Irish Company Law implications for Brexit

From 1 January 2021, the UK, including Northern Ireland, can no longer trade as a member state of the European Union (EU) or European Economic Area (EEA).

The end of the transition period on 31^st December 2020 carried with it a number of issues around corporate governance and company law compliance that will impact the following:

Irish businesses with UK resident directors or a UK parent company
corporate groups with a UK and Irish presence
UK companies with Irish branches
ongoing or proposed cross-border-mergers of UK and Irish entities.

These businesses need to consider the following issues and, where necessary, address the impacts.

EEA-resident Director Requirement

Under the Companies Act 2014 (the Act) all Irish companies are required to appoint one director, at a minimum, who is resident in a member state of the EEA. This will need to be reviewed by businesses who are currently meeting this requirement with a director or directors who reside in the UK. This review should be a priority as both the company and any officer in default may be liable to a fine of up to €5,000. This requirement can be satisfied by taking any of the following measures:

Appointing an EEA-resident director;

Putting in place an insurance bond to the value of €25,000 which must be valid for a minimum of two years; or

Applying to the Companies Registration Office for a trading certificate, i.e. certification that the company has a “real and continuous link” with one or more economic activities that are being carried on in Ireland, such as:

the company’s affairs being managed by an authorised person from a place of business in Ireland,
the company trading in Ireland,
the company being a subsidiary or a holding company of another entity carrying out (a) or (b) above, or
the company being an indirect subsidiary of a company that satisfies (a) or (b) above.

Companies and their officers must self-assess their compliance with the requirements of company law, including the residency requirements of directors under the Companies Act 2014.

The Registrar has requested clarification on whether the Trade and Cooperation Agreement between the European Union and the UK contains provisions that will address the residency requirements under Irish company law of directors of Irish registered companies.

Irish Branches of UK Companies

UK companies with Irish branches will be subject to the registration and compliance requirements for non-EEA companies, particularly in relation to initial and ongoing filing obligations, under the Act. Irish branches of UK companies already registered will not need to re-register.

Group Financial Statements Exemption

Until 1 January 2021, an exemption existed for Irish holding companies that are in turn held by a company established in an EEA state – an exemption from preparation of group financial statements. Such intermediate companies will no longer be able to rely on this exemption. However, the directors can assess whether the UK parent’s consolidated financial statements meet the stricter requirements for exemption from consolidation for non-EEA parent companies under the Act.

Parent Company Guarantee

A subsidiary incorporated in Ireland whose holding company is established in another EEA member state was previously permitted by the Act to avail of an exemption from filing entity financial statements with the CRO. The subsidiary could instead file consolidated parent company reports and financial statements where the parent company provided a guarantee for the relevant financial year which covers all commitments entered into by the subsidiary as well as its liabilities as recorded in the financial statements.

From 1 January 2021, Irish subsidiaries of UK incorporated parent companies are no longer entitled to avail of this exemption.