On the Corporate domestic front, the Summer Legislative Programme 2024 saw the Companies (Corporate Governance, Enforcement and Regulatory Provisions) Bill included on the list of items for priority publication. The General Scheme of this much anticipated bill has helpfully been published so we now have a sense of what to expect, in broad terms, once the legislation lands. The General Scheme amends a number of provisions of the Companies Act 2014 including addressing some technical anomalies. The legislation will provide enhanced powers and functions to authorities such as the Corporate Enforcement Authority and the Companies Registration Office. We can expect to see these proposed company law reforms enacted by the end of 2024.
Since our last Horizon Tracker we have further developments to report in the Sustainability space. Although we still await local transposition of the Corporate Sustainability Reporting Directive ("CSRD") with the 6 July 2024 deadline fast approaching, the Corporate Sustainability Due Diligence Directive ("CS3D") eventually got the green light, with approval from the Council of the European Union completing the adoption process.
Other new legal requirements cascading down from the EU, signal a major change in cybersecurity law and will place stringent obligations on companies across Ireland. If the existing Network and Information Security Directive has not been high on the agenda of many Irish companies, the wider scope, enhanced obligations on directors and costly repercussions of non-compliance, should put its successor, commonly known as NIS 2, firmly in focus across a range of industries.
KEY THEMES IN CORPORATE
IRISH PROPOSED LEGISLATION
Companies (Corporate Governance, Enforcement and Regulatory Provisions) Bill
The General Scheme has been published and contemplates reform in the areas of Corporate Governance, Company Law Enforcement and Supervision, Administration and Insolvency. On Governance, in addition to making a number of company law changes and addressing a number of technical issues arising from the Companies Act 2014, companies should see virtual shareholder and creditor meetings put on a permanent statutory footing.
Latest stage: General Scheme of the bill has been published. Listed for priority publication in the Summer 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. The bill contains three unrelated amendments in respect of Enterprise Ireland and the Health and Safety Authority.
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.
Proceeds of Crime (Amendment) Bill
This bill will enhance the State's ability to tackle organised crime by depriving criminals of access to the proceeds of crime, including by providing for the immediate and automatic appointment of receivers to dispose of relevant assets.
Latest stage: Heads of bill were approved in January 2024 and the pre-legislative scrutiny report issued on 15 May 2024. A general scheme is in preparation.
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 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) Large public interest entities (ie, companies with EU-listed securities and EU-regulated credit institutions and insurance undertakings) or public interest entities that are parent undertakings of a large group, in each case with more than 500 employees (including on a consolidated group basis);
- From 1 January 2025 (reporting year 2026) All other large undertakings or parent undertakings of a large group (whether listed or not);
- From 1 January 2026 (reporting year 2027) SME public interest entities (but not micro-undertakings), as well as certain captive insurance and reinsurance undertakings; and
- From 1 January 2028 (reporting year 2029) Subsidiaries (either (i) large or (ii) SMEs that are public interest entities) of non-EU parent companies, where the non-EU parent company generates on a consolidated basis at least €150m turnover in the EU. Branches of non-EU companies that generate turnover of €40m and the non-EU company generates on a consolidated basis at least €150m turnover in the EU.
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
Corporate Sustainability Due Diligence Directive (CS3D)
Procedure reference: 2022/051 (COD)
Date published: 23 February 2022
This 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.
The new due diligence rules will apply to the following companies and sectors:
CS3D will apply to EU-incorporated companies with more than 1,000 employees and net worldwide turnover of more than €450 million (including when consolidated with any subsidiaries) and non-EU incorporated companies that have generated more than €450 million of net turnover in the EU in two consecutive financial years. It can also capture companies that do not meet these thresholds but enter into certain franchising or licensing agreements. The legislation includes certain carve-outs in the financial services sector and also envisages that in-scope financial services sector companies will only be required to perform due diligence in respect of their ‘upstream’ chain of activities ( i.e excluding their customers). It should be noted that CS3D will apply on a phased basis over three years, starting with the largest companies in 2027.
Latest stage: Legislative process complete. The Directive was endorsed by the Council of the European Union on 24 May 2024. The Directive is now awaiting publication in the official journal of the European Union and will enter force 20 days thereafter. Member States will then have 2 years to transpose the new rules into National Law. This proposal has been discussed in our commentary.
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: On 14 February The Council adopted 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.