Charities Towards 2012: Company Law for the 21 st Century – The Proposed Companies Consolidation and Reform Bill

1. Charities Towards 2012:Company Law for the 21st Century – The Proposed Companies Consolidation and Reform Bill Dr Thomas B Courtney

2. Outline of Presentation • Company Law Reform in Ireland • The Company Law Review Group • CLRG’s First Report – the New Private Company • Selected Specific Simplifications • The Report on the General Scheme • The Guarantee Company • The Time Frame

3. Company Law Reform in Ireland • The McDowell Working Group on Compliance and Enforcement (1998) • Only 13% of companies complied with their obligations to file their annual returns on time. • Stop-start law reform unacceptable. • Recommended one comprehensive and comprehensible company law code.

4. The Company Law Review Group • CLRG established on an administrative basis. • “…shall seek to promote enterprise, facilitate commerce, simplify the operation of the Companies Acts, enhance corporate governance and encourage commercial probity.” • Minister sets work programmes. • Currently on fourth work-programme.

5. CLRG’s First Report – the New Private Company • Published February 2002 with 195 Recommendations. • A unanimous blueprint! • The “big idea” – segregate the private company. • Move from legislative after-thought to centre stage. • Pillar A – Private Company Limited by Shares. • Pillar B – All other Companies, including Guarantee Companies.

6. Selected Specific Simplifications Allowing All Private Companies Dispense with the AGM • Already permitted for single-member • Proposed to extend to all private companies

7. Selected Specific Simplifications Private Companies should be permitted to have only One Director • Token directors are anathema to modern corporate governance; • Wrong to force people to assume duties and responsibilities to meet a numeric statutory requirement.

8. Selected Specific Simplifications Codification of directors’ duties in statute • Primarily a codification of the existing common law. • Duty to act honestly and responsibly. • Can have regard to shareholder that appoints director. • But duties only enforceable by the company. • Will also apply to Guarantee Companies.

9. Selected Specific Simplifications Replacing Memorandum and Articles of Association for Private Company • Providing for a one-document constitution; • Name clause, liability clause, share capital clause, association clause and whatever articles as to internal management as might be desired. • Table A’s provisions have been migrated to the Act and will automatically apply to the company “unless the constitution provides otherwise”.

10. Selected Specific Simplifications Ultra Viresshould be abolished for Private Company • private companies will have the same legal capacity as a natural person – no more objects clause! • Other companies (e.g. Guarantee Companies) must, however, have an objects clause although doctrine of ultra vires has been mitigated.

11. Selected Specific Simplifications Omnibus validation Procedure • The same validation procedure will facilitate: • Financial assistance; • Guarantees and security for directors and connected persons; • Redemption of shares; • Voluntary winding up.

12. The Importance of the Other Company Types such as PLCs, Guarantee Companies, Unlimited Companies etc

13. The Report on the General Scheme • Published in May 2007. • Accompanies the two-volume Heads. • Commends General Scheme to Minister; • CLRG and its Work; • Principles: simplification, modernisation & consolidation • Regulatory Impact Analysis; • Architecture; • Exposition of Pillar A; • Exposition of Pillar B.

14. Pillar A – The Private Company • The General Scheme will give effect to the primacy of the private company as the preferred corporate entity of choice and it will be moved to centre stage and be the new model company in Irish company law. • Pillar A will be self-contained and all law relating to the private company limited by shares will be here.

15. Definitions and Interpretation Incorporation and Registration Shares and Share Capital Corporate Governance Duties of Directors and Others Accounts, Audit and Annual Return Debentures and Charges Receivers Reconstructions & Arrangements Examinership Winding-Up Strike-Off and Restoration Compliance, Investigation and Enforcement Powers and Duties of the Minister and Regulatory and Advisory Bodies Pillar A – 14 Parts

16. Pillar A – Key Features of Private Company • Limited by shares and must has a share capital. • Same capacity as a natural person. • One-document constitution: no M&A. • 99 members. • No prospectus; no listing shares or debenture. • Can have just one director.

17. Pillar A – Key Features of Private Company • Can have just one member. • Members can waive the requirement to hold an AGM. • Members can pass a majority written resolution. • Eligible for audit exemption.

18. Pillar B – Other Corporate Forms and Miscellaneous Provisions • The public limited company, or PLC – limited by shares • The designated activity company or DAC - limited by shares or - limited by guarantee having a share capital • The Guarantee Company – limited by guarantee without a share capital

19. Pillar B – Other Corporate Forms and Miscellaneous Provisions • The Unlimited Company • private unlimited company with a share capital (ULC); • public unlimited company with a share capital (PUC); • public unlimited company without a share capital (PULC) • External Companies • Unregistered Companies • Investment Companies

20. Pillar B – Other Corporate Forms and Miscellaneous Provisions • legitimate users of each type of company • company law should be facilitative of business and the wider community by making appropriate provision for different types of companies. • the structure will discipline future thinking on the appropriateness of particular provisions to the different types of company.

21. Guarantee Companies • In Part 4 in Pillar B, the law that applies to the private company, as set out in Pillar A is expressly applied to the Guarantee Company, subject to the dis-application of certain provisions that are not relevant to it. • Also applied to Guarantee Companies are 85 additional Sections that are not contained in Pillar A (because they are of no relevance to private companies) but which are relevant to Guarantee Companies.

22. Guarantee Companies • No charity, or other activity-specific, provisions will be contained in Companies Acts. • Companies Acts should address formation, management, membership and other matters integral to the legal entity that is the company not the activities which companies engage in. • Other Departments and regulators are better suited to legislating for activities which can indeed be pursued by legal entities other than companies.

23. Guarantee Companies • The Companies Acts will continue to be available for use by charities and to my mind will provide a far more suitable vehicle than spawning some new form of legal entity. • Charities could, however, benefit from a Regulator fixing upon a standard form of articles of association (or objects clause) which, the Regulator could require, be adopted by every registered corporate charity .

24. Guarantee Companies • Appropriate persons (regulators or Departments) should be able to apply additional requirements over and above the Companies Acts’ requirements (e.g. Charities Regulator could require charities that are companies to state their annual charitable activities in their Directors’ Report and be empowered to enforce this).

25. Guarantee Companies • A regulator should, with DETE’s consent, be able also to disapply certain Companies Acts provsions to companies engaged in activities for which that regulator is responsible. • Transparency must be maintained, though, and any disapplication of a Companies Acts provision to a particular company would have to be recorded on the CRO’s register.

26. The Time Frame… • General Scheme is currently with the office of the parliamentary draftsman. • Hopefully drafted by mid 2008. • Passage through the houses of the Oireachtas. • Hopefully enacted in 2009! • Most likely commencement would be 12 months later…

27. Company Law Reform Goes On… • Minister has set a fourth work programme for the CLRG. • Five work streams: • Registration & Incorporation • Partnership Law • Auditors and Financial Statements • Criminal & Enforcement • Modernisation for Competition

28. Company Law Reform Goes On… • Any proposed changes recommended, which are accepted by the Minister and the Government, will then be passed on to the parliamentary draftsman to ensure that the Bill produced reflects state-of-the-art thinking in company law.

29. Conclusion • CLRG is not infallible and there will be gaps in the heads. • The time for the users of company law to point these out is now. • The prize we are playing for is a state of the art Company Law Code which will promote Irish enterprise, facilitate commerce, simplify the operation of the Companies Acts, enhance corporate governance and encourage commercial probity.

30. Arthur CoxCompany Secretarial Services Dr. Thomas B. Courtney Partner Head of Company Secretarial Services Arthur Cox Earlsfort Centre Earlsfort Terrace Dublin 2 Tel: (+ 353 1) 618 0000 Fax : (+ 353 1) 618 3919 Email: tom.courtney@arthurcox.com www.arthurcox.com