Company Law Forum Companies Bill 2012

Company Law Forum Companies Bill 2012 20th October 2014 www.charteredaccountants.ie EDUCATING SUPPORTING REPRESENTING

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COMPANY LAW FORUM COMPANIES BILL 2012 Chartered Accountants House Monday 20 th October 2014

Company Law Forum Companies Bill 2012 AGENDA 09:30-09:40 Welcome and Introductory Comments Aidan Lambe, CAI Technical Director 09:40-10:10 Directors Duties and Corporate Governance Mark Talbot, William Fry Solicitors 10:10-10:40 Enforcement and the Companies Act Kevin Prendergast, ODCE 10:40-11:10 New Company Types and the Conversion Process 11:10-11:15 Questions & Answers 11:15-11:45 Tea/Coffee 11:45-12:15 Share Capital Summary Approvals Procedure Mary Shier, Deloitte Barbara Kenny, William Fry Solicitors 12:15-12:45 Audit and Accounting Implications Oliver Holt, Deloitte 12:45-close Questions & Answers

Company Law Forum Companies Bill 2012 Welcome and Introductory Comments Aidan Lambe CAI Technical Director

Company Law Forum Companies Bill 2012 Directors Duties and Corporate Governance Mark Talbot William Fry Solicitors

Companies Bill 2014 Directors Duties & Corporate Governance Mark Talbot, Partner, Corporate 20 October 2014

Sources of Director Duties Prospectus Regulations Market Abuse Regulations Memorandum & Articles of Association Keep proper books and records ISE/EU Regulation /Corporate Governance Codes Companies Act 1963 2012 16 Acts AGM, Annual Return Transparency Regulations Competition Act Restriction on Director loans/transactions Best interests of Company and its Members Corporate Manslaughter Bill Common Law Fiduciary Duties Other Statutes Due Care & Skill Due regard to Employees Environmental Protection Act Health & Safety at Work Act

What does the Bill do? - Improve accessibility - Consolidation and simplification - Reform

Director Duties Under Companies Bill - Director s duty to ensure compliance with Act - On appointment, acknowledge in writing: I have legal duties and obligations imposed by the Companies Act, other statutes and at common law - Director annual compliance statements company s compliance with relevant obligations

Raising the bar - Relevant Obligations: Companies Act provisions where offence >5 years imprisonment or > 50k fine serious prospectus and market abuse offences tax compliance - Directors confirm they have, or explain why they have not: drawn up a compliance policy statement established appropriate arrangements and structures to secure material compliance with relevant obligations conducted review during financial year of those arrangements

Codification of Directors Fiduciary Duties Act in good faith in interests of Company Act honestly, responsibly in conduct of company s affairs Act in accordance with company s constitution and the law Not use company s property, information or opportunities for own/other third party benefit Do not restrict director s power to exercise independent judgment Avoid any conflict between director s duties and own interests Exercise the care, skill & diligence that would be exercised by reasonable person with knowledge & experience a director expected to have and that director actually has Have regard to interests of members, in addition to general duty to employees

What Does this Mean for Directors? - Clear restatement of existing duties - Does not significantly increase director duties - Makes it easier to understand and difficult to deny Minister Richard Bruton - More will be expected of directors in execution of duties

Loans by a Director (or Connected Person) to a Company - If terms of transaction or arrangement are not in writing or are ambiguous, presumed not to be a loan or quasi-loan

Loans by a Director If proved to be loan or quasi loan but ambiguous as to: Interest: presumed to be interest free Security: Priority of security: presumed to be unsecured presumed to be subordinate

Loans by a Company to a Director - Where loan not in writing, presumed to be repayable on demand and that interest at the appropriate rate is due

Loans by a Company to a Director - Where in writing or partially in writing but ambiguous as to repayment, repayable on demand as to interest, interest at appropriate rate is due

Old Section 31 Prohibited Transaction Exception Relevant People for Exception Loans, quasi loans, credit transactions S32 (de min) S35 (group) S36 (directors expense) Directors of companies, connected persons Bodies corporate that are connected persons Directors of companies Guarantees and provision of securities S37 (business transactions) S34 (validation) S35 (group) S36 (directors expense) Directors of companies, directors of holding companies Directors, directors of holding companies, connected persons

Section 239 - Main prohibition is the same - Exceptions now more generally available Prohibited Transaction Loans, quasi loans, credit transactions Guarantees and provision of security De Exception De minimis Group exception Summary Approvals Procedure

Liability for Directors - Personal responsibility without any limitation of liability for all of the debts of the company - Where company wound up within 12 months - rebuttable presumption that directors did not have such reasonable grounds

Transaction in non-cash assets involving Directors Section 238 (old section 29 of 1990 Act) - Requisite value of non-cash asset not less than 5,000 but exceeds 65,000 or 10% of company s relevant assets - Restriction does not apply to the disposal of a company s assets by a receiver

Mark Talbot Partner D: + 353 01 639 5162 M: + 353 86 358 4795 E: mark.talbot@williamfry.ie WF 10280760 v1

Company Law Forum Companies Bill 2012 Enforcement and the Companies Act Kevin Prendergast ODCE

Enforcement and the Companies Act Kevin Prendergast Head of Enforcement, ODCE

Retained Enforcement Powers Right to seek appointment of Inspector Inspector for SME s now through Circuit Court New obligation to notify Director by third parties Access to books and records of company in liquidation

Retained Enforcement Powers Access to company records New ground - affairs of company conducted in an unlawful manner Search and seizure, including IT Order to comply with the Act Power to inspect Liquidators books

New powers S.763 ODCE can appoint Inspector for share dealing by directors S.794 Power to inspect books and records of other companies where offence suspected in a company S.800 Power to seek disclosure order re shares and debentures

New powers S.335 ODCE can seek to confirm entitlement to audit exemption Access to such books and records Furnish information Breach a category 4 offence

New insolvency powers S.761 Petition to wind up a company if it is just and equitable based on information obtained in performance of Directors functions

ODCE power to Wind up Section 569(1) A company may be wound up by the court (g) if the court is satisfied, on a petition of the Director, that it is in the public interest that the company should be wound up;

ODCE power to Wind up Director may petition the court In practice Officers will do so under delegated power Section 576, court may appoint a liquidator, and indeed a provisional liquidator Section 573(2) A company with obligations to NAMA may not be wound up without agreement of NAMA

ODCE power to Wind up The Watchdog proposal May be guided by referrals from other bodies: Central Bank National Consumer Agency Etc As Insolvency is not a State service, will be a costs/resources impact for the Office

Restriction S.819 (2)(b) Directors must cooperate with liquidator in the winding up S.819 (3) new capital thresholds 500,000 for a plc, 100,000 for all other companies CLG s can now have a restricted director if a member undertakes to contribute 100,000

Restriction Relief can now be sought at any time, not just within one year

Disqualification Conviction on indictment of any offence relating to a company as prescribed If disqualified abroad and a director here, must notify CRO. Failure triggers disqualification Restriction and disqualification undertakings

Liquidators S.633 Rules for Liquidators Member prescribed accountancy body Solicitor Member other body approved by IAASA Qualified in other EEA State 2 years practical experience and approved by IAASA/ODCE S.634 Must have PII

Categorisation of offences Current situation Most offence sanctions by means of s240 Companies Act 1990 Penalty on summary conviction fine of up to 2,500 and/or up to one years imprisonment On Indictment fine of up to 22,220 and up to five years imprisonment

Categorisation of offences Certain offences have higher tariffs Fraud on indictment a fine of up to 111,102 and up to seven years in jail Transparency Directive fines of up to 1million and up to five years in jail Market Abuse Directive fines of up to 10million and up to ten years in jail

Categorisation of offences New offence categories Set out in section 871 Interacts with Fines Act to ensure that lower level fines continue to be upgraded consistent with other legislation

Categorisation of offences Category 1 offence Summary charge Class A fine and/or up to 12 months imprisonment Indictment Fine of up to 500,000 and/or up to ten years imprisonment

Categorisation of offences Category 2 offence Summary charge Class A fine and/or up to 12 months imprisonment Indictment Fine of up to 50,000 and/or up to five years imprisonment

Categorisation of offences Category 3 offence Summary charge only Class A fine and/or up to 6 months imprisonment Category 4 offence Summary charge only Class A fine only

Categorisation of offences Class A fine under Fines Act 2010 is currently 5,000 Categories 1 and 2 are indictable and therefore reportable by auditors to ODCE Will continue to be some hors categorie offences, for example under Market Abuse and Transparency

Categorisation of offences Daily penalties for continued breach Category 1-5,000 if on indictment, Class D fine ( 1,000 currently) if summary Category 2-1,000 if on indictment, 100 if summary Category 3 and 4-50

Categorisation of offences CLRG has provided guidance on the categorisation of future offences Proportionality Technical/Filing offences to be category 3 or 4 Public policy reason for offences to be indictable Classification should have regard to possible impact on all relevant stakeholders

Codification of Directors Duties No substantive difference in legal reality No ODCE role in enforcing duties Remains a potential cause of civil action Clarity for directors as to their fiduciary duties, but interpretation remains a matter for legal advice

Enforcement strategy Main expansions to ODCE powers already in law Companies (Amendment) Act 2009 Criminal Justice Act 2011 Significant changes for ODCE are in insolvency Restriction and disqualification undertakings Winding up in public interest

Enforcement strategy Most common offences remain Failure to keep proper books Unqualified auditors Breach of restriction/disqualification orders SAP procedure for directors loans can validate Risk is personal liability if directors statutory declaration made without reasonable grounds

Enforcement strategy Strategy continues to be to move criminal prosecution towards more high level crime, and to explore alternative methods of dealing with low level offending Vast majority of reports to the Office will continue to be dealt with administratively

THANK YOU Further information is available at: www.odce.ie www.cro.ie www.djei.ie

Company Law Forum Companies Bill 2012 New Company Types and the Conversion Process Mary Shier Deloitte

Companies Bill 2012 New Company Types and the Conversion Process October 2014

Contents Company types and differences The Conversion Process Timelines Is Action Required? 2014 Deloitte & Touche

Some New Company Titles LTD Company Limited by Shares Company limited by guarantee, not having a share capital CLG DAC Designated Activity Company Public Unlimited Company PUC ULC Private Unlimited Company Public Unlimited Company not having a share capital PUL C 2014 Deloitte & Touche

What s changed? Consolidation of the Companies Acts 1963 to 2013 and Statutory Instruments into one Bill. The new Bill is easier to navigate:- LTD in Parts 1-15 (volume 1) DAC in Part 16 (volume 2 together with volume 1) All others in volume 2 Impact - all private limited companies - 85% of companies currently registered in Ireland. The Bill has introduced a conversion process which will require all private limited companies to convert into one of two types of company, either an LTD or a DAC. Although the new Bill reinstates a lot of the current legislation there are a number of reforms and innovations 2014 Deloitte & Touche

LTD V DAC? Some Practical Features: LTD DAC Must be a private limited company No objects clause - full and unlimited capacity One document Constitution Name will end with Limited, LTD or Teo. Can eliminate authorised share capital Can have a minimum of one member Can have one director Must have a Company Secretary, who cannot be the single director Can dispense with holding the AGM both single and multi-member company Cannot offer shares to the public or list debt securities May either be a private limited company or a company limited by guarantee with share capital Will have an objects clause One document Constitution with two parts Name must end with Designated Activity Company, DAC or its Irish equivalent (unless exempt) Must state authorised share capital Must have a minimum of two directors Must have a company secretary who can be one of the directors May dispense with the AGM if it is a single member company. A multi member company must continue to hold an AGM Cannot offer shares to the public but will be able to list debt securities. 2014 Deloitte & Touche

Why become an LTD? Want to dispense with requirement to have an objects clause and no longer be subject to the doctrine of ultra vires Why become an LTD? Wish to have a single director and dispense with limitation on authorised share capital Simplest form of Irish Limited Company 2014 Deloitte & Touche

Sample Constitution for an LTD Constitution OF [name of company as below] 1. The name of the company is: THE SOUTH EASTERN COUNTIES FLOORING AND TILING COMPANY LIMITED. 2. The company is a private company limited by shares, registered under Part 2 of the Companies Act 2014. 3. The liability of the members is limited. 4. The share capital of the company is 50,000 divided into 50,000 shares of 1 each. / The share capital of the company is divided into shares of 1 each. 5. Supplemental Regulations (if any). We, the several persons whose names and addresses are subscribed, wish to be formed into a company in pursuance of this Constitution, and we agree to take the number of shares in the capital of the company set opposite our respective names. Names, Addresses and Descriptions Number of Shares taken by each Subscriber of Subscribers 1. Mary Kelly 2,700 Address: Description: 2. Alan Redmond 300 Address: Description: Total shares taken: 3,000 As appropriate: signatures in writing of the above subscribers, attested by witness as provided for below; or authentication in the manner referred to in section 889. Dated the day of 20[ ] Witness to the above Signatures: Name: Address: 2014 Deloitte & Touche

Designated Activity Company DAC Companies who publish offer documents e.g. debt securities / debentures, insurance companies or banks must become a DAC Why become a DAC? Want to retain/are obliged to retain their objects clause and limit their corporate capacity e.g. Joint Ventures, Charities Shareholders request 2014 Deloitte & Touche

Sample Constitution for a DAC Constitution OF [name of company as below] MEMORANDUM OF ASSOCIATION 1. The name of the company is: THE SAFE SKIES SOFTWARE DESIGNATED ACTIVITY COMPANY. 2. The company is a designated activity company limited by shares, that is to say a private company limited by shares registered under Part 16 of the Companies Act 2014. 3. The objects for which the company is established are the development, production and sale of computer software designed to enhance the safety of aviation and the doing of all such other things as are incidental or conducive to the attainment of the above object. 4. The liability of the members is limited. 5. The share capital of the company is 200,000, divided into 200,000 shares of 1 each. ARTICLES OF ASSOCIATION The following Regulations shall apply to the company: [or, instead of the immediately foregoing words, the following sentence:-*] The provisions of the Companies Act 2012 are adopted. *See section 970(5) We, the several persons whose names and addresses are subscribed, wish to be formed into a company in pursuance of this Constitution, and we agree to take the number of shares in the capital of the company set opposite our respective names. Names, Addresses and Descriptions of Subscribers Number of Shares taken by each Subscriber 1. Patrick McKenna 300 Address: Description: 2. Bridget McCloy 2,700 Address: Description: Total shares taken: 3,000 As appropriate: signatures in writing of the above subscribers, attested by witness as provided for below; or authentication in the manner referred to in section 888. Dated the day of 20 Witness to the above Signatures: Name: Address: 2014 Deloitte & Touche

The Conversion Process 2014 Deloitte & Touche

Choice for the Private Limited Company Private Limited Company LTD v DAC? No action taken will become an LTD Take Action LTD DAC Action Action Lodge form N1 at the Companies Registration Office (CRO) with Members Resolution (Special) / Directors Resolution and new Constitution Lodge form N2 at the CRO with Members Resolution (Ordinary) / Directors Resolution and new Constitution (M&A) 2014 Deloitte & Touche

Sample timeline based on enactment from 1 June 2015 Private limited companies treated as DAC unless:- 1.They convert to LTD (N1) 2. They convert to a DAC (N2) All Private Limited Companies will automatically be converted to LTD All Guarantee and unlimited Co. s must change name (N3) 1 June 2015 to 31 August 2016 2013 1 September 2016 to 30 November 2016 30 November 2016 Thereafter Final period for Private Limited Companies to convert to a LTD CRO will enforce name change for Guarantee and unlimited Co s 2014 Deloitte & Touche

Members Options to convert to a DAC 0 to 15 Months A member holding 25% of the voting rights can within the first 15 months of the transition period serve notice in writing on the Company to re-register as a DAC before the end of the transition period. 15 to 18 Months Where re-registration does not take place before the end of the transition period, a member holding 15% of voting rights or creditors holding at least 15% of debentures may apply to the court directing the company to be re-registered as a DAC. Compulsorily Directors Resolution Where the company is required to re-register as a DAC because it would be in breach of the law. After 18 Months seek relief (if eligible to do so) from Court and require that the company be re-registered as a DAC 2014 Deloitte & Touche

What happens if nothing is done? Company takes no action During the Transition Period:- The law of the DAC will apply until action is taken At the end of the 18 month transition period An existing private limited company will by default become an LTD. The company will retain its existing Memorandum and Articles of Association, (deemed Constitution) less its objects clause and any clause that prevents alteration to its M&A. The remainder of the provisions of the Memorandum and Articles of Association will continue to apply. Electronic Certificate of Incorporation with the suffix Limited, LTD, or Teo. will issue Where the current Articles contain the provisions in Table A (or any parts thereof) despite the repeal of the Companies Acts 1963-2013 The relevant provisions of the Constitution will continue to apply, except where those regulations are inconsistent with any mandatory provisions in the Bill. References to the Companies Act are treated as references to the new Act. 2014 Deloitte & Touche

LTD Constitution Approved by the Directors Name of the company. Delete the objects clause from its Memorandum. Delete provisions relating to alteration of its Memo & Arts. Insert the statement that it is a private company limited by shares registered under Part 2 of the Companies Act 2012. Consecutive numbering of each of the paragraphs of its former Memo & Arts into a one document Constitution. Basically identical to existing Memo & Arts without the objects clause Approved by the Members Name of the company. That it is a private company limited by shares registered under Part 2 of the Companies Act 2012. Do not need to have a maximum authorised share capital but state the nominal value of the shares. Include any supplemental regulations (particularly around share rights already in the current Memo & Arts.) Paragraphs are numbered consecutively into a one document Constitution. Provides opportunity to delete redundant Articles or those which have now been incorporated into legislation. 2014 Deloitte & Touche

DAC Constitution Approval by the Directors Only permitted where the company is required by law to be a DAC No changes to the existing Approval by the Members Name of the company (unless authorised to exempt DAC from its name) That the Company is a Designated Activity Company, that is to say it is a private Company Limited by Shares registered under Part 16 of the Companies Act 2012 Objects clause One document Constitution which will contain two Parts (Memorandum and Articles) Authorised share capital and nominal value division must be stated That the liability of the members is limited Any supplemental regulations 2014 Deloitte & Touche

After conversion - what should be done? For LTD job done For a DAC: stationery will need to be altered a new seal obtained overseas registers, statutory registers and share certificates updated website and signage updated provide the members and directors with an updated Constitution advise utility companies, suppliers, sub-contractors etc. notify the Registrar of business names that the company which owns the business name has changed its name. if the company has intellectual property rights such as trademarks, patents, these registrations should be updated. notify auditors, bankers, solicitors, accountants and regulatory authorities of the name change. 2014 Deloitte & Touche

Action Now? What can be done now preparation for enactment:- Examine existing Articles to determine:- is any Article inconsistent with the Bill? what extra/unique Articles does the company wish to retain? are there existing Articles which are now redundant? does the company wish to retain its Objects clause and become a DAC? if the Company wishes to become an LTD, does it want to retain a stated share capital or not? does the company need to have two directors. Is the company obliged to be a DAC due to its activities? Rationalisation - this may reduce costs following enactment 2014 Deloitte & Touche

In Summary - What can be done? Do Nothing Take no action and default to an LTD old Memo & Arts are public record maybe confusing Take Some Action To the new LTD regime and register a new form Constitution Re-register as a DAC or another type of company 2014 Deloitte & Touche

Other Entities The Companies Bill Enactment Public Company Company Limited by Guarantee without Share Capital Unlimited Company No action needed Lodge form N3 and Constitution (M&A) with new name at CRO 2014 Deloitte & Touche

Questions?

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Company Law Forum Companies Bill 2012 Q&A

Company Law Forum Companies Bill 2012 Share Capital Summary Approvals Procedure Barbara Kenny William Fry Solicitors

Companies Bill 2012 Share Capital Summary Approvals Procedure Barbara Kenny 20 October 2014

Part 3 - Companies Bill All law relating to share capital, shares and certain other instruments codified in Part 3 Provisions currently contained in: Companies Act 1963 most of Part III and Schedule 1, Table A (Model Regulations) Companies (Amendment) Act 1983 most of Parts III & IV Companies Act 1990 Part IV

Company Capital Company Capital is: share capital (now defined as the aggregate amount or value of the nominal value of shares) and the share premium account the capital conversion reserve fund the capital redemption reserve fund Undenominated capital

Variation Share Premium Nominal Value Capital Redemption Reserve Fund Ordinary Resolution required moving between different elements of share capital much easier

Example

Section 64 - Paid Up Share Capital A share in an LTD will be taken to have been paid up in cash or allotted for cash if the consideration is: Cash; or A cheque in good faith which the directors have no reason for suspecting will not be paid; or The release of a liability of the LTD for a liquidated sum; or An undertaking to pay cash to the LTD on demand or at an identified or identifiable future date which the directors have no reason for suspecting will not be complied with

Section 66 - Shares May allot shares of different nominal values, of different currencies and/or with different amounts payable on them May allot redeemable shares unless its constitution provides otherwise The requirement for LTD to maintain 10% of its issued share capital as non-redeemable has been removed

Chapter 3 Allotment of Shares Changes: No requirement for maximum 5 years period/ maximum number of shares In the case of a LTD whose constitution states an authorised share capital, shares must be included in the authorised but unissued share capital

Chapter 3 Allotment of Shares Save to the extent that the constitution of the company provides otherwise: a) shares of a company may only be allotted by the directors of the company; b) the directors of a company may allot, grant options over or otherwise dispose of shares to such persons, on such terms and conditions and at such times as they may consider to be in the best interests of the company and its shareholders

Allotment of shares Filing requirement appears to have been removed for resolution (old s20) Offer round provisions still apply to relevant shares except to the extent that: the constitution of the company; a special resolution; or the terms of issue of already allotted shares provides otherwise

Section 71 Payment of shares Shares may be paid up in money or money s worth (including goodwill and expertise) Changes: - Shares of LTD may not be allotted at a discount to their nominal value - LTD may allot bonus shares

Section 71(5) Payment of shares Old section 62 of the 1963 Act Section 71(5) Any value received in respect of the allotment of a share in excess of its nominal value shall be credited to and form part of undenominated capital of the company and shall be transferred to the company s share premium account

Section 71(5) - Payment of shares 1000 Shares of 1 each B Limited must attribute 99,000 to share premium account

Section 72 - Share for Share transaction/ merger relief Existing Position: While 100 shares of 1 each issued, B Limited would need to account for 99,900 share premium

Section 72 - Share for Share transaction/ merger relief Proposed Position: No requirement for excess of value to be attributed to share premium account of B Limited

Merger Relief Section 72 Consideration for the shares allotted must be provided By the issue or transfer to the issuing company of shares (equity or non-equity) or By the cancellation of any such shares not held by the issuing company Issuing Company must have secured at least 90% equity share capital holding in the other company 90% or more of the nominal value of the share capital 90% of each class taken separately

Section 73 - Group Reconstructions HoldCo Limited 100% 100% A Limited B Limited Assets other than cash to be transferred Where shares issued at a premium, the issuing company is not required to credit to undenominated capital any amount in excess of the minimum premium value

Section 73 Group Reconstructions Minimum premium value = the amount by which the base value of the consideration for the shares allotted exceeds the aggregate nominal value of those shares Base value to be lower of: the cost of those assets to the transferor; or the amount at which those assets are stated in the transferors accounting records immediately before the transfer

Section 73 Group Reconstructions HoldCo Limited 100% 100% A Limited B Limited Undenominated capital for shares issued by B Limited = 99,900

Section 75 Before After 100% 100% 100%

Section 75 Net Book Value = 100,000 Market Value is 1,000,000 B Limited must attribute 100 to share capital and 99,900 to undenominated capital but no need to attribute remaining 900,000 to undenominated capital

Section 72(5) Book Value or Market Value? Net Book Value = 100,000 Market Value is 1,000,000 B Limited must attribute 999,000 to share premium account

Acquisition of Own Shares s102 Acquisition of own shares, may be specified in The constitution The rights attaching to the shares in question A special resolution Special Resolution Cannot be in writing Contract must be on display for duration of notice of meeting (not just 21 days) Contingent purchase contract = option agreement

Distributions Distribution of non-cash assets: book value v market value The amount of the distribution (or the relevant part of it) is taken to be Where amount or value of consideration is not less than the book value of the asset, zero; In any other case, the amount by which the book value of the asset exceeds the amount or value of any consideration for the disposition Book value = the amount stated in the relevant financial statements or where the asset not stated, zero

Summary Approvals Procedure Financial Assistance for Acquisition of own Shares Loans to Directors Reduction of Capital Variation of Capital Mergers Voluntary Winding Up Pre-acquisition reserves

Summary Approval Procedure what s needed? Shareholder approval 75%/100% Declaration by directors for each restricted activity Accountant s report for certain activities

Financial Assistance for Acquisition of own Shares Summary Approval Procedure can validate financial assistance. Directors Declaration must contain following information 1) Circumstances in which the transaction entered into 2) Nature of the transaction 3) Person/persons concerned 4) Purpose 5) Nature of benefit to the company 6) Full inquiry company will be able to pay its debts in full within 12 months

Prohibition on Loans to Directors Summary Approvals Procedure can validate loans to directors Directors Declaration: 1. Circumstances and nature of transaction 2. Person/persons concerned 3. Purpose 4. Nature of benefit to the company 5. Full inquiry company will be able to pay its debts in full as they fall due within 12 months No accountants report required

Reduction of Capital: Significant change Company may reduce its share capital in any way it thinks expedient No Court involvement

Reduction of Capital

Variation of Company Capital on Reorganisation Applies to a company reorganising its company capital by the transfer or disposal of: One or more assets An undertaking or part of an undertaking; or A combination of assets and liabilities to a body corporate on terms that the consideration (which may include cash) is paid to the holding company or members of that company

Variation of Capital: Scenario Foodie Limited carries on a number of catering businesses It wants to reorganise its business and hive off its cake making division to a NewCo A share for undertaking three party swap is proposed This can be achieved on a tax neutral basis

Variation of Capital Shareholders 100% Scenario 1: Foodie Limited has reserves of 300,000 Scenario 2: Foodie Limited has reserves of 50,000 and share capital of 300,000

Reduction/Variation of Capital Directors Declaration 1) Circumstances and nature of transaction 2) Person/persons for whom transaction to be made 3) Total amount of company s assets and liabilities as at date not more than 3 months before declaration 4) Anticipated total amount of company s assets and liabilities immediately after the restricted activity 5) Full inquiry that the Company will be able to pay or discharge its debts and other liabilities (as identified at 3) in full as they fall due during the period of 12 months 6) No actual or constructive notice that the company will incur any material extraordinary future liability within 12 months after the declaration

Reduction/Variation of Capital Declaration shall have no effect unless accompanied by a report: drawn up in the prescribed form by a person who is qualified, at the time of the report, to be appointed or to continue to be the statutory auditor of the company; and which shall state whether, in the opinion of that person, the declaration is not unreasonable

Pre-acquisition Profits

Pre-Acquisition Profits Declaration must state the amount of the profits or losses subject to the alternative treatment the total amount of company s assets and liabilities as stated in last statutory or interim financial statements properly prepared not more than 3 months prior to the declaration that the declarants have made full inquiry, having done so and if the company were to make the distribution within two months, the company would be able to discharge its debts and liabilities referred to in those accounts in full as they fall due within 12 months Accountants Report

Mergers All other requirements required for Mergers (other than Court sanction) must be complied with, ie Common draft terms of merger Directors explanatory report for each merging company (other than merger by absorption) Where required under s469, experts report Merger financial statement Delivery of docs to CRO/publication in newspaper Inspection of documents by members

Mergers - Summary Approvals Procedure Resolution must be unanimously passed by the members of each merging company Declaration for each merging company must state Total amount of assets and liabilities of relevant merging company as at latest practicable date before date of declaration and in any event not more than 3 months prior to declaration Full inquiry into affairs of the company and the other merging companies and having done so, they have formed the opinion that the successor company will be able to pay and discharge debts and other liabilities of it and the transferor company/companies in full as they fall due within 12 months after the date of the merger

Voluntary Winding Up Voluntary solvent members winding up must use the Summary Approvals Procedure unless the winding up is: in the expiry of the period fixed in the constitution of the company; or to occur on the happening of a certain event as set out in the constitution of the company

Voluntary Winding Up Declaration must state: the total amount of company s assets and liabilities not more than 3 months prior to the declaration; and full inquiry into the affairs of the company the company will be able to pay its debts and other liabilities in full within a period not exceeding 12 months after commencement of winding up Accountants report

Directors Take Note Personal responsibility without any limitation of liability for all of the debts of the company Where company wound up within 12 months - rebuttable presumption that directors did not have such reasonable grounds

Barbara Kenny Partner D: + 353 1 6395146 E: barbara.kenny@williamfry.ie

Company Law Forum Companies Bill 2012 Audit and Accounting Implications Oliver Holt Deloitte

Companies Bill 2012 0verview - audit and accounting implications 20 th October 2014

Some Financial Statement Implications

Part 6 The Companies Bill 2012 Deals with financial statements, annual return and audit 23 chapters 136 sections Approx. 120 pages Supplemented by schedules 3 (entity) and 4 (group) a further 43 pages Consolidates existing law spread over several Acts and S.I.s into one place To a large extent many requirements unchanged Relevant provisions redrafted easier to understand and comply Contains some reforms, updates and innovations

Part 6 The Companies Bill 2012 Terminology change Accounts now financial statements Books of accounts now accounting records Accounting records Proper books of account now adequate accounting records (s282/283) Non compliance generally a category 2 offence but.. Persistent or material breach or one in the context of a winding up a category 1 offence Server computer to be kept in the State; subject to regulations

Financial year 18 month maximum Default 52 weeks +/- one week Permission to change financial year once every 5 years register notice of change with CRO Groups substantial reasons for non-coterminous year ends No provision for application to Minister

Increase in threshold for medium sized companies Turnover < 20m (currently: 15.24m) Balance Sheet Total < 10m (currently: 7.62m) Average number of employees <250 (no change) In addition to filing above thresholds also applies to a group for the purposes of the preparation of consolidated accounts Not consistent with changes required by the amended 4 th directive: Not exceeding small medium Turnover 8-12m 40m Balance sheet total 4-6m 20m Average employee number 50 250

Audit Exemption small companies Small companies: Currently required to meet all three size criteria; under the Bill exemption available if meet two of the three criteria: Turnover < 8.8m Balance Sheet Total < 4.4m Average number of employees <50 Extended to parent company and subsidiaries Companies limited by guarantee may also avail of audit exemption

Audit Exemption small groups Small Groups will be able to avail of Audit Exemption IF:- All companies in the group have filed returns correctly AND the group taken as a whole meets 2 or more of the size criteria (in current and previous year) Provided members holding 10% or more of the voting rights do not object Dormant companies: Special exemption if meet conditions All companies - Still lose exemption for 2 years if annual return filed late but can now apply to District Court for an extension

Voluntary revision of Defective Directors Report and/or Statutory Financial Statements - by supplementary note - by replacement

Revision of defective financial statements Can now have a revision of defective financial statements and reports which have been filed Must include a new auditors report (except where exempt) Strict timelines within 28 days of error or omission coming to light to circulate new statements/reports to members and file with the CRO Must give reasons for previous error / omissions Circulation of financial statements Must now circulate the group and single entity financial statements where group accounts must be prepared Where a company issues non statutory financial statements including abbreviated financial statements a reason must be provided Old erroneous information stays on the public record

Changes to approval of financial statements Category 2 offence if directors approve the statutory financial statements and have not satisfied themselves that they give a true and fair view and otherwise comply with the Act. Only required to sign balance sheet(s) Holding company group and entity accounts to be approved at the same time Cat 2 offence to lay or file without signing

Directors Report New requirements for directors Statement that all relevant information has been disclosed to the auditors Category 2 offence Each director has taken all necessary steps to make him/herself aware of all relevant audit information Single director companies only: provision made for single director sign off of directors report; profit and loss account and balance sheet. Must list the names of all persons who were directors at any time during the year

Audit Committees Comply or explain already an obligation for Public Interest Entities [reg 91 SI No. 220 of 2010] now extended to large companies/groups Obligatory for large companies / groups where - Balance Sheet Total > 25m AND - Turnover > 50m Must confirm in Directors Report that an Audit Committee has been appointed or provide reasons why not Must have at least one independent director with competence in accounting or auditing on the committee Statutory audit report: - No changes: but no longer required to be read at the AGM

And there is more

New accounting and transparency directives Expected: Companies (Amendment) Act 2015 some features: New accounting and transparency directives required to be enacted by Summer 2015 Commencing for accounting periods starting on or after 1 January 2016 Company size criteria revised Goodwill and intangibles written off over a 5 to maximum 10 year period Permitted layouts for the profit and loss account have been reduced from four options to two Country by country reporting Small company requirements reduced Introduction of the micro company accounting regime Listed companies: some changes including IMS requirement removed; disclosure of contracts for difference

Amendment to new accounting directive Expected: Companies (Amendment) Act 2016 some features Amendment to new accounting directive required to be enacted by Winter 2016 Commencing for accounting periods starting on or after 1 January 2017 Applies to large public-interest entities with more than 500 employees. Required to disclose information in their annual reports on environmental, social and employee matters, for example policies on age, gender, educational and professional background and respect for human rights, anti-corruption and bribery matters. The disclosure will need to include a description of the policy pursued by the company related to these matters, the results of these policies the risks related to these matters and how the company manages those risks.

Commencement? Legislation could commence on the June bank holiday next year 1 June 2015 For financial reporting purposes: for financial statements approved on or after 1 June 2015 In contrast, accounting standards are usually commenced in relation to either for periods ending or from the start of an accounting year Does choosing the mid-way point for calendar year end reporters (the majority) support Ireland being the best little country in which to do business? Clearly the least burden on business is not to commence Part 6 until the burden reducing amendments in the EU directive are reflected in law Implied lead in c.6/7 months. IASB/FRC give no shorter than 18 months Disconnect for business and FDI

Commencement?

Summary A lot left unchanged Some welcome reforms: Increase in thresholds Expanded audit exemption Provision to fix defective financial statements Further changes anticipated - EU directives Commencement could be unduly burdensome with insufficient lead time to allow guidance to develop

Q & A