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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

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Authorities ramp up enforcement of foreign companies’ non-compliance with national anti-bribery laws

In recent years, multinationals have increased their efforts to mitigate the risk of commercial bribery in particularly given the wide-reaching applicability of the UK Bribery Act.

The prosecution of commercial bribery has once again become a key issue following the amendment of the Anti unfair Competition Act (AUCA). With the restructuring of the act’s anti-bribery provision, which dovetailed with the national anti corruption movement, the government appears to be cracking down on unlawful commercial activities by both domestic and foreign companies.

Foreign companies’ compliance with anti-bribery laws is set to become as big a focus area as domestic companies compliance with foreign laws.

What constitutes commercial bribery under AUCA?

The AUCA defines ‘commercial bribery’ as “using money, things of value, or other means to bribe with the purpose of obtaining transactional opportunity or competitive advantage”. Possible recipients of unlawful commercial bribery under the AUCA are limited to:

  • the employees of a counterparty to a transaction;
  • organisations or individuals entrusted by a counterparty to a transaction to handle relevant matters; and
  • organisations or individuals that use their power to influence a transaction.

In this sense, the AUCA not only includes counterparties as potential recipients for commercial bribery purposes, it also prohibits the provision of discounts to counterparties or the payment of commission to intermediates unless the discount or commission is offered and accepted in accordance with the agreement and in an honest manner. In addition, where commercial bribery by an employee is demonstrated, the AUCA requires the employer to prove its irrelevance; otherwise, the employer is liable.

If you have any concerns or require some assistant contact our expert team on 08702281999 or send us an email info@stanleycarter.co.uk

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Corporate Compliance

Don’t be complacent with your corporate compliance

As a normal citizen, we deal with compliance every day whether or not we are aware of it. Every time we obey traffic lights and stop our car when the light turns red, we are being compliant with local traffic laws. When we stand clear of the train doors after a train announcement, we are compliant with safety regulations.

Compliance is everywhere around us and the workplace is no different. But how does this everyday action translate to the business world? What does compliance mean for a company and how can businesses ensure they are maintaining their compliance?

What is the purpose of corporate compliance?

The purpose of corporate compliance goes beyond following the letter of the law. A recent study cited that almost two-thirds of organisations believe that their compliance efforts helped reduce the legal cost and resolution time of regulatory issues and fines.

Corporate compliance is about prevention as much as it is about obeying the law. The right compliance strategy can keep your company out of hot water, protect your employee data, and keep your company out of hot water.

To better understand where corporate compliance comes into play, we have outlined a common example of corporate compliance failure.

Does that sound like something straight out of a Mission Impossible film? It’s not; It’s actually happening to Goldman Sachs. The company is accused of promoting a company culture that enabled two of their bankers to steal billions from the Malaysian government. The Goldman Sachs x 1MDB scandal is just the latest example of a financial compliance failure.

Corporate compliance is about control and consideration. Is corporate compliance the most interesting part of your business model? Of course not; but it is a vital component to the health of your business. Before you decide to innovate to try and get ahead, make sure you are staying compliant in the process.

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

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FRC needs greater transparency

Despite some negative coverage in recent months, the majority of the Financial Reporting Council’s (FRC’s) stakeholders still consider it to be independent of the auditing profession.

corporate governance, FRC, UK
More transparency needed within corporate governance

However, the UK audit watchdog could do more to help itself; particularly when it comes to convincing institutional investors who are the most concerned about its independence, by making its processes and outcomes more transparent.

Given the variety of areas that the FRC covers, nevertheless, a number of clear messages for the FRC come across, not least that as an organisation that holds others accountable, it also needs to be seen to be holding itself accountable to the same measures.

More than a quarter of institutional investors told researchers that they did not believe the FRC was independent of the audit profession. Reasons cited include the fact it hires many ex-auditors, it receives funding from audit firms, and a suspicion that it does not always hold auditors as accountable as they should be.

When you’re setting standards of governance for other companies and telling companies what they should be doing, then you have to be whiter than white.

Stakeholders want more transparency in the FRC’s disciplinary and enforcement activities.

One way round this issue would be for the FRC to step up its communication about its goals and activities, the researchers suggest. They point out that those stakeholders who are more engaged with the FRC have a greater understanding of its internal processes and constraints. Increasing outreach and communication with less-engaged stakeholders could help to improve favourability and perceptions of transparency.

In response, the FRC says that it has already made changes to meet many of the issues raised, including revising its governance structure to improve processes, publishing its register of interests and investing in its enforcement division.

For your corporate governance queries send us an email on info@stanleycarter.co.uk or check our website for details

www.stanleycarter.co.uk 

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The new Accounting rules and the Banks

When launching or running a business, one of the most important responsibilities is to keep your finances in order.

Whether it’s hiring an accountant, opening a business account or registering with HMRC for corporation tax or VAT, there are a number of tasks to be done when you set up, and a bewildering array of banks, software companies and accountancy firms on hand to help.

UK Bank, UK economy
Bank in the UK economy

On 1 January 2018, a new accounting standard for how banks report on financial instruments, IFRS9, comes into force.

Financial reporting standards rarely sound exciting to non-accountants, but this one will have a real effect on banks and the economy. Impairment losses are the largest factor affecting bank profits, so changing how they are calculated will have a real effect.

Financial policy is currently going through a period of change, since fixing one problem can often prompt another. In this case, changes to a little-known accounting rule could well make lending to the real economy look very different.

Banks will now be required to estimate future losses on their lending. Come the New Year, they will be looking with great interest in ways to introducing new models to calculate “expected loss”. They will then have to hold larger credit provisions against this – in other words, even more rainy day money.

However, IFRS9 is no solution for all problems. In fact it may lead to volatility, inconsistency, lack of comparability, and the exacerbation of financial instability.

An estimate of future losses is just that; an estimate, and a highly subjective one at that. If a recession is predicted, these expected losses will accelerate, even if the current economic situation is gracious.

The requirement to hold more capital amplifies this, hence the increase in volatility.

But banks don’t like volatility, and their shareholders like it even less. This is therefore likely to mean banks change who they lend to and how they treat the customers they do lend to.

Any unsecured lending, for example, is likely to come under intense scrutiny. Banks won’t want to show erratic performance, so may reduce this type of business. There may also be particular sectors that show wide variations in loan losses. Banks will treat these industries less favourably too.

Comparisons between banks will be difficult, since their views of the future could be radically different.

The practicalities of considering several possible scenarios, calculating the probability of each occurring, and modelling the impact will be extremely challenging.

This may mean that banks intervene a lot sooner than businesses have been used to in the past. Businesses with some performance issues may find the bank manager knocking on the door sooner rather than later, perhaps to look at the prices of the loans.

In this way the standard could exacerbate financial instability, rather than countering it.

No accounting rule is perfect. But there is a misconception that IFRS9 will fix more than it can, and its shortcomings may become evident very soon.

Rather than creating technical issues over which accountants and analysts scratch their heads, this has the potential to influence how banks are perceived, with real knock-on effects to the economy and access to finance.

The more people understand some of the challenges in the new rules, the less likely we are to see businesses affected. This is why it is so important to increase understanding of what this change to the rules will mean.

If you think this will affect your business and require further information or help please send us an email info@stanleycarter.co.uk or check our website for further information www.stanleycarter.co.uk 

 

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Corporate governance

Compliance with the UK corporate governance code among FTSE 350 companies has improved this year, but governance and reporting remains “patchy”

According to Grant Thornton’s (GT) corporate governance review, 66% of the 350 biggest UK companies declared full compliance, up 4% from last year.

However, only 33% of the FTSE 350 provided informative insights, down from 64% in 2014.

The report found that longer-term viability statements, internal control reporting and gender diversity had seen little improvement since last year, while investor engagement continues to decline.

Moreover, only 12.5% of the FTSE 350 reported that the remuneration chair held face-to-face meetings with shareholders regarding executive remuneration.

Grant Thornton also revealed diversity in the boardroom still lacked improvement, with only 26% of FTSE 100 board roles filled by women and 77% of the FTSE 100 and 85% of the FTSE 250 without a woman in an executive role.

The report also found improvements in culture-related reporting, with 39% of companies now providing a strong overview of the culture of their organisation, up from 20% last year.

But GT said it was “disappointing” that only 29% of CEOs made personal reference to culture in their opening statements despite the Financial Reporting Council (FRC) recently highlighting the role’s importance in setting and embedding a company’s culture.

For the UK economy to thrive post-Brexit then companies needed to ensure they were complying with governance requirements.