Up Again Ireland: Governance


1. What are the key topics that boards should focus on to ensure proper discharge of their duties as directors, as their businesses return to work following a lockdown?

In the context of businesses returning to work post lockdown, boards should have regard to the following topics:

  • Employee wellbeing: Directors should continue to prioritise employee wellbeing in accordance with government guidelines, with employee health and safety remaining the primary concern. Clear and effective communication with employees and stakeholders is crucial. For more information, see the People section of these FAQ.
  • Strategy: Directors have responsibility for strategic and risk oversight. In addition to reviewing the strategic plans to respond to the conditions resulting from the crisis and new ways of working, the board should conduct a review of its risk register to consider potential new or increased risks and, where necessary, prepare mitigation/remediation plans. This strategic review should include an impact analysis of the crisis on key customers/markets and supply chains, and consider if the business could optimise its operations through corporate reorganisation.
  • Mergers and acquisitions: COVID-19 leaves the current deal market in an uncertain state and is likely to result in lower equity valuations for companies. Transactions that do proceed are likely to carry further seller risk. This is likely to present opportunities for some companies with cash reserves and strong balance sheets to engage in strategic acquisitions. It will leave other companies susceptible to being the target of an acquisition. Boards should understand potential vulnerabilities that leave them open for acquisition and, where possible, mitigate these risks.
  • Liquidity: Depending on the sector, companies may continue to see lower than forecasted cashflow, delayed payment of receivables, and the requirement to prioritise or expedite certain key payables. The board should ensure a full and continued review of its cash position is carried out, including a review of its banking facilities (including any financial covenants), committed expenditure and the availability of alternative means of support (such as government assistance) to ensure that the company continues to be able to pay its debts as they fall due.
  • Share repurchases and dividends: In light of the decline in equity valuations, and the likely need to prioritise cash reserves, directors should reconsider any planned share repurchases and dividends.
  • Facilities and infrastructure: Boards should review facilities and infrastructure requirements in light of the changed economic outlook, new working trends and ensure that they can implement government restrictions and guidance, particularly as they relate to social distancing. The board should be aware of the specific health and safety responsibilities and obligations imposed on directors, breach of which could result in prosecution by the Health and Safety Authority.
  • Annual financial reporting: Audit processes may have slowed or stalled due to government restrictions on travel and social distancing. Boards, or audit committees, have an obligation to ensure the that the audited financial statements are approved on time, and as part of this they have a requirement to report any significant post-balance-sheet events. Large companies, with an obligation to include a Directors Compliance Statement in their financial statements, should ensure the annual review process of their arrangements for ensuring compliance with the Companies Acts and Tax Acts is prioritised, as recent events may have delayed this process and revealed weaknesses in those arrangements, and allow time to address them. For entities whose securities trade on a regulated market, ESMA and the CBI have allowed an extension of two months for annual reports, and one month for half year reports, with year-ends occurring before 1 April 2020. This is not expected to be extended.
  • Communication: Boards should maintain open, factual and timely communication with all shareholders and stakeholders to proactively keep everyone updated on the status of the company.

2. Should boards adopt particular governance practices in this context?

Boards should adopt the following governance practices as businesses return to work:

  • Board and committee meetings: Boards should continue to hold board or committee meetings with increased frequency, while adhering to government guidelines on travel and social distancing. These may need to be facilitated through telephone or other electronic means in accordance with the company’s constitution. Minutes should be prepared of all formal/informal meetings that capture the matters discussed and the reasoning behind their decisions. Boards should ensure that effective communication channels are maintained with management and that, in particular, up-to-date, robust financial information is regularly received so that directors can make informed decisions in real-time.
  • Crisis management committee: Where a crisis management committee has been established, the board should keep the parameters and authority of the committee under review and ensure there is appropriate oversight. The board may need to review the terms of reference of other committees and any delegated authorities to ensure the company can continue to operate effectively. Standard internal controls may also need to be reviewed to ensure they continue to be effective and appropriate in these evolving circumstances.
  • Business continuity and succession: Boards should review their succession plan for the board and senior management team to proactively manage potential temporary gaps that could arise as a result of the crisis. For example, this may include proactively appointing alternative directors, where not in place already, and contingency planning to backfill key positions quickly.
  • Annual general meetings: Boards may have previously deferred the holding of annual general meetings if it was not possible to hold a virtual AGM. If so, boards should arrange to hold the AGM in accordance with the constitution of the company and government guidelines on travel and social distancing.
  • Annual Filings: Boards should be aware that the company’s filing obligations may not have been extended during the COVID-19 crisis. A company’s annual return (being its report and accounts) must be filed with the Companies Registration Office within 28 days of its annual return date. The CRO initially confirmed that all annual returns due to be filed by any company up to 30 June 2020 would be deemed to have been filed on time if all elements of the annual return are completed and filed by that date. This arrangement has been extended to 31 October 2020. Annual returns falling beyond this date have not had their deadline extended.

3. To what extent are boards being encouraged to take into account corporate purpose and values in the context of COVID-19 and a return to work?

As far as practicable, boards should continue to have regard to the corporate purpose and values of the company as businesses return to work.

The primary fiduciary duty for every director is to act in good faith in what the director considers to be the interests of the company. A director who has been appointed by the company’s shareholders is permitted to have regard to the interests of the appointing shareholder, if doing so doesn’t conflict with the interests of the company.

However, where the directors become aware that a company is insolvent, the interests of the creditors become paramount (see the section immediately below).


4. Your company is facing liquidity issues as a result ofCOVID-19:

a. What are the repercussions for continuing to operate your company?

When a business is solvent and trading normally, the directors have a duty to act in the interest of the company’s members as a whole. Where a company is trading through uncertainty, the directors continue to owe their duties to the company, but must take the interests of creditors into account. Typically, this means considering the impact material decisions (such as ongoing trading, incurring additional indebtedness, granting security or discharging creditors) might have on creditors. When a company is, or is on the verge of becoming, insolvent but is not yet in a formal insolvency process, the directors owe a duty to the company’s creditors not to conduct business in such a way as to prejudice their interests. The exact trigger point for any shift in focus will depend on the particular facts, but assessing the balance sheet, cashflow forecasts and risk of running out of cash will be determinative factors.

Under the Companies Act 2014, directors may be made personally liable, in circumstances where it is clear that a company does not have a prospect of survival:

  • for the debts of an insolvent company if they have knowingly carried on business in a reckless manner (known as reckless trading); directors may be held to have acted in a reckless manner where they ought to have known that their action would cause a loss to the creditors or where they allow the company to incur debt knowing it is unlikely that debt will be repaid; or
  • for the liabilities of an insolvent company if they have knowingly carried on business with the intent of defrauding creditors (known as fraudulent trading).

If a director held an honest and reasonable belief that the company could trade out of insolvency and improve the situation of the creditors, a director is unlikely to be liable for reckless trading. Liability for fraudulent trading is difficult to establish and requires actual dishonesty on the part of the director.

b. Do you have to file for insolvency if your company cannot pay all its debts as they fall due?

If a company cannot pay its debts when they fall due for payment, then the company is insolvent even if the value of its assets outweigh its liabilities. If such circumstances arise, then directors should promptly seek advice from their legal advisors. Such advice should cover any obligation to file for insolvency, any liabilities that may arise should the business continue to trade (including personal liability for directors) and any restructuring options that might be available by reference to the circumstances then existing.

One issue to be mindful of concerns reckless trading. This requires a high degree of carelessness. The director must have been a party to the carrying on of the business in a manner which they knew, or could be deemed to have known, involved an obvious and serious risk of loss or damage to creditors. If a director held an honest and reasonable belief that the company could trade out of insolvency and thereby improve the situation of the creditors, they are unlikely to be liable for reckless trading. However, where it is clear that a company cannot trade out of its difficulties, and it does not have a prospect of survival, the directors should take steps to put the company into liquidation.

c. Are there any steps that should be taken to minimise the risk of your actions as director being challenged?

In the current circumstances, directors must act in a reasonable and prudent manner. Directors should be able to demonstrate that they have carefully considered the interests of all stakeholders (including creditors). Accordingly, there are a number of steps directors should take to try to protect themselves from future challenge/scrutiny, including:

  • holding regular board meetings (especially given how fast the situation is developing) and ensuring decisions are recorded with reference to all factors taken into account;
  • ensuring that all directors have full information from the business (i.e. all accounts and financial statements, key contracts, and pipeline);
  • considering whether are any ways of minimising losses (e.g. temporarily closing down non-core operations);
  • seeking professional advice from financial advisors and lawyers;
  • investigating and monitoring the financial position and future prospects of the company (including stress testing, where appropriate) and maintaining regular management accounts, cashflow statements and projections;
  • ensuring the company’s books and records are current and accurate; and
  • considering whether outflows of cash to creditors can be managed/delayed (including through discussions with landlords, Revenue and suppliers).

d. Will your company be wound up if you fail to make payments when due?

If a company cannot pay its debts when they fall due for payment then the company is insolvent and liable to be wound up. Any winding-up proceedings must be commenced in the Irish courts, who are currently implementing a number of measures due to COVID-19 that may impact the timing for such proceedings.

At present, the Irish Courts Service has scaled back and refined its operations. Until further notice, the High Court will hear only certain categories of urgent business (including injunctions and their enforcement and examinerships). All other motions and cases listed for hearing this term (up to 28 May) are, until further notice, adjourned generally with liberty to re-enter. It remains possible to obtain consent orders from the High Court in all civil lists where the consent of all of the parties to the litigation has been confirmed to the court. From 27 April 2020, the High Court has piloted remote hearings in suitable cases. Further statements will be issued to provide updates on these developments and on measures designed to allow the maximum number of cases to progress, subject to safety limits.

Notably, on 30 April 2020, the Banking & Payments Federation Ireland (BPFI) announced that its members (including the five main retail banks, together with retail credit and credit servicing firms) confirmed that a further three-month extension to the current payment break would be made available to customers that continue to be directly affected by the fallout from the COVID-19 pandemic. This permits a payment break of up to six months in total. The BPFI also confirmed that the same extension arrangement will be available to COVID-19-affected customers who have not yet applied for a payment break.

The majority of proceedings already issued by lenders with upcoming return dates may be adjourned by the Courts Service without the need to take any further action. However, where cases can be regarded as urgent (e.g. because protective steps need to be taken), lenders may need to consider applying to progress the same (notwithstanding the commitment to defer referred to above). This is likely to be determined on a case-by-case basis.