Slipping up - the importance of correct filing

As a fully qualified cricket-tragic I have, of course, been following Yorkshire’s troubles resulting from the shocking racist treatment of Azeem Rafiq and others with great sadness and, I am afraid, a certain sense that these troubles have been largely of the club’s – and the wider game’s – own making. But as a governance professional, a meeting being cancelled because it had not been called in compliance with their own rules piqued my interest even further (if that were possible) and left me once again with that feeling that the problem had been eminently avoidable.

In brief, it seems that the Club Rules were changed at Annual General Meetings in March 2020 and March 2021 to allow notice of the forthcoming meeting to be given electronically. However, the rule changes were not registered with the Financial Conduct Authority and, consequently, did not come into effect. The club has now filed the relevant changes and a further meeting is being called, but this is embarrassing and unnecessary.

Inevitably, this being Yorkshire, it can’t just be left there, with the Club’s press release saying that “this was a legacy issue as the previous leadership of the Club had failed to ensure registration of the amended Club Rules with the Financial Conduct Authority.” Equally inevitably, the following day, the former chairman is quoted in the press (at some length) as having said that these changes “fell to be registered in the normal way by the club after I had departed, not before.”

Omissions of filing are by no means a problem unique to sports governance. Back in 2016 and 2017 there was a spate of FTSE companies which had to go cap in hand to members to ask them to waive any claim against past and present shareholders who received an unlawful dividend payment and against the directors in office when the payments were made, by giving retrospective approval to the payments. Of course, waiving any claims against the directors constituted a relevant party transaction with the additional complexity that this entails. This had arisen because the Companies Act 2006 provides that a public company may pay a dividend out of its distributable profits as shown in the last accounts circulated to members or, if interim accounts are used, those that have been filed at Companies House. The requirement for the relevant accounts to have been filed applies even if the company in question has sufficient distributable profits at the relevant time.

There was no dispute that the companies concerned had at all times had sufficient profits and other distributable reserves to make these payments as shown by the accounts at the relevant time. The problem was that before making the payments, like Yorkshire CCC, they did not make the necessary filing to satisfy the relevant procedural requirements. These companies had not filed the interim accounts on which they were relying at Companies House. For those interested in the detail here, The Chartered Governance Institute published a Technical Briefing and an article in its magazine, Governance & Compliance.

As I said at the time, “This may seem, at first sight, a rather minor issue ... However, it is a matter of company law and there are sound reasons for it being a requirement. Investors are, increasingly, focused on being satisfied that a company pays sufficient attention to capital maintenance and this sort of error suggests a lack of discipline on such issues.

“It may also be seen as a lack of attention to compliance, which may be symptomatic of other issues at the company. Although it is usual to rely on finance colleagues and/or the auditor to confirm that a proposed dividend can be paid, it is clear that this point can be – and has been – overlooked. We therefore strongly recommend that company secretaries check that all the necessary legal and regulatory requirements, including the appropriate filing, have been made before proceeding to payment.”

Much the same might be said to apply in the Yorkshire case. Indeed, the former chairman, Robin Smith, is now being quoted in the press as saying that the failure to file the rule changes mean that the appointment of Lord Patel as chairman was invalid, and that Lord Patel could therefore be personally liable for the financial cost of decisions made since his appointment – including the settlement paid to Mr. Rafiq. Lord Patel, for his part blames Mr. Smith and a group which “is actively seeking to delay and derail the essential reforms and consequently the return of international cricket by litigating process issues, without presenting any positive alternative.”

This one is clearly going to run and run but, to be honest, the motivations are part of the ongoing issue; as a governance professional, my teeth get set a little on edge by the implication that following the lawful process is not important.

The SGA's Craig (a Lancastrian who has been commendably sympathetic about the goings on on the other side of the Pennines) asked that I suggest some lessons to take from this governance debacle. Here are just three:

• the whole issue could have been avoided if the appropriate filings had been made on time and, even if they hadn’t, if someone had checked whether they had been before relying on them. It is that sort of thing that I would expect to be done by any trained governance professional;
• if anyone says that their organisation can’t afford or doesn’t need a trained governance professional or governance lead (the Yorkshire company secretary was also the Finance Director but the perils of a combined role would take me into an entirely different blog!) then consider the costs – both financial and reputational – of having to cancel your general meeting at a couple of days’ notice and arrange a replacement;
• always go back and check the source documentation. Not doing so is, in my opinion, just sloppy. And the principal danger of sloppy work is that it can be habit-forming.

The 'Meetings and decision making' section of the SGA knowledge base provides further detail on calling and conducting meetings, including a handy general meetings checklist.

Peter Swabey is Policy & Research Director at The Chartered Governance Institute UK & Ireland