How to prepare for the amendment to the Corporations Act
On 1 January 2021, an amendment to the Corporations Act will enter into effect, bringing a number of changes to corporate law. Most of the mandatory provisions of the amended law will be enforced against provisions of founding documents that are in conflict with them. The parallel existence of outdated provisions in founding documents and the new rules may cause complications in practice, which is why it is advisable to make appropriate amendments to memoranda of association and statutes.
Although the amendment stipulates the general obligation to adapt the founding documents within one year of the amendment’s effective date (and to file them in the Collection of Deeds within the same deadline), for the sake of legal certainty we recommend making the appropriate changes by the end of this year. It is also possible to time them to enter into effect together with the amendment. The scope of the necessary or suitable changes must be determined individually after a detailed review of each corporation’s founding legal act. Some of the novelties to be taken into account for limited liability companies and joint-stock companies are listed below.
The most significant changes will concern the statutes of joint-stock companies that have chosen a monistic internal structure consisting of a statutory director and an administrative board. The office of the statutory director will be abolished and its responsibilities will be assumed by the administrative board performing the role of a statutory body with supervisory powers.
Many founding legal acts will have to be updated as their wording had literally been taken from the text of the law. In such cases it would be appropriate to replace that wording with a general reference to applicable legal regulations, otherwise it might be necessary to update them each time the law is amended. In the context of the current legal amendment, this concerns, e.g., a change to the scope of powers of the general meeting. The amendment also allows for various additions to be made to take better account of the relationships between partners/shareholders: for instance, it will be possible to attach the right to appoint and remove certain members of elected bodies to a particular business interest/share.
With the end of the year approaching, now is the time for a thorough review of an entity’s founding legal acts; however, the amendment reaches much further, as depending on the circumstances, it may also be appropriate to modify partner/shareholder agreements or internal documentation (such as executive service agreements). Members of elected bodies should be well acquainted with changes in their rights and obligations; this is particularly true for members of statutory bodies as regards stricter obligations in the event of insolvency. It is also advisable to consult with legal advisors on ordinary matters in the business corporation’s life (e.g. organisation of the general meeting), as the routinely followed procedures and documentation may no longer meet the new requirements.
Please note that if the amendment stipulates a duty to register in the Commercial Register any facts that have not yet been subject to registration, the application for their registration must be filed by 30 June 2021, with some exceptions. The same deadline applies to documents that under the new rules have to be filed in the Collection of Deeds.