SUMMARY APPROVAL PROCEDURE by JONATHAN LYNCH, CORPORATE PARTNER McDowell Purcell Solicitors The Capel Building, Mary s Abbey, Dublin 7 T: +353 1 828 0600 F: +353 1 828 0614 W: www.mcdowellpurcell.ie E: mail@mcdowellpurcell.ie 1
INDEX 1. Introduction..3 2. The Activities to which the SAP Applies...3 3. The Procedure.4 4. Content of the Directors Declaration of Solvency..5 5 Personal Liability for Directors..5 6. Entitlement to use the SAP 6 7. Conclusion 6 8. Schedule 1 Index to Chapter 7, Part 4 of CA2014.7 9. Schedule 2 S203 Directors Declaration...8 10. Schedule 3 S204 Directors Declaration...9 11. Schedule 4 S205 Directors Declaration.10 12. Schedule 5 S206 Directors Declaration.11 13. Schedule 6 S207 Directors Declaration.12 NOTE: THIS DOCUMENT HAS BEEN PRODUCED FOR GENERAL INFORMATION PURPOSES ONLY. IT DOES NOT CONSTITUTE A SUBSTITUTE FOR PROFESSIONAL ADVICE WHICH SHOULD ALWAYS BE TAKEN IN CONNECTION WITH ANY OF THE MATTERS REFERENCED HEREIN. 2
Introduction: The Companies Act 2014 (the Act ), came into effect on 01 June 2015, replacing all previously existing companies acts. Chapter 7 of Part 4 of the Act (comprising Sections 200-211, which are indexed in Schedule 1 hereto) details the Summary Approval Procedure ( SAP ), which is essentially a validation or whitewash procedure which authorises a company to take seven specified actions which would otherwise be prohibited, or (in some cases), only be permitted with High Court approval. The Activities to which the SAP Applies The SAP may be used to authorise the following activities: 1. financial assistance (inclusive of loans, guarantees and security) by a company for the purpose of an acquisition of its own shares - Section 82 (details the prohibition); and - Sections 202 and 203 (applicable SAP provisions) - [NOTE: S82 replaces S60, CA1963)] 2. reduction in issued share capital - Section 84 (details the prohibition); and - Sections 202, 204 and 208 (applicable SAP provisions) 3. variation of share capital on a re-organisation - Section 91 (details the prohibition); and - Sections 202, 204 and 208 (applicable SAP provisions) 4. the treatment of a subsidiary s pre-acquisition profits or losses in a holding company s financial statements as profits available for distribution - Section 118 (details the prohibition); and - Sections 202, 205 and 208 (applicable SAP provisions) 5. certain transactions in favour of directors and connected persons (e.g. loans, guarantees, security) - Section 239 (details the prohibition); and - Sections 202 and 203 (applicable SAP provisions) - [NOTE: S239 replaces S31, CA1990] 6. domestic mergers - Section 464 (details the prohibition); and - Sections 202, 206 and 209 (applicable SAP provisions) 7. the commencement of a members voluntary winding up - Section 579 (details the prohibition); and - Sections 202, 207 and 208 (applicable SAP provisions) (NOTE: As an alternative to the SAP, High Court approval can be obtained to permit (i) a reduction in share capital, (ii) a variation of share capital on a re-organisation and (iii) a domestic merger) 3
The Procedure The procedure varies in certain respects depending on the nature of the restricted activity being approved, generally speaking, it involves the following: (i) Directors declaration of solvency (c) (d) (e) (f) must be made in writing must be made by all directors if two or less. If there are more than two directors, a majority will suffice must be made at a meeting of the directors held not more than 30 days before the obtaining of shareholder approval (in general meeting or in writing) content depends on the restricted activity copy must be forwarded to the shareholders with either (i) notice of the general meeting (in circumstances where a general meeting will be held to approve the restricted activity) or (ii) the written resolution (in circumstances where the shareholder approval is being sought by way of written resolution) not a statutory declaration i.e. doesn t need to be sworn in front of a solicitor or a commissioner for oaths (ii) Independent Person s Report (S208): In some cases, an Independent Person s Report must accompany the Director s declaration of solvency required in connection with the approval of: a. a reduction in share capital b. variation of share capital on a reorganisation c. treatment of pre-acquisition profits d. members winding up of a solvent company [NOTE: An Independent Person s Report is accordingly, not required in connection with a SAP to approve financial assistance or transactions with directors and connected persons] (c) (d) to be provided by the company s auditor or a person qualified to act as such must confirm that the declaration provided by the directors is not unreasonable. [NOTE: S34, CA1990 which previously applied, required the Independent Person to give an opinion as to whether the declaration was reasonable. Accounting bodies were uncomfortable with such wording and accordingly, were advising their members not to provide such opinions, making it virtually impossible to obtain an Independnt Person s report] (iii) Shareholder approval: can be obtained at a general meeting, or in writing, by written resolution 4
(c) (d) a special resolution (i.e. 75% approval) is required to approve the company carrying out the restricted activity, save that unanimous approval is required to approve a merger shareholder approval must be provided not more than 12 months before the commencement by the company of the restricted activity (reduced to either 60 or 30 days, in the case of pre-acquisition profits) pursuant to S211, unless the holders of more than 90% of the shares vote in favour of the resolution, the company must wait 30 days from the date of passing the special resolution before proceeding to carry out the restricted activity. If an application is made within such period by the holders of 10% or more of the issued share capital, then the moratorium on proceeding to carry out the restricted activity continues until such application has been disposed of or withdrawn (iv) Companies Registration Office Filings Directors Declaration must be delivered to the CRO within 21 days of the commencement date of the restricted activity. If this deadline is missed, certain interested parties may apply for court approval to validate the restricted activity, on just and equitable grounds. CRO forms exist for detailing the applicable declaration: - SAP 203 - SAP 204 - SAP 205 - SAP 206 - E1-SAP (S207 Declaration) Special Resolution must be delivered to the CRO within 15 days of the date on which it is passed, accompanied by a Form G1 Content of the Directors Declaration of Solvency The content of the directors declaration varies depending on the nature of the restricted activity to which it relates but in all cases it includes confirmation by the directors that they have conducted a full investigation into the affairs of the company and having done so are satisfied that, notwithstanding the carrying out of the restricted activity, the company will for a period of 12 months thereafter, be able to pay its debts and liabilities as they fall due. Sections 203 207 (inclusive), details the nature of the declarations to be provided for each of the restricted activities. Such Sections are reproduced in Schedules 2-6 hereto. Personal Liability for Directors (if opinion on solvency provided without reasonable grounds) Pursuant to S210, where a director makes a declaration (confirming solvency) without having reasonable grounds for doing so, they may (following a court application by a liquidator, creditor or the Director of Corporate Enforcement) be made personally liable for all of the debts and liabilities of the company (or the successor company in the case of a merger). Furthermore, it the company is wound up within 12 months of the making of the declaration and its debts are not paid or provided for in full within 12 months after the commencement of the winding up, it will be presumed that the directors did not have reasonable grounds for making the declaration as to solvency. 5
Entitlement to use the SAP The SAP can be used by: (i) Private Limited Companies (LTD) (ii) Designated Activity Companies (DAC) (iii) Companies Limited by Guarantee (CLG) (iv) Unlimited Companies (UC) (v) Public Limited Companies (PLC) use of SAP limited to transactions with directors and connected persons, treatment of pre-acquisition profits and effecting a members voluntary wind up The SAP cannot be used by: (i) a company having a restricted person acting as a director or secretary (save in the case of a members voluntary winding up) (ii) a private company subsidiary in the context of providing financial assistance for the purchase of shares in its parent public company (save where permitted by ministerial regulations) Conclusion The SAP comprises a very welcome addition into Irish company law, permitting, through its use, seven activities which would otherwise be prohibited or (in some cases) only be permitted with the approval of the High Court. It provides a clear step-by-step process for approving each of the transactions to which it relates, and furthermore, its inclusion, in just one chapter of the Act (Chapter 7 or Part 4) for all activities to which it relates, makes it very easily accessible for any interested parties. JONATHAN LYNCH McDowell Purcell March 2017 6
SCHEDULE 1 Index to Chapter 7 of Part 4 200. Interpretation (Chapter 7) 201. Chapter 7 what it does 202. Summary Approval Procedure 203. Declaration to be made in the case of financial assistance for acquisition of shares or transaction with directors 204. Declaration to be made in the case of a reduction in company capital or variation of company capital on reorganisation 205. Declaration to be made in the case of treatment of pre-acquisition profits or losses in a manner otherwise prohibited by section 118 (1) 206. Declaration to be made in the case of merger of company 207. Declaration to be made in the case of members' winding up of solvent company 208. Condition to be satisfied common to declarations referred to in section 204, 205 or 207 209. Condition to be satisfied in relation to declaration referred to in section 206 210. Civil sanctions where opinion as to solvency stated in declaration without reasonable grounds 211. Moratorium on certain restricted activities being carried on and applications to court to cancel special resolution 7
SCHEDULE 2 S203 Directors Declaration Declaration to be made in the case of financial assistance for acquisition of shares or transaction with directors (1) Where the restricted activity is a transaction or arrangement that would otherwise be prohibited by section 82 (2) or 239, the declaration shall state (c) (d) (e) (f) the circumstances in which the transaction or arrangement is to be entered into; the nature of the transaction or arrangement; the person or persons to or for whom the transaction or arrangement is to be made; the purpose for which the company is entering into the transaction or arrangement; the nature of the benefit which will accrue to the company directly or indirectly from entering into the transaction or arrangement; and that the declarants have made a full inquiry into the affairs of the company and that, having done so, they have formed the opinion that the company, having entered into the transaction or arrangement (the relevant act ), will be able to pay or discharge its debts and other liabilities in full as they fall due during the period of 12 months after the date of the relevant act. (2) For the purposes of a declaration under this section, in determining whether or not a company will be able to pay or discharge its debts and other liabilities in full, the declarants shall not be required to assume (in circumstances where the following are relevant) either that the company will be called upon to pay moneys on foot of a guarantee given or, as the case may be, that security given will be realised. (3) A copy of the declaration under this section shall be delivered to the Registrar not later than 21 days after the date on which the carrying on of the restricted activity concerned is commenced. (4) On application to it by any interested party, the court may, in any case where there has been a failure to comply with subsection (3), declare that the carrying on of the restricted activity concerned shall be valid for all purposes if the court is satisfied that it would be just and equitable to do so. 8
SCHEDULE 3 S204 Directors Declaration Declaration to be made in the case of a reduction in company capital or variation of company capital on reorganisation (1) Where the restricted activity is a reduction in company capital referred to in section 84 (1) or a transfer or disposal referred to in section 91 (1), the declaration shall state (c) (d) (e) (f) (g) the circumstances in which the transaction or arrangement is to be entered into; the nature of the transaction or arrangement; the person or persons to or for whom the transaction or arrangement is to be made; the total amount of the company's assets and liabilities as at the latest practicable date before the date of making of the declaration and in any event at a date not more than 3 months before the date of that making; the anticipated total amount of the company's assets and liabilities immediately after the restricted activity having taken place; that the declarants have made a full inquiry into the affairs of the company and that, having done so, they have formed the opinion that the company, after the restricted activity has taken place, will be able to pay or discharge its debts and other liabilities (being the debts and liabilities identified for the purposes of paragraph (d) and so far as not already paid or discharged) in full as they fall due during the period of 12 months after the date of that event; and that the declarants do not have actual or constructive notice that the company will incur any material, extraordinary, future liability within the period of 12 months after the date of the making of the declaration. (2) A copy of the declaration under this section shall be delivered to the Registrar not later than 21 days after the date on which the carrying on of the restricted activity concerned is commenced; if a failure to comply with this subsection occurs, a like power to that under section 203 (4) is available to the court to declare valid for all purposes the carrying on of the activity. 9
SCHEDULE 4 S205 Directors Declaration Declaration to be made in the case of treatment of pre-acquisition profits or losses in a manner otherwise prohibited by section 118 (1) (1) Where the restricted activity is to provide in a company's financial statements a treatment that is otherwise prohibited by section 118 (1) of the profits or losses attributable to shares of a subsidiary of the company for the period referred to in section 118 (2) as the pre-acquisition period, the declaration shall state the amount of the profits or losses that will be subject to the alternative treatment and the amount so stated is referred to in this section as the proposed distribution ; the total amount of the company's assets and liabilities as stated in its last statutory financial statements or interim financial statements properly prepared as of a date specified in the declaration, and the date so specified shall be the date which is the latest practicable date before the date of making of the declaration and in any event shall not be a date more than 3 months before the date of such making; (c) that the declarants have made a full inquiry into the affairs of the company and that, having done so, they have formed the opinion that, if the company were to make the proposed distribution within 2 months after the date of the making of the declaration, the company would be able to pay or discharge its debts and other liabilities included in the financial statements referred to in paragraph as they fall due during the period of 12 months after the date of that distribution. (2) In determining whether or not a company will be able to pay or discharge its debts and other liabilities as they fall due, the declarants shall be required to consider the likelihood (in circumstances where the following are relevant) either that the company will be called upon to pay moneys on foot of a guarantee given or, as the case may be, that security given will be realised. (3) The reference in subsection (1) to a company's last statutory financial statements or interim financial statements or to their being properly prepared shall be read in accordance with section 121. (4) A copy of the declaration under this section shall be delivered to the Registrar not later than 21 days after the date on which the carrying on of the restricted activity concerned is commenced; if a failure to comply with this subsection occurs, a like power to that under section 203 (4) is available to the court to declare valid for all purposes the carrying on of the activity. 10
SCHEDULE 5 S206 Directors Declaration Declaration to be made in the case of merger of company (1) Where the restricted activity is to effect a merger, each declaration (that is to say, each declaration by the directors (or a majority of them) of each merging company) shall state the total amount of the assets and liabilities of the merging company in question as at the latest practicable date before the date of making of the declaration and in any event at a date not more than 3 months before the date of that making; and that the declarants have made a full inquiry into the affairs of the company and the other merging companies and that, having done so, they have formed the opinion that the successor company (within the meaning of Chapter 3 of Part 9 ) will be able to pay or discharge the debts and other liabilities of it and the transferor company or companies in full as they fall due during the period of 12 months after the date on which the merger takes effect. (2) A copy of each declaration under this section shall be delivered to the Registrar not later than 21 days after the date on which the carrying on of the restricted activity concerned is commenced; if a failure to comply with this subsection occurs, a like power to that under section 203 (4) is available to the court to declare valid for all purposes the carrying on of the activity. 11
SCHEDULE 6 S207 Directors Declaration Declaration to be made in the case of members' winding up of solvent company (1) Where the restricted activity is to wind up a company in a members' voluntary winding up under section 579, the declaration shall state the total amount of the company's assets and liabilities as at the latest practicable date before the date of making of the declaration and in any event at a date not more than 3 months before the date of that making; and that the declarants have made a full inquiry into the affairs of the company and that, having done so, they have formed the opinion that the company will be able to pay or discharge its debts and other liabilities in full within such period not exceeding 12 months after the commencement of the winding up as may be specified in the declaration. (2) A copy of the declaration under this section shall be delivered to the Registrar not later than 21 days after the date on which the carrying on of the restricted activity concerned is commenced; if a failure to comply with this subsection occurs, a like power to that under section 203 (4) is available to the court to declare valid for all purposes the carrying on of the activity. 12