Conor Sweeney - Companies Act 2014

Practical Application of the Companies Act 2014

December 2015Presenter: Conor Sweeney

Presentation Outline• District Court Application• Company Conversions• Converting to Unlimited• Directors Loans• Availing of Audit Exemption• CRO Filing Issues

EXTENSION TO FILING AN ANNUAL RETURN

District Court Application

• Sec 343 - new mechanism for companies that have missed the filing deadline for filing the annual return and financial statements on time.

• eliminate the need to pay late filing penalties and more importantly for most companies, retain the audit exemption


• The company may make an application to their local District Court (or High Court) seeking an order extending the time for filing the annual return and the financial statements.

• If granted by the Court, the company must file the order with the CRO within 28 days and then file the annual return and the financial statements (audit exempt if applicable) with the CRO within the extended time granted by the Court. Only one application can be made per order.


• The company cannot represent itself so it must seek the services of a solicitor or barrister to make the application to the Court.

• The company must make the application at the District Court where the registered office is situated.


• A company will have to weigh up the cost of paying the late filing penalties in addition to the cost of an audit to be carried out for the current financial statements and the next financial year against the cost of making the application to the District Court.

• For group companies that now can avail of audit exemption, the district court application will be the cheaper option.

District Court Application• Advantages• No loss of audit exemption or audit for 2 years• No late filing penalties• Certainty that our legal team that will make a swift

application ensuring that the order is issued as soon as possible

• Fixed fee for the application • Disadvantages• Cost of making the application • Change of registered office address

COMPANY CONVERSIONS

Company Types

• Existing Private Limited by Shares (EPC) company type must choose to convert to one of these two new company types:-

– Private Company Limited by Shares (“LTD”)– Designated Activity Company (“DAC”)

• No need to convert to avail of audit exemption

LTD V DACCompany Limited by Shares (“Limited”) Designated Activity Company (“DAC”)Must end in the suffix Limited or LTD Must end in the suffix Designated Activity

Company or DACMinimum of 1 director Minimum of 2 directors1 – 149 shareholders 1 – 149 shareholdersNo objects clause – full and unlimited capacity

Capacity limited to the objects clause in the Memorandum

Company Secretary cannot be the sole director

Secretary may be one of the directors

May dispense with holding the AGM Cannot dispense with holding the AGMNo requirement for an authorised share capital

Must have an authorised share capital

Cannot list debts or securities Can list debts & securitiesCannot be a credit institution or an insurance undertaking

Can be a credit institution or an insurance undertaking

Questions to Ask Before Choosing a Company Type

• If you answered Yes to any of the above, you should consider converting into a Designated Activity Company.

Conversion Options

1. “Opt in” to a new LTD company in transition period

2. Directors obliged to prepare & file a constitution

3. “Opt out” within 15 months and become a DAC4. “The Irish” and wait until transition period has

elapsed and be automatically converted into a LTD

How companies can convert to a LTD or DAC

1. S 59 – “Opt In” to new LTD company• An existing private company may, on the passing of a special

resolution, adopt a new constitution complying with section 19 of the Act.

• New constitution should be sent to the Registrar with Form N1 • Constitution may dis-apply some of the optional provisions in the

Act (e.g.pre-emption rights)• Upon registration, the company shall become a private company

limited by shares “LTD” governed by Parts 1 to 15 of the Act. • Upon registration of the new constitution, the Registrar will issue

a new certificate of incorporation to the company.• Review Memo & Arts in advance of conversion


2. S 56 (1)— “Opt Out” and convert to a DAC • Joint venture companies, company that lists debt securities

or wishes to retain objects clause will opt out into a DAC, property management companies

• An existing company can convert to a DAC by passing an ordinary resolution, not later than 3 months before the expiry of the transition period

• resolving that the company be so registered and the provisions of Part 16 will apply to it accordingly.

• Members holding more than 25% of voting rights can serve notice on company requiring it to re-register as a DAC or

• 15% of members or creditors holding 15% of debentures can apply to court seeking order to convert into a DAC (Sec 57)


• Name must change to include DAC or Designated Activity Company

• File a Form N2 & new constitution with CRO• New Certificate of Incorporation issued• Conversion to a DAC after the transition period

has expired must be by special resolution – Part 20 of Act


3. S 60 – Obligation on directors to adopt a new constitution

• Directors obliged to prepare & file a new constitution where one has not already been adopted by the members or where the company has not re-registered as a different company type.

• Cant change anything other than remove objects clause

• Must deliver a copy of new constitution to every member

• File Form N1 and new constitution with CRO• New Certificate of Incorporation issued by CRO


4. S 61 – Default provisions if no action is taken. • Unless an existing company re-registers as a DAC or

other company type, or doesn’t complete steps 1 or 3, it will become a LTD after the expiry of the transition period (18 months)

• It will have a deemed constitution where it retains the provisions of its existing constitution, with the exception of its objects clause, and also with exception of any provisions of its constitution which would be inconsistent with a mandatory provision of the Act.

• Deemed to have become a new LTD • New Certificate of Incorporation will be issued by CRO


• Will be governed by Parts 1- 15• Memorandum & Articles will still be listed in

CRO• Inconsistency with the Companies Act 2014 &

the constitution and will refer to Table A that will continue to exist unless its inconsistent with mandatory provisions in the Act

What happened to the other company types

• PLC’s – no major changes

• DAC – as previously discussed


• CLG – May file an N3 and an amended constitution or CRO will change name of company and issue a new certificate of incorporation after transition period has ended.

• May amend its Articles of Association to reflect the new provisions of the Act


• Unlimited Company – May file an N3 and amended constitution or CRO will change name of company and issue a new certificate of incorporation after transition period has ended

• May amend its Articles of Association to reflect the new provisions of the Act

New Constitution

• Schedules in the Companies Act 2014• LTD

– one document constitution – supplementary regulations

– Wont be issued new constitution if automatically converted

• Other company types– Two document constitution – Memorandum &

Articles of Association

Conversion Figures

• N1: 4,080 forms filed

• N2: 90 forms filed

• N3: 190 forms filed

New Incorporations

• LTD – 8,209

• DAC – 355

• CLG – 209

• ULC - 72

How to Prepare for conversions

• Complete our pre-conversion checklist– Advise clients of the new Act– Review companies – Focus on companies with different shareholder or

unique provisions– Advise of the appropriate company type– Engage a provider or draft conversion

documentation & constitution

UNLIMITED COMPANIES

Unlimited Companies

• More interest due to requirement to disclose directors remuneration in abridged fin stats

• Name must end in Unlimited Company or UC• May have 1 member• ULC may avail of audit exemption• Non-designated unlimited company

– May be exempt from filing financial statements

Unlimited Companies

• Sec 1274 provides for the exemption from filing financial statements and defines a designated unlimited company:– All the members are Co’s limited by shares or

guarantee registered in or outside the State or other member states

– Unlimited companies who’s members are made up of the above

– Limited partnerships

Unlimited Company – Time to Convert

• Limited opportunity a company has to convert to unlimited if they are seeking to keep their financial statements private

• The company must have filed their financial statements in the previous three months or file them first before the company can convert to unlimited.


• Companies that have a 30 September 2015 annual return date, file the annual return on 28th October 2015, that are considering converting to unlimited will have to convert to unlimited by the 28 January 2016.

• Otherwise they will have to file their next financial statements first and then convert to unlimited.


• The purpose of this provision is to stop companies converting into an unlimited company before the ARD and then converting back without filing financial statements as there is now no limit on the number of times you can convert a company.

• Duty to disclose the directors’ remuneration in the abridged financial statements is driving more companies into Unlimited

The purpose of this provision is to stop companies converting into an unlimited company before the ARD and then converting back without filing financial statements as there is now no limit on the number of times you can convert a company. Duty to disclose the directors’ remuneration in the abridged financial statements is driving more companies into Unlimited


• Extension of audit exemption to unlimited companies. Private unlimited companies (ULC’s) may avail of the audit exemption if the company satisfies the conditions of audit exemption.

• If the company can avail of audit exemption and is not classed as a designated ULC (all the members are limited companies) then the company is only required to file an annual return with the Companies Registration Office.

• If it is above the audit exemption thresholds it must annex a special auditors report to the annual return

AUDIT EXEMPTION

Audit Exemption

• Sec 333 - The directors of a company are required to arrange for the financial statements of the company to be audited unless the company is entitled to and chooses to avail itself of the audit exemption

• Sec 358 - Small company can avail and now has to satisfy 2 out of 3 conditions for current & preceding financial year

Audit Exemption

• 10% of members (1 member CLG) may object• Statement on the balance sheet• Satisfy 2 out of 3 conditions for current &

preceding financial year

Small MediumTurnover €8.8m €20m

Balance Sheet €4.4m €10m

Average number of employees

50 250

Audit Exemption• Small Companies that can avail-

• Company Limited by Shares (LTD) that is a small company

• Designated Activity Company (small)• Company Limited By Guarantee (small)• Small Groups• Dormant companies that have no significant

accounting transactions or permitted assets & liabilities

• Private Unlimited Company (ULC) (small)

Audit Exemption

• Companies that cannot avail– PLC’s– Certain Unlimited companies– A company, holding or subsidiary company that falls within

Schedule 5 or is a credit institution, insurance undertaking, relevant securitisation or body with securities admitted to trading

– Late filing the current or preceding annual return with financial statements annexed

– Late filing the first annual return– A notice is received 1 month before the end of the financial year

by one or more members holding 10% or more of the voting rights or for Companies Limited By Guarantee 1 member may object.

Creation of a Group

• Definition of a group - Sec 7 of the Act• More than half of the issued share capital or

voting rights• Golden Share

• Ensure rights are in accordance with Sec 7• Dominant influence or control contract

Checklist to Avail of Audit Exemption

• Templates on CLS Store • Does audit exemption apply to your company

type?• Are you required to have an audit by other

means? Bank funding, Enterprise Ireland, regulated entity etc?

Checklist to Avail of Audit Exemption

• Are you under the 2 out of 3 conditions for current year for a single company?

• Are you under the 2 out of 3 conditions for current & proceeding financial year for a group?

• Have you filed on time this years and last year’s annual return on time?

• If this is your first financial year, have you filed your first annual return on time?

DIRECTORS LOANS

Directors Loans

• Part 5 LTD - Chapter 3 Sec 236 – 248• Extended definition of a connected person to

include the directors civil partner and child of the director’s civil partner

• Company controlled by a Director still includes a connected person

• Category 2 offence – reportable offence

Directors Loans

• Terms of all loans, given from or to a company regardless of size, must be approved in writing

• Loan given to a director or connected person– is repayable on demand– has borne interest at the appropriate rate

Directors Loans

• Loan given to a company – Is not a loan– bears no interest– is not secured– is subordinate to all other indebtedness of the

company

Rules & Exceptions• Sec 239 – A company shall not make a loan, quasi-

loan, enter into a credit transaction, enter into a guarantee or provide any security

• Exceptions:- – Less than 10% of relevant assets – Reduced below 10% within 2 months– Summary Approval Procedure to permit loan– Inter group transaction– Directors expenses– Business transactions

Personal Liability for company debts

• If a company is being wound up and is unable to pay its debts and court considers that any arrangement has contributed to company’s inability to pay its debts or has substantially impeded the orderly winding

• Declaration made that any person who benefited from the arrangement shall be personally liable without limitation of liability

• Court will have regard for the extent of the outstanding liabilities and impact on winding up of company

CRO FILING ISSUES

CRO Filing Updates

• Web browser – Internet Explorer or Firefox• Demo Video’s on filing different forms• Fixing financial periods – fixed on first annual

return after 1st June 2015• Abridged Financial Statements • Originally signed or type signed with certificate

signed by director and secretary• 2 stage process to register charges

More Information

• www.clscharteredsecretaries.ie/blog & CLS Newsletter

• https://www.cro.ie/Companies-Bill/Overview • www.icsacharteredsecretaries.ie

http://www.clscharteredsecretaries.ie/blog

https://www.cro.ie/Companies-Bill/Overview

http://www.icsacharteredsecretaries.ie/

How Can we help with the Companies Act 2014?

• Advise of the appropriate company type• Draft the conversion documentation• Draft a new constitution• Review existing minutes and procedures• Provide training and guidance on

implementation of the Act• Provision of a Company Law Query Service

How We Can Help You?

• Drafting Company Secretarial documentation• Answering company law queries• Company Formations - €251• Corporate Governance – Advice and drafting

Governance Manuals for Boards & Charities• Company Law Training

About CLS Chartered Secretaries• CLS Chartered Secretaries are a firm of chartered

secretaries specialising in advising on company secretarial and company law

• Providing company formation and company secretarial services to accountants, solicitors and tax advisors throughout Ireland

• For more information and to receive our monthly newsletter click on www.clscharteredsecretaries.ie

http://www.clscharteredsecretaries.ie/

Conor Sweeney Profile• Conor Sweeney is Past President of the Irish Region

of the Institute of Chartered Secretaries and Administrators (ICSA).

• Conor is Managing Director of CLS Chartered Secretaries.

• Conor is an experienced speaker in the area of Company Law and Company Secretarial practice and has presented on behalf of all the Accounting Institutes, The Law Society and the ICSA.

Contact Details

Conor Sweeney – [email protected]

Amy Brennan – [email protected] [email protected]

059 9186776www.clscharteredsecretaries.ie

Connect with Us on Enterprise House, O’Brien Road, Carlow

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