Company Law Reform Bill [HL] (185-191)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (185-191)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 16 — Accounts and reports
Chapter 4 — Annual accounts
185

Group accounts: other companies
405
Duty to prepare group accounts
(1)
This section applies to companies that are not subject to the small companies
regime.
(2)
If at the end of a financial year the company is a parent company the directors,
5
as well as preparing individual accounts for the year, must prepare group
accounts for the year unless the company is exempt from that requirement.
(3)
There are exemptions under-
section 406 (company included in EEA accounts of larger group),
section 407 (company included in non-EEA accounts of larger group), and
10
section 408 (company none of whose subsidiary undertakings need be
included in the consolidation).
(4)
A company to which this section applies but which is exempt from the
requirement to prepare group accounts, may do so.
406
Exemption for company included in EEA group accounts of larger group
15
(1)
A company is exempt from the requirement to prepare group accounts if it is
itself a subsidiary undertaking and its immediate parent undertaking is
established under the law of an EEA State, in the following cases—
(a)
where the company is a wholly-owned subsidiary of that parent
undertaking;
20
(b)
where that parent undertaking holds more than 50% of the allotted
shares in the company and notice requesting the preparation of group
accounts has not been served on the company by shareholders holding
in aggregate—
(i)
more than half of the remaining allotted shares in the company,
25
or
(ii)
5% of the total allotted shares in the company.

Such notice must be served not later than six months after the end of the
financial year before that to which it relates.
(2)
Exemption is conditional upon compliance with all of the following
30
conditions—
(a)
the company must be included in consolidated accounts for a larger
group drawn up to the same date, or to an earlier date in the same
financial year, by a parent undertaking established under the law of an
EEA State;
35
(b)
those accounts must be drawn up and audited, and that parent
undertaking’s annual report must be drawn up, according to that
law—
(i)
in accordance with the provisions of the Seventh Directive (83/
349/EEC) (as modified, where relevant, by the provisions of the
40
Bank Accounts Directive (86/635/EEC) or the Insurance
Accounts Directive (91/674/EEC)), or
(ii)
in accordance with international accounting standards;
(c)
the company must disclose in its individual accounts that it is exempt
from the obligation to prepare and deliver group accounts;
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Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 16 — Accounts and reports
Chapter 4 — Annual accounts
186

(d)
the company must state in its individual accounts the name of the
parent undertaking that draws up the group accounts referred to above
and—
(i)
if it is incorporated outside the United Kingdom, the country in
which it is incorporated, or
5
(ii)
if it is unincorporated, the address of its principal place of
business;
(e)
the company must deliver to the registrar, within the period for filing
its accounts and reports for the financial year in question, copies of—
(i)
those group accounts, and
10
(ii)
the parent undertaking’s annual report,

together with the auditor’s report on them;
(f)
any requirement of Part 35 of this Act as to the delivery to the registrar
of a certified translation into English must be met in relation to any
document comprised in the accounts and reports delivered in
15
accordance with paragraph (e).
(3)
For the purposes of subsection (1)(b) shares held by a wholly-owned
subsidiary of the parent undertaking, or held on behalf of the parent
undertaking or a wholly-owned subsidiary, shall be attributed to the parent
undertaking.
20
(4)
The exemption does not apply to a company any of whose securities are
admitted to trading on a regulated market in an EEA State.
(5)
Shares held by directors of a company for the purpose of complying with any
share qualification requirement shall be disregarded in determining for the
purposes of this section whether the company is a wholly-owned subsidiary.
25
(6)
In subsection (4) “securities” includes—
(a)
shares and stock,
(b)
debentures, including debenture stock, loan stock, bonds, certificates of
deposit and other instruments creating or acknowledging
indebtedness,
30
(c)
warrants or other instruments entitling the holder to subscribe for
securities falling within paragraph (a) or (b), and
(d)
certificates or other instruments that confer—
(i)
property rights in respect of a security falling within paragraph
(a), (b) or (c),
35
(ii)
any right to acquire, dispose of, underwrite or convert a
security, being a right to which the holder would be entitled if
he held any such security to which the certificate or other
instrument relates, or
(iii)
a contractual right (other than an option) to acquire any such
40
security otherwise than by subscription.
407
Exemption for company included in non-EEA group accounts of larger group
(1)
A company is exempt from the requirement to prepare group accounts if it is
itself a subsidiary undertaking and its parent undertaking is not established
under the law of an EEA State, in the following cases—
45
(a)
where the company is a wholly-owned subsidiary of that parent
undertaking;

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 16 — Accounts and reports
Chapter 4 — Annual accounts
187

(b)
where that parent undertaking holds more than 50% of the allotted
shares in the company and notice requesting the preparation of group
accounts has not been served on the company by shareholders holding
in aggregate—
(i)
more than half of the remaining allotted shares in the company,
5
or
(ii)
5% of the total allotted shares in the company.

Such notice must be served not later than six months after the end of the
financial year before that to which it relates.
(2)
Exemption is conditional upon compliance with all of the following
10
conditions—
(a)
the company and all of its subsidiary undertakings must be included in
consolidated accounts for a larger group drawn up to the same date, or
to an earlier date in the same financial year, by a parent undertaking;
(b)
those accounts and, where appropriate, the group’s annual report,
15
must be drawn up—
(i)
in accordance with the provisions of the Seventh Directive (83/
349/EEC) (as modified, where relevant, by the provisions of the
Bank Accounts Directive (86/635/EEC) or the Insurance
Accounts Directive (91/674/EEC)), or
20
(ii)
in a manner equivalent to consolidated accounts and
consolidated annual reports so drawn up;
(c)
the group accounts must be audited by one or more persons authorised
to audit accounts under the law under which the parent undertaking
which draws them up is established;
25
(d)
the company must disclose in its individual accounts that it is exempt
from the obligation to prepare and deliver group accounts;
(e)
the company must state in its individual accounts the name of the
parent undertaking which draws up the group accounts referred to
above and—
30
(i)
if it is incorporated outside the United Kingdom, the country in
which it is incorporated, or
(ii)
if it is unincorporated, the address of its principal place of
business;
(f)
the company must deliver to the registrar, within the period for filing
35
its accounts and reports for the financial year in question, copies of—
(i)
the group accounts, and
(ii)
where appropriate, the consolidated annual report,

together with the auditor’s report on them;
(g)
any requirement of Part 35 of this Act as to the delivery to the registrar
40
of a certified translation into English must be met in relation to any
document comprised in the accounts and reports delivered in
accordance with paragraph (f).
(3)
For the purposes of subsection (1)(b), shares held by a wholly-owned
subsidiary of the parent undertaking, or held on behalf of the parent
45
undertaking or a wholly-owned subsidiary, are attributed to the parent
undertaking.
(4)
The exemption does not apply to a company any of whose securities are
admitted to trading on a regulated market in an EEA State.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
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Chapter 4 — Annual accounts
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(5)
Shares held by directors of a company for the purpose of complying with any
share qualification requirement shall be disregarded in determining for the
purposes of this section whether the company is a wholly-owned subsidiary.
(6)
In subsection (4) “securities” includes—
(a)
shares and stock,
5
(b)
debentures, including debenture stock, loan stock, bonds, certificates of
deposit and other instruments creating or acknowledging
indebtedness,
(c)
warrants or other instruments entitling the holder to subscribe for
securities falling within paragraph (a) or (b), and
10
(d)
certificates or other instruments that confer—
(i)
property rights in respect of a security falling within paragraph
(a), (b) or (c),
(ii)
any right to acquire, dispose of, underwrite or convert a
security, being a right to which the holder would be entitled if
15
he held any such security to which the certificate or other
instrument relates, or
(iii)
a contractual right (other than an option) to acquire any such
security otherwise than by subscription.
408
Exemption if no subsidiary undertakings need be included in the
20
consolidation

A parent company is exempt from the requirement to prepare group accounts
if under section 411 all of its subsidiary undertakings could be excluded from
consolidation in Companies Act group accounts.
Group accounts: general
25
409
Group accounts: applicable accounting framework
(1)
The group accounts of certain parent companies are required by Article 4 of the
IAS Regulation to be prepared in accordance with international accounting
standards (“IAS group accounts”).
(2)
The group accounts of other companies may be prepared—
30
(a)
in accordance with section 410 (“Companies Act group accounts”), or
(b)
in accordance with international accounting standards (“IAS group
accounts”).

This is subject to the following provisions of this section.
(3)
The group accounts of a parent company that is a charity must be Companies
35
Act group accounts.
(4)
After the first financial year in which the directors of a parent company prepare
IAS group accounts (“the first IAS year”), all subsequent group accounts of the
company must be prepared in accordance with international accounting
standards unless there is a relevant change of circumstance.
40
(5)
There is a relevant change of circumstance if, at any time during or after the
first IAS year—
(a)
the company becomes a subsidiary undertaking of another
undertaking that does not prepare IAS group accounts,

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
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Chapter 4 — Annual accounts
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(b)
the company ceases to be a company with securities admitted to
trading on a regulated market in an EEA State, or
(c)
a parent undertaking of the company ceases to be an undertaking with
securities admitted to trading on a regulated market in an EEA State.
(6)
If, having changed to preparing Companies Act group accounts following a
5
relevant change of circumstance, the directors again prepare IAS group
accounts for the company, subsections (4) and (5) apply again as if the first
financial year for which such accounts are again prepared were the first IAS
year.
410
Companies Act group accounts
10
(1)
Companies Act group accounts must comprise—
(a)
a consolidated balance sheet dealing with the state of affairs of the
parent company and its subsidiary undertakings, and
(b)
a consolidated profit and loss account dealing with the profit or loss of
the parent company and its subsidiary undertakings.
15
(2)
The accounts must give a true and fair view of the state of affairs as at the end
of the financial year, and the profit or loss for the financial year, of the
undertakings included in the consolidation as a whole, so far as concerns
members of the company.
(3)
The accounts must comply with provision made by the Secretary of State by
20
regulations as to—
(a)
the form and content of the consolidated balance sheet and
consolidated profit and loss account, and
(b)
additional information to be provided by way of notes to the accounts.
(4)
If compliance with the regulations, and any other provision made by or under
25
this Act as to the matters to be included in a company’s group accounts or in
notes to those accounts, would not be sufficient to give a true and fair view, the
necessary additional information must be given in the accounts or in a note to
them.
(5)
If in special circumstances compliance with any of those provisions is
30
inconsistent with the requirement to give a true and fair view, the directors
must depart from that provision to the extent necessary to give a true and fair
view.

Particulars of any such departure, the reasons for it and its effect must be given
in a note to the accounts.
35
411
Companies Act group accounts: subsidiary undertakings included in the
consolidation
(1)
Where a parent company prepares Companies Act group accounts, all the
subsidiary undertakings of the company must be included in the
consolidation, subject to the following exceptions.
40
(2)
A subsidiary undertaking may be excluded from consolidation if its inclusion
is not material for the purpose of giving a true and fair view (but two or more
undertakings may be excluded only if they are not material taken together).
(3)
A subsidiary undertaking may be excluded from consolidation where—

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 16 — Accounts and reports
Chapter 4 — Annual accounts
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(a)
severe long-term restrictions substantially hinder the exercise of the
rights of the parent company over the assets or management of that
undertaking, or
(b)
the information necessary for the preparation of group accounts cannot
be obtained without disproportionate expense or undue delay, or
5
(c)
the interest of the parent company is held exclusively with a view to
subsequent resale.
(4)
The reference in subsection (3)(a) to the rights of the parent company and the
reference in subsection (3)(c) to the interest of the parent company are,
respectively, to rights and interests held by or attributed to the company for the
10
purposes of the definition of “parent undertaking” (see section 1127) in the
absence of which it would not be the parent company.
412
IAS group accounts
Where the directors of a company prepare IAS group accounts, they must state
in the notes to those accounts that the accounts have been prepared in
15
accordance with international accounting standards.
413
Consistency of financial reporting within group
(1)
The directors of a parent company must secure that the individual accounts
of—
(a)
the parent company, and
20
(b)
each of its subsidiary undertakings,

are all prepared using the same financial reporting framework, except to the
extent that in their opinion there are good reasons for not doing so.
(2)
Subsection (1) does not apply if the directors do not prepare group accounts for
the parent company.
25
(3)
Subsection (1) only applies to accounts of subsidiary undertakings that are
required to be prepared under this Part.
(4)
Subsection (1) does not require accounts of undertakings that are charities to
be prepared using the same financial reporting framework as accounts of
undertakings which are not charities.
30
(5)
Subsection (1)(a) does not apply where the directors of a parent company
prepare IAS group accounts and IAS individual accounts.
414
Individual profit and loss account where group accounts prepared
(1)
This section applies where—
(a)
a company prepares group accounts in accordance with this Act, and
35
(b)
the notes to the company’s individual balance sheet show the
company’s profit or loss for the financial year determined in
accordance with this Act.
(2)
The profit and loss account need not contain the information specified in
section 417 (information about employee numbers and costs)
40
(3)
The company’s individual profit and loss account must be approved in
accordance with section 420(1) (approval by directors) but may be omitted

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
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Chapter 4 — Annual accounts
191

from the company’s annual accounts for the purposes of the other provisions
of the Companies Acts.
(4)
The exemption conferred by this section is conditional upon its being disclosed
in the company’s annual accounts that the exemption applies.
Information to be given in notes to the accounts
5
415
Information about related undertakings
(1)
The Secretary of State may make provision by regulations requiring
information about related undertakings to be given in notes to a company’s
annual accounts.
(2)
The regulations—
10
(a)
may make different provision according to whether or not the company
prepares group accounts, and
(b)
may specify the descriptions of undertaking in relation to which they
apply, and make different provision in relation to different descriptions
of related undertaking.
15
(3)
The regulations may provide that information need not be disclosed with
respect to an undertaking that—
(a)
is established under the law of a country outside the United Kingdom,
or
(b)
carries on business outside the United Kingdom,
20

if the following conditions are met.
(4)
The conditions are—
(a)
that in the opinion of the directors of the company the disclosure would
be seriously prejudicial to the business of—
(i)
that undertaking,
25
(ii)
the company,
(iii)
any of the company’s subsidiary undertakings, or
(iv)
any other undertaking which is included in the consolidation;
(b)
that the Secretary of State agrees that the information need not be
disclosed.
30
(5)
Where advantage is taken of any such exemption, that fact must be stated in a
note to the company’s annual accounts.
416
Information about related undertakings: alternative compliance
(1)
This section applies where the directors of a company are of the opinion that
the number of undertakings in respect of which the company is required to
35
disclose information under any provision of regulations under section 415
(related undertakings) is such that compliance with that provision would
result in information of excessive length being given in notes to the company’s
annual accounts.
(2)
The information need only be given in respect of—
40
(a)
the undertakings whose results or financial position, in the opinion of
the directors, principally affected the figures shown in the company’s
annual accounts, and