General Scheme of new company law published
The Department of Enterprise recently published the much-anticipated General Scheme of the Companies (Corporate Governance, Enforcement and Regulatory Provisions) Bill 2024 (the Scheme). The Scheme comes on the back of a public consultation run last May, which identified scope for reform in four broad areas of company law: corporate governance, company law enforcement and supervision, company law administration and corporate insolvency. It will now be referred to the Office of the Attorney General for priority drafting.
The Scheme contains 86 ‘heads’ of amendment, some procedural and some more significant proposed reforms. There are no real surprises considering last year’s consultation. The Scheme addresses a number of the anomalies identified in the Companies Act 2014 (the 2014 Act), which have been raised by the Company Law Review Group (CLRG) and other stakeholders for years. This article is a guide to the most noteworthy amendments proposed.
1. Hybrid and virtual AGMs
The Scheme provides that a company may hold hybrid or wholly virtual general meetings (AGMs and EGMs) unless a company’s constitution expressly states that it cannot do so. The proposals largely reproduce the temporary provisions inserted into the 2014 Act by the Companies (Miscellaneous Provisions) (Covid-19) Act 2020 (the 2020 Act). The amendment includes recognition that electronic attendance/participation counts toward the quorum. The Industrial and Provident Societies Act 1983 will be similarly amended.
2. Execution of documents in counterpart
A useful feature of the 2020 Act, the Scheme proposes to reinstate a provision permitting companies to execute documents in multiple parts. This will enable documents under seal to be executed in different counterparts, with the aggregate of the documents to be considered as one instrument.
3. Appointment of proxies
The 48-hour period before a meeting by which proxy forms must be registered will no longer include weekends and public holidays.
4. DACs will be allowed to merge
In a particularly welcome change, section 462(1)(b) will be amended (finally) to provide that a domestic merger may take place where at least one of the companies is a private company limited by shares or a designated activity company limited by shares. At present, a DAC must re-register as a private limited company before it can avail of the merger regime.
5. Multi-company absorptions in one transaction
The 2014 Act will be amended to provide that, in the case of a merger by absorption, a group of subsidiary companies, wholly owned by the same parent company, may be merged in one transaction rather than by requiring a separate transaction for each subsidiary. The provisions will be amended for both private and public limited companies.
6. Significant new investigatory powers for the Corporate Enforcement Authority (CEA)
Surveillance powers
it is proposed to amend the Criminal Justice (Surveillance) Act 2009 (the Surveillance Act) to allow the CEA to exercise surveillance functions in certain circumstances. This is modelled on section 35 of the Competition (Amendment) Act 2022, which bestowed similar powers on the Competition and Consumer Protection Commission (CCPC).
The proposed amendment would permit an officer not below the rank of principal officer to apply to a judge for surveillance authorisation where they have reasonable grounds for believing that, as part of an investigation being conducted by the CEA concerning a category 1 or 2 company law offence, surveillance is necessary to obtain information as to whether the offence has been committed or as to the circumstances relating to the commission of the offence, or to obtain evidence for the purposes of proceedings in relation to the offence.
The power to survey would permit CEA officers to monitor, observe, listen to, or make recordings of persons or their movements, activities, or communications, and to monitor or make recordings of places or things.
It is intended that the CEA's surveillance powers will be limited to category 1 and 2 offences only, as these are analogous to “arrestable offences” covered by the Surveillance Act. Category 1 offences include very serious accounting offences and fraudulent trading. Category 2 offences concern various serious contraventions of the 2014 Act, such as offers of securities to the public by private companies, providing financial assistance for the acquisition of a company's own shares, loans to directors and accounting offences.
Production and preservation of data
It is proposed to amend the Communications (Retention of Data) Act 2011 (the 2011 Act) to enable senior officers of the CEA to seek data relating to arrestable offences under the 2014 Act (“company law offences”). This will align the CEA's powers with those of other enforcement agencies like the CCPC. CEA officers will be empowered to compel the disclosure of data by service providers, as well as to seek preservation and production orders from the courts.
The amendment will empower the CEA to order a service provider to disclose user data (name, address, phone number, IP address and user ID) where the officer has reasonable grounds for suspecting that a person has committed a company law office, or for believing that the data are otherwise required for the purpose of preventing, detecting, investigating or prosecuting a company law offence.
The CEA will also have the power to seek authorisation from the court for the disclosure of internet source data ("data necessary to trace and identify the source of a communication by internet access, internet email or internet telephony") and to seek and execute preservation and production orders in respect of certain Schedule 2 data (categories of traffic and location data specified in the 2011 Act).
The obligation on service providers to retain data under the 2011 Act will also include “company law offences”.
New criminal offences of obstruction and intimidation
It is proposed to introduce new criminal offences of obstructing or intimidating staff of the CEA, while they are performing their powers or duties (to include members of An Garda Síochána seconded to the CEA and all civil service staff of the CEA).
A person who “delays, obstructs, impedes, interferes with or resists” a Garda seconded to the CEA, or a member of CEA staff assisting a Garda secondee, in the exercise or performance of their powers or duties under Garda functions or the 2014 Act, shall be guilty of an offence punishable by a fine of up to €3,000 and/or imprisonment for up 12 months on summary conviction, or a fine of up to €10,000 and/or up to three years’ imprisonment on indictment.
A person who “utters or sends threats to or, in any way, intimidates or menaces” a Garda seconded to the CEA, or a member of CEA staff, or any member of the family or the civil partner of such Garda or staff member, shall be guilty of an offence punishable by a fine of up to €3,000 and/or imprisonment for up 12 months on summary conviction, or to a fine of up to €100,000 and/or imprisonment for up to ten years on indictment.
Procedural efficiencies
A number of provisions have been proposed to improve the CEA’s access to information.
- The number of competent authorities which must disclose information to the CEA or to which the CEA may disclose information, will be extended. A new obligation on auditors, who notify the CEA of their suspicions regarding certain offences, is also proposed, requiring them to provide further information in their possession or under their control to the CEA upon request.
- The time within which the CEA must apply to court for a determination as to whether the information it has seized is privileged legal material is to be extended from seven to 14 days. Applications by the CEA will also be permitted on an ex parte (‘one party’) basis in order to avoid potential ‘tipping off’ of persons and the loss of evidence.
- Court declarations concerning restriction and disqualification of directors are to be sent directly to the CEA by court officers. At present, such notices are sent to the Registrar, who is then responsible for passing them on to the CEA.
7. New grounds of involuntary strike off
Three new grounds of involuntary strike off have been proposed.
- Failure to notify the Registrar of the situation regarding a registered office on receipt of notice from the agent that the registered office of the company is no longer under the care of that agent. The Registrar is not obliged to send the notice of intention to strike off by registered post where this ground is invoked but must send the notice to the director(s) and secretary of the company, to their residential addresses or email address.
- No secretary of the company is recorded on the Register of Companies.
- Failure to notify the Registrar of Beneficial Ownership of information in relation to a company’s beneficial owners.
The Registrar's notice of intention to strike off will not state that each director of the company is liable to be disqualified if the company is eventually struck off on any of these new grounds.
8. Small company audit exemption no longer lost upon first filing failure
It is proposed that a small company will no longer lose its audit exemption for a first failure to file an annual return on time. Loss of the exemption will only apply following second and subsequent missed filings within a five-year period.
9. Verification of registered address
A new section will provide that the Registrar may request, by notice in writing, “documents to verify the details of the address of a company’s registered office” delivered in an application to incorporate a company or in a notice of a change in the registered office agent.
The Registrar may refuse to register a company, or to accept a notice regarding the agent, where the documents requested are not delivered or where the documents delivered do not verify the address of the registered office of the company to the satisfaction of the Registrar. What form these verification documents should entail is not specified in the Scheme.
10. Voluntary disclosure of statistics on gender balance
It is proposed to insert a new provision providing for the collection of data on the gender balance of boards by facilitating the voluntary provision of data by companies in their annual returns (Form B1).
11. Uncertificated shares
Following recommendations from the CLRG, amendments are proposed to provisions concerning uncertificated securities.
Alternative special majority
When a relevant issuer (a PLC issuing certain securities) is organising a vote on a scheme of arrangement, it is proposed to provide two options for forming the requisite special majority:
- A special majority calculated in the same way as section 449(1) (shares or holders of the applicable class present and voting).
- 75% in value of the members or holders present and voting, provided that a super quorum is present (where a super quorum means at least one-third in value of the members or holders of the applicable class.
Record date for general meeting
A new section 1087G will provide that the record date for the original general meeting will also be the record date for any future adjourned meeting where an adjourned meeting is held within 14 days of the notice given to members. Weekends and public holidays will be excluded from the calculation of the required 72-hour notice period.
The CLRG reported that the current section, which reopens the proxy process after an adjournment of more than 48 hours, poses practical challenges for a relevant issuer because it cannot accommodate a changed record date or a change in previously submitted voting instructions. The amendment will close off this opportunity to submit another form of proxy provided the adjourned meeting is held within 14 days of the original.
12. Corporate insolvency
A number of changes to the provisions of the 2014 Act governing receivers and liquidators have been put forward. Amendments have also been proposed to the Rescue Process for Small and Micro Companies (SCARP).
Obligation of liquidator to seek restriction of directors continues until relieved
An amendment is proposed to make explicit that the obligation on liquidators to seek the restriction of directors endures all the way through to the end of the liquidation process, including to the end of all appeals proceedings.
Receivers – proposals regarding appointment and cessation
- a new statutory obligation to provide a receiver's fee information within seven days of request from members of the company, creditors or such other persons as may be prescribed
- the provision of further information on the Form E8, which is filed upon the receiver’s appointment
- a substantially reduced time limit of seven days (currently 30 days) for delivery to the Registrar of the final Form E9 ('receiver's abstract') upon ceasing to act as receiver and seven days for deliver of the notice of cessation
- a new express entitlement of receivers to remuneration (equivalent to the right of liquidators)
Next steps
In a letter dated 21 March 2024, the Joint Committee on Enterprise, Trade and Employment informed the Minister for Enterprise that it has “no particular observations or recommendations that it wishes to convey” regarding the Scheme. Once the bill has been drafted by the Office of Parliamentary Council, it will be considered by the Houses of the Oireachtas as part of the legislative process. It is hoped that it will become law before the end of 2024.
If you have any questions, please contact Anne O’Neill, Senior Knowledge Executive or any other member of ALG’s Corporate and M&A team.
Date published: 26 March 2024