Shaping the Future: Milestones and Developments in Corporate Law
ESG remained firmly in the spotlight in the corporate arena in 2023. Despite some elements of the green agenda yielding to political pushback, we expect the corporate sustainability landscape to be transformed in the coming years, with far-reaching reporting, enhanced transparency and closer alignment with global sustainability initiatives.
The landmark Corporate Sustainability Reporting Directive ("CSRD") was adopted in January 2023 but has since seen some of its more ambitious features curtailed which are outlined below. The related Corporate Sustainability Due Diligence Directive remains locked in trilogue negotiations between the Commission, Parliament and Council, as those EU institutions attempt to bridge the significant policy differences that exist between them.
The opening up of new mobility options for EEA companies was another highlight of 2023. Matheson advised on the first cross-border merger under the new regime described further below.
The fallout from the 2022 Sovim decision of the Court of Justice of the European Union continued to be felt in 2023, prompting further debate on rights to privacy balanced against the need for transparency in the corporate sphere. Reform in areas such as the publication by the CRO of directors' residential addresses, dates of birth and signatures is long overdue. We look forward to contributing to the policy analysis in this regard.
KEY THEMES IN CORPORATE
IRISH PROPOSED LEGISLATION
Companies (Corporate Governance, Enforcement and Regulatory Provisions) Bill
The primary purpose of this bill is to enhance and strengthen enforcement and regulatory provisions in the Companies Act 2014. It is expected to permanently provide for the option of virtual shareholder meetings and is likely to address other issues raised in the DETE public consultation on proposals to enhance the Companies Act 2014 which closed in May 2023.
Latest stage: Work is underway on the bill.
Miscellaneous Provisions (Transparency and Registration of Limited Partnerships and Business Names) Bill 2023
This bill proposes to reform the Limited Partnership Act 1907 and the Registration of Business Names Act 1963, strengthening Ireland’s regulatory framework and responding to concerns raised in relation to the transparency of limited partnerships.
Latest stage: Heads of bill are in preparation.
Industrial Development (Miscellaneous Provisions) Bill
This bill will permit IDA Ireland (Ireland's inward investment promotion agency) to establish and participate in corporate partnerships, with the sole purpose of developing critical industrial and commercial property in regional locations.
Latest stage: Heads of bill approved 4 August 2020 and revised heads of bill are now in preparation.
Co-operatives Societies Bill 2022
This measure aims to establish a new legislative framework for co-operative societies. It will consolidate and reform current provisions and will introduce corporate governance, financial reporting and compliance requirements similar to those applicable to companies. Entities which register under the new legislation will be required to adhere to the co-operative ethos.
The new regime proposes to:
- simplify the procedure to establish and operate a co-operative society
- reduce the minimum number of founding members (from seven to three) and expand the categories of founding members to include bodies corporate
- permit virtual and hybrid participation at general meetings
- give co-operatives certain flexibilities in drafting their governing rules to reflect their requirements.
The Joint Oireachtas Committee on Enterprise, Trade and Employment released its pre-legislative scrutiny report which raised concerns about issues such as a mandatory legal reserve, and recommended further consideration of several issues.
Latest stage: General Scheme published and pre-legislative scrutiny report was published in May 2023.
PRIVATE MEMBERS' BILLS
Irish Corporate Governance (Gender Balance) Bill 2021
This bill proposes to make provision for the regulation of gender balance on the boards and governing councils of corporate bodies and related matters. As it is not a government-sponsored bill, it is unlikely to progress further. The government indicated its support for the principles underlying the bill but will await the outcome of the transposition of the Directive on Gender Balance on Corporate Boards (below).
Latest stage: Dáil Éireann, Second Stage.
EU DIRECTIVES AWAITING IMPLEMENTATION
Directive on Gender Balance on Corporate Boards
Date published: 23 November 2022
Under this directive, each Member State must decide whether to require in-scope EU registered companies with shares listed on an EU regulated market to aim, by 30 June 2026, to have:
- members of the underrepresented sex hold at least 40% of non-executive director positions ("NED Objective"); or
- members of the underrepresented sex hold at least 33% of all director positions, including both executive and non-executive directors ("Board Objective").
A listed company failing to meet the NED Objective or Board Objective, as applicable under national law, must adjust its board selection procedure. Member States must ensure that where listed companies are not subject, under national law, to the Board Objective, individual quantitative objectives with a view to improving the gender balance among executive directors are established.
There is no attempt to harmonise national laws on selection processes or qualification criteria. The core aim of the directive is that Member States ensure that, when listed companies are choosing between candidates for directorship positions who are equally qualified in terms of suitability, competence and professional performance, priority is given to the candidate of the underrepresented sex. Qualification and merit remain the essential criteria.
Transposition date: 28 December 2024
Directive Amending the Non-Financial Reporting Directive as regards Corporate Sustainability Reporting ("CSRD")
CSRD came into force on 5 January 2023 and domestic implementation measures are currently being formulated. This measure is designed to revise and expand the regime introduced by the EU Non-financial Reporting Directive (Directive 2014/95/EU) ("NFRD"). The directive aims to ensure that companies report reliable and comparable sustainability information. Companies in scope will have to report information on a full range of environmental, social and governance issues.
The regime will apply to:
- EU stock exchange listed companies and large companies (meeting two or more of the following criteria: a balance sheet total of €20m, net turnover of €40m, at least 250 employees)
- SMEs with securities admitted to trading on an EU regulated market (other than micro undertakings)
- Non-EU companies with substantial activity in the EU (generating an annual net turnover of €150m in the EU and with at least one subsidiary or branch in the EU).
The European Financial Reporting Advisory Group ("EFRAG") Project Task Force has submitted reporting standards to the Commission. The first set of mandatory European Sustainability Reporting Standards, sector-agnostic in nature, was formally adopted on 21 October 2023.
The new reporting requirements will be phased in over stages as follows:
- From 1 January 2024 (reporting year 2025) for companies already in scope of the NFRD;
- From 1 January 2025 (reporting year 2026) for companies not currently in scope of the NFRD;
- From 1 January 2026 (reporting year 2027) for listed SMEs, small and non-complex credit institutions and captive undertakings but SMEs can opt out until 2028; and
- From 1 January 2028 (reporting year 2029) for non-EU companies in scope.
Transposition date: 6 July 2024
EU DRAFT LEGISLATION
Proposal for a Corporate Sustainability Due Diligence Directive
Procedure reference: 2022/051 (COD)
Date published: 23 February 2022
This proposal establishes a corporate sustainability due diligence duty and aims to foster sustainable and responsible corporate behaviour throughout global value chains. Companies in scope must identify and, where necessary, prevent, end or mitigate adverse impacts of their activities on human rights, such as child labour and exploitation of workers, and on the environment.
Under the Commission proposal, the new due diligence rules would apply to the following companies and sectors:
- EU companies:
Group 1: all EU limited liability companies of substantial size and economic power (with 500+ employees and €150 million+ in net turnover worldwide).
Group 2: Other EU limited liability companies operating in defined high impact sectors, which do not meet both Group 1 thresholds, but have more than 250 employees and a net turnover of €40 million+ worldwide. Rules would start to apply two years later than for Group 1 companies.
- Non-EU companies active in the EU with turnover thresholds aligned with Group 1 and 2 generated in the EU.
Group 1 companies would need to devise a plan to ensure that their business strategies are compatible with limiting global warming to 1.5 °C in line with the Paris Agreement.
Significant policy differences have emerged between the EU-legislators.
Latest stage: Trilogue negotiations between the EU co-legislators have been taking place since June 2023 in an attempt to reach compromise on the proposal.
Proposal for a Directive to Upgrade Digital Company Law
Procedure reference: 2023/0089 (COD)
Date published: 29 March 2023
This initiative aims to improve transparency in relation to EU companies by making more information available on a cross-border basis, enabling the cross-border use of trustworthy company data, and further modernising EU company law rules to make them fit for the digital age. This initiative represents the second step in the digitalisation of company law and will build on the 2019 Digitalisation Directive.
The proposal aims to:
- make more information about companies publicly available in particular through the Business Registers Interconnection System ("BRIS");
- ensure that company data in business registers is accurate, reliable and up-to-date, for example by providing for checks of company information before it is entered in business registers in all Member States;
- remove formalities such as the need for an apostille for company documents, applying the “once-only principle” when companies set up subsidiaries and branches in another Member State, and introducing a multilingual EU Company Certificate to be used in cross-border situations.
The proposal does not introduce any new IT systems, but builds on the use of the existing and operational system of interconnection of registers as well as on the eIDAS Regulation.
Latest stage: First reading in the European Parliament and Council.