Ireland updated its company law on June 1 2015. This is when the Companies Act 2014 (the Act) came into effect. The Act was intended to be a consolidating exercise. Practitioners are still getting to grips with its practical operation. However, there have been some unexpected and unwelcome surprises. The most pertinent of these potentially affect international finance transactions based in, or having a connection with, Ireland. The legislature needs to address these as a matter of urgency.
The most significant relates to the regime for the registration of charges created by companies. The legislature sought to revamp these provisions with the laudable aim of making them compatible with the EU regime for the provision of financial collateral. Accordingly, the Act provides that there is no longer a need to register with the Irish Companies Registration Office (CRO) particulars of a charge over assets such as cash, bank accounts and securities. Shares were also intended to be an excluded asset. However, due to an apparent drafting oversight, only shares in Irish companies are excluded from the need to register. A charge over shares in a company incorporated outside Ireland must now be registered with the CRO. This creates an anomaly whereby a charge over Irish shares does not need to be registered, whereas a charge over foreign shares does. Furthermore, this error introduces (as an unintended consequence) a requirement to register a charge over shares where none existed before.
Another significant issue arises from the Act's division of Irish private limited companies into two categories: first, a private company limited by shares (PCLS); second, a designated activity company (DAC). A PCLS has unlimited corporate capacity whereas a DAC is required to carry on business in furtherance of defined objects (albeit that if a DAC acts outside its objects this has limited, if any, impact on outsiders). The Act ineptly carries over provisions from earlier legislation intended to limit the ability of a private company to carry on the business of a credit institution or insurance undertaking. Under the Act these now apply to a PCLS (but not a DAC). The impact of the provision on a PCLS is unclear and creates unhelpful issues for special purpose vehicles that are engaged in lending and are not a DAC. The restriction needs to be removed: it should be left to the regulator (the Central Bank of Ireland) to supervise the appropriate corporate status of regulated entities.
It is understood that the government is aware of, and proposes to address, these (and other) anomalies created by the Act. It is hoped that revised legislation will be introduced as a matter of urgency.
© 2021 Euromoney Institutional Investor PLC. For help please see our FAQs.