In the last 12 months the whole company law framework has been dramatically recast, by the enactment late last year of the Companies Act 2014. It was commenced on the 1st of June last. It contains 25 parts and 1440 sections. The Companies Acts 1963-2003 have been repealed in their entirety, together with the Companies Amendment Act 2009, parts 3, 4, 5 and 6 of the Investment Funds Companies and Miscellaneous Provisions Act 2005, parts 2 and 3 of the 2006 act of the same name and sections 1 to 4 of the Companies (Miscellaneous Provisions) Act 2009. The entirety of the Companies (Amendment) Act 2012 and sections 2 to 8 of the Companies (Miscellaneous Provisions) Act 2013 have also been repealed. All statutory instruments related to the above have been revoked.
In short, everything you previously knew about company law has been, if not changed entirely, amended and re-numbered. This memo doesn’t purport to be an exhaustive examination of the changes brought in by the Companies Act 2014, but it hopefully provides some detail on the changes made.
Constitution
For a private limited company there will be no memorandum and articles of association. Instead there will be one document referred to the legislation as the constitution. Only one director will be required. Certain types of company (by business activity) will have to be designated a Designated Activity Company (“DAC”). An example is an investment funds company. These DACs will have a more elaborate two document constitution.
A pre-existing private limited company will have a number of options. If they “opt in”, they will become a new private company limited by shares. If they “opt out” they will become a DAC. If they do nothing, they will be deemed to be a DAC for the transition period, and a private limited by shares thereafter.
Prior Incorporation requirements
The previous framework required two directors, did not obligate company secretaries to be qualified, mandated a memorandum and articles of company constitution. Furthermore company capacity was limited by the doctrine of ultra vires.
The new scheme allows a company to incorporate with just one director, mandates that company secretaries have the requisite skills (or at least access to same). There is only one document in the company’s constitution, aptly named the constitution. There is now no obligation that this document contains an object clause. The doctrine of ultra vires does not apply. A private company limited by shares can dispense with the requirements to hold an AGM if the measures set out in section 175 of the new Act are met. It is now easier to pass written resolutions.
PLCs
Publicly quoted companies are still required to have memorandum and articles of association which contain an objects clause, but can now only have one member. Previously, there had to be seven.
Key aspects of the new legislation
- There are more onerous documentary requirements for company loans to directors.
- Company secretaries must have requisite skills.
- There is a Summary Approval Procedure for undertaking certain company business e.g. transactions with directors, financial assistance to company, capital reductions and a solvent winding up. This is provided for Part 4 Chapter 7 ss200-211 of the new Act.
- Private companies allowed to merge/divide without court sanction.
- There are wider audit exemptions than under the old provisions. Companies limited by guarantee are exempt.
- There is now a register of employees/directors allowed to bind the company.
- Section 409 of the Act provides for a new, if analogous provision to the old section 99, regarding the registration of Company charges.
- The criminal offences in the Companies Acts have been entirely recast with a grading system, 1 being the most serious and 4 the least serious.
Director’s Duties have been codified
Instead of looking up case-law on the extent and application of director’s duties, they have now been codified in Part 5 Chapters 1 & 2 of the Act, in particular section 228 of the Act, which sets out that directors must act in good faith, act honestly, not use company property unless authorised, not to fetter discretion unless permitted by the company constitution or is in the company’s interest. Director’s must avoid conflicts of interest, exercise care, skill and diligence and have regard for the interest of members and employees.
Minority Shareholder Protection
The new provision is now section 212 which has replaced section 205 of the Companies Act 1963. A minority shareholder can apply to the Court for protection under section 212. The Court retains a wide discretion to make any orders to rectify instances of shareholder oppression.
Registration of Charges against a Company
Section 409 of the new Act, replaces section 99 of the old Acts. It states, that every charge created, after commencement of the provision is void against the creditors and/or the liquidator, unless either the one or the two stage procedure has been followed. The one stage procedure states that the Registrar of Companies must receive notice, not later than 21 days after its creation of details of the charge. The 2 step procedure obligates the company to advise the Registrar of the intention to create a charge and further obligates the company to notify the Registrar of its creation, not later than 21 days after its creation.
Registration of Judgment Mortgages against a Company
A Judgment mortgage is void as against the liquidator or any other creditor of the company unless it has been registered, not later than 21 days after the Property Registration Authority has notified the Judgment creditor.
Other Important Parts to the Act
Part 8 deals with the appointment of a receiver over a company’s assets and Part 9 deals with Schemes of Arrangement. Finally Part 10 of the new Act deals with the examinership process which has retained the same legal test for the granting of court protection to near insolvent companies.
For further information on the Companice Act 2014, please contact Andrew Croughan.
