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What does the Companies Act mean for Irish construction companies?
By Susan Bryson – Partner, Mason Hayes and Curran
The Companies Act 2014, which consolidates and reforms Irish company law, has been published on the Oireachtas (the Irish parliament) website. Hard copies will become available in the coming weeks. The Act is planned to be commenced as of 1 June 2015, with a further 18-month transitional implementation period.
What does this mean for companies operating in the construction sector in Ireland? The Act contains all Irish laws relating to the formation, management, share capital, insolvency and investigation of companies. For construction companies which are currently Irish private limited companies, shareholders and directors will need to decide whether to register as a company limited by shares (LTD) or become a designated activity company (DAC).
Changes to Directors’ Duties
There is a new obligation for directors to file an annual director compliance statement. This obligation will apply to directors of public limited companies and larger private limited companies limited by shares or by guarantee.
Directors’ Loans
Under the new Act loans to directors must be properly documented. If they are not, they can be considered repayable on demand and with interest. Loans by directors to their companies must also now be in writing.
Changes to Audit Exemption
The new Act includes an audit exemption in some cases. For example, a company that is a parent undertaking or a subsidiary undertaking may not avail of the exemption. The Act does allow that an audit exemption can apply to a holding company and its subsidiaries.
Takeovers and Acquisitions
Mergers have, for the most part, been the reserve of PLCS but now, under the new Act, Irish private companies will be able to merge without obtaining court approval of a scheme of arrangement.
Single Director for LTDs
Under the new Act the LTD will have a single document constitution, while the DAC will have a two document constitution, i.e. its memorandum and articles of association. LTDs can have just one director under the new Act, while DACS will be required to have a minimum of two directors.
AGMs
LTDs can, under the new Act, waive the right to hold an AGM even if it has more than one member while DACs can only waive that right if it has just a single member.
FAQs:
I own a private company, how do I know if I need to prepare for these changes?
Every Irish private limited company must prepare for these changes by deciding to register as either a designated activity company (DAC) or company limited by shares (CLS) during the transition period.
What is a company limited by shares (CLS)?
The CLS is a simplified new-form private company limited by shares to which a range of streamlined governance reforms under the Act will apply, such as the one-document constitution, the ability to have a single director and the power to dispense with the holding of AGMs.
What is a designated activity company (DAC)?
The DAC is a more familiar corporate form for a private company limited by shares. Its activities are limited by its objects clause, and its constitution comprises a memorandum and articles of association. Not all of the streamlined governance reforms will apply to the DAC.
Should I register my company as a CLS or a DAC?
A company’s decision on whether to register as a CLS or DAC will depend on whether or not it is suitable for the provisions and procedures that apply only to the CLS. For example, it will not be possible for certain types of company, such as a licensed bank or a company that has debt securities listed or admitted to trading on a market, to register as a CLS.
The primary difference between a CLS and a DAC is that a DAC remains governed by its objects clause. However, a majority of companies adopt “catch-all” objects in their memorandum so this difference may amount to very little in practice.
When is the transition period to re-register my company?
The transition period is a period of 18 months from commencement on 1 June 2015. During this period the directors and members of an existing private company must elect either to register
How do I register my company as a CLS?
A company may choose to register an existing private company by registering a new-form constitution that has been adopted in either of the following ways:
- by special resolution (75% majority) of the members; or
- by resolution (more than 50%) of the directors.
The form of a new-form constitution that can be adopted by resolution of the directors is strictly limited by the Act. The directors may only make the minimum amendments to the company’s existing constitution that are required in order to make it conform with the prescribed contents set out in Section 19 of the Act.
How do I register my company as a DAC?
An existing private company may register as a DAC during the transition period in any of the following ways:
- voluntarily, by ordinary resolution; or
- compulsorily, either:
- on notice by a shareholder holding more than 25% of the total voting rights in the company;
- by reason of the company’s non-compliance with the limitation on offers of securities to the public; or
- pursuant to a court order on application by certain qualifying members or creditors.
A copy of the amending resolution together with a copy of the new memorandum and articles of association are required to be filed with the CRO, as well as a Form N2. The memorandum and articles of association must remain unchanged, save for the alterations prescribed by law. If a DAC wishes to update its constitution to accommodate the new regime, it must do so in the ordinary way.
The suffix of the company will change from “limited” to “designated activity company” or “dac” (or their Irish language equivalents).
What happens if I miss the deadline to re-register my company?
Where a company takes no action, the company will be deemed to have become a CLS on the expiry of the transition period. The physical form of the company’s constitutional documents (its former memorandum and articles of association) will be unchanged, but in their place it will be deemed to have a new-form constitution that complies with Section 19 of the Bill. This means that its existing memorandum and articles of association will be interpreted as its constitution with the exception of the objects clause and any provision that prevents alteration of the articles. The CRO will issue a certificate of incorporation stating the company to be a CLS.
It should be noted that where no action is taken, the company may be deemed to have a corporate form and constitution that does not serve the company’s requirements. Certain members and creditors who would prefer to see the company re-registered as a DAC may also challenge the company’s CLS status in the courts claiming prejudice on the basis of the directors’ failure to act.
Do I have to change my company merchandise/website/logo etc. after re-registering my company?
If you are registering your company as a CLS, you will not have to make any changes in this respect – the suffix “Limited” or “Ltd.” will be unchanged.
If you are re-registering your company as a DAC, the company’s name will be altered by the substitution of “designated activity company” for “limited”. The directors must ensure that the new name is reflected in various ways, for example by:
- obtaining a new company seal;
- altering the company’s name as it appears on stationery, on its website and as painted or affixed at its registered office;
- ensuring that any registers of shares or debentures held by the company are written up to reflect the change;
- submitting amendments to any registers, such as property registers in other countries, such as registers of intellectual property; and
- amending share certificates.