In light of the recent changes to Company Legislation and Charity Legislation, it is important for Directors of Charitable Companies to focus on their duties and responsibilities. Of course in Charitable Companies having adequate corporate governments is extremely important, but even more so given the clear legislative framework which has been provided to them.
Changes from the Companies Act 2014
The Companies Act 2014 established a new form of a company called a Company Limited by Guarantee or CLG. The existing form of company limited by guarantee converted on 1st June 2015 into a Company Limited by Guarantee and this is the form of Company usually chosen by Charities. The Company may within the transition period change its name to the new suffix CLG and if it doesn’t the Company Registration Office will issue a new Certificate of Incorporation on 30th November 2016.
Therefore it is incumbent on all Boards of Charities to review their existing Memorandum and Articles of Association and check within consistencies with the mandatory provisions of the 2014 Act. If changes are required to be compliant with the 2014 Act, then the approval of the Revenue Commissioners will need to be obtained if the Company has charitable status.
Section 225 of the Companies Act 2014 introduces a new requirement for Directors Compliance Statement to be prepared. This obligation applies to CLGs were both the balance sheet is greater than €12.5 million and turnover is greater than €25 million.
The Compliant Statement is effectively confirmation from the Directors that they have:
- Drawn up a Compliance Policy Statement as to compliance by the Company with Company Law and Tax Law.
- Put in place appropriate arrangements or structures designed to secure material compliance with that Law.
- Conducted a review during the Financial Year of those arrangements and structures and found them to be appropriate.
Duties of Directors under the 2014 Act
Part 5 of the 2014 Act for the first time clearly sets out in legislation the current Common Law and equitable principals regarding Directors duties which will ensure greater clarity for Directors.
The duties as set out in this part of the Companies Act can be broadly broken down into fiduciary duties (previously developed and detailed by means of Case Law) and general duties (recognising certain Common Law duties also including and expanding upon existing Statutory Duties).
The general duties which Directors owe to the Company in a performance of their role includes:-
- Compliance with legislation.
- Act in the interest of Shareholders and Employees.
- Prepare Compliance Statement if required.
- Appoint a suitably qualified Company Secretary.
- Duty to disclose any interest in contracts made by the Company.
- Breach of duty: Liability to account and indemnify.
Fiduciary Duties of Directors
The fiduciary duties of Directors are set out in Section 228 of the Act and are:
- To act in good faith
- Act responsibly and honestly
- Act within powers
- Regarding the use of company property the Director is not permitted to use the Company’s property information or opportunities for his own or for anyone else’s benefit.
- To use independent judgment and not restrict his or her power to exercise this independent judgment.
- To avoid conflict of interests.
- To make decisions using all due care, skill and diligence (this is a quasi-objective standard by which a Director should be judged).
- A duty to have regard to Shareholder’s interests.
Breach of Duties
Where an Officer of the Company is shown to have acted honestly and reasonably the Court may grant relief to that Officer.
The codification and classification of Company Law offenses as well as duties of Directors provides more clarity to Directors and removes ambiguity surrounding their roles that may have existed.
The Charities Act 2009
The Charities Regulatory Authority was formerly established on 16th October 2014 on foot of the Charities Act 2009. It is the Charities Regulatory Authority (CRA) that has responsibility for the registration and regulation of Charities in Ireland and not the Revenue Commissioners. However, it will be incumbent on Directors of Charitable Companies to ensure compliance with the Revenue Commissioners’ Rules where the Company has charitable status from the Revenue Commissioners and also to ensure compliance with the Regulations which will concern the CRA.
Some important points for Directors from the Charities Act 2009
(i) It is provided in Section 10(2) that if any offence is committed by a Company with the consent or connivance of a Director or Manager than that Director or Manager can be found guilty of the same offence.
(ii) There is a duty to register as a Charity and it is an offence to hold a Company out as a Charity without registering.
(iii) There is a duty to keep proper books of account and it is an offence if proper books of account are not kept
(iv) There is a duty a file an Annual Return with the Company Registration’s Office and also with the CRA.
(v) There is a duty to report a potential theft or fraud to the CRA. It is an offence if this potential theft or fraud is not reported. There could be concerns around this section regarding potential defamation issues but it is important to note that there is a partial defence to defamation actions relating to this Section, but legal advice should be obtained by Directors where they have such a circumstance.
(vi) The CRA has extensive powers to conduct investigations and has power to direct handing over of certain documents. There is provision in the Act for entry and search of premises by the CRA.
It is important for any Directors of Charitable Companies to seek legal advice to ensure compliance with the Legislation which now applies to their Company. They should seek legal advice also to ensure that the appropriate form of Corporate Governance is in place.
Comyn Kelleher Tobin Solicitors
Tel: + 353 21 4626900
Fax: +353 21 4223872