Companies Act 2014 - the future is here

With commencement in June 2015, the Act represents the most significant overhaul of Irish company law in fifty years and consolidates primary and secondary legislation into one single Companies Act.

While largely a consolidation Bill, the Companies Act 2014 does contain radical reforms, the most ambitious of which is to place private companies at the centre of the Irish company law code, shifting the emphasis away from public companies, which currently hold the legal default position. Importantly, the position of the company secretary is not only retained but also enhanced.

 

What does this mean for Company Secretaries?

 

In marked contrast to the position in the UK and following the recognition of the role and the recommendation of both the McDowell Report and Company Law Review Group (which includes a representative of ICSA Republic of Ireland Region), every Irish company is required to have a company secretary. Following a submission by ICSA Republic of Ireland Region, the Act was amended so that the Company Secretary could rely on professional support to perform their duties.

Additionally the person who is entrusted with the role of company secretary must, by law, have the necessary skills or be sufficiently resourced, whether through experience, training or outsourcing, to discharge their duties under the Act. As is the case with directors, on appointment, the company secretary must make a public declaration acknowledging that they have legal duties under the Companies Acts, other statutes and common law.

The Company Secretary, during the transition period of 18 months from 1 June 2015, will have to determine the type of company best suited to the organisation’s activities. Existing private companies will have to decide whether to become a Company Limited by Shares (LTD) or a Designated Activity Company (DAC). The necessary conversion steps then need to be taken, which would include a review of existing Memorandum and Articles of Association and, in the case of conversation to a DAC, a change of name. In order to avoid a possible breach of directors’ duties, it would be unwise to do nothing and allow an existing private company to default to a LTD.

It is expected that a LTD will be the most common type of company and, as it won’t have an objects clause, it will have the same contractual capacity as a natural person. Additionally, a LTD may elect to avail of less onerous requirements under the Bill (e.g. a LTD may have a sole director (but the same person cannot be the secretary) and can adopt the provisions of the Act as its Constitution, instead of the existing two document Memorandum and Articles of Association.

A DAC is the most familiar corporate form to an existing private limited company, its distinguishing features being the retention of its Memorandum and Articles of Association and an objects clause. Every company secretary should review their existing Memorandum and Articles of Association to determine an appropriate Constitution and take the necessary steps to adoption. Additionally, they should become familiar with the more important reforms including a new option to register, on public record, persons authorised to bind a company, the use of service addresses by directors in lieu of residential addresses, domestic mergers and divisions, the extension of the audit exemption provisions to include group companies and a validation procedure for certain types of transactions, all designed to streamline and simplify commercial transactions and reduce costs.

Corporate governance procedures for passing shareholder resolutions have been changed. Previously ordinary and special resolutions could be passed using the ‘written resolution’ methodology, provided all voting members signed the resolution. The Act provides that for certain companies such resolutions will only need to be signed by the requisite number of voting members. In order to be effective, the company secretary will need to firstly ensure that the proposed text of the resolution and an explanation of its main purpose are circulated to the members and secondly ensure that the signed resolutions returned to the company constitute the required majority.

The company secretary will now have to monitor any change in a financial year end, as that term is now defined and rules are prescribed in relation to changing it. Directors’ common law fiduciary duties are codified and explicitly stated in the Act, which should help foster a better understanding of their duties.

There will also be a new classification of company law offences making it easier to identify breaches of the law and the penalties that might incur. Of particular interest to Company Secretaries, is the ability to deal with previous non-disclosure of interests in shares, a de-minimis threshold for notification and an extension of the time period for notification.

With the highest number of new company registrations on record since 2007, it would seem Irish businesses, both newly established and existing, are operating in a more confident and competitive environment.

The Act aims to simplify existing company law, reduce the administrative burden for companies and introduce some overdue modern concepts into Irish company law. In an environment of increased focus on corporate governance and compliance, the retention and enhancement of the role of company secretary should be commended as the embracement by the Irish legislature of a modern concept.

ICSA Republic of Ireland Region will be organising events on the practical aspects of the Act over the coming months.