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Brexit update for financial reporting

This note sets out some matters which may be relevant when considering the potential impact of Brexit for company law purposes particularly in the course of the preparation or approval of statutory financial statements.

Companies Act 2014 considerations regardless of a deal or no deal

Principal risks and uncertainties disclosure: All companies (other than those qualifying for the small company regime) are obliged by section 327(1)(b) to include a description of the principal risks and uncertainties facing the company (or if group accounts are prepared, the group) in their directors’ report. Accordingly, directors are required to consider the possible impact of Brexit on their businesses (“facing the company”) and not just the broad macro economic impacts on the wider economy. Notwithstanding that it is written from a UK perspective, our UK Firm’s recent publication Brexit and viability disclosures – a timely reminder may be useful when considering this disclosure.

Companies Act 2014 considerations should the UK leave the European Union without any deal in place

A number of Companies Act 2014 provisions grant reliefs to EEA members (EU member states plus Norway, Iceland and Lichtenstein). These provisions will not apply to UK resident directors/companies if the UK leaves the European Union without a deal on 31 October 2019. Certain Irish companies may therefore need to be ready to take the appropriate action to remain compliant with Irish company law from that date. For example:

  • Non EEA directors: Section 137 Companies Act 2014 – Irish companies which comply with section 137 Companies Act 2014 requirement to have an EEA-resident director by virtue of the UK meeting the definition of an EEA State will be required to appoint an EEA resident director no later than 1 November 2019.
  • Change of year end: The concession in section 288(10(a)) permitting the Irish subsidiary of an EEA parent to align its year-end to the parent’s without triggering the 5 year rule will no longer apply where a UK company is the EEA parent.
  • Filing guarantee: Section 357 Companies Act 2014 – Irish subsidiaries will no longer be able to avoid filing their own statutory financial statements on foot of a guarantee from a UK parent company; such companies should either accelerate their filing (it is possible to do so without resetting their ARD) where possible and file in advance of 31 October or if there is a suitable EEA parent to seek the guarantee from that parent;
  • Consolidated financial statements: Section 299 Companies Act 2014 - exemption from preparation of group financial statements for an Irish intermediate parent, itself a subsidiary of an UK parent will no longer be available for financial statements approved on or after 1 November 2019. However, section 300 will apply albeit the directors will be required to consider whether the UK’s parent consolidated financial statements meet the “equivalence” requirement. This will not be an immediate concern but could over time become a concern if UK endorsed IFRS or other GAAP depart from the requirements of the various EU accounting directives.
  • Irish branches of UK companies: Section 1304 imposes additional filing obligations on the initial filings for a non-EEA company having an Irish branch over an EEA company. While section 1305 also applies further items in relation to the annual filing of financial statements for nonEEA parents, in practice this is not expected to cause any immediate change in the filing of annual financial statements for UK companies.

Companies Act 2014 considerations if the UK leave the European Union with a deal in place

On 17th March 2019, the President signed into law the Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Act 2019. While section 98 of the Act will only commence on foot of an order by the Minister for Foreign Affairs, when commenced it will amend the Interpretations Act 2005 such that for the purposes of Irish Company Law, the United Kingdom will continue to be a member state of the European Union, including the European Economic Area ("EEA"), for the period that a Withdrawal Agreement is in place between the United Kingdom and the European Union. Accordingly the reliefs in the Companies Act 2014 noted above would continue apply to UK resident directors/companies at least for the duration of the withdrawal agreement.

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