House of Commons Hansard Debates for 26 Oct 1989

Sir Geoffrey Howe : My right hon. Friend will bring to his office all those qualities that have so long commended him to my hon. Friends.

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Orders of the Day

Companies Bill [Lords]

As amended (in the Standing Committee), further considered.

Schedule 2

[Schedule 4A to the Companies Act 1985]

Form and Content of Group Accounts

Amendments made : No. 15, in page 204, line 14, at end insert-- 11A.--(1) Where a group is acquired, paragraphs 9 to 11 apply with the following adaptations.

(2) References to shares of the undertaking acquired shall be construed as references to shares of the parent undertaking of the group.

(3) Other references to the undertaking acquired shall be construed as references to the group ; and references to the assets and liabilities, income and expenditure and capital and reserves of the undertaking acquired shall be construed as references to the assets and liabilities, income and expenditure and capital and reserves of the group after making the set-offs and other adjustments required by this Schedule in the case of group accounts.'.

No. 16, in page 206, line 44, leave out from matters' to end of line 27 on page 207 insert--

(4) The provisions of paragraphs 5 to 11 of Schedule 10A (rights to be taken into account and attribution of rights) apply in determining for the purposes of this paragraph whether an undertaking holds 20 per cent. or more of the voting rights in another undertaking.'.-- [Mr. Redwood.]

Clause 6

Additional disclosure required in notes to accounts

8.30 pm

The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. John Redwood) : I beg to move amendment No. 17, in page 11, lin37, at end insert--

(3A) Where advantage is taken of subsection (3), that fact shall be stated in a note to the company's annual accounts.'.

I am grateful that we can now proceed with the Companies Bill. I hope that we can make fairly rapid progress with the technical and fairly straightforward amendments before us, so that we may have real debates on some of the interesting amendments that arise later. As I try to steer my first Bill through Parliament, I cannot but wonder what I have done wrong because every night there seems to be some show arranged that takes hon. Members' minds off the Bill. Clause 6 of the Bill includes a provision re- enacting existing exemptions from disclosure of the names of certain subsidiaries and related undertakings that date back to the Companies Act 1967 introduced by the then Labour Administration.

This amendment would require a company to disclose in its accounts the fact that it had taken advantage of those exemptions from disclosure. I bring it forward in response to a commitment given in Standing Committee in response to an amendment having the same purpose as this amendment moved by the hon. Member for Norwich, South (Mr. Garrett). We have considered this carefully in the light of our obligations under the fourth and seventh

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company law directives and accept that an amendment is needed to give proper effect to article 45.1(b) of the fourth directive and article 35(1)(b) of the seventh directive.

Mr. Jim Cousins (Newcastle upon Tyne, Central) : Will the notice of the exemption be reflected in the short statement of company accounts, which is also provided for in the Bill? It is important that all shareholders should be aware of the fact that the exemption is being taken advantage of, and it should therefore form part of the information that is provided in short company statements.

Mr. Redwood : I shall endeavour to ensure that it does so appear because I accept the hon. Gentleman's point.

Amendment agreed to.

Amendment made : No. 18, in page 13, line 2, at end insert to this Act'.-- [Mr. Redwood.]

Schedule 3

[Schedule 5 to the Companies Act 1985]

Disclosure of Information : Related Undertakings

Part I

Companies not Required to Prepare Group Accounts

Amendments made : No. 20, in page 212, line 30, leave out in'. No. 19, in page 212, line 44, leave out sub-paragraph (4) and insert

(4) For the purposes of any of those provisions, shares held by way of security shall be treated as held by the person providing the security--

(a) where apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights attached to the shares are exercisable only in accordance with his instructions, and

(b) where the shares are held in connection with the granting of loans as part of normal business activities and apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights attached to the shares are exercisable only in his interests.'.

No. 21, in page 219, line 28, leave out sub-paragraph (4) and insert

(4) Shares held by way of security shall be treated as held by the person providing the security--

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Schedule 4

Disclosure of Information : Emoluments and Other Benefits of Directors and Others

Mr. Redwood : I beg to move amendment No. 22, in page 221, line 34, at end insert--

(4) References to pensions include benefits otherwise than in cash and in relation to so much of a pension as consists of such a benefit references to its amount are to the estimated money value of the benefit.

The nature of any such benefit shall also be disclosed.'. My hon. Friend the Member for Richmond and Barnes (Mr. Hanley) moved an amendment in Standing Committee with exactly the same purpose as this amendment. He graciously withdrew it when my hon. Friend the Under-Secretary of State for Consumer Affairs promised to bring forward a Government amendment on Report with the same purpose. The effect is to extend slightly what is meant by directors' pensions for the purposes of the disclosure requirements in schedule 4 of the Bill, so that it includes benefits paid in kind and not just cash benefits.

Mr. Jeremy Hanley (Richmond and Barnes) : I am grateful to my hon. Friend for introducing the amendments. I wish to take this brief opportunity to ask him to explain how he intends to take into account amendments, other than Government amendments, under the guillotine this evening.

Mr. Redwood : I want to make rapid progress so that we can consider as many amendments as possible in our debates. I understand that there is a power for the Government to move other amendments if they so choose, when the guillotine falls.

Amendment agreed to.

Clause 9

Auditors' report

Mr. Redwood : I beg to move amendment No. 23, in page 17, line 1, leave out from beginning to end of line 38.

Mr. Deputy Speaker (Sir Paul Dean) : With this we shall discuss Government amendments Nos. 27 to 29, 68, and 111 to 119.

Mr. Redwood : This series of amendments completes the process started in Committee of bringing the provisions on auditors together in part 5 of chapter XI of the 1985 Act.

Amendment agreed to.

Clause 10

Publication of accounts and reports

Amendment made : No. 24, in page 18, line 26, at end insert-- (6) Where copies are sent out under this section over a period of days, references elsewhere in this Act to the day on which copies are sent out shall be construed as references to the last day of that period.'.-- [Mr. Redwood.]

Clause 11

Laying and delivering of accounts and reports

Amendments made : No. 25, in page 20, line 43, leave out from begining to end of line 10 on page 21.

No. 26, in page 21, line 28, at end insert--

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Civil penalty for failure to deliver accounts. 242A.--(1) Where the requirements of section 242(1) are not complied with before the end of the period allowed for laying and delivering accounts and reports, the company is liable to a civil penalty.

This is in addition to any liability of the directors under section 242.

(2) The amount of the penalty is determined by reference to the length of the period between the end of the period allowed for laying and delivering accounts and reports and the day on which the requirements are complied with, and whether the company is a public or private company, as follows :


Length of period                |Public company  |Private company                  

-----------------------------------------------------------------------------------

Not more than 3 months.         |£500            |£100                             

More than 3 months but not more |£1,000          |£250                             

  than 6 months.                                                                   

More than 6 months but not more |£2,000          |£500                             

  than 12 months.                                                                  

More than 12 months.            |£5,000          |£1,000

(3) The penalty may be recovered by the registrar and shall be paid by him into the Consolidated Fund.

(4) It is not a defence in proceedings under this section to prove that the documents in question were not in fact prepared as required by this Part.'. -- [Mr. Redwood.]

Clause 12

Remedies for failure to comply with accounting requirements

Mr. Hanley : I beg to move amendment No. 3, in page 25, leave out lines 8 and 9.

Mr. Deputy Speaker : With this we shall discuss the following amendments : No. 285, in page 25, line 39, at end insert--

( ) Where the court makes an order under subsection (4) it shall have regard to whether the directors party to the approval of the defective accounts knew or ought to have known that the accounts did not comply with the requirements of this Act, and it may exclude one or more directors from the order or order the payment of different amounts by different directors.'.

No. 6, in page 26, line 1, leave out section 245C.

Mr. Hanley : Clause 12 introduces procedures for the revision of defective accounts. This largely replaces the present criminal offence of non-compliance with the accounting requirements of the Act. It also implements one of the recommendations of the Dearing report.

New sections 245B and 245C enable the Secretary of State, or any person to whom the Secretary of State delegates his powers, to apply to the court for an order requiring the directors of a company to prepare revised accounts. It is envisaged that this power would in practice be delegated to the review panel, a body to be set up to implement another recommendation of the Dearing report. It might also be delegated to other bodies, such as the stock exchange. In the view of the combined consultative accounting bodies, however, if responsibility for action is divided among more than one body, there will inevitably be buck passing and inaction. For enforcement to be effective, it has to be the responsibility of only one person or body. This must be the Secretary of State. We discussed this matter at reasonable length both on Second Reading and

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in Committee. Amendments Nos. 3 and 6 would ensure that the Secretary of State takes full responsibility by removing the possibility of any delegation of his powers.

New section 245B(4) enables the court to require directors who approve defective accounts to meet the cost of preparing revised accounts. Whether accounts are defective may well be a matter of opinion. Directors could find that they prepare the accounts in good faith, but that the court takes a different view from them of how the accounts should have been prepared. The costs that they would have to meet in such a case might be substantial. This would be unjust if the directors have indeed been acting in good faith.

Amendment No. 285 provides a remedy for this injustice by requiring the court, whenever it makes an order against directors to pay costs, to have regard to whether the directors involved knew or ought to have known that the accounts did not comply with the requirements of the Act. In this way, innocent non-compliance will not be punished unduly.

Amendments Nos. 3 and 6 should be dealt with together, with amendment No. 285 being dealt with separately. I should be grateful to my hon. Friend if he would respond to my points.

Mr. John Garrett (Norwich, South) : As the hon. Member for Richmond and Barnes (Mr. Hanley) explained, these amendments seek to restrict power to the Secretary of State to take a company to court to have its accounts revised if they are defective. We discussed this matter in Committee and the Opposition supported that general concept. The Bill implements the Dearing proposals and introduces a new statutory power under civil law for certain authorised bodies or the Secretary of State to apply to the courts for an order requiring revision of accounts that do not appear to show a true and fair view.

The Dearing report suggested that the authorised bodies should be the review panel of the proposed Financial Reporting Council and the stock exchange. However, we believe that the possible exercise of such a power should be restricted to the Secretary of State. In Committee we adduced two main arguments in favour of that. First, if more than one body is responsible for applying to the courts to seek the revision of accounts there could be an argument about who is ultimately responsible for bringing such a case. The hon. Gentleman referred to that as buck passing. We think that such an arrangement makes for confusion about whose responsibility it properly is to bring such a case and it would lead to uncertainty as to which of the various bodies have the power, authority and will to require the revision of a defective set of accounts.

As was also pointed out in Committee, bringing a case against a company for the revision of its defective accounts could prove to be very expensive, especially if the directors of the company took the case to the House of Lords--which is what happened in the Lonrho case. The review panel's finances are likely to be limited. The stock exchange might also feel that its funds were limited in the light of its cool response to the Dearing proposals. Therefore, it is more appropriate for the Secretary of State and the Department to take upon themselves the responsibility for bringing such matters to proper redress. The chance of defective accounts would be lessened if it was known by the directors, who might otherwise let

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defective accounts be published, that the Secretary of State had this power and was known to be willing to use it. In general, the hon. Member for Richmond and Barnes has the right approach to the matter.

Mr. Redwood : I am grateful to my hon. Friend the Member for Richmond and Barnes (Mr. Hanley) and to the hon. Member for Norwich, South (Mr. Garrett) for the way in which they have put forward their ideas. I recommend that we accept amendment No. 285. There is a problem which that amendment tackles well.

On amendments Nos. 3 and 6 I have more difficulties. I understand the arguments that have been put forward by hon. Members on both sides of the House but I am afraid that I am not persuaded by them. I am unconvinced that giving more power to more than one person will prove a recipe for buck passing and inaction. It is likely in practice that the Financial Reporting Council and the proposed review panel under it will be concerned only with large companies. In other cases, where the public interest dictates, it will be for the Secretary of State to take action.

The point has been made that the cost of bringing such actions will prove too great for the FRC review panel. I recognise that the financing arrangements for the new arrangements for accounting standards will need to provide adequate resources for that purpose. That will emerge in due course as Sir Ronald Dearing carries out his work.

Let me conclude by saying why the Bill is correct in its present form on those points.

For large companies the likelihood is that the review panel will be in the lead in enforcing accounting standards. A power to apply to the courts strengthens the panel's position and adds weight to its powers of persuasion.

In a wide sense we do not seek legislation to require everything to be funnelled through the Secretary of State. That would be unwelcome in the overall balance of the Dearing proposals.

Above all, it must be right at this stage, when the new institutional arrangements are not yet in place, to keep the options open. The provision in the Bill is permissive ; it does not require other bodies to be authorised for this purpose.

Therefore, I ask the House to reject amendments Nos. 3 and 6.

Mr. Hanley : I am grateful to my hon. Friend the Minister for accepting amendment No. 285. In the light of his statement, I shall withdraw amendments Nos. 3 and 6. That is a vote of confidence in Sir Ronald Dearing's appointment yesterday. It would be right to allow Sir Ronald to tackle the job. A person is now in place to look at the issue. Therefore, I ask my hon. Friend to consider carefully the funding arrangements of the exercise as they are crucial to the success of the accounting standards programme.

During the recess we heard that the CBI disagreed with the funding arrangements. The accounting profession feels that they are not the right way forward. It has already been said in Committee that a levy on all companies might be a more sensible and equitable way forward. Therefore, I hope that my hon. Friend will discuss with Sir Ronald the funding arrangements in due course. In the meantime, I beg to ask leave to withdraw amendment No. 3.

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Amendment, by leave withdrawn.

Amendment made : No. 285, in page 25, line 39, at end insert-- ( ) Where the court makes an order under subsection (4) it shall have regard to whether the directors party to the approval of the defective accounts knew or ought to have known that the accounts did not comply with the requirements of this Act, and it may exclude one or more directors from the order or order the payment of different amounts by different directors.'.

Clause 14

Dormant Companies

Amendments made : No. 27, in page 30, line 39, leave out sections are' and insert section is'.

No. 28 in page 30, line 43, leave out from the' to in' in line 44 and insert

provisions of this Part relating to the audit of accounts'. No. 29, in page 31, line 28, leave out from beginning to end of line 11 on page 32 and insert--

(4) Where a company is, at the end of a financial year, exempt by virtue of this section from the provisions of this Part relating to the audit of accounts--

(a) sections 238 and 239 (right to receive or demand copies of accounts and reports) have effect with the omission of references to the auditors' report ;

(b) no copies of an auditors' report need be laid before the company in general meeting ;

(c) no copy of an auditors' report need be delivered to the registrar, and if none is delivered, the copy of the balance sheet so delivered shall contain a statement by the directors, in a position immediately above the signature required by section 233(4), that the company was dormant throughout the financial year ; and

(d) the company shall be treated as entitled in respect of its individual accounts for that year to the exemptions conferred by section 246 on a small company, notwithstanding that it is a member of an ineligible group.

(5) Where a company which is exempt by virtue of this section from the provisions of this Part relating to the audit of accounts-- (a) ceases to be dormant, or

(b) would no longer qualify (for any other reason) to make itself exempt by passing a resolution under this section,

it shall thereupon cease to be so exempt.".'.-- [Mr. Redwood.]

Schedule 7

Special Provisions for Banking andInsurance Companies and Groups

Amendments made : No. 30, in page 228, line 35, leave out from beginning to (information' and insert--

1. In paragraph 10(1)(c) of Schedule 9 to the Companies Act 1985 (disclosure of outstanding loans in connection with certain cases of financial assistance for purchase of company's own shares), after "153(4)(b)" insert ", (bb)".

1A. In paragraph 13 of that Schedule".

No. 31, in page 229, line 11, leave out from particulars' to end of line 12 and insert

of any material departure from those standards and the reasons for it shall be given.'.

No. 32, in page 230, line 13, leave out from for' to end of line 14 and insert

the words from "paragraphs 15" to the end substitute "and paragraph 15".'.- - [Mr. Redwood.]

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Clause 20

Power to alter accounting requirements

Amendments made : No. 33, in page 39, line 34, leave out and' and insert--

(bb) make consequential amendments or repeals in other provisions of this Act, or in other enactments, and'.

No. 34, in page 39, line 35, after such' insert transitional and other'-- [Mr. Redwood.]

Clause 21

Parent and subsidiary undertakings

Amendment made : No. 35, in page 40, line 5, leave out Act' and insert Part'-- [Mr. Redwood.]

Clause 22

Other interpretation provisions

Amendments made : No. 36, in page 43, line 5, leave out Act' and insert Part'.

No. 37 in page 44, line 20, leave out Act' and insert Part'. No. 38, in page 45, leave out line 5 and insert--

'annual accounts section 262(1)

generally section 261(2)'.

includes notes to the accounts

No. 39, in page 45, line 8, at end insert--

balance sheet (includes notes) section 261(2)'.

No. 40, in page 45, line 43, column 2, leave out 261' and insert 261(1)'.

No. 41, in page 45, leave out lines 51 and 52 and insert

profit and loss account

(includes notes) section 261(2)

(in relation to company not trading for profit) section 262(2)'.-- [Mr. Redwood.]

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