|Company Law Reform Bill [HL] - continued||House of Commons|
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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.
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.
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:
588. The main changes from Part 10A of the 1985 Act are that:
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:
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:
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:
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:
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.
603. Clauses 356, 357, 358, 359 and 340 set out five exemptions to the requirement for prior shareholder authorisation:
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:
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.
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.
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.
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.
|© Parliamentary copyright 2006||Prepared: 26 May 2006|