Public Limited Companies: Part 17 of the Companies Bill Contents of Presentation 1. Part 17...

Public Limited Companies:Part 17 of the Companies Bill

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Contents of Presentation

1. Part 17 – Public Limited Companies

2. Chapter 1 – preliminary and definitions

3. Chapter 2 – incorporation and consequential matters

4. Chapter 3 – share capital

5. Chapter 4 – interests in shares

6. Chapter 5 – acquisition of own shares etc

7. Chapter 6 – distribution by a PLC

8. Chapter 7 – uncertificated securities

9. Chapter 8 - corporate governance

10.Chapter 9 – duties of directors and other officers

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Contents of Presentation

11.Chapter 10 – financial statements, annual return and audit

12.Chapter 11 – debentures

13.Chapter 12 – examinerships

14.Chapter 13 – reorganisations

15.Chapter 14 – strike off and restoration

16.Chapter 15 – investigations

17.Chapter 16 – mergers

18.Chapter 17 - divisions

19.Chapter 18 – public offers of securities etc

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Part 17 – Public Limited Companies

• 167 sections of law in 18 chapters

• The key difference between public limited companies (PLCs) and private companies (whether LTDs, DACs or CLGs) is that only PLCs will be permitted to list their shares on a stock exchange and offer them to the public

• An existing PLC shall be deemed to be a PLC to which Part 17 applies

• The law applicable to PLCs will also be applicable to the Societas Europaea (SE)

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Chapter 1 – preliminary and definitions

• Sets out a number of definitions used throughout Part 17, notably providing that the authorised minimum issued share capital shall be €25,000 or such greater amount as the Minister shall specify by order (s 1000)

• Part 17 shall not apply to investment companies (which are covered in Part 24) (s 1001)

• The architecture of the law applicable to PLCs is that the law applicable to LTDs (i.e. Parts 1 to 14) will apply to PLCs, save to the extent disapplied, modified or supplemented by any provision of Part 17 (s 1002)

• Part 17 shall be read as applying to an SE (s 1003)

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Chapter 2 – incorporation etc

• A PLC may be formed for any lawful purpose by a person subscribing to a constitution and complying with the Act; liability of members will be limited to any amount unpaid on shares; can have as few as 1 members, and no maximum (s 1004)

• A PLC must carry on some activity in the State (s 1005)

• Two-document constitution – memorandum and articles of association – including an objects clause (but see s 1012below), in the form set out in Schedule 9 (s 1006)

• Where the Act provides that a provision will apply save to the extent the constitution provides otherwise, that provision shall apply to a PLC unless excluded or modified by its articles (s 1007)

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• The name of a PLC must end with the words “public limited company”, or the abbreviation “PLC” (whether capitalised or lower case, and with or without punctuation marks – i.e. PLC, P.L.C., plc or p.l.c. are all acceptable) or the Irish equivalent (s 1008)

• It is an offence to trade under a misleading name or imply one is a body corporate other than a PLC (s 1009)

• A PLC shall not do business or exercise any borrowing powers unless the Registrar has issued it a certificate under this section, which it shall do if satisfied that the nominal value of issued share capital is at least the authorised minimum (see s 1000) and a declaration from a director or secretary to that effect, and setting out other matters, has been submitted (s 1010)

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• PLC to have capacity only to do things stated in objects (s 1011)

• However the validity of an act done by a PLC shall not be called into question on the ground of lack of capacity by reason of anything contained in the PLC’s objects (i.e. the Bill seeks to oust the operation of the doctrine of ultra vires) (s 1012)

• A PLC may by special resolution (with notice) alter its objects clause, but if holders of 15% or more of the company’s shares or debentures object to the court, the alteration shall not have effect (ss 1013, 1014 and 1016)

• A PLC may alter its articles by special resolution (s 1015)

• A PLC in existence before this section is commenced shall be deemed to be a PLC to which Part 17 applies (s 1017)

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Chapter 3 – share capital

• PLC (unlike LTD, DAC or CLG) shall have the capacity to offer, allot and issue any securities (including shares) to the public (s 1018)

• A PLC may not allot securities unless authorised to do so by ordinary resolution or by the constitution of the PLC, and that authority may not exceed 5 years (s 1019)

• S 1020 sets out pre-emption rights, whereby a PLC may not allot any equity securities to a third party without first offering them on the same or more favourable terms to existing shareholders.

• S 1021 provides that a PLC may waive those pre-emption rights.

• Where a company re-registers as a PLC, any previous authority of the directors to allot shares will lapse at the end of its first AGM held after its reregistration as a PLC (s 1022)

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• A PLC cannot accept the provision of work or services as payment for shares (s 1023)

• A PLC may not allot a share (other than employees’ shares) unless the whole of any premium and not less than ¼ of the nominal value is paid up (s 1024)

• A PLC may not allot shares, other than for cash, where the consideration includes an undertaking which is may be performed more than 5 years after the date of allotment (s 1025)

• A PLC may not generally allot shares wholly or partly other than for cash unless an expert’s report has been prepared valuing that consideration, save in cases of securities-based consideration, or where a recent valuation has been approved by members and directors (ss 1026-1031)

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• A PLC may not, within 2 years of formation or re-registration as a PLC, acquire non-cash assets from a member at the time of that formation or re-registration, for a consideration of 10% or more of its subscribed capital, unless the consideration is valued in an expert’s report approved by the members (ss 1032–1033)

• A person who would be liable under ss 1023, 1025-1027 or 1032may apply to the court for relief from their liability in relation to payment for shares in the PLC (s 1034)

• A subscriber who undertakes in the constitution of a PLC to take up shares must pay for those shares (including any premium) in cash(s 1035)

• S 1036 makes provision for the acquisition and disposal of securities by trustees and personal representatives.

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• Where an allottee contravenes ss 1023, 1025, 1026, 1027, 1032 or 1033 , any liability under the contract will be enforceable, notwithstanding any additional statutory liability (s 1037)

• S 1038 provides for the acquisition by a PLC of its own shares.

• Ss 1039-1040 provide that in certain cases, where a PLC has acquired its own shares, the PLC will be obliged to cancel or dispose of those shares within a specified period.

• S 1041 provides that any mortgage, charge, lien or pledge of a PLC on its own shares is void.

• S 1042 sets out the circumstances in which a PLC may give financial assistance for the purchase of its own shares.

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• Where a PLC has classes of shares having different rights, the rights of a class may be varied or modified, but only if approved by a special resolution, or a 75% resolution, of the holders of that class (s 1043)

• S 984 removes the discretion of directors to decline recognition of transfer instruments, on certain conditions, where those shares are governed by regulations made by the Minister under s 1085.

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Chapter 4 – interests in shares

• S 1045 sets out that this Chapter shall require the disclosure to a PLC of certain interests in shares

• S 1046 sets out certain definitions

• A person shall be under a first duty to notify a PLC:

• where they acquire a notifiable interest in its shares (being 3% or such rate as the Minister may specify);

• where they cease to hold such an interest; or

• where the percentage of their interest (rounded down to nearest whole number) changes

(ss 1047-1048, 1050-1051)

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• A person shall be under a second duty to notify a PLC where, in cases other than those in s 1047, a person becomes aware of any facts, or change of circumstances, such that they have a notifiable interest immediately after the time of the change in circumstances or facts that they did not have immediately before that time (s 1049)

• S 1052 sets out particulars to be stated in the notification.

• Where a person’s spouse, civil partner or child, or a body corporate in which they have a specified interest, has an interest in shares, the interest shall be attributed to the person (s 1053)

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• Where persons are party to a share acquisition agreement (as defined), each party is to be regarded as having the interests of all others in the PLC’s shares (ss 1054-1055)

• Such persons have a duty to keep each other informed of their interests in shares (s 1056)

• S 1057 provides that a reference to a person acquiring, or ceasing to hold, an interest in shares shall include where that occurs by virtue of another person’s interest.

• S 1058 provides that ss 258-261 (regarding disclosableinterests in the context of an LTD) will apply to a PLC.

• S 1059 sets out sanctions where the notification obligation is not complied with.

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• A PLC must create and maintain a register of notifications under this Chapter (s 1060)

• A PLC has the power to investigate the ownership of its shares by requiring that persons disclose whether they held shares (and failure to comply shall be an offence) and shall register information received (ss 1061-1062, 1065)

• A PLC shall be obliged to carry out such an investigation on the requisition of members holding at least 10% of shares, and shall prepare a report of information received (ss 1063-1064)

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• A PLC may remove an entry which is more than 6 years old if that entry either records that a person has ceased to be interested in shares, or has been entirely superseded by a later entry, but entries may not otherwise be removed (s 1066-1067)

• Chapter 10 of Part 4, which provides for the inspection of registers etc., shall apply to registers of interests and investigation reports (s 1068)

• Certain PLCs shall be obliged to notify the market operator of any matter notified to it by a director or secretary in respect of their interests in shares or debentures (s 1069)

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Chapter 5 – acquisition of own shares etc

• S 1070 contains provisions relating to the acquisition by a PLC of its own shares (in addition to the requirements set out in ss 106 and 107). The consideration for the purchase must come solely from distributable profits, and the result of a purchase must not be to reduce the nominal value of non-redeemable issued share capital below 1/10 of the nominal value of the total issued share capital.

• S 1071 defines the terms ‘off-market purchase’, ‘market purchase’ and ‘overseas market purchase’

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• A ‘market purchase’ or an ‘overseas market purchase’ must be authorised by an ordinary resolution, and an ‘off-market purchase’ by special resolution (ss 1072-1074)

• A PLC cannot assign the right to acquire shares to a third party, but may release its rights under contract where so authorised by ordinary or special resolution (s 1075)

• Provisions in Part 3 that refer to a contract authorisedunder s 106 will also apply to an acquisition by a PLC under ss 1070 to 1075, unless a contrary intention is shown in any of those sections (s 1076).

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• S 1077 provides for the off-market re-allotment of treasury shares by a PLC.

• S 1078 provides for the return to be made to the Registrar in the case of an overseas market purchase of shares by a PLC.

• S 1079 requires a PLC to publish particulars (eg on its website) of an overseas market purchase, or of a purchase of its shares by its subsidiary.

• S 1080 obliges a PLC to notify the relevant market operator when it or its subsidiary purchases its own shares on a regulated market.

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Chapter 6 – Distribution by a PLC

• A PLC may not make a distribution where this will result in its net assets being less than the aggregate of its called-up share capital and undistributable reserves (s 1081)

• S 122 (on relevant financial statements) will apply for the purpose of determining whether a distribution may be made without contravening s 1081 (s 1082)

• A PLC may not reduce its company capital below the authorised minimum (see s 1000) (s 1083)

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Chapter 7 – Uncertificated securities

• S 1084 facilitates transfers of uncertificated securities under s 12 of the Electronic Commerce Act 2000 or under regulations made pursuant to s 1085

• The Minister may make regulations to enable or require title to securities to be evidenced and transferred without a written instrument (ss 1085-1086)

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Chapter 8 – corporate governance

• PLC (unlike LTD) must have at least 2 directors (s 1087)

• The directors of a PLC shall be required to retire by rotation, unless the constitution states otherwise (s 1088)

• Where a change in directors is to be followed within 14 days by the issue of a prospectus in relation to a public or local offer, the PLC shall notify the CRO of the change no later than the time of issue of the prospectus (s 1089)

• Unless the constitution states otherwise, remuneration of directors will be determined in general meeting (s 1090)

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• Where a PLC is a participating issuer in a system for the uncertificated transfer of securities, it may require that a person be entered on the register by a specified date/time in order to be entitled:

i. to receive notice of meetings, and

ii. to vote and attend at the meeting (ss 1091-1093)

• Every PLC must establish an audit committee, or explain why it has decided not to do so (s 1094)

• PLC must give at least 14 days’ notice of an EGM (s 1095)

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• Where a PLC has shares traded on a regulated market:

• It must ensure equal treatment for all members who are in the same position as regards voting and participating at meetings;

• Members holding 5% may demand an EGM be held;

• Certain meetings shall require 21 days’ notice;

• Additional provisions apply concerning notice;

• Members may put items on the agenda of a meeting;

• A person must be on the register 48 hours prior to a meeting in order to exercise the right of a member to participate and vote at that meeting.

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• Where a PLC has shares traded on a regulated market:

• The PLC may allow for participation in a general meeting by electronic means;

• members have the right to ask questions relating to items on the agenda of a general meeting and usually to have the PLC answer such questions;

• A proxy may be notified by electronic means;

• PLC may permit advance voting by correspondence;

• Member may demand a full voting result.

(ss 1096-1107)

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Chapter 9 – duties of directors and other officers

• Directors must convene an EGM when the net assets of a PLC drop to/below ½ of its called-up share capital (s 1108)

• The directors of a PLC must ensure that the person appointed as secretary has the necessary skills to discharge the duties associated with that post, and that that person meets prescribed conditions, including have 3 years’ experience and being a member of a recognisedbody (s 1109)

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Chapter 10 – financial statements, annual return and audit

• Part 6 of the Bill shall not apply to credit institutions or insurance undertakings, being subject to specific requirements (s 1110)

• Requirement in Part 23 for a corporate governance statement shall apply to a PLC with securities admitted to trading (s 1111)

• The financial statements of a PLC must be audited (s 1112-1113)

• A PLC may send a summary financial statement to shareholders in place of the full annual accounts (s 1114)

• Disclosure obligations on a LTD that is the holding company of a licensed bank apply to a PLC that is the holding company of, or is itself, a licensed bank (s 1115)

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Chapter 11 – debentures

• S 1116 requires that a PLC keep a register of debenture holders containing the names and addresses of debenture holders and the amount of debentures currently held by each of them, and provides for related matters.

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Chapter 12 - examinerships

• S 1117 provides that the provisions in s 511 in relation to petitioning for a LTD to be put into examinership shall apply with necessary modification to a PLC (save that where the PLC is a bank or building society, only the Central Bank may bring the petition).

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Chapter 13 - reorganisations

• S 1118 provides that where an offeror has become bound, under Chapter 2 of Part 9 (acquisitions) or Part 5 of the Takeover Regulations 2006, to acquire the shares or securities of a dissenting shareholder or security holder, the PLC must enter the offeror in its register of securities as the holder of the uncertificated securities concerned.

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Chapter 14 – strike off and restoration

• In addition to the circumstances in which an LTD may be struck off the register, s 1119 provides for an additional case, whereby the Registrar may apply for the strike-off of a PLC which has not been issued with a trading certificate within one year of its registration as a PLC.

• A company which has been dissolved may not be restored as a PLC unless it was a PLC immediately before its dissolution (s 1120)

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Chapter 15 - investigations

• The minimum number of members who may apply for the appointment of an inspector (under Part 13) in respect of a PLC shall be 100 (as opposed to 10 for an LTD) (s 1121).

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Chapter 16 - mergers

• S 1122 is a definitions section, and notably defines ‘company’, in this Chapter, as including ‘body corporate’.

• This Chapter only applies if at least one of the merging companies is a PLC (s 1123)

• The Chapter applies to mergers by acquisition, mergers by absorption and mergers by formation of a new company, which terms are defined (s 1124)

• For the avoidance of doubt, a merger (where one of the companies is a PLC cannot be effected save in accordance with this Chapter (s 1125)

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• Where a merger is proposed, the directors of the merging companies must draw up common draft terms of merger in writing, which must contain specified items (s 1126).

• The directors of each merging company must (save in the case of a merger by absorption, or where all shareholders of both companies agree) also prepare an explanatory report, which must contain specified items (s 1127)

• An expert shall (save in the cases identified in s 1127) be appointed to examine, and make a report on, the common draft terms of merger (s 1128)

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• Where year-end of the latest statutory financial statements of any merging company predates the common draft terms of merger by more than 6 months, the company shall prepare a merger financial statement (s 1129)

• Each merging company shall deliver a copy of the common draft terms to the CRO, and cause notice of delivery of same to be published in the CRO Gazette (s 1130)

• Each merging company shall make the merger documents available for inspection by any member (s 1131)

• The common draft terms must be approved by a special resolution of each merging company, and provision is made for the relevant general meetings (s 1132-1133)

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• Where the share capital of any of the merging companies is divided into shares of different classes, specific provisions will apply with respect to the variation of the rights attached to any of those classes. (s 1134)

• S 1135 deals with the purchase of minority shares.

• Application to the court for confirmation of the merger must be made jointly by all merging companies (s 1136), and any creditor may object to the application (s 1137)

• Holders of securities (other than shares) in a company being acquired shall have equivalent rights in successor company, unless they have approved the alteration in their rights or have re-purchase rights (s 1138)

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• The court on being satisfied may make an order confirming the merger (s 1139)

• That order may include provisions permitting the giving of financial assistance or a reduction in capital (s 1140)

• A copy of the order shall be sent to the CRO, and notice of delivery published in the CRO Gazette (s 1141)

• Directors and experts involved in a merger shall have a civil liability to make good any loss or damage suffered by a shareholder by reason of misconduct by those directors or experts, and shall be criminally liable for untrue statements in documents issued by them (ss 1142-1143)

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Chapter 17 - divisions

• S 1144 is a definitions section, and as is the case for many sections in this Chapter, mirrors the provisions found in the corresponding section in Chapter 16 on mergers.

• This Chapter only applies if at least one of the companies involved in the division is a PLC (s 1145)

• The Chapter applies to divisions by acquisition and divisions by formation of a new company, which terms are defined (s 1146)

• For the avoidance of doubt, a division (where one of the companies is a PLC cannot be effected save in accordance with this Chapter (s 1147)

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• Where division is proposed, the directors of the companies involved must draw up common draft terms of division in writing, which must contain specified items (s 1148)

• The directors of each company must (save where all shareholders of each company agree) also prepare an explanatory report, which must contain specified items (s 1149)

• An expert shall (save in the cases identified in s 1149) be appointed to examine, and make a report on, the common draft terms of division (s 1150)

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• Where year-end of the latest statutory financial statements of any company predates the common draft terms of division by more than 6 months, the company shall prepare a division financial statement (s 1151)

• Each company shall deliver a copy of the common draft terms to the CRO, and cause notice of delivery of same to be published in the CRO Gazette (s 1152)

• Each company shall make the documents of the division available for inspection by any member (s 1153)

• The common draft terms must be approved by a special resolution of each company involved, and provision is made for the relevant general meetings (s 1154-1155)

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• Where the share capital of any of the companies is divided into shares of different classes, specific provisions will apply with respect to the variation of the rights attached to any of those classes. (s 1156)

• S 1157 deals with the purchase of minority shares.

• Application to the court for confirmation of the division must be made jointly by all companies involved (s 1158), and any creditor may object to the application (s 1159)

• Holders of securities (other than shares) in a company being acquired shall have equivalent rights in a successor company, unless they have approved the alteration in their rights or have re-purchase rights (s 1160)

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• The court on being satisfied may make an order confirming the division (s 1161)

• That order may include provisions permitting the giving of financial assistance or a reduction in capital (s 1162)

• A copy of the order shall be sent to the CRO, and notice of delivery published in the CRO Gazette (s 1163)

• Directors and experts involved in a division shall have a civil liability to make good any loss or damage suffered by a shareholder by reason of misconduct by those directors or experts, and shall be criminally liable for untrue statements in documents issued by them (ss 1164-1165)

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Chapter 18 – public offers of securities etc

• S 1166 provides that the provisions of Chapters 1, 2 and 4 of Part 23 of the Bill (which relate to prospectus law, market abuse law, and transparency law) shall apply to PLCs.

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For Further Information Contact

Dr Tom Courtney, Partner

[email protected]

Direct line – 01 618 0584

Dáibhí O’Leary, Associate

[email protected]

Direct line – 01 618 1120

or your usual Arthur Cox contact

This document contains a general summary of developments and is neither a complete nor definitive statement of the law. Specific legal advice should be obtained before taking action.

Public Limited Companies: Part 17 of the Companies Bill Contents of Presentation 1. Part 17...

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