When the Org Chart Says Board: Auditing UK Subsidiary Governance After a Restructure

A group reorganisation is usually designed at parent level. The structure is simplified, a holding company is inserted, a trading subsidiary is moved, and the org chart is redrawn. The legal entities remain, but the governance around them is often left to catch up. Months later, a subsidiary board still exists on paper, yet its meetings, quorum and delegations no longer match the constitution or the way decisions are actually taken.

This is a familiar pattern in UK groups. The subsidiary is not a branch; it is a separate legal person with its own articles, directors and statutory obligations. When the parent treats it as an administrative extension of the group, the gap between form and practice can become a governance issue. It rarely announces itself. It sits in the minute book, the delegation schedule and the board calendar, waiting for a filing season, a transaction or a dispute to expose it.

What a subsidiary director actually owes

A director of a UK subsidiary owes duties to that company, not to the group as a whole. The statutory duties are owed to the entity on whose board the director sits. That does not mean the director must ignore group strategy. It does mean that when a decision is taken, the director should be able to explain why it is in the interests of the subsidiary, or how any conflict with the parent’s interests has been managed.

In practice, many subsidiary directors are also group executives. They may receive instructions from the parent, attend group committees, and apply group policies. None of that is improper. The difficulty arises when the subsidiary board becomes a rubber stamp for decisions already taken elsewhere, with no record of the consideration given at entity level.

A useful test is to ask what a subsidiary director would say if asked, months later, why a particular transaction was approved. If the answer is simply ‘group asked us to’, the governance record is thin. If the answer refers to the subsidiary’s solvency, its contractual obligations, its employees or its regulatory position, the board has done its job.

Instructions from parent: record, don’t infer

Parent-level instructions are a normal feature of group life. They become a governance risk when they are transmitted informally and recorded retrospectively. An email from a group finance director may be a perfectly sensible commercial instruction, but it is not a board minute.

Groups should distinguish between three things: the parent’s commercial request, the subsidiary board’s consideration of that request, and the subsidiary’s formal decision. The first can be informal. The second should be evidenced. The third should be minuted.

A simple template can help. For any material parent instruction, the subsidiary board paper should record the request, the subsidiary’s assessment, any conflict identified, the mitigation adopted, and the decision taken. This need not be elaborate. A short note in the minutes is usually enough, provided it shows that the subsidiary board applied its own mind to the matter.

Quorum, conflicts and delegated authority

After a restructure, three mechanical issues deserve particular attention: quorum, conflicts and delegations.

Quorum is often assumed rather than checked. If the articles require two directors, and one has resigned or is conflicted, the board may not be properly constituted. If a meeting is held with an inquorate board, the decisions taken may be challengeable. The company secretary should maintain a current quorum calculation for each subsidiary, including any alternate director arrangements.

Conflicts are equally practical. A director who sits on both the parent and subsidiary boards may have a conflict on an intra-group transaction. That does not prevent the decision, but it should be declared and managed. The articles may require conflicted directors to withdraw, or may permit them to remain and vote. The group should know which applies, and the minutes should show that the rule was followed.

Delegated authority is the quietest risk. A delegation schedule may permit the subsidiary managing director to approve expenditure up to a stated limit, or the parent board to approve certain matters. After a reorganisation, thresholds may be stale, committees may have changed, and signatories may no longer hold the roles the schedule assumes. A delegated authority that outruns the constitution is not merely an administrative error; it can mean that a decision was taken by the wrong person or body.

A pre-filing audit for UK groups

Before the next statutory filing season, a UK group can run a short audit of its subsidiary boards. The aim is not to replicate a full legal review. It is to identify where the governance record and the constitution have drifted apart.

Start with the register. List every subsidiary, its directors, its company secretary, its articles and its most recent confirmation statement. Check that the individuals named are still in post and that the register matches the group’s own records. Companies House is a public record, but it is not a substitute for the group’s internal governance map.

Next, review the meeting cycle. For each subsidiary, identify the board meetings held in the past twelve months, the quorum at each, and the principal decisions taken. If a subsidiary has had no board meeting because ‘everything is handled at group level’, ask whether that is consistent with its articles and with the group’s delegation schedule.

Then review the minutes. Look for decisions that were recorded without a paper, approvals that were noted after the event, and conflicts that were not declared. You are not looking for perfect prose. You are looking for evidence that the subsidiary board actually considered the matter.

Finally, review the delegation schedule against the articles. Check the financial limits, the reserved matters, the committee terms of reference and the signatories. If the schedule has not been updated since the reorganisation, it is probably out of date.

Reading the minutes backwards

A useful technique is to read the minutes backwards from the most recent meeting. Start with the decision, then ask what paper supported it, who attended, whether the board was quorate, and whether any conflict was recorded. This reverses the usual flow and exposes gaps quickly.

If the minutes show a decision but no paper, the board may have acted on an oral update. That can be legitimate, but it should be explained. If the minutes show a paper but no discussion, the record may be too thin. If the minutes show a discussion but no decision, the item may have drifted.

The exercise is not about blaming company secretaries. It is about giving the group a clear picture before a transaction, an audit or a filing deadline forces the issue.

The filing season test

Statutory filing is a useful deadline because it is fixed and public. But the governance work should not be done only to satisfy Companies House. The real test is whether each subsidiary board can demonstrate, on its own records, that it has functioned as a board.

A group that can answer three questions for every subsidiary is in reasonable shape: who are the directors, what are the quorum and conflict rules, and who can approve what. If those answers are current, documented and consistent with the constitution, the paper board is less likely to become a paper risk.