Michael Ahern (Cork East, Fianna Fail)

I move amendment No. 6:

In page 4, between lines 15 and 16, to insert the following:

"7.—The following section is substituted for section 33 of the Companies Act 1963:

33.—(1) For the purposes of this Act, 'private company' means a company which has a share capital and which, by its articles

(a) restricts the right to transfer its shares, and

(b) limits the number of its members to 99 or fewer persons, not including persons who are in the employment of the company and persons who, having been formerly in the employment of the company, were, while in that employment, and have continued after the determination of that employment to be, members of the company, and

(c) prohibits any invitation or offer to the public to subscribe for any shares, debentures or other securities of the company.

(2) A provision of a company's articles that prohibits any invitation to the public to subscribe for any shares or debentures of the company shall be construed as a prohibition on any invitation or offer being made to the public to subscribe for any shares, debentures or other securities of the company.

(3) Where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this section, be treated as a single member.

(4) Subsections (5) and (6) shall apply for the purposes of—

(a) subsection (1)(c), and

(b) unless a contrary intention appears in the company's articles, any provision of a company's articles which—

(i) corresponds in its terms to those of subsection (1)(c),

(ii) incorporates by reference the terms of subsection (1) (c), or

(iii) has the same legal effect as subsection (1)(c) even though its terms are not identical to those of subsection (1)(c) (and the cases to which this subparagraph applies include the case where subsection (2) applies to the interpretation of the provision).

(5) Each of the following offers of debentures by a company (wheresoever made) shall not be regarded as falling within subsection (1)(c) or the provision of a company's articles referred to in subsection (4)(b), namely—

(a) an offer of debentures addressed solely to qualified investors,

(b) an offer of debentures addressed to fewer than 100 persons, other than qualified investors,

(c) an offer of debentures addressed to investors where the minimum consideration payable pursuant to the offer is at least €50,000 per investor, for each separate offer,

(d) an offer of debentures whose denomination per unit amounts to at least €50,000,

(e) an offer of debentures where the offer expressly limits the amount of the total consideration for the offer to less than €100,000,

(f) an offer of those classes of instruments which are normally dealt in on the money market (such as treasury bills, certificates of deposit and commercial papers) having a maturity of less than 12 months.

(6) The following offer of shares by a company (of any amount or wheresoever made) shall not be regarded as falling within subsection (1)(c) or the provision of a company's articles referred to in subsection (4)(b), namely an offer of shares addressed to—

(a) qualified investors, or

(b) 99 or fewer persons, or

(c) both qualified investors and 99 or fewer other persons.

(7) A word or expression that is used in this section and is also used in the Prospectus (Directive 2003/71/EC) Regulations 2005 (S.I. No. 324 of 2005) shall have in this section the same meaning as it has in those Regulations.

(8) For the purposes of subsection (7), the Regulations referred to in that subsection shall have effect as if Regulation 8 were omitted therefrom."

Prior to the enactment of the Investment Funds, Companies and Miscellaneous Provisions Act 2005 — in particular Part 5 thereof — and the Prospectus Regulations 2005, SI 324/2005, practitioners had been able to advise their clients that on the basis of existing law, and in particular a combination of sections 33, 51 and 61 of the Companies Act 1963 and section 21 of the Companies (Amendment) Act 1983, it was possible for a private company to make offers of their shares and debentures to potential investors, provided the offer was structured in a particular way.

Thus, while offers of the kind which were permitted were not expressly spelled out in the law, as long as they were considered as being, in the terms of section 61(2) of the Companies Act 1963, "regarded, in all of the circumstances, as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation, or otherwise as being a domestic concern of the persons making and receiving it," they could be made by private companies. However, along with a number of others, this section was repealed with effect from 1 July 2005 as part of the transposition of the EU Prospectus Directive. This has resulted in a certain degree of uncertainty as to what types of offers of their shares or debentures can, or can not, be made by private companies.

Separately, as we are all only too well aware, other developments have been occurring in the economy. In this context, with the advent and growth of the financial services industry in general, and the securitisation industry in particular, the use of the private company as the investment vehicle of choice for particular types of offers has grown. This is because, inter alia, it only requires two members to form a private company, as opposed to a public company requiring seven, pursuant to the Companies Acts. A private company does not have to have a specified minimum capital, and time wise it is easier to actually form and commence business with a private company than with a PLC. The changes effected by the law, both primary and secondary, transposing the EU Prospectus Directive have removed one of the interpretative building blocks used by the practitioners advising clients on the manner in which private companies can be used for their purposes.

The issue of private companies making offers of their debentures or other debt instruments to raise capital has also been considered by the Company Law Review Group, CLRG. In the context of the CLRG's recommendations for the major reform and consolidation Bill, it is being recommended that the proposed model private company — the company limited by shares — will not be able to offer shares or debentures in the manner under consideration. However, the proposed private company that has an objects clause — to be called a "designated activity company" — and where it specifically provides for the matter in its constitution will be able to make offers of the kind in question, as long as the manner of doing so does not give rise to the need to publish a prospectus under the national law transposing the EU Prospectus Directive.

This proposed approach is broadly in line with the approach adopted in a number of areas of company law in recent times, such as in transposing the Prospectus Directive, or availing of the maximum audit exemption thresholds, as we propose in section 6 of the current Bill, where the limitations or thresholds set in European law are adopted in determining the appropriate boundaries for the application of national law. Thus, in the application of the Prospectus Directive, the requirements in what was then the existing Irish company law to publish a prospectus in national law, even where one qualified for an exemption under the law transposing the earlier EU prospectus law, was repealed in the 2005 Act and replaced by a simpler requirement to make particular disclosures.

The approach being adopted in the proposed amendments to section 33 of the Companies Act 1963 and section 21 of the Companies (Amendment) Act 1983 is to explicitly permit a private company to make offers of the type which benefit from an exemption under Regulation 9 of SI 324/2005, or which otherwise fall outside of the scope of the implementing regulations. The opportunity is also being taken to increase the permitted number of members a private company may have to 99, in line with the recommendations of the CLRG, which would otherwise have to await the implementation of the main reform and consolidation Bill.

Amendment No. 6 replaces section 33 in the Companies Act 1963. While it repeats to a large extent the existing provision of that section, it spells out in new subsections (5) and (6) the precise types of offers that private companies will be free to make if they wish to do so. Subsection (2) is designed to remove scope for argument as to whether an offer is different from an invitation. That said, it will be noted that the wording of this subsection and subsection (4) will enable companies that wish to do so to make offers of the kind specified in subsections (5) or (6) without the necessity to have to change their memorandum of association, if their existing memorandum is worded so as to have the same legal effect as the wording of subsection (l)(c).

Section 21 of the Companies (Amendment) Act 1983 contains the criminal sanctions applicable where a private company offers or allots shares or debentures to the public. Amendment No. 7 essentially substitutes a new section 21 in the 1983 Act which will mirror the adjustments being made to section 33 of the 1963 Act, such that offers made by a private company of the type now being permitted will not attract any sanction. I commend the amendments to the House.

See this speech in context