Corporate Governance & Compliance Update: The Directors’ Compliance Statement – Refresh and Review
05 October 2017
There are four obligations imposed on the directors of companies that fall within the scope of the compliance statement requirement. These are:
- an acknowledgement that they are responsible for securing the company’s compliance with certain company law obligations and its obligations under tax law
- a confirmation that there is in place a compliance policy statement setting out the company’s policies to secure compliance by the company with those obligations
- a confirmation that there are in place appropriate arrangements or structures designed to secure material compliance with those obligations
- a confirmation that a review has been conducted, during the financial year, of those arrangements and structures
There is no absolute requirement for directors to provide each of these confirmations. Directors can decide to decline to do so but where they decline, they must specify the reasons why.
Companies in scope: The large Irish companies to which this requirement applies are Irish-registered private companies that have a turnover of more than €25,000,000 and a gross balance sheet total of more than €12,500,000. Both thresholds must be satisfied.
Relevant obligations: The company law obligations that are to be covered by the compliance policy statement are the company’s obligations under the Companies Act 2014. The breach of these obligations gives rise to an indictable offence.
Therefore, in general terms, the areas which the compliance policy statement needs to cover include:
- general compliance with the Companies Act 2014
- dealings in and maintenance of share capital
- making of directors’ loans
- preparation and maintenance of financial statements and adequate accounting records
- maintenance of statutory books and records
- making of Companies Registration Office returns
- general behaviour where a company may be facing insolvency
- compliance with Irish securities law, where applicable
The tax law obligations that are to be covered are the company’s obligations under Irish tax law generally.
Arrangements designed to secure material compliance: The requirement to have in place arrangements designed to secure material compliance with the company’s relevant obligations is satisfied if those arrangements provide a reasonable assurance of compliance with all aspects of those obligations. These arrangements can include reliance on the advice of individuals employed or engaged by the company where those individuals appear to the directors to have the requisite knowledge and experience to advise the company on compliance with those obligations.
What the compliance policy statement and the arrangements and structures might look like in practice
As there are only so many ways that a company can commit to complying with its relevant obligations, the compliance policy statement tends to be a concise document setting out the company’s commitment to complying with those obligations.
The arrangements and structures designed to secure material compliance may be expressed as a series of controls. These include reliance on the advice of suitably qualified employees or advisers before proceeding with a course of action. For example, the structure or arrangement designed to secure material compliance by the company in respect of its obligations around dealings in and maintenance of share capital could be that the company has appointed legal advisers. It could also be argued that it is the company’s policy to consult with those advisers on its share capital generally and specifically in connection with circumstances that may relate to the applicable indictable offences in the Companies Act.
The review requirement is an annual requirement. The scope of the review is the arrangements and structures that are in place to secure material compliance by the company with its relevant obligations. The review must have been carried out in the financial year to which the directors’ report relates and which contains the compliance statement.
Time will tell how the directors of most companies will choose to conduct this review and whether it will be undertaken in conjunction with the statutory audit or if a company’s internal audit function or compliance team will be charged with the task. The important piece for directors of companies in scope is to remember is that the review is not overlooked.
For directors of companies in scope, the giving of the compliance statement itself will become a matter of course when the directors’ report that accompanies the annual audited accounts is being prepared. However, the directors that are giving the statement must not overlook the importance of ensuring firstly, that the underlying arrangements or structures to secure material compliance are in place.
Secondly, they must ensure that those arrangements and structures are reviewed, at least annually, so that they are up to date and relevant. Having the required arrangements and structures in place to secure compliance and keeping them under regular review is not only a prescribed element of the legislation governing compliance statements, it can also generally assist the directors of a company in fulfilling many of its legal obligations.
For more information on the compliance statement requirement, please contact a member of our Corporate Governance & Compliance team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.