The Companies Act 2014 (which reformed andconsolidated existing companies legislation in Ireland) (the “Act”) introduced,in section 225 thereof, a new requirement that directors of public limitedcompanies and large private limited companies make an annual compliancestatement (the “Directors’ Compliance Statement”) in the directors’ report,which report forms part of the company’s annual financial statements. TheDirectors’ Compliance Statement requirement affects financial years beginningon or after 1 June 2015.
Section 225 applies to all privatecompanies with a balance sheet total in excess of €12.5m and turnover in excessof €25m for the relevant financial year and all public companies (“PLCs”),excluding non-UCITS investment fund PLCs authorised under the Act (formerly”Part XIII” companies). There is no equivalentexemption under the Act for UCITS PLCs (which are incorporated under the Act,but authorised under the UCITS Regulations), and, whilst efforts are being madeto have the exemption extended to UCITS PLCs, there is no guarantee that thiswill happen within the current financial year of many UCITS companies or indeedat all.
In the Directors’ Compliance Statement,the directors are required to acknowledge that they are responsible forsecuring the company’s compliance with the obligations specified in the Act.(Briefly, these relate to specified provisions of the Act, the breach of whichconstitute serious offences, Irish tax legislation and additional market abuserequirements in respect of listed companies). The Directors are also requiredto confirm whether the following actions have been completed duringthe financial year (together, the”Compliance Actions”):
- Drawing up a compliance policy statement setting out the company’s policies as to compliance by the company with the obligations specified in the Act
- Establishing appropriate arrangements or structures designed to secure material compliance with these obligations (“Compliance Arrangements”)
- Conducting a review of the arrangements or structures referred to above
If the Compliance Actions have not been attendedto, the directors are required to specify the reasons why in the Directors’Compliance Statement. The responsibility for compliance with the obligationsrests with all the directors of the board. If there is default in compliancewith the above requirements, each director to whom the default is attributableshall be guilty of a category 3 offence (an offence punishable with a fine notexceeding €5,000 and/or a maximum term of imprisonment of 6 months).
The Act provides that the ComplianceArrangements will be regarded as being “designed to secure materialcompliance” with relevant obligations”if they provide a reasonableassurance of compliance in all material respects withthose obligations“.
Most companies will already have internalstructures and measures in place, particularly around the annual audit, that gosome way towards satisfying the requirements regarding adequate accountingrecords, tax and major company law compliance. From a director’s perspective,it is necessary to determine the relevant obligations that apply to the companyand to identify existing, or to put in place new arrangements and structuresthat are appropriate, using the above “reasonable assurance” test, to ensurematerial compliance with these obligations. The relevant obligations applicableto the company and the corresponding Compliance Arrangements should bedocumented. These can then be reviewed during the financial year.
The burden should not fall solely ondirectors. The Act specifically allows directors to rely on advice fromemployees or advisers “who appear to have the requisite knowledge andexperience” for the purposes of putting in place theappropriate Compliance Arrangements.
How can we help?
William Fry has developed various tools andapproaches to assist clients in meeting the requirements of the Act in respectof the Directors’ Compliance Statement and the various matters to be confirmedin it. Our approach varies depending on the particular needs of the client andwhere they are in the process. We can assist with everything from full scopereviews through to sharing our framework documentation which can be used byUCITS and Fund Service Providers. As a full service law firm, we have theexperience and expertise to advise on applicable legal, regulatory and taxmatters.
Contributed byPatricia Taylor
