How company law reform in Ireland will impact insurers

The changes include new rules relevant to group re-organisations, shares and director filings and are contained in the Companies (Corporate Enforcement Authority) Act 2021 (2021 Act) that was signed into law in December 2021.

Irish head officed insurers and reinsurers and intermediaries should familiarise themselves with the changes, which update the Companies Act 2014, as well as reflect on whether the relaxation of some company law requirements during the Covid-19 pandemic – given extended effect until the end of 2022 – should be made permanent.

Overview of the Companies (Corporate Enforcement Authority) Act 2021

The main purpose of the 2021 Act is to transform the existing Office of the Director of Corporate Enforcement (ODCE) into a statutory and independent body to be known as the Corporate Enforcement Authority (CEA). 

The functions of the CEA will be of a similar nature to those of the ODCE: its primary objective will be to encourage compliance with the Companies Act 2014. The CEA will also be equipped with additional financial resources – its budget will be 20% bigger than that of the ODCE. The existing director of corporate enforcement function will be replaced by three full time commissioners, to be known as “members”, who will have enhanced powers to investigate and prosecute so called white collar-crime and as well as increased independence to manage the authority’s resources. 

The 2021 Act also introduces a number of amendments to the Companies Act 2014arising out of recommendations made by the Company Law Reform Group (CLRG) and submissions by other bodies, such as the Business Law Committee of the Law Society of Ireland. The amendments seek to correct anomalies in the Companies Act 2014.

Although those amendments are largely technical in nature, they are nonetheless important and welcome. The amendments include:

• Clarification of the uses to which a company’s share premium account may be applied;
• A  reduction  of capital  effected in accordance with the 2021 Act will not be considered a distribution under the Companies Act 2014 and so does not require the rules on distributions to be followed in addition to the processes to effect the capital reduction;
• Clarification that a commonly used structure in group reorganisations, in which a company transfers its undertaking to another company in consideration for a share issue to the transferring company’s shareholders, is lawful where the transferring company has distributable reserves that are at least equal to the value of the undertaking transferred;
• Where a private company limited by shares acquires its own shares, these shares must be either cancelled or retained as treasury shares. The corresponding definition of treasury shares is also amended to include shares acquired by a company pursuant to a merger or division;
• Directors will be required to provide their PPSN or other identification verification to the Companies Registration Office (CRO) with certain filings. These include an incorporation application, annual return, and notification of a change of director or secretary. This amendment is introduced to remedy the issue of duplicate profiles of directors or confusion as to the identity of directors with the same name, an issue frequently encountered by the CRO and practitioners alike.

Not all recommendations of the CLRG are reflected in the 2021 Act. It is hoped therefore that further legislation will be enacted to address the anomalies highlighted by the CLRG and other bodies.

One anomaly highlighted is that although a domestic merger of Irish incorporated companies is possible under the Companies Act 2014, one of the merging companies must be a company limited by shares – i.e. a limited company (LTD) – and therefore, for example, two designated activity companies (DACs) cannot merge under the process. This is not a particularly ideal scenario for the Irish insurance industry, where the majority of authorised insurance and reinsurance undertakings are DACs, although Irish incorporated insurance group service companies and (re)insurance intermediary companies, which typically are LTDs, may avail of the merger process.

Provisions of the Companies (Miscellaneous Provisions) (Covid-19) Act 2020 extended

The disruption caused by the Covid-19 pandemic in 2020 led Irish law makers to pass the Companies (Miscellaneous Provisions) (Covid-19) Act 2020 (the 2020 Act) to make temporary amendments to the Companies Act 2014 and the Industrial and Provident Societies Act 1893 to address certain issues. These temporary amendments were initially introduced for an interim period. The interim period has been subsequently extended on a number of occasions. Most recently, before the interim period was due to end on 30 April 2022, it was extended until the end of 2022.

The provisions of the 2020 Act enable directors, shareholders and other stakeholders to continue communicating with each other and take decisions, maintain filings and execute documents despite restrictions on travel, physical meetings and attendance at workplaces.

The main features of the Interim Act include:

• General meetings and creditors’ meetings may be held wholly or partly by electronic means, provided all attendees have a reasonable opportunity to participate;
• Documents under seal to be executed in counterparts and then to be regarded as a single document.

Irish head officed insurance and reinsurance undertakings must remain cognisant of the corporate governance requirements that apply to them under the Central Bank of Ireland's Corporate Governance Requirements 2015.

For example paragraph 7.5 provides that directors should attend each board meeting in person wherever possible, though it permits attendance via videoconferencing or teleconferencing facilities where the location of directors means physical presence is not possible so provision is made to permit videoconferencing or teleconferencing.

Most companies and their directors have become accustomed to the flexibility to which the 2020 Act has brought to the business environment and the now hybrid workplace. There is a case for at least some of the temporary measures introduced to be made permanent, such as accommodation of virtual and hybrid meetings under the Companies Act 2014 and broader recognition in law of other technological advancements too.

From our experience, the requirement under Irish company law to physically affix the company seal to certain contracts and other legal documents can at times be operationally burdensome. We saw a rise during the pandemic of companies granting a power of attorney pursuant to the Companies Act 2014 and a company's constitution. It remains to be seen if that trend continues.

Additionally, although useful guidance was published by the Law Society of Ireland in March 2020, legislative clarity surrounding the use of electronic signatures would be helpful – as colleagues in Northern Ireland have been calling for there too. Nevertheless, updates to company law in Ireland appear to be going in the right direction.

Co-written by Stephen Gamble of Pinsent Masons.