As we covered previously, much of the Act is taken up with setting out the organisation, structure and powers of the new Corporate Enforcement Authority (CEA) and you can hear more about this in our SoundBite.
This article focuses on the Act's company law amendments, which largely correct unintentional omissions from, or clarify the operation of provisions of, the Companies Act 2014 (the 2014 Act). All of the Act has been commenced other than section 35, which relates to the provision of directors' PPS numbers in certain documents submitted to the Registrar of Companies.
The changes introduced by the Act can be broadly divided into three categories: (i) share capital and capital maintenance (ii) corporate governance (iii) insolvency-related amendments.
Shares and capital maintenance
A company may once again use its share premium account for, among other things, writing off the company's preliminary expenses or commissions paid in connection with a share issuance (e.g. in an IPO). The reintroduction of this provision will give companies greater flexibility to use their share premium account without carrying out a formal reduction of company capital (by Summary Approval Procedure (SAP) or court application).
Commissions in respect of underwriting or sub-underwriting on a share issue by an Irish public limited company (PLC) may now be paid directly to investors without the need for an intermediary, which reflects market practice.
The Act clarifies that three-party-share-for-undertaking transactions can proceed: (i) even if there is no reorganisation of the company's capital and (ii) will not require approval by SAP or court application if the relevant company has distributable reserves equivalent to the value of the assets it is transferring (and deducts this equivalent amount from its reserves).
The definition of treasury shares has been expanded to include shares acquired by a company pursuant to a merger or division. This will clarify post-merger treatment of such shares from both a legal and accounting perspective.
The Act clarifies that a capital reduction where a company either (i) pays off paid up share capital for which it no longer has a need, or (ii) extinguishes or reduces a member's liability on shares not fully paid up, is not a distribution. While such actions will still require approval by SAP or court application, there will no longer be a requirement for a company to have distributable reserves. This reflects the position prior to the 2014 Act.
The ability of directors of a PLC to decline to register a share transfer will once again be limited (save where the company's constitution provides otherwise). These circumstances include where:
(i) the transfer is to a person of whom they do not approve
(ii) the share is one on which the company has a lien
(iii) the transfer would, in their opinion, "imperil or prejudicially affect the status of the company", result in a loss of tax benefit or incur payment of a duty
Unlimited companies (ULCs) will no longer be required to purchase or redeem shares out of distributable profits. This welcome amendment reflects the position prior to the 2014 Act and corrects the accidental application of stricter capital maintenance rules (applicable to private companies) to ULCs.
Once this section of the Act is commenced, companies will be required to provide the Personal Public Service numbers (PPSNs) of their directors (or other identity documentation if they do not have a PPSN) when incorporating a new company, filing an annual return, or notifying a change of director. This is a safeguarding measure designed to allow the Companies Registration Office (CRO) to verify a director's identity and mitigate the possibility of (deliberate and inadvertent) breaches of company law (e.g. on limits on the number of directorships). This new provision reflects a general trend towards increased monitoring of corporate law compliance and use of technology, but, in practice, it is unlikely to place a significant additional burden on companies.
The Minister for Enterprise, Trade and Employment's power to grant exemptions from the requirement to include directors' names on a company's letterhead has been removed (although current exemptions will not be affected).
The Act clarifies that a company limited by guarantee (CLG) can exclude proxy voting by members through its constitution.
Shareholder proxy forms must now specify that a proxy has the ability, not only to attend, speak and vote, but also "to demand or join in demanding a poll" on behalf of the appointing shareholder. Companies should ensure that their proxy forms and cards reflect this additional language.
The Act clarifies that any attempt to appoint a minor as secretary of an Irish company is void.
New grounds have been introduced for High Court applications for director restriction where a director has not met certain procedural requirements in the course of a company becoming insolvent (e.g. failure by a director to convene a general meeting of shareholders for the purpose of nominating a named liquidator). These new grounds are designed to address the difficulties caused, in particular, where directors walk away from an insolvent company without formally appointing a liquidator (normally in circumstances where the company has insufficient funds to appoint a liquidator).
The obligation to file resolutions in a creditors' winding-up with the CRO has been restored (an unintentional omission in the 2014 Act).
The CEA have a new power to request evidence from a person that they are qualified to act as liquidator of an Irish company (e.g. by providing a practicing certificate and proof of their membership of a recognised accountancy body).
Where a liquidation is not concluded within 12 months, a liquidator may now be required to file more frequent reports with the CRO on the conduct of the liquidation. Previously, a liquidator was required to provide such reports on the first anniversary of commencement and at six monthly periods thereafter.
These company law amendments and clarifications are very welcome, but further changes to the 2014 Act are still required. The 2022 Summer Legislative Programme indicates that work is underway to draft a Companies (Miscellaneous Provisions) Bill, which it is hoped will be progressed later this year.