revenue Commissioners must be satisfied that the company fulfils one or more of the following conditions:-
- the affairs of the company are managed by one or more persons from a place of business established in the State and that person or those persons is or are authorised by the company to act on its behalf;
- the company carries on a trade in the State;
- the company is a subsidiary or a holding company of a company or other body corporate that satisfies either or both of the conditions specified in (a) and (b); and
- the company is a subsidiary of a company, another subsidiary of which satisfies either or both of the conditions specified in (a) and (b).
Such a certificate shall not be granted unless the company concerned tenders proof to the Registrar of Companies that it has such a link.
It remains to be seen whether Brexit will result in the United Kingdom’s exit from the EEA. If the United Kingdom does leave the EEA as a result of Brexit, companies that currently fulfil the EEA resident director requirement by having one director who is resident in the United Kingdom will need to take steps to fulfil this criteria another way by either putting a director in place who is resident in another EEA country or availing of one of the aforementioned exemptions to this requirement provided for in the Act.
For further information on our services in this area, please contact any a member of our Corporate team.
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