Get it right with directors compliance statements
The Companies Act 2014 (the 2014 Act) requires directors of certain companies to include a compliance statement in the annual directors’ report accompanying the financial statements for financial years commencing on or after 1 June 2015.
Those who must comply include directors of:
- Private limited companies where, in respect of the financial year relating to the directors’ report, the balance sheet total exceeds €12.5 million and the turnover amount exceeds €25 million, and
- All plcs (except investment companies).
Some companies are exempted, including ‘qualifying companies’ under section 110 of the Taxes Consolidation Act 1997 and certain regulated companies.
Content Of The Statement
The statement in the directors’ report must include:
- An acknowledgment that the directors are responsible for securing the company’s compliance with its relevant obligations and
- Either a confirmation that the following three things have been done or, if not, an explanation why not:
- a compliance policy statement has been drawn up;
- appropriate arrangements or structures have been put in place designed to secure material compliance with the company’s obligations; and
- review of such arrangements or structures has been conducted during the relevant financial year.
Relevant Obligations
Relevant obligations are the company’s obligations under tax law and its obligations under the Companies Act 2014, where a failure to comply would be a category 1 or category 2 offence; a serious market abuse offence; a serious prospectus offence; or, in the case of a traded company, a serious transparency offence. All offences are categorised under the 2014 Act, from category 1 (the most serious) to category 4 (the least serious).
Compliance Policy Statement
The compliance policy statement will likely be short and simple. The directors should confirm the company’s intention to comply with its relevant obligations and communicate the policy to all employees.
Appropriate Arrangements
The directors are required to confirm that they have put in place arrangements or structures designed to secure material compliance with the company’s relevant obligations. It is likely that this requirement will be satisfied if the company either employs suitably qualified senior executives or engages professional advisors.
The company should also ensure that employees are aware of the requirement to comply with relevant obligations and facilitate access to the persons tasked with ensuring compliance, (e.g. the finance director or tax advisor).
Annual Review
The directors’ annual report must confirm that a review has been conducted of the arrangements or structures that have been put in place to ensure compliance.
Comply Or Explain
The directors can chose not to provide the required confirmations and instead specify the reasons why any or all of them have not been done.
Criminal Offence
Directors who fail to comply with this section will be guilty of a category 3 offence, which on conviction can result in a term of imprisonment of up to six months and/or a fine of up to €5,000.
What Should the Board Do Next?
Directors should review whether their company is in scope and, if so, assess what steps need to be taken.