Profitability & Cashflow- The Keys to a Successful Business

High Court Judge says directors need regular management accounts.

Top company law expert Brian Walker in his seminars on the Companies Act 2015 which will come into law on 1st June 2015 highlighted serious risks for company directors who fail to manage their businesses properly. The onus on company directors now extends to having knowledge of:

1) Basic Corporate Governance Rules including the relevant sections of the new Companies Act 2014.

2) Other enactments such as Health & Safety Law, Employment Law, Equality Law, Revenue Law, Data Protection, Waste Management, Fire Services Acts, Food Safety & Hygiene etc.

3) Common Law derived from previous and higher court decisions and now established as precedent.

4) The constitution of the company replacing the old Memo & Articles of Association.

5) Directors of companies subject to audit will need to certify a Directors Compliance Statement.

As previously mentioned, ignorance of the law is not an excuse for non-compliance and the new Act increases the onus on directors to be fully compliant. Two High Court cases are very relevant:

1) In a 2009 High Court case Mr Justice John MacMenamin held that brothers Michael and David Rochford, directors of MDN Rochford Construction Ltd, Blanchardstown, Co Dublin, had acted irresponsibly in running their company which went into liquidation. He said “it was the directors’ responsibility to ensure there were monthly management accounts available to them to ascertain whether the company was trading profitably”. He also stated” It was not unusual for company directors to confuse and misconceive increased turnover as improved profitability but this was no excuse”. (The bothers were found guilty and banned from acting as directors or managers of a company for five years).

2) ‘Wife/Spouse’ directors are as responsible as ‘full-time’ directors as determined in a High Court case (Durty Nellys, Bunratty) over 30 years ago. Equally directors from a technical background who would not have been familiar with company law and who may have relied on other directors to look after such matters are equally responsible when things go wrong.

Excuses such as “I was not responsible/aware of what was going on in the company” will cut no ice. The Office of the Director of Corporate Enforcement (ODCE) will be using the new laws to ensure all directors fully comply with all their responsibilities.

I believe the challenge now is for all company directors to fully grasp the realities of the new laws. For those who’ve operated on a ‘It will be alright…’ basis in the past, they need to realise they must carry out all their responsibilities and they might actually be held accountable for actions or failure to act.

Contact Sean Donnelly