The new Companies (Amendment) Act 2012 was signed into law on Wednesday 4th July by the President, is now enacted and will become a new Companies Act which will be No. 16 in a series since 1963.
Irish company law is 50 years old next year and the former Chief Justice, Ronan Keane mentioned in the foreword to the MacCanns Companies Acts in October 1993 that the Principal Act of 1963 and the previous 1908 Companies Act both became law on April Fools’ Day and he said “that may have been pure chance or it may have reflected a sense of history on the part of those responsible in 1964 or perhaps it was an ironic gesture on somebody’s part, the staggering complexity of modern Irish company law sometimes looks like a practical joke, given the relative small size of the Irish economy”, he said that at a time when there are aware just seven companies acts. Now we will have at least 16 companies acts and there is talk of another amendment act No. 17 coming here shortly! Then the big Reform and Consolidation Bill is just about ready to roll off the press and there is enough in this to keep us busy for the next 10 years.
This new Companies Bill 2012 proposes a small number of focused changes to company law in the interests of maintaining a dynamic and flexible operating environment particularly for US companies. This Bill seeks to amend those provisions of the Companies (Miscellaneous Provisions) Act 2009 which permit the use of US accounting standards — referred to as “US GAAP” in the preparation of the accounts of a specified category of company and allow for the prescription of the use of other internationally recognised accounting standards. Without changing the eligibility criteria, the Bill extends both the timescales relating to the availability for use of US accounting standards and the period for which an individual company can avail of this provision. There was a sunset clause and a maximum period that companies could use, both of which are being amended. It also correspondingly extends the periods in respect of the provision in that Act for prescription of other internationally recognised accounting standards.
The present measure can be seen in the context of the Government’s policy of encouragement and facilitation of foreign direct investment. The importance of foreign direct investment to the economy remains highly significant. FDI accounts for a total of 250,000 jobs, which is one in every seven, inIreland.. Those companies with a presence inIrelandand availing of the US GAAP facility under the 2009 Act provide significant employment here which the present measure should help to consolidate, with the possibility of further jobs being created, particularly if the economic situation in export markets picks up over time. These companies are involved across a range of industry sectors, including health care, technology and services.
As mentioned earlier, the Bill allows for the US GAAP facility and the provision for prescription of the use of other international accounting standards, as provided for in the Companies (Miscellaneous Provisions) Act 2009, to be extended from the financial year ending on 31 December 2015 until 31 December 2020 with a removal of the restriction of a four-year maximum period for the use by a beneficiary company of either of the provisions.
The background to this bill being published follows on from a strong approach to the Minister from a number of US multinational companies, most of which have a significant operating presence inIreland, requesting a prolongation of the “US GAAP” facility provided for in the Companies (Miscellaneous Provisions) Act 2009.
This was an urgent cry for help for new legislation from the US multinationals because there was a big delay in the process of international convergence of these US GAAP accounting standards with International Financial Reporting Standards, IFRS, which is lagging behind the expectations they had in 2009, as well as the restriction of the time period allowed for use by a beneficiary company of US GAAP in the 2009 Act. The present situation as regards the US Administration’s attitude to this standards-convergence process or to a move to permitting this category of company to list in the US using IFRS accounting standards continues to be inconclusive.
The four-year maximum period allowed to companies to use US GAAP under the present 2009 legislation means that a number of the companies seeking the extension would be faced with having to put measures in place, as of the present time, to provide for the move by them to preparing accounts under IFRS. While the companies’ entitlement under the 2009 Act does not expire until 31 December 2012, a considerable lead time is required for the necessary groundwork to be undertaken to provide for taking on a very different set of accounting standards, if this is required. These companies, which are listed on US exchanges, need legal certainty now as to whether the extension of the time-related elements of the US GAAP facility is being permitted from a number of perspectives, including considerations of the corporate risk and corporate obligations requirements of the US Securities and Exchange Commission, and shareholders.
Accordingly, without the intervention of this new Companies Bill, significant costs and resource implications are entailed for these companies. Appropriate mechanisms would need to be in place to provide for the preparation of accounts under IFRS and subsequently applied in the production of these accounts using these standards. It would be particularly onerous and expensive for a company if the obligation to convert to IFRS were to arise over a relatively short period. Furthermore, these companies would still be required to produce accounts using US GAAP and report to the US Securities and Exchange Commission, in order to remain compliant in the US. A requirement to produce two sets of accounts would prove costly and burdensome for these companies.
The legislation is designed to facilitate multinational companies that have operations inIrelandto consolidate, and if possible, add to activities. Such developments would further contribute to economic activity inIrelandand provide valuable employment opportunities. The ne legislation therefore, provides for the extension of the use by this restricted category of companies of US GAAP as provided for in the Companies (Miscellaneous Provisions) Act 2009 until financial years ending at the latest on 31 December 2020.
The restriction on the use by the relevant parent undertaking of this facility to four years is removed. In the interests of maintaining the flexibility provided for in the 2009 Act, the Minister is also extending the enabling provision for ministerial prescription of other specified internationally recognised accounting standards if such a demand arose and was considered appropriate to do so. This term of this extension will parallel that for US GAAP.
In the Seanad, the Minister made a significant point that these companies will continue to be subject to Irish company law generally, including of course all the provisions which relate to accounts. Irish company law will override any provision of the US GAAP which may be in conflict with the Companies Acts. Allowing these companies to prepare their Irish accounts using US accounting standards for a further period of time would eliminate the significant duplication of cost and effort of preparing two sets of accounts under two different sets of accounting standards. It will also create a bridge to span the period during which significant international developments may occur relating to the convergence of US and international accounting standards.