Introduction
The purpose of this article is to explain the obligations imposed
on directors and other persons to disclose certain interests or
rights in shares and debentures of companies incorporated in
Ireland, whether to the company itself, the Takeover Panel or the
Irish Stock Exchange.
The disclosure obligations will vary, depending on whether the
company is:
- a private company incorporated in Ireland; or
- a public company incorporated in Ireland which is not listed; or
- a public company incorporated in Ireland which is listed either on the Irish Stock Exchange or one or more specified Exchanges.
Disclosure Obligations of Directors, Secretaries and their
Families
Chapter 1 of Part IV of the Companies Act, 1990 (the
"1990 Act") requires directors and
secretaries of companies to disclose certain interests to public
and private companies incorporated in Ireland.
1. What constitutes an "interest"?
Section 54(4) of the 1990 Act provides that a person should be
taken to have an interest in shares or debentures, if:
- he enters into a contract for their purchase by him (whether for cash or other consideration); or
- not being the registered holder, he is entitled to exercise any right conferred by the holder of those shares or debentures or is entitled to control the exercise of any such right.
Accordingly, the obligation to notify covers not only legal but
equitable interests.
Certain interests are excluded however:-
- where property is held upon trust, an interest in reversion or remainder, or of a bare trustee or any discretionary interest;
- interests subsisting under unit trusts or UCITS;
- interests in schemes under section 46 of the Charities Act, 1961;
- life interests under irrevocable settlements where the settler has no interest in the income or the property;
- an interest held by a stockbroker as security for a transaction entered into any ordinary course of business; and
- any other interests exempted by the Minister.
2. Who is obliged to notify?
The obligation to notify is placed on directors or
secretaries of a company in relation to interests in the shares or
debentures of that company or its subsidiary or holding company. It
is extended to the interests held by a spouse or minor child of the
director or secretary of the company (where such a person is not
himself or herself a director or secretary thereof).
An understanding of the following key terms is vital to
understanding of section 53:
- "director";
- "company";
- "subsidiary"; and
- "holding company".
2.1 "Director"
A "director" is defined as including any person
occupying the position of director by whatever name they are
called. Accordingly, directors who are called by another name, for
example, a governor in the case of a charity will still be
directors for the purpose of the Companies Acts.
The term "director" includes a de facto director, who is
someone who acts as a director of a company although he has not
been formerly appointed as such.
The term "director" also includes a shadow director, who
is a person who has not been formally appointed a director of the
company, but in accordance with whose directions or instructions
the directors of that company are accustomed to act. There is a
limited exception for a person giving professional advice.
It is worthwhile noting that only individuals can be directors of
an Irish company unlike other jurisdictions in which it is possible
to have corporate directors. There is a debate as to whether an
Irish company can be a shadow director of a company incorporated in
Ireland. However, it is important to note that section 54(5) of the
1990 Act provides that where a body corporate is interested in
shares, a person shall be taken to be interested in them where:
- that body corporate or its directors are accustomed to act in accordance with his directions or instructions; or
- he is entitled to exercise or control the exercise of one-third or more of the voting power at general meetings of that body corporate.
Accordingly, when a natural person is a shadow director of a
body corporate which is interested in shares in another body
corporate, the person must make a notification.
2.2 "Company"
A company is defined as a company formed and registered
under the Companies Acts or earlier companies legislation which
includes both public (listed and unlisted) and private
companies.
2.3 "Subsidiary" and "holding
company"
A "subsidiary" is defined in section 155(1)(a) of the
Companies Act, 1963 on the basis that another company:
- is a member of it and control the composition of its board of directors; or
- holds more than half in nominal value of its equity share capital; or
- holds more than half in nominal value of its shares carrying voting rights (other than voting rights which arise only in specified circumstances)."
A company will also be a subsidiary of a company if it is a
subsidiary of that other company's subsidiary. The corollary of
this concept is that a holding company will not just include a
company's immediate holding company but also any other company
which is higher up the chain. It is important to note that a
holding company can include a company which is incorporated in a
jurisdiction other than Ireland.
By way of example, the following persons will have an obligation to
notify a company of an interest pursuant to section 53:
- a director of a public company incorporated in Ireland who holds shares;
- a secretary of a private company incorporated in Ireland who holds debentures;
- a director of a public company incorporated in Ireland whose spouse holds an interest in the shares of that company;
- a secretary of a private company incorporated in Ireland whose minor child holds an interest in debentures in that company;
- the director of a public company incorporated in Ireland who holds shares in a company incorporated in Luxembourg, being the subsidiary of the first mentioned company;
- the secretary of a private company incorporated in Ireland who holds debentures in a company incorporated in Italy, being the holding company of the first mentioned company.
3. The Obligation to Notify
Section 53 of the 1990 Act contains the basic obligation
to notify interests in shares and debentures held by directors or
secretaries, in a company or its subsidiary or holding company, at
the commencement of the section or on becoming a director or
secretary of:
- the subsistence of their interests at that time; and
- of the number of shares of each class in, and the amount of debentures of each class of the company or the holding or subsidiary company.
Further, an existing director or secretary of a company is obliged
to notify the company of the occurrence of any of the events set
out in section 53(2) of the 1990 Act which are:
- any event in consequence of whose occurrence he becomes, or ceases to be interested in shares in, or debentures of, the company or any other body corporate being the company's subsidiary or holding company or a subsidiary of the company's holding company;
- the entering into by him of a contract to sell any shares or debentures;
- the assignment by him of a right granted to him by the company to subscribe for shares in, or the debentures of, the company; and
- the grant to him by another body corporate, being the company's subsidiary or holding company or a subsidiary of the company's holding company, of a right to subscribe shares in, or debentures of, that other body corporate, the exercise of such a right granted to him and the assignment by him of such a right so granted; stating the number of amount or class, of shares or debentures involved."
A person affected by section 53 is obliged to notify the company
within 5 days of his becoming aware of his obligations. The
sanction where the relevant person does not comply with the
requirements and fails to notify within the prescribed time is that
no right or interest of any kind in respect of the shares or
debentures is enforceable by legal proceedings. However, a court
has power to grant relief from this penalty provision where the
default was accidental, due to inadvertence or some other
sufficient cause, on just or equitable grounds.
A person who fails to comply with section 53 without a reasonable
excuse is guilty of an offence.
In addition to the requirement that notice be given to the company,
there is an obligation on the company itself to keep a register of
information received from relevant persons and, whenever the
company grants to a director or secretary a right to subscribe for
shares in, or debentures of, the company the following
information:
- the date on which the right was granted;
- the period during which or time at which it is exercisable;
- the consideration for the grant, if any; and
- the description of shares or debentures involved and the number or amount thereof and the price to be paid therefor.
If a company fails to keep a register in the manner acquired by the
1990 Act, the company and any officer involved is guilty of an
offence and is liable to a fine.
Further, in the report which is required to be attached to the
balance sheet laid before the annual general meeting of each Irish
company the report must state:
- particulars of whether a director was interested in shares or debentures of the company, its subsidiaries, its holding company or subsidiaries of its holding company at the end of the financial year;
- if so, the body or bodies and the number and amount of shares or debentures of each body held; and
- distinguish numbers and amounts held at the beginning of the financial year from those at the end.
Disclosure By Persons of Interests in Public Limited
Companies
1. Disclosure to the company
Chapter 2 of Part IV of the Companies Act, 1990 imposes
similar obligations on groups and individuals who acquire or
dispose of more than 5% of the issued voting share capital of a
public limited company incorporated in Ireland.
The interests which must be disclosed include "any interest of
any kind whatsoever in the shares", and specifically include
the interests of the beneficiary under a trust, a purchaser under a
contract, and a person who, though not a shareholder, is entitled
to exercise or control the exercise of the rights of the
shareholder. A person will also be deemed to be interested where
his spouse or minor child is interested, or where a body corporate
which is accustomed to act in accordance with his instructions, or
in which he controls more than one-third of the voting power, is
interested.
The following interests need not be disclosed:-
- where property is held upon trust, an interest in reversion or remainder, or of a bare trustee or any discretionary interest;
- interests subsisting under unit trusts or UCITS;
- interests in schemes under section 46 of the Charities Act, 1961;
- life interests under irrevocable settlements where the settler has no interest in the income or the property;
- "exempt security interests", being interests held as security for a loan by a bank, insurance company, post office savings bank, or a stockbroker carrying on business as a registered stock exchange;
- interests held by the President of the High Court under section 13 of the Succession Act, 1965;
- interests held by the Accountant of the High Court pursuant to the Rules of Court;
- any other interests exempted by the Minister.
A person who is required to make the notification must do so within
five days following the day on which he becomes aware of the
interest. The sanction where the person does not comply with the
requirements and fails to notify within the prescribed time is that
no right or interest of any kind in respect of the shares or
debentures is enforceable by legal proceedings. As with section 53
of the 1990 Act, the court can grant relief in appropriate
circumstances.
A person who fails to fulfil the obligations imposed is guilty of
an offence under the 1990 Act.
There are similar obligations to section 53 placed on the company
to keep a register of information received from relevant persons
and if a company and its officers default in relation thereto they
are liable to a fine.
2. Disclosure to the Irish Stock Exchange
Disclosure is required to be made by interested persons (whether
directors, secretaries, etc, or not) to the Irish Stock Exchange
where the shares of the public limited company are officially
listed. The threshold interests in this regard are set at 10%, 25%,
50% and 75%. The Irish Stock Exchange must publish the disclosed
information within 3 days of receipt, unless it would be contrary
to the public interest or would be seriously detrimental to the
company concerned.
The rules referred to above in relation to disclosure to the
company of the interests which are to be notified, and the manner
in which they are to be notified, also apply to notification to the
Irish Stock Exchange.
A listed company must notify a Regulatory Information Service of
any information which is disclosed to the company in accordance
with Chapters 1 and 2 of Part IV of the Companies Act, 1990.
In addition, the Listing Rules impose an obligation on a public
company listed on the Exchange to notify interests held by a
"connected person" of a director, which is broader than
the extended notification obligation under section 53. A
"connected person" is a spouse, parent, brother, sister
or minor child of a director, person acting as trustee of a trust
in which the principal beneficiary is the director, spouse, his
children or any body corporate which he controls or a partner of
that director.
It should also be noted that a public limited company which is
listed on the Irish Stock Exchange must notify a Regulatory
Information Service of the particulars of interest of any person,
other than a director in 3% or more of the nominal value or class
of capital carrying voting rights to vote in all circumstances at
general meeting of the company, if such interest has been notified
to the company.
3. Disclosure to the Takeover Panel
There are also the provisions of the Irish Takeover Panel Act,
1997, Takeover Rules, 2007 (the "Rules")
and the Irish Takeover Panel Act, 1997, Substantial Acquisitions
Rules, 2007 (the "SARs") to consider.
They apply to public companies incorporated in Ireland any of whose
securities are authorised for trading (or have been authorised for
trading within the last five years) on a market regulated by a
"recognised stock exchange", i.e.
- The Irish Stock Exchange,
- The London Stock Exchange,
- The New York Stock Exchange, or
- The NASDAQ.
It should be noted that the Rules and the SARs do not apply to
UCITS or an investment company within the meaning of Part XIII of
the Companies Act, 1990. Rule 8 of the Takeover Rules requires the
disclosure of certain dealings to be made by an offeror or offeree
or by an associate of either of them during the offer period of a
takeover to the Takeover Panel, and in some instances the Irish
Stock Exchange.
The SARs impose restrictions on the speed at which persons may
increase a holding of voting securities in the relevant company to
an aggregate of 15% and 30% of the voting rights. The SARs also
require notification by persons of an interest at or exceeding 15%
to the company, the Irish Stock Exchange and the Takeover
Panel.
4. Disclosure to the Financial Regulator
The Transparency Directive (2004/109/EC) (the
"Directive") was implemented into Irish
law on 13th June, 2007 by the Transparency (Directive 2004/109/EC)
Regulations 2007 (the
"Regulations").
The notification of major holdings may be required when:-
- the securities of the issuer are admitted to trading on a regulated market situated or operating within a Member State of the European Union or an EEA State, and whose Home Member State is Ireland; and
- where the securities of the issuer are admitted to trading in a market prescribed by the Minister in accordance with Section 24 of the Investment Funds, Companies and Miscellaneous Provisions Act, 2006 (to date, no such market has been prescribed by the Minister under this section).
The Transparency Regulations require notification to be made to
certain parties where the percentage voting rights held by a person
in an Irish plc, the securities of which are admitted to trading on
a regulated market situated or operating within a Member State of
the European Union, cross certain prescribed thresholds.
The Regulations provide that the notification requirements will
also apply to the extent that a person is entitled to acquire, to
dispose of or to exercise voting rights in a number of situations,
including where the voting rights are:
- held by a third party with whom that person has concluded an agreement, which obliges them to adopt, by concerted exercise of the voting rights they hold, a long-term common policy towards the management of the issuer in question; and/or
- held by a third party under an agreement concluded with that person providing for the temporary transfer for consideration of the voting rights in question;
and those voting rights when aggregated with those held directly
by the person cross the prescribed thresholds.
The Rules provide that a person shall notify the issuer (other than
where the issuer is a collective investment scheme of a
closed-ended type) of the percentage of its voting rights if the
percentage of voting rights which he holds as shareholder or
through his direct or indirect holding of financial instruments or
a combination of such holdings:
- (Irish incorporated plcs only) reaches, exceeds or falls below 3%, 4%, 5%, 6%, 7%, 8%, 9%, 10% and each 1% threshold thereafter up to 100% as a result of an acquisition or disposal of shares or financial instruments, or
- (Non-Irish incorporated plcs) in the case of a non-Irish issuer reaches, exceeds or falls below 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% as a result of an acquisition or disposal of shares or financial instruments.
5. Recent changes
The Companies (Amendment) Act 2009 (the
"2009 Act") imposes more stringent
disclosure requirements on licensed banks and their holding
companies in relation to transactions prohibited by section 31 of
the Companies Act 1990.
Section 31 generally prohibits a company from giving loans,
quasi-loans, credit arrangements, security or guarantees to its
directors or persons connected to them (such as family members,
partners or bodies corporate in which they are interested in one
half or more of the issued share capital or voting rights).
However, licensed banks could avail of an exception to S.31 as they
lent money in the ordinary course of their business.
Most limited companies which availed of an exception to S.31 (for
example, to make a loan to another company within its group) were
nonetheless obliged to disclose the details of any such
transactions in their annual accounts. Prior to the 2009 Act,
licensed banks were exempt from such disclosure requirements.
The 2009 Act has changed this position, so that all licensed banks
must now disclose the details of S.31-type transactions entered
into with directors of the bank in their annual accounts. Licensed
banks must describe any such transactions made during the financial
year, the name of the director for whom they were made and the
amount or value of the transactions.
Where a licensed bank enters into a S.31-type transaction with a
"connected person" (such as a company controlled by a
director of the bank) rather than the director themselves, the
annual accounts must include details of the aggregate maximum
amounts outstanding to such connected persons during the banks
financial year, as well as the maximum number of such connected
persons for whom such transactions were entered into during the
financial year.
6. Summary
The law surrounding the disclosure of interests in public and
private companies incorporated in Ireland is complex and must be
strictly adhered to.
A failure to notify the company, the Irish Stock Exchange or the
Takeover Panel where required can result in serious consequences
for the person concerned, including an inability to enforce rights
in relation to the shares in subsequent legal proceedings and
criminal offences.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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