Company Law Reform Bill [HL]

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL]

Company Law Reform Bill [HL]
Part 15 — Accounts and reports
Chapter 5 — Directors’ report
182


commits an offence.
(5)
A person guilty of an offence under this section is liable—
(a)
on conviction on indictment, to a fine;
(b)
on summary conviction, to a fine not exceeding the statutory
maximum.
5
Chapter 5
Directors’ report
Directors’ report
397
Duty to prepare directors’ report
(1)
The directors of a company must prepare a directors’ report for each financial
10
year of the company.
(2)
For a financial year in which—
(a)
the company is a parent company, and
(b)
the directors of the company prepare group accounts,

the directors’ report must be a consolidated report (a “group directors’ report”)
15
relating to the company and its subsidiary undertakings included in the
consolidation.
(3)
A group directors’ report may, where appropriate, give greater emphasis to
the matters that are significant to the company and its subsidiary undertakings
included in the consolidation, taken as a whole.
20
(4)
In the case of failure to comply with the requirement to prepare a directors’
report, an offence is committed by every person who—
(a)
was a director of the company immediately before the end of the period
for filing accounts and reports for the financial year in question, and
(b)
failed to take all reasonable steps for securing compliance with that
25
requirement.
(5)
A person guilty of an offence under this section is liable—
(a)
on conviction on indictment, to a fine;
(b)
on summary conviction, to a fine not exceeding the statutory
maximum.
30
398
Contents of directors’ report: general
(1)
The directors’ report for a financial year must state—
(a)
the names of the persons who, at any time during the financial year,
were directors of the company, and
(b)
the principal activities of the company in the course of the year.
35
(2)
In relation to a group directors’ report subsection (1)(b) has effect as if the
reference to the company was to the company and its subsidiary undertakings
included in the consolidation.

Company Law Reform Bill [HL]
Part 15 — Accounts and reports
Chapter 5 — Directors’ report
183

(3)
Except in the case of a company subject to the small companies regime, the
report must state the amount (if any) that the directors recommend should be
paid by way of dividend.
(4)
The Secretary of State may make provision by regulations as to other matters
that must be disclosed in a directors’ report.
5

Without prejudice to the generality of this power, the regulations may make
any such provision as was formerly made by Schedule 7 to the Companies Act
1985.
399
Contents of directors’ report: business review
(1)
Unless the company is subject to the small companies’ regime, the directors’
10
report must contain a business review.
(2)
The purpose of the business review is to inform members of the company and
help them assess how the directors have performed their duty under section
158 (duty to promote the success of the company).
(3)
The business review must contain—
15
(a)
a fair review of the company’s business, and
(b)
a description of the principal risks and uncertainties facing the
company.
(4)
The review required is a balanced and comprehensive analysis of—
(a)
the development and performance of the company’s business during
20
the financial year, and
(b)
the position of the company’s business at the end of that year,

consistent with the size and complexity of the business.
(5)
In the case of a quoted company the business review must, to the extent
necessary for an understanding of the development, performance or position
25
of the company’s business, include—
(a)
the main trends and factors likely to affect the future development,
performance and position of the company’s business; and
(b)
information about—
(i)
environmental matters (including the impact of the company’s
30
business on the environment),
(ii)
the company’s employees, and
(iii)
social and community issues,

including information about any policies of the company in relation to
those matters and the effectiveness of those policies.
35

If the review does not contain information of each kind mentioned in
paragraph (b)(i), (ii) and (iii), it must state which of those kinds of information
it does not contain.
(6)
The review must, to the extent necessary for an understanding of the
development, performance or position of the company’s business, include—
40
(a)
analysis using financial key performance indicators, and
(b)
where appropriate, analysis using other key performance indicators,
including information relating to environmental matters and employee
matters.

Company Law Reform Bill [HL]
Part 15 — Accounts and reports
Chapter 5 — Directors’ report
184


“Key performance indicators” means factors by reference to which the
development, performance or position of the company’s business can be
measured effectively.
(7)
Where a company qualifies as medium-sized in relation to a financial year (see
sections 449 to 451), the directors’ report for the year need not comply with the
5
requirements of subsection (6) so far as they relate to non-financial
information.
(8)
The review must, where appropriate, include references to, and additional
explanations of, amounts included in the company’s annual accounts.
(9)
In relation to a group directors’ report this section has effect as if the references
10
to the company were references to the company and its subsidiary
undertakings included in the consolidation.
(10)
Nothing in this section requires the disclosure of information about impending
developments or matters in the course of negotiation if the disclosure would,
in the opinion of the directors, be seriously prejudicial to the interests of the
15
company.
400
Contents of directors’ report: statement as to disclosure to auditors
(1)
This section applies to a company unless—
(a)
it is exempt for the financial year in question from the requirements of
Part 16 as to audit of accounts, and
20
(b)
the directors take advantage of that exemption.
(2)
The directors’ report must contain a statement to the effect that, in the case of
each of the persons who are directors at the time the report is approved—
(a)
so far as the director is aware, there is no relevant audit information of
which the company’s auditor is unaware, and
25
(b)
he has taken all the steps that he ought to have taken as a director in
order to make himself aware of any relevant audit information and to
establish that the company’s auditor is aware of that information.
(3)
“Relevant audit information” means information needed by the company’s
auditor in connection with preparing his report.
30
(4)
A director is regarded as having taken all the steps that he ought to have taken
as a director in order to do the things mentioned in subsection (2)(b) if he has—
(a)
made such enquiries of his fellow directors and of the company’s
auditors for that purpose, and
(b)
taken such other steps (if any) for that purpose,
35

as are required by his duty as a director of the company to exercise reasonable
care, skill and diligence.
(5)
Where a directors’ report containing the statement required by this section is
approved but the statement is false, every director of the company who—
(a)
knew that the statement was false, or was reckless as to whether it was
40
false, and
(b)
failed to take reasonable steps to prevent the report from being
approved,

commits an offence.
(6)
A person guilty of an offence under subsection (5) is liable—
45

Company Law Reform Bill [HL]
Part 15 — Accounts and reports
Chapter 6 — Quoted companies: directors’ remuneration report
185

(a)
on conviction on indictment, to imprisonment for a term not exceeding
two years or a fine (or both);
(b)
on summary conviction—
(i)
in England and Wales, to imprisonment for a term not
exceeding twelve months or to a fine not exceeding the
5
statutory maximum (or both);
(ii)
in Scotland or Northern Ireland, to imprisonment for a term not
exceeding six months, or to a fine not exceeding the statutory
maximum (or both).
401
Approval and signing of directors’ report
10
(1)
The directors’ report must be approved by the board of directors and signed
on behalf of the board by a director or the secretary of the company.
(2)
If the report is prepared in accordance with the small companies regime, it
must contain a statement to that effect in a prominent position above the
signature.
15
(3)
If a directors’ report is approved that does not comply with the requirements
of this Act, every director of the company who—
(a)
knew that it did not comply, or was reckless as to whether it complied,
and
(b)
failed to take reasonable steps to secure compliance with those
20
requirements or, as the case may be, to prevent the report from being
approved,

commits an offence.
(4)
A person guilty of an offence under this section is liable—
(a)
on conviction on indictment, to a fine;
25
(b)
on summary conviction, to a fine not exceeding the statutory
maximum.
Chapter 6
Quoted companies: directors’ remuneration report
402
Duty to prepare directors’ remuneration report
30
(1)
The directors of a quoted company must prepare a directors’ remuneration
report for each financial year of the company.
(2)
In the case of failure to comply with the requirement to prepare a directors’
remuneration report, every person who—
(a)
was a director of the company immediately before the end of the period
35
for filing accounts and reports for the financial year in question, and
(b)
failed to take all reasonable steps for securing compliance with that
requirement,

commits an offence.
(3)
A person guilty of an offence under this section is liable—
40
(a)
on conviction on indictment, to a fine;
(b)
on summary conviction, to a fine not exceeding the statutory
maximum.