Company Law Reform Bill [HL] (556-561)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (556-561)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 41 — Business names
Chapter 3 — Supplementary
556

1170
Civil consequences of failure to make required disclosure
(1)
This section applies to any legal proceedings brought by a person to whom this
Chapter applies to enforce a right arising out of a contract made in the course
of a business in respect of which he was, at the time the contract was made, in
breach of section 1166(1) or (2) (disclosure in business documents etc) or
5
section 1168(1) (disclosure at business premises).
(2)
The proceedings shall be dismissed if the defendant (in Scotland, the defender)
to the proceedings shows—
(a)
that he has a claim against the claimant (pursuer) arising out of the
contract that he has been unable to pursue by reason of the latter’s
10
breach of the requirements of this Chapter, or
(b)
that he has suffered some financial loss in connection with the contract
by reason of the claimant’s (pursuer’s) breach of those requirements,

unless the court before which the proceedings are brought is satisfied that it is
just and equitable to permit the proceedings to continue.
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(3)
References in this section to the requirements of this Chapter include the
requirements of regulations under this Chapter.
(4)
This section does not affect the right of any person to enforce such rights as he
may have against another person in any proceedings brought by that person.
Chapter 3
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Supplementary
1171
Application of general provisions about offences

The provisions of sections 1091 to 1097 (general provisions about offences)
apply in relation to offences under this Part as in relation to offences under the
Companies Acts.
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1172
Interpretation

In this Part—
“business” includes a profession;
“initial” includes any recognised abbreviation of a name;
“partnership” means—
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(a)
a partnership within the Partnership Act 1890 (c. 39), or
(b)
a limited partnership registered under the Limited Partnerships
Act 1907 (c. 24),
or a firm or entity of a similar character formed under the law of a
country or territory outside the United Kingdom;
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“surname”, in relation to a peer or person usually known by a British title
different from his surname, means the title by which he is known.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 42 — Statutory Auditors
Chapter 1 — Introductory
557

Part 42
Statutory Auditors
Chapter 1
Introductory
1173
Main purposes of Part
5
The main purposes of this Part are—
(a)
to secure that only persons who are properly supervised and
appropriately qualified are appointed as statutory auditors, and
(b)
to secure that audits by persons so appointed are carried out properly,
with integrity and with a proper degree of independence.
10
1174
Meaning of “statutory auditor” etc
(1)
In this Part “statutory auditor” means—
(a)
a person appointed as auditor under Part 17 of this Act,
(b)
a person appointed as auditor under section 77 of or Schedule 11 to the
Building Societies Act 1986 (c. 53),
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(c)
a person appointed as auditor of an insurer that is a friendly society
under section 72 of or Schedule 14 to the Friendly Societies Act 1992
(c. 40),
(d)
a person appointed as auditor of an insurer that is an industrial and
provident society under section 4 of the Friendly and Industrial and
20
Provident Societies Act 1968 (c. 55) or under section 38 of the Industrial
and Provident Societies Act (Northern Ireland) 1969 (c. 24 (N.I.)),
(e)
a person appointed as auditor for the purposes of regulation 3 of the
Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate
Accounts) Regulations 2004 (S.I. 2004/3219) or appointed to report on
25
the “aggregate accounts” within the meaning of those Regulations,
(f)
a person appointed as auditor of an insurer for the purposes of
regulation 3 of the Insurance Accounts Directive (Miscellaneous
Insurance Undertakings) Regulations 1993 (S.I. 1993/3245),
(g)
a person appointed as auditor of a bank for the purposes of regulation
30
4 of the Bank Accounts Directive (Miscellaneous Banks) Regulations
1991 (S.I. 1991/2704), and
(h)
a person appointed as auditor of a prescribed person under a
prescribed enactment authorising or requiring the appointment;

and the expressions “statutory audit” and “statutory audit work” are to be
35
construed accordingly.
(2)
In this Part “audited person” means the person in respect of whom a statutory
audit is conducted.
(3)
In subsection (1)—
“bank” means a person who—
40
(a)
is a credit institution within the meaning given by Article 1.1 of
Directive 2000/12/EC of the European Parliament and of the
Council relating to the taking up and pursuit of the business of
credit institutions, and

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 42 — Statutory Auditors
Chapter 2 — Individuals and firms
558

(b)
is a company or a firm as defined in Article 48 of the Treaty
establishing the European Community;
“friendly society” means a friendly society within the meaning of the
Friendly Societies Act 1992 (c. 40);
“industrial and provident society” means—
5
(a)
a society registered under the Industrial and Provident Societies
Act 1965 (c. 12) or a society deemed by virtue of section 4 of that
Act to be so registered, or
(b)
a society registered under the Industrial and Provident Societies
Act (Northern Ireland) 1969 or a society deemed by virtue of
10
section 4 of that Act to be so registered;
“insurer” means a person who is an insurance undertaking within the
meaning given by Article 2.1 of Council Directive 1991/674/EEC on
the annual accounts and consolidated accounts of insurance
undertakings;
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“prescribed” means prescribed, or of a description prescribed, by order
made by the Secretary of State for the purposes of subsection (1)(h).
(4)
An order under this section is subject to negative resolution procedure.
1175
Eligibility for appointment as a statutory auditor: overview
A person is eligible for appointment as a statutory auditor only if the person is
20
so eligible—
(a)
by virtue of Chapter 2 (individuals and firms), or
(b)
by virtue of Chapter 3 (Comptroller and Auditor General, etc).
Chapter 2
Individuals and firms
25
Eligibility for appointment
1176
Individuals and firms: eligibility for appointment as a statutory auditor
(1)
An individual or firm is eligible for appointment as a statutory auditor if the
individual or firm—
(a)
is a member of a recognised supervisory body, and
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(b)
is eligible for appointment under the rules of that body.
(2)
In the cases to which section 1186 applies (individuals retaining only 1967 Act
authorisation) a person’s eligibility for appointment as a statutory auditor is
restricted as mentioned in that section.
1177
Effect of ineligibility
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(1)
No person may act as statutory auditor of an audited person if he is ineligible
for appointment as a statutory auditor.
(2)
If at any time during his term of office a statutory auditor becomes ineligible
for appointment as a statutory auditor, he must immediately—
(a)
resign his office (with immediate effect), and
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Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 42 — Statutory Auditors
Chapter 2 — Individuals and firms
559

(b)
give notice in writing to the audited person that he has resigned by
reason of his becoming ineligible for appointment.
(3)
A person is guilty of an offence if—
(a)
he acts as a statutory auditor in contravention of subsection (1), or
(b)
he fails to give the notice mentioned in paragraph (b) of subsection (2)
5
in accordance with that subsection.
(4)
A person guilty of an offence under subsection (3) is liable—
(a)
on conviction on indictment, to a fine, and
(b)
on summary conviction, to a fine not exceeding the statutory
maximum.
10
(5)
A person is guilty of an offence if—
(a)
he has been convicted of an offence under subsection (3)(a) or this
subsection, and
(b)
he continues to act as a statutory auditor in contravention of subsection
(1) after the conviction.
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(6)
A person is guilty of an offence if—
(a)
he has been convicted of an offence under subsection (3)(b) or this
subsection, and
(b)
he continues, after the conviction, to fail to give the notice mentioned in
subsection (2)(b).
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(7)
A person guilty of an offence under subsection (5) or (6) is liable—
(a)
on conviction on indictment, to a fine, and
(b)
on summary conviction, to a fine not exceeding one-tenth of the
statutory maximum for each day on which the act or the failure
continues.
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(8)
In proceedings against a person for an offence under this section it is a defence
for him to show that he did not know and had no reason to believe that he was,
or had become, ineligible for appointment as a statutory auditor.
Independence requirement
1178
Independence requirement
30
(1)
A person may not act as statutory auditor of an audited person if one or more
of subsections (2), (3) and (4) apply to him.
(2)
This subsection applies if the person is—
(a)
an officer or employee of the audited person, or
(b)
a partner or employee of such a person, or a partnership of which such
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a person is a partner.
(3)
This subsection applies if the person is—
(a)
an officer or employee of an associated undertaking of the audited
person, or
(b)
a partner or employee of such a person, or a partnership of which such
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a person is a partner.
(4)
This subsection applies if there exists, between—
(a)
the person or an associate of his, and

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 42 — Statutory Auditors
Chapter 2 — Individuals and firms
560

(b)
the audited person or an associated undertaking of the audited person,

a connection of any such description as may be specified by regulations made
by the Secretary of State.
(5)
An auditor of an audited person is not to be regarded as an officer or employee
of the person for the purposes of subsections (2) and (3).
5
(6)
In this section “associated undertaking”, in relation to an audited person,
means—
(a)
a parent undertaking or subsidiary undertaking of the audited person,
or
(b)
a subsidiary undertaking of a parent undertaking of the audited
10
person.
(7)
Regulations under subsection (4) are subject to negative resolution procedure.
1179
Effect of lack of independence
(1)
If at any time during his term of office a statutory auditor becomes prohibited
from acting by section 1178(1), he must immediately—
15
(a)
resign his office (with immediate effect), and
(b)
give notice in writing to the audited person that he has resigned by
reason of his lack of independence.
(2)
A person is guilty of an offence if—
(a)
he acts as a statutory auditor in contravention of section 1178(1), or
20
(b)
he fails to give the notice mentioned in paragraph (b) of subsection (1)
in accordance with that subsection.
(3)
A person guilty of an offence under subsection (2) is liable—
(a)
on conviction on indictment, to a fine, and
(b)
on summary conviction, to a fine not exceeding the statutory
25
maximum.
(4)
A person is guilty of an offence if—
(a)
he has been convicted of an offence under subsection (2)(a) or this
subsection, and
(b)
he continues to act as a statutory auditor in contravention of section
30
1178(1) after the conviction.
(5)
A person is guilty of an offence if—
(a)
he has been convicted of an offence under subsection (2)(b) or this
subsection, and
(b)
after the conviction, he continues to fail to give the notice mentioned in
35
subsection (1)(b).
(6)
A person guilty of an offence under subsection (4) or (5) is liable—
(a)
on conviction on indictment, to a fine, and
(b)
on summary conviction, to a fine not exceeding one-tenth of the
statutory maximum for each day on which the act or the failure
40
continues.
(7)
In proceedings against a person for an offence under this section it is a defence
for him to show that he did not know and had no reason to believe that he was,

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 42 — Statutory Auditors
Chapter 2 — Individuals and firms
561

or had become, prohibited from acting as statutory auditor of the audited
person by section 1178(1).
Effect of appointment of a partnership
1180
Effect of appointment of a partnership
(1)
This section applies where a partnership constituted under the law of—
5
(a)
England and Wales,
(b)
Northern Ireland, or
(c)
any other country or territory in which a partnership is not a legal
person,

is by virtue of this Chapter appointed as statutory auditor of an audited
10
person.
(2)
Unless a contrary intention appears, the appointment is an appointment of the
partnership as such and not of the partners.
(3)
Where the partnership ceases, the appointment is to be treated as extending
to—
15
(a)
any appropriate partnership which succeeds to the practice of that
partnership, or
(b)
any other appropriate person who succeeds to that practice having
previously carried it on in partnership.
(4)
For the purposes of subsection (3)—
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(a)
a partnership is to be regarded as succeeding to the practice of another
partnership only if the members of the successor partnership are
substantially the same as those of the former partnership, and
(b)
a partnership or other person is to be regarded as succeeding to the
practice of a partnership only if it or he succeeds to the whole or
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substantially the whole of the business of the former partnership.
(5)
Where the partnership ceases and the appointment is not treated under
subsection (3) as extending to any partnership or other person, the
appointment may with the consent of the audited person be treated as
extending to an appropriate partnership, or other appropriate person, who
30
succeeds to—
(a)
the business of the former partnership, or
(b)
such part of it as is agreed by the audited person is to be treated as
comprising the appointment.
(6)
For the purposes of this section, a partnership or other person is “appropriate”
35
if it or he—
(a)
is eligible for appointment as a statutory auditor by virtue of this
Chapter, and
(b)
is not prohibited by section 1178(1) from acting as statutory auditor of
the audited person.
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