The Companies (Miscellaneous Provisions) (Covid-19) Act 2020 (the Covid-19 Act) was commenced on 21 August 2020 by the Minister for Business, Enterprise and Innovation (the Minister).
The Covid-19 Act was introduced following mounting pressure on the government from Irish business owners and the Institute of Directors to tackle certain issues which arose as a result of the global pandemic.
The commencement of the Act has been welcomed by Irish business owners as it provides some clarity and guidance on issues such as the execution of documents, the holding of AGMs and EGMs, and the declaration of dividends.
The provisions of the Covid-19 Act will apply for an interim period expiring on 31 December 2020 (the Interim Period). However, the Interim Period may be extended by the Minister if it is considered in the public interest to do so, taking into account the continued necessity of practical or legal restrictions in place to combat the threat of Covid-19.
1) Execution of Documents
Typically for a document to be executed by a company under seal it is necessary for the affixed company seal to be witnessed and countersigned by two directors or by a director and the company secretary.
The Covid-19 Act stipulates that the execution of documents under seal may be signed in counterparts. The effect of this is that for the duration of the Interim Period, companies are permitted to execute documents under seal separately, that is to say that the company seal and each of the relevant countersignatures may be made on separate pages, and then deemed to constitute one instrument.
This measure, together with the growing trust in and use of e-signatures, gives Irish companies the tools to fully and validly execute documents remotely. This is especially so in an environment where it may not be safe or practical for all parties to a transaction, or all the officers of a company, to be present in the same location.
2) AGMs and other Meetings of the Shareholders
Distancing and travel restrictions imposed by the government to safeguard against the spread of Covid-19 limited the ability of many Irish companies to hold annual general meetings (AGMs) or other general meetings.
Under Section 6 of the Covid-19 Act, companies have the option of postponing AGMs until 31 December 2020, notwithstanding timelines provided for in their constitutions or by company law. In addition, companies may hold general meetings wholly or partly by the use of electronic communications technology, provided all attendees have a reasonable opportunity to participate in the meeting.
Directors will also have power to cancel or change the venue of an AGM any time up to the end of the day prior to the day on which a general meeting is scheduled.
Directors of a company may have recommended a dividend be paid to the shareholders prior to appreciating the full effect that the pandemic may have on the company in the short or longer term. Under the Covid-19 Act, directors may, provided they have the unanimous consent of the shareholders, withdraw a resolution declaring a dividend or propose an amendment to a resolution declaring a dividend.
Prior to the implementation of the actions outlined in the paragraph above, directors must be of the opinion that “due to the actual or perceived consequences of Covid-19 on the affairs of the company, the dividend ought to be cancelled or reduced to a particular amount”.
4) Debt Threshold for the Winding Up of a Company
Covid-19 has had a major impact on the economy in 2020 and in turn on the liquidity of many Irish companies. Under section 570 of the Companies Act 2014, a company faces the risk of a creditor petitioning the court to wind up the company in the event that the company is unable to pay its debts as they fall due.
Under section 570, the levels of debt threshold necessary to give rise to the right to petition the court for a wind up are €10,000 in the case of a petition by an individual creditor and €20,000 in the case of a petition by two or more creditors acting together.
The Covid-19 Act increases the debt threshold to €50,000 in the case of both a debt owed to a single creditor and aggregate debts owed to various creditors. This means that for the duration of the Interim Period, one or more creditors must have aggregate debts in excess of €50,000 and have made a formal demand before the company is deemed unable to pay its debts for these purposes.
5) Examinership Timeline Extension
Current market conditions mean that examiners may face challenges in implementing restructuring plans for struggling companies, such as a limited pool of willing investors and possibly a reluctance on the part of creditors to buy into a restructuring plan, in an environment where creditors may face financial difficulties of their own.
Previously an examiner had up to 70 days to submit an examiner’s report to court, and this could be extended by the court by 30 days in certain circumstances. Under the Covid-19 Act, during the Interim Period, examiners may seek a further extension of 50 days where exceptional circumstances exist in relation to a particular company. Exceptional circumstances include “the nature and potential or actual impact of Covid-19 on the company”.
The Covid-19 Act resolves some of the practical and administrative issues that have arisen for Irish companies during the pandemic and provides clarity on how companies can continue to comply with legislation during this time. Although some aspects of the Covid-19 Act have been introduced solely in response to the pandemic and are intended to be temporary in nature, it will be interesting to see in the coming months if measures relating to the remote execution of documents and the holding of virtual AGMs might evolve into permanent features of Irish company law.
It remains to be seen whether further measures may be added, or if the Interim Period will be extended beyond 31 December 2020 by the Minister.