sc1902007.514-520

House of Commons

Session 2005 - 06
Internet Publications
Other Bills before Parliament

S.C.D.  Standing Committee Proceedings: 20th July 2006
514

Company Law Reform Bill–[ [], continued

(2)
For this purpose—

(a)
holdings in companies that—

(i)
are members of a group (whether or not including the investing

company), and

(ii)
are not for the time being investment companies,


are treated as holdings in a single company; and

(b)
where the investing company is a member of a group, money owed to it

by another member of the group—

(i)
is treated as a security of the latter held by the investing

company, and

(ii)
is accordingly treated as, or as part of, the holding of the

investing company in the company owing the money.

(3)
The condition does not apply—

(a)
to a holding in a company acquired before 6th April 1965 that on that date

represented not more than 25% by value of the investing company’s

investments, or

(b)
to a holding in a company that, when it was acquired, represented not

more than 15% of the investing company’s investments,


so long as no addition is made to the holding.

(4)
For the purposes of subsection (3)—

(a)
“holding” means the shares or securities (whether or one class or more

than one class) held in any one company;

(b)
an addition is made to a holding whenever the investing company

acquires shares or securities of that one company, otherwise than by

being allotted shares or securities without becoming liable to give any

consideration, and if an addition is made to a holding that holding is

acquired when the addition or latest addition is made to the holding; and

(c)
where in connection with a scheme of reconstruction a company issues

shares or securities to persons holding shares or securities in a second

company in respect of and in proportion to (or as nearly as may be in

proportion to) their holdings in the second company, without those

persons becoming liable to give any consideration, a holding of the

shares or securities in the second company and a corresponding holding

of the shares or securities so issued shall be regarded as the same holding.

(5)
In this section—

“company” and “shares” shall be construed in accordance with sections 99

and 288 of the Taxation of Chargeable Gains Act 1992 (c. 12);

“group” means a company and all companies that are its 51% subsidiaries

(within the meaning of section 838 of the Income and Corporation Taxes

Act 1988 (c. 1); and

“scheme of reconstruction” has the same meaning as in section 136 of the

Taxation of Chargeable Gains Act 1992 (c. 12).’.

S.C.D.  Standing Committee Proceedings: 20th July 2006
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Company Law Reform Bill–[ [], continued

Power to extend provisions relating to investment companies

Margaret Hodge

Added  nc287

To move the following Clause:—

‘(1)
The Secretary of State may by regulations extend the provisions of sections

(Distributions by investment companies out of accumulated revenue profits) to

(Investment company: condition as to holdings in other companies) (distributions

by investment companies out of accumulated profits), with or without

modifications, to other companies whose principal business consists of investing

their funds in securities, land or other assets with the aim of spreading investment

risk and giving their members the benefit of the results of the management of the

assets.

(2)
Regulations under this section are subject to affirmative resolution procedure.’.

Justification of distribution by reference to relevant accounts

Margaret Hodge

Added  nc288

To move the following Clause:—

‘(1)
Whether a distribution may be made by a company without contravening this

Part, and the amount of a distribution that may be so made, is determined by

reference to the following items as stated in the relevant accounts—

(a)
profits, losses, assets and liabilities;

(b)
provisions of the following kinds—

(i)
where the relevant accounts are Companies Act accounts,

provisions of a kind specified for the purposes of this subsection

by regulations under section 378;

(ii)
where the relevant accounts are IAS accounts, provisions of any

kind;

(c)
share capital and reserves (including undistributable reserves).

(2)
The relevant accounts are the company’s last annual accounts, except that—

(a)
where the distribution would be found to contravene this Part by

reference to the company’s last annual accounts, it may be justified by

reference to interim accounts, and

(b)
where the distribution is proposed to be declared during the company’s

first accounting reference period, or before any accounts have been

circulated in respect of that period, it may be justified by reference to

initial accounts.

(3)
The requirements of—

section (Requirements where last annual accounts used) (as regards the

company’s last annual accounts),

section (Requirements where interim accounts used) (as regards interim

accounts), and

section (Requirements where initial accounts used) (as regards initial

accounts),


must be complied with, as and where applicable.

S.C.D.  Standing Committee Proceedings: 20th July 2006
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Company Law Reform Bill–[ [], continued

(4)
If any applicable requirement of those sections is not complied with, the accounts

may not be relied on for the purposes of this Part and the distribution is

accordingly treated as contravening this Part.’.

Requirements where last annual accounts used

Margaret Hodge

Added  nc289

To move the following Clause:—

‘(1)
The company’s last annual accounts means the company’s individual accounts—

(a)
that were last circulated to members in accordance with section 405 (duty

to circulate copies of annual accounts and reports), or

(b)
if in accordance with section 408 the company provided a summary

financial statement instead, that formed the basis of that statement.

(2)
The accounts must have been properly prepared in accordance with this Act, or

have been so prepared subject only to matters that are not material for

determining (by reference to the items mentioned in section (Justification of

distribution by reference to relevant accounts)(1)) whether the distribution would

contravene this Part.

(3)
Unless the company is exempt from audit and the directors take advantage of that

exemption, the auditor must have made his report on the accounts.

(4)
If that report was qualified—

(a)
the auditor must have stated in writing (either at the time of their report

or subsequently) whether in his opinion the matters in respect of which

his report is qualified are material for determining whether a distribution

would contravene this Part, and

(b)
a copy of that statement must—

(i)
in the case of a private company, have been circulated to

members in accordance with section 405, or

(ii)
in the case of a public company have been laid before the

company in general meeting.

(5)
An auditor’s statement is sufficient for the purposes of a distribution if it relates

to distributions of a description that includes the distribution in question, even if

at the time of the statement it had not been proposed.’.

Requirements where interim accounts used

Margaret Hodge

Added  nc290

To move the following Clause:—

‘(1)
Interim accounts must be accounts that enable a reasonable judgment to be made

as to the amounts of the items mentioned in section (Justification of distribution

by reference to relevant accounts)(1)

S.C.D.  Standing Committee Proceedings: 20th July 2006
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Company Law Reform Bill–[ [], continued

(2)
Where interim accounts are prepared for a proposed distribution by a public

company, the following requirements apply.

(3)
The accounts must have been properly prepared, or have been so prepared subject

to matters that are not material for determining (by reference to the items

mentioned in section (Justification of distribution by reference to relevant

accounts)(1)) whether the distribution would contravene this Part.

(4)
“Properly prepared” means prepared in accordance with sections 377 to 379

(requirements for company individual accounts), applying those requirements

with such modifications as are necessary because the accounts are prepared

otherwise than in respect of an accounting reference period.

(5)
The balance sheet comprised in the accounts must have been signed in

accordance with section 396.

(6)
A copy of the accounts must have been delivered to the registrar of companies.


Any requirement of Part 29 of this Act as to the delivery of a certified translation

into English of any document forming part of the accounts must also have been

met.’.

Requirements where initial accounts used

Margaret Hodge

Added  nc291

To move the following Clause:—

‘(1)
Initial accounts must be accounts that enable a reasonable judgment to be made

as to the amounts of the items mentioned in section (Justification of distribution

by reference to relevant accounts)(1).

(2)
Where initial accounts are prepared for a proposed distribution by a public

company, the following requirements apply.

(3)
The accounts must have been properly prepared, or have been so prepared subject

to matters that are not material for determining (by reference to the items

mentioned in section (Justification of distribution by reference to relevant

accounts)(1)) whether the distribution would contravene this Part.

(4)
“Properly prepared” means prepared in accordance with sections 377 to 379

(requirements for company individual accounts), applying those requirements

with such modifications as are necessary because the accounts are prepared

otherwise than in respect of an accounting reference period.

(5)
The company’s auditor must have made a report stating whether, in his opinion,

the accounts have been properly prepared.

(6)
If that report was qualified—

(a)
the auditor must have stated in writing (either at the time of his report or

subsequently) whether in his opinion the matters in respect of which his

report is qualified are material for determining whether a distribution

would contravene this Part, and

(b)
a copy of that statement must—

(i)
in the case of a private company, have been circulated to

members in accordance with section 405, or

(ii)
in the case of a public company have been laid before the

company in general meeting.

(7)
A copy of the accounts, of the auditor’s report and of any auditor’s statement must

have been delivered to the registrar.

S.C.D.  Standing Committee Proceedings: 20th July 2006
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Company Law Reform Bill–[ [], continued


Any requirement of Part 29 of this Act as to the delivery of a certified translation

into English of any of those documents must also have been met.’.

Successive distributions etc by reference to the same accounts

Margaret Hodge

Added  nc292

To move the following Clause:—

‘(1)
In determining whether a proposed distribution may be made by a company in a

case where—

(a)
one or more previous distributions have been made in pursuance of a

determination made by reference to the same relevant accounts, or

(b)
relevant financial assistance has been given, or other relevant payments

have been made, since those accounts were prepared,


the provisions of this Part apply as if the amount of the proposed distribution was

increased by the amount of the previous distributions, financial assistance and

other payments.

(2)
The financial assistance and other payments that are relevant for this purpose

are—

(a)
financial assistance lawfully given by the company out of its distributable

profits;

(b)
financial assistance given by the company in contravention of section

(Assistance for acquisition of shares in public company) or (Assistance

by public company for acquisition of shares in its private holding

company) (prohibited financial assistance) in a case where the giving of

that assistance reduces the company’s net assets or increases its net

liabilities;

(c)
payments made by the company in respect of the purchase by it of shares

in the company, except a payment lawfully made otherwise than out of

distributable profits;

(d)
payments of any description specified in section (Payments apart from

purchase price to be made out of distributable profits) (payments apart

from purchase price of shares to be made out of distributable profits).

(3)
In this section “financial assistance” has the same meaning as in Chapter

(Financial assistance for purchase of own shares) of Part (Acquisition by limited

company of own shares) (see section (Definitions for this Chapter)).

(4)
For the purpose of applying subsection (2)(b) in relation to any financial

assistance—

(a)
“net assets” means the amount by which the aggregate amount of the

company’s assets exceeds the aggregate amount of its liabilities, and

(b)
“net liabilities” means the amount by which the aggregate amount of the

company’s liabilities exceeds the aggregate amount of its assets,


taking the amount of the assets and liabilities to be as stated in the company’s

accounting records immediately before the financial assistance is given.

(5)
For this purpose a company’s liabilities include any amount retained as

reasonably necessary for the purposes of providing for any liability—

(a)
the nature of which is clearly defined, and

S.C.D.  Standing Committee Proceedings: 20th July 2006
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Company Law Reform Bill–[ [], continued

(b)
which is either likely to be incurred or certain to be incurred but uncertain

as to amount or as to the date on which it will arise.

Realised losses and profits and revaluation of fixed assets

Margaret Hodge

Added  nc293

To move the following Clause:—

‘(1)
The following provisions have effect for the purposes of this Part.

(2)
The following are treated as realised losses—

(a)
in the case of Companies Act accounts, provisions of a kind specified for

the purposes of this paragraph by regulations under section 378 (except

revaluation provisions);

(b)
in the case of IAS accounts, provisions of any kind (except revaluation

provisions).

(3)
A “revaluation provision” means a provision in respect of a diminution in value

of a fixed asset appearing on a revaluation of all the fixed assets of the company,

or of all of its fixed assets other than goodwill.

(4)
Where—

(a)
on the revaluation of a fixed asset, an unrealised profit is shown to have

been made, and

(b)
on or after the revaluation, a sum is written off or retained for

depreciation of that asset over a period,


an amount equal to the amount by which that sum exceeds the sum which would

have been so written off or retained for the depreciation of that asset over that

period, if that profit had not been made, is treated as a realised profit made over

that period.

(5)
For the purpose of this section there is treated as having been a revaluation

where—

(a)
the directors have considered the value of fixed assets of the company,

without actually revaluing them, and

(b)
they are satisfied that their aggregate value at the time of their

consideration was not less than the aggregate amount at which they were

then stated in the company’s accounts.

(6)
Where the relevant accounts are required to be prepared in accordance with this

Act, subsection (5) applies only if it is stated in a note to the accounts—

(a)
that the directors have considered the value of fixed assets of the

company without actually revaluing them,

(b)
that they are satisfied that the aggregate value of those assets at the time

of their consideration was not less than the aggregate amount at which

they were then stated in the company’s accounts, and

(c)
that accordingly, by virtue of that subsection, amounts are stated in the

accounts on the basis that a revaluation of fixed assets of the company is

treated as having taken place at that time.’.

S.C.D.  Standing Committee Proceedings: 20th July 2006
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Company Law Reform Bill–[ [], continued

Determination of profit or loss in respect of asset where records incomplete

Margaret Hodge

Added  nc294

To move the following Clause:—

In determining for the purposes of this Part whether a company has made a profit

or loss in respect of an asset where—

(a)
there is no record of the original cost of the asset, or

(b)
a record cannot be obtained without unreasonable expense or delay, then,

its cost is taken to be the value ascribed to it in the earliest available record of its

value made on or after its acquisition by the company.’.

Realised profits and losses of long term insurance business

Margaret Hodge

Added  nc295

To move the following Clause:—

‘(1)
The provisions of this section have effect for the purposes of this Part as it applies

in relation to an authorised insurance company carrying on long term business.

(2)
An amount included in the relevant part of the company’s balance sheet that—

(a)
represents a surplus in the fund or funds maintained by it in respect of its

long term business, and

(b)
has not been allocated to policy holders or, as the case may be, carried

forward unappropriated in accordance with asset identification rules

made under section 142(2) of the Financial Services and Markets Act

2000 (c. 8),


is treated as a realised profit.

(3)
For the purposes of subsection (2)—

(a)
the relevant part of the balance sheet is that part of the balance sheet that

represents accumulated profit or loss;

(b)
a surplus in the fund or funds maintained by the company in respect of its

long term business means an excess of the assets representing that fund

or those funds over the liabilities of the company attributable to its long

term business, as shown by an actuarial investigation.

(4)
A deficit in the fund or funds maintained by the company in respect of its long

term business is treated as a realised loss.


For this purpose a deficit in any such fund or funds means an excess of the

liabilities of the company attributable to its long term business over the assets

representing that fund or those funds, as shown by an actuarial investigation.

(5)
Subject to subsections (2) and (4), any profit or loss arising in the company’s long

term business is to be left out of account.

(6)
For the purposes of this section an “actuarial investigation” means an

investigation made into the financial condition of an authorised insurance

company in respect of its long term business—

(a)
carried out once in every period of twelve months in accordance with

rules made under Part 10 of the Financial Services and Markets Act 2000

(c. 8), or