The Directors are responsible for the determination of the Company’s investing policy and strategy and have overall responsibility for the Company’s activities including the review of the investment activity and performance.
The Board delegates to the Investment Manager through the Investment Management Agreement the responsibility for the management of the Company’s assets in accordance with the Company’s investing policy. The Company has no executives or employees.
Role of the Chairman
The Chairman leads the Board ensuring its effectiveness and his role and responsibilities are clearly divided from those of the other non- executive directors and those responsibilities delegated to the Investment Manager. The Chairman:
· sets the Board agenda;
· ensures that the Directors receive accurate and timely information and that adequate time is available for discussion of all agenda items, in particular strategic issues;
· makes sure that all Directors, are able to contribute and make an effective contribution
· has primary responsibility for leading the Board; and
· chairs Board meetings
The role and responsibility of the non-executive directors is, amongst other things, to attend Board meetings and to contribute to Board decisions to be taken, acting in the best interest of the Company.
Board Decisions and Activity During the Yea r
The Board has a schedule of regular business, financial and operational matters and the Board has compiled a schedule of work to ensure that all areas for which the Board has responsibility are addressed and reviewed during the course of the year. The Chairman, aided by the Investment Manager, is responsible for ensuring the Directors receive accurate and timely information. The Investment Manager compiles the Board and Committee papers which are circulated to the Directors prior to the meetings. The Investment Manager also ensures that any feedback or suggestions for improvement on Board papers is fed back to Board members and ensures input is gathered from all Board members on matters that should be included for consideration at meetings. The Investment Manager provides minutes of each meeting and every Director is aware of the right to have any concerns minuted.
In addition to the Board meetings there is regular communication between the Board and the Investment Manager, there is a bi-monthly operational report circulated to all Board members and where appropriate updates on matters requiring attention prior to the next scheduled board meeting.
The approach to valuing properties is to obtain an external independent valuation of the properties on a semi-annual basis each year. The Board is satisfied that the carrying value of properties is appropriate based on the use of an external independent valuer for the Company’s portfolio and the experience and knowledge of the Directors and the Investment Manager in valuing the properties. The Board discusses the results of the valuations with the valuer who provides information on assumptions used and provide appropriate explanation and evidence where possible for such assumptions. Also, valuations are discussed on a regular basis with the Company’s auditors.
Internal Financial Control
The Board is responsible for the Company’s system of internal control and for reviewing its effectiveness. Its review takes place at least once a year. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board also determines the nature and extent of any risks it is willing to take in order to achieve its strategic objectives.
The Board has contractually delegated to external agencies, including the Investment Manager, the management of the Company’s portfolio, the registration services and the day-to-day accounting. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of services offered including the control systems in operation in so far as they relate to the affairs of the Company.
The Board has reviewed the need for an internal audit function. The Board has decided that the systems and procedures employed by the Investment Manager, including the work carried out by the Company’s external auditor, provide sufficient assurance that a sound system of internal control, which safeguards Shareholders’ investments and the Company’s assets, is maintained. An internal audit function, specific to the Company, is therefore considered unnecessary.
Key financial controls include:
- operating within the budget limits approved by the Board
- the maintenance of proper records;
- a schedule of matters reserved for the approval of the Board;
- evaluation, approval procedures and risk assessment for disposals, ongoing capital expenditure on development projects and for any other major capital expenditure within the limits approved by the Board;
- regular reporting and monitoring of development projects; and
- close involvement of the Investment Manager in the day-to-day operational matters of the Company.
Certain of the financial controls have been delegated to the Investment Manager
The Board consider the size of the Company and the close involvement of the Investment Manager in the day-to-day operations makes the maintenance of an internal audit function unnecessary. The Board will continue to monitor this situation.
An audit committee is in place and is chaired by Mr van der Heijden and comprised of Mr van der Heijden and Mr Mark Iwashko. The Audit Committee meets at least twice a year and otherwise on an ad hoc basis as required. The Audit Committee reviews the annual and interim accounts, meets with nomad and other advisors, reviews supporting property valuation reports and monitors internal controls and company policies. It meets regularly with the Company's auditors to review their reports on draft accounts and internal controls. Risk management is the responsibility of the Audit Committee, which is responsible to the Board for
ensuring that proper procedures are in place, and are being effectively implemented to identify, evaluate and manage any significant risks faced by the Company.
The terms of reference of the audit committee is set out on the Company’s website at http://www.dragon-upd.com/files/DUPD_audit_committee_terms_of_reference.pdf
The Board meets with the auditor at least twice a year to consider the results, internal procedures and controls and matters raised by the auditor. The Board considers auditor independence and objectivity and the effectiveness of the audit process. It also considers the nature and extent of the non-audit services supplied by the auditor and reviewing the ratio of audit to non-audit fees.
Should the non-audit fees be in the vicinity of audit fees then the special consent of the Board is needed to proceed with such engagement. There were no cases of such consent being sought or granted.
It is a specific responsibility of the Board to ensure that an appropriate relationship is maintained between the Company and its external auditor. At least one of the non-executive directors has relevant recent financial experience.
The Board considers the tenure of the auditor in addition to the results of its review of the effectiveness of the external auditor and considers whether there should be a full tender process. There are no contractual obligations restricting the Board’s choice of external auditor.
As there are no executive directors on the board, the Board has not established a remuneration committee. Nevertheless, no Director will be permitted to participate in discussions or decisions concerning his own remuneration. It will be the responsibility of the Board to ensure that the terms of any termination of a directorship are fair to the individual and the Company, that failure is not rewarded and that the duty to mitigate loss is fully recognised.
In view of the current size of the Company and its Board, the Board believe that the establishment of a nomination committee would be inappropriate. Accordingly, there are no terms of reference for a nomination committee.
Nominations for appointment to the Board will be considered by the full Board.
The Directors are responsible for the Company’s system of internal financial control, which is designed to provide reasonable, but not absolute, assurance against material misstatement or loss. In fulfilling these responsibilities, the Board has reviewed the effectiveness of the system of internal financial control engaged by the Investment Manager. The Directors have established procedures for planning and budgeting and for authorizing outgoing payments on a regular basis.
Matters reserved for the board
The board has agreed matters over which the Investment Manager has discretion and the areas of decision-making that are exclusively reserved for the board.
Key matters reserved for the Board include:
• approval of an annual consolidated budget, project budgets and the 5 year cash flow forecast
• appointment of the Company’s external auditor and approving its remuneration
• reviewing the performance of the Investment Manager and deciding on the adequate level of its remuneration
• approving disposal of assets based on the Investment Manager recommendations
• approving Company’s annual Financial Statements and interim Financial Statements
• convening AGM and EGMs and determining the agenda of the resolutions to be vote on as per the Company’s Articles of Association
• agreeing a policy with the Investment Manager regarding voting and corporate governance issues in respect of the Company’s holding in Arricano;
• defining the scope of the Investment Manager’s responsibilities, including the principal operating issues and agreeing the procedure for the Investment Manager to report back to the Board;
• identifying any circumstances in which the Investment Manager refers to the Board for approval before undertaking transactions. This includes disposal of properties and committing of monies to existing properties;
• agreeing that the Investment Manager inform the Board of any conflicts surrounding other Dragon Capital activities.