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The Companies Act 2014
Impact on Irish UCITS Management Companies and Alternative Investment Fund Managers Deadline 30 November 2016
The Companies Act 2014 (“the Act”) (subject to certain exceptions) commenced on 1 June 2015.
The Act give’s existing private limited liability companies the option to convert under the Act to a company limited by shares (LTD) or a designated activity company (DAC).
The Central Bank of Ireland (“CBI”) has confirmed it does not require UCITS management companies, Alternative Investment Fund (“AIF”) managers, AIF management companies, fund administrators, depositaries and investment firms to convert to designated activity companies (“DACs”).
It is the Central Bank of Ireland’s view that the corporate structure chosen is a matter for each individual entity. It also makes the point that regulated financial firms must always comply with all regulatory requirements applicable to them no matter which corporate structure they are.
The deadline for converting to a DAC was the 1st of September 2016.
Approaching deadline to convert to a LTD is 30th of November 2016.
Why become an LTD?
The decision will be based on whether the company wants to avail of the provisions in the Act which apply if a company is an LTD. It’s important to note that there are certain circumstances where an existing private limited company cannot be an LTD and must convert to a DAC (see below*).
The features of an LTD are:
- one document constitution
- no objects clause - full and unlimited capacity to carry on and undertake any business or activity , to do any act or enter into any transaction (regulated firms (i.e. fund managers) may be limited in being able to avail of this unlimited corporate capacity)
- ability to have a single director (however under the CBI’s requirements fund management companies are required to have 2 Irish resident directors)
- ability to dispense with their AGM
- elimination of maximum authorised share capital
Action to be taken to become an LTD
During the 18 month transition, the period from the June 2015 to November 2016, a company can choose to become an LTD by:
- Passing a special resolution of the members and adopting a new form constitution in lieu of its existing Memorandum & Articles of Association and delivering this to the CRO.
- If the members don’t take action the directors are obliged to prepare a new form constitution (derived from its existing M&A less its objects clause and any clause prohibiting alteration to the M&A) and deliver it to the CRO and to the members.
Option 1 is a better course of action, as Option 2 limits the changes that can be made to the constitution by the directors.
The CRO will issue a new Certificate which reflects that the company is a company limited by shares and the name will end with the word Limited or Ltd or its Irish equivalent.
What happens when no action is taken by an existing Private Limited Company limited by shares (LTD) before the end of the transition period in November 2016?
During the transition period if a company does not opt in and take action, the law which applies to a DAC will be the applicable law.
If the directors, after the transition period, have not acted the company will be automatically deemed to be a limited company with restricted M&A after 1 December 2016.
The company will have a constitution comprising of its existing Memorandum & Articles of Association (excluding its objects clause and any clause prohibiting alteration to its M&A).
- This new form of company may not suit the company’s requirements.
- Certain creditors / members who would have preferred the company to register as a DAC detailing their objects may take action and challenge the company’s legal status in court, claiming prejudice on the basis of directors’ failure to act.
*NOTE: Under the Act certain entities must convert to a DAC: licensed bank, credit institution, insurance company, companies that have listed debt securities, special purpose vehicles who have listed debt securities, or intend to apply to list debt securities or where a company is requested to convert by its members or funding institution. An LTD cannot list debt or equity securities. It is important to note that if a special purpose vehicle with listed debt securities is automatically converted to an LTD on 30 November 2016, it will be in breach of the Act.
If fund documentation is required to be updated as a result of the conversion to a LTD they should be filed with the Central Bank of Ireland.
Question: What about an Irish UCTIS and AIF established as a variable capital company ("VVC") or as an ICAV ?
- A VCC is a public limited company and they do not need to convert to a new form of company under the Act or change their name. They will need to consider the broader impacts of the Act. If there are any provisions of the M&A which are incompatible with the mandatory provisions of the Act they will not continue to apply. Existing VVC’s may take this opportunity to update their M&A to avail of the conditions and reflect the Act.
- The ICAV is Ireland’s only bespoke corporate fund vehicle and has its own legislative regime under the Irish Collective Asset – management Vehicles Act 2015 (“ICAV Act”). An ICAV is not a company for the purpose of Irish company law and the Act– it has no interaction with the Irish Companies Registration Office. ICAV’s are not effected by Irish and European company law changes.