MH&C Companies Act Masterclass 26 May 2015

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Companies Act 2014

Tuesday, 26 May 2015

at Mason Hayes & Curran

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Welcome

Emer Gilvarry

Chairperson

Mason Hayes & Curran

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Introduction

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Today

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Paul EganPartner, Corporate and Securities Law

Gavin O’FlahertyPartner, Corporate and M&A

• How the Companies Act 2014 is designed to make business easier

• Transition and Transactions under the Companies Act 2014

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How the Companies Act 2014 is designed to make business easier

Paul Egan

Partner


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How the Companies Act 2014 is designed to make business easier

• The Act

– What’s in and what’s out

– Structure

– Jargon

• Five reforms for the LTD

• Five reforms for companies Generally

• Five reforms affecting Directors

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What’s in and what’s out

• Included

– All the Companies Acts

– All the company law SIs transposing EU Directives

• Excluded

– All the securities law SIs transposing EU Directives

» Listing

» Market Abuse

» Prospectus

» Transparency

– Audit Regulations 2010

– Removal of unlimited company accounts filing exemption

– EU Regulations – SE, Insolvency, EEIG

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Structure – First Group of Parts

Part 1: Preliminary & General

Part 2: Incorporation and Registration

Part 3: Share Capital, Shares ,Certain Other Instruments

Part 4: Corporate Governance

Part 5: Duties of Directors and other Officers

Part 6: Financial Statements, Annual Return and Audit

Part 7: Charges and Debentures

Part 8: Receivers

Part 9: Reorganisations, Acquisitions, Mergers, Divisions

Part 10: Examinerships

Part 11: Winding Up

Part 12: Strike Off and Restoration

Part 13: Investigations

Part 14: Compliance and Enforcements

Part 15: Functions of Registrar and of regulatory and Advisory Bodies

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Structure – Second Group of Parts

Part 16: Designated Activity Companies

Part 17: Public Limited Companies

Part 18: Guarantee Companies

Part 19: Unlimited Companies

Part 20: Re-Registration

Part 21: External Companies

Part 22: Unregistered Companies and Joint Stock Companies

Part 23: Public Offers of Securities, Financial Reporting by Traded Companies, Prevention of Market Abuse, etc.

Part 24: Investment Companies

Part 25: Miscellaneous

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Structure – Schedules – Constitutions

Schedule 1: Private Company Limited by Shares

Schedule 7: DAC Limited by Shares

Schedule 8: DAC Limited by Guarantee

Schedule 9: Public Limited Company

Schedule 10: Company Limited by Guarantee

Schedule 11: Private Unlimited Company with Share Capital

Schedule 12: Public Unlimited Company with Share Capital

Schedule 13: Public Unlimited Co without Share Capital

Schedule 16: Investment Company

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Commencement – 1 June 2015

• SI 169/2015 commences Act on 1 June 2015, with the exception of:

– s 4(1) [repeal of statutes] in so far as it relates to Part V of the Companies Act 1990

– s 4(2) [revocation of SIs] in so far as it relates to Regulation 6 of the European Communities (Mergers and Divisions of Companies) (Amendment) Regulations 2011 [which amends Cross-Border Merger Regulations]

– Provisions that apply only for financial years on or after 1 June 2015» s 167 – requirement for audit committees

» s 225 – Directors’ compliance statement

» s 305(1)(b) – Disclosure in accounts of gains by directors on exercise of share options

» s 306(1) – Disclosure in accounts of amounts paid to persons connected with a director

» s 326(1)(a) – Disclosure in Directors’ Report of the names of persons who at any time during the year were directors of the company

» s 330 – Directors’ audit statement re. no relevant audit information

– s 1325 – Repeal of Bank of Ireland Acts

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Hot Issues

• Extension of time for delivery of forms of proxy

• Share allotment authorities (presumed not to be an issue)

• Miscellaneous securities law issues (being dealt with)

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LTD, DAC and SAP

• LTD

– Private company limited by shares

– Many reforms in the Act apply only to the LTD

• DAC

– Designated Activity Company

– Company limited by shares, with restricted objects

– Includes company limited by guarantee and having a share capital

• SAP

– Summary Approval Procedure

– Directors’ declaration of solvency and special resolution

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Five reforms applying to the LTD

1. Abolition of objects clause

– LTD has

• “full and unlimited capacity to carry on and undertake any business or activity, do any act or enter into any transaction”

• “full rights, powers and privileges” to do so

– LTD has the same legal capacity as a natural person

2. Single document constitution

3. Single director companies

4. Dispensing with AGMs

5. Majority written resolutions and EGMs

– A company may pass a resolution in writing where it is signed by the “requisite majority of members”

– Holders of 50% of shares can convene an EGM

• plus the company does not change its name

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Five reforms applying to all company types

1. Registered Person

2. Financial Assistance

3. Abolition of Table A

4. Simplification of Share Capital Rules

5. Reorganisations

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1. Registered Person

– Board may authorise any person to bind the company without restriction – file with CRO

– (a) The board of directors of the company; and

(b) The registered person,

are each deemed to have authority to exercise any power of the company and to authorise others to do so.

– Limitations in constitution irrelevant

2. Financial Assistance

– Prohibition applies only where primary purpose of transaction is financial assistance

– Prohibition does not apply where assistance is not the principal purpose or where the assistance is only an incidental part of some larger purpose

– Anomaly in the refinancing exception resolved –exception now expressly applies to refinancings

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3. Abolition of Table A

– Default rules are set out in the body of the Act

4. Simplification of Share Capital Rules

– Variation of par value by ordinary resolution

– Reduction in share capital (other than PLCs) by Summary Approval Procedure

– Redeemable shares unless constitution provides otherwise

– Obligation to retain 10% of the share capital as non-redeemable removed.

5. Reorganisations

– Two or more Irish companies may merge with each other by means of a “true” merger

– Merger relief is available

– Pre-acquisition profits are now more easily distributable

– Three-party shares-for-undertaking transactions are possible

• plus easier way to establish what law applies to the company

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Five reforms affecting Directors

1. Directors’ Fiduciary Duties

2. Directors’ Compliance Statement

3. Directors’ Audit Statement

4. Restriction and Disqualification

5. Loans by Directors

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1. Directors’ Fiduciary Duties

– act in good faith;

– act honestly and responsibly;

– act in accordance with the company’s constitution;

– not abuse the company’s property;

– not agree to restrict independent judgement;

– avoid any conflict of interest;

– exercise the care, skill and diligence; and

– have regard to the interests of its employees and members.

Law is clarified, not changed

2. Directors’ Compliance Statement

– Companies with €25m turnover and €12.5m balance sheet

– Confirmation that Directors have done 3 things:

• drawn up of a compliance policy statement as to compliance by company with company law and tax law;

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• put in place appropriate arrangements or structures designed to secure material compliance with that law;

• conducted a review, during the financial year of those arrangements and structures.

– Directors may rely on the advice of company employees or advisers, if they have requisite knowledge and experience

3. Directors’ Audit Statement

– When approving accounts, directors must state in report of the directors:

• there is no “relevant audit information” of which the company’s statutory auditors are unaware

• each director has taken all the steps in order:

– to make himself aware of any relevant audit information

– to establish that the company’s statutory auditors are aware of that information.

– ► Report of the directors must be signed by 2 directors on behalf of the Board (the sole director in a single-director company)

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4. Restriction and Disqualification

– Undertakings can be accepted by directors to be bound by restriction or disqualification

– Defence to restriction now requires that director has cooperated with the liquidator.

5. Loans by Directors

– Undocumented loans by a Director presumed to be a gift to the company

– Documented loans without statement of interest presumed to bear no interest

• plus Directors now responsible for procuring company has competent company secretary

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Transition and Transactions under the Companies Act 2014

Gavin O’Flaherty

Partner


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1. Transition Period

2. Implications of commencement of the Companies Act for all companies

3. Private companies limited by shares during the transition period– Obligations

– Options

– Rights of members and creditors

– LTD or DAC?

4. Constitutions– Deemed

– Filed by Directors

– Adopted by members

5. Action

Transition for existing companies under the Companies Act 2014

The Transition Period

• A period of 18 months from commencement

• But may be extended by the Minister for a further 12 months

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Implications of commencement of the Companies Act for existing companies

• Public Limited Companies

– no change

• Companies Limited by Guarantee

– “company limited by guarantee” or “cuideachta faoi theorainn ráthaíochta”, CLG or CTR

• Unlimited Companies

– “unlimited company” or “cuideachta neamhtheoranta, UC or CN

• Private Companies Limited by Shares

– action needed

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• Obligations:

– Elect to register as an LTD or as a DAC

– The directors must prepare a new-form constitution

• Options

– Register as an LTD by submitting a new-form constitution

– Register as a DAC or another form of company

– Do nothing and be deemed to register as an LTD

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Obligations and options during the transition period – private company limited by shares

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Rights of members and creditors

• 25% Member(s) holding more than 25% of the total voting rights may require re-registration as a DAC upon notice

• 15% Member(s) holding not less than 15% of issued share capital or 15% of debentures entitling the holders to object to alterations of its objects – may apply to court for an order directing re-registration as a DAC

• 1+ share/s Any member may apply to court where it considers that its rights have been prejudiced by the exercise or non-exercise of a power by a company or its directors

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LTD or DAC?

1. DAC must alter its name

2. DAC remains limited by its objects

3. Certain reforms in the Act will not apply to DACs

4. Certain companies are not permitted to register or remain as an LTD

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New Form Constitutions

1. Deemed

2. Prepared by the Directors

3. Adopted by special resolution of the members

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1. Deemed

2. Prepared by the Directors

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– existing memorandum, other than:

– objects

– prohibitions on alteration

– existing articles

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3. Adopted by special resolution of the members

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1. Name

2. That it is a private company limited by shares

3. Liability of the members is limited

4. Division into shares of a fixed amount

(authorised share capital optional)

5. Supplemental regulations

Action

• Advantages for existing companies of updating a company’s constitution?

• Adoption of constitution in other circumstances:

– On incorporation on or after 1 June 2015

– By special resolution at any time, including after the transition period

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1. Variation of par value of shares

2. Merger Relief

3. Pre-acquisition profits

4. Hive-outs – 3 party share-for-undertaking transactions

5. Mergers

New Corporate Transaction Procedures

Simplification of share capital rules

• Variation of par value

• Company has wide rights to issue shares of different nominal values, of different currencies and/or different amounts payable on them

• No requirement to have an authorised share capital

• Company may more freely allot redeemable shares

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Company capital

Share premium

CRRF

CCRF

Share capital

Share capital

Undenominated capital

Company Capital

CCRF

Provided “company capital” remains intact, share capital par value and undenominated capital are interchangeable

Company capital

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Merger relief

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Target company

Shareholders

Target Company e.g. value €1 m

Acquirer Company

Consideration shares – e.g. 1,000 shares par value €1

Current Position: While 1,000 shares of €1 each issued, AcquirerCo would need to record a share premium of 999,000New Position: No requirement for excess €999,000 to be attributed to share premium account of AcquirerCo.

Target shares transfer

Merger relief

• Application: an acquisition where shares are issued by an issuing company in consideration for shares in another company and the issuing company has secured at least a 90 per cent interest in the other company

• Effect: the value of the shares acquired in excess of the nominal values of the shares issued is not treated as undenominated capital

• Extension: also applies, subject to additional conditions, to the acquisition of shares in a body corporate (such as a foreign company)

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Distribution of pre-acquisition profits

• Prohibited to treat a subsidiary’s accumulated profits or losses from the pre-acquisition period as profits available for distribution

• However, this treatment can be disapplied in whole or in part using the Summary Approval Procedure (except for PLCs)

• The SAP includes a solvency declaration by a majority of the directors and an auditor’s report on the declaration

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Transferor company Shares or assets

Transferee company

Shareholders

Consideration?

Three-party share for undertaking transaction

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Transferor company Shares or assets

Transferee company

Shareholders

No consideration

Allotment of new securities as consideration for transfer

Directors make detailed declaration as part of SAP

Three-party share for undertaking transaction

Mergers

Mergers– a kind of “true” merger

– applies to all company types with the exception of PLCs, which have their own regime (since 1987)

Types of merger:– “merger by acquisition”

– “merger by absorption”

– “merger by formation of a new company

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Mergers

Types of merger:

• “merger by acquisition”

• “merger by absorption”

• “merger by formation of a new company

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Successor company

Shareholder(s)

Assets and liabilitiesTransferor company

Mergers

Types of merger:



• “merger by formation of a new company

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Successor company

Transferor company

Ass

ets

and

liabi

litie

s

100%

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Mergers

Types of merger:



• “merger by formation of

a new company

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Successor company(NewCo)

Transferor company 1

Transferor company 2

Shareholder(s)

Shares

Mergers

1. Confirmation of a merger– by using the Summary Approval Procedure

– by court order

2. Effects of the merger– assets and liabilities of the transferor company are transferred to

the successor company

– the transferor company is dissolved without going into liquidation

– all legal proceedings by or against a transferor company are continued with the substitution of the successor company as a party

– every contract, agreement or instrument to which a transferor company is a party takes effect with the successor company as a party instead of the transferor company

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• Act will greatly assist corporate transactions, transformations and restructurings

• SAP looks great on first reading but exposes directors to specific obligations and risks

• Preferable if financial assistance prohibition for private companies were abolished as in the UK

• Act brings certainty to some difficult accounting and legal issues around transactions.

• Accountants’ reports required for certain corporate transactions should be easier to obtain

• Company law is ahead of tax law – domestic mergers will be taking place in a tax law vacuum until next Budget

Some Observations

Q&A

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Documents

MH&C Companies Act Masterclass 26 May 2015