The Companies (Accounting) Bill 2016 was passed yesterday by the Irish legislature and is expected to be signed into law as the Companies (Accounting) Act 2017 (the “Act”) in the coming days. Running to over 100 sections, the Act represents the most significant update to the Companies Act 2014 (the “Companies Act”) since it came into operation almost two years ago.
The main purpose of the Act is to transpose EU Directive 2013/34/EU (the “Accounting Directive”) into Irish law but it also seeks to address certain anomalies which were identified in the Companies Act.
The key measures in the Act are outlined below.
The bulk of the Act is concerned with amending Part 6 of the Companies Act and its related schedules, which collectively govern financial statements, annual returns and audits of Irish companies. The most important changes in this area affect smaller companies in the form of more relaxed accounting and disclosure regimes for entities falling below certain thresholds.
A new concept of ‘micro company’ has been introduced which must satisfy at least two of the following three requirements:
- Turnover not exceeding €700,000
- Balance sheet total not exceeding €350,000
- Average number of employees not exceeding 10
Micro companies can avail of minimal form financial statements, are exempt from disclosing directors’ remuneration and are not obliged to prepare or file a directors’ report. The Act allows qualifying companies to opt into the micro companies regime for financial years commencing on or after 1 January 2015. Certain types of company cannot be micro companies: holding companies that prepare group financial statements, subsidiaries included in the consolidated financial statements of higher holding undertakings, investment undertakings and financial holding undertakings.
The qualifying thresholds for both small and medium companies have been raised under the Act. Medium companies must now file full financial statements, including turnover figures.
There are new disclosure requirements for companies (other than micro companies) in relation to payments to third parties for making available the services of any person as a director of the company or its subsidiary undertakings, or otherwise in connection with the management of the company’s affairs or any of its subsidiary undertakings.
The Act curtails so-called ‘non-filing structures’ which allowed unlimited companies, whose ownership was structured in a particular way, not to publicly file their accounts while effectively maintaining the limited liability of their ultimate owners. Under the new measures, Irish registered unlimited companies which have a (direct or indirect) limited liability holding company will have to file accounts. In terms of applicable financial reporting periods, it was previously expected that the rule change would come into effect for financial periods beginning on or after 1 January 2016. However, it is now expected that the relevant periods will be financial years commencing on or after 1 January 2017. Unlimited companies with limited liability subsidiaries will come within the filing regime for financial years commencing on or after 1 January 2022.
Expanded Branch Definition
The Companies Act defined an “external company” to mean a non-Irish body corporate (EEA or non-EEA) whose members’ liability in respect of that body corporate was limited. The Act contains a new expanded definition of “EEA company” and “non-EEA company”. The definition now includes a non-Irish undertaking whose members’ liability in respect of such undertaking is unlimited and which is a subsidiary undertaking of a body corporate whose members have limited liability.
Unlimited Company Names
The Companies Act introduced a new requirement that, from 1 December 2016, the registered name of all unlimited companies must end in “unlimited company” or “UC” (or the Irish equivalent). In practice, this involved changes to company stationery, websites, seals and registrations. The Companies Act, however, gave the Minister for Jobs, Enterprise and Innovation the statutory power to exempt, in special circumstances, an unlimited company from the obligation to use the “unlimited company” suffix. Certain unlimited companies obtained such exemptions where the name change would have resulted in significant cost and business disruption. Once the relevant provisions of the Act are commenced, this exemption will no longer be available to unlimited companies although this will not affect the validity of exemptions already granted.
Debt Securities Issued Before 1 June 2015
Some uncertainty existed as to the continued validity of debt securities lawfully issued before the coming into force of the Companies Act by then existing private companies which became LTDs (the new model private company) under the new regime. The Act addresses this uncertainty by expressly providing that Companies Act restrictions on LTDs having such securities admitted to trading or listed only apply to securities issued post-1 June 2015.
The Companies Act (section 72) facilitates mergers by providing that any premium on shares issued as consideration for a 90% or greater interest in another company will not be subject to the general rule requiring that premium be transferred to a share premium account. As worded, merger relief was only available where the company being acquired in the merger is Irish. Under the Act, a new definition of “company” is introduced for these purposes, extending merger relief to all bodies corporate acquired in a merger, including a foreign company.
Companies Involved in Extractive Industries and Logging
New country by country reporting obligations have been introduced which will apply to large companies and public interest entities involved in oil and gas exploration or extraction, and logging in primary forests. Disclosable payments are widely defined and include production entitlements, taxes levied on income, production or profits, and royalties. Payments of less than €100,000 need not be disclosed in the payment report but no manipulation of amounts is permitted to avoid reporting. The board of directors of the company must approve the payment report which must then be signed on behalf of the board.
New Definition of "Credit Institution"
The Companies Act provides that an LTD “shall not carry on the activity of a credit institution or an insurance undertaking”, meaning that those companies are among the types that cannot avail of the new model company regime. The term “credit institution” was vaguely defined and was open to the interpretation that it included group treasury companies and companies engaged in intra-group lending. The new definition restricts the ambit of the term to what was originally intended by narrowing the wording to: “a company or undertaking engaged in the business of accepting deposits or other repayable funds from the public and granting credit for its own account”.