Companies Act 2014

DIFFERENT COMPANY MODELS

The 2014 Companies Act now codifies the responsibilities and duties of directors in S.228.  These duties are owed to the company and are based on the old common law rules relating to directors’ duties which were not on a statutory basis.  The new statutory duties are as follows :-

• Directors must act in good faith and in the interests of the company
• Directors must act honestly and responsibly in relation to the conduct of the affairs of the company
• Directors must act in accordance with the company’s constitution and exercise those powers only for purposes allowed by law
• Directors must not use the company’s property, information and opportunities unless expressly permitted by the company’s constitution or unless approved by a resolution of the members
• Directors must not fetter their independent judgment
• Directors must avoid conflicts of interest
• Directors must exercise care, skill and diligence
• Directors must have regard to the members’ interestsBreach of the directors’ duties may result in the director being required to personally indemnify the company for any loss or damages caused by the breach.

DIRECTORS’ LOANS

We have become familiar with the restrictions on companies making loans in favour of directors or connected persons.  There is a new simplified procedure for approving or whitewashing such loans.  However, it is important that properly drafted loan agreements are put in place because under new rules, undocumented loans between a company and a director/connected person, or loans which contain ambiguous terms, are to be interpreted contrary to the interests or rights of directors or persons connected to directors.  It is important to note that these provisions may also extend to inter-company loans and so checks should be made to ensure that all of a company’s loans are sufficiently recorded in writing.

DIRECTORS’ REPORT

Each director will be required to confirm in the directors’ report that all relevant audit information of which they are aware (having made reasonable enquiries) has been conveyed to the auditors.  This is a significant additional responsibility and it will be an offence to knowingly or recklessly make a false statement.   Directors will need to take advice on what steps they need to take to ensure they comply.

SECRETARY

The directors have a duty to ensure that the person appointed as secretary has the skills necessary to maintain (or procure the maintenance of) non accounting records which have to be kept under the Act and to ensure that the secretary has the skills or resources necessary to discharge the statutory and legal duties to which the secretary is subject and such other duties as may be delegated.

COMPLIANCE STATEMENTS AND AUDIT COMMITTEES

The directors of a company with a balance sheet total of €12.5m and turnover of €25m will have new obligations for securing the company’s compliance with, firstly, certain company law provisions imposing serious penalties (being category 1 and 2 offences) for non-compliance and, secondly, tax law.  These include the directors drawing up a compliance policy statement and reporting on what has been done to secure compliance.  For even larger companies (balance sheet total €25m, turnover €50m), the directors must consider the establishment of an audit committee and address the issue in their directors’ report.

If you think any of this applies to you, please talk to us about what needs to be done

MERGERS AND DIVISIONS

There are new arrangements which will make it easier to merge companies or to split the business of an Irish company.   This may be a useful device in dealing with family succession or in the disposal of part of the business conducted by a company and will also operate as a potential means of tidying up unwanted subsidiaries in a group structure.

INSOLVENCY

There are some changes in insolvency law in that for the first time liquidators must have an appropriate qualification.  It is also possible for an Examination to be conducted in the Circuit Court for companies that fall within the audit exemption criteria (this change is already in place).

WHAT YOU SHOULD DO NOW

• If your company is a private company limited by shares you should decide whether or not you are happy to convert to an LTD or a DAC, and remember some companies may be obliged to convert to DACs – we can advise further if required
• Directors should review the existing company memorandum and articles of association and consider with your advisers how the standard constitution should be adjusted to suit your requirements
• Consider whether the company secretary has the necessary skills or resources to allow the Directors to fulfil their duties when appointing a company secretary
• Put proper agreements in writing in place to document directors’ loans to or from the company or loans with connected persons.  These may include inter-company loans and such arrangements should be checked
• Put in place a system to show that directors have made proper enquiries to identify relevant audit information and to disclose that information to the auditors
• Check your agreements to see if changing the company’s constitution will require the consent of other parties
• Check if there has been any breach of the obligations under Section 53 of the 1990 Companies Act to disclose interests in shares as the Act usually provides a transitional period of 18 months to remedy an inadvertent default
• Directors should review directors and officers insurance arrangements for the company.
• Consider whether you are up to speed on your duties as a director or owner of a company and contact us if you need an update

Our above memo is prepared for general information purposes; it does not purport to provide legal advice. O’Connor solicitors accept no responsibility for losses that may arise from reliance on information contained in this post. It is intended to identify general issues on which you may require legal advice. Full legal advice should be taken from a suitably qualified professional when dealing with particular circumstances.