Companies (Audit, Investigations and Community Enterprise) Bill [HL]

House of Commons

Session 2002 - 03
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Companies (Audit, Investigations and Community Enterprise) Bill [HL]

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts, directors’ liabilities and investigations
Chapter 2 — Accounts and reports
22

(7)
Omit section 256(3) of the Companies Act 1985 (c. 6) (grants to bodies
concerned with issuing accounting standards etc.), which is superseded by this
section.
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Levy to pay expenses of bodies concerned with accounting standards etc.
(1)
For the purpose of meeting any part of the expenses of a grant-aided body, the
5
Secretary of State may by regulations provide for a levy to be payable to that
body (“the specified recipient”) by bodies or persons which are specified, or are
of a description specified, in the regulations.
(2)
For the purposes of this section—
(a)
“grant-aided body” means a body to whom the Secretary of State has
10
paid, or is proposing to pay, grant under section 16; and
(b)
any expenses of any body carrying on subsidiary activities of the grant-
aided body (within the meaning of that section) are to be regarded as
expenses of the grant-aided body.
(3)
The power to specify (or to specify descriptions of) bodies or persons must be
15
exercised in such a way that the levy is only payable by—
(a)
bodies corporate to which the Secretary of State considers that any of
the activities of the specified recipient, or any of its subsidiary activities,
are relevant to a significant extent, or
(b)
bodies or persons who the Secretary of State considers have a major
20
interest in any of those activities being carried on.
(4)
Regulations under this section may in particular—
(a)
specify the rate of the levy and the period in respect of which it is
payable at that rate;
(b)
make provision as to the times when, and the manner in which,
25
payments are to be made in respect of the levy.
(5)
In determining the rate of the levy payable in respect of a particular period, the
Secretary of State—
(a)
must take into account the amount of any grant which is to be or has
been made to the specified recipient in respect of that period under
30
section 16;
(b)
may take into account estimated as well as actual expenses of that body
in respect of that period.
(6)
Any amount of levy payable by any body or person is a debt due from the body
or person to the specified recipient, and is recoverable accordingly.
35
(7)
The specified recipient must—
(a)
keep proper accounts in respect of amounts of levy received, and
(b)
prepare in relation to each levy period a statement of account relating
to such amounts in such form and manner as is specified in the
regulations.
40
(8)
Those accounts must be audited, and the statement certified, by persons
appointed by the Secretary of State.
(9)
The power to make regulations under this section is exercisable by statutory
instrument.

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts, directors’ liabilities and investigations
Chapter 2 — Accounts and reports
23

(10)
Regulations to which this subsection applies may not be made unless a draft of
the regulations has been laid before, and approved by a resolution of, each
House of Parliament.
(11)
Subsection (10) applies to—
(a)
the first regulations under this section, and
5
(b)
any other regulations under this section that would result in any
change in the bodies or persons by whom the levy is payable.
(12)
Otherwise, any statutory instrument containing regulations under this section
is subject to annulment in pursuance of a resolution of either House of
Parliament.
10
18
Exemption from liability
(1)
Where a grant has been paid by the Secretary of State to a body under section
16, this section prevents any liability in damages arising in respect of certain
acts or omissions occurring during the period of 12 months beginning with the
date on which the grant was paid.
15
(2)
In this section—

“the exemption period” means the period of 12 months mentioned in
subsection (1);

“a relevant body” means the body mentioned in that subsection or a body
carrying on any subsidiary activities of that body (within the meaning
20
of section 16);

“section 16(2) activities” means activities concerned with any of the
matters set out in section 16(2).
(3)
Neither a relevant body, nor any person who is (or is acting as) a member,
officer or member of staff of a relevant body, is to be liable in damages for
25
anything done, or omitted to be done, during the exemption period for the
purposes of or in connection with—
(a)
the carrying on of any section 16(2) activities of the body, or
(b)
the purported carrying on of any such activities.
(4)
Subsection (3) does not apply—
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(a)
if the act or omission is shown to have been in bad faith; or
(b)
so as to prevent an award of damages in respect of the act or omission
on the grounds that it was unlawful as a result of section 6(1) of the
Human Rights Act 1998 (c. 42) (acts of public authorities incompatible
with Convention rights).
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Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts, directors’ liabilities and investigations
Chapter 3 — Directors’ liabilities
24

Chapter 3
Directors’ liabilities
19
Relaxation of prohibition on provisions protecting directors etc. from liability
(1)
After section 309 of the Companies Act 1985 (c. 6) insert—
“309A Provisions protecting directors from liability
5
(1)
This section applies in relation to any liability attaching to a director of
a company in connection with any negligence, default, breach of duty
or breach of trust by him in relation to the company.
(2)
Any provision which purports to exempt (to any extent) a director of a
company from any liability within subsection (1) is void.
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(3)
Any provision by which a company directly or indirectly provides (to
any extent) an indemnity for a director of—
(a)
the company, or
(b)
an associated company,

against any liability within subsection (1) is void
15

This is subject to subsections (4) and (5).
(4)
Subsection (3) does not apply to a qualifying third party indemnity
provision (see section 309B(1)).
(5)
Subsection (3) does not prevent a company from purchasing and
maintaining for a director of—
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(a)
the company, or
(b)
an associated company,

insurance against any liability within subsection (1).
(6)
In this section—

“associated company”, in relation to a company (“C”), means a
25
company which is C’s subsidiary, or C’s holding company or a
subsidiary of C’s holding company;

“provision” means a provision of any nature, whether or not it is
contained in a company’s articles or in any contract with a
company.
30
309B
Qualifying third party indemnity provisions
(1)
For the purposes of section 309A(4) a provision is a qualifying third
party indemnity provision if it is a provision such as is mentioned in
section 309A(3) in relation to which conditions A to C below are
satisfied.
35
(2)
Condition A is that the provision does not provide any indemnity
against any liability incurred by the director—
(a)
to the company, or
(b)
to any associated company.
(3)
Condition B is that the provision does not provide any indemnity
40
against any liability incurred by the director to pay—
(a)
a fine imposed in criminal proceedings, or

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts, directors’ liabilities and investigations
Chapter 3 — Directors’ liabilities
25

(b)
a sum payable to a regulatory authority by way of a penalty in
respect of non-compliance with any requirement of a regulatory
nature (however arising).
(4)
Condition C is that the provision does not provide any indemnity
against any liability incurred by the director—
5
(a)
in defending any criminal proceedings in which he is convicted,
or
(b)
in defending any civil proceedings brought by the company, or
an associated company, in which judgment is given against
him, or
10
(c)
in connection with any application under any of the following
provisions in which the court refuses to grant him relief,
namely—
(i)
section 144(3) or (4) (acquisition of shares by innocent
nominee), or
15
(ii)
section 727 (general power to grant relief in case of
honest and reasonable conduct).
(5)
In paragraph (a), (b) or (c) of subsection (4) the reference to any such
conviction, judgment or refusal of relief is a reference to one that has
become final.
20
(6)
For the purposes of subsection (5) a conviction, judgment or refusal of
relief becomes final—
(a)
if not appealed against, at the end of the period for bringing an
appeal, or
(b)
if appealed against, at the time when the appeal (or any further
25
appeal) is disposed of.
(7)
An appeal is disposed of—
(a)
if it is determined and the period for bringing any further
appeal has ended, or
(b)
if it is abandoned or otherwise ceases to have effect.
30
(8)
In this section “associated company” and “provision” have the same
meaning as in section 309A.
309C
Disclosure of qualifying third party indemnity provisions
(1)
Subsections (2) and (3) impose disclosure requirements in relation to a
directors’ report under section 234 in respect of a financial year.
35
(2)
If —
(a)
at the time when the report is approved under section 234A, any
qualifying third party indemnity provision (whether made by
the company or otherwise) is in force for the benefit of one or
more directors of the company, or
40
(b)
at any time during the financial year, any such provision was in
force for the benefit of one or more persons who were then
directors of the company,

the report must state that any such provision is or (as the case may be)
was so in force.
45
(3)
If the company has made a qualifying third party indemnity provision
and—

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts, directors’ liabilities and investigations
Chapter 3 — Directors’ liabilities
26

(a)
at the time when the report is approved under section 234A, any
qualifying third party indemnity provision made by the
company is in force for the benefit of one or more directors of an
associated company, or
(b)
at any time during the financial year, any such provision was in
5
force for the benefit of one or more persons who were then
directors of an associated company,

the report must state that any such provision is or (as the case may be)
was so in force.
(4)
Subsection (5) applies where a company has made a qualifying third
10
party indemnity provision for the benefit of a director of the company
or of an associated company.
(5)
Section 318 shall apply to—
(a)
the company, and
(b)
if the director is a director of an associated company, the
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associated company,

as if a copy of the provision, or (if it is not in writing) a memorandum
setting out its terms, were included in the list of documents in section
318(1).
(6)
In this section—
20

“associated company” and “provision” have the same meaning as
in section 309A; and

“qualifying third party indemnity provision” has the meaning
given by section 309B(1).”
(2)
In section 310 of that Act (provisions exempting officers and auditors from
25
liability), the following provisions cease to have effect—
(a)
in subsection (1), the words “any officer of the company or”, and
(b)
in subsection (3)—
(i)
the words “officer or” (in both places), and
(ii)
the words from “section 144(3)” to “nominee) or”;
30

and in the sidenote, for “exempting officers and” substitute “protecting”.
20
Funding of director’s expenditure on defending proceedings
After section 337 of the Companies Act 1985 (c. 6) insert—
“337A Funding of director’s expenditure on defending proceedings
(1)
A company is not prohibited by section 330 from doing anything to
35
provide a director with funds to meet expenditure incurred or to be
incurred by him—
(a)
in defending any criminal or civil proceedings, or
(b)
in connection with any application under any of the provisions
mentioned in subsection (2).
40
(2)
The provisions are—

section 144(3) and (4) (acquisition of shares by innocent nominee),
and

section 727 (general power to grant relief in case of honest and
reasonable conduct).
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Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts, directors’ liabilities and investigations
Chapter 4 — Investigations
27

(3)
Nor does section 330 prohibit a company from doing anything to
enable a director to avoid incurring such expenditure.
(4)
Subsections (1) and (3) only apply to a loan or other thing done as
mentioned in those subsections if the terms on which it is made or done
will result in the loan falling to be repaid, or any liability of the
5
company under any transaction connected with the thing in question
falling to be discharged, not later than—
(a)
in the event of the director being convicted in the proceedings,
the date when the conviction becomes final,
(b)
in the event of judgment being given against him in the
10
proceedings, the date when the judgment becomes final, or
(c)
in the event of the court refusing to grant him relief on the
application, the date when the refusal of relief becomes final.
(5)
For the purposes of subsection (4) a conviction, judgment or refusal of
relief becomes final—
15
(a)
if not appealed against, at the end of the period for bringing an
appeal, or
(b)
if appealed against, at the time when the appeal (or any further
appeal) is disposed of.
(6)
An appeal is disposed of—
20
(a)
if it is determined and the period for bringing any further
appeal has ended, or
(b)
if it is abandoned or otherwise ceases to have effect.”
Chapter 4
Investigations
25
21
Power to require documents and information
For section 447 of the Companies Act 1985 (c. 6) substitute—
“447  Power to require documents and information
(1)
The Secretary of State may act under subsections (2) and (3) in relation
to a company.
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(2)
The Secretary of State may give directions to the company requiring
it—
(a)
to produce such documents (or documents of such description)
as may be specified in the directions;
(b)
to provide such information (or information of such
35
description) as may be so specified.
(3)
The Secretary of State may authorise a person (an investigator) to
require the company or any other person—
(a)
to produce such documents (or documents of such description)
as the investigator may specify;
40
(b)
to provide such information (or information of such
description) as the investigator may specify.

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts, directors’ liabilities and investigations
Chapter 4 — Investigations
28

(4)
A person on whom a requirement under subsection (3) is imposed may
require the investigator to produce evidence of his authority.
(5)
A requirement under subsection (2) or (3) must be complied with at
such time and place as may be specified in the directions or by the
investigator (as the case may be).
5
(6)
The production of a document in pursuance of this section does not
affect any lien which a person has on the document.
(7)
The Secretary of State or the investigator (as the case may be) may take
copies of or extracts from a document produced in pursuance of this
section.
10
(8)
A “document” includes information recorded in any form.
(9)
In relation to information recorded otherwise than in legible form, the
power to require production of it includes power to require the
production of a copy of it in legible form or in a form from which it can
readily be produced in visible and legible form.”
15
22
Protection in relation to certain disclosures
After section 448 of the Companies Act 1985 (c. 6) insert—
“448A
Protection in relation to certain disclosures: information provided to
Secretary of State
(1)
A person who makes a relevant disclosure is not liable by reason only
20
of that disclosure in any proceedings relating to a breach of an
obligation of confidence.
(2)
A relevant disclosure is a disclosure which satisfies each of the
following conditions—
(a)
it is made to the Secretary of State otherwise than in compliance
25
with a requirement under this Part;
(b)
it is of a kind that the person making the disclosure could be
required to make in pursuance of this Part;
(c)
the person who makes the disclosure does so in good faith and
in the reasonable belief that the disclosure is capable of assisting
30
the Secretary of State for the purposes of the exercise of his
functions under this Part;
(d)
the information disclosed is not more than is reasonably
necessary for the purpose of assisting the Secretary of State for
the purposes of the exercise of those functions;
35
(e)
the disclosure is not one falling within subsection (3) or (4).
(3)
A disclosure falls within this subsection if the disclosure is prohibited
by virtue of any enactment.
(4)
A disclosure falls within this subsection if—
(a)
it is made by a person carrying on the business of banking or by
40
a lawyer, and
(b)
it involves the disclosure of information in respect of which he
owes an obligation of confidence in that capacity.
(5)
An enactment includes an enactment—