Increased compliance and governance requirements in national legislation.
The Corporate Sustainability Reporting Directive 2022/2464 ("CSRD") has been the subject of intense focus over recent years; firstly on its EU legislative path and, latterly, on standard setting and on national transposition ahead of the July 2024 deadline. As the first set of EU sustainability reporting standards are formally adopted in the coming weeks, the second half of 2023 will see in-scope companies gear up further for the demanding new regime ahead.
As the separate, but related, Corporate Sustainability Due Diligence Directive ("CSDDD") is poised to enter a decisive phase in its legislative journey, policy differences between the EU co-legislators have emerged. Negotiations take place against the backdrop of increasingly fraught and politicised controversies concerning ESG, particularly in the US. The EU regards itself as the global leader on sustainability matters and EU rules have shaped international standards in other areas such as data privacy and consumer protection in a process known as the "Brussels effect". It remains to be seen the extent to which CSRD and CSDDD will have a similar impact.
Ireland has a modern and robust corporate law regime and it is vital to maintain its best-in-class status. In the eight years since the Companies Act 2014 ("the Act") came into force, Matheson has advocated improvements to the legislative framework and continues to assist clients in navigating some of the anomalies identified in the Act. The opening of a public consultation by the DETE into the enhancement of the company law regime is a positive development and Matheson now hopes to see concrete progress in this regard.
Like co-operatives and limited partnerships, which are currently undergoing legislative reform, unincorporated associations represent a neglected, but important, aspect of Irish law. Clubs, societies and non-profit groups play a central role in many of our lives but their legislative underpinning has long been overlooked. This should change now that the Law Reform Commission ("LRC") has a review of the law concerning unincorporated associations on its agenda. The pace of reform in this area will likely be measured in years but the LRC process is a step in the right direction.
KEY THEMES IN CORPORATE
ACTS FULLY COMMENCED SINCE SPRING HORIZON TRACKER
Companies (Corporate Enforcement Authority) Act 2021
Date signed into law: 22 December 2021
The principal purpose of the act was to establish the Office of the Director of Corporate Enforcement as a standalone agency called the “Corporate Enforcement Authority”, with enhanced powers and autonomy.
Commencement: The majority of the act was commenced in July 2022 with s. 35, the last provision awaiting commencement, recently coming into effect. With the commencement of s. 35, from 11 June, PPS numbers must be provided for company directors when submitting forms to the CRO relating to the incorporation of new companies, annual returns filings, and when notifying changes of company directors or secretaries.
CONSULTATION
Consultation on Proposals to Enhance the Companies Act 2014
The Department of Enterprise, Trade and Employment has undertaken a wide-ranging public consultation on proposals to enhance the Companies Act 2014. Issues on which submissions are sought include likely permanent legislative changes to allow companies to hold fully virtual AGMs and general meetings (see the Companies (Corporate Governance, Enforcement and Regulatory Provisions) Bill below). Other issues being considered include the amendment of certain problematic technical provisions in relation to domestic mergers and financial assistance. Certain plc-specific aspects of the Companies Act are also being examined.
One of a number of unexpected proposals in the consultation paper is for the introduction of a provision for a company to be involuntarily struck off for failure to comply with its obligation to provide a statement detailing its beneficial owners.
The closing date for submissions was 9 June 2023.
Law Reform Commission Consultation Paper on Unincorporated Associations
The Law Reform Commission has set a number of key objectives of law reform in the area:
- bringing clarity to the law on unincorporated associations in Ireland;
- protecting the interests of third parties dealing with unincorporated associations;
- providing that the assets of an unincorporated association are available to meet its responsibilities;
- minimising regulatory burdens placed on unincorporated associations;
- providing that unincorporated associations can be sued in their own names;
- clarifying the law on personal liability of members of unincorporated associations
The closing date for submissions was 15 May 2023. In presenting any recommendations for reform, in due course, the Law Reform Commission states that it seeks to achieve a well-balanced approach and to avoid creating a chilling effect in terms of continuing voluntary participation in clubs and associations which operate in the interest of society.
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, as temporary Covid-19 reliefs are set to expire on 31 January 2023. It may also address some of the other issues mentioned in the DETE consultation above.
Latest stage: Work is underway on the bill.
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.
Plan of Action on Collective Redundancies following Insolvency Bill 2023
The aim of this proposed bill is to enhance the protection afforded to employees in a collective redundancy situation where their employer is insolvent, amending the Protection of Employment Acts 1977 to 2014 and the Companies Acts. The employee related issues are described in the Employment section. The proposed amendments to the Companies Act 2014 are described in Part 4 of the bill and relate to transactional avoidance measures protecting creditors, to the reckless trading provisions, and to the contribution order provisions under s. 599. These are most relevant to insolvency law and are mentioned in the Commercial Litigation and Disputes Resolution section.
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.
For a related Insight on the Co-Operative Societies Bill 2022 from a Financing Perspective please see our Finance and Capital Markets section.
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 Cross-border Conversions, Mergers and Divisions
Date published: 12 December 2019
This directive, which amends Directive (EU) 2017/1132 on cross-border mergers, aims to foster cross-border mobility and:
- contains procedures for cross-border conversions (enabling limited companies to change legal form into a similar legal form of another Member State and to relocate there)
- contains procedures for cross-border divisions; and
- amends some existing rules on cross-border mergers.
While these new cross-border mobility measures will create new structuring opportunities for companies, they must be balanced against stakeholder interests.
Transposition date: 31 January 2023. The European Union (Cross-Border Conversions, Mergers and Divisions) Regulations 2023 were signed into law on 24 May 2023 giving effect to the directive in Irish law.
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
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, is due to be adopted by 30 June 2023 and second set by 30 June 2024 which will include sector specific standards.
According to the DETE, 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 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 will start to apply 2 years later than for Group 1 companies.
- Non-EU companies active in the EU with turnover threshold aligned with Group 1 and 2, generated in the EU.
Group 1 companies would need to have a plan to ensure that their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement.
As mentioned in the overview section, serious policy differences have emerged between the EU-legislators. Compromise must be reached before the proposal progresses through the legislative process.
Latest stage: Trilogue negotiations between the EU co-legislators are underway. On the 1 June the European Parliament adopted its position.