Seán Sherlock (Cork East, Labour) | Oireachtas source

My speech, along with the information pack containing supplementary documentation, has been circulated.

I am pleased to bring the Companies Bill 2012 before the Seanad today. The Bill as presented represents a landmark legislative project, which is the result of many years of detailed and comprehensive work by officials in the Department of Jobs, Enterprise and Innovation, the Company Law Review Group and the Office of the Parliamentary Counsel to the Government. It is the largest substantive Bill in the history of the State, spread out over 25 Parts, 17 Schedules and comprising 1,436 sections.

We got through this in two days on Committee Stage in the Dáil, and I hope that signals how it might be dealt with in this House. It was recognised at an early stage of the process that a mere consolidation of the existing Companies Acts would be too limiting in light of the reforms necessary to sustain Irish competitiveness with respect to company law. Instead, an overhaul and restructuring of the company law framework was embarked upon. The result is a Bill that provides a state-of-the-art framework for all businesses operating in Ireland, whether domestic or foreign and irrespective of size.
The principal objective of the Bill is to restructure, consolidate, simplify and modernise company law in Ireland and in doing so improve Ireland's competitive position as a location for business investment. This reform seeks to ensure a balance between simplifying the day-to-day running of a business, maintaining the necessary protections for those dealing with companies, such as creditors and investors, and putting in place an effective corporate governance regime to ensure compliance. Any modernisation and reform of company law must be viewed against the backdrop of the fact that limited liability itself is a concession by the State to business, and must therefore be tempered by robust regulation to protect creditors' interests.
In making company law more accessible, more coherent and more reflective of actual business practice, Ireland's international competitiveness will improve and ordinary businesses and companies throughout the country will find it easier to establish and operate. However, by simplifying the law and making it more intelligible, it is not intended to water down compliance. In fact if the law is more accessible, it is more likely to ensure respect and compliance.
It is important to bear in mind that the last major review and consolidation of Irish company law was in the lead-up to the Companies Act 1963, more than 50 years ago. Since then there have been 17 amending Acts and 15 statutory instruments, which are required to be read as one with the principal Act. In that time, Ireland has taken on EU obligations on the harmonisation of laws, and this has inevitably added to the volume and complexity of Irish company law. Therefore, the Bill seeks to break company law down into distinct principles and areas and to remove or lessen the administrative burdens where possible and appropriate, bearing in mind that the public interest will sometimes require the introduction of additional regulation. These developments will bring Irish company law into the 21st century and ensure Ireland maintains a competitive edge as one of the best places in Europe, and indeed the world, in which to do business.
The Bill is the culmination of 14 years of work by my Department and the Company Law Review Group, CLRG. The CLRG is a statutory body that was set up in February 2000 and includes all relevant stakeholder interests, with members from Departments, professional bodies representing solicitors, barristers and accountants, employer and trade union interests, and regulatory bodies. To date, the group has published 15 reports and these reports have been freely available on the CLRG website. By making these reports publicly available, the transparency of the CLRG's decision-making process is ensured and the reasoning behind any recommendations issued by the group can be analysed. Members of the public and interested groups have been free to make submissions to the CLRG and all such submissions are given due consideration.
In advance of publication of the Bill to the Oireachtas, Volume 1 was published in draft form on my Department's website in May 2011. This afforded an opportunity to all interested stakeholders to familiarise themselves with the proposed new legislation, to interrogate it from a technical perspective and to prepare for its introduction. Submissions were welcomed and a number of the proposals were adopted in the Bill as published.
Following publication of the Bill in December 2012, suggestions and observations regarding the Bill began to flow from company law users throughout the country. To date, in excess of 1,000 such suggestions have been received and each one has been subject to careful analysis by my Department. Many of these suggestions formed the basis of the amendments put forward during the Bill's passage through the Dail. In all, more than 400 amendments were carried during Committee and Report Stages. While this was a large volume, it is worth noting that these amendments did not seek to change either the policy or the structure of the Bill. The purpose of the amendments was generally to bring about technical and practical improvements. It is clear that the development of this Bill has, at every stage, involved extensive input from a wide variety of sources and I thank sincerely the members of the CLRG, as well as the many other individuals and groups, who have contributed to this hugely collaborative project.
Turning now to the Bill itself, one of the striking features is the general structure it has adopted. For the first time in Irish company law, the most common company type, the private company limited by shares, is placed at the core of the legislation as the default company. By adopting this structure the Bill acknowledges the practical reality that almost 90% of the companies currently registered at the Companies Registration Office are private companies limited by shares. In addition the Bill rectifies the anomaly in the current legislation that presupposes that the public limited company, PLC, is at the centre of corporate life in Ireland. In reality fewer than 1% of companies are registered as PLCs. The result is that the architecture of the company law code is now recalibrated to reflect the true landscape of enterprise in the State. There is world of difference between the one person private company formed by a tradesperson and the large publicly listed limited company. To ensure greater accessibility to the new company law code, the Companies Bill is made up of two volumes. Volume 1, containing Parts 1 to 15, inclusive, sets out the law applicable to the most common company type in the State, the private company limited by shares - the new limited company, as it were. In keeping with the objective of ensuring the law is clearly accessible, the Bill is arranged to reflect the life cycle of the company, starting with the incorporation of a company, followed by matters pertaining to its operation and finally providing for the company's wind-down.
Volume 2, which contains Parts 16 to 25, inclusive, and the Schedules, sets out the other types of company that can exist and how the law contained in Volume 1 is applied, disapplied or varied for each other company type. These other company types are the designated activity company, DAC, the public limited company, PLC, the guarantee company, CLG, the unlimited company, the unregistered company and the investment company. There are legitimate users of all the different company types set out in the Bill and it is imperative that Irish company law should facilitate all types of enterprise and the wider commercial community by making appropriate provision for these different company types.
Returning to the new model private limited company, the Bill contains a number of significant innovations and reforms for this company type. First, this company type will have the same legal capacity as a natural person. The current ultra vires rule does not apply to this new company type. The ultra vires rule is the legal doctrine whereby a company must have what is known as an objects clause in its memorandum of association. Removing the need for an objects clause will both ease the administrative burden on companies and provide certainty to third parties, such as lenders, who will no longer have to examine extensive objects clauses to determine whether a company is acting within its powers. This company type will be allowed to have only one director. Under the current law, a company must have at least two directors and even if one person wishes to establish a business as a company on his or her own, he or she needs to find an additional person to act as the second director. Removing this requirement will make it easier to start a new business. The new limited company can have a minimum of one member and a maximum of 149 members. The 149 member upper limit is linked to the requirements of EU prospectus law, which governs the offer of shares to the public. The new limited company will have a single document constitution, in contrast to the current law whereby every company must have two documents, a memorandum of association and separate articles of association. The new limited company will no longer be obliged to go through the formality of holding a physical annual general meeting, AGM, where all the members have to convene in one location at the same time on an annual basis. Instead the members will be able to hold a written AGM, whereby all the matters which must be dealt with at the AGM can be approved by written procedure.
The Bill contains a codified version of the fiduciary duties to which directors are currently subject by a combination of the common law and statutory provisions. This brings all of these duties together in a single identifiable place, making it easier for directors to understand their responsibilities and more difficult to deny their existence. This also addresses one of the recommendations of the Moriarty report on company law. The Bill contains what is known as a summary approval procedure, which is applicable to a number of activities, for example, the reduction of capital, which under the current law might require the company to undertake the burdensome and expensive process of securing court approval. The new summary approval procedure incorporates safeguards on directors' liability in circumstances where the procedure is used without proper justification. Additionally, there are a number of innovations which will apply to other company types. For example, Part 20 enables any company to convert from its existing company type to any other company type that can be formed under the Bill. This is in contrast to the current law which contains restrictions on conversions.

This provides flexibility and greater options to companies which face a change in their circumstances. For the first time, guarantee companies will be able to avail of the audit exemption. This innovation will be of significant benefit to the sectors which tend to use the guarantee company structure, for example companies in the voluntary sector, charities and residential management companies, while at the same time recognising the particular circumstances applying to guarantee companies in allowing a single member to object.
Moving on from the key innovations, I now turn to the amendments passed by Dáil Éireann. As I mentioned earlier, a large number of amendments have been passed and, due to the volume, it is not possible to cover each one. However, I will briefly touch on some of the more significant.
There is now an explicit prohibition on bearer shares. This will enhance Ireland's reputation as a country which is playing its part in the international movement against money-laundering. In a winding-up, company books and papers must be retained for six years, rather than three years, after the dissolution of the company. This brings Ireland in line with best practice internationally. It also makes it easier for authorities such as the Revenue Commissioners, or the ODCE, to investigate potentially fraudulent or criminal activity. There has been a significant increase in the minimum share capital thresholds for companies that wish to appoint restricted persons as a director.
In addition to those measures designed to reduce white-collar crime, other amendments have focused on the modernisation and efficiency of company law. Such changes include permitting companies to use cloud computing solutions for keeping records; modernising some provisions regarding service of notice; and clarifying certain powers of directors upfront in the Bill in order to avoid every company having to change their constitution individually.
I now turn to the substance of the Bill. Due to the unprecedented size of the Bill, it is not possible to give a detailed explanation for each of the 1,436 sections. Instead, I will give an overview of the 25 constituent Parts, along the way highlighting any significant changes to the law and explaining the policy behind these changes. The supplementary information provided to the Senators contains a more detailed overview at chapter-by-chapter level.
Part 1 consists of 14 sections and is largely devoted to housekeeping. It sets out the structure and defines terms which are used throughout the Bill. Part 2 makes provision for the incorporation and registration of the new model private company limited by shares - the new LTD company - and provides that any one or more persons may form such a company. The most significant aspect of this Part is the provision for the conversion of an existing private company limited by shares to a new model private company limited by shares. If the company chooses to opt for the new regime, Schedule 1 sets out a template to assist them. Companies that do not elect to opt into the new regime will not be able to avail of the many advantages associated with the new model private company limited by shares, such as the ability to have only one director, the one document constitution and the possibility to avoid having a physical AGM. However, the new limited company will not suit all business activities. Therefore, a company is entitled to opt out of the new regime and can do so by converting to a designated activity company, or other company type.
Part 3consolidates all existing law relating to share capital, shares, and certain other instruments. At present, this law is set out across the three main Companies Acts. Many provisions from Table A of the First Schedule to the Companies Act 1963 are today commonly inserted into the articles of association of a company. Under the Bill they are incorporated into its text and will, therefore, apply unless the company's constitution provides otherwise. This will reduce the amount of detail required in the constitution of the company and make it more business-friendly.
Part 4 provides a framework for directors and other officers as regards their appointment, their interaction with the company and its members, and the ways in which the activities of the company are conducted on a day-to-day basis. This Part permits the new limited company to have a single director. It also allows such a company to dispense with holding an AGM, where agreed unanimously by the members. Provision is made for unanimous written resolutions, thus allowing a company to pass resolutions, including special resolutions, in writing.
Part 4 also sets out the new summary approval procedure which deals with restricted activities such as the giving of financial assistance for the acquisition of shares, making reductions in company capital, or for varying company capital. This reduces the burden and expense on companies who previously may have had to secure court approval for certain transactions. Additionally, it simplifies and streamlines the current methods of effecting such transactions. To ensure balance, it incorporates safeguards in relation to directors' liability if the procedure is used inappropriately. Greater detail on the summary approval procedure is provided in the Senators' handouts.
Part 5 codifies, for the first time in Irish law, all the duties of directors and other officers of the company. Up until now, these duties were to be found in the common law and in various statutory provisions. They are set out now, in their entirety, for the sake of clarity. It is expected that this innovation in company law will promote compliance with such duties by directors and company officers.
Also dealt with in this Part is the directors' compliance statement, which is now being introduced into law as recommended by the CLRG and approved by Government in November 2005. These provisions apply to the majority of public limited companies and to large private limited companies. It places on obligation on directors to make an annual statement, in their directors' report, acknowledging that they are responsible for securing the company's compliance with its relevant obligations. This provides that directors confirm that certain actions have been done, or where they have not been done, explaining the reasons why. Failure to prepare a director's compliance statement will constitute an offence under the Bill.
Part 6 contains provisions regarding the accounting records to be kept by companies, the financial statements to be prepared by them, the periodic returns to be made to the Registrar of Companies and the auditing of financial statements. It also covers other matters related to auditors, particularly rules governing the appointment of statutory auditors and their removal from office. To a large extent, these requirements are unchanged from existing law. However, the relevant provisions have been redrafted in order to make them easier to understand and in order to improve compliance.
Part 7 contains provisions regarding debentures and charges. It also introduces a number of changes to the current law, the purpose of which is to simplify the registration and de-registration of charges while clarifying the rules for the priority of charges. A new two-stage procedure for the registration of charges is proposed. It provides that an initial notice can be sent to the Registrar stating the intention of the company to create a charge, followed up by a further more detailed notification within 21 days of the creation of the charge, stating that fact. In this way, it is envisaged that lenders may be more willing to advance funds if they can achieve more certainty with regard to the priority of the secured assets. The rules governing the priority of charges have also been significantly changed. Where the priority of charges is not governed by other regulation such priority will be determined by reference to the date of receipt by the Registrar of Companies of the prescribed particulars.
Part 8 deals with receivers. It substantially re-enacts the current law on receivership as contained in the Companies Act 1963, as amended. There are, however, some new provisions that set out the powers and duties of receivers. The receivers are now given certain specific powers in this Part, in addition to those conferred on them by court order or the instrument under which they were appointed. Conferring statutory powers on receivers is intended to alleviate many of the problems which arise from poorly drafted debentures.
Part 9 contains provisions relating to the reorganisation, acquisition, merger and division of companies. The main innovation in this Part is the provision, for the first time in Irish law, of a statutory mechanism whereby two private Irish companies can merge. Therefore, the assets, liabilities and corporate identity of one, are transferred by operation of law to the other, before the former is dissolved. A further innovation is that a merger can be effected without the necessity for a High Court order. Where a merger meets the requirements of the legislation, it is proposed that the summary approval procedure can be utilised to effect the merger, which can be expected to result in a significant saving of time and money. The provisions dealing with divisions are also entirely new and have been drafted to mirror the corresponding provisions in this Part that deals with mergers.
Part 10 contains the provisions regarding examinership. It largely reproduces the existing law on examinerships as contained in the 1990 Act and the recent 2013 Act which allowed small private companies to go to the Circuit Court for examinership.

Part 11 reorders in a more logically coherent way the law relating to winding up. As a result, greater consistency has been introduced between the three different methods of winding up - members' voluntary, creditors' voluntary and court ordered. This is most evident in the changes to the court-initiated mode of winding up, which will reduce the court's supervisory role in favour of greater involvement for creditors. Further changes are the introduction of new professional indemnity insurance requirements for liquidators and the requirement for a person to be qualified before acting as liquidator of a company.

Part 12 combines into one Part the many diverse provisions of the current law regarding the strike off and restoration of companies. The new provisions set out the reasons a company may be struck from the register and the procedures for restoration to the register. The Director of Corporate Enforcement will be empowered to require the directors of a company which is being struck off to produce a statement of affairs. These directors can then be required to appear before a court and answer on oath any question relating to the statement.

Part 13 substantially re-enacts, without any significant amendments, the law regarding the appointment of inspectors to companies and seeks to codify all law relating to the investigation of companies. In keeping with the stricter approach to the enforcement of company law, Part 14 brings together the various compliance and enforcement provisions, a change which will provide greater transparency. If a director applies for relief from a restriction order, the Director of Corporate Enforcement must now also be included as a notice party in any application for relief. A new provision is inserted whereby a company is prohibited from utilising the summary approval procedure where that company has a restricted director. Additionally, higher capitalisation is now required for companies with a restricted director. A new four tier categorisation of offences is introduced. It is proposed that, subject to a small number of exceptions in the case of the most serious offences, for example, prospectus and market abuse offences, all offences under the Companies Acts should be categorised according to this four tier scheme. The Senators will find details of the scheme in their information packs. A further new provision has been introduced which provides that, following a conviction for an offence under this Bill, the court may order that the convicted person should remedy any breach of the Bill in respect of which they were convicted.

Part 15 contains provisions relating to the Registrar of Companies, the Irish Auditing and Accounting Supervisory Authority, IAASA, the Director of Corporate Enforcement and the Company Law Review Group. For the first time, the powers and duties of both the Minister and these bodies are brought together in one coherent group of legislative provisions.

I now turn to Volume 2 of the Companies Bill, which Senators will recall sets out the other types of company that can exist and how the law contained in Volume 1 is applied, disapplied or varied for each other company type set out in Parts 16 to 24.

Part 16 provides for a type of private company to be known as a designated activity company, DAC. There will be two types of DAC under the Bill - a private company limited by shares and a private company limited by guarantee, having a share capital. The primary defining feature of a DAC, although I do not know if DAC has worked its way into the popular parlance yet - we will call it a DAC-----