A busy legislative slate lies ahead on the domestic front, largely driven by the need to transpose significant EU directives into Irish law. Member State discretions will undoubtedly come into focus as part of the implementation process, although room for manoeuvre is relatively limited given the mostly mandatory nature of the EU measures.
In a welcome move, however, the Department of Enterprise, Trade and Employment is engaging with stakeholders, through a series of public consultations, the outcome of which may help shape Irish company law into the future.
While ESG and ESG-adjacent themes remain the dominant focus, other interesting legislative developments are on the horizon. Co-operative societies, which have long been a vital cog in the Irish economic machine, are set to see a large-scale overhaul of their governing legislation. Although the development of the legislative framework has been slow to get off the ground, new cross-border mobility options for EU companies are expected to become live in the months ahead, with the governing Irish regulations being fine-tuned at the time of writing.
The recent decision of the Court of Justice of the European Union in WM and Sovim SA v Luxembourg Business Registers limiting public access to the beneficial ownership registers of companies has given authorities pause for thought in advancing the transparency agenda in the corporate sphere. Across Europe, legislators must now grapple with the complexities of the
privacy versus transparency debate. This may well lead to a recalibration of the public's right to access personal information concerning individuals in the company law realm. Expect intense policy debate in this area.
Key Themes in Corporate
Since our last Horizon Tracker, the Corporate Sustainability Reporting Directive has come into force at EU level (Directive (EU) 2022/2464). Attention now turns to transposition and, with that, preparation for the regime ahead. Implementing measures must be put in place by Member States by July 2024. Under the new system, a greatly expanded range of in-scope companies will be required to report annually on ESG and human rights matters. Reporting must be in line with European Sustainability Reporting Standards ("ESRS") and will be subject to independent audit (in a process which is expected to become more demanding over time). The ESRS have been developed by the European Financial Reporting Advisory Group ("EFRAG") in consultation with EU regulatory authorities, expert groups, and Member States. The ESRS are expected to be adopted by the Commission by way of a delegated act, with the first set scheduled to be adopted by June 2023.
Sustainability reporting will begin in four stages, with the first wave of entities due to report in 2025 on 2024 data. We are assisting companies which are currently engaged in scoping, training and resourcing exercises to address both the challenges and opportunities that will come with this new reporting regime, and with an eye to the Corporate Sustainability Due Diligence Directive coming a little further down the tracks.
"I think we can look to the future, conscious that the world ahead of us is very different – we hope – than the one today, but very certain that for companies, for the financial system, that counting isn't enough. That taking into account of sustainability issues matters as much as the profitability… I think what we've done collectively – Commission, European Parliament, Council, working with EFRAG – is provide a very solid guidance for companies on what they need to report, and how they need to report it."
Keynote speech by Commissioner McGuinness at the 2022 EFRAG Conference, 'Where is Corporate Reporting heading?' (7 December 2022)
- Matheson ESG Hub
- Public Consultation on the Corporate Sustainability Reporting Directive (Department of Enterprise, Trade and Employment, closed 9 March 2023)
Since they were first established in Ireland in 1889, co-operatives have played a unique role in Irish society. Some co-operatives have evolved into multi-billion euro brands with a commanding presence on the global stage. Others, instead, have a more localised community, culture or social enterprise focus.
The recent publication of draft legislation, which runs to 405 pages, has set the scene for the most radical reform of the co-operative sector since it came into being over 130 years ago. The new regime will, for the first time, establish a specific legislative basis for co-operative societies. While aiming to cater for the diverse range of co-operatives in existence in Ireland, all co-operatives will be required to adhere to the co-operative ethos, the founding principles of which are set out in the draft legislation. Some flexibilities are built into the measures, allowing co-operatives to draft their governing rules to best suit their own particular circumstances.
The existing legislative framework will be consolidated and modernised. Corporate governance, financial reporting and compliance rules akin to those applicable to companies will be created. The new measures facilitate virtual and hybrid shareholder meetings. Co-operatives will be easier to establish by reducing the minimum number of founding members from seven to three and by permitting corporate bodies to participate as founding members. This is expected to make co-operatives more investor-friendly.
The Industrial and Provident Societies legislation, under which some co-operatives currently operate and which dates back to the 19th century, will largely be repealed under the plan. Existing industrial and provident societies will have a transitional period in which to register as a co-operative society, adopt an alternative corporate structure, or wind up and be dissolved.
While this remains at a relatively early stage of the legislative process, this initiative is one to watch in the Corporate space.
"I am conscious of the proud history of the Co-operative sector since the 1880s and the invaluable role it has played in this country.…The legislation will introduce a modern legal framework which will place the Co-operative model on a more favourable and clear legal basis. It will create a level playing field with the situation applying to companies and encourage the consideration of the Co-operative model as an attractive formation option for entrepreneurs and also for social and community activities."
Minister of State for Trade Promotion, Digital and Company Regulation, Dara Calleary TD
The 31 January 2023 deadline for transposing the 'Mobility Directive' (Directive (EU) 2019/2121) has now passed. Ireland, along with many other Member States, has not yet implemented this directive which amends some of the existing rules on EU cross-border mergers and will also facilitate cross-border conversions and divisions of EU companies.
The Department of Enterprise, Trade and Employment has indicated that transposition will be by regulations under statutory instrument but we understand that these could still be some weeks away. Transposition will be welcome news for multinationals assessing their cross-border structuring options in the EU. A word of caution, however: both the departing Member State and the destination Member State must have transposed the directive for any restructuring plan to be put into effect under the new rules. The Companies Registration Office (and equivalent national public registries in other EU jurisdictions) must establish systems to reflect, by registration, the outcome of the transaction.
The new regime enhances the existing framework for EU cross-border mergers. Transitional arrangements for cross-border mergers currently underway will need to be considered as mergers commenced under the current regime but completing after transposition are not dealt with in the directive. It appears that transitional measures may vary across Member States. We understand that Ireland may allow companies to have a six month period in which to complete the cross-border merger under the current regime where their draft merger terms have been published before the new regulations come into effect.
New opportunities will be available to EU companies under harmonised laws on cross-border conversions and divisions. Conversions will allow companies to change their legal form and to relocate their corporate seats within the EU. The new measures address stakeholder protection requirements, balancing company mobility against employee, member and creditor rights.
The full detail will be revealed in the transposing regulations but the opportunity for Ireland to partake in this new and enhanced legal framework is a welcome one.
"This Directive is part of the EU Commission’s Company Law Package: making the best of digital solutions and providing efficient rules for cross-border operations. This Directive seeks to meet the objective of an internal market without internal borders for companies, and to reconcile this with the objective of social protection, including additional rules to provide for rights to information and participation for employees and protection for members and creditors."
Department of Enterprise, Trade and Employment, Company and Corporate Law Unit