Directors’ Shares

Overview I

Directors have obligations to disclose certain interests and dealings in the shares of the company, held by them and by connected parties and family members. The obligation applies both to shares and debentures in the company. For convenience, the expression “shares” is used below.

The obligation extends shares in the company’s subsidiaries and holding company (group companies). It extends to option and interests in shares.

Directors must notify the company of the shares and debentures which they and persons connected to them, hold in the company and group companies.  They must notify the company when they become interested or cease to be interested in the shares or debentures of any such company.  When a director becomes aware of any such interest so held, either directly or indirectly, he must notify the company.


Overview II

Directors must notify contracts to buy or sell shares or debentures or rights to take up shares in the company and of the exercise of such rights. Certain details must be given, such as price, the number of shares, details of the rights and the option periods. The obligations over any interest in shares held directly or indirectly such as under a trust or a contract.

The provisions apply to shadow directors and de facto directors under general principles. However, the making of a notification by itself does not conclusively prove or acknowledge that the person is or is not a shadow director or de facto director, as the case may be.

A person who fails without reasonable excuse to comply with the notification obligation or where applicable, his agent, is guilty of a category 3 offence. A person who fails to comply with the duty of notification generally, provided above is guilty of a category 3 offence.


Overview III

The disclosure obligations do not arise if the holding of the director and his immediate family are less than 1%. Interests in shares or debentures of a company, where the aggregate interest of the officer, director, secretary, spouse or civil partner or children represents 1% or less of the nominal value of the company’s issued share capital carrying a right to vote in all circumstances at a general meeting, are not disclosable interests.

Where there is an option to subscribe for shares, the duty to notify does not arise if the aggregate interest (inclusive of the option shares)  of the director (and connected persons) in the company is below the 1% threshold.

If the notification is not made, the rights and interests to and in the shares, cannot be enforced, unless the court gives relief. The court may grant relief where the omission is accidental or for other good reason.

A company must maintain a register of directors’ interests.  It must contain the information given by directors and others. The register must be kept at the registered office and kept open for inspection by members without charge.

Members of the public can inspect for a small fee. The register must be available before the annual general meeting. It must be properly indexed. There are penalties for failure to maintain the records.


Disclosable Interest in Shares I

A person has a disclosable interest in shares or debentures

  • if he enters into a contract for their purchase;
  • if he is the registered sole holder or joint holder;
  • if he is entitled to exercise rights in relation to shares or debentures;
  • if he controls the exercise of those rights;
  • if a body corporate is interested in the shares or debentures of the company and that body corporate or its directors are accustomed to act in accordance with the person’s directions or control or the person is entitled to exercise more than one-third of the voting power of the company at general meetings;
  • if the person has an interest in shares under a trust;
  • otherwise than by virtue of having an interest under a trust, the person has a right to call for delivery of the shares or debentures to himself or herself or to his or her order; or
  • the person has a right to acquire an interest in shares or debentures or is under an obligation to take an interest in shares or debentures whether in any case the right or obligation is conditional or absolute.

Disclosable Interest in Shares II

A disclosable interest is any kind of interest, whether legal, beneficial, joint or sole in the shares or debentures of the body corporate. It means, in relation to shares or debentures, any interest of any kind whatsoever in shares in, or debentures of, a body corporate. There is disregarded any restraints or restrictions to which the exercise of any right attached to the interest is or may be subject. It is immaterial whether or not the interest is held alone, jointly or in common with any other person, or whether the shares or debentures are identifiable or not.

A person is deemed entitled to control the exercise of rights arising from shares or debentures, if he has a right, whether subject to conditions or not, the exercise of which would make him so entitled, or if he is under an obligation whether so subject or not, the fulfilment of which would make him so entitled. Voting power does not include voting power that arises only in specified or limited circumstances.


Exemption from Disclosure I

There is an exemption in relation to shares in a wholly owned subsidiary of another body corporate. There is no obligation on a director or secretary of a company who is granted an option to subscribe for shares or debentures in the company to make a notification to that particular company. This applies to many normal remuneration type options.

The restriction shall not apply provided that the identity of the director or secretary and his or her holding, acquisition and disposal (as the case may be) of the shares or debentures in question and the consideration paid or payable therefor has, from not later than 30 days after the date the duty arose, been apparent on the face of all or any of the following registers or documents of the company concerned (including some or all of them when consulted together), namely—

  • the register of members;
  • the register of directors and secretaries;
  • the register of interests;
  • documents made available by that company with those registers.

Exemption from Disclosure II

The obligation to disclose does not apply to

  • shares held on trust and an interest in shares or debentures which are a future interest, an interest as a bare nominee, or a discretionary interest;
  • an interest under a collective investment trust;
  • certain interests under irrevocable trusts where the person establishing the trust has no interest in the trust income;
  • an interest for the life of himself or of another person under a settlement where the property comprised in the settlement consists of or includes shares or debentures, and the settlement is irrevocable, and the settlor has no interest in any income arising under, or property comprised in the settlement;
  • an interest held by authorised market maker by way of security for the purpose of a transaction entered in the ordinary course of business;
  • powers or discretions vested in a person as an attorney or as a proxy of a shareholder or debenture holder;
  • any power or discretion vested in a person by virtue only of such person having been duly appointed as or acting as an attorney for a person with an interest in shares or debentures;
  • a proxy of a member of, or holder of debentures in, a company or a representative of a body corporate which is a member or the holder of debentures of a company;
  • an interest in shares or debentures of a body corporate, where the aggregate interest of the director or secretary and spouse or civil partner and children of such director is less than 1% of the nominal value of the body corporate’s issued share capital of a class carrying rights to vote in all circumstances or shares or debentures not carrying the right to vote at general meetings, save a right arising in certain circumstances;
  • in circumstances in which an offer is made to which the Takeover Panel rules apply, which is conditional on acceptance to a given extent, an interest in those shares that would have arisen but for the offer not being accepted to the required extent;
  • such other interest as may be prescribed by Minister.

Becoming Aware of Interest in Shares I

A director or secretary of a company, who is aware that he, his spouse, civil partner or a child has a disclosable interest in shares of that company or a body corporate in the same group, must notify the relevant company in writing of the particulars set out below. This duty arises in a number of contexts, including at the commencement of the legislation.

A director or secretary of a company, who becomes aware that he, his spouse, civil partner or child has acquired or disposed of or ceases to hold a disclosable interest in the shares or debentures of the company or any body corporate in the group, must notify the company in writing, of the fact of acquisition or cessation of the holding as the case may be.

A person who becomes a director or secretary who is aware that he, his spouse, civil partner or child has a disclosable interest, must disclose the interest in writing to the company.


Becoming Aware of Interest in Share II

A director or secretary of a company who is granted by another body corporate in the same group, a right to subscribe for shares or debentures of that body corporate, or exercises a right so granted, or becomes aware of a spouse or civil partner being granted such rights or having exercised such rights, must notify the company in writing of the grant or exercise of the rights, the number or amount and class of shares and debentures involved and the consideration payable.

If a director or secretary, at the time of the acquisition or cessation of holding, is not aware of the relevant facts by reason of not being informed by the relevant parties, then the duty arises on the director or secretary on becoming aware of the of the relevant facts. It is presumed, in proceedings that he is so aware until the contrary is proved.

If the aggregate interest of the director or secretary and the spouse, civil partner or children in shares of the body corporate concerned is such as does not exceed the relevant threshold (1%), then the duty does not arise.


Contracts and Assignments

A director or secretary of a company who

  • enters a contract to sell shares or debentures in the company concerned or a body corporate within its group;
  • assigns a right granted to him by the relevant company or body; or
  • becomes aware that his spouse or civil partner or a child have done either of the above,

has a duty to notify the company in writing of the entry into the contract or assignment, with the details of the number and class of shares or debentures.

If the director or secretary is not aware at the relevant time, then the duty arises on his becoming so aware. In civil or criminal proceedings, it is presumed, until the contrary is shown, that he was so aware.


Means of Notice

The acquisition or disposal by a director or secretary of shares or debentures in a company may be notified by the delivery of the instrument of transfer (in effect in the normal course) identifying the director and secretary by name, the shares and debentures in question, the purchase price and the requisite address.

In other cases, or where the director chooses, the means of notification is to be in writing, given within eight days after the date of the event giving rise to the duty. A statement in writing is to be

  • a statement that the director or secretary, or his or her spouse or civil partner or a child of the director or secretary (as the case may be), has acquired or has ceased to have (as the case may be) a disclosable interest in shares in, or debentures of, the company or a body corporate of the same group;
  • the number of shares or debentures and their class;
  • a statement of the names of the registered holders of the shares or debentures;
  • in the case of an acquisition or disposal of shares or debentures, the consideration payable therefor, and
  • the address where required.

The duty of notification arises within five days, in the case of the grant of rights of subscription or their exercise, contracts, entry of contracts and the assignment of rights.

A shadow director or de facto director shall, in any notification made, specify his address and whether or not the notification arises in relation to himself, spouse, civil partner or child.

Where a person authorises an agent to acquire or dispose of shares or an interest in shares or debentures on his behalf, he shall secure that the agent notifies him immediately of acquisitions and disposals of such interest affected by the agent which would give rise to a duty to make notifications in respect of shares and/or debentures.


Restriction of Shares

If a disclosable interest is not notified, then no right or interest in the shares or debenture is enforceable by such person without an order of the High Court, authorising the exercise of the rights in respect of the shares. The right or interest is not enforceable by him, directly or indirectly, whether by action or legal proceeding.

A person affected by such restriction may apply to the court for relief against the disability so arising. The court, on being satisfied that the default was accidental, due to inadvertence or some other sufficient ground or if on other grounds, it is just and equitable to grant relief, may grant such relief either generally or as respects any particular right or interest, on such terms and conditions as it sees fit. The court may not grant relief if it appears that the default has arisen as a result of a deliberate act or omission on the part of the applicant.

Shares which are restricted from sale may be unrestricted. The company by special resolution may provide that certain protections shall apply to a third-party dealing in relation to the shares and debentures of the company specified in the resolution.

On production of a copy of the resolution by the secretary of the company to a third-party, the third-party having any dealings with the company or the shareholder, shall be entitled to presume without further enquiry, that the provisions of the legislation relating to notification of interests in the company have been complied with, in relation to those shares and debentures and that the registered holder is entitled to deal with the shares or debentures registered in his name.


Register of Interests I

A company must keep a register of interests notified. The company is to enter information on the register within three days of receipt.  A company which grants a director or secretary rights to subscribe for shares or debentures must enter particulars on the register of interests against his or her name. This is to include the date the right is granted, the period it is exercisable within, the consideration and the description of the shares or debentures concerned.

Where any of the above rights are exercised, the company must enter details of the exercise on the register. The register of interests is to be made up so that the entries in it against the several names appear in chronological order. The nature and extent of an interest recorded in the register shall, if he so requires, be recorded in that register.

A company shall not, by virtue of anything done under these provisions be affected with notice of or put inquiry as to, the rights of any person in relation to shares or debentures. A default by the company or any officer in default is a category 3 offence.

Unless the register is in such a form as to constitute an index in itself, the company shall keep an index of the names entered in it which shall in respect of each name, contain a sufficient indication to enable the information inscribed against it to be readily found. It is to be kept in the same place as the register. The index is to be altered within 14 days of any requisite change.


Register of Interests II

Members have rights to inspect and take copies of the register. The register is to remain, open and accessible to any person attending an annual general meeting of the company at least one-quarter hour before the appointed time for commencement of the meeting and during the continuance of the meeting. A default by a company or any officer in default is a category 3 offence.

The company may remove entries from the register if more than six years have elapsed since the date of the entry being made, and the entry recorded the fact that the person in question has ceased to have a notifiable interest in shares or debentures of the company, or it has been superseded by a later entry against the person’s name.

Where a company removes a name from the register, the company shall amend the index. If an entry is deleted, the company shall restore the entry. If an entry is deleted in contravention of the above provision, it shall be restored as soon as reasonably practicable.

If default is made by a company in respect of any of the other obligations, the company and any officer in default is guilty of a category 3 offence.


References and Sources

Primary References

 

Companies Act 2014 S.256 – S.269 (Irish Statute Book)

Companies Act 2014: An Annotation (2015) Conroy

Law of Companies 4th Ed.  (2016) Ch.13    Courtney

Keane on Company Law 5th Ed. (2016) Ch.24 Hutchinson

Other Irish Sources

Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury

Introduction to Irish Company Law    4th Ed. (2015) Callanan

Bloomsbury’s Guide to the Companies Act 2015      Courtney & Ors

Company Law in Ireland 2nd Ed. (2015) Thuillier

Pre-2014 Legislation Editions

Modern Irish Company Law   2nd Ed. (2001) Ellis

Cases & Materials Company Law 2nd Ed. (1998) Forde

Company Law 4th Ed. (2008)  Forde & Kennedy

Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy

Companies Acts 1963-2012   (2012)  MacCann & Courtney

Constitutional Rights of Companies   (2007)  O’Neill

Court Applications Under the Companies Act (2013) Samad

Shorter Guides

Company Law – Nutshell 3rd Ed. (2013) McConville

Questions & Answers on Company Law (2008)        McGrath, N & Murphy

Make That Grade Irish Company Law 5th Ed. (2015) Murphy

Company Law BELR Series (2015)   O’Mahony

UK Sources

Companies Act 2006 (UK) (Legilsation.gov.uk)

Statute books Blackstone’s statutes on company law (OUP)

Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington

Company Law in Context 2nd Ed. (2012) D Kershaw

Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam

Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington

 

UK Practitioners Services

Tolley’s Company Law Handbook

Palmer’s Company Law