CHAPTER 6: RECORDS OF RESOLUTIONS AND MEETINGS

579.     The following provisions replace sections 382, 382A, 382B and 383 of the 1985 Act relating to the records of company proceedings. They should be read in conjunction with the provisions on company records in Part 31 (Companies: supplementary provisions). The main changes are the ten year minimum period for keeping records (the 1985 Act envisaged that records would be retained forever); that meetings of directors are dealt with elsewhere (in Part 10 of the Bill); and that the new provisions apply to class meetings.

Clause 338: Records of resolutions and meetings etc

580.     This clause requires all companies to maintain records comprising: copies of all resolutions passed otherwise than at general meetings (which would include all written resolutions), minutes of all proceedings of general meetings, and details of decisions of a sole member taken in accordance with clause 340 (records of decisions by sole member). All records must be kept for a minimum of 10 years. Subsections (3) and (4) impose a penalty on every officer in default for non-compliance.

Clause 339: Records as evidence of resolutions etc

581.     This clause ensures that all records of resolutions or written resolutions and minutes of meetings, where signed off by a director or a company secretary or by the chairman in the case of a general meeting, are evidence of the passing of a resolution or the proceedings at the meeting. In legal proceedings, a litigant will have to accept that the records are accurate unless he can prove that they are not.

Clause 340: Records of decisions by sole member

582.     This clause makes provision for the recording of decisions of a company with only one member.

Clause 341: Inspection of records of resolutions and meetings

583.     This clause requires every company to keep its records available for inspection by members for 10 years. Subsection (5) enables a member to seek a court order to compel the company to make the records available for inspection or to provide copies of the records.

Clause 342: Records of resolutions and meetings of class of members

584.     This clause applies the provisions of this Chapter to resolutions and meetings of holders of a class of shares in the case of a company with share capital or to classes of members in the case of a company without a share capital.

CHAPTER 7: SUPPLEMENTARY PROVISIONS

Clause 343: Meaning of "quoted company"

585.     This clause provides that the definition for "quoted company" is as stated in Part 15 (Accounts and reports) of the Bill.

PART 14: CONTROL OF POLITICAL DONATIONS AND EXPENDITURE

Background and summary

586.     In October 1998 the Committee on Standards in Public Life presented to the Prime Minister its report on the funding of political parties in the UK. The Report recommended that any company intending to make a donation (whether in cash or in kind, and including any sponsorship, or loans or transactions at a favourable rate) to a political party or organisation should be required to have the prior authority of its shareholders. The Government accepted this recommendation, and implemented it through the Political Parties, Elections and Referendums Act 2000 ("the PPERA"). The new regime for control of political donations and expenditure is in Part 10A of the 1985 Act, as inserted by section 139 of and Schedule 19 to the PPERA.

587.     Part 14 of the Bill restates the existing provisions in a style consistent with the other clauses, but most of the key elements of the framework established by the PPERA will remain. In particular:

• companies will continue to be prohibited from making a donation to a political party or other political organisation or from incurring political expenditure unless the donation or the expenditure has been authorised, in a typical case by the members of the company;

• a "political donation" will continue to be defined by reference to sections 50 to 52 of the PPERA 2000, and for this purpose amendments made to the PPERA by the Electoral Administration Bill currently before Parliament (which remove from the definition of "donations" loans made otherwise than on commercial terms) will be disregarded;

• an approval resolution may authorise the making of donations and incurring of expenditure for a period of not more than four years commencing with the date of the passing of the resolution up to a value specified in the resolution;

• donations or expenditure by a subsidiary must be authorised by resolutions of the members of the subsidiary and of the holding company; and the directors of such a holding company will continue to be liable for unauthorised donations by the subsidiary company;

• companies need not seek prior shareholder consent for donations to political parties or organisations except to the extent that the amount or aggregate amount of any such donation together with any other relevant donations made by the company and other companies in the group of which it is a member made in a particular qualifying period exceeds £5,000;

• there are to be no criminal sanctions in relation to the making of unauthorised donations or the incurring of unauthorised political expenditure;

• civil remedies are to be available to a company in the event of breach of the prohibitions and are to be pursued in the normal manner by the company; and there will continue to be available an action under which shareholders may enforce on behalf of the company any of the remedies available to a company.

588.     The main changes from Part 10A of the 1985 Act are that:

• in line with our general approach in the Bill, we have removed references to the general meeting, to make it clearer that private companies can authorise donations and/or expenditure by written resolution;

• a holding company must authorise a donation or expenditure by a subsidiary company only if it is a "relevant holding company" (that is, the ultimate holding company or, where such a company is not a "UK company", the holding company highest up the chain which is a "UK company");

• a holding company is to be permitted to seek authorisation of donations and expenditure in respect of both the holding company itself and one or more subsidiaries (including wholly-owned subsidiaries) through a single approval resolution (clause 349(1));

• companies are to be permitted to table separate approval resolutions in respect of donations to political parties and donations to other political organisations (clause 349(2));

• companies will be required to seek authorisation for donations to independent candidates at any election to public office held in the UK or other EU member state and for expenditure by the company relating to independent election candidates;

• the clauses provide greater clarity for companies about the provision of facilities (for example, meeting rooms) for trade union officials by introducing a specific exemption for donations to trade unions (clause 348). The Bill does not introduce a specific exemption in relation to paid leave for local councillors because this does not constitute a political donation under either Part 10A of the 1985 Act or the Bill;

• there are important changes to the rules on ratification and liability in cases of unauthorised donations or expenditure;

• the special rules in respect of the parent company of a non-GB subsidiary undertaking (sections 347E and 347G of the 1985 Act) are not reproduced;

• The new provisions will apply to Northern Ireland.

COMMENTARY

Clause 345: Political parties, organisations etc to which this Part applies

589.     This clause establishes the general scope of the provisions of this Part by defining what is meant by:

• political parties;

• political organisations other than political parties;

• independent election candidates at any election to public office.

Clause 346: Meaning of "political donation"

590.     This clause defines a "political donation" for the purposes of this Part by reference to sections 50 to 52 of the Political Parties, Elections and Referendums Act 2000. For this purpose, amendments made to the 2000 act by the Electoral Administration Bill currently before Parliament (which remove from the definition of "donation" loans made otherwise than on commercial terms) will be disregarded. This clause reproduces the effect of section 347A(4) of the 1985 Act, except that it includes donations to independent election candidates.

Clause 347: Meaning of "political expenditure"

591.     This clause defines "political expenditure" for the purposes of this Part.

592.     It reproduces the effect of section 347A(5) of the 1985 Act, except that it extends the definition to expenditure incurred by the company in relation to independent election candidates.

Authorisation required for donations or expenditure

Clause 348: Authorisation required for donations or expenditure

593.     This clause prohibits a company from making a donation or incurring political expenditure unless the transaction or the expenditure is authorised by a resolution of the members of the company. If the company is a subsidiary of another company, it requires both a resolution of the members of the subsidiary and a resolution of the members of the holding company. Section 736 of the 1985 Act provides the definition of "subsidiary". This clause reproduces the effect of section 347C(1) and (6) and section 347D of the 1985 Act, except that:

• in line with our general approach in the Bill, the clause does not refer to the general meeting, to make it clear that private companies can authorise donations and/or expenditure by written resolution;

• a donation or expenditure by a subsidiary company must be authorised by the members of the company and by members of a "relevant holding company" (rather than by the members of each holding company within a group). A "relevant holding company" is the ultimate holding company or, where such a company is not a "UK company", the holding company highest up the chain which is a "UK company";

• a resolution is not required on the part of a company that is a wholly-owned subsidiary of a "UK company" (rather than of any holding company, as in section 347D of the 1985 Act);

• the clause does not reproduce the prohibition (in section 347C(5) of the 1985 Act) on retrospective ratification of breaches of the rules.

Clause 349: Form of authorising resolution

594.     This clause provides that an authorising resolution may identify the subsidiaries, the heads of donations or expenditure, and the amounts that it authorises. The clause reproduces the effect of section 347C(2) and (4) of the 1985 Act, but with the following changes:

• under subsection (1) and (2), a holding company may seek authorisation of donations and expenditure in respect of both itself and one or more of its subsidiaries (including wholly-owned subsidiaries) in a single approval resolution. The subsidiaries do not need to be named in the resolution;

• under subsection (3), a company may pass separate approval resolutions in respect of donations to political parties and donations to other political organisations.

Clause 350: Majority required for authorising resolution

595.     This clause provides that the shareholder approval required is approval by way of ordinary resolution, subject to anything in the company's articles requiring a higher majority (or unanimity). It reproduces the effect of section 347C(3)(a) of the 1985 Act.

Clause 351: Period for which resolution has effect

596.     This clause provides that an approval resolution may seek authorisation for the making of donations and incurring of expenditure for a period of not more than four years. It reproduces the effect of section 347C(3)(b) of the 1985 Act.

Remedies in case of unauthorised donations or expenditure

Clause 352: Liability of directors in case of unauthorised donation or expenditure

597.     This clause imposes civil liability on directors where unauthorised donations are made or unauthorised political expenditure is incurred. The liabilities are owed to the company and are to be pursued in the normal manner by the company; that is they will be pursued by the directors in the exercise of the management powers conferred by the articles of association, and directors will be subject to the general duties set out in Chapter 2 of Part 10 in the conduct of the company's business. Clause 353 provides for enforcement by shareholder action.

598.     The clause largely reproduces the effect of section 347F of the 1985 Act, but:

• only a director of the company and of a "relevant holding company" may be liable in respect of an unauthorised donation or unauthorised expenditure. This reflects the new rules relating to the authorisation of donations or expenditure by subsidiaries in clause 348;

• a director will be permitted to apply to the court for relief under clause 804 of the Bill (general power of the court to grant relief in case of honest and reasonable conduct), which restates section 727 of the 1985 Act.

599.     The conditions under which directors may be exempted from liability (currently set out in section 347H of the 1985 Act) are not reproduced in the new regime. However, directors of the "relevant holding company" will not be liable for an unauthorised political donation or unauthorised political expenditure by a subsidiary if they took "all reasonable steps to prevent the donation being made or the expenditure being incurred."

Clause 353: Enforcement of directors' liabilities by shareholder action

600.     This clause provides a mechanism by which an authorised group of shareholders may enforce on behalf of the company any liability under clause 352. It reproduces the effect of section 347I of the 1985 Act. In the case of a company limited by shares, an action may be brought by a group of shareholders if they are at least 50 in number, or hold at least 5% of the issued share capital.

Clause 354: Costs of shareholder action

601.     This clause provides that the authorised group of members of a company are not to be entitled as of right to have the cost of the shareholder action met from the funds of the company, but have the right to apply to the court for an indemnity out of the company's assets in respect of costs incurred or to be incurred in a shareholder action. The court would have full discretion to grant such an indemnity on such terms as it thinks fit. The clause reproduces the effect of section 347J of the 1985 Act.

Clause 355: Information for purposes of shareholder action

602.     This clause provides that the authorised group of members of a company is entitled, once the action is commenced, to be provided by the company with all information possessed by it, in the control of it or obtainable by it relating to the subject matter of the action. It reproduces the effect of section 347K of the 1985 Act.

Exemptions

603.     Clauses 356, 357, 358, 359 and 340 set out five exemptions to the requirement for prior shareholder authorisation:

• ???clause 356 creates a new exemption in relation to donations to trade unions (including trade unions in countries other than the UK). The exemption will cover any form of "donation", including the provision of company rooms for trade union meetings, the use of company vehicles by trade union officials and paid time off for trade union officials.

• ???clause 357 restates the exception in section 347B of the 1985 Act in respect of subscriptions paid to a trade association for membership of the association.

• ???clause 358 restates the exception in section 347B of the 1985 Act in respect of donations to all-party parliamentary groups.

• ???clause 359 restates the exemption in section 347B of the 1985 Act for political expenditure that is exempt by virtue of an order by the Secretary of State. An order made by statutory instrument under this clause may confer an exemption on companies or expenditure of any description or category specified in the order. The parallel power in section 347B(8) - (11) of the 1985 Act was used in 2001 to exempt business activities such as the publication of newspapers which, by their very nature, involve the publication or dissemination of material which seeks to influence the views of members of the public.

• ???clause 360 restates the exemption in section 347B(4) of the 1985 Act under which authorisation for donations is not required unless the donation or aggregate amount of the donations by the company exceeds £5,000 in a 12 month period. Donations by other group companies (including subsidiaries) must be taken into account in calculating whether the £5,000 threshold has been exceeded.

PART 15: ACCOUNTS AND REPORTS

604.     The provisions of this Part replace the provisions of Part 7 of the 1985 Act relating to accounts and reports. The provisions of Part 7 of the 1985 Act relating to audit are replaced by provisions in Part 16 of the Bill.

605.     The provisions have been reordered and redrafted to make it easier for companies of whatever size to find the requirements relevant to them. In Part 7 of the 1985 Act the provisions applying to small companies are generally expressed as modifications of the provisions applying to large companies. These clauses proceed on the opposite basis: where provisions do not apply to all kinds of company, provisions applying to small companies appear before the provisions applying to other companies.

606.     A further change is to enable the Secretary of State to replace the detailed Schedules to Part 7 of the 1985 Act by regulations. This will give more flexibility to arrange the material currently in Schedules to make it easier to follow for different types of company. It is unnecessary and undesirable to have parallel and duplicative

regimes on the detail for different types of company in primary legislation, but this could be done in parallel sets of regulations for different sizes and types of company.

607.     The main substantive changes in this Part are:

• a reduction in the time limit for private companies to file their accounts from ten months to nine months after the year end (clause 426);

• a reduction in the time limit for public companies to lay full financial statements before the company in general meeting and file them from 7 months to 6 months after the year end (clause 426);

• new requirements for quoted companies to publish their annual accounts and reports and preliminary results on a website (clauses 412 to 414); and

• replacement of the general power of the Secretary of State to alter accounting requirements in section 257 of the 1985 Act by a general power of amendment by regulations (clause 452) and more specific powers in relation to specific sections.

CHAPTER 1: INTRODUCTION

Clause 362: Scheme of this Part

608.     This introductory clause indicates the main way in which the structure of this Part differs from that of Part 7 of the 1985 Act: provisions relating to small companies are set out before provisions relating to larger companies; provisions applying to private companies appear before those applying to public companies; and provisions applying to quoted companies appear after those applying to other companies.

Companies subject to the small companies regime

Clause 363: Companies subject to the small companies regime

Clause 364: Companies qualifying as small: general

Clause 365: Companies qualifying as small: parent companies

Clause 366: Companies excluded from the small companies regime

609.     These clauses set out which companies, parent companies or groups fall within the small companies regime - that is, those that qualify as small companies or groups and are not excluded from the regime for one of the reasons set out in clause 366. With one small change, the conditions for qualification as a small company are unchanged from the current regime (sections 247, 247A and 249 of the 1985 Act). The change is that whereas section 247A(2) of the 1985 Act provides that a group is ineligible if any of its members is a body corporate other than a company having power to offer its shares or debentures to the public, the reference in clause 366(2)(b) is now to such a body corporate whose securities are admitted to trading on a regulated market in an EEA state. The definition of "regulated market" is to be found in clause 813. This reflects changes made by the Accounts Modernisation Directive (2003/51/EEC).

Quoted and unquoted companies

Clause 367: Quoted and unquoted companies

610.     The definitions of quoted and unquoted company in this clause are equivalent to the definition of "quoted company" in section 262 of the 1985 Act. A power is conferred to amend the definition of "quoted company" by regulations. If the regulations extend the application of this Part then they will be subject to affirmative resolution procedure. Otherwise they are subject to negative resolution procedure.

CHAPTER 2: ACCOUNTING RECORDS

611.     Clauses 368 and 370 set out the general duty to keep accounting records and specify where and for how long records are to be kept. They replace equivalent provisions in sections 221 and 222 of the 1985 Act. Their purpose is to ensure that businesses have the right information to make informed decisions and to prepare accounts which comply with the Companies Act and, where relevant, with International Accounting Standards. "Accounting records" is a broad term and there is no specific definition as the records may differ depending on the nature and complexity of the business. For a simple business these may include, for example, bank statements, purchase orders, sales and purchase invoices, whilst a more sophisticated business may have integrated records, which it holds electronically.

612.     Clause 369 creates a criminal offence for every officer of a company who is in default, where the company has failed to keep adequate accounting records under clause 368. The clause replicates the existing penalties under section 221(5) of the 1985 Act (imprisonment or a fine).

613.     Clause 371 makes similar provision in relation to failure to comply with clause 370, replacing section 222(4) and (6) of the 1985 Act.

CHAPTER 3: A COMPANY'S FINANCIAL YEAR

Clause 372: A company's financial year

614.     This clause replaces section 223 of the 1985 Act. A company's financial year is the period for which its accounts and reports must be prepared. A company's financial year is the same as its accounting reference period (see clause 373), subject to the directors' decision to alter the last day of the period by plus or minus seven days.

Clause 373: Accounting reference periods and accounting reference date

Clause 374: Alteration of accounting reference date

615.     These clauses replace sections 224 and 225 of the 1985 Act.

616.     Clause 373 (2) and (3) preserve the accounting reference dates of companies incorporated before 1st April 1996 (in the case of GB companies), and before 22 August 1997 (in the case of Northern Irish companies). Otherwise, a company's accounting reference date is the last day of the month in which the anniversary of its incorporation falls. Its first accounting reference period is a period of more than six months but not more than eighteen months beginning with the date of incorporation and ending with the accounting reference date unless the company changes its accounting reference date, (the date on which the accounting reference period ends) in accordance with clause 374. Subsequent accounting reference periods (financial years) are successive periods of 12 months, again subject to any alteration of the accounting reference date.

617.     Clause 374(4) provides that a company cannot change its accounting reference date if the period allowed for delivering accounts and reports to the registrar for that period has already expired. Under the corresponding provision in the 1985 Act, the company cannot change the date "if the period allowed for laying and delivering accounts and reports in relation to that period has already expired." Under the Bill only public companies will be obliged to lay their accounts at a general meeting.

CHAPTER 4: ANNUAL ACCOUNTS

General

Clause 375: Accounts to give true and fair view

618.     Subsection (1) introduces an overarching obligation on directors (the preparers of accounts) not to approve accounts unless they give a true and fair view of the financial position of the company and, in the case of group accounts, the group. This provision reflects the underlying legal duty already expressed in Community law.

619.     Subsection (2) in addition places a requirement on auditors to take this overarching duty to give a true and fair view into consideration when giving an opinion on the accounts. This requirement supplements the functions of an auditor set out in clause 485.