Richard O’Rawe - Leading Governance · Richard O’Rawe Chair Leading Governance Limited ....
Transcript of Richard O’Rawe - Leading Governance · Richard O’Rawe Chair Leading Governance Limited ....
Our speakers
• Karla Dooey – Arthur Cox
• James Fair – Harbinson Mulholland
• Steve Mungavin – CIPFA
• Joy Allen – Leading Governance
Directors’ Duties Knowledge is your Protection
Leading Governance Conference
Tuesday 12th November 2013
Overview
Who is a Director and who do Directors’ Duties apply to?
What are Directors’ Duties?
What other restrictions do Directors face?
Administrative & Compliance Duties
Penalties for breach of Directors’ Duties
Personal Liability
The Role of a Director
Directors have:
– overall responsibility for how a company is managed and run.
– oversee, supervise, govern and control the company’s activities and operations.
– determine direction and strategy, monitor and review performance against agreed targets and objectives and make revisions where necessary.
The role of a Director will vary depending on the size and
type of company.
Who is a Director?
A director is "any person occupying the position of director by whatever name called" (Companies Act 2006 s250).
It is not the title or name they are given, but what a person does that determines whether he or she is a director.
Companies Act 2006 makes no distinction between directors according to their type or title and prescribes that all directors have the same statutory duties and obligations.
You do not have to be formally appointed to be a Director!
Formally Appointed Directors
Executive
– Full time working director.
– Duties and responsibilities extend to the whole of the company’s activities and operations and not just their specialist area.
Non-executive
– Not an employee of the company and not involved in day to day management or running of the business.
– Only have to devote part of their time to the company’s affairs.
Nominee
– A person who acts as non-executive director on behalf of another entity such as a bank or non-resident.
Alternative
– A person appointed to attend a board meeting on behalf of a director who is unable to attend.
Associate Director
– A generic term used as a courtesy title for senior executives who do not hold a position on the company's board but is a way
of indicating and validating their seniority e.g. Divisional Director, Director of HR.
Directors who have not been formally appointed
Defacto Director
– A person who acts like a director, is held out by the company as a director and who claims to be a director, without having been formally appointed to the board or whose appointment is later found to be improper.
Shadow Director
– A person in accordance with whose instructions the directors of the company are accustomed to act. A shadow director often claims not to have been appointed as a director.
What are Directors’ Duties?
Historically it was established that Directors’ Duties fell into 2 categories:
– Fiduciary duty of good faith and loyalty – Common law duties of skill and care
Directors also owed the company an equitable duty of confidence Directors’ Duties were codified in the Companies Act 2006
Duties are owed to the Company
If Directors’ Duties are breached, companies have been able to take action to recover their property
or to obtain payment of damages from the director as compensation for the loss incurred by the company and to recover any personal profit made by the director.
The 7 Statutory Duties - Companies Act 2006 s171
Directors have a duty to:
– Act within their powers
– Promote the success of the company
– Exercise independent judgement
– Exercise reasonable care, skill and diligence
– Avoid conflicts of interest
– Not accept benefits from third parties
– Declare interests in transactions or arrangements
Restricted and Prohibited Transactions
Loans to directors – used to be prohibited
Substantial property transactions
Service contracts
Payment for loss of office
Other Considerations
Shareholders
Financial accounts
Health & Safety - Health and Safety at Work (NI) Order 1978
Stakeholders – employees, environment, customers, creditors
Administrative & Compliance Duties
Duty to maintain minutes of meetings and for a period of ten years (s248) - £1000 fine
Duty to notify registrar of changes to directors or their particulars (e.g. their addresses) within 14
days of the change (s167) - £5,000 fine
Duty to keep register of directors (s162) – £5,000 fine
Duty to notify registrar of changes to company articles (s26) – £1,000 fine
Duty to notify of changes to secretary or their details (s276) – £5,000 fine
Register of charges against the company – £5,000 fine
Duty to keep register of secretaries (s275) – £5,000 fine
Duty to file annual return on time (within 28 days of the annual return date) (s858) - £5,000 fine
Duty to maintain proper accounting records (s387) – liable on conviction on indictment to
imprisonment for a term not exceeding 6 months (here in NI) or a fine, or both.
Administrative & Compliance Duties
Duty to display the company name at the registered office, every office and premises where business is carried on, in a position that can be seen by a visitor to the premises, and is visible 24 hours a day
Duty to arrange insurance (director personal liability insurance and employer liability insurance)
Duty to retain documents such as:
– Minutes of meetings and resolutions of directors and members for at least 10 years after the decision
– Employment records - 3 years
– Documents relating to national insurance contributions – 3 years
– VAT records – 6 years
– Bank statements – 3 years
– Statutory registers, certificate of incorporation, articles of association - permanently
Penalties for Breach of Duty
Dismissal
Consequences of breaching general duties
Consequences of breaching statutory duties
Personal liability
Disqualification - The Company Director Disqualification (Northern Ireland) Order 2002
Voluntary disqualification undertaking
Ratification of a breach
Derivative claims
Some Examples
Tinelly Integrated Transport Ltd
• Estimated total loss of £4.5 million
• Non-payment of tax and insurance
• Two directors charged with unfit conduct
• Boardroom bans of 8 years for both
Some Examples
Colin Fletcher
•Debts of £12.4 million
•Boardroom ban of 9 years
•Misconduct, misuse of company funds, and late filing
of statutory documentation
Some Examples
Tenderlean Meats
•Debt of £6,951,000
•210 bounced cheques
•Director disqualified for 8 years from
boardroom and senior management positions
Tips for Complying with your Directors’ Duties
Act in the company’s best interests, taking everything you think relevant into account.
Obey the company’s constitution and decisions taken under it.
Be honest, diligent, careful and well informed about the company’s affairs. If you have any special
skills or experience, use them.
Make sure the company keeps records of your decisions.
Remember that you remain responsible for the work you give to others.
Avoid situations where your interests conflict with those of the company. When in doubt disclose
potential conflicts quickly.
Seek external advice where necessary, particularly if the company is in financial difficulty.
Contact us
Karla Dooey, Associate
Tel: 028 9023 0007
DD: 028 9026 5543
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Unknown
• No-one knew how many vehicles, or what kind. • No guidance whether to purchase or lease. • No use of approved supplier. • No system for sharing so other departments had to
hire. • Different hire firms used at different prices.
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• If you are a ned or a charity trustee/director you have an oversight role.
• Accountable to whom?
• Accountable for what?
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Directors Responsibilities • The Directors are responsible for preparing the Director’s Report
and the financial statements in accordance with applicable law and regulations.
• Company Law requires the directors to prepare financial statements for each financial year. Under that law, the directors have elected to prepare financial statements in accordance with United Kingdom Acceptable Accounting Practice.
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Directors Responsibilities
• Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and the profit or loss of the company for that period.
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In Preparing Financial Statements, Directors Are Required To….
• Select suitable accounting policies and then apply them consistently
• Make judgements and estimates that are reasonable and prudent
• Prepare financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
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Disclosure of Information to Auditors
• To the knowledge and belief of the directors, there is no relevant information that the company’s auditors are not aware of, and the directors have taken all steps necessary to ensure the directors are aware of any relevant information, and to establish that the company’s auditors are aware of the information.
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Commercial R&D
• Main questions focus on:
– Trading Sales
– Cash Burn
– Cash Horizon and Assumptions
– R&D Outcomes
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By the end of the morning, no-one in the room is in any doubt what the current issues are and what state the finances are in.
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The board focused on one large area of risk: that could be a • Pension deficit • A contract or lease to renegotiate • A particularly high exposure to redundancy costs
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There Was Income Projected: • That had already been received • That had never really been receivable • Where targets would be missed so no further claims could be
made • Where targets had been missed and refunds would have to be
made • For donations that were optimistic given the imminent downsizing
of operations (people don’t donate/invest to pay redundancies)
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Challenge The Organisation:
• Are resources well managed? • Are the projections robust? • Are assumptions reasonable? • What if income falls 5%? • Where are the gaps in cashflow? • What liquid reserves do we need as a contingency? • If we lose a major funder/customer how much time do we have to
replace? • Who has been assigned a task?
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• WHAT KEEPS YOU AWAKE AT NIGHT?
• WHAT KEEPS YOUR MANAGEMENT AWAKE ON A SUNDAY NIGHT?
www.cipfa.org
A Governance ‘kitemark’ – clarity, improvements, results
Stephen G Mungavin, Head of CIPFA Northern Ireland
12 November 2013
www.cipfa.org What is excellent Governance?
Many (over 130) guides and standards used by the sector, governance includes:
PQASSO (good for small organisations) Good Governance – Code for Voluntary & Community Sector (ACEVO) The Code of Good Governance (Developing Governance Group
NI) - self-assessment checklist (optimum bias) DSD Guidance “Setting Standards Improving Performance..Best
Practice in Finance & Governance (compliance) Compass Partnership & CASS Business School “Delivering
Effective Governance” (larger charities) The Good Governance Standard for Public Bodies (CIPFA & OPM) DFP and CIPFA ‘On Board’ Guide for Board members of Public Bodies (2010)
www.cipfa.org
Focus on Purpose
and Outcomes
Promoting Values and demonstrating good governance through behaviour
Taking
informed, transparent decisions and managing risk
Performing
effectively in clearly defined functions and roles
Developing capacity and capability of the governing body to be effective
www.cipfa.org
Can good governance be sensibly assessed? Some basic principles:
Depth of assessment
Breadth of assessment
Objectivity of assessment
Best to be proactive rather than reactive
www.cipfa.org
Starting the kitemark journey Quick check – some basic governance questions that
need to be answered
Self-assessment:
Accountability framework
Core and supporting processes
Capability
Monitoring and review arrangements
Communication and consultation arrangements
Assurance framework
www.cipfa.org
Towards a Kitemark Independent assessment Validating evidence Conducting interviews Observing Forming expert opinion
Continuous improvement Regular review Organisational development (EG EFQM framework)
www.cipfa.org
…..but, beware ‘kitemark’ pitfalls
Dynamic and fast-changing environment
Risky, not immune from weakness
Resource intensive?
Adding to bureaucracy…yet another layer!
Fears - e.g. mandatory requirement
www.cipfa.org
What is the incentive –why bother? Lighter touch regulation/inspection ‘Earned autonomy’ and more strategic freedom External recognition Demonstration of strong leadership Credibility with stakeholders Setting a standard for others Longer-term sustainability
Modern Governance
• What is it?
• What do leading boards do?
• What can we learn from the failures
• What can we learn from the best?
• How can we help?
• Vision of the future for boards
Hierarchy for governance improvement Developing effective governance 2012
Behaviours
Meetings
Process
Structure
Increasing difficult to implement change
Increasing gain from improvements
What’s the difference that makes the difference? • Mindset
– We’re only volunteers – you can’t expect much – It’s hard to get new board members – ‘They’ seem to do a great job
• Behaviours – Leave it to the CEO – No check and balances – Accept whatever information comes – rubber stamp
Mindset of leading boards
• We need the right people
• Doing the right thinking
• Having the right conversations
• Asking the right questions
• Making the right decisions
Behaviours of leading boards • 100% attendance is expected and achieved • Board development, recruitment, training and review
are continual processes • Real support and challenge – to the CEO and each
other • Clarity about delegation • Relationships and team development • Bring in external support early when needed
Round Table Discussion
• Think of three things you have found interesting or useful
• Think of three things you would like to learn more about
Ask the Panel
• Richard O’Rawe, Leading Governance
• Karla Dooey, Arthur Cox
• James Fair, Harbinson Mulholland
• Steve Mungavin, CIPFA
• Joy Allen, Leading Governance