Director Compliance Statements
Written by 23rd July 2014on
The Companies Act 2014 sees the reintroduction of annual director compliance statements.
The requirement for directors to file such a statement was first legislated for in the Companies (Auditing and Accounting) Act 2003 but the section was never enacted due to significant industry lobbying and recommendations from the Company Law Review Group that the requirements were disproportionate and excessively onerous.
The Act reintroduces a more targeted and proportionate approach to compliance statements.
Who does it apply to
The obligation will apply to:
- public limited companies; and
- private limited companies limited by shares or by guarantee in each year in which the particular company has a balance sheet total exceeding €12.5 million and turnover exceeding €25 million.
The obligations do not apply to unlimited companies.
What is the obligation
The Act will require directors to adopt a "comply or explain" approach. In the compliance statement, directors will be required to acknowledge their responsibility for securing the company's relevant obligations under law (primarily the Companies Act and the Tax Acts) and will be required to confirm that certain things have been done (or if they have not an explanation will be required explaining why these things have not been done).
Companies will have general and specific obligations by law. General obligations would include its obligations under company law and tax law, while specific obligations may arise due to the sector or activity that a company is engaged in.
The things which directors must do or alternatively explain why it has not done so are as follows:
- draw up a company compliance policy statement;
- put in place appropriate arrangements or structures; and
- conduct a review of any such arrangement or structures that have been put in place.
The Act states that these three measures are likely to secure a company's compliance with its relevant obligations. In putting such measures in place the directors may rely on the advice of any employee or consultant who appears to the directors to have requisite knowledge and experience to advise the company on compliance with its relevant obligations.
Failure to include a compliance statement is a criminal offence and each director will be guilty of a category three offence.
The Act imposes significantly stricter obligations on directors and the reintroduction of compliance statements confirms that it is the duty of directors to ensure compliance with the Companies Acts. While the Act will not be commenced until June 2015, it is vital that directors and companies start the preparation process now for these imminent obligations. This will involve establishing appropriate structures and arrangements and familiarising with the relevant obligations under law. LK Shields would be happy to assist companies and their directors in complying with any of these new requirements.