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 4 — Removal, resignation, etc of auditors
245

that need to be brought to the attention of members or creditors of the
company.
(2)
If he considers that there are no circumstances in connection with his ceasing
to hold office that need to be brought to the attention of members or creditors
of the company, he must deposit at the company’s registered office a statement
5
to that effect.
(3)
Where an auditor of a quoted 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.
(4)
The statement required by this section must be deposited—
10
(a)
in the case of resignation, along with the notice of resignation;
(b)
in the case of failure to seek re-appointment, not less than 14 days
before the end of the time allowed for next appointing an auditor;
(c)
in any other case, not later than the end of the period of 14 days
beginning with the date on which he ceases to hold office.
15
(5)
A person ceasing to hold office as auditor who fails to comply with this section
commits an offence.
(6)
In proceedings for such an offence it is a defence for the person charged to
show that he took all reasonable steps and exercised all due diligence to avoid
the commission of the offence.
20
(7)
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.
510
Company’s duties in relation to statement
25
(1)
This section applies where the statement deposited under section 509 states the
circumstances connected with the auditor’s ceasing to hold office.
(2)
The company must within 14 days of the deposit of the statement either—
(a)
send a copy of it to every person who under section 405 is entitled to be
sent copies of the accounts, or
30
(b)
apply to the court.
(3)
If it applies to the court, the company must notify the auditor of the
application.
(4)
If the court is satisfied that the auditor is using the provisions of section 509 to
secure needless publicity for defamatory matter—
35
(a)
it shall direct that copies of the statement need not be sent out, and
(b)
it may further order the company’s costs (in Scotland, expenses) on the
application to be paid in whole or in part by the auditor, even if he is
not a party to the application.

The company must within 14 days of the court’s decision send to the persons
40
mentioned in subsection (2)(a) a statement setting out the effect of the order.
(5)
If no such direction is made the company must send copies of the statement to
the persons mentioned in subsection (2)(a) within 14 days of the court’s
decision or, as the case may be, of the discontinuance of the proceedings.

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 4 — Removal, resignation, etc of auditors
246

(6)
In the event of default in complying with this section an offence is committed
by every officer of the company who is in default.
(7)
In proceedings for such an offence it is a defence for the person charged to
show that he took all reasonable steps and exercised all due diligence to avoid
the commission of the offence.
5
(8)
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.
511
Copy of statement to be sent to registrar
10
(1)
Unless within 21 days beginning with the day on which he deposited the
statement under section 509 the auditor receives notice of an application to the
court under section 510, he must within a further seven days send a copy of the
statement to the registrar.
(2)
If an application to the court is made under section 510 and the auditor
15
subsequently receives notice under subsection (5) of that section, he must
within seven days of receiving the notice send a copy of the statement to the
registrar.
(3)
An auditor who fails to comply with subsection (1) or (2) commits an offence.
(4)
In proceedings for such an offence it is a defence for the person charged to
20
show that he took all reasonable steps and exercised all due diligence to avoid
the commission of the 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
25
maximum.
512
Duty of auditor to notify appropriate audit authority
(1)
Where—
(a)
in the case of a major audit, an auditor ceases for any reason to hold
office, or
30
(b)
in the case of an audit that is not a major audit, an auditor ceases to hold
office before the end of his term of office,

the auditor ceasing to hold office must notify the appropriate audit authority.
(2)
The notice must—
(a)
inform the appropriate audit authority that he has ceased to hold office,
35
and
(b)
be accompanied by a copy of the statement deposited by him at the
company’s registered office in accordance with section 509.
(3)
If the statement so deposited is to the effect that he considers that there are no
circumstances in connection with his ceasing to hold office that need to be
40
brought to the attention of members or creditors of the company, the notice
must also be accompanied by a statement of the reasons for his ceasing to hold
office.

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 4 — Removal, resignation, etc of auditors
247

(4)
The auditor must comply with this section—
(a)
in the case of a major audit, at the same time as he deposits a statement
at the company’s registered office in accordance with section 509;
(b)
in the case of an audit that is not a major audit, at such time (not being
earlier than the time mentioned in paragraph (a)) as the appropriate
5
audit authority may require.
(5)
A person ceasing to hold office as auditor who fails to comply with this section
commits an offence.
(6)
If that person is a firm an offence is committed by—
(a)
the firm, and
10
(b)
every officer of the firm who is in default.
(7)
In proceedings for an offence under this section it is a defence for the person
charged to show that he took all reasonable steps and exercised all due
diligence to avoid the commission of the offence.
(8)
A person guilty of an offence under this section is liable—
15
(a)
on conviction on indictment, to a fine;
(b)
on summary conviction, to a fine not exceeding the statutory
maximum.
513
Duty of company to notify appropriate audit authority
(1)
Where an auditor ceases to hold office before the end of his term of office, the
20
company must notify the appropriate audit authority.
(2)
The notice must—
(a)
inform the appropriate audit authority that the auditor has ceased to
hold office, and
(b)
be accompanied by—
25
(i)
a statement by the company of the reasons for his ceasing to
hold office, or
(ii)
if the copy of the statement deposited by the auditor at the
company’s registered office in accordance with section 509
contains a statement of circumstances in connection with his
30
ceasing to hold office that need to be brought to the attention of
members or creditors of the company, a copy of that statement.
(3)
The company must give notice under this section not later than 14 days after
the date on which the auditor’s statement is deposited at the company’s
registered office in accordance with section 509.
35
(4)
If a company fails to comply with this section, an offence is committed by—
(a)
the company, and
(b)
every officer of the company who is in default.
(5)
In proceedings for such an offence it is a defence for the person charged to
show that he took all reasonable steps and exercised all due diligence to avoid
40
the commission of the offence.
(6)
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.
45

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 4 — Removal, resignation, etc of auditors
248

514
Information to be given to accounting authorities
(1)
The appropriate audit authority on receiving notice under section 512 or 513 of
an auditor’s ceasing to hold office—
(a)
must inform the accounting authorities, and
(b)
may if it thinks fit forward to those authorities a copy of the statement
5
or statements accompanying the notice.
(2)
The accounting authorities are—
(a)
the Secretary of State, and
(b)
any person authorised by the Secretary of State for the purposes of
section 440 (revision of defective accounts: persons authorised to apply
10
to court).
(3)
If either of the accounting authorities is also the appropriate audit authority it
is only necessary to comply with this section as regards any other accounting
authority.
(4)
If the court has made an order under section 510(4) directing that copies of the
15
statement need not be sent out by the company, sections 444 and 445
(restriction on further disclosure) apply in relation to the copies sent to the
accounting authorities as they apply to information obtained under section 443
(power to require documents etc).
515
Meaning of “appropriate audit authority” and “major audit”
20
(1)
In sections 512, 513 and 514 “appropriate audit authority” means—
(a)
in the case of a major audit, the Secretary of State or the body to whom
the Secretary of State has delegated functions under section 881 or 882
of this Act;
(b)
in the case of an audit that is not a major audit, the relevant supervisory
25
body.
(2)
In sections 512 and this section “major audit” means a statutory audit
conducted in respect of—
(a)
a company any of whose securities have been admitted to the official
list (within the meaning of Part 6 of the Financial Services and Markets
30
Act 2000 (c. 8)), or
(b)
any other person in whose financial condition there is a major public
interest.
(3)
In determining whether an audit is a major audit within subsection (2)(b),
regard shall be had to any guidance issued by any of the authorities mentioned
35
in subsection (1).
Supplementary
516
Effect of casual vacancies

If an auditor ceases to hold office for any reason, any surviving or continuing
auditor or auditors may continue to act.
40

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 5 — Quoted companies: right of members to raise audit concerns at accounts meeting
249

Chapter 5
Quoted companies: right of members to raise audit concerns at accounts
meeting
517
Members’ power to require website publication of audit concerns
(1)
The members of a quoted company may require the company to publish on a
5
website a statement setting out any matter relating to—
(a)
the audit of the company’s accounts (including the auditor’s report and
the conduct of the audit) that are to be laid before the next accounts
meeting, or
(b)
any circumstances connected with an auditor of the company ceasing
10
to hold office since the previous accounts meeting,

that the members propose to raise at the next accounts meeting of the
company.
(2)
A company is required to do so once it has received requests to that effect
from—
15
(a)
members representing at least 5% of the total voting rights of all the
members who have a relevant right to vote (excluding any voting rights
attached to any shares in the company held as treasury shares), or
(b)
at least 100 members who have a relevant right to vote and hold shares
in the company on which there has been paid up an average sum, per
20
member, of at least £100.
(3)
In subsection (2) a “relevant right to vote” means a right to vote at the accounts
meeting.
(4)
A request—
(a)
may be sent to the company in hard copy or electronic form,
25
(b)
must identify the statement to which it relates,
(c)
must be authenticated by the person or persons making it, and
(d)
must be received by the company at least one week before the meeting
to which it relates.
(5)
A quoted company is not required to place on a website a statement under this
30
section if, on an application by the company or another person who claims to
be aggrieved, the court is satisfied that the rights conferred by this section are
being abused.
(6)
The court may order the members requesting website publication to pay the
whole or part of the company’s costs (in Scotland, expenses) on such an
35
application, even if they are not parties to the application.
518
Requirements as to website availability
(1)
The following provisions apply for the purposes of section 517 (website
publication of members’ statement of audit concerns).
(2)
The information must be made available on a website that—
40
(a)
is maintained by or on behalf of the company, and
(b)
identifies the company in question.

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 5 — Quoted companies: right of members to raise audit concerns at accounts meeting
250

(3)
Access to the information on the website, and the ability to obtain a hard copy
of the information from the website, must not be conditional on the payment
of a fee or otherwise restricted.
(4)
The statement—
(a)
must be made available within three working days of the company
5
being required to publish it on a website, and
(b)
must be kept available until after the meeting to which it relates.
(5)
A failure to make information available on a website throughout the period
specified in subsection (4)(b) is disregarded if—
(a)
the information is made available on the website for part of that period,
10
and
(b)
the failure is wholly attributable to circumstances that it would not be
reasonable to have expected the company to prevent or avoid.
519
Website publication: company’s supplementary duties
(1)
A quoted company must in the notice it gives of the accounts meeting draw
15
attention to—
(a)
the possibility of a statement being placed on a website in pursuance of
members’ requests under section 517, and
(b)
the effect of the following provisions of this section.
(2)
A company may not require the members requesting website publication to
20
pay its expenses in complying with that section or section 518 (requirements in
connection with website publication).
(3)
Where a company is required to place a statement on a website under section
517 it must forward the statement to the company’s auditor not later than the
time when it makes the statement available on the website.
25
(4)
The business which may be dealt with at the accounts meeting includes any
statement that the company has been required under section 517 to publish on
a website.
520
Website publication: offences
(1)
In the event of default in complying with
30
(a)
section 518 (requirements as to website publication), or
(b)
section 519 (companies’ supplementary duties in relation to request for
website publication),

an offence is committed by every officer of the company who is in default.
(2)
A person guilty of an offence under this section is liable—
35
(a)
on conviction on indictment, to a fine;
(b)
on summary conviction, to a fine not exceeding the statutory
maximum.
521
Meaning of “quoted company”
(1)
For the purposes of this Chapter a company is a quoted company if it is a
40
quoted company in accordance with section 367 (quoted and unquoted
companies for the purposes of Part 15) in relation to the financial year to which
the accounts to be laid at the next accounts meeting relate.

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 6 — Auditors’ liability
251

(2)
The provisions of subsections (4) to (6) of that section (power to amend
definition by regulations) apply in relation to the provisions of this Chapter as
in relation to the provisions of that Part.
Chapter 6
Auditors’ liability
5
Voidness of provisions protecting auditors from liability
522
Voidness of provisions protecting auditors from liability
(1)
This section applies to any provision—
(a)
for exempting an auditor of a company (to any extent) from any
liability that would otherwise attach to him in connection with any
10
negligence, default, breach of duty or breach of trust in relation to the
company occurring in the course of the audit of accounts, or
(b)
by which a company directly or indirectly provides an indemnity (to
any extent) for an auditor of the company, or of an associated company,
against any liability attaching to him in connection with any
15
negligence, default, breach of duty or breach of trust in relation to the
company of which he is auditor occurring in the course of the audit of
accounts.
(2)
Any such provision is void, except as permitted by—
(a)
section 523 (indemnity for costs of successfully defending
20
proceedings), or
(b)
sections 524 to 526 (liability limitation agreements).
(3)
This section applies to any provision, whether contained in a company’s
articles or in any contract with the company or otherwise.
(4)
For the purposes of this section companies are associated if one is a subsidiary
25
of the other or both are subsidiaries of the same body corporate.
Indemnity for costs of defending proceedings
523
Indemnity for costs of successfully defending proceedings

Section 522 (general voidness of provisions protecting auditors from liability)
does not prevent a company from indemnifying an auditor against any liability
30
incurred by him—
(a)
in defending proceedings (whether civil or criminal) in which
judgment is given in his favour or he is acquitted, or
(b)
in connection with an application under section 804 (power of court to
grant relief in case of honest and reasonable conduct) in which relief is
35
granted to him by the court.