Ten most common corporate governance sins

And how to avoid themCorporate Governance update

Kevin Prendergast

Head of Enforcement, ODCE.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Companies Act

New form LTD company Single director

No Memo of Association

Meetings by written record

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

Companies Act

DAC Equivalent to current private limited company

Memo and articles, two directors, formal meetings

Current corporate governance issues apply

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

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

Question & Answers

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