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In May 2007 Ireland's Company Law Review Group (CLRG) presented its 'Report on General Scheme of Companies Consolidation and Reform Bill' to Micheál Martin, the minister for Enterprise, Trade and Employment. The report was accompanied by a draft of the bill, or 'general scheme', which runs to nearly 1,300 sections, making it the largest piece of proposed legislation in the history of the Irish State.
The report and scheme represent seven years' work by the CLRG which, since 2001, has had a statutory basis in Irish law. The general scheme received government approval in August 2007 and work is now underway on the drafting of the new bill.
The new legislation will simplify Irish company law, remove unnecessary obstacles for companies and allow greater use of validation procedures instead of total prohibitions. It will also give Ireland a world-class companies code that will facilitate business in Ireland.
In addition to consolidating the existing 13 Companies Acts and many statutory instruments, the proposed general scheme will revolutionise Irish company law by giving effect to the most far-reaching modernisation of Irish company law since the creation of the private company, which celebrates its 100-year statutory anniversary in 2008.
The most significant aspect of the CLRG's proposals is also the most visibly striking: the ringfencing of the law relating to the most popular company type, the private company limited by shares. Simplification has been advanced by grouping together all of the provisions relating to the private company limited by shares.
The CLRG has proposed to divide the bill into two distinct pillars. Pillar A will contain every statutory provision in company law that applies to the private company limited by shares. The users of such companies will be able to focus exclusively on Pillar A in the certain knowledge that for as long as their company is the new model private company, they need not be concerned with the provisions of Pillar B.
Through this structural reform, some 40 per cent of the provisions of the Companies Acts are visibly and expressly 'disapplied' to the private company limited by shares, giving primacy to them as the new 'model' companies.
The users of other company types will also benefit from these structural reforms. Whether it is the plc, the new designated activity company (DAC) (a private company with an objects clause), a guarantee company or an unlimited company, the particular law applicable to that company type will be more clear by being treated in their own 'part' of Pillar B.
The general scheme proposes that in each part of Pillar B, particular provisions of Pillar A will be applied or disapplied, and additional provisions relevant to the particular type of company will be set out. This will discipline future legislative reform so that a conscious decision to apply a particular provision to each company type will have to be taken.
Private companies limited by shares
The general scheme proposes the introduction of a great many substantive reforms of the company law regime for all companies, butparticularly for the private company limited by shares. The more significant changes for the private company include:
• It will have the same capacity as a natural person, ie the doctrine of ultra vires will have no application to the private company as it will have no objects clause.
• It will have a one-document constitution, which will replace the current two-document constitution of the memorandum and articles of association. It is proposed to incorporate most of the provisions currently found in Table A in the main statute and to provide these as implied, default provisions but preserving freedom of choice by allowing the constitution to 'provide otherwise'.
• It will have a limit of 99 members, provided there will be a carve-out from this for property management companies that are formed as private companies so that they may have an unlimited number of members so long as they are all co-owners in the same development.
• It cannot publish a prospectus or list its shares or debentures, although a variant form of private company, the DAC, will be permitted to list its debt securities, as has recently been permitted in certain circumstances by the Investment Funds, Companies and Miscellaneous Provisions Act 2006.
• It can have just one director and a company secretary, who may not be the same person.
• The rules on the maintenance of share capital and the reduction of share capital will be relaxed.
• It can have just one member.
• Multi-member private companies, as well as single-member companies, will be able to waive the requirement to hold an annual general meeting.
• Its members will be permitted to pass majority written resolutions and not just unanimous written resolutions as currently permitted.
• It will be eligible for audit exemption, provided it meets the requirements for availing of the exemption.
For all companies there will be a universal or omnibus validation procedure involving statutory declaration of solvency by the directors and special resolution by the members, which will permit otherwise unlawful matters such as reduction of share capital, transactions involving directors, the provision of financial assistance in connection with own-share acquisition and members' voluntary winding up.
Other types of company
It is proposed that the law relating to the following types of companies is provided by Pillar B:
• The public limited company (plc).
• The designated activity company (DAC): a private company limited by shares or by guarantee and having a share capital with an objects clause for those users of the private company who want an objects clause.
• The guarantee company: a public company limited by guarantee without a share capital.
• The unlimited company, of which there are three types: the private unlimited company with a share capital and the public unlimited company with and without a share capital.
• External companies (and branches).
• Unregistered companies.
• Investment companies.
It is proposed that Pillar B will also contain a mechanism whereby any company can convert to any other type of company.
Rationalisation of offences
The existing Irish Companies Acts are, like those in other common law jurisdictions, littered with offences of varying degrees of seriousness. Striking the appropriate balance between public interest and private rights is very important and the CLRG has recommended a rationalisation of the approximately 400 offences and that all but three criminal offences should be categorised. The categorisation envisaged is on a scale of 4 to 1 (in ascending severity of sanction) and the sanctions applicable to each category of offence will be set out clearly in legislation.
The next step
With the wind behind it, the bill could be passed next year. The CLRG's regulatory impact analysis determined that a reasonable lead-in period for such dramatic reform is required and it will most likely be 18 months later before the act is commenced.
In the meantime, the work of the CLRG continues apace. Having created the blueprint for a state-of-the-art company law code, it is recognised that the code must be continually reviewed in the light of developments at EU level and in other EU member states. Work is currently underway on a further series of liberalising reforms involving the review of the law relating to, among other matters, transactions with directors, capital maintenance and auditors' liability.
This new programme of reform will be developed in parallel with the progress of the draft bill with a view to reporting to the minister prior to the enactment of the draft bill so as to facilitate the inclusion of further reforming provisions which will benefit both indigenous companies and foreign direct investment in Ireland.
Thomas Courtney is head of the company secretarial department at Arthur Cox