Richard O’Rawe

Chair

Leading Governance Limited

Welcome

Our speakers

• Karla Dooey – Arthur Cox

• James Fair – Harbinson Mulholland

• Steve Mungavin – CIPFA

• Joy Allen – Leading Governance

Lead from your seat

Boardroom dynamics

Ignorance is no defence

Laws and codes

Strategy and results

Performance and conformance

Karla Dooey

Associate, Corporate & Commercial

Arthur Cox

Directors’ Duties Knowledge is your Protection

Leading Governance Conference

Tuesday 12th November 2013

Know your Directors’ Duties or………..

THIS COULD BE YOU!

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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

karla.dooey@arthurcox.com

Tel: 028 9023 0007

DD: 028 9026 5543

James Fair

Audit Manager

Harbinson Mulholland

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Finance and Risk Are you asking the right questions?

James Fair, Harbinson Mulholland

13/11/2013 32

Value for Money • Economy

• Efficiency

• Effectiveness

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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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A Salutary Tale

13/11/2013 42

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?

Steve Mungavin

Head of CIPFA Northern Ireland

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

Please come back at 11.15

Joy Allen

Managing Director

Leading Governance Limited

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

Layers of governance Our

Needs

Best Practice

Governing Document

Law and Regulation

Leading boards drive both conformance and performance

The performance side

• Vision

• Values

• Strategy

• Risk management

• Performance management

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?

• Learning from failures – what went wrong?

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 are the brain of the organisation

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

Leading Governance

Vision – the future for boards

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

Thank you

Please join us for lunch in the dining room on the first floor