Part 4 – Corporate Governance

10 Chapters – Sections 127 to 218

Part 4 Chapter Overview

Chapter 1 – Preliminary

Chapter 2 – Directors and secretaries

Chapter 3 – Service contracts and remuneration

Chapter 4 – Proceedings of directors

Chapter 5 – Members

Chapter 6 – General meetings and resolutions

Chapter 7 – Summary Approval Procedure

Chapter 8 – Protection of minorities

Chapter 9 – Registers, indices and minute books

Chapter 10 – Inspection of registers

Part 4 Summary

This part of the Act lays down the requirements relating to corporate governance. It deals with the law relating to appointments and proceedings of directors and the law relating to members and their protection. One of the key emphases of the Act has been on simplification and in this vein it introduces a Summary Approval Procedure for certain corporate transactions.

What is new?

The regulations contained in Parts I and II of Table A of the First Schedule to the Companies Act 1963 have been incorporated into the 2014 Act on an “unless otherwise provided in the constitution” basis. The hope is that this will lead for shorter and more concise company constitutions and simplify governance procedures for companies.

One of the key features of the simplified LTD company type is that under S.175(3) it can dispense with the requirement to hold an AGM, whether a single member company or otherwise, by passing a written resolution of all members entitled to attend.

S.176 enables a company hold its AGM outside the state if the members consent. Unless all members consent in writing to the AGM being held outside the state the company must ensure that members can participate, at the company’s expense, through technological means, without leaving the state.

A statutory right now exists under the Act regarding the delivery of notice of every general meeting upon those so entitled as follows:

• Every member (whether they hold voting rights or not)
• The personal representative of a deceased member who has the right to vote
• An assignee of a bankrupt member (whether they hold voting rights or not)
• Every director
• The company secretary
• The auditors

A proxy may be delivered to the registered office by electronic means.

The Act, for the first time, offers a definition of an Ordinary resolution: “a resolution passed by a simple majority of the votes cast by members of the company, being entitled to do so, in person or by proxy at a general meeting of the company.”

An new administrative innovation introduced by S.193 is the “majority written resolution”, whereby it is described as being an ordinary (special) resolution, signed by members holding more than 50% (75%) of the voting rights and whose proposed text and an explanation of its main purpose has been circulated to all entitled to receive it. A majority written resolution may be signed in counterparty. As a measure of shareholder protection delayed effect will apply to majority written resolutions. Therefore an ordinary resolution which has been passed as a majority written resolution will not come into effect until 7 days from when the last necessary signature was dated. This will be 21 days in the case of a majority special written resolution. These delay periods may be dis-applied where all members entitled to vote on such a resolution give a written waiver. A majority written resolution cannot be used to remove a director or an auditor. The company must notify every member within 3 days of the fact that it was signed by the requisite majority and the date on which it will be deemed to be passed.

Unanimous written resolutions are now provided as a statutory default under S.193 and do not have to be specifically written into a company’s constitution. The Act provides that where it is signed by all members entitled to attend and vote it is valid and effective as if it were passed at a general meeting duly convene and held. This applies to both ordinary and special resolutions. Counterparty signature is permitted.  A unanimous written resolution will be deemed to have been passed on the date which the last member signed. The company should notify the members that the resolution has been passed within 21 days. The resolution should be retained by the company and treated as minutes of the meeting.  It should be noted that, except in the case of single member company, a unanimous resolution cannot be used to remove a director or an auditor.

The Summary Approval Procedure is the Act’s new streamlined process for the transaction of restricted business and is dealt with in sections 201 to 211, and can be used in relation to the following:

1. 82 – Financial assistance for share acquisition (cannot be used by a PLC)
2. 84 – Reduction of company capital (cannot be used by a PLC)
3. 91 – Variation of capital on reorganisation (cannot be used by a PLC)
4. 118 – The treatment of pre-acquisition profits or losses in a holding company’s financial statements as profits available for distribution (cannot be used by a private subsidiary company where the parent is a PLC)
5. 239 – Prohibition of loans etc. to directors and connected persons
6. 464 – Mergers (cannot be used by a PLC)
7. 579 – Members’ voluntary winding up

While it will still be possible for a company to use the Court approval procedure in the case of a reduction, variation or merger, it will be mandatory to use the SAP for the other transactions listed.

The SAP cannot be used if there is a restricted person acting as a director of that company, except in the case of a voluntary winding up.

The SAP required the passing of a special/unanimous resolution as required, a directors’ declaration and the delivery of the declaration to the CRO at least 7 days before the restricted activity is carried out. The director’s declaration must be accompanied by an auditors’ report stating that in the opinion of the auditor the declaration is “not unreasonable”, in the case of restricted transactions 1, 3, 4 and 7 above. The content to be included in the declaration will also vary depending on the restricted activity which is being validated by the SAP. The Act gives timelines for the passing of the special resolution depending on which restricted activity is being validated.

S.208 stipulates that an accompanying report is required by a person who is qualified as at the time to be appointed or continue to be the statutory auditor of the company for the following declarations:

• 204 – Reduction in capital
• 204 – Variation of capital on re-organisation
• 205 – Treatment of pre-acquisition profits
• 207 – Members winding up of a solvent company

This independet person report only has to state that in the opinion of the person reporting that the directors declaration is not unreasonable.

What is different?

New model private LTD Companies may now have just a single director based on S.128. Although it can have just one single director that single director can not have a dual role as director and secretary under S.129. S.130 prohibits bodies corporate or unincorporated bodies of persons as a director of a company but it does not specifically make the same provisions for sercretaries thus permitting bodies corporate act as secretary. There is an onus on the directors to ensure the company secretary has the necessary skills or resources to discharge their duties. The sole director may not also be secretary. It is now expressly prohibited for a minor to be appointed as a director.

Special resolutions as defined in S.191, have been given a slightly different definition and are now: a resolution that is referred to as such, passed by not less than 75% of the votes cast at general meeting, having had 21 days’ notice and which complies with the requirements regarding place, date, time, nature of business and the text of the special resolution as outlined in the Act. It should be noted that a resolution may still be passed as a special resolution without 21 days’ notice if so agreed by members holding not less than 90% in nominal value of the shares having the right to attend and vote or if so agreed by members holding 90% of the total voting rights at that meeting.  A special resolution may also be passed as a written resolution.

The list of resolutions which must be filed at the CRO has been amended and now comprises the following resolutions:

• resolutions that are required by this Act or a company’s constitution to be special resolutions
• resolutions which have been agreed to by all the members of a company, but which, if not so agreed to would not have been effective for their purpose unless they had been passed as special resolutions
• resolutions or agreements which have been agreed to by all the members of some class of shareholders but which if not so agreed to, would not have been effective for their purpose unless they had been passed by some particular majority or otherwise in some particular manner, and all resolutions or agreements which effectively bind all the members of any class of shareholders though not agreed to by all those members
• resolutions increasing or decreasing the authorised share capital (if any) of a company
• resolutions conferring authority for the allotment of shares
• resolutions that a company be wound up voluntarily
• resolutions attaching rights or restrictions to any share
• resolutions varying any such right or restriction
• resolutions classifying any unclassified share
• resolutions converting shares of one class into shares of another class
• resolutions converting share capital into stock and resolutions converting stock into share capital

The current concepts of ordinary and special business at an AGM are replaced with a list of business to be transacted at the AGM in S.186 as follows:

• the consideration of the company’s statutory financial statements and the report of the directors and, unless the company is entitled to and has availed itself of the audit exemption the report of the statutory auditors on those statements
• the review by the members of the company’s affairs
• save where the company’s constitution provides otherwise the declaration of a dividend (if any) of an amount not exceeding the amount recommended by the directors
• the authorisation of the directors to approve the remuneration of the statutory auditors (if any)
• where the company’s constitution so provides, the election and re-election of directors
• save where the company is entitled to and has availed itself of the audit exemption, the appointment or re-appointment of the statutory auditors
• where the company’s constitution so provides, the remuneration of the directors
• The Act expressly provides that directors may convene an EGM. It also provides that where there are insufficient directors to form a quorum any director or member may convene an EGM. The powers of the Court to convene an EGM have been expanded in the Act.

The Act dis-applies the requirement which previously existed under S.40 of the 1983 Act, requiring the convening of an EGM in the case of a serious loss of capital. This now only applies to PLCs and will have an impact on the form and wording of audit opinions.

What are the Key Points?

• Single director companies
• Table A regulations now incorporated into the Act
• Simplified governance rules for LTDs
• Majority written resolutions
• Unanimous resolutions
• Summary Approval Procedure
• Dissaplication of S.40 (1983 Act) requirement to convene an EGM (except for PLCs)

What do accountants need to do?

Update their standard company secretarial precedents, procedures and templates to reflect the new provisions for AGMs and EGMs and the convening and holding of directors meetings.

Firms should issue new letters of engagement to all company clients as part of the changeover process to minimise risk and increase client awareness and fees in relation to company secretarial services provided on an ongoing basis.

Review the financial statements to ensure that they accurately reflect the corporate structure of the entity.

Advise their clients on the upcoming changes to the governance regime and point out opportunities for administrative simplification.

There may be opportunities to provide outsourced company services to single directors companies.

What do companies need to do?

Review their governance arrangements with regard to their company type to ensure they are in compliance. Consider internal procedures and how to utilise the new SAP regime to best advantage.

Ensure that all registers and other documents to be kept are maintained as appropriate. Companies should consider the composition of their board and the qualifications and experience of their company secretary depending on the size and complexity of the entity.