2016 will see the introduction of mandatory director compliance statements for all PLCs and large private companies save unlimited companies. A “large private company” is one with gross assets exceeding €12.5m and turnover exceeding €25m for the year.
Under the Companies Act 2014, directors of such companies must make an annual compliance statement in the directors’ report, which forms part of the company’s statutory financial statements. In this, the directors acknowledge that they are responsible for securing the company’s compliance with its relevant obligations. Relevant obligations are tax laws and Companies Act provisions breach of which are category 1 or 2 offences. These are the most serious offences under the Act. For companies with listed securities, serious market abuse, transparency and prospectus provisions are also relevant obligations.
The annual compliance statement must also confirm that the company has a policy statement as to compliance with its relevant obligations and that appropriate arrangements or structures designed to secure material compliance are in place. These arrangements or structures are to be reviewed during the financial year. If any of these things are not done, reasons explaining why not must be included in the directors’ report.
Most companies will already have in place checks and other measures, particularly around the annual audit, that go a long way towards satisfying the tax and major company law compliance. From a director’s perspective these need to be documented and expanded upon and their effectiveness reviewed during the upcoming financial year. The burden should not fall solely on directors. The Act permits the directors to rely on advice from employees and advisers with the relevant experience.
The compliance policy statement can be a very concise document simply stating the company’s commitment to complying with its relevant obligations and with basic policies to support this commitment. Some companies may wish to have a more elaborate policy statement but you should avoid targets that are difficult to deliver on. The whole compliance statement process will be an evolving one and my advice would be to keep it simple in the initial years.
To incentivise directors to take this seriously, the Act provides that if there is default each director who contributed to it shall be guilty of a category 3 offence. This means a fine of up to €5,000 and/or 6 months in prison. If you are a director of a PLC or large private company, this deserves to be high on your list of priorities for 2016.
Contributed by: Myra Garrett
As published in the Sunday Business Post, Sunday, 24 January, 2016.
