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Company Law Reform Bill [HL] (192-198)


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

192

 

(b)   

where the company prepares group accounts, undertakings excluded

from consolidation.

(3)   

If advantage is taken of subsection (2)—

(a)   

there must be included in the notes to the company’s annual accounts

a statement that the information is given only with respect to such

5

undertakings as are mentioned in that subsection, and

(b)   

the full information (both that which is disclosed in the notes to the

accounts and that which is not) must be annexed to the company’s next

annual return.

   

For this purpose the “next annual return” means that next delivered to the

10

registrar after the accounts in question have been approved under section 420.

(4)   

If a company fails to comply with subsection (3)(b), an offence is committed

by—

(a)   

the company, and

(b)   

every officer of the company who is in default.

15

(5)   

A person guilty of an offence under subsection (4) is liable on summary

conviction to a fine not exceeding level 3 on the standard scale and, for

continued contravention, a daily default fine not exceeding one-tenth of level

3 on the standard scale.

417     

Information about employee numbers and costs

20

(1)   

In the case of a company not subject to the small companies regime, the

following information with respect to the employees of the company must be

given in notes to the company’s annual accounts—

(a)   

the average number of persons employed by the company in the

financial year, and

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(b)   

the average number of persons so employed within each category of

persons employed by the company.

(2)   

The categories by reference to which the number required to be disclosed by

subsection (1)(b) is to be determined must be such as the directors may select

having regard to the manner in which the company’s activities are organised.

30

(3)   

The average number required by subsection (1)(a) or (b) is determined by

dividing the relevant annual number by the number of months in the financial

year.

(4)   

The relevant annual number is determined by ascertaining for each month in

the financial year—

35

(a)   

for the purposes of subsection (1)(a), the number of persons employed

under contracts of service by the company in that month (whether

throughout the month or not);

(b)   

for the purposes of subsection (1)(b), the number of persons in the

category in question of persons so employed;

40

   

and adding together all the monthly numbers.

(5)   

In respect of all persons employed by the company during the financial year

who are taken into account in determining the relevant annual number for the

purposes of subsection (1)(a) there must also be stated the aggregate amounts

respectively of—

45

 
 

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

193

 

(a)   

wages and salaries paid or payable in respect of that year to those

persons;

(b)   

social security costs incurred by the company on their behalf; and

(c)   

other pension costs so incurred.

   

This does not apply in so far as those amounts, or any of them, are stated

5

elsewhere in the company’s accounts.

(6)   

In subsection (5)—

“pension costs” includes any costs incurred by the company in respect

of—

(a)   

any pension scheme established for the purpose of providing

10

pensions for persons currently or formerly employed by the

company,

(b)   

any sums set aside for the future payment of pensions directly

by the company to current or former employees, and

(c)   

any pensions paid directly to such persons without having first

15

been set aside;

“social security costs” means any contributions by the company to any

state social security or pension scheme, fund or arrangement.

(7)   

Where the company prepares group accounts, this section applies as if the

undertakings included in the consolidation were a single company.

20

418     

Information about directors’ benefits: remuneration

(1)   

The Secretary of State may make provision by regulations requiring

information to be given in notes to a company’s annual accounts about

directors’ remuneration.

(2)   

The matters about which information may be required include—

25

(a)   

gains made by directors on the exercise of share options;

(b)   

benefits received or receivable by directors under long-term incentive

schemes;

(c)   

payments for loss of office (as defined in section 214);

(d)   

benefits receivable, and contributions for the purpose of providing

30

benefits, in respect of past services of a person as director or in any

other capacity while director;

(e)   

consideration paid to or receivable by third parties for making available

the services of a person as director or in any other capacity while

director.

35

(3)   

Without prejudice to the generality of subsection (1), regulations under this

section may make any such provision as was made immediately before the

commencement of this Part by Part 1 of Schedule 6 to the Companies Act 1985

(c. 6).

(4)   

For the purposes of this section, and regulations made under it, amounts paid

40

to or receivable by—

(a)   

a person connected with a director, or

(b)   

a body corporate controlled by a director,

   

are treated as paid to or receivable by the director.

   

The expressions “connected with” and “controlled by” in this subsection have

45

the same meaning as in Part 10 (company directors).

 
 

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

194

 

(5)   

It is the duty of—

(a)   

any director of a company, and

(b)   

any person who is or has at any time in the preceding five years been a

director of the company,

   

to give notice to the company of such matters relating to himself as may be

5

necessary for the purposes of regulations under this section.

(6)   

A person who makes default in complying with subsection (5) commits an

offence and is liable on summary conviction to a fine not exceeding level 3 on

the standard scale.

419     

Information about directors’ benefits: advances, credit and guarantees

10

(1)   

In the case of a company that does not prepare group accounts, details of—

(a)   

advances and credits granted by the company to its directors, and

(b)   

guarantees of any kind entered into by the company on behalf of its

directors,

   

must be shown in the notes to its individual accounts.

15

(2)   

In the case of a parent company that prepares group accounts, details of—

(a)   

advances and credits granted to the directors of the parent company, by

that company or by any of its subsidiary undertakings, and

(b)   

guarantees of any kind entered into on behalf of the directors of the

parent company, by that company or by any of its subsidiary

20

undertakings,

   

must be shown in the notes to the group accounts.

(3)   

The details required of an advance or credit are—

(a)   

its amount,

(b)   

an indication of the interest rate,

25

(c)   

its main conditions, and

(d)   

any amounts repaid.

(4)   

The details required of a guarantee are—

(a)   

its main terms,

(b)   

the amount of the maximum liability that may be incurred by the

30

company (or its subsidiary), and

(c)   

any amount paid and any liability incurred by the company (or its

subsidiary) for the purpose of fulfilling the guarantee (including any

loss incurred by reason of enforcement of the guarantee).

(5)   

There must also be stated in the notes to the accounts the totals—

35

(a)   

of amounts stated under subsection (3)(a),

(b)   

of amounts stated under subsection (3)(d),

(c)   

of amounts stated under subsection (4)(b), and

(d)   

of amounts stated under subsection (4)(c).

(6)   

References in this section to the directors of a company are to the persons who

40

were a director at any time in the financial year to which the accounts relate.

(7)   

The requirements of this section apply in relation to every advance, credit or

guarantee subsisting at any time in the financial year to which the accounts

relate—

(a)   

whenever it was entered into,

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Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 16 — Accounts and reports
Chapter 5 — Directors’ report

195

 

(b)   

whether or not the person concerned was a director of the company in

question at the time it was entered into, and

(c)   

in the case of an advance, credit or guarantee involving a subsidiary

undertaking of that company, whether or not that undertaking was

such a subsidiary undertaking at the time it was entered into.

5

(8)   

Banking companies and the holding companies of credit institutions need only

state the details required by subsections (3)(a) and (4)(b).

Approval and signing of accounts

420     

Approval and signing of accounts

(1)   

A company’s annual accounts must be approved by the board of directors and

10

signed on behalf of the board by a director of the company.

(2)   

The signature must be on the company’s balance sheet.

(3)   

If the accounts are prepared in accordance with the provisions applicable to

companies subject to the small companies regime, the balance sheet must

contain a statement to that effect in a prominent position above the signature.

15

(4)   

If annual accounts are approved that do not comply with the requirements of

this Act (and, where applicable, of Article 4 of the IAS Regulation), every

director of the company who—

(a)   

knew that they did not comply, or was reckless as to whether they

complied, and

20

(b)   

failed to take reasonable steps to secure compliance with those

requirements or, as the case may be, to prevent the accounts from being

approved,

   

commits an offence.

(5)   

A person guilty of an offence under this section is liable—

25

(a)   

on conviction on indictment, to a fine;

(b)   

on summary conviction, to a fine not exceeding the statutory

maximum.

Chapter 5

Directors’ report

30

Directors’ report

421     

Duty to prepare directors’ report

(1)   

The directors of a company must prepare a directors’ report for each financial

year of the company.

(2)   

For a financial year in which—

35

(a)   

the company is a parent company, and

(b)   

the directors of the company prepare group accounts,

   

the directors’ report must be a consolidated report (a “group directors’ report”)

relating to the undertakings included in the consolidation.

 
 

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 16 — Accounts and reports
Chapter 5 — Directors’ report

196

 

(3)   

A group directors’ report may, where appropriate, give greater emphasis to

the matters that are significant to the undertakings included in the

consolidation, taken as a whole.

(4)   

In the case of failure to comply with the requirement to prepare a directors’

report, an offence is committed by every person who—

5

(a)   

was a director of the company immediately before the end of the period

for filing accounts and reports for the financial year in question, and

(b)   

failed to take all reasonable steps for securing compliance with that

requirement.

(5)   

A person guilty of an offence under this section is liable—

10

(a)   

on conviction on indictment, to a fine;

(b)   

on summary conviction, to a fine not exceeding the statutory

maximum.

422     

Contents of directors’ report: general

(1)   

The directors’ report for a financial year must state—

15

(a)   

the names of the persons who, at any time during the financial year,

were directors of the company, and

(b)   

the principal activities of the company in the course of the year.

(2)   

In relation to a group directors’ report subsection (1)(b) has effect as if the

reference to the company was to the undertakings included in the

20

consolidation.

(3)   

Except in the case of a company subject to the small companies regime, the

report must state the amount (if any) that the directors recommend should be

paid by way of dividend.

(4)   

The Secretary of State may make provision by regulations as to other matters

25

that must be disclosed in a directors’ report.

   

Without prejudice to the generality of this power, the regulations may make

any such provision as was formerly made by Schedule 7 to the Companies Act

1985.

423     

Contents of directors’ report: business review

30

(1)   

Unless the company is subject to the small companies’ regime, the directors’

report must contain a business review.

(2)   

The purpose of the business review is to inform members of the company and

help them assess how the directors have performed their duty under section

173 (duty to promote the success of the company).

35

(3)   

The business review must contain—

(a)   

a fair review of the company’s business, and

(b)   

a description of the principal risks and uncertainties facing the

company.

(4)   

The review required is a balanced and comprehensive analysis of—

40

(a)   

the development and performance of the company’s business during

the financial year, and

(b)   

the position of the company’s business at the end of that year,

 
 

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 16 — Accounts and reports
Chapter 5 — Directors’ report

197

 

   

consistent with the size and complexity of the business.

(5)   

In the case of a quoted company the business review must, to the extent

necessary for an understanding of the development, performance or position

of the company’s business, include—

(a)   

the main trends and factors likely to affect the future development,

5

performance and position of the company’s business; and

(b)   

information about—

(i)   

environmental matters (including the impact of the company’s

business on the environment),

(ii)   

the company’s employees, and

10

(iii)   

social and community issues,

   

including information about any policies of the company in relation to

those matters and the effectiveness of those policies.

   

If the review does not contain information of each kind mentioned in

paragraph (b)(i), (ii) and (iii), it must state which of those kinds of information

15

it does not contain.

(6)   

The review must, to the extent necessary for an understanding of the

development, performance or position of the company’s business, include—

(a)   

analysis using financial key performance indicators, and

(b)   

where appropriate, analysis using other key performance indicators,

20

including information relating to environmental matters and employee

matters.

   

“Key performance indicators” means factors by reference to which the

development, performance or position of the company’s business can be

measured effectively.

25

(7)   

Where a company qualifies as medium-sized in relation to a financial year (see

sections 473 to 475), the directors’ report for the year need not comply with the

requirements of subsection (6) so far as they relate to non-financial

information.

(8)   

The review must, where appropriate, include references to, and additional

30

explanations of, amounts included in the company’s annual accounts.

(9)   

In relation to a group directors’ report this section has effect as if the references

to the company were references to the undertakings included in the

consolidation.

(10)   

Nothing in this section requires the disclosure of information about impending

35

developments or matters in the course of negotiation if the disclosure would,

in the opinion of the directors, be seriously prejudicial to the interests of the

company.

424     

Contents of directors’ report: statement as to disclosure to auditors

(1)   

This section applies to a company unless—

40

(a)   

it is exempt for the financial year in question from the requirements of

Part 17 as to audit of accounts, and

(b)   

the directors take advantage of that exemption.

(2)   

The directors’ report must contain a statement to the effect that, in the case of

each of the persons who are directors at the time the report is approved—

45

 
 

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 16 — Accounts and reports
Chapter 5 — Directors’ report

198

 

(a)   

so far as the director is aware, there is no relevant audit information of

which the company’s auditor is unaware, and

(b)   

he has taken all the steps that he ought to have taken as a director in

order to make himself aware of any relevant audit information and to

establish that the company’s auditor is aware of that information.

5

(3)   

“Relevant audit information” means information needed by the company’s

auditor in connection with preparing his report.

(4)   

A director is regarded as having taken all the steps that he ought to have taken

as a director in order to do the things mentioned in subsection (2)(b) if he has—

(a)   

made such enquiries of his fellow directors and of the company’s

10

auditors for that purpose, and

(b)   

taken such other steps (if any) for that purpose,

   

as are required by his duty as a director of the company to exercise reasonable

care, skill and diligence.

(5)   

Where a directors’ report containing the statement required by this section is

15

approved but the statement is false, every director of the company who—

(a)   

knew that the statement was false, or was reckless as to whether it was

false, and

(b)   

failed to take reasonable steps to prevent the report from being

approved,

20

   

commits an offence.

(6)   

A person guilty of an offence under subsection (5) 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—

25

(i)   

in England and Wales, to imprisonment for a term not

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

30

maximum (or both).

425     

Approval and signing of directors’ report

(1)   

The directors’ report must be approved by the board of directors and signed

on behalf of the board by a director or the secretary of the company.

(2)   

If the report is prepared in accordance with the small companies regime, it

35

must contain a statement to that effect in a prominent position above the

signature.

(3)   

If a directors’ report is approved that does not comply with the requirements

of this Act, every director of the company who—

(a)   

knew that it did not comply, or was reckless as to whether it complied,

40

and

(b)   

failed to take reasonable steps to secure compliance with those

requirements or, as the case may be, to prevent the report from being

approved,

   

commits an offence.

45

(4)   

A person guilty of an offence under this section is liable—

 
 

 
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