Countdown to Brexit - Corporate Governance and Company Law Compliance

On 31 December 2020, the Brexit transition period will end and, with effect from 1 January 2021, the UK will no longer be deemed to be a member state of the EU or EEA. From a corporate governance and company law compliance perspective, the end of the transition period will give rise to a number of issues for Irish businesses with UK resident directors or a UK parent company, for corporate groups with a UK and Irish presence, for UK companies with Irish branches and for ongoing or proposed cross-border-mergers of UK and Irish entities. These issues will need to be considered and, where necessary, addressed by businesses impacted by them before the end of the transition period:

EEA-resident Director Requirement 

All Irish companies are required, under the Companies Act 2014 (the Act) to appoint one director, at a minimum, who is resident in a member state of the EEA. Where this requirement is currently being met only by a company’s director or directors being resident in the UK, then, after the end of the transitional period, both the company and any officer in default may be liable to a fine of up to €5,000. Companies can avoid falling foul of this requirement by taking any of the following remedial steps: 

• by appointing an EEA-resident director before 31 December 2020,

• by putting in place an insurance bond to the value of €25,000 which must be valid for a minimum of two years, or

• by applying to the Companies Registration Office for a trading certificate, i.e. certification that the company has a “real and continuous link” with one or more economic activities that are being carried on in Ireland, such as: 

(a) the company’s affairs being managed by an authorised person from a place of business in Ireland, 
(b) the company trading in Ireland, 
(c) the company being a subsidiary or a holding company of another entity carrying out (a) or (b) above, or
(d) the company being an indirect subsidiary of a company that satisfies (a) or (b) above.

Irish Branches of UK Companies 

UK companies with Irish branches will be subject to the registration and compliance requirements for non-EEA companies under the Act once the transition period expires, particularly in relation to initial and ongoing filing obligations. Irish branches of UK companies already registered will not need to re-register. 

Group Financial Statements Exemption 

An exemption from preparation of group financial statements exists for Irish holding companies that are in turn held by a company established in an EEA state. Such intermediate companies that are held by UK parent companies will no longer be able to rely on this exemption. The directors will, however, have to assess whether the UK parent’s consolidated financial statements meet the stricter requirements for exemption from consolidation for non-EEA parent companies under the Act. 

Parent Company Guarantee 

The Act permits a subsidiary incorporated in Ireland whose holding company is established in another EEA member state to avail of an exemption from filing entity financial statements with the CRO. The subsidiary instead may file consolidated parent company reports and financial statements where its parent company provides guarantee for the relevant financial year which covers all commitments entered into by the subsidiary as well as its liabilities as recorded in the financial statements.

With effect from 1 January 2021, Irish subsidiaries of UK incorporated parent companies will no longer be entitled to avail of this exemption and we recommend that companies seek specific legal advice on compliance with disclosure requirements for financial statements in advance of their next annual return date.  

Change of Financial Year End 

Usually, a company’s financial year end date can be changed only once in every 5 years unless the company is a subsidiary or holding company of a company incorporated in another EEA member state. As the UK will no longer be deemed to be an EEA Member State after 31 December 2020, this exemption will no longer apply. Time is running out for any company with a UK parent or subsidiary seeking to align its financial year end dates (where it has already done so within the last 5 years).

Cross-border Merger Regime

The cross-border merger regime, which emanates from EU law, allows two or more limited liability companies established within the EEA to amalgamate. Acquired companies are dissolved without going into liquidation, with the acquiring company taking on all the assets and liabilities of each acquired company. UK-based companies can still participate in a cross-border merger until 31 December 2020 but it will not be available from that date. Similarly, any cross-border mergers not yet completed by the end of the transition period or which have an effective date than that time, will not be capable of completing.

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For more information on the above or for general advice on this topic, please contact Gillian O'Shaughnessy or Kelly Mackey of our Corporate Governance and Compliance Group or our Brexit Team.

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