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.
Since publication, the Bill has completed Committee Stage (6 November 2013) and Report Stage (2 April 2014) in the Dáil, and Committee Stage in the Seanad (17 June 2014). In total, 627 amendments have been proposed, and the 573 amendments proposed by the Minister have been accepted. 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 updated issue of ‘The Company Agenda’ Dr Tom Courtney and Dáibhí O’Leary outline the architecture of the Bill (as amended in Committee Stage (Seanad)) and provide 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.
A partial draft bill had been published in 2011, which set out the proposed law now contained in Parts 1 to 15. These Parts have been published as Volume 1 of the Bill and Parts 16 to 25 have been published 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 more than 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” as defined in the Companies Act 1963 (s 155) for general purposes with the definition of “subsidiary undertaking” as 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 Part 16 – the DAC or designated activity company.
Where the directors of an LTD authorise someone (including one of the directors) generally to bind the company in contract, that person must be registered in the CRO as a “registered person”.
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