Company Directors’ Responsibilities

Directors in today’s global market are increasingly being held personally liable for their actions that harm their companies, as well as facing civil and criminal liabilities for failing to comply with the procedures and requirements of various laws. Further, there are several Acts, for which the violation thereof can result in criminal sanctions, including fines and even imprisonment. Directors can find themselves subject to criminal sanctions for such minor infractions as late filing or inadvertently filling out a form incorrectly.

By accepting the assignment as a director, the director establishes a contractual relationship with the company based on two distinguishable obligations:

  1. obligations relating to the functioning of the company; and

  2. management obligations.

Both categories are in the exclusive competence of the director. The obligations relating the functioning of the company pertain to all acts aimed at ensuring the operations of all corporate bodies, to which the director is responsible by law or by the Articles of Association of the company. In this context, the following can be included: the obligation to call the shareholder meeting; the responsibility to prepare and approve the draft budget and to convene the meeting for approval. Furthermore, the obligation to keep accounting records; to announce, register and fulfil the duties of the Business Register. The director is prohibited from acting in conflict of interest with the company or in competition with the latter.

The management obligations indicate all acts aimed to achieve the corporate purpose. For example, the obligation to provide the company with an adequate organisational and accounting structure, to guarantee safety in the workplace and to ensure that the company is acting in accordance with the law. From this point of view, the most important obligation is to act with diligence, i.e. to identify and implement all the necessary measures to take care of the interests of the company.

The scope of this obligation is measured on the basis of two criteria:

  1. nature of the assignment, where all characteristics of the company administered – such as size, activity performed, organisational structure and the position held by the director within the administrative body must be considered;

  2. specific skills, according to the particular knowledge of the director, his technical and managerial skills and his actual experiences need to be kept in mind.

In the event of a court judgment, the Judge will evaluate the director’s behaviour based on the aforementioned criteria. The level of diligence required from a long-experienced managing director of a multinational company may be different from that of a director of a private company with small turnover volumes.

If the following conditions are fulfilled, a Director is liable of non-fulfilment or incorrect fulfilment of his obligations:

  • the director has, in the performance of his duties, adopted a behaviour in violation of the duties and obligations provided law or by the Articles of Association;

  • this behaviour caused damage;

  • a causal link between the behaviour of the director and the damage exists (i.e. the damage is an “immediate and direct consequence” of the behaviour).

Actions to enforce the liability of a director of a limited liability company can be raised:

  • by the company itself,

  • by company’s creditors,

  • by individual shareholders and third parties, if the behaviour of the directors caused damage to them;

Directors can minimise their risks by being aware of their duties and responsibilities and ensuring that they are performed prudently and diligently. Among the steps that a director can take to minimise his liability are the following:

  • attend directors’ meetings regularly;

  • ensure that delegated authority is exercised properly;

  • ensure that directors’ decisions are implemented properly;

  • document measures taken to prevent mismanagement

It is notable that the director holds the position of the company’s legal representative according to the Companies House, based on which a lawsuit is in practice often filed together with a lawsuit against the company. For example, in an employee dismissal case, the director may be sued as the second defendant and claiming for compensation due to his authority to make a decision for the aforementioned act on behalf of the company. However, the law sees the director as a legal representative which is granted protection in terms of personal liability to third parties for any act that has been done prudently and diligently within the scope of his authority. By virtue of his legal representation, such action shall be attributed to the company.

If you need any assistance or require further information regarding company directors responsible please contact us on 0870 228 1999 or email us on info@stanleycarter.co.uk

Positioning Compliance as the Distinction

As the threat landscape has become more perilous and complex, regulators have imposed a wide array of mandates designed to protect sensitive personal information. For most organisations, compliance is seen as the cost of doing business. However, if executed strategically it can not only improve a company’s overall security posture but shortens sales cycles and open the business to new markets.

In order to turn compliance from a check-the-box line item into a valued business initiative, businesses need to identify all global, local and industry regulations that apply to their business and, also, strategically implement the processes and technologies that keep them compliant. Whether you’re targeting specific industry or going after international customers, entering new markets requires continuous education about the latest in compliance and regulatory standards as they relate to data privacy and security.

A good way to get started is to put together a roadmap for how you will get, and stay, compliant with the regulations relevant to your business. What follows is an outline of such roadmap.

Start with the Basics

When you are building a house, a foundation is the key to a safe structure. This holds true for building a compliance roadmap.

Once the foundation has been set, it’s then time for the compliance, IT and security teams to determine which regulations apply to their business. This is the backbone of the compliance roadmap. The good news is that many of these regulations overlap so businesses can complete requirements for multiple regulations at the same time

The Roadmap Focal Point: GDPR

The General Data Protection Regulation (GDPR) brought compliance into the mainstream. When GDPR passed, it established strict regulations for how organisations must handle customer data. The regulation is so broad, stringent and complicated that it has motivated many companies to create new job titles to ensure compliance.

However, while there have been strict compliance regulations before, it’s the high financial stakes attached to GDPR that set it apart. A business can be fined up to 4% of its global revenue if it’s found to be non-compliant. Very few organisations can afford to take that kind of hit which is why so many make it the centre piece to their compliance strategy.

The privacy implications of GDPR are extensive but one of the most important and challenging requirements is the data breach notification. Organisations must notify authorities or specific data subjects within 72 hours of a breach. Most organisations are unable to locate sensitive consumer information within their environment, making this requirement near impossible. However, if the organisation puts data controls into its systems and enacts continuous monitoring and real time intrusion detection, it not only becomes achievable but improves internal processes. 

Compliance can be a powerful differentiator and business driver that inspire trust and confidence amongst prospects, customers and external partners. Although the above standards and regulations require extensive resources, non-compliance can result in fines and other punishment that can cripple a company. It’s important to remember that these compliance standards and regulations may have to be revisited, but once put into place and assigned to a dedicated compliance team; the once daunting task pays for itself.

For more information on how to meet your business compliance obligation get in touch with us on 08702281999 or contact us via info@stanleycarter.co.uk or further details on our website www.stanleycarter.co.uk.

Brexit challenges and competitive advantage

As organisations seek to harness information to maintain and grow competitive advantage, the importance of developing a clear data strategy is becoming increasingly evident among enterprises. 

As the clock ticks on towards a no-deal Brexit on October 31st, the effects are already beginning on the UK economy.

The pound has hit a two-year low, and the economy contracted by 0.2% in the second quarter of this year. This is bad news for home based growth and a clear motivation for companies to look elsewhere for new opportunities, fuelling their move into new markets.

Not every business can follow Dyson’s business structure and set up a new HQ on another continent, but fast growth businesses looking to maintain their trajectory towards unicorn status are certainly eyeing the EU.

It’s clear that our nearest trading partners still exert a significant pull on UK enterprises consider Starling Bank’s recent £75m funding round to power their European expansion, or furniture retailer Made.com plans to move into four additional EU countries in 2019, bringing its total footprint to 13 across the continent.

Brexit will bring with it all kinds of challenges when looking to expand across the channel. One often overlooked challenge is around maintaining basic business communications.

Without a suitable communications plan in place for a post-Brexit transition, businesses may find it increasingly difficult to communicate with overseas offices, colleagues and contacts due to complex and varied regulatory requirements.

Businesses must consider that each new market must navigate the varying legal regimes and requirements, and make costly infrastructural investments with high potential costs (fines, operating restrictions, even criminal culpability for business owners) for getting it wrong. As a final anti inducement, many European regulators still accept only hard-copy paper-based applications in their native language to be filled out in triplicate.

If you need any assistance or require further information please contact us on 0870 228 1999

Every CEO cares about compliance

But not every CEO makes compliance a top priority. That means compliance wouldn’t be just a company issue, but also a personal one.

Pressure to strictly follow the rules comes from other directions as well. Various regulatory bodies have long signalled their intentions to hold executives individually responsible. Unlike before, executives accept the responsibility for compliance. Even more significantly, they now will accept the risk of noncompliance. Meeting that standard will require a lot of adaptation, and it needs to begin now.

Building Beneficial Partnerships

It’s unrealistic to expect CEOs to bear the entire compliance burden. The CEO should get help from the Chief Compliance Officer (CCO) in achieving compliance.

No matter the company’s regulatory requirements, it’s vitally important that the CEO works to supply the necessary tools and resources to enable the CCO perform his core duties, as well as serve as a primary point of communication and guide for ensuring a culture of compliance within its business.

Again, comprehensive support is key; consider the breadth of responsibility a CCO assumes, including serving as in-house expert to stay up to date about the latest regulatory revisions; acting as program director to build the company’s specific compliance policies; communicating the importance of compliance across the entire organisation; and evaluating and continuously monitoring compliance performance.

Each of these roles is important, and together they lead to consistent compliance. Increasing the compliance department’s budget is one way the CEO can help to strengthen compliance efforts. Additional funds could be used to hire staff, bring in consultants and managed service providers, or pay for professional development. These investments are necessary to stay compliant, and therefore necessary to keep executives out of trouble.

When the company does well by its customers in areas of compliance, after all, it receives a committed customer base in exchange.

Staying Away From Trouble

To be sure, the reason regulators are getting tough is not to penalise executives; it’s to underline the importance of compliance even in the midst of today’s fast paced, ever disruptive economy. In that context, staying compliant is an urgent obligation, but it’s also an opportunity for executives and their companies who embrace it. Here are a few strategic steps to ensure compliance is a consistent priority:

  1. Build a compliance dashboard: Compliance is a systematic process. A number of third-party organisations sell compliance checklists tailored to specific industries and even individual companies. Following one of these governance checklists (under the supervision of the CCO) is an effective way to check all the boxes of compliance. As the CEO, emphasise that your company’s compliance policy must align completely with the checklist guide. Finally, make time to review your checklist and dashboard with the CCO periodically to stay on the right side of ever-changing regulations.
  2. Make compliance part of the culture: One reason companies have neglected compliance is that the penalties have been relatively small. Now, in addition to executive penalties, compliance breaches lead to bad publicity and lost consumer confidence. The simple fact is that compliance breaches hurt companies in deep and lasting ways, so they must be avoided at all costs. Talent, technology, and policies can serve that effort. In the end, however, compliance is consistent only when the company culture mandates it. As the steward of the organization, the CEO can do a lot to cultivate that culture: Regularly talk about the importance of compliance, participate in compliance planning and training, and provide a personal example for your company
  3. Fully support the CCO: The CEO should be eager to support the CCO at every turn. That becomes especially important if and when a compliance investigation starts. The CEO should oversee the investigation process, ensuring that it’s conducted fairly and transparently. Satisfying the requirements of investigators is a lot easier if CEO is also willing to invest in effective technologies, such as information archiving. That way, any documents requested by regulators are easily retrievable from a searchable database. The right tools make compliance easier on everyone.

A new era of accountability is coming, and CEO must adapt. It’s time to stop thinking of compliance as an obscure subject or noncompliance as a minor setback. It affects the entire organisation, and it starts at the top. CEO who get in front of this issue place both themselves and their companies in greater positions to succeed. For those who don’t, compliance is about to get a lot more contentious.

For all your business and corporate needs give us a call on 0870 228 1999

or send us an email info@stanleycarter.co.uk or check our website for further details www.stanleycarter.co.uk

How to Empower Small Businesses with Compliance

Compliance can significantly save SMEs time and money and make achieving compliance more than a goal they never achieve.

Compliance is a top priority for organisations of all sizes and industries. However, ensuring compliance with industry regulations can prove particularly challenging for SMEs, which commonly lack the resources leveraged by larger enterprises.

To effectively help small and medium-sized businesses achieve compliance, you must first understand the difficulties they face in doing so. SMEs bound by regulations must devote time and effort to fulfilling their compliance related duties on a regular basis. Unlike larger companies, they often can’t afford to employ in-house compliance officers, so the responsibility of ensuring the business obeys regulations ends up on the plate of an already busy CEO, director, business manager, or office administrator.

Maintaining compliance is far from easy.

There’s auditing, daily enforcement of proper processes, and keeping up with current events to make sure the business continues to meet regulatory requirements. Due to the high importance of adhering to regulations and the amount of labour needed to properly do so, many small businesses turn to a third party to take over compliance, since outsourcing is more affordable than hiring an in-house staff member to oversee the process.

Subsequently, Stanley Carter presents a significant area of opportunity for SMEs seeking assistance.

For all your business and corporate needs give us a call on 0870 228 1999

or send us an email info@stanleycarter.co.uk or check our website for further details www.stanleycarter.co.uk

Auditing in the UK is undergoing unprecedented scrutiny.

The magnifying scope is focusing on all aspects of the sector

The multitude of reviews, some of which are ongoing, are being conducted by regulators, politicians and government departments, each separately looking at audit’s effectiveness, competition across the sector, and its future in general.

High profile failures of big high street names have captured the headlines and raised questions of ‘where were the auditors?’ resulting in some having a lack of confidence in the sector’s effectiveness.

Concerns have also been raised over a conflict of interest in firms selling consultancy services, while their auditing arms are carrying out an audit in the same company.

This has prompted suggestions that a full structural or operational split could be the answer.

Outside of the reviews and reports, the general public have identified what they see as one answer to improving corporate reporting; a good and clean audits.

Despite audit being under growing and intense scrutiny, the public still regard it as part of the solution to what is perceived as unacceptable corporate behaviour.

The purpose of an audit is to ensure that financial statements give a true and fair view, ensuring that material fraud is detected, and appropriate levels of professional scepticism are applied.

Everyone with an interest in financial reporting and strong corporate governance has a responsibility to work together to address the public’s legitimate concerns about audit.

It is clear that the profession must continue to focus on improving audit quality, working proactively with other stakeholders to support better understanding of the auditor’s role.

But, most importantly, all stakeholders connected to the audit process; such as regulators, professional bodies, investors, governments and the media; have a responsibility to inform the public in a fair, balanced and understandable way about audit regulations and standards. It is in the public interest that they do so.

For all your business and corporate needs give us a call on 0870 228 1999

or send us an email info@stanleycarter.co.uk or check our website for further details www.stanleycarter.co.uk

Would the new corporate governance code have saved Carillion?

Carillion, the second largest building contractor in the UK and the lead on a number of key public service contracts, entered into liquidation last week. Various commentators have highlighted poor governance at the company but would the revised UK Corporate Governance Code recently announced by the Financial Reporting Council (FRC) have prevented its collapse?

What caused the collapse?

There are differing views as to what caused Carillion’s problems but many have pointed at internal failings and a poor governance culture. Roger Barker, Head of Corporate Governance at the Institute of Directors said “it is clear that major providers of public services must be governed in a prudent manner”. He suggested that the collapse highlights a lack of effective governance at Carillion and questioned whether the board and shareholders acted appropriately before the collapse.

The Government has acknowledged these worrying signs and has ordered an investigation into the conduct of Carillion’s directors. Executives at the company are said to have tweaked rules in the firm’s bonus scheme to make it harder for those bonuses to be clawed back if the company failed. This sounds like the executives were trying to preserve their own position at the expense of shareholders’ interests. The bonuses have been branded ‘exorbitant’ in the House of Commons.

Further concerns related to the excessive pay of former chief executive Richard Howson who received £1.5 million in 2016. Carillion also agreed to continue paying his remuneration until October this year, handing him a £600,000 salary.

Many believe that the directors of Carillion did not follow responsible internal processes. Recognising the crippling debt, and other significant problems the company was facing, they should have acted in the best interests of the company and looked to minimise the risk of collapse, which eventually became unavoidable.

The revised corporate governance code

Poor corporate governance, particularly excessive executive pay, has been a hot topic for reform in the last 12 months. The FRC has opened a consultation on those proposed revisions after undertaking a ‘comprehensive review’ of the code.

In the consultation document, the FRC highlights the heightened public scrutiny faced by the country’s largest companies and the impact poor internal governance can have on a wide range of stakeholders. So could the proposed changes help to prevent another Carillion failure?

The revised, ‘shorter and sharper’ code aims to encourage high standards by being clearer and more concise. It focuses on the application of principles relating to stakeholders, integrity, corporate culture and diversity.

Excessive pay

A significant change, introduced in an attempt to tackle excessive levels of executive pay, relates to shareholder dissent and the percentage of votes against a resolution. So when more than 20% of shareholders vote against a resolution, the company should: explain the actions it intends to take following the vote; publish an update on the position within six months of the vote; and provide a final summary in the company’s annual report setting out the steps taken as a result of the vote.

To increase transparency, the Investment Association has introduced a public register that lists companies which have experienced high levels of shareholder dissent. The first published list shows that, at their last AGMs, 24 FTSE All-Share companies received significant shareholder votes against their remuneration policies and 43 had 20% or more votes against their remuneration report.

The new code should give shareholders more say in how company executives are remunerated. The excessive pay levels at Carillion may have been tackled earlier had the directors had a greater responsibility to address shareholder concerns.

Employee engagement

The new code will require boards to establish a mechanism by which they can engage with the company’s workforce and gather its views. The collapse of Carillion will have serious repercussions for its 20,000 employees whose jobs are now in limbo. Perhaps if the board had engaged more directly with those employees and been required to listen to their concerns, steps could have been taken to safeguard their position.

Section 172 duty and stakeholder engagement

The Government intends to introduce legislation which would oblige companies to explain how they have complied with the requirements under section 172 Companies Act 2006 to take account of stakeholder interests when making decisions. This is needed to increase transparency and ensure the internal processes adopted by a company promote its success and are for the benefit of its members as a whole, whilst also taking account of wider stakeholder interests.

Carillion’s supply chain is thought to include up to 30,000 small businesses who had already suffered persistent late payments before the firm’s final collapse. The changes to the section 172 duty are intended to highlight that it’s not just the shareholders who are affected by the decisions of a company’s board of directors.

The future of governance

Whilst a range of factors contributed to Carillion’s collapse it is right that poor governance practices are being highlighted as a key contributor. But whether the new corporate governance code would have prevented the collapse is unclear. Ultimately, the new requirements will only bite if shareholders and investors are prepared to step in and hold boards to account.

The new code should help to increase transparency in a number of key areas, helping stakeholders to understand what is going on behind closed doors. Preventative action could then be taken to stabilise any struggling company before it reaches the point of no return as Carillion did earlier this month.

Give us a call on 01612056655 or email us on info@stanleycarter.co.uk or check our website for further details www.stanleycarter.co.uk

HMRC penalties to corporate Directors

The number of personal penalties levied by HM Revenue and Customs (HMRC) against corporate senior accounting officers (SAOs) remained high last year.  The figures showed that HMRC was taking an aggressive approach to enforcement. HMRC office

Given the scale and complexity of the money flows in large businesses, simple errors in the finance department can result in mis-reporting and subsequent fines. Finance directors need to understand all the requirements set out by HMRC. The policies, procedures and systems in place to ensure tax compliance need to be carefully monitored to avoid the potential for mistakes,”

There are two types of personal penalty that can be issued under the regime: firstly, for failing to take steps to ensure the accounting arrangements are adequate; and secondly, for failing to provide an annual certificate either confirming the arrangement are adequate or disclosing details of the deficiencies. Accounting arrangements are considered ‘adequate’ if they enable all relevant tax liabilities to be calculated accurately in all material respects.  Businesses can also be fined under the regime for failing to provide the name of their SAO to HMRC.

The total number of penalties issued under the SAO regime last year was actually lower than the number issued in each of the previous years.

If you have any queries about your tax or HMRC penalties send us an email on info@stanleycarter.co.uk or check our website for further information www.stanleycarter.co.uk

The UK’s financial regulation system is a protection racket for the elite

There’s no easy way of saying it: political corruption is endemic in the UK. Regulatory bodies and government departments resemble protection rackets with one aim: to protect elites and corporations from retribution – and prevent parliament from developing effective laws. We’ve just seen the latest example.

The Financial Conduct Authority (FCA), the UK’s banking regulator, has just refused to publish its 361-page report on misconduct at the state-controlled Royal Bank of Scotland (RBS).

The FCA investigation was prompted by the Tomlinson Report published in November 2013, which showed that instead to rescuing struggling businesses, banks made money by asset-stripping and destroying them. This was followed-up an investigation by the FCA and in November 2016 it published what purported to be a summary of its full report.

Subsequently, the BBC obtained a leaked version of the report. It referred to “inappropriate action” by RBS’s Global Restructuring Group (GRG) against struggling businesses. The group was supposed to nurse them back to health.

Instead, the inappropriate action experienced by 92% of the businesses included complex loans, higher interest rates, and unnecessary fees. Businesses could not easily return to good health. For the period 2013-2015, GRG handled 16,000 companies – and about 10% survived.

Many ended up in administration and liquidation, with their assets were sold cheaply. RBS has set aside around £400 million to deal with possible claims. The secret FCA report is not only an indictment of RBS, but also of other banks, accountants and lawyers who have long feasted on small businesses.

Now, after some arm-twisting, the FCA has agreed to permit a lawyer advising the House of Commons Treasury Committee to compare a summary of the report. This is not good enough.

People are entitled to see the full scale of the scandal, and remedial legislation cannot be drafted without sight of the whole report. Yet the regulator’s impulse is to shield RBS and its accomplices.

New month, new blog!

Hello! Welcome to the Stanley Carter blog,  Stanley Carter are corporate services providers, providing day to day company secretarial services support to accountants, solicitors, leaseholders, entrepreneurs and various other clients in the United Kingdom. Our client base is worldwide with particular emphasis on those clients that operate with United Kingdom Corporate entities.

We have skilled, experienced advisors who will be able to keep you abreast of changes in company law and practice, attend to the formalities required to keep good corporate governance and ensure that you have a complete set of statutory records for your company. We will take an active concern in the well being of your company and help you to meet deadlines set by the Companies Act and government regulations for the filing of documents, without the risk of prosecution or penalties. We work hard to deliver a quality service and to provide you, our client, with fast and efficient support. As your company secretary, regulatory compliance is one of our main duties. We need to ensure that your organisation complies with all relevant legislation. This is done by ensuring that the necessary policies are in place, raising awareness of the policies, monitoring compliance and giving advice as and when necessary.