10 Corporate Governance sins and how to avoid them. Company Law Update

2. Ten most common corporate
governance sins
And how to avoid them
Corporate Governance update
Kevin Prendergast
Head of Enforcement, ODCE.

3. Company law isn’t rocket science
 There are no hidden surprises
 Most matters can be addressed simply
 The worst thing you can do is ignore an
issue

4. Corporate Governance Sins
1. Don’t keep accounts
 Breach of the law
 Most prosecuted offence for directors
 No idea if making a profit or loss as a business
 If leads to insolvency, a separate offence
 Could lead to personal liability in insolvency

5. Corporate Governance Sins
2. Borrow money from your company
 This is a criminal offence
 Your auditor has to report it
 Easier to prosecute since 2009
 Can be resolved without money having to be
paid

6. Corporate Governance Sins
3. Don’t file your financial statements on time
 Fees and penalties
 Loss of audit exemption for two years
 Risk of strike-off

7. Corporate Governance Sins
4. Fight with your fellow directors
 Board meetings may not take place
 AGM’s may not take place
 Financial statements may not be signed or filed
 Must be resolved in High Court, public and
expensive

8. Corporate Governance Sins
5. Don’t have meetings
 No opportunity to take strategic look at the
business
 No opportunity to raise issues
 No record of key decisions taken by the
company

9. Corporate Governance Sins
6. Don’t keep minutes
 Criminal offence
 No official record of decisions
 No proof if legal disputes between directors
 No defence if facing civil proceedings

10. Corporate Governance Sins
7. Get struck off the register
 Lose limited liability
 Question mark over legality of contracts
 May be committing an offence
 12 months to get re-registered with CRO
 Thereafter wait for a High Court hearing

11. Corporate Governance Sins
8. Don’t deal with financial difficulties
 If put into liquidation, liquidator will review
at least last 12 months of trading
 Directors may face restriction or even
disqualification proceedings
 Directors may be made personally liable for
some or all of the debts

12. Corporate Governance Sins
9. Don’t have a strategy and business plan
 Business will lack direction
 Management and staff will have no guide to
their work
 No awareness of or plan for opportunities and
threats

13. Corporate Governance Sins
10. Leave it to the accountant
 The legal obligations rest with directors
 Accountants cannot face company law criminal
actions
 Your accountant can advise

14. What can accountants do?
 Put systems in place to ensure basic
responsibilities are complied with
 Check agenda items for meeting to ensure
they include corporate governance
/compliance matters
 Keep directors informed of new
developments

15. Systems for filing requirements
 Annually (on ARD)
 Financial statements
 Audit report unless exempt
 B1 Annual return
 When necessary
 Change in directors/registered office
 Change in Memo and Articles
 Register of a charge against company

16. Current position on Irish Corporate
Governance
 At all levels of business, corporate
governance is a key topic
 For quoted companies, the Corporate
Governance Code has expanded
requirements of Chairmen and Audit
Committees

17. Current position on Irish Corporate
Governance
 The public sector has its own Code issued
by the Department of Finance
 The not for profit sector has developed its
own three tier code
 Codes for SME’s also available

18. Current position on Irish Corporate
Governance
 Internationally
 OECD Code on Corporate Governance
 At EU Level
 EU Directives on corporate governance
disclosures for quoted companies
 Continued focus on wider corporate governance
Directives

19. Current position on Irish Corporate
Governance
 Nationally
 The Companies Act brings major changes for
ordinary private companies
 Single director companies
 Decisions by signature rather than meeting
 Reduced formal structures for corporate governance
 This may not always be for the best

20. Companies Act
 New form LTD company
 Single director
 No Memo of Association
 Meetings by written record

21. LTD company
 Corporate governance issues
 No ultra vires – easier to obtain finance?
 Single director – removal of “silent partner”
 Written record of decisions – need to maintain
that record for evidential as well as legal
purposes

22. Companies Act
 DAC
 Equivalent to current private limited company
 Memo and articles, two directors, formal
meetings
 Current corporate governance issues apply

23. Companies Act
 CLG
 Company limited by guarantee will also have
Memo and Articles
 2 directors
 1 member (down from current 7)
 Need for formal meetings retained

24. Companies Act
 New opportunities may be a temptation to
relax adherence to corporate governance
best practice
 This may have long term repercussions
 Insolvency
 Access to finance

25. Question & Answers
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