Q4 2022 Corporate Governance Update

Key Contact: Patrick Butler – Company Secretary

1. New directors’ duty

On the 29 July 2022, the European Union (Preventative Restructuring) Regulations 2022 was signed into law by the Minister for Enterprise, Trade and Employment. This Regulation amended the Companies Act 2014 (the “2014 Act”) by creating the new provisions of Section 224A, and Section 228(i). These amendments introduce into statute, for the first time, a duty bestowed upon directors to have regard to the interests of creditors.

Section 224A of the 2014 Act requires directors, where they believe, or have reasonable cause to believe, that the company is unable, or likely to be unable to pay its debts, to have regard to –

  • The interests of the creditors.
  • The need to take steps to avoid insolvency.
  • The need to avoid deliberate or grossly negligent conduct that threatens the viability of the business.

Unable to pay its debts is given the meaning as per Section 509(3) of the 2014 Act, which provides a company will be unable to pay its debts if –

  • It is unable to pay its debts as they fall due.
  • The value of assets is less than the amount of its liabilities.

Balance sheet insolvency, non-payment following the service of a 21-day letter, and where execution of a judgment is unsatisfied, are circumstances which will trigger the new statutory duty under Section 224A.

Additionally, Section 228(i) of the 2014 Act requires directors to have regard to the interests of creditors where the directors become aware of the company’s insolvency.

It should be duly noted that this new statutory duty is owed to the company alone. Creditors will not have a direct right of action against a director for a breach of the statutory duties mentioned above.

Where a director has breached their duty contained in Section 228(i), as per Section 232 of the 2014 Act, the director will be liable to account to the company for any gain which he or she makes directly or indirectly from the breach of duty; and to indemnify the company for any loss or damage resulting from that breach.

Directors should take notice of the importance of the provisions introduced into the 2014 Act by these Regulations, and how this new duty imposed upon them, is owed to the company, and the company alone.

2. The Companies (Corporate Enforcement Authority) Act 2021

The Companies (Corporate Enforcement Authority) Act 2021 (the “2021 Act”), which was enacted on 22 December 2021, is due to be signed into law later this year. The 2021 Act will introduce a requirement for directors of Irish-registered companies to file details of their personal public service number (PPSN) with the Companies Registration Office.

Directors will be required to file details of their PPSN with the Companies Registration Office (“CRO”) when –

  1. Filing annual returns.
  2. Incorporating a company.
  3. Notice of changes of directors and secretaries.

This new requirement implemented by the 2021 Act is to assist in the prevention of fraud and help with the identification of directors.

Where a director does not have a PPSN, they will be required to apply for a CRO number. This process is expected to be similar to the procedure when applying for an RBO number with the Register of Beneficial Ownership through a BEN2 statutory declaration.

There is no timeframe at present for the above requirement to go live, but director’s and professional advisors should take note and prepare their companies / clients accordingly.

3. Resumption of enforcement proceedings by the CRO and RBO

It has been indicated by the CRO, that prosecutions and involuntary strike-offs will recommence against companies who are late in filing their annual returns. Enforcement activities were suspended during the Covid-19 pandemic.

In addition, the Register of Beneficial Ownership has also started prosecuting companies who are in breach of their RBO filing obligations.

4. Law Reforms Revised Acts

The Law Reforms Revised Acts now includes the Companies Act 2014 and all amendments – https://revisedacts.lawreform.ie/eli/2014/act/38/front/revised/en/html. The Law Reforms Revised Acts bring together all amendments of a particular Act into a single text, which is helpful to companies and professional advisors. It is a consolidation of all amendments made to the Act since its existence.

 

For further information in relation to the above article, please contact Patrick Butler.

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