IRISH UPDATE – New legal regime for Irish companies due in 2015
- New legislation, the Companies Bill 2012 due to become law in early 2015 will consolidate Irish company law into one comprehensive piece of legislation.
- The new company law regime will offer practical benefits and greater flexibility for Irish companies ranging from allowing companies to be incorporated more efficiently to radical reforms such as the introduction for the first time of domestic mergers and divisions.
- It is anticipated that streamlining and simplifying company law obligations will make it easier for companies to conduct business in Ireland whether domestically, as part of cross border transactions or in ongoing multinational commercial operations.
New legislation, the Companies Bill 2012 due to become law in early 2015, will consolidate and reform the law relating to Irish companies and provide a modern legal framework for Irish companies, their shareholders and officers.
It is anticipated that the new company law infrastructure will prove practical and user friendly for those dealing with Irish companies, from those acquiring or forming Irish entities to those engaging in cross border commercial transactions.
- New Model Company – Registration Simplified
The private limited company, the most common corporate entity used by businesses in Ireland will be represented as the statutory default model “company limited by shares” (“LTD”). The LTD has been described as being conceptually similar to a Delaware LLC, reflecting that Ireland, like Delaware, is a hub of multinational and cross border corporate activity.
The LTD will have a single-document constitution, defaulting to the provisions of the legislation unless the constitution provides otherwise. LTDs may be single director companies, omitting the need for companies to provide an additional director to fulfil the current statutory minimum of two.
It is anticipated that these developments will simplify the process and reduce the cost in incorporating a new company.
- Contractual Certainty – Full & Unlimited Capacity
The legal doctrine of “ultra vires” (company acting outside its corporate authority) will no longer apply to LTDs which will have the same legal capacity as a natural person. This will aid commercial transactions as there will no longer be a requirement to engage in the process of establishing that a company has the appropriate authority to conduct a particular activity.
In addition contracting with an LTD will be greatly simplified as the board of directors will be deemed to have authority to bind a company there should be no necessity for the counterparty to review a board resolution.
- Codification of Directors Duties
Directors’ pre-existing common law and statutory duties will for the first time be assembled together as a comprehensive code. This welcome development will assist in making duties more transparent and accessible to directors, in particular for non-Irish directors who join the board of a local entity.
- Corporate Resolutions & Approval
There will be greater flexibility surrounding the holding of meetings and passing of corporate resolutions. Majority written ordinary and special resolutions will now be permitted for the first time and LTDs will no longer be required to hold a physical AGM.
The legislation also includes provisions which will simplify the execution of documents under power of attorney both in Ireland and outside the jurisdiction.
- Debt/ Security Listing
LTDs will not be permitted to offer securities (equity or debt) to the public, which allows the laws relating to LTDs to be more straightforward. Entities wishing to do so may elect to register as a “designated activity company” and specific rules will apply to such companies.
- Mergers & Divisions
The legislation will introduce a statutory mechanism for domestic mergers for the first time under Irish law, providing that two Irish private companies may merge so that the assets and liabilities (and corporate identity) of one are transferred to the other by operation of law, before the former is dissolved.
The merger may be effected without the necessity for a court order, which will have a positive impact on timing and cost. It will also be possible for an Irish company to be “divided” so that its undertaking is split between two other Irish companies.
These new provisions will allow for greater flexibility in corporate restructurings including following an acquisition or as part of a group reorganisation.
- Validation Procedure
A new “summary approval procedure” will allow companies to validate transactions which constitute “restricted activities” such as financial assistance in the acquisition of its own shares. The procedure may also be used to sanction certain activities which would previously have required High Court approval such as capital reductions, and as noted above will also apply to mergers.
- Registration of Security
Irish law currently allows lenders to secure priority of loan security by filing particulars on the public register within 21 days of creation. A new optional two-stage security registration procedure will allow notification of the intention to create security in order to secure priority even before the charge is actually created. As priority will rest with the creditor who has been the first to register the security interest this new process is likely to impact on M&A transactions where security is being granted e.g. to lending institutions.
- Audit Exemption
Certain categories of company including guarantee companies and dormant companies will be exempt from audit requirements, a change which is welcomed by non-profit, charitable organisations and large multi-national groups.
- Insolvency & Corporate Recovery
The law relating to receiverships, liquidations and examinership (the Irish law equivalent of “Chapter 11”) will be consolidated and updated.
- Compliance & Enforcement
Increased disclosure requirements such as mandatory director compliance statements will help provide greater accountability and transparency.
What Happens Next?
The Irish Government has indicated that it is working towards having the legislation signed into law before the end of this year and in force by June 2015, following which there will be a transition period of 18 months.
Initially, the focus for Irish companies of both domestic and multinational origin, is likely to be on the provisions surrounding conversion. Existing private companies may “opt-in” to the new regime and register an LTD or “opt-out” and register as one of the other new types of company provided for in the legislation. At the end of the transition period any private limited companies who have not made an election will automatically become an LTD.
It is anticipated that streamlining and simplifying company law obligations will make it easier for companies to conduct business in Ireland whether domestically, in cross border transactions or as part of ongoing multinational commercial operations.