the companies act 2014: an overview

1© 2015 Crowe Horwath

Audit | Tax | AdvisoryAudit | Tax | Advisory

The Companies Act 2014:

16 June 2015

An Overview


Welcome from Gerard O’ Reilly, Crowe Horwath

Crowe Horwath, in association with The South Dublin Chamber Tallaght Business Centre

welcomes you to today’s event

This seminar will provide members with an overview on the Companies Act 2014, as it

pertains to Irish registered limited companies, and will ensure that members have information

and practical knowledge to ensure that their organisations comply with the Act.

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The Companies Act 2014


Contents

Background to The Companies Act 2014

New Company Types and the Conversion Process

Directors Duties and Role of the Company Secretary

Financial Statements

Summary Approval

Other Initiatives to be introduced

Questions and Answers


Background to the Companies Act 2014

The Companies Bill was published on 21 December 2012 by the Minister for Jobs, Enterprise and Innovation.

It also introduces a number of reforms, which are designed to make it easier to operate a company in Ireland.

Set out across 25 Parts its aim is to ease accessibility of the law for each different company type

Consolidates the 16 Companies Acts as well as the many statutory instruments and court judgements

The aim is to make it easier for companies to know and understand their legal obligations. It will also implement a series of major reforms to reduce red tape and make it easier and

cheaper to run a company in IrelandThe Companies Act 2014 was signed into law on 23 December 2014 and commenced on 1

June 2015.The Companies Act 2014 is available for download at http://www.oireachtas.ie

http://www.oireachtas.ie/


New Company Types

presented byGráinne Howard


New Company Types

The vast majority of companies currently registered in Ireland are private companies limited by shares (EPCs- Existing Private Limited Companies).

The Act proposes two new forms of private company to replace all existing private companies

limited by shares.

LTD-Private Company Limited by Shares DAC-Designated Activity Company

A new form of simplified company limited by shares with unlimited legal capacity with a single constitutional document.

Similar to existing form of private limited company. Will continue to have a M&A, with an objects clause limiting its legalcapacity.


New Company Types

LTD Private Limited by Shares DAC- Designated Activity Company

It may have just one director but it must have a separate secretary if it has only one director.

It must have at least 2 directors

It can have between 1 and 149 members It can have between 1 and 49 members

Both single and multi member companies can dispense with the need to hold an AGM

Multi member companies are required to hold AGMs

It has a one-document constitution that replaces the need for a memorandum and articles of association.

It has a constitution document which includes a memorandum and articles of association.

It will not have an objects clause because it has full unlimited capacity to carry on any legal business, subject to any restrictions in other legislation.

It has stated objects for which the company was incorporated.

It has limited liability and has a share capital. It is a Private company It is a Private company and has limited liability. It has a share capital or is a private company limited by guarantee with a share capital.

It can pass majority written resolutions (special and ordinary). It can pass majority written resolutions

Name must end in “Limited” or “Teoranta” Name must end in “Designated Activity Company” or “Cuideachta Ghníomhaíochta Ainmnithe” unless qualified for an exemption


New Company Types

Other Company Types PLC – Public Limited CompanyPUC – Public Unlimited CompanyPULC – Public Unlimited Company with no share capitalULC – Private Unlimited CompanyCLG – Company Limited by Guarantee (these are public guarantee companies)

The changes for these companies will be minimal under the Companies Act 2014


New Company Types

PLC- Public Limited Companies

Guarantee Companies Unlimited Companies

Will retain objects clause Will retain objects clause Will retain objects clause

No name change required Name change may be required (if no exemption is in place)

Name change may be required (if no exemption is in place)

Can have a single member Can now have a single member

Can now have a single member

Minimum of two directors Minimum of two directors Minimum of two directors

Can offer shares to the public Can now avail of audit exemption if the criteria is met


New Company Types

Question: I have a Limited Company, what action needs to be taken? For most Irish companies limited by shares, the question will be whether to convert into a LTD

or DAC. Existing private companies (limited by shares) - EPCs - did not automatically become LTD

companies on commencement date 1st June 2015.

They operate under DAC legislation for the duration of the Transition Period.

EPCs do not have to change their name during the Transition Period.

EPC cannot avail of the features of the LTD company without having been converted first.


New Company Types

To register as a LTD or DAC?

This will depend on what is best suited for your company and the purpose for which it is incorporated.

Companies such as banks, insurers and companies with debt securities listed on an exchange, that wish to continue as private limited companies must convert to a DAC.

It is anticipated that most companies will become LTDs. As these are types of companies that

enjoy the benefit of most of the innovations intended to simplify their administration e.g. the ability to have a single director.


Timeframe for Conversion

Commencement date (1st June 2015)

New Act commenced.

Newly incorporated companies will be registered as one of the relevant new company types.

All EPCs as DACs until the end of the Transition Period only.

15 months later

31st August 2016

Final date for companies who wish to convert by re-registration to DAC to initiate procedure.

Thereafter may only re-register following procedure under Part 20 or following a section 57 Companies Act 2014 court order.

18 months later

30th November 2016

Transition Period ends.EPCs which have not availed of the opportunity to convert will automatically be converted to LTD.

http://www.cro.ie/New-Act-2014/Need-to-Convert/Designated-Activity-Company


Conversion Process

LTDSpecial Resolution of

the Members

Directors must prepare constitution and deliver to members and CRO before the end of the transitionary period

Default to a LTD at the end of the transition

period

DACOrdinary resolution of the members within 15

months

Special Resolution of the members after 15

months

Directors must resolve to re-register as DAC if members holding more than 25% serve written

notice within 15 months.

Company has debentures admitted to trading on listed on a

debt market

Court Order


Memorandum and Articles of Association


In accordance with 1176 (6) the memorandum and articles of association will continue in force save to the extent that they are inconsistent with a mandatory provision.

Review of the companies memorandum and articles of association highly recommended to ensure that they comply with all mandatory provisions of the Act. M&As that are in contravention of the Act will lead to confusion as their terms will be misleading.

Doing nothing is not recommended as the conversion process offers a company the opportunity to discuss with its advisers, directors and members the steps to be taken to ensure that the company has the required regulations incorporated into its new constitution.

Taking no action means the company will not have had an opportunity to review its current articles of association to see if any of those provisions are contrary to mandatory provisions.



Course of Action for

ARTICLES OF ASSOCIATIO

N

Full review of the articles, modifying where necessary and adopting

any new favourable provisions arising out of the

Companies Act 2014

Maintain existing Articles as constitution modifying only where necessary

Maintain existing Articles as the Constitution.

Mandatory provisions will prevail and company will

not necessarily have availed of any favourable

provisions


Directors and Officers of the Company

Directors and Officers of a Company

presented byGerard O’ Reilly


History of Directors’ Duties

Developed by the UK and Irish Courts over the past 150 years

Origins developed by the older concepts of equity and trusts. Fiduciary duties being owed by the Director to act solely in Company’s interests.

Previous sources of Directors Duties for example can be found in:Memorandum & Articles of Association Common LawCompanies Act 1963-2013

These common law fiduciary duties have now been codified in the new Companies Act.


History of Directors’ Duties

The codification of these duties will now set out clear rules of the principal fiduciary duties to which a Director will have to consider when acting as an officer of the Company.

This will act as a more accessible checklist of the rules and regulations for any person who is, or is considering becoming a Director of a Company.

Ultimately, this will result in a greater awareness of the rules and regulations that a Director must consider and lead to better governance practices within Companies.

“Easier to comply, harder to deny.”

With this increased responsibility placed on Directors, it is extremely important that they understand the obligations that are placed on them.


Directors’ Fiduciary Duties

8 Fiduciary Directors

DutiesCodified under Section 228

To act honestly and

responsibly

Act in accordance

with Company’s Constitution

A Director will not use the Company's

property, information or opportunities for their own interest

To exercise care, skill and

diligence

Avoid Conflicts of Interest

Have regard to the interests of

Members

To act in good faith for the

best interests of Company

Not to restrict power of Director’s

independent judgement


It is the duty of each director of a company to ensure that the Companies Act 2014 is complied with (section 223(1)).

Directors will also be obliged to acknowledge their duties and obligations when consenting to act (section 223(3)).

“I acknowledge that, as a director, I have legal duties and obligations imposed by theCompanies Act, other statutes and at common law.”

Directors to have regard to interests of employees (section 224).

Duty of director to disclose his or her interest in contracts made by the company (section 231).

Other Important Duties to Consider


Breaches of Duties and Directors Penalties

Breaches of certain duties: liability to account and indemnify The Companies Act has now increased the penalties for non compliance with the Companies Act 2014. These are as

follows (S. 871):

Category Offence

Summary Conviction Conviction On Indictment

Example

1 Class A Fine or imprisonment for a term not exceeding 12 months or both.

Fine not exceeding €500,000 or imprisonment for a term not exceeding 10 years or both.

If any person is knowingly a party to the carrying on of the business of a company with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the person shall be guilty of a category 1 offence.


Fine not exceeding €50,000 or imprisonment for a term not exceeding 5 years or both.

Obligation to keep adequate accounting records


N/A Failure to provide the directors' report to the Companies Registration Office or Members in a manner prescribed by section 332 of the Companies Act 2014.

4 Class A Fine. A “Class A fine” is a fine within the meaning of the Fines Act 2010 (i.e. a fine not exceeding €5,000).

N/A Failure to provide a copy of the constitution to its members.


The Role of Company Secretary

All Companies required to have a Company Secretary (section 129(1))

Duty placed on the Director to appoint a Company Secretary who has the:

“skills or resources necessary to discharge his or her statutory and other duties.”

(section 129(4))

To comply with new requirement Directors may seek to:

appoint a Company Secretary who has the necessary skills.

obtain Company Secretarial Services.

Single Director Companies will require that the Company Secretary be a different

person (section 129(6)).


Role of Company Secretary (Cont.)

Some other key duties:

Duties delegated by the Board of Directors without deviating from the secretary’s

statutory and other legal duties (section 226(4)).

the skills necessary so as to enable him or her to maintain (or procure the

maintenance of) the records (other than accounting records) (section 226(2)).

Secretaries will also be obliged to acknowledge their duties and obligations :

“I/We acknowledge that, as a Secretary, I/we have legal duties and obligations

imposed by the Companies Act, other statutes and at common law.” (section

226(5)).



presented byGerard O’ Reilly

Audit and Financial Statements


Audit Exemption

The provisions contained in Volume 1 Part 6 Financial Statements, Annual Return and Audit.

The directors of a company are required to arrange for audit unless the company is entitled to and chooses to avail itself of the audit exemption. (Sec 333)

Members may requisition an audit

For dormant company audit exemption, the Act does state the directors must be of the opinion that the company will satisfy the conditions and hold the board meeting in the financial year.

One significant change to the old legislation is if the company files the first annual return late it cannot avail of audit exemption for the first financial year.


Audit Exemption

Companies that can availCompany Limited by Shares (LTD) that is a small companyDesignated Activity CompanyCompany Limited By GuaranteeSmall GroupsDormant companies that have no significant accounting transactions or permitted assets &

liabilitiesNon-designated Private Unlimited Company (ULC)


Audit Exemption

Companies that cannot availPLC’sCertain Unlimited companiesA company, holding or subsidiary company that falls within Schedule 5 or is a credit

institution, insurance undertaking, relevant securitisation or body with securities admitted to trading

Late filing the current or preceding annual return with financial statements annexedLate filing the first annual returnAll companies in the group must have filed their returns on timeA notice is received 1 month before the end of the financial year by one or more members

holding 10% or more of the voting rights or for Companies Limited By Guarantee 1 member may object.


Financial Statements- Size Criteria Companies Act 1963-2013

Small Medium Large Group

Balance sheet total not exceeding€4.4m


Balance sheet total exceeding€7.62m

the balance sheet total of the group exceeds €7.62m

Turnover not exceeding€8.8m


Turnover exceeding €15.24m

the amount of the turnover of the group exceeds €15.24m

Employees not exceeding50


Employees exceeding 250

the average number of persons employed the group exceeds 250


Financial Statements- Size Criteria Companies Act 2014

Small Medium Large Group


Balance sheet total not exceeding€10m

Balance sheet total exceeding€10m

the balance sheet total of the group exceeds €10m


Turnover not exceeding€20m

Turnover exceeding €20m

the amount of the turnover of the group exceeds

€20m



Employees exceeding 250

the average number of persons employed the group exceeds 250


The consolidation of the law in this area is an improvement in accessibility and transparency, and is set out in Part 6.

Part 6 refers to “financial statements” and “accounting records”, where legislation previously referred respectively to “accounts” and “books of account”. This reduces the risk of confusion arising from the use in practice of “accounts” to refer both to “financial statements” and “accounting records”.

CLG can for the first time claim audit exemption should they meet the required criteria.However, be careful of the Charities Act 2009 requirements!

Ability to fix defective Financial Statements with the new B1 X Form.

Auditors’ reporting of offences- no longer ambiguous

They will now be Category 1 and 2 offences only.

Directors’ report to confirm (so far as directors are aware) auditors have relevant information

increases directors’ accountability for audit.

Introduction of Directors Compliance Statement: “Comply or Explain”

Changes in respect of Financial Statements


Directors Compliance Statement- “Comply or Explain”

New Provision in the Act Compliance with Statement for “Large Companies” i.e. balance sheet €12.5 million and an

annual turnover of €25 million. Compliance Statement must have:

that the directors have drawn up a compliance policy statement;That the directors have put in place appropriate arrangements or structures that are, in directors’

opinion, designed to secure material compliance with the company’s obligations under company law and tax law; and

that the directors have conducted a review during the relevant financial year of the arrangements and structures and have taken such steps to ensure the company’s compliance with the Companies Act 2014 and Tax law, or explain why this has not been done.

However, explanation must be given for non compliance with these obligations.Non Compliance with this Act or tax law, a failure to comply can be considered to be an

offence (Section 225) This will be a category 1 or a category 2 offence if not complied with or a serious Market abuse offence or a serious prospectus offence.


Changing Financial Year

• 288. (1) A company's first financial year must be no 18 months after incorporation• (a) Each subsequent financial year must not be in excess of 12 months, or• (b) such other period, not being more than 7 days shorter or longer than 12

months, as the directors may determine to its next financial year end date,s.288• Changes to a company’s year end must be notified to CRO on a designated form

B83 and will not be accepted if:-• if it result in a financial year in excess of 18 months • the previous financial year has expired.• if the alteration would result in a gap in the periods covered by the company's

financial Statements• if it results in a company not filing an annual return in a given year• if the new B83 notice is made less than 5 years after a previous B83 notice.

Form B83

• there is an exemption to the 5 year rule under section 288(10):-• To bring the financial year end in line with a parent or subsidiary• The company is being wound up. • Direction from Director of Corporate Enforcement.

Exemption to the five year

rule, S. 288 (10)


FORM B83


Summary Approval Procedure

The Summary Approval Procedure is covered in Chapter 7 of Part 4 of the Companies Act 2014.

It is a new procedure and it covers several different areas of the Act and the procedure permits certain restricted activities that would otherwise be prohibited.

It is a means by which companies can engage in restricted activities by ensuring that the persons those restrictions are designed to protect, consent to the action.

The summary approval procedure requires that the members pass a special resolution (and in the case of mergers, a unanimous resolution) approving the transaction and a director’s declaration in relation to the post-completion solvency of the company.

New summary approval procedure will provide a general validation process for overcoming the following restricted types of transaction:

http://www.irishstatutebook.ie/2014/en/act/pub/0038/sec0200.html


Summary Approval Procedure

The restricted activities are the financial assistance for the acquisition of shares (section 82), reduction in company capital (section 84), variation of company capital on re-organisations (section 91), prohibition on pre-acquisition profits or losses being treated in holding company’s financial

statements as profits available for distribution (section 118), prohibition of loans to directors and connected persons (section 239), domestic merger (section 464), members voluntary winding up (section 579).


Summary of other initiatives included in the Act

presented byGráinne Howard


Companies Act 2014- Summary

Charges New two tier process introduced for registering a charge where notice of a lender’s intent to

create a charge may be provided to the CRO. This would allow the lender the opportunity to secure priority (up to 21 days in advance) before the charge is created.



Company CapitalA company’s capital will now be made up of the following elements: The aggregate value of the consideration received by the company in respect of shares allotted by the

company Un-denominated capital which includes the share premium account, the capital conversion reserve fund

and the capital redemption reserve fund. A company will be entitled to vary its capital in advance of reorganisations where it is disposing of one or

more assets, an undertaking/part of an undertaking, or a combination of assets and liabilities to a body corporate where the consideration meets certain criteria.

Such reorganisation must have been approved using the Summary Approval Procedure. Where the criteria has been met, the company may, by ordinary resolution, vary the structure of its capital

by reducing the reserves and company capital by an amount equal to the book value of the transferred assets and undertakings.

It is expected that this will make reorganisations much simpler and will facilitate the completion of reorganisations by companies that would have been prohibited from doing so in the past by virtue of having negative or low reserves.


Share Capital

Previous Share CapitalCCRFCRRFShare Premium

Companies Act 2014Share CapitalUn-denomi-nated Capital

Provided that the Company Capital remains intact, share capital par value and un-denominated capital are interchangeable.



Directors LoansMust now be properly documented and approved in writing.Mergers of Private Companies In the past, private companies could only merge with companies in other EU jurisdictions

under the EU Cross Border Merger Regulations. This has been amended by the new Act and private companies may choose to merge with another company using either the Summary Approvals Procedure or through the Courts.

Persons binding the companyThere is an option to register the names of individuals who are authorised to bind the

company with the CRO.



Recording of Residential address In cases where the personal safety or security of a director or secretary is in question, an

exemption to recording the usual residential address of that officer in the register of directors and secretaries may be allowed.

Redeemable Shares It will no longer be necessary to maintain a non-redeemable portion of the issued share

capital (there was a 10% threshold previously).Share notificationsAny disclosure of interest in shares and share options below 1% of the nominal issued share

capital is no longer required.



Winding-up It will be possible to approve a members’ winding-up using the new Summary Approval

Procedure. In general the Act has made the legislation in relation to the different methods that may be employed to wind up a company more intelligible and logical


Companies Act 2014

QUESTIONS?