The new Companies (Accounting Bill) 2016 will, once enacted, change Irish company law in a number of interesting respects as follows:
Clarification confirming that limited companies can engage in lending:
The Accounting bill will address the anomaly presented by Section 18 (2) of the Companies Act 2014 which provides: “A company shall not carry on the activity of a credit institution or an insurance undertaking” and was interpreted as meaning that an LTD (as opposed to a DAC) cannot lend money or extend credit. This is because the definition of Credit Institution is very broad- “a company or undertaking engaged in the business of accepting deposits or other repayable funds or granting credit for its own account”.
This anomaly has had an unfortunate impact on intra group lending in particular.
The definition of “credit Institution” is to be amended by the Accounting Bill to remove the prohibition on LTD’s “granting credit for its own account”.
End of ‘non-filing structures
The scope for unlimited companies to avoid filing financial statements will be reduced significantly. At the moment only certain designated unlimited companies (a “Designated ULC”) must file financial statements in the CRO. Irish unlimited companies with at least one member being a non-EEA incorporated unlimited liability company fall outside the definition of a Designated ULC and therefore are not presently required to file financial statements.
Many Irish group companies have availed of the above exemption to put in place what is known as a ‘non-filing structure’. Non-filing structures involve inserting non-EEA companies into the group structure so as to fall within this exemption from the requirement to file accounts while retaining limited liability status for the group’s members. However, due to the amended and much boarder definition of “Designated ULC” introduced under the Bill, unlimited companies with a non-filing structure in place (where that unlimited company has a direct or indirect limited liability holding company or subsidiary) will fall within the scope of the definition and as a result will be required to file financial statements in the CRO.
General accounting provisions
The Bill sets out new criteria for companies to qualify as "small", "medium" or "large" and introduces a new "micro" category of company.
A simplified regime for micro companies with regard to the preparation and filing of financial statements is proposed. Amongst other things, micro companies will be exempt from disclosing directors' remuneration in the financial statements and exempt from preparing a directors' report.
Change in financial reporting framework
At present, a company may only change financial reporting framework (i.e. from IFRS to Companies Act requirements and vice versa) if there is a "relevant change of circumstances". The Bill proposes that, in the absence of a relevant change of circumstances, a company should be permitted to change its financial reporting framework once every 5 years. A new requirement to explain in the financial statements the reason for, and any impact of, a change in accounting policy, is introduced.
Exemption from obligation to prepare group financial statements
More companies will be required to prepare group financial statements as the exemption on grounds of size will only apply to small and micro companies. Such companies may still elect to prepare group financial statements if they wish.
Abridged financial statements
Only small and micro companies will be permitted to file abridged financial statements with the CRO. Medium sized companies will be required to file full financial statements.