Comment

No-deal Brexit

Apr 01, 2019
It might not be obvious, but we shouldn’t overlook the impact of a no-deal Brexit on
the administration of Irish companies.


As the clock ticks ever closer to the possibility of a no-deal Brexit, the potential impact on the day-to-day running of Irish companies must be considered. That we would find ourselves in this economic limbo was predicted by few, such that the need to focus on the micro rather than the macro never seemed like the best use of anyone’s time. Yet, if certain micro – and once seemingly procedural – elements related to the administration of Irish companies are not addressed by legislation, and the affected Irish companies take no action, those companies and their directors could find themselves guilty of an offence under the Companies Act 2014.

Board composition

Every company incorporated in Ireland must have one director who is resident in a member state of the European Economic Area (EEA). Many Irish companies fulfil this requirement by having a director who is resident in the United Kingdom (UK). Where the UK does not remain a member of the EEA, Irish companies so fulfilling this requirement must take action regarding the composition of their boards or risk the company itself – and its officers – committing an offence under the 2014 Act. In addition, and from an administrative perspective, the Companies Registration Office (CRO) will not accept filings from a company that lets this breach subsist.
The action that can be taken by companies in this position is threefold: they can appoint a new director that is resident in an EEA state; they can purchase a two-year bond to the value of €25,000 to cover the payment by the company of penalties imposed arising out of offences committed by it under the 2014 Act and certain tax legislation; or they can apply to the CRO for a certificate confirming that the company has a real and continuous link with one or more economic activities that are being carried on in the State.

There are practical considerations for the latter two of these options. A bond cannot commence prior to there being a need for it to be in place (i.e. there must be no EEA-resident director at the time it becomes effective) and the CRO will only issue a certificate of a real and continuous link in reliance on written confirmation from the Revenue Commissioners that it is of the opinion that such a link exists. To effect these options can therefore take time, which presently appears to be running out.

Groups

The 2014 Act allows an Irish company that is a subsidiary of a holding company incorporated in an EEA state to rely on an exemption from having to file its own single entity financial statements in the CRO and instead, file only the consolidated financial statements of its holding company. For an Irish company to be able to rely on this filing exemption, the holding company must guarantee certain commitments and liabilities of the Irish subsidiary and state this by way of note in its consolidated financial statements. Where the holding company an Irish company relies on to avail of this exemption is established in the UK and the UK does not remain in the EEA, the Irish company may have to file its single entity accounts going forward.

The 2014 Act also allows an Irish holding company that is itself a subsidiary of an EEA holding company to avail of an exemption from having to prepare its own group financial statements where its own financial statements, and that of its group, are included in consolidated accounts for a larger group prepared by its higher EEA holding company. In this instance, where the relevant holding company is established in the UK, alternative provisions of the 2014 Act that apply to non-EEA holding companies would need to be considered to understand if a similar exemption could be relied upon for future financial periods.

Audit

If the UK does not remain in the EU, Irish companies that presently use firms in the UK to provide audit services may need to appoint new audit firms. This will present businesses with additional expense, particularly for those companies with financial year-ends falling early in the calendar year which may have to deal with a mid-audit handover to new auditors.

Economic impact

It is a well-acknowledged fact that a no-deal Brexit will present much economic uncertainty for Irish companies. The closer we get to a no-deal situation becoming a reality, the more pressure will come on companies and their directors to interrupt operations to deal with urgent but somewhat procedural matters, the breach of which could see them commit an offence under the 2014 Act. While clearly stating the obvious, the sooner there is certainty, the sooner ‘business as usual’ can resume.

Claire Lord is a Corporate Partner and Head of Governance and Compliance at Mason Hayes & Curran.