Company law reform under the Corporate Enforcement Authority Act

The Company Enforcement Authority has been recognized and the Corporations (Corporate Enforcement Authority) Act 2021 (the Act) commenced by way of Ministerial orders, which ended up signed by the Tánaiste on 5 July and 6 July respectively.

As we included previously, a lot of the Act is taken up with placing out the organisation, construction and powers of the new Company Enforcement Authority (CEA) and you can listen to far more about this in our SoundBite.

This posting focuses on the Act’s corporation law amendments, which largely correct accidental omissions from, or clarify the operation of provisions of, the Corporations Act 2014 (the 2014 Act). All of the Act has been commenced other than portion 35, which relates to the provision of directors’ PPS numbers in specified documents submitted to the Registrar of Organizations.

The alterations released by the Act can be broadly divided into 3 types: (i) share cash and cash servicing (ii) company governance (iii) insolvency-similar amendments.

Shares and money maintenance

• A enterprise could as soon as once more use its share quality account for, among other points, producing off the company’s preliminary fees or commissions paid out in connection with a share issuance (e.g. in an IPO). The reintroduction of this provision will give corporations bigger flexibility to use their share premium account without carrying out a formal reduction of company capital (by Summary Approval Technique (SAP) or court docket application).
• Commissions in respect of underwriting or sub-underwriting on a share concern by an Irish public restricted company (PLC) may well now be compensated immediately to traders devoid of the need to have for an middleman, which reflects sector apply.
• The Act clarifies that a few-party-share-for-endeavor transactions can continue: (i) even if there is no reorganisation of the company’s money and (ii) will not involve approval by SAP or court docket application if the suitable enterprise has distributable reserves equivalent to the price of the assets it is transferring (and deducts this equivalent volume from its reserves).
• The definition of treasury shares has been expanded to involve shares obtained by a corporation pursuant to a merger or division. This will make clear post-merger cure of such shares from both a lawful and accounting perspective.
• The Act clarifies that a cash reduction wherever a enterprise possibly (i) pays off compensated up share funds for which it no more time has a need, or (ii) extinguishes or lowers a member’s legal responsibility on shares not entirely compensated up, is not a distribution. When this kind of actions will even now involve approval by SAP or court docket application, there will no longer be a necessity for a firm to have distributable reserves. This demonstrates the place prior to the 2014 Act.
• The ability of directors of a PLC to drop to register a share transfer will after once more be restricted (save the place the company’s constitution offers in any other case). These conditions contain exactly where: (i) the transfer is to a particular person of whom they do not approve (ii) the share is a person on which the corporation has a lien (iii) the transfer would, in their feeling, “imperil or prejudicially affect the status of the corporation”, outcome in a loss of tax profit or incur payment of a duty
• Unlimited providers (ULCs) will no longer be expected to purchase or redeem shares out of distributable revenue. This welcome amendment demonstrates the posture prior to the 2014 Act and corrects the accidental software of stricter money maintenance regulations (relevant to private corporations) to ULCs.

Company governance

• After this section of the Act is commenced, corporations will be essential to offer the Own General public Provider figures (PPSNs) of their administrators (or other identity documentation if they do not have a PPSN) when incorporating a new firm, submitting an annual return, or notifying a alter of director. This is a safeguarding measure built to make it possible for the Companies Registration Office (CRO) to validate a director’s identification and mitigate the chance of (deliberate and inadvertent) breaches of organization legislation (e.g. on boundaries on the variety of directorships). This new provision demonstrates a standard trend to enhanced checking of company regulation compliance and use of technological know-how, but, in apply, it is unlikely to location a sizeable additional load on providers.
• The Minister for Enterprise, Trade and Employment’s power to grant exemptions from the need to involve directors’ names on a company’s letterhead has been eliminated (while current exemptions will not be influenced).
• The Act clarifies that a organization minimal by ensure (CLG) can exclude proxy voting by members by means of its structure.
• Shareholder proxy kinds should now specify that a proxy has the skill, not only to attend, converse and vote, but also “to desire or be a part of in demanding a poll” on behalf of the appointing shareholder. Providers need to be certain that their proxy kinds and playing cards reflect this extra language.
• The Act clarifies that any endeavor to appoint a minor as secretary of an Irish firm is void.

Insolvency-associated amendments

• New grounds have been released for Large Court docket applications for director restriction in which a director has not satisfied specified procedural prerequisites in the program of a company turning out to be insolvent (e.g. failure by a director to convene a normal conference of shareholders for the objective of nominating a named liquidator). These new grounds are designed to handle the problems brought on, in distinct, the place directors stroll absent from an insolvent business without the need of formally appointing a liquidator (generally in circumstances where by 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 unintended omission in the 2014 Act).
• The CEA have a new energy to ask for proof from a human being that they are competent to act as liquidator of an Irish firm (e.g. by providing a practicing certification and evidence of their membership of a recognised accountancy human body).
• Where by a liquidation is not concluded in just 12 months, a liquidator may perhaps now be expected to file more recurrent reports with the CRO on the carry out of the liquidation. Previously, a liquidator was needed to deliver these kinds of reports on the first anniversary of commencement and at 6 month to month intervals thereafter.

These firm law amendments and clarifications are extremely welcome, but further variations to the 2014 Act are nonetheless demanded. The 2022 Summer months Legislative Programme indicates that do the job is underway to draft a Corporations (Miscellaneous Provisions) Monthly bill, which it is hoped will be progressed later this yr.