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 16 — Audit
Chapter 3 — Functions of auditor
238

(2)
The conditions are that the company—
(a)
considering on reasonable grounds that statement of the name would
create or be likely to create a serious risk that the auditor or senior
statutory auditor, or any other person, would be subject to violence or
intimidation, has resolved that the name should not be stated, and
5
(b)
has given notice of the resolution to the Secretary of State, stating—
(i)
the name and registered number of the company,
(ii)
the financial year of the company to which the report relates,
and
(iii)
the name of the auditor and (where the auditor is a firm) the
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name of the person who signed the report as senior statutory
auditor.
Offences in connection with auditor’s report
497
Offences in connection with auditor’s report
(1)
A person to whom this section applies commits an offence if he knowingly or
15
recklessly causes a report under section 485 (auditor’s report on company’s
annual accounts) to include any matter that is misleading, false or deceptive in
a material particular.
(2)
A person to whom this section applies commits an offence if he knowingly or
recklessly causes such a report to omit a statement required by—
20
(a)
section 488(2)(b) (statement that company’s accounts do not agree with
accounting records and returns),
(b)
section 488(3) (statement that necessary information and explanations
not obtained), or
(c)
section 488(5) (statement that directors wrongly took advantage of
25
exemption from obligation to prepare group accounts).
(3)
This section applies to—
(a)
where the auditor is an individual, that individual and any employee
or agent of his who is eligible for appointment as auditor of the
company;
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(b)
where the auditor is a firm, any director, member, employee or agent of
the firm who is eligible for appointment as auditor of the company.
(4)
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
35
maximum.
498
Guidance for regulatory and prosecuting authorities: England, Wales and
Northern Ireland
(1)
The Secretary of State may issue guidance for the purpose of helping relevant
regulatory and prosecuting authorities to determine how they should carry out
40
their functions in cases where behaviour occurs that—
(a)
appears to involve the commission of an offence under section 497
(offences in connection with auditor’s report), and
(b)
has been, is being or may be investigated pursuant to arrangements—

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 3 — Functions of auditor
239

(i)
under paragraph 15 of Schedule 10 (investigation of complaints
against auditors and supervisory bodies), or
(ii)
of a kind mentioned in paragraph 24 of that Schedule
(independent investigation for disciplinary purposes of public
interest cases).
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(2)
The Secretary of State must obtain the consent of the Attorney General before
issuing any such guidance.
(3)
In this section “relevant regulatory and prosecuting authorities” means—
(a)
supervisory bodies within the meaning of Part 35 of this Act,
(b)
bodies to which the Secretary of State may make grants under section
10
16(1) of the Companies (Audit, Investigations and Community
Enterprise) Act 2004 (c. 27) (bodies concerned with accounting
standards etc),
(c)
the Director of the Serious Fraud Office,
(d)
the Director of Public Prosecutions or the Director of Public
15
Prosecutions for Northern Ireland, and
(e)
the Secretary of State.
(4)
This section does not apply to Scotland.
499
Guidance for regulatory authorities: Scotland
(1)
The Lord Advocate may issue guidance for the purpose of helping relevant
20
regulatory authorities to determine how they should carry out their functions
in cases where behaviour occurs that—
(a)
appears to involve the commission of an offence under section 497
(offences in connection with auditor’s report), and
(b)
has been, is being or may be investigated pursuant to arrangements—
25
(i)
under paragraph 15 of Schedule 10 (investigation of complaints
against auditors and supervisory bodies), or
(ii)
of a kind mentioned in paragraph 24 of that Schedule
(independent investigation for disciplinary purposes of public
interest cases).
30
(2)
The Lord Advocate must consult the Secretary of State before issuing any such
guidance.
(3)
In this section “relevant regulatory authorities” means—
(a)
supervisory bodies within the meaning of Part 35 of this Act,
(b)
bodies to which the Secretary of State may make grants under section
35
16(1) of the Companies (Audit, Investigations and Community
Enterprise) Act 2004 (bodies concerned with accounting standards etc),
and
(c)
the Secretary of State.
(4)
This section applies only to Scotland.
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Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 4 — Removal, resignation, etc of auditors
240

Chapter 4
Removal, resignation, etc of auditors
Removal of auditor
500
Resolution removing auditor from office
(1)
The members of a company may by ordinary resolution at any time remove an
5
auditor from office.
(2)
This power is exercisable only in accordance with section 501 (special notice of
resolution to remove auditor).
(3)
Nothing in this section is to be taken as depriving the person removed of
compensation or damages payable to him in respect of the termination—
10
(a)
of his appointment as auditor, or
(b)
of any appointment terminating with that as auditor.
(4)
An auditor may not be removed from office before the expiration of his term of
office except by resolution under this section.
501
Special notice required for resolution removing auditor from office
15
(1)
Special notice is required for a resolution at a general meeting of a company
removing an auditor from office.
(2)
On receipt of notice of such an intended resolution the company must
immediately send a copy of it to the person proposed to be removed.
(3)
The auditor proposed to be removed may make with respect to the intended
20
resolution representations in writing to the company (not exceeding a
reasonable length) and request their notification to members of the company.
(4)
The company must (unless the representations are received by it too late for it
to do so)—
(a)
in any notice of the resolution given to members of the company, state
25
the fact of the representations having been made, and
(b)
send a copy of the representations to every member of the company to
whom notice of the meeting is or has been sent.
(5)
If a copy of any such representations is not sent out as required because
received too late or because of the company’s default, the auditor may (without
30
prejudice to his right to be heard orally) require that the representations be
read out at the meeting.
(6)
Copies of the representations need not be sent out and the representations need
not be read at the meeting if, on the application either of the company or of any
other person claiming to be aggrieved, the court is satisfied that the auditor is
35
using the provisions of this section to secure needless publicity for defamatory
matter.

The court may order the company’s costs (in Scotland, expenses) on the
application to be paid in whole or in part by the auditor, notwithstanding that
he is not a party to the application.
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Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 4 — Removal, resignation, etc of auditors
241

502
Notice to registrar of resolution removing auditor from office
(1)
Where a resolution is passed under section 500 (resolution removing auditor
from office), the company must give notice of that fact to the registrar within
14 days.
(2)
If a company fails to give the notice required by this section, an offence is
5
committed by—
(a)
the company, and
(b)
every officer of it who is in default.
(3)
A person guilty of an offence under this section is liable on summary
conviction to a fine not exceeding level 3 on the standard scale and, for
10
continued contravention, a daily default fine not exceeding one-tenth of level
3 on the standard scale.
503
Rights of auditor who has been removed from office
(1)
An auditor who has been removed by resolution under section 500 has,
notwithstanding his removal, the rights conferred by section 492(2) in relation
15
to any general meeting of the company—
(a)
at which his term of office would otherwise have expired, or
(b)
at which it is proposed to fill the vacancy caused by his removal.
(2)
In such a case the references in that section to matters concerning the auditor
as auditor shall be construed as references to matters concerning him as a
20
former auditor.
Failure to re-appoint auditor
504
Failure to re-appoint auditor: special procedure required for written
resolution
(1)
This section applies where a resolution is proposed as a written resolution of a
25
private company whose effect would be to appoint a person as auditor in place
of a person (the “outgoing auditor”) whose term of office has expired, or is to
expire, at the end of the period for appointing auditors.
(2)
The following provisions apply if—
(a)
no period for appointing auditors has ended since the outgoing auditor
30
ceased to hold office, or
(b)
such a period has ended and an auditor or auditors should have been
appointed but were not.
(3)
The company must send a copy of the proposed resolution to the person
proposed to be appointed and to the outgoing auditor.
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(4)
The outgoing auditor may, within 14 days after receiving the notice, make with
respect to the proposed resolution representations in writing to the company
(not exceeding a reasonable length) and request their circulation to members of
the company.
(5)
The company must circulate the representations together with the copy or
40
copies of the resolution circulated in accordance with section 274 (resolution
proposed by directors) or section 276 (resolution proposed by members).

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 4 — Removal, resignation, etc of auditors
242

(6)
Where subsection (5) applies—
(a)
the period allowed under section 276(3) for service of copies of the
proposed resolution is 28 days instead of 21 days, and
(b)
the provisions of section 276(6) and (7) (offences) apply in relation to a
failure to comply with that subsection as in relation to a default in
5
complying with that section.
(7)
Copies of the representations need not be circulated if, on the application either
of the company or of any other person claiming to be aggrieved, the court is
satisfied that the auditor is using the provisions of this section to secure
needless publicity for defamatory matter.
10

The court may order the company’s costs (in Scotland, expenses) on the
application to be paid in whole or in part by the auditor, notwithstanding that
he is not a party to the application.
(8)
If any requirement of this section is not complied with, the resolution is
ineffective.
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505
Failure to re-appoint auditor: special notice required for resolution at general
meeting
(1)
This section applies to a resolution at a general meeting of a company whose
effect would be to appoint a person as auditor in place of a person (the
“outgoing auditor”) whose term of office has ended, or is to end—
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(a)
in the case of a private company, at the end of the period for appointing
auditors;
(b)
in the case of a public company, at the end of the next accounts meeting.
(2)
Special notice is required of such a resolution if—
(a)
in the case of a private company—
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(i)
no period for appointing auditors has ended since the outgoing
auditor ceased to hold office, or
(ii)
such a period has ended and an auditor or auditors should have
been appointed but were not;
(b)
in the case of a public company—
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(i)
there has been no accounts meeting of the company since the
outgoing auditor ceased to hold office, or
(ii)
there has been an accounts meeting at which an auditor or
auditors should have been appointed but were not.
(3)
On receipt of notice of such an intended resolution the company shall
35
forthwith send a copy of it to the person proposed to be appointed and to the
outgoing auditor.
(4)
The outgoing auditor may make with respect to the intended resolution
representations in writing to the company (not exceeding a reasonable length)
and request their notification to members of the company.
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(5)
The company must (unless the representations are received by it too late for it
to do so)—
(a)
in any notice of the resolution given to members of the company, state
the fact of the representations having been made, and
(b)
send a copy of the representations to every member of the company to
45
whom notice of the meeting is or has been sent.

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 4 — Removal, resignation, etc of auditors
243

(6)
If a copy of any such representations is not sent out as required because
received too late or because of the company’s default, the outgoing auditor
may (without prejudice to his right to be heard orally) require that the
representations be read out at the meeting.
(7)
Copies of the representations need not be sent out and the representations need
5
not be read at the meeting if, on the application either of the company or of any
other person claiming to be aggrieved, the court is satisfied that the auditor is
using the provisions of this section to secure needless publicity for defamatory
matter.

The court may order the company’s costs (in Scotland, expenses) on the
10
application to be paid in whole or in part by the outgoing auditor,
notwithstanding that he is not a party to the application.
Resignation of auditor
506
Resignation of auditor
(1)
An auditor of a company may resign his office by depositing a notice in writing
15
to that effect at the company’s registered office.
(2)
The notice is not effective unless it is accompanied by the statement required
by section 509.
(3)
An effective notice of resignation operates to bring the auditor’s term of office
to an end as of the date on which the notice is deposited or on such later date
20
as may be specified in it.
507
Notice to registrar of resignation of auditor
(1)
Where an auditor resigns the company must within 14 days of the deposit of a
notice of resignation send a copy of the notice to the registrar of companies.
(2)
If default is made in complying with this section, an offence is committed by—
25
(a)
the company, and
(b)
every officer of the company who is in default.
(3)
A person guilty of an offence under this section is liable—
(a)
on conviction on indictment, to a fine and, for continued contravention,
a daily default fine not exceeding one-tenth of the statutory maximum;
30
(b)
on summary conviction, to a fine not exceeding the statutory maximum
and, for continued contravention, a daily default fine not exceeding
one-tenth of the statutory maximum.
508
Rights of resigning auditor
(1)
This section applies where an auditor’s notice of resignation is accompanied by
35
a statement of the circumstances connected with his resignation (see section
509).
(2)
He may deposit with the notice a signed requisition calling on the directors of
the company forthwith duly to convene a general meeting of the company for
the purpose of receiving and considering such explanation of the
40
circumstances connected with his resignation as he may wish to place before
the meeting.

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 4 — Removal, resignation, etc of auditors
244

(3)
He may request the company to circulate to its members—
(a)
before the meeting convened on his requisition, or
(b)
before any general meeting at which his term of office would otherwise
have expired or at which it is proposed to fill the vacancy caused by his
resignation,
5

a statement in writing (not exceeding a reasonable length) of the circumstances
connected with his resignation.
(4)
The company must (unless the statement is received too late for it to comply)—
(a)
in any notice of the meeting given to members of the company, state the
fact of the statement having been made, and
10
(b)
send a copy of the statement to every member of the company to whom
notice of the meeting is or has been sent.
(5)
The directors must within 21 days from the date of the deposit of a requisition
under this section proceed duly to convene a meeting for a day not more than
28 days after the date on which the notice convening the meeting is given.
15
(6)
If default is made in complying with subsection (5), every director who failed
to take all reasonable steps to secure that a meeting was convened commits an
offence.
(7)
A person guilty of an offence under this section is liable—
(a)
on conviction on indictment, to a fine;
20
(b)
on summary conviction to a fine not exceeding the statutory maximum.
(8)
If a copy of the statement mentioned above is not sent out as required because
received too late or because of the company’s default, the auditor may (without
prejudice to his right to be heard orally) require that the statement be read out
at the meeting.
25
(9)
Copies of a statement need not be sent out and the statement need not be read
out at the meeting if, on the application either of the company or of any other
person who claims to be aggrieved, the court is satisfied that the auditor is
using the provisions of this section to secure needless publicity for defamatory
matter.
30

The court may order the company’s costs (in Scotland, expenses) on such an
application to be paid in whole or in part by the auditor, notwithstanding that
he is not a party to the application.
(10)
An auditor who has resigned has, notwithstanding his resignation, the rights
conferred by section 492(2) in relation to any such general meeting of the
35
company as is mentioned in subsection (3)(a) or (b) above.

In such a case the references in that section to matters concerning the auditor
as auditor shall be construed as references to matters concerning him as a
former auditor.
Statement by auditor on ceasing to hold office
40
509
Statement by auditor to be deposited with company
(1)
Where an auditor of an unquoted company ceases for any reason to hold office,
he must deposit at the company’s registered office a statement of the
circumstances connected with his ceasing to hold office, unless he considers
that there are no circumstances in connection with his ceasing to hold office
45