The Companies Bill is published

In the first major reform of company legislation in Ireland since the Companies Act 1963, the Minister for Justice, Richard Bruton T.D. published Parts 1 – 15 of the Companies Bill earlier this year.  The Bill is based on the general scheme published by the Company Law Reform Group (CLRG) in 2007.  

The ‘think small first’ approach adopted by the CLRG means that the new bill reverses the focus of company legislation away from the large company and onto the private company limited by shares.  It is this type of company which forms the backbone of Irish enterprise.  The private company limited by shares or CLS becomes the model company under the proposals with all of the provisions concerned with it contained in Parts 1 - 15.  The remainder of the Bill is not due to be published until 2012.  It is expected to apply, disapply or vary the provisions of concerning the CLS for the other company types identified in the proposals.

Key Features of the CLS

The key features of the ‘new’ private CLS are:-

  • it is to be limited by shares and have a share capital;
  • it is to have the same contractual capacity as a natural person;
  • it is to have a single document modernised constitution;
  • it will have a limit of 99 members;
  • it requires just one director and a company secretary;
  • it can have just one member; and
  • the member(s) can waive the requirement to hold an AGM.

So what are the differences between the present situation and this ‘new’ type of private company?  One of the main differences is that the CLS will have the same contractual capacity as a natural person.  This means that the doctrine of ultra vires will be abolished.  The CLS private companies will not be required to set out any objects or powers such as those now contained in the Memorandum of Association.  This means that it will have unlimited capacity to carry on any business or activity with the exception that it must always act within the law.

A second difference will be that the private company may have only one director who must be over the age of 18 years.  Where there is only one director, that director may not also act as company secretary.  Thus a single director company will be required to have a separate company secretary.

It is proposed that existing private companies limited by shares may elect to convert to the new model CLS private company.  However, a default conversion procedure will apply to convert existing companies to the new model, unless the company passes a resolution making it into one of the other types of generic company.

Directors Duties

Until now, the sources of directors’ duties have been diverse.  One of the most significant changes proposed by the Bill is the codification of directors’ fiduciary duties.  These duties are owed to and are enforceable by the company.  The fiduciary duties are stated in general rather than specific terms and they are derived from principles established by the Courts.  

The main duties are to act in good faith in what the director considers to be in the best interests of the company and to act honestly and responsibly in the conduct of the affairs of the company.  However, it is anticipated that interested parties will still have to look at case law to interpret what these duties entail.

Registration of charges over the assets of a Company

At present not all charges are subject to the requirement to register particulars with the Companies Registration Office.  Charges include mortgages over land, stock and machinery as well as what are known as ‘floating charges’, that is charges which are not attached to any specific asset of the company.  It is proposed to change the rules for registration of charges.

It is also proposed to change the system whereby charges acquire their priority based on the date of their creation rather than the date of their registration.  In future, the creditor who files first in time will gain priority.

Single Director Companies

As noted earlier, companies will be permitted to operate with just a single director.  In circumstances where single member companies already exist, this will facilitate the operation of many small businesses. 

It will also be possible for the CLS to dispense with the requirement for an Annual General Meeting.  Currently, this option is only available to single member companies.

Other Corporate Governance Reforms

One reform which has been welcomed is the proposal to permit majority written resolutions of shareholders, dispensing with the requirement to have unanimous written resolutions.

There are changes to the provisions which determine where a directors’ meeting is deemed to be held, where some or all of the directors participate by telephone.  This may have implications in determining where the ‘management and control’ of the company is located.

Key Contacts