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Performance of Companies and Government Departments (Reporting) Bill


 

Performance of Companies and Government Departments (Reporting) Bill

 

 
 

Contents

1   

Operating and financial review

2   

Compulsory content of operating and financial review

3   

Duty to consider including other matters in operating and financial review

4   

Approval and signature of operating and financial review

5   

Companies required to publish operating and financial review

6   

Meaning of “turnover” and “balance sheet total”

7   

Calculation of number of employees

8   

Directors’ duties

9   

Promotion of company’s objectives

10   

Delegation and independence of judgement

11   

Care, skill and diligence

12   

Citation, commencement and extent

 
Bill 27 53/3
 
 

Performance of Companies and Government Departments (Reporting) Bill

1

 

A

Bill

To

Make provision for the production and publication of annual reports on the

social, environmental and economic impacts and perfomance of companies

and Government departments; to specify certain duties of directors and

Ministers; and for connected purposes. 

Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and

consent of the Lords Spiritual and Temporal, and Commons, in this present

Parliament assembled, and by the authority of the same, as follows:—

1       

Operating and financial review

(1)   

The directors of a company must, for each financial year of the company in

which it is a major company, prepare an operating and financial review.

(2)   

The directors must secure that the information contained in the operating and

financial review is such that the review will, in their opinion, achieve the

5

review objective.

(3)   

The review objective is: providing such information as will permit the

members of the company, as of the approval date, to make an informed

assessment of—

(a)   

the company’s operations;

10

(b)   

its financial position;

(c)   

its future strategies and prospects; and

(d)   

its impacts on the environment and on any communities in which the

company operates.

(4)   

The directors must also secure that the operating and financial review—

15

(a)   

complies with the requirements of this Act as to its content; and

(b)   

complies with any rules as to its content or as to its form.

(5)   

The directors must comply with any rules about the manner in which the

operating and financial review is to be prepared.

(6)   

Information contained in a document annexed to the operating and financial

20

review is, for the purposes of this section, contained in that review, but that is

subject to any rules.

 
Bill 27 53/3
 
 

Performance of Companies and Government Departments (Reporting) Bill

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(7)   

In this section “the approval date” means the date on which the operating and

financial review is approved by the board of directors under section 4.

(8)   

As to the companies which are major companies for the purposes of this

section, see sections 5 and 6.

(9)   

Rules under this section may be made by regulations made by the Secretary of

5

State.

(10)   

Regulations made by the Secretary of State under this section are subject to

annulment in pursuance of a resolution of either House of Parliament.

2       

Compulsory content of operating and financial review

(1)   

In order to achieve the review objective, an operating and financial review

10

must contain at least the core elements.

(2)   

The core elements are—

(a)   

a statement of the company’s business in the financial year to which the

operating and financial review relates;

(b)   

a fair review of the performance during the financial year and of the

15

position of the company at the end of that year; and

(c)   

a fair projection of the prospects for the company’s business and of

events which will, or are likely to, substantially affect that business.

3       

Duty to consider including other matters in operating and financial review

(1)   

If the directors of a company are required to form an opinion for the purposes

20

of section 1(2), they must consider whether the inclusion of information about

any matter mentioned in subsection (2) is necessary in order to achieve the

review objective.

(2)   

The matters are—

(a)   

the management structure of the company;

25

(b)   

receipts from, and returns to, members of the company in the financial

year to which the operating and financial review relates in relation to

shares held by them;

(c)   

the impact of the company’s operations, policies, products and

procurement practices in relation to employment;

30

(d)   

the impact of the company’s operations, policies, products and

procurement practices on the environment;

(e)   

the impact of the company’s operations, policies, products and

procurement practices on social and community issues;

(f)   

the company’s performance, in the financial year to which the

35

operating and financial review relates, in carrying out the policies

mentioned in paragraphs (c) to (e); and

(g)   

matters not falling within the preceding paragraphs which affect, or

may affect, the company’s reputation.

(3)   

Nothing in this section limits the duty imposed by section 1(2).

40

4       

Approval and signature of operating and financial review

(1)   

The operating and financial review prepared for a financial year must be

approved by the board of directors.

 

 

Performance of Companies and Government Departments (Reporting) Bill

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(2)   

After the review has been approved by the board, it must be signed on behalf

of the board director.

(3)   

The review must—

(a)   

record the date on which it was approved by the board;

(b)   

state the name of the director who signs it on behalf of the board; and

5

(c)   

record the date when it is signed by that director.

5       

Companies required to publish operating and financial review

(1)   

For the purposes of section 1, a company is a major company in a financial year

of the company if—

(a)   

two or more of the conditions in this section are met in relation to that

10

company in that year;

(b)   

two or more of the conditions were met in relation to that company in

that year; and

(c)   

it is not a subsidiary undertaking of a European Economic Area parent

undertaking.

15

(2)   

A company shall be treated for the purposes of section 1 as being a major

company in a financial year—

(a)   

if it was a major company in the preceding financial year or was treated

as being such a company under paragraph (b); or

(b)   

if it was treated as being a major company in relation to the previous

20

financial year by virtue of paragraph (a) and it satisfies paragraphs (a)

and (c) of subsection (1) in relation to the year in question.

(3)   

The first condition is that the company’s turnover is at least £50 million in the

financial year in question.

(4)   

The second condition is that the company has a balance sheet total of at least

25

£25 million at the end of the financial year in question.

(5)   

The third condition is that the average number of the company’s employees is

at least 500 in the financial year in question.

(6)   

In this section “European Economic Area parent undertaking” means a parent

undertaking incorporated in a European Economic Area State.

30

(7)   

The Secretary of State shall from time to time review the conditions in this

section, and he may make regulations to reduce the quantities in subsections

(3), (4) and (5).

(8)   

Regulations made by the Secretary of State under this section are subject to

annulment in pursuance of a resolution of either House of Parliament.

35

6       

Meaning of “turnover” and “balance sheet total”

(1)   

A company’s “turnover” is the amounts derived from the provision of goods

and services falling within the company’s ordinary activities after the

deduction of—

(a)   

trade discounts;

40

(b)   

value added tax; and

(c)   

any other taxes based on the amounts so derived.

 

 

Performance of Companies and Government Departments (Reporting) Bill

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(2)   

If a company’s financial year is not in fact a year, a calculation which is

required, for the purposes of this Act, to be made by reference to the amount

of the company’s turnover shall be proportionally adjusted.

(3)   

A company’s “balance sheet total” is the aggregate amount of the company’s

assets after the deduction of any amount representing the depreciation of those

5

assets.

7       

Calculation of number of employees

(1)   

This section applies for the purpose of calculating the average number of

employees of a company in a financial year.

(2)   

That number is determined by dividing the annual number of employees for

10

the financial year by the number of months in that year.

(3)   

The annual number of employees for a financial year is the sum of the monthly

numbers for that year.

(4)   

A monthly number is the number of the persons employed (whether

throughout the month or not) under contracts of service by the company in a

15

month of the financial year in question.

8       

Directors’ duties

A director of a company must act in accordance with—

(a)   

the company’s constitution, and

(b)   

decisions taken under the constitution (or by the company, or any class

20

of members, under any enactment or rule of law as to means of taking

company or class decisions),

and must exercise his powers for their proper purpose.

9       

Promotion of company’s objectives

(1)   

A director of a company must in any given case—

25

(a)   

act in the way he decides, in good faith, would be most likely to

promote the success of the company for the benefit of its members as a

whole (excluding anything which would breach his duty under section

8);

(b)   

in deciding what would be most likely to promote that success, take

30

account in good faith of all the material factors that it is practicable in

the circumstances for him to identify; and

(c)   

take all reasonable steps to minimise the impact of the company’s

impact on the communities it affects and on the environment.

(2)   

In this section “the material factors” means—

35

(a)   

the likely consequences (short and long term) of the actions open to the

director, so far as a person of care and skill would consider relevant;

and

(b)   

all such other factors as a person of care and skill would consider

relevant, including such of the matters in subsection (3) below as he

40

would consider so.

(3)   

Those matters are—

 

 

Performance of Companies and Government Departments (Reporting) Bill

5

 

(a)   

the company’s need to foster its business relationships, including those

with its employees and suppliers and the customers for its products or

services;

(b)   

its need to have regard to the impact of its operations on the

communities affected and on the environment;

5

(c)   

its need to maintain a reputation for high standards of business

conduct; and

(d)   

its need to achieve outcomes that are fair as between its members.

(4)   

In subsection (2) a “person of care and skill” means a person exercising the care,

skill and diligence required by section 11.

10

(5)   

A director’s decision as to what constitutes the success of the company for the

benefit of its members as a whole must accord with the constitution and any

decision mentioned in section 8.

10      

Delegation and independence of judgement

(1)   

A director of a company must not, except where authorised to do so by the

15

company’s consitution or any decisions as mentioned in section 8

(a)   

delegate any of his powers; or

(b)   

fail to exercise his independent judgement in relation to any exercise of

his powers.

(2)   

Where a director has, in accordance with this section, entered into an

20

agreement which restricts his power to exercise independent judgement later,

this section does not prevent him from acting as the agreement requires where

(in his independent judgement, and according to the other provisions of this

Act) he should do so.

11      

Care, skill and diligence

25

A director of a company must exercise the care, skill and diligence which

would be exercised by a reasonably diligent person with both—

(a)   

the knowledge, skill and experience which may reasonably be expected

of a director in his position; and

(b)   

any additional knowledge, skill and experience which he has.

30

12      

Citation, commencement and extent

(1)   

This Act shall be known as the Performance of Companies and Government

Departments (Reporting) Act 2004.

(2)   

This Act shall come into force on a day determined by order by the Secretary

of State, but no later than 18 months after the passing of this Act.

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(3)   

This Act shall apply to the whole of the United Kingdom.

 

 

 
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Revised 28 January 2004