Department of Community, Rural and Gaeltacht Affairs

1
Department of Community, Rural and Gaeltacht
Affairs

• Governance of Local Development Companies
• Dr Tom Courtney

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Overview of Presentation

• The Company Law Framework.
• The Memorandum and Articles of Association.
• Governance of Companies Members Directors.
• Directors
• - Nomination Appointment
• - Rotation
• - Removal
• - Quorum
• - Governance Reporting.
• The Chairperson.
• Committees Advisory Councils.
• Conflicts of Interest.
• Model Corporate Governance Policy.

3
The Company Law Framework

• Local Development Companies (LDCs) will be public
  guarantee companies (without a share capital).
• Incorporated under Companies Acts 1963 to 2006.
• Upon its incorporation, the company will be an
  artificial legal person with a separate legal
  personality to its members and directors.

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The Company Law Framework

• Limited Liability Company a misnomer!
• The Companys liability is unlimited!
• Its Members liability is limited to their
  guarantee.
• The guarantee can be a low as 1 cent which would
  only become payable upon a liquidator calling
  upon the members to contribute to the Companys
  debts.
• Its Directors are not liable for the Companys
  wrongs or liable under its contracts unless they
  assume responsibility.

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The Memorandum and Articles of Association

• Corporate Constitution.
• Memorandum of Association
• Name Clause.
• Objects Clause (Main, subsidiary and powers).
• Liability Clause.
• Winding Up Clause.
• Income and Property Clause.
• Alterations Clause.
• Keeping Accounts.
• Association Clause.
• Articles of Association Internal Rules

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Memorandum Name Clause

• Every company must have a distinguishable name.
• Department is setting down no requirements.
• Adherence to the Model Memorandum should mean
  that a company will be permitted omit Limited.
• This application can be brought at the same time
  as the application for incorporation.

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Memorandum Objects Clause

• Every company must have an Objects Clause.
• Acting outside the objects is prohibited and such
  activity referred to as ultra vires.
• In order to qualify for charitable tax exempt
  status, a companys objects must satisfy the
  Revenue Commissioners requirements too.
• Subsidiary and Ancillary objects are read in
  conjunction with the main object, as are powers.

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Memorandum Objects Clause

• In conjunction with the Revenue Commissioners,
  the Departments current thinking on the proposed
  main object is
• to promote, support, assist and engage in
  social development, community development and
  social and community enterprise development
  designed to help and be of benefit and welfare to
  local communities in order to deal with the
  causes and consequences of social and economic
  disadvantage or poverty.

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Governance of Companies Members Directors

• By the Articles of Association, Members delegate
  the management of companies to Directors.
• Members meet infrequently in general meetings
  (e.g. Annual or Extraordinary General Meetings).
• Directors meet as a board of directors.
• The Department has decided that in LDCs, the
  Members and the Directors should be the same
  persons.

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Governance of Companies Members Directors

• The requirement that Members are Directors
• Encourages stakeholders to focus on the
  management of the Company
• Contains the number of stakeholders in companies
  already involving 20 Directors
• Fuses accountability and responsibility to create
  transparency
• Recognises that Member-Directors are accountable
  in fact to their nominating Sector/ Pillar.

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Directors Nomination Appointment

• Dr Oonagh Breen will address selection of
  directors.
• The Guidelines require the Articles to provide
  for a maximum minimum number of Directors
• In an urban company, 20 nominees 4 from Local
  Government 2 from National Social Partners 8
  from CV (NSP) and 6 from the Statutory Sector.
• In a rural company, 23 nominees 5 from Local
  Government 4 from National Social Partners 8
  from CV (NSP) and 6 from the Statutory Sector.

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Directors Nomination Appointment

• On incorporation the First Directors must decide
  which Pillars/ Sectors are appropriate to make
  nominations and must then invite them to nominate
  persons to be Directors
• The First Directors will then co-opt the nominees
  as Directors
• Where the First Directors are not themselves
  nominated, then they will stand down as
  Directors.
• Alternates are prohibited.

13
Directors - Rotation

• At the second AGM (i.e. up to 2½ years after
  incorporation) one-third of the directors will
  retire.
• In a rural company with 23 Directors, this would
  mean that 7 Directors would retire after 2½
  years.
• The 7 Directors to retire will be the
  first-in-time appointed or where they are there
  the same length, in default of agreement, be
  determined by lot.
• The nominating Pillars/ Sectors will then be
  asked to nominate replacements.

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Directors - Rotation

• The replacements may be the same persons who can
  be re-appointed.
• A person can be re-appointed as a Director for
  two further terms (one appointment two
  re-appointments three terms but only two
  consecutive terms).
• At the third AGM (i.e. 3½ years following
  incorporation) and in each subsequent year,
  one-third will again retire, determined in the
  same manner.

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Directors Removal

• The Articles must detail the circumstances in
  which directors will retire and cease to be
  directors e.g.
• resigns, becomes incapable of acting, is
  bankrupted,
• is requested by a majority to resign etc
• The nominating Pillar/ Sector will not be
  prejudiced and may nominate another person who
  will stand in the removed Directors shoes.

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Directors Quorum

• Must be set at a minimum of 10 Directors once
  full Board has been appointed.
• May be set higher or otherwise qualified e.g. it
  may be decided to require a certain number of
  Sectors/ Pillars to be present in addition to
  having 10 Directors.
• Concerns expressed that the number is set too
  high are being considered by the Department.

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Directors Governance Reporting

• Requirement to have regard to best practice and
  good governance, especially financial.
• Adopt an appropriate corporate governance policy
  (see Departments Model).
• Keep policies under review.
• Prepare an annual report for the Department.
• Confirm, on request, whether Board complies with
  the Departments model governance policy and
  procedures for inviting nominations and, if not,
  explaining why it does not.

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The Chairperson

• Elected by the Directors.
• Term of office until end of third AGM following
  appointment (i.e. up to 3½ following
  incorporation).
• Can be re-appointed as a Director for two further
  terms (one appointment two re-appointments
  three terms but only two consecutive terms).
• Duties (non-exhaustive) set out in Articles.
• Chairperson has a casting vote to break deadlock.

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Committees Advisory Councils

• Committees can be established by Directors,
  composed of Directors and may exercise such
  powers as Directors confer on the Committee.
• Advisory Councils can be established by
  Directors, composed of non-Directors and having
  no decision-making powers.
• Advisory Councils can further assist local
  participation by providing a forum where people
  can formulate proposals and make comments to the
  Board.

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Conflicts of Interest

• Directors require to furnish full particulars of
  Interests which might involve a conflict of
  interest or materially influence the Director on
  their appointment.
• Interests includes employment, business
  interests, community involvements and voluntary
  work for charities.
• Interests extends to those of a Directors
  spouse, parent, sibling, child, relative,
  co-habitee, partner, company controlled by a
  Director or trustee of a Director.

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Conflicts of Interest

• At a meeting where anything is discussed in which
  the Director has an Interest, s/he
• must declare that interest
• is entitled to explain the interest and answer
  questions
• must leave the meeting and cannot vote on the
  matter
• is entitled to be told the Boards decision.
• If a Director is in doubt s/he should inform the
  Chairperson who shall decide whether the matter
  constitutes an Interest.
• Grants to Directors or Employees must be
  disclosed to the Department.

22
Model Corporate Governance Policy

• The Board should meet regularly, retain full and
  effective control over the Company and monitor
  the executive management and performance.
• The Board should have a formal schedule of
  matters specifically reserved to it for decision
  to ensure that the direction and control of the
  Company vests in the Board.
• The collective responsibility and authority of
  the Board should be safeguarded. Excessive
  influence on Board decision-making by individual
  Directors should be avoided, while allowing
  individual Directors the opportunity to fully
  contribute to Board deliberations. Specialist
  committees should be established by the Board
  where considered necessary to assist the Board in
  particular matters.

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Model Corporate Governance Policy

• Formal structures should be established for
  facilitating the local community and relevant
  stakeholders in communication with the Board.
• At least once a year, the Board should conduct a
  review of the effectiveness of the Companys
  system of internal controls including financial,
  operational and compliance controls and risk
  management systems.
• The Board must ensure that each Director is aware
  of their duties in company law and that new
  Directors are apprised of their responsibilities.

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Model Corporate Governance Policy

• The Board should ensure that the Companys Chief
  Executive Officers duties and responsibilities
  and those of other employees are documented in
  writing and that the respective roles of the
  Board and management are understood.
• The Company must have a Company Secretary.

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Thank You for Listening