The Companies Bill 2012, published by the Minister for Jobs, Enterprise and Innovation, Mr Richard Bruton TD, on 21 December 2012, will revolutionise Irish company law and provide a state of the art company law code for Ireland. The heads of Bill were drafted by the Company Law Review Group (CLRG) and its innovations are based on its recommendations. Dr Tom Courtney, head of Arthur Cox's Company Compliance and Governance Group has been chairperson of the CLRG and William Johnston, banking partner, has been a member of it, since its establishment in 2000. In this issue of 'The Company Agenda' Dr Tom Courtney outlines the architecture of the Bill and provides an overview of its main innovations.
THE COMPANIES BILL 2012
The publication of the Companies Bill 2012 is a very significant step in the reform of Irish company law.
The draft bill published in 2011 only set out the proposed law now contained in Parts 1 to 15. These Parts have been published as Volume 1 of the Bill and, in addition, Parts 16 to 25 have been published also as Volume 2. Volume 2 of the Bill deals, in turn, with additional provisions applying to types of companies other than the new model private company limited by shares - such as the new designated activity companies (DACs), public limited companies (PLCs), guarantee companies (CLGs), unlimited companies (UCs), external companies and investment companies. In each case, the provisions of the relevant part applicable to each other type of company must be read in conjunction with Parts 1 to 14. Additionally, the means by which companies can re-register as another type of company, the rules relating to public offers and miscellaneous other provisions are contained in Volume 2.
The Bill both consolidates and reforms the law relating to Irish companies. The private company has been the work-horse of commercial life in Ireland since it was first possible to register private companies in 1908, the year the Companies Act 1907 was commenced. Prior to then, it had been only possible to form a public company which had to have seven members. In Ireland, the private company has become by far the most common type of corporate entity used by business. Of the 185,181 companies on the register as at 31 December 2011, 86% were private companies limited by shares; less than 1% were public limited companies, the balance being made up primarily of guarantee companies and unlimited companies.
Ironically, the current Companies Acts view the private company as a peculiar variation of the public company, giving rise to a classic case of the tail wagging the dog. If there is one single recommendation of the CLRG which stands out, it is the very first recommendation of the First Report published on 31 December 2001, that "The private company limited by shares...should be the primary focus of simplification" (at paragraph 3.2.3).
That recommendation was accepted and is reflected in the Bill. Whereas there are currently 30 company law enactments (Acts and statutory instruments) applicable to various types of company, the first 15 Parts of the Bill provide an almost exhaustive statement of the law applicable to the private company.
Part 1 - Preliminary and General
This Part is largely devoted to house-keeping and defines terms which are used throughout the Bill. Some of the more important terms which are defined include "subsidiary" and "holding company". One innovation here is the combination of the definition of "subsidiary company" which is defined in the Companies Act 1963 (s 155) for general purposes with the definition of "subsidiary undertaking" which is defined in the European Communities (Companies: Group Accounts) Regulations 1992 (reg 4) for the purposes of group accounts so that there will be a common definition.
Part 2 - Incorporation and Registration
Part 2 contains the law concerning the formation and registration of companies and it is here that some of the most fundamental changes to the law relating to the model private company are to be found.
The new model private company (referred to here as an 'LTD' because it will be so identified from its name) will have a one-document constitution in place of the current two document memorandum and articles of association and will have "full and unlimited capacity" since it will not have an objects clause. If people wish to have a private company with a memorandum and articles of association and an objects clause they will have to use the alternative form of private company provided for in Chapter 16 - the DAC or designated activity company.
Private companies can authorise "registered persons" to bind the company to facilitate the conclusion of contracts. This does not mean that every employee with authority to bind a company (for example, a cashier in a supermarket) must be registered as certain people will have limited authority arising only in particular circumstances, but some senior employees authorised to bind the company will have to be registered.
Contracting with LTDs will be greatly simplified especially in a one-director company, since because the board of directors is deemed to have authority to bind the company, there should be no necessity to seek sight of a board resolution.
Initially, one of the most important sets of provisions will be those dealing with the conversion of existing private companies (see Fig. 1). This will become hugely important for existing private companies after the enactment of the Bill. Arthur Cox will be contacting clients for whom we provide company secretarial services well in advance of all deadlines to assist them with cost-effective and streamlined compliance with the new regime.
Fig 1. Conversion of existing private companies to the new model private company
Transition period is 18 months after commencement Existing private companies can "opt out" of new regime and re-register as DACs (designated activity companies) by passing an ordinary resolution at any time up to three months before the end of the transition period (thereafter, re-registration must be by special resolution in accordance with Part 20 of the Bill) An existing private company must re-register as a DAC if a member holding more than 25% of the voting rights in the company serves a notice requiring it to become a DAC not later than three months before the end of the transition period Existing private companies that want to "opt in" can adopt a new one-document constitution in lieu of their existing memorandum and articles of association by passing a special resolution Directors of existing private companies that have not opted out are obliged to prepare a new constitution (derived from its memorandum and articles of association, except its objects clause or clauses prohibiting their alteration), deliver a copy of it to the members and file it in the CRO At the end of the transition period, every existing private company limited by shares that has not taken any action will be deemed to have adopted a constitution in the form provided in the Bill and to have become an LTD Part 3 - Share Capital, Shares and Certain Other Instruments
One of the most striking things about Part 3 is that for the first time since 1983, all of the law relating to shares and share capital is contained in one place as opposed to being spread across several different enactments (see Fig. 2).
Fig 2. Contents of Part 3, Shares
Preliminary and interpretation Offers of securities to the public Allotment of shares Variation in capital Transfer of shares Acquisition of own shares Distributions Perhaps the most important distinguishing feature between the new model private company and existing private companies is that the LTD may not list any securities, whether shares (equity) or bonds (debt).
Since 2005 private companies have been a number permitted to list debt securities and have done so. Under the Bill, existing private companies will still be able to do this but they will have to reregister as DACs. By making this distinction, the LTD can be the subject of a less complicated regime.
One of the central concepts in the new Bill is that where a company's constitution is silent, it defaults to what is provided for in the Bill. This will reduce the need for companies to have detailed provisions in their constitutions as are currently required to be set out in articles of association. Provisions relating to calls on shares, lien, forfeiture, etc, are all now contained in the Bill and...