The New Companies Bill will revolutionise Irish company law but needs to go further…
The Companies Bill 2012, published on 21 December by Enterprise Minister Richard Bruton, has been hailed as a “landmark reform” of company law. Its main aims are to reduce red tape, to cut costs for business and to make company law obligations easier to understand.
How Big Is It?
Minister Bruton has hailed the Bill as “the largest substantive piece of legislation in the history of the State”. It certainly is a massive piece of work.
The Bill itself contains 1,429 sections, stretching to a mind-boggling 1,136 pages while its Explanatory Memorandum is 402 pages long. Its contents are based largely on the recommendations of the Company Law Review Group, a statutory expert body responsible for ensuring “that Ireland should have an efficient world-class company law infrastructure.”
What’s In It?
The Bill consolidates the existing provisions of the Companies Acts 1963-2012 (14 separate pieces of legislation) and also includes a raft of new measures and reforms, relating to private companies limited by shares, PLCs, guarantee companies, and unlimited companies.
The key reforms for private companies are as follows:
- It will be possible for a private company to have only one director. It will no longer be necessary to have a second director whose only role may be to sign forms and legal paperwork. This will avoid the problems that currently arise where, before they can form a company, a prospective director must recruit a spouse, relative or friend to act as a director, and oblige them to assume a wide range of duties & responsibilities.
- Companies will no longer be required to hold an Annual General Meeting each year. This will be replaced by a written procedure to be completed by the director(s).
- Each company will no longer need to draft detailed Articles of Association. It can instead have, by default, a one-document constitution.
- Companies will no longer need to have an objects clause, setting out its main activities and what it to do. Instead they will now have the same legal capacity as individuals. This will avoid the problems that arise where an activity carried on by a company is deemed to be illegal (ultra vires) because it is not listed in the company’s Memorandum & Articles of Association. It will also simplify the procedures surrounding commercial borrowing as banks will no longer need to require a company to establish that it is legally empowered to borrow money for a proposed venture or activity.
- A new “summary approval procedure” no longer require companies to obtain High Court approval for certain transactions, including capital reductions, and solvent windings up.
- Private companies will now be able to engage in mergers and divisions.
- Audit exemption will now be available for group companies, and to certain dormant companies that were previously ineligible.
- Directors’ duties will be simplified.
- Company law offences will now be streamlined and categorised by degree of seriousness.
- SMEs will be able to apply to the Circuit Court for examinership.
What’s Happens Next?
The Bill will now pass through the Dáil and Seanad where it may be subject to a number of amendments. I presume this will take some months although it is safe to assume that it will become law sometime within 2013.
What’s The Verdict?
The publication of the Bill is a most welcome development although it will be interesting to see if all its proposals remain in place by the time it finally becomes law.
Some of its key provisions will revolutionise company administration in Ireland, especially the scrapping of the requirement for companies to have at least two directors, and the abolition of the need to have an ‘objects clause’, that previously complicated a company’s capacity to borrow.
On the other hand, there is no mention of any reform to some of the most glaring flaws in the current company law code, for example the unilateral and immediate loss of audit exemption for 2 years, where accounts are filed even 1 day late to the Companies Office (CRO).
If the Bill can be adapted in order to cover some of these anomalies, it could yet fulfill Minister Bruton’s dream of becoming a truly landmark reform of company law.