Abolition of the non-filing regime – Companies (Accounting) Bill 2016

The Bill proposes to abolish ‘non-filing structures’ in their current form for Irish unlimited companies by expanding the definition of designated ULCs to include additional corporate structures. Section 76 of the Bill expands considerably the definition of ‘designated ULC’ in section 1274 of the Companies Act 2014[1], bringing more unlimited companies within the requirement to file audited financial statements in an annual basis. In effect, the expansion of this category will negate the effectiveness of existing non-filing structures.[2]

 As it stands, it is possible for an unlimited company incorporated in Ireland not to publish its accounts in the CRO.[3] Where an Irish unlimited company has a member that is a limited company incorporated outside the EU and at least one member that is an unlimited company incorporated outside the EU, that Irish company may avoid having to publish its accounts. This exemption is available notwithstanding the fact that the shares in the unlimited company incorporated outside the EU may be wholly owned by a limited company incorporated outside the EU, affording the benefit of limited liability without the group structure.

The Bill proposes that certain types of private unlimited company (non-filing ULCs) which were exempt from filing their financial statements with the CRO will now be required to file those financial statements with their annual returns, making them publicly available.

 

Who is affected by the filing changes?

The changes will affect Irish registered unlimited companies which have a (direct or indirect) limited liability holding company or subsidiary company.

Under existing law, non-filing ULCs are unlimited companies with at least one member that is:

  • an unlimited liability entity (an unlimited company, or partnership, whose partners have no limit on their liability) formed under the laws of a jurisdictions outside the EEA, even where the ultimate shareholders of that entity themselves have limited liability; or
  • an individual.

 

However, under the draft new law, the following entities come within the filing requirement:[4]

  • an unlimited company that at any time during the relevant financial year
  • has been a subsidiary undertaking of an undertaking[5] which was at that time limited;
  • has had rights exercisable in respect of it by or on behalf of 2 or more undertakings which were at that time limited, being rights which if exercisable by one of the undertakings would have made the unlimited company a subsidiary undertaking of it; or
  • has been a holding company of an undertaking which was at that time limited.
  • An unlimited company which is a credit institution or an insurance undertaking or holding company of a credit institution or insurance undertaking.
  • An unlimited company, all of the members of which are:
  • companies limited by shares or by guarantee (Irish or non-Irish);
  • unlimited companies (Irish or non-Irish);
  • partnerships (Irish or non-Irish) which are not limited partnerships, each of whose members is a limited company (Irish or non-Irish);
  • limited partnerships (Irish or non-Irish), each of whose general partners is a limited company (Irish or non-Irish); or
  • any combination of the entities in (a) and (c).
  • An unlimited company, the direct or indirect members of which comprise any combination of unlimited companies and bodies referred to in (c) above such that the ultimate beneficial owners enjoy the protection of limited liability.

 

When do the new requirements come into effect?

The draft legislation does not specify to which financial year the changes first apply, but the expectation is they will apply to financial statements for years beginning on or after 1 January 2016, in line with Ireland’s requirements under Directive 2013/34/EU. Confirmation of the financial year to which the changes first apply will only be available once the Bill in enacted and the relevant section commenced by ministerial order.

If the terms of the Directive are followed, companies with a 31 December 2016 year end will be required to publicly file their 2016 financial statements by late November 2017 as the Companies Act 2014 essentially requires financial statements to be filed with the CRO within an 11 month period following a company’s previous financial year end. Thus, financial statements for non-filing ULCs for period up to 31 December 2015 will not be filed with the CRO. However, figures in relation to financial year ended 31 December 2015 will be visible in the comparatives in the 2016 financial statements.

 

[1] Section 1274 of the 2014 Act exempts non-designated unlimited companies from the requirement under sections 347 and 348 of the 2014 Act to file financial statements and related reports with their annual returns filed with the CRO.

[2] http://www.companiesact.ie/companies-accounting-bill-2016-new-rules-on-non-filing-structures

[3] By virtue of the provisions  of regulation 6 of the European Communities (Accounts) Regulations 1993.

[4] http://www.matheson.com/news-and-insights/article/irish-companies-accounting-bill-2016-changes-to-filing-obligations

[5] Being an Irish or non-Irish body corporate, partnership or unincorporated body of persons engaged for gain in the production, supply or distribution of goods, the provision of services or the making or holding of investments.