Corporate Governance Update June 2015

DOMESTIC DEVELOPMENTS

The Companies Act 2014 enters into force

The bulk of the Companies Act 2014 entered into force on Monday 1 June 2015, with the commencement of a small number of provisions being deferred.

The following six provisions will only apply in respect of financial years beginning on or after 1 June 2015: 

  • Section 167 - audit committees;
  • Section 225 - directors' compliance statement;
  • Section 305(1)(b) and Section 306(1) – disclosure of directors' remuneration and gains on exercise of share options;
  • Section 326(1)(a) – list of directors of company during financial year in director's report; and
  • Section 330 - directors' audit confirmation.

The transition period for conversion of existing private limited companies to either a company limited by shares (LTD) or a designated activity company (DAC) also commenced on 1 June and will run for 15 months for conversion to a DAC and 18 months for conversion to a LTD.

Central Bank issues Board / Corporate Governance Requirements for Fund Management Company Boards
The Central Bank recently published a document for Fund Management Company Boards including:

(a) Guidance on Organisational Effectiveness
The Central Bank sets out Guidance on the Organisational Effectiveness role which includes examples of the types of matters which the independent director undertaking the organisational effectiveness role will be involved in:

  • Monitoring the adequacy of a fund management company’s internal resources to its day-to-day managerial roles.
  • Reviewing the organisational structure of the fund management company and considering whether it remains fit for purpose.
  • Considering the conflicts of interest affecting the fund management company and its investment funds under management and initiating action, such as escalation to the board, where these are having or are likely in the near future to have an adverse impact.
  • Reviewing the board composition and reporting on this to the board.
  • Organising periodic board effectiveness evaluations and overseeing how well the decisions taken by the fund management company and the arrangements for the supervision of delegates are working in the interests of investors.

(b) Guidance on directors’ time commitments
The Central Bank currently considers that a reasonable number of working hours available for each individual is approximately 2000 per year. This is based on a 9 hour day and 230 working days per annum. This ‘total’ time allocation should be considered by individuals when taking on new directorship roles and should include all professional commitments including other directorships and employments held. The Central Bank intends to treat high levels of directorships combined with high aggregate levels of annual professional time commitments as a risk indicator. The Central Bank believes that a reasonable number of directorships is 20 (all directorships of any nature are included in this figure).

The Central Bank intends to engage directly with individuals with these high levels of directorships combined with high aggregate levels of time commitments. In the rare case of the proposed appointment of directors who already hold in excess of the defined number of directorships and the defined number of annual hours representing aggregate professional time commitments, the Central Bank will:

  • Request a letter from each board which will set out the proposed time commitment for that director in accordance with the Irish Funds voluntary Corporate Governance Code.
  • Withdraw from corporate Qualifying Investor AIF which proposes such a director, the option of the 24 hour authorisation time-frame. In each such case the Central Bank will be considering additional enquiries which will not be capable of being completed within that timeframe.

Previously authorised investment funds which continue to have individual directors who hold more than the defined numbers of directorships and aggregate hours representing annual professional time commitments after 1 January 2016 will be given priority consideration for inclusion in Central Bank thematic reviews where board effectiveness is being tested in any respect.

Corporate Governance standard for Government Departments – consultation launched
The Minister for Public Expenditure and Reform has published a proposed Corporate Governance Standard for Government Department which is open for public comment as part of a consultation process.

The Civil Service Renewal Plan (2014) contains a commitment to strengthen corporate governance in the Civil Service in line with international best practice. This is to be achieved by the introduction of a common governance standard for all Government Departments.

A four week public consultation process has been commenced on the proposed standard and submissions should be sent to governance@per.gov.ie by 26 June 2015.

The outcome of the public consultation process will be fed into a revised Corporate Governance Standard.

UK DEVELOPMENTS

Public company fined £4.65m by the FAC for breaching Listing Rules
The Financial Conduct Authority (FCA) in the UK has fined Asia Resource Minerals plc (ARM), formerly Bumi plc, £4,651,200 for having inadequate systems and controls to comply with its obligations as a listed company, breaching various rules applicable to listed companies and failing to identify related party transactions valued at just over £8m.

The FCA found that ARM committed serious breaches of Listing Principle (LP) 2, Listing Rules (LR) 8 and 11 and Disclosure and Transparency Rule (DTR) 4 in the period 28 June 2011 to 19 July 2013.

EU DEVELOPMENTS

EU Council agrees on general approach to single - member private limited liability companies
On 28 May 2015, the European Council agreed on a compromise text for a draft directive aimed at creating a new framework for single-member private limited liability companies.

The draft directive aims to facilitate the cross-border activities of businesses across the EU, particularly SMEs, and the establishment of single-member companies as subsidiaries in other Member States, by reducing the costs and administrative burdens involved in setting up these companies.

To achieve this objective, the draft directive introduces a common framework governing the formation of single-member companies.
Member States would have to ensure that their national legal systems provide for a form of company that complies with common rules established in the directive. The legal form would be established at the national level. It would have an EU-wide abbreviation, the SUP (Societas Unius Personae).

A major innovation in the draft directive is that the SUP can be registered on-line using templates provided by member states.

Currently, the minimum capital required for the formation of a single-member private limited liability company varies among the Member States. The general approach for the SUP would be a symbolic minimum share capital requirement of €1 (or one equivalent unit of a member state's currency if not the euro).

In order to ensure adequate protection of creditors and other stakeholders, Member States will have to ensure that their national laws provide mechanisms to prevent SUPs from being unable to pay their debts. According to the European Council, examples of such mechanisms include requiring companies to create legal reserves, establish balance sheet tests and/or issue a solvency statement.

For more information please contact Sinead Kelly at skelly@algoodbody.com.

Date published: 23 June 2015