Company Law Reform Bill [HL] (175-179)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (175-179)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 16 — Accounts and reports
Chapter 1 — Introduction
175

Part 16
Accounts and reports
Chapter 1
Introduction
General
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386
Scheme of this Part
(1)
The requirements of this Part as to accounts and reports apply in relation to
each financial year of a company.
(2)
In certain respects different provisions apply to different kinds of company.
(3)
The main distinctions for this purpose are—
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(a)
between companies subject to the small companies regime (see section
387) and companies that are not subject to that regime; and
(b)
between quoted companies (see section 391) and companies that are not
quoted.
(4)
In this Part, where provisions do not apply to all kinds of company—
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(a)
provisions applying to companies subject to the small companies
regime appear before the provisions applying to other companies,
(b)
provisions applying to private companies appear before the provisions
applying to public companies, and
(c)
provisions applying to quoted companies appear after the provisions
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applying to other companies.
Companies subject to the small companies regime
387
Companies subject to the small companies regime
The small companies regime for accounts and reports applies to a company for
a financial year in relation to which the company—
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(a)
qualifies as small (see sections 388 and 389), and
(b)
is not excluded from the regime (see section 390).
388
Companies qualifying as small: general
(1)
A company qualifies as small in relation to its first financial year if the
qualifying conditions are met in that year.
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(2)
A company qualifies as small in relation to a subsequent financial year—
(a)
if the qualifying conditions are met in that year and the preceding
financial year;
(b)
if the qualifying conditions are met in that year and the company
qualified as small in relation to the preceding financial year;
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(c)
if the qualifying conditions were met in the preceding financial year
and the company qualified as small in relation to that year.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 16 — Accounts and reports
Chapter 1 — Introduction
176

(3)
The qualifying conditions are met by a company in a year in which it satisfies
two or more of the following requirements—

1. Turnover
Not more than £5.6 million

2. Balance sheet total
Not more than £2.8 million

3. Number of employees
Not more than 50

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(4)
For a period that is a company’s financial year but not in fact a year the
maximum figures for turnover must be proportionately adjusted.
(5)
The balance sheet total means the aggregate of the amounts shown as assets in
the company’s balance sheet.
(6)
The number of employees means the average number of persons employed by
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the company in the year, determined as follows—
(a)
find for each month in the financial year the number of persons
employed under contracts of service by the company in that month
(whether throughout the month or not),
(b)
add together the monthly totals, and
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(c)
divide by the number of months in the financial year.
(7)
This section is subject to section 389 (companies qualifying as small: parent
companies).
389
Companies qualifying as small: parent companies
(1)
A parent company qualifies as a small company in relation to a financial year
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only if the group headed by it qualifies as a small group.
(2)
A group qualifies as small in relation to the parent company’s first financial
year if the qualifying conditions are met in that year.
(3)
A group qualifies as small in relation to a subsequent financial year of the
parent company—
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(a)
if the qualifying conditions are met in that year and the preceding
financial year;
(b)
if the qualifying conditions are met in that year and the group qualified
as small in relation to the preceding financial year;
(c)
if the qualifying conditions were met in the preceding financial year
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and the group qualified as small in relation to that year.
(4)
The qualifying conditions are met by a group in a year in which it satisfies two
or more of the following requirements—

1. Aggregate turnover
Not more than £5.6 million net (or

£6.72 million gross)

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2. Aggregate balance sheet total
Not more than £2.8 million net (or

£3.36 million gross)

3. Aggregate number of employees
Not more than 50

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 16 — Accounts and reports
Chapter 1 — Introduction
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(5)
The aggregate figures are ascertained by aggregating the relevant figures
determined in accordance with section 388 for each member of the group.
(6)
In relation to the aggregate figures for turnover and balance sheet total—
“net” means after any set-offs and other adjustments made to eliminate
group transactions—
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(a)
in the case of Companies Act accounts, in accordance with
regulations under section 410,
(b)
in the case of IAS accounts, in accordance with international
accounting standards; and
“gross” means without those set-offs and other adjustments.
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A company may satisfy the relevant requirements on the basis of either the net
or the gross figure.
(7)
The figures for each subsidiary undertaking shall be those included in its
individual accounts for the relevant financial year, that is—
(a)
if its financial year ends with that of the parent company, that financial
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year, and
(b)
if not, its financial year ending last before the end of the financial year
of the parent company.

If those figures cannot be obtained without disproportionate expense or undue
delay, the latest available figures shall be taken.
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390
Companies excluded from the small companies regime
(1)
The small companies regime does not apply to a company that is, or was at any
time within the financial year to which the accounts relate—
(a)
a public company,
(b)
a company that—
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(i)
has permission under Part 4 of the Financial Services and
Markets Act 2000 (c. 8) to carry on a regulated activity, or
(ii)
carries on insurance market activity, or
(c)
a member of an ineligible group.
(2)
A group is ineligible if any of its members is—
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(a)
a public company,
(b)
a body corporate (other than a company) whose shares are admitted to
trading on a regulated market in an EEA State, or
(c)
a person who—
(i)
has permission under Part 4 of the Financial Services and
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Markets Act 2000 to carry on a regulated activity, or
(ii)
carries on insurance market activity.
Quoted and unquoted companies
391
Quoted and unquoted companies
(1)
For the purposes of this Part a company is a quoted company in relation to a
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financial year if it is a quoted company immediately before the end of the
accounting reference period by reference to which that financial year was
determined.
(2)
A “quoted company” means a company whose equity share capital—

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 16 — Accounts and reports
Chapter 2 — Accounting records
178

(a)
has been included in the official list in accordance with the provisions
of Part 6 of the Financial Services and Markets Act 2000 (c. 8), or
(b)
is officially listed in an EEA State, or
(c)
is admitted to dealing on either the New York Stock Exchange or the
exchange known as Nasdaq.
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In paragraph (a) “the official list” has the meaning given by section 103(1) of the
Financial Services and Markets Act 2000.
(3)
An “unquoted company” means a company that is not a quoted company.
(4)
The Secretary of State may by regulations amend or replace the provisions of
subsections (1) to (2) so as to limit or extend the application of some or all of the
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provisions of this Part that are expressed to apply to quoted companies.
(5)
Regulations under this section extending the application of any such provision
of this Part are subject to affirmative resolution procedure.
(6)
Any other regulations under this section are subject to negative resolution
procedure.
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Chapter 2
Accounting records
392
Duty to keep accounting records
(1)
Every company must keep adequate accounting records.
(2)
Adequate accounting records means records that are sufficient—
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(a)
to show and explain the company’s transactions,
(b)
to disclose with reasonable accuracy, at any time, the financial position
of the company at that time, and
(c)
to enable the directors to ensure that any accounts required to be
prepared comply with the requirements of this Act (and, where
25
applicable, of Article 4 of the IAS Regulation).
(3)
Accounting records must, in particular, contain—
(a)
entries from day to day of all sums of money received and expended by
the company and the matters in respect of which the receipt and
expenditure takes place, and
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(b)
a record of the assets and liabilities of the company.
(4)
If the company’s business involves dealing in goods, the accounting records
must contain—
(a)
statements of stock held by the company at the end of each financial
year of the company,
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(b)
all statements of stocktakings from which any statement of stock as is
mentioned in paragraph (a) has been or is to be prepared, and
(c)
except in the case of goods sold by way of ordinary retail trade,
statements of all goods sold and purchased, showing the goods and the
buyers and sellers in sufficient detail to enable all these to be identified.
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(5)
A parent company that has a subsidiary undertaking in relation to which the
above requirements do not apply must take reasonable steps to secure that the
undertaking keeps such accounting records as to enable the directors of the

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 16 — Accounts and reports
Chapter 2 — Accounting records
179

parent company to ensure that any accounts required to be prepared under this
Part comply with the requirements of this Act (and, where applicable, of
Article 4 of the IAS Regulation).
393
Duty to keep accounting records: offence
(1)
If a company fails to comply with any provision of section 392 (duty to keep
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accounting records), an offence is committed by every officer of the company
who is in default.
(2)
It is a defence for a person charged with such an offence to show that he acted
honestly and that in the circumstances in which the company’s business was
carried on the default was excusable.
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(3)
A person guilty of an offence under this section is liable—
(a)
on conviction on indictment, to imprisonment for a term not exceeding
two years or a fine (or both);
(b)
on summary conviction—
(i)
in England and Wales, to imprisonment for a term not
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exceeding twelve months or to a fine not exceeding the
statutory maximum (or both);
(ii)
in Scotland or Northern Ireland, to imprisonment for a term not
exceeding six months, or to a fine not exceeding the statutory
maximum (or both).
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394
Where and for how long records to be kept
(1)
A company’s accounting records—
(a)
must be kept at its registered office or such other place as the directors
think fit, and
(b)
must at all times be open to inspection by the company’s officers.
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(2)
If accounting records are kept at a place outside the United Kingdom, accounts
and returns with respect to the business dealt with in the accounting records so
kept must be sent to, and kept at, a place in the United Kingdom, and must at
all times be open to such inspection.
(3)
The accounts and returns to be sent to the United Kingdom must be such as
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to—
(a)
disclose with reasonable accuracy the financial position of the business
in question at intervals of not more than six months, and
(b)
enable the directors to ensure that the accounts required to be prepared
under this Part comply with the requirements of this Act (and, where
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applicable, of Article 4 of the IAS Regulation).
(4)
Accounting records that a company is required by section 392 to keep must be
preserved by it—
(a)
in the case of a private company, for three years from the date on which
they are made;
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(b)
in the case of a public company, for six years from the date on which
they are made.
(5)
Subsection (4) is subject to any provision contained in rules made under section
411 of the Insolvency Act 1986 (c. 45) (company insolvency rules) or Article 359
of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)).
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