The Companies Act 2014 (the “Act”) was signed in law in December 2014 and will modernise company law in this jurisdiction. The Act, due to take effect from 1 June 2015, introduces new rules in relation to how companies are formed and how they are administered after incorporation and will impact all Irish Companies, their shareholders and their directors.
Over the next 4 weeks, we will publish a series of E-zines to ensure companies are up to date with key changes it imposes. In this E-Zine Peter O'Neill, Associate in the Commercial and Corporate Department provides an overview of the principal changes that are likely to be relevant to directors and their duties under the Act.
IMPORTANT ISSUES FOR DIRECTORS
The Companies Act 2014 re-enacts much of the previous law concerning a directors’ duties, but introduces some important changes including:
IMPORTANCE OF DOCUMENTING DIRECTORS LOANS
The Act introduces new requirements in relation to director's loans – both to and from the company. The Act essentially provides that where a company makes a loan to a director, and that loan is either undocumented or is in writing, but the terms of the loan agreement are ambiguous, there is a presumption that the loan is repayable on demand and bears interest at the prescribed rate.
In the case of a loan from a director to a company, where such a loan is undocumented (or is ambiguous in its terms), there will be a statutory presumption that the loan is interest-free, unsecured and subordinated to other creditors. These statutory presumptions apply equally in the case of undocumented loans to persons connected with a director.
Prior to the commencement of the new Act, the fiduciary duties of a director have been developed over time and set out by judges in case law. The Act changes this however by codifying the existing principles found in that case law and by setting out 8 principle fiduciary duties which will apply to all company directors including de facto directors and shadow directors. These codified duties are in addition to all statutory duties which directors must comply with and which are set out in the Act and elsewhere (e.g. under employment law, health & safety legislation etc.).
The Act itself also introduces new statutory duties which will further affect company directors. In particular, directors of larger organisations should make themselves familiar with the new provisions relating to “Directors Compliance Statements”. These provisions of the Act impose new obligations on directors of larger companies to secure the company's compliance with certain company law provisions and tax law.
After the commencement of the Act, there will be an onus on all company directors to be proactive to ensure they are familiar with the provisions of the new Act and to ensure that each corporate entity with which they are involved complies with the requirements of the new Act.
Note: Subsequent E-Zines in this series will address other relevant topics, such as the new choice for limited companies, the new form of constitution and the steps to take in preparing for the introduction of the new Act.
Remember that this article is for information purposes only and does not constitute legal advice. Specific advice should always be taken in given situations.