- 22 July 2020
- Posted by: Niamh Gibney
- Categories: Commercial Agreements, Commercial Law, Company Secretarial and Compliance, Corporate and Business Organisation, Corporate Transactions, Insolvency
Interim Measures or Overdue Change
Company Law update (The Companies and Industrial and Provident Societies (Covid-19) (Amendment) Act 2020)
The government has published the general scheme of the Companies and Industrial and Provident Societies (Covid-19) (Amendment) Bill 2020 (the “Bill”). The Bill if enacted is proposed to be effective only for an interim period – ending on 31 December 2020 unless otherwise extended.
The Bill is being introduced as a measure to combat and manage the inherent challenges companies have faced in meeting their annual compliance obligations as well as the more fundamental issue of the increasing rate of corporate insolvencies within the State.
Most notably, the Bill proposes a significant revision to when a company is deemed unable to pay its debts as they fall due, a further extension of the period of examinership and provision for virtual meetings. Also, a provision is to be introduced which imposes a duty on directors of insolvent companies to have regard to the interests of creditors and to preserve company property.
The changes proposed can be summarised as follows:-
1. Introduction of Section 43A (Sealing by companies during the interim period)
Where the company seal is in one location and the directors and/or secretary in another – the seal may be affixed to one counterpart and the signatures of the directors and/or secretary to another counterpart and together they shall constitute the one instrument. The decision to maintain or dispense with the company seal has long been the subject of great debate but it seems destined to remain in present times.
2. Introduction of Section 175A (General meetings convened and held during the interim period)
This section proposes a number of changes during the interim period insofar as they relate to general meetings. The changes can be summarised as follows:-
- For companies that were to hold an AGM by now under the provisions of the Companies Act 2014 or under the provisions of their constitutions, shall have until 31 December 2020 to hold such a meeting.
- General meetings may now be held virtually.
- General meetings are no longer required to be held at a physical venue and can be held through electronic means provided all those entitled to attend have a reasonable opportunity to.
- The Minister may through regulations make further provisions for general meetings.
- Cancellation, change in venue or means of holding a general meeting may be changed up to 5 business days prior to the time scheduled for the commencement of the proposed meeting if deemed necessary by directors in order to comply with public health advice or restriction on movement.
- There are new notice provisions proposed to deal with these changes.
- Directors may withdraw resolutions to approve a dividend or amend the resolution to approve a dividend less than originally was proposed.
3. Dis-application and replacement of Section 570A (Circumstances in which company deemed unable to pay its debts)
This section currently provides that a company is unable to pay its debts as they fall due in the event a creditor is owed an amount exceeding €10,000 or 2 or more creditors are owed an amount exceeding €20,000 and following the making of a demand in writing for that debt the company fails to meet the demand for 21 days after the date of service of that demand.
It is proposed that these thresholds be now dis-applied and instead replaced with a threshold of €50,000 such that if a demand is made by one or more creditors for an amount exceeding €50,000, a company failing to meet that demand for 21 days after the date of service of that demand, shall be deemed unable to pay its debts as they fall due.
This is relevant for the purposes of Section 569 (d) of the Companies Act 2014 which provides that a company may be wound up by the court where a company is unable to pay its debts. Accordingly, with the increased thresholds, this revision is intended to provide some much needed breathing space to companies in the next few months and at least in the short term avoid the prospect of a winding up petition as a result of the current thresholds.
4. Introduction of Section 688A (Convening of creditors’ meetings virtually and by electronic means during the interim period)
It is surprising that the original drafting of the Companies Act 2014 did not provide for this. Over the course of the past few months, the holding of creditors meeting has in any event been progressing online. Indeed, it was the accountancy bodies which delivered the much needed guidance to practitioners in this area. The Chartered Accountants Ireland issued “Technical Alert 01/2020” entitled “Guidance for Insolvency Practitioners – Meeting of creditors during Covid-19 pandemic restriction on movement and public gatherings” which has been largely followed in the absence of provisions in the Companies Act 2014 to address the issue.
The now proposed codification of the virtual meetings should be welcomed by all practitioners so as to give legal certainty in relation to the conduct of such meetings.
The section proposes that:-
- Creditors’ meetings shall not be required to be held at a physical venue.
- They may be conducted by electronic means provided that all those entitled to attend have a reasonable opportunity to participate.
- Where a physical meeting is held, an opportunity must be afforded to participate by electronic means.
- Otherwise meetings are conducted in accordance with the Companies Act 2014.
- The Minister may by regulation introduce further provisions for the convening, conduct, quorum at, access to and participation in creditors’ meetings to be held electronically.
5. Introduction of Section 534A (Power of Court to extend the period in which the examiner can present a report to the Court)
This will be a welcome introduction for companies considering examinership at this time. Presently under the current regime an examiner has a period of 70 days or if extended up to a maximum of 100 days in which to present his report to the court.
It is proposed that there will now an opportunity to extend the period of examinership by a further 50 days bringing the total period to 150 days. This extension will be granted where the court is satisfied that the examiner is unable to report within the initial 70 day period or the 30 day extended period. The court may only grant the extension in exceptional circumstances which may be (but shall not be limited to) procedures to implement the provision of new finance to the company and adverse effects of Covid-19.
This will be a welcome relief in present times in light of the changeability of the present climate and consequential financial uncertainty.
6. Introduction of Section 224A (Directors of insolvent company to have regard to interests of creditors)
This is another insolvency related proposal is the codification of a director’s duty (in the case of insolvent companies) to:-
- Have regard to the interest of the company’s creditors; and
- Preserve the company’s property.
This would be a duty owed solely to the company and any director in breach of his or her duty shall be liable to indemnify the company for any loss or damage arising from a breach. Such as loss is by reference to what creditor would have recovered were it not for the breach of the director’s duty.
7. Introduction of an amendment to the Industrial and Provident Societies Act 1893
This provides for similar revisions in relation to general meetings for such Industrial and Provident Societies.
8. Draft regulations
A set of draft regulations are also contained in the Bill. They provide more detailed guidance on:-
- The form and content of a notice for a general meeting.
- The standard and functionality of electronic platforms for general meetings.
- Attendance at the general meeting.
- Voting on resolutions proposed.
This Bill and the proposed amendments to the Companies Act 2014 are intended to counter the inherent challenges that Covid-19 has presented for companies in adhering to proper corporate governance procedures and in particular, the conduct of general meetings of companies. It provides a number of solutions through which those challenges can now be overcome as well as extensions of time to enable companies an opportunity to comply.
The Bill also contains number of significant and welcome changes from a corporate insolvency perspective that will provide clear rules on the conduct of future creditors meetings and as a result of the revisions to the provision as to a company being unable to pay its debts and the provision for the further extension of the examinership period, there will also be some much needed breathing space for companies during this time. Of course, the question is whether it goes far enough but time will tell in this regard.
For further information on this topic, please contact Niamh Gibney at firstname.lastname@example.org