Recent developments; Modernising corporate governance and improved rights for shareholders of PLCs

In recent years, companies incorporated in Ireland have seen a steady increase in their obligations, improving flexibility in relation to remote working and increasing shareholder rights. This upward trajectory is mainly due to several pieces of legislation enacted in Ireland. Some of these changes emanated from the Covid- 19 pandemic and its impact on the traditional office culture, while others relate to ongoing efforts to improve transparency obligations and shareholder rights.

We set out below some noteworthy changes:

Companies (Corporate Governance, Enforcement and Regulatory Provisions) Act 2024 (“the 2024 Act”)

We all remember the disruption caused by the Covid-19 pandemic and the scramble to adapt our office lives to the “new normal”. During that time, several temporary measures were implemented to address the disruption caused to business. Many of the measures imposed proved beneficial and were subsequently adopted on a permanent basis. The 2024 Act implements some of these measures as follows:

1.      The ability for a company to hold hybrid or virtual general meetings[1]

Under the 2024 Act, unless the company’s constitution provides otherwise, a company may conduct the meeting wholly or partly by the use of “electronic communications technology”, for example Microsoft Teams or Zoom (“remotely”).  

Where a company conducts a general meeting in this manner, it must-

• ensure that any attendee seeking to participate in a meeting remotely is facilitated, and

• ensure that any attendees who participate in the meeting remotely are provided with the means to cast a vote remotely.

In addition,

• where companies permit attendees to use their own technology, subject to certain requirements to ensure identification, such requirements must be proportionate and communicated to attendees in advance,

• where the company provides the technology, such technology must be sufficiently secure and allow all attendees to (a) hear the chairperson (and anyone introduced by the chairperson) and (b) speak and submit questions or comments.

2.      The right to execute documents under the company’s common seal in counterparts[2]

Previously, any instrument to which a company seal was applied, required a signature by a director and a further signature by a secretary or second director. Again, this created a logistical difficulty if each person was not present in the same location when signing. Regardless of the requirements of the company’s constitution, the 2024 Act now permits such instruments to be signed in three separate counterparts (one with the seal, one with the director and one with the secretary or second director).

This again is a welcome development as it removes the requirement for company officers (directors, secretaries or other persons authorised to bind the company) to attend in person at the same location to sign the same document. Company officers can simply sign separate documents (albeit the same in relation to content) and the counterparts will be treated as a valid single document.

The above rights, which were introduced during Covid, have made decision making and company administration easier and more efficient and their permanent placement in the 2024 Act is a welcome development.

The European Union (Shareholders Rights) Regulations 2020 (“the Regulations”)[3]

The Regulations transposed the Shareholder Rights Directive II[4]  into Irish law by inserting new requirements into the Companies Act 2014 in relation to Public Limited Companies (PLC’s), and provide significantly enhanced rights for shareholders of PLC’s.

Some of the enhanced shareholder rights introduced include:

a)      Published Engagement Policies

The Regulations introduce obligations on both institutional investors and asset managers to implement and publish separate policies on shareholder engagement[5] (“Engagement Policy”). Further, if an institutional investor or an asset manager fails to develop and publicly disclose their Engagement Policy, then they must publicly disclose a clear explanation for failing to do so. 

The Engagement Policy shall describe how the relevant institutional investor or asset manager -

1. integrates shareholder engagement in its investment strategy,

2. monitors investee companies on relevant matters, including strategy, financial and non-financial performance and risk, capital structure, social and environmental impact and corporate governance,

3. conducts dialogues with investee companies,

4. exercises voting rights and other rights attached to shares,

5. cooperates with other shareholders,

6. communicates with relevant stakeholders of the investee companies, and

7. manages actual and potential conflicts of interest in relation to its engagement.

b)      Related Party Transactions[6]

Pursuant to the Regulations any material transaction between a PLC and a related party must be approved in advance by the PLC by a resolution in a general meeting. Furthermore, any such transaction must be announced publicly no later than at the conclusion of the transaction.

The announcement of the transaction must contain:

1. information on the nature of the related party relationship,

2. the name of the related party,

3. the date and the value of the transaction, and

4. any other information necessary to assess whether or not the transaction is fair and reasonable from the perspective of the PLC and of the shareholders who are not a related party, including minority shareholders[7].

   
   

When approving any such transaction the PLC shall ensure that the approval is carried out in a way that:

1. Prevents the related party from taking advantage of its position, and

2. Provides adequate protection for the interests of the PLC and any shareholder who is not a related party, including minority shareholders[8]

   
   

Where a company fails to comply with the approval requirements, the company and any officer of it who is in default, shall be guilty of a category 3 offence punishable by a Class A fine (up to €5,000), imprisonment for up to six months, or both[9].

c)      Directors Remuneration[10] 

The Regulations inserted a requirement for PLCs to prepare a comprehensive report each year on remuneration awarded or due to its directors.

The remuneration report shall contain a number of details regarding each director’s remuneration including, the total remuneration, the proportion of fixed and variable remuneration, explanation of how the remuneration complies with the company’s remuneration policy, any performance criteria and details on any changes from the previous year and any shares and/ or share options granted or offered.

The Regulations require the PLC to hold a vote on the remuneration report at a general meeting. Following the vote, the report shall be published on the PLC’s website, free of charge for at least 10 years.

Each subsequent remuneration report shall explain how the previous vote was taken into account.  

The directors shall be responsible for ensuring the remuneration report is prepared in accordance with the Regulations.

Where a company fails to prepare a remuneration report, hold a vote, explain how a previous vote was taken into account or publish the remuneration report, the company and any officer of it who is in default, shall be guilty of a category 3 offence punishable by a Class A fine (up to €5,000), imprisonment for up to six months, or both^[11].

The above two examples of recent legislation reflect the trend of modernising corporate governance in Ireland, evidencing a willingness to embrace the benefits of technology and a continued effort to improve the transparency and accountability of company officers when it comes to shareholder’s rights and the consequences of failing to comply with their obligations.

For further information or advice, please contact Noelle Whelan, or any member of the Power Law Corporate and Commercial Team.

This article should not be regarded as a substitute for legal advice from Power Law LLP. Legal advice should always be taken before acting on any of the matters discussed above.

[1] Section 176A of the Companies Act 2014 (implemented by section 12 of the Companies (Corporate Governance, Enforcement and Regulatory Provisions) Act 2024)

[2] Section 43A of the Companies Act 2014 (implemented by section 7 of the Companies (Corporate Governance, Enforcement and Regulatory Provisions) Act 2024)

[3] S.I. No. 81/2020

[4] Directive (EU) 2017/828

[5] s1110G(1) and 1110H(1) Companies Act 2014

[6] Section 1110O Companies Act 2014

[7] S1110O(2) The European Union (Shareholders Rights) Regulations 2020

[8] Section 1110O(3) Companies Act 2014

[9] Section 1110P(n) Companies Act 2014

[10] Section 1110N Companies Act 2014

[11] Section 1110P(n) Companies Act 2014