On the Corporate domestic front, the Spring Legislative Programme 2024 brings little change except that the Companies (Corporate Governance, Enforcement and Regulatory Provisions) Bill has moved further up the chain and is now an item for priority drafting. This is good news for companies because as well as addressing a number of technical issues under the Companies Act 2014, which have in some cases hindered restructuring, companies can expect to see virtual shareholder and creditor meetings put on a permanent statutory footing, along with some other welcome reforms.
In other good news on restructuring, our Irish mobility regime is very much up and running with lots of applications before the courts for cross-border mergers but also, gradually, the more novel 'conversions'.
Interestingly, while we still await commencement of the Irish investment screening regime (which is expected in Q2 2024) another investment screening initiative beckons at EU level, with a proposed new EU FDI Screening Regulation coming to the fore as part of a package of initiatives to strengthen the EU’s economic security. Keeping a watchful eye on EU plans in this space seems key, as Ireland gets closer to pressing its own green light on screening.
Finally we are seeing even more interesting developments in the Sustainability sphere. While the Corporate Sustainability Reporting Directive ("CSRD") looks to defer reporting under sector-specific standards, the separate but related, Corporate Sustainability Due Diligence Directive ("CSDDD") is on pause after it failed to receive the vote it needed at a Council meeting on 28 February. It looks as if it is back to the drawing board for the relevant EU institutions, at least for now.
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 Department of Enterprise, Trade and Employment public consultation on proposals to enhance the Companies Act 2014 which closed in May 2023.
Latest stage: Heads of bill are in preparation. Listed for priority drafting in the Spring Legislative Programme 2024.
Miscellaneous Provisions (Transparency and Registration of Limited Partnerships and Business Names) Bill
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 in preparation.
Co-operatives Societies Bill
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
Law Reform (Contracts) Bill 2024
This bill aims to provide greater clarity in relation to contract law. The bill includes provision for third party rights in relation to the enforcement and performance of contracts, and also addresses the issue of discharge of frustrated contracts.
Latest stage: Currently before Dáil Éireann, Second Stage.
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 we expect to see draft domestic implementation measures in Q2 2024. This measure is designed to revise and expand the regime introduced by the EU Non-financial Reporting Directive (Directive 2014/95/EU). 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.
On 13 September 2023, the Commission published a proposed EU Delegated Directive that would increase the financial thresholds for being "large" by approximately 25% to account for inflation in the EU: the turnover threshold would be increased from €40 million to €50 million and the balance sheet threshold from €20 million to €25 million, reducing the scope of application of CSRD accordingly. The Commission estimated that thousands of companies that would otherwise be in-scope for CSRD reporting in 2026 will instead fall outside of the regime. The EU Delegated Directive to increase the financial size thresholds for companies for accounting purposes (ie, small, medium, large and micro) was published in the Official Journal and took effect on 24 December 2023.
EFRAG is tasked with developing the standards under CSRD. The first set of mandatory European Sustainability Reporting Standards, sector-agnostic in nature, were formally adopted on 21 October 2023. These were formally published in the EU's Official Journal by way of Delegated Regulation on 22 December 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.
The CSRD originally required the Commission to adopt, by June 2024, sector-specific standards, proportionate standards for listed SMEs, and standards for non-EU companies. On 17 October 2023, the Commission published a proposal to postpone the deadline for the adoption of sector-specific standards and the adoption of standards for non-EU companies to June 2026. The European Parliament and the Council reached agreement in February 2024 on the Commission's proposal to postpone the deadline for adopting sector-specific ESRS by two years. This agreement which postpones the deadline for these sector-specific standards from mid-2024 to mid-2026 gives companies more time to comply with the horizontal standards adopted in July 2023 and which apply to all companies, regardless of economic sector. The CSRD also sets out separate standards to be used by certain non-EU companies and this recent agreement also postpones the adoption deadline for these standards from mid-2024 to mid-2026.
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.
Latest stage: The provisional agreement which was agreed in December 2023 needs be endorsed by both the Council and Parliament. The text of the directive did not receive final approval by a requisite majority of the European Council at its meeting on 28 February therefore delaying the endorsement of the directive and creating uncertainty as to its future.
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: The Council adopted, on 14 February 2024, its position (negotiating mandate) on the amending directive. The mandate now agreed gives the Council presidency a framework for starting negotiations with the European Parliament.