PART 4 – Miscellaneous amendments to Companies Act 2014
Minister for Business, Enterprise & Innovation
Head 4-1. Interpretation, Application and Commencement
Explanatory Note:
This adds definitions for terms that are introduced to Part 17 Chapter 7A of the Companies Act 2014 in the subsequent Heads. Also provides for the application of terms defined in the Migration of Participating Securities Act 2019 to the Chapter; the application of the Chapter to relevant participating issuers only; and a commencement date for the Chapter.
Head 4-2. Disapplication of requirement to issue share certificates
Explanatory Note:
This disapplies, for a relevant participating issuer, the requirement of section 99(2) of the Companies Act 2014 to issue certificates with respect to shares registered in the name of a central securities depositary or its nominee.
Section 11(3)(b) and section 11(4) of the Migration of Participating Securities Act 2019 similarly disapplied section 99(2) of the Companies Act 2014 for a participating issuer, but only in respect of the tranche of shares that transferred to a depository on the live date for the migration and thereafter, i.e. new issues of shares by companies were not catered for.
However, transfer of shares to a central securities depositary are likely to take place on a frequent basis. As the depositary or its nominee may hold the legal title to all such securities, the issuing of share certificates for such a transfer is superfluous and may not be provided by a depositary.
This Head therefore disapplies the section 99(2) requirement in respect of all shares registered in the name of a central securities depositary or its nominee.
Head 4-3. Disapplication of requirement for a written instrument of transfer
Explanatory Note:
This disapplies for a relevant participating issuer the requirement under Section 94(4) of the Companies Act 2014 for a written instrument of transfer to register a transfer of shares.
Section 11(3)(a) of the Migration of Participating Securities Act 2019 similarly disapplied section 94(4) of the Companies Act 2014, but only with respect to the tranche of shares that transferred to a depository on the live date for the migration and thereafter, i.e. new issues of shares by companies were not catered for.
This Head disapplies the section 94(4) requirement in respect of all shares registered in the name of a central securities depositary or its nominee. A comparable disapplication of what is now section 94(4) of the Companies Act 2014 applies under the Uncertificated Securities Regulations 1996 (Regulations 4 and 5) for securities held and transferred in accordance with those Regulations in the CREST system.
Head 4-4. Amendment to definition of majority for schemes of arrangement
Explanatory Note:
This provides that, for a relevant participating issuer, a scheme of arrangement may alternatively be approved by a special majority representing at least 75 per cent in value of creditors or members (or class thereof) present and voting, with an additional quorum requirement.
Special majority under Section 449(1) of the Companies Act for approval of a scheme is currently defined as a “majority in number representing at least 75 percent in value” of the creditors or members (or class thereof) present and voting at the scheme meeting.
A central securities (CSD) depositary or its nominee may hold the legal title to 95% or more of the securities of a relevant participating issuer – with the balance being held by a number of other shareholders. With a CSD structure, a ‘majority in number’ requirement for approval by members of a scheme of arrangement would be disproportionate, as a central securities depositary or its nominee would count as one shareholder. Such a threshold for approval of a scheme could be inoperable and accordingly this Head provides for an alternative threshold, with an accompanying quorum requirement, which could be availed of by a relevant participating issuer.
This accompanying quorum requirement provides that, where applicable, participation in a scheme meeting by members holding shares outside of a CSD structure (i.e. in certificated form) is required for approval of a scheme of arrangement. A comparable quorum requirement applies under section 88(6) of the 2014 Act in respect of the variation of rights attached to special classes of shares and under section 8 of the 2019 Act, for the consent of an issuer to the migration of participating securities. It should also be noted that a scheme of arrangement must also be sanctioned by an order of the court, under section 453(2)(c) of the Companies Act 2014.
Head 4-5. Disapplying the requirement for 50% in number of assenting shareholders for takeover acceptance
Provide for the insertion of the following new section 1087E into the Companies Act 2014:
1087E Disapplication of additional requirement to be satisfied for right to buy out to apply
Explanatory Note:
This disapplies the additional requirement of Section 458 of the Companies Act 2014 in respect of an offer to acquire all of the shares in the capital of a company, where the offeror (and its subsidiaries) hold(s) 20% or more of the shares, that the threshold for acceptance by assenting shareholders, besides holding not less than 80 per cent in value of the shares affected, is also not less than 50 per cent in number of the holders of those shares.
A central securities depositary or its nominee may hold the legal title to 95% or more of the securities of a relevant participating issuer – with the balance being held by a number of other shareholders. With a CSD structure, a ’50 per cent in number’ additional requirement for acceptance of a buy-out offer would be disproportionate, as a central securities depositary or its nominee would count as one shareholder and the threshold for approval would be unduly high. Such a threshold for approval could be inoperable and this Head accordingly disapplies the ‘majority in number’ additional requirement for a relevant participating issuer only.
Head 4-6. Disapplying the requirement for documentary evidence of power of attorney for takeovers
Provide for the insertion of the following new section 1087F into the Companies Act 2014:
Explanatory Note:
This disapplies the power of attorney requirements that would otherwise apply in law further to the Takeover Rules made under the Irish Takeover Panel Act 1997 (under Rule 10 of the 2013 Rules) such that the use of paper form of acceptances or powers of attorney for the transfer of any or all shares is not required in respect of the shares of a relevant participating issuer.
As shares in a CSD system are held and dealt in a paperless environment, a requirement for a documentary depository to execute takeover acceptances is anomalous and may not be accommodated.
A comparable provision is made under UK law in the Uncertificated Securities Regulations of 2001 (Regulation 43) but not previously in Irish law, in the Uncertificated Securities Regulations of 1996, or otherwise.
Head 4-7. Extending the record date for participation and voting in general meeting
Explanatory Note:
This provides for a 72-hour period of working days before a general meeting for a relevant participating issuer before which time a member shall be entered on the relevant register of securities in order to exercise the right to participate and vote at a general meeting.
A longer period is necessary to permit investors’ instructions to be provided through the chain of intermediation and taken account of by a CSD, or its nominee, which is the registered member.
Head 4-8. Power to make regulations for the uncertificated securities of relevant participating issuers necessary to enable the market migration
Explanatory Note:
This provides a regulation making power for the Minister for the specific purpose of regulating where necessary and appropriate under the 2014 Act, to enable the effective introduction of a substitute securities settlement system, compatible with the law of the European Union, as provided for under the 2019 Act.
Specific necessary regulations are not identified at this stage, however, given that the market migration presents considerable operational and legal challenges and risks, and that it must be completed by 31 March 2021, a regulation making power to make limited, necessary further provision, consistent with the policy of the 2019 Act and the proposed insertion of Chapter 7A into Part 17 of the 2014 Act is considered prudent and necessary.
Section 1086 already provides a power to make regulations for the transfer of securities, however this is specifically with respect to enabling the evidencing and transferring of title to securities without a written instrument and therefore may not offer an appropriate legal base in this case.
Section 1086 appears more relevant for the introduction of regulations to provide for full dematerialisation of participating securities, as is now required under the CSD Regulation, from 1 January 2023.