Irish Region

Between disruption caused by COVID-19 and constraints imposed to contain its spread, companies are faced with unprecedented levels of uncertainty. Reliance is placed on directors to take actions in response to an evolving situation that demands, on an almost daily basis, new measures which impact their businesses. As circumstances change, so too will the focus of directors but actions must always be informed by a director’s duties and other legal and regulatory obligations.

Director Responsibilities    

A director remains subject to his or her duties and responsibilities under the Companies Act 2014 (the “Act”) as well as a range of statutory obligations in other areas of law such as employment, health and safety and data protection. Directors must act with due care and diligence, the yardstick being what would be expected from a careful and diligent director in the same circumstances. Business decisions must always be taken in the interests of the company, while (under statute) taking into account the interests of other stakeholders such as employees and (if insolvency looms) those of creditors. Failure to comply with these statutory duties could result in personal liability for a director. A director will prudently also have regard to the interests of customers and suppliers, as those relationships can be integral to the success of the business.

In order for directors to lead a company’s response to meet the ongoing challenges and minimise the risk of being held to be in breach of duty, it is vital that they be able to communicate with one another and be able to take decisions (usually where a physical board meeting is not possible).

Protecting the Business   

The impact of the COVID-19 crisis on companies will vary depending on the nature of the business. Clearly those businesses that were required to close their doors will suffer greater financial hardship than those businesses that remain open. Directors’ ongoing access to management information will become important so that directors can make informed decisions.

In order to manage the current challenges, with a view to protecting the business for the future, the following factors will require consideration:

Operational Matters

Those companies with established business contingency plans may have a greater ability than others to continue trading by facilitating remote working by employees and having IT systems which permit directors and senior managers to access necessary financial and other information. The ability to communicate with employees, stakeholders, lenders and third parties such as suppliers is crucial.

Financial Matters

Clearly, fall-out from the COVID-19 crisis has had immediate and likely long-term implications for companies and so the company’s financial position needs to be monitored closely and cash flow managed. Credit risk of customers becomes an important consideration and costs will need to be cut to reflect the ability of a company to pay. Engagement with lenders may be required and waivers or payment holidays secured. Government assistance is available and, with financial advice, should be considered carefully.

Employees

Communication with employees is essential. Many employees will lose jobs (temporarily or perhaps altogether). Those employees who continue to work, for example, from premises or in delivery functions, need to be protected by adherence to health guidance protocols put in place and monitored by the company. The wellbeing of employees has become a key issue for employers so, to the greatest extent possible, reassurance should be given through regular communication about how the business is facing the challenge, with an explanation of decisions taken and the prospects for the company (where this can assessed).  

Customers, Suppliers and Markets

These need to be kept under constant review because the survival of a company will be dependent on its ability to trade in a particular market and on the ability of customers to request goods and services and to pay outstanding debts. Review of existing contracts to establish rights and obligations is required especially if a company is seeking to suspend or avoid contractual obligations. The ability to execute contracts through use of electronic signatures needs to be considered and Irish law facilitates this in many cases.  

Compliance Business as Usual

As the uncertainty around the COVID-19 situation becomes a greater risk for companies, the focus on transparency and accountability means that the legal obligations on directors in relation to matters such as accounting records and registers are more important than ever. Directors must ensure that their company keeps proper books and records to enable “at any time the assets, liabilities, financial position and profit or loss of the company to be determined with reasonable accuracy”.

Maintaining Adequate Accounting Records

The Act requires every company to record and keep details of payments made to or by it and to record its financial position. Adequate accounting records are essential to the company’s preparation of annual financial statements which must give “a true and fair view” of the company’s financial position. Company directors should continuously monitor the performance of a company (keeping proper books of account to assist in this regard) to enable them to ascertain the exact financial position and thereby enable them take decisions to meet the COVID-19 challenges and protect the future business of the company.  

Filing Annual Financial Statements

Unless exempt from doing so, a company must file its annual financial statements together with relevant documentation in the Companies Registration Office (the “CRO”) with the company’s annual return which must be filed by its annual return date.

The CRO had recently confirmed that the extension of filing arrangements for companies with an annual return date of 30 September 2020 or later, until 28 May 2021 (and subsequently 11 June 2021) would not be extended further. The Registrar has indicated that this will herald the start of a return to normalisation of CRO practice in relation to outstanding/late annual return filings in the coming months, including reminders, enforcement warnings, and where necessary, enforcement action up to and including involuntary strike off. 

The directors’ report must include a fair review of the business of the company, and a description of the principal risks and uncertainties facing it. The review must, to the extent necessary for an understanding of the particular matter, include an analysis of financial key performance indicators, and, where appropriate, an analysis using non-financial key performance indicators, including information relating to environmental and employee matters.  This review may prove especially difficult to undertake currently.