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

House of Commons

Session 2005 - 06
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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.
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(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.
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(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;
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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—
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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.
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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.
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(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
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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,
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(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).
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(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])
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Chapter 5 — Directors’ report
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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—
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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.
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(4)
A person guilty of an offence under this section is liable—