What is a Directors Compliance Statement?
The requirement for a directors’ compliance statement to be included in an Irish company’s financial statement is provided for in section 225 of the Companies Act 2014 (the “Act”) and applies to directors’ reports attached to financial statements for periods commencing on or after 1 June 2015. A directors’ compliance statement requires directors to acknowledge their responsibility for securing compliance with relevant obligations and to confirm that they have:
- drawn up a compliance policy statement setting out the company’s policies (that, in the opinion of the directors, are appropriate for the company) regarding compliance by the company with its relevant obligations;
- put in place appropriate arrangements or structures that are, in the directors’ opinion, designed to secure material compliance with the company’s relevant obligations; and
- conducted a review of such arrangements or structures during the relevant financial year.
If the directors are unable to confirm any of these three requirements they must provide an explanation as to why they have not been able to do so.
What are relevant obligations?
Relevant obligations refers to the company’s obligations under tax law as well as its obligations under the Act, where a failure to comply with any such obligation would (where it to occur) be a category 1 or category 2 offence, a serious market abuse offence or a serious prospectus offence or, in the case of a traded company, a serious transparency offence.
Who is required to prepare a Directors Compliance Statement?
This requirement applies to directors of the following companies:
- all PLCs (other than PLCs that are investment companies under Part 24 of the Act);
- all private companies limited by shares, designated activity companies, and guarantee companies provided that in respect of the financial year to which the directors report relates, the balance sheet total for the year exceeds €12.5 million and the amount of its turnover for the year exceeds €25 million
Are you exempt?
Directors of certain companies are exempt from the obligation to prepare a compliance statement: investment companies, unlimited companies and certain other companies that are subject to an exemption at the discretion of the Minister for Jobs, Enterprise and Innovation, due to the manner in which they are regulated.
What are the sanctions for failure to prepare a Directors Compliance Statement?
Failure to comply with the requirements of Section 225 is a category 3 offence which, on conviction, can result in a term of imprisonment of up to 6 months and/or a fine of up to €5,000.
What are the next steps for directors?
Directors need to review the application of section 225 to their company and assess what steps need to be taken for directors’ reports for financial periods commencing on or after 1 June 2015 to ensure compliance and to avoid potential criminal sanction under the Act.