Member Article

Stronger corporate governance proposals welcomed

SHEFFIELD insolvency expert Stephen Beverley has welcomed government proposals for the strengthening of corporate governance.

The Audit, Reporting and Governance Authority (ARGA) is considering the introduction of a new regulation that would require directors to produce a Resilience Statement in an effort to increase transparency for investors and regulators and provide public confidence.

The Resilience Statement would be a formal declaration of the legality and affordability of proposed dividends.

The proposal follows a number of recent high profile cases where dividends were paid out just before profit warnings were issued or companies entered into a formal insolvency process.

Stephen Beverley, a senior manager with Sheffield business turnaround and insolvency practice Graywoods, said: “A Resilience Statement would have obvious benefits to large Companies and their investors, giving them the chance to make more informed decisions.

“At the same time, though, the aims of the Resilience Statement would be every bit as relatable for SMEs.

“If nothing else, it would give the directors of smaller companies the opportunity to think about the business as a whole, allowing a clearer review of the level of dividends being paid out to the shareholders, some of whom are also directors and may be using dividends as part of their overall remuneration package in lieu of a higher payroll salary being kept in line with the profitability of the company.”

The question directors and their advisors need to continually be asking, Stephen added, was: ‘Why are there insufficient profits to meet the dividend expectations?’

“If you find that profits are not at expected levels you then have to investigate whether this part of a one off issue such as the effects of Covid-19, or if it is part of a wider downward trend which, if left unchecked could lead to cash flow difficulties,” he said.

“The key is to understand the cause of the situation and then obtain the correct advice as early as possible, ensuring appropriate action can be taken and a business can prepare for the future.”

This was posted in Bdaily's Members' News section by John Highfield .