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Directors’ compliance statement

24 February 2016

What does a company with a 31 December year end need to do?

The Companies Act 2014 imposes an obligation on directors of certain companies to make an annual compliance statement in the directors’ report that forms part of the company’s statutory financial statements. In this statement, the directors must acknowledge that they are responsible for securing the company’s compliance with its ‘relevant obligations’, i.e. provisions of the Act the contravention of which is a category 1 or category 2 offence (the most serious categories of offences), serious market abuse, prospectus and transparency requirements (where applicable) and tax law.

The directors’ report must confirm that the directors have:

  • Drawn up a compliance policy statement setting out the company’s policies respecting compliance with its relevant obligations
  • Put in place appropriate arrangements or structures that are designed to secure material compliance with its relevant obligations
  • Conducted a review during the financial year of the arrangements and structures put in place.

If this statement and confirmations and reviews have not been made or carried out, the directors must specify the reasons why not.

What companies does it apply to?

The obligation will apply to:

  • All public limited companies (except certain investment companies)
  • All other large private companies and guarantee companies. In this context, ‘large’ means having a balance sheet total exceeding €12.5 million and turnover exceeding €25 million.

The obligation does not apply to unlimited companies. It is possible that regulations will be made in future to exempt other types of companies (such as Section 110 special purpose vehicles) from the requirement to produce a directors’ compliance statement, although this has not yet been confirmed.

When does it apply?

The obligation to include a directors’ compliance statement in the statutory financial statements of a company will apply in respect of all financial years commencing on or after 1 June 2015. Any PLCs and large private companies with a 31 December year end should have their compliance policy statements and appropriate compliance arrangements or structures already in place.

What do I need to do?

Companies in scope will need to consider drafting a compliance policy statement and putting in place appropriate arrangements or structures that are designed to secure material compliance with the company’s relevant obligations, in advance of the financial year to which the first directors’ compliance statement relates. A company, its officers and employees should familiarise themselves with the relevant obligations under the company and tax law, and determine how the company proposes to ensure that these obligations are complied with.