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Ireland: Modernisation of companies legislation

The Companies Act 2014 (Act) was recently passed by the Irish parliament and most of its provisions will come into force on June 1 2015

John BreslinAlma O’Sullivan
The Companies Act 2014 (Act) was recently passed by the Irish parliament and most of its provisions will come into force on June 1 2015 (Commencement Date). The Act is largely a consolidation and modernisation of existing Irish companies legislation. However, there are a number of issues which lenders will need to consider from a practical perspective in respect of Irish incorporated obligors.

A key change is the introduction of new company types. An existing private limited liability company is required, within 18 months of the Commencement Date, to re-register under the Act as either a limited liability company (LTD) or a designated activity company (DAC) and submit an amended constitution to the Irish Companies Registration Office (CRO).

Loan agreements such as those based on Loan Market Association (LMA) standard documentation will typically contain restrictions on obligors amending their corporate status and constitutional documents. Therefore, lenders need to be aware that consent requests under existing loan agreements will be made by Irish incorporated obligors following the commencement date. Lenders will need to consider whether they should require or suggest that obligors re-register as a DAC rather than an LTD, or whether to impose any other conditions in obligor's constitutional documents as part of any approval (bearing in mind that the directors of a company have a statutory duty to make the changes required by the Act within the prescribed time period).

There are important practical differences between an LTD and a DAC. An LTD will not have an objects clause and will have no limitation on its powers under its constitution. A DAC is still required to have an objects clause, but a third party is no longer bound to enquire whether a DAC is acting within its objects. The Act does not remove existing protection which allows a company outsider to proceed on the basis that all internal consents have been obtained to authorise the transaction. An LTD is not allowed to issue listed debt securities. A DAC is allowed to do so.

In many cases, lenders may not have a preference as to which company type is selected, and will rely on existing restrictions on the company contained within the loan documentation. However in some cases, lenders may want certain provisions to remain within a company's constitutional documents. In other cases, there may only be one choice, for example, because the obligor has issued or intends to issue debt securities.

As with many issues expected to arise under the Act, it is unclear how they will play out in practice. Also, although the Act is a consolidation exercise (so that many of the provisions look familiar to finance and corporate lawyers) there are key differences in many provisions: the Act is a trap for the unwary.

John Breslin and Alma O'Sullivan

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