808. This Chapter introduces a new right for members of a quoted company to raise questions about the work of the auditors (all shareholders in a company limited by shares are members).
Section 527: Members’ power to require website publication of audit concerns
809. This section creates a new right for members of a quoted company – if they have a large enough holding in the company, or there are enough of them – to ask the company to publish on a website a statement raising questions about the accounts, or about the departure of an auditor, that they propose to bring up at the next meeting where the accounts are to be discussed.
810. Subsection (2) specifies the thresholds the members have to meet, which are the same as for shareholders who want to ask a company to circulate a statement under section 314: they must either have 5% of the total voting rights, or there must be at least 100 of them, holding shares on which there has been paid up an average sum per member of at least £100. Subsection (4) sets out the mechanics of transmitting the request to the company: it may be in hard copy or electronic.
811. Subsection (5) protects the company if members abuse the new right, e.g. by requesting a defamatory statement to be published. It enables the company, or someone else such as the auditor or a director, to apply to the court, and the court can then determine whether the right is being abused, in which case the company is not obliged to publish the statement. Subsection (6) provides that the court can order the shareholders who requested publication to pay some or all of the costs of the proceedings.
Section 528: Requirements as to website availability
812. This section sets out the requirements which the company must meet in making the shareholders’ statements available on a website, in the same way as section 353. Subsection (4) requires the company to get the statement onto a website within three days of receiving it, and to keep it available at least until after the meeting to which it relates.
Section 529: Website publication: company’s supplementary duties
813. This section requires quoted companies to draw attention to the possibility of a website statement in the notice of the accounts meeting. It also specifies the costs of publication are to be borne by the company. Subsection (3) requires the company to forward the statement to the auditor at the same time as it puts it on a website. Subsection (4) provides that a statement under this chapter can be dealt with at the accounts meeting.
Section 530: Website publication: offences
814. This section provides for offences when a company fails to comply with either of the preceding two sections, with maximum penalties of an unlimited fine.
Section 531: Meaning of “quoted company”
815. This section defines the phrase “quoted company” for the purposes of Chapter 5 of Part 16 as being the same as the definition in section 385 in Part 15, and that the power in Part 15 to amend the definition also applies in this Chapter.
816. This Chapter makes it possible for auditors to limit their liability by agreement with a company, but the agreement will be effective only to the extent that it is fair and reasonable.
817. It achieves this by defining a “liability limitation agreement” – a contractual limitation of an auditor’s liability to a company, requiring member agreement – as a new exception to the general prohibition, restated here, on a company indemnifying its auditor. The court will be able to substitute its own limitation if the agreement purports to limit liability to an amount that is not fair and reasonable in all the circumstances.
Section 532: Voidness of provisions protecting auditors from liability
818. This section restates the existing general prohibition, currently in section 310 of the 1985 Act, against a company indemnifying its auditor against claims by the company in the case of negligence or other default. Any such indemnities are void and unenforceable except where permitted by sections 533 to 536.
Section 533: Indemnity for costs of successfully defending proceedings
819. This section contains the current exception from the prohibition in section 532 allowing the company to indemnify the auditor against the costs of successfully defending himself against a claim, though it does not repeat the current exception that allows the company to buy insurance for its auditor.
Section 534: Liability limitation agreements
820. This section defines a “liability limitation agreement” as an agreement that seeks to limit the liability of an auditor to a company whose accounts he audits. The agreement can cover liability for negligence, default, breach of duty or breach of trust by the auditor.
821. Subsection (2) provides that such an agreement is excepted from the general voidness of such agreements under section 532, provided that the agreement complies with the rules in section 535, and that it has been authorised by the members of the company in the way specified in section 536. Subsection (3) provides that the agreement’s effect is limited by section 537, which contains the test of fairness and reasonableness, and that certain provisions of the Unfair Contracts Terms Act 1977 do not apply.
Section 535: Terms of liability limitation agreement
822. This section contains rules about the terms of a liability limitation agreement. An agreement must relate to the audit of a specified financial year, and the limitation may be expressed in any terms, not necessarily as a fixed financial amount or a formula.
823. Subsection (2) confers on the Secretary of State a power to make regulations (subject to negative resolution) prescribing or proscribing specified provisions or descriptions of provisions; and subsection (3) provides that the power may be used to prevent adverse effects on competition.
Section 536: Authorisation of agreement by members of the company
824. This section specifies the way in which members of a company are to give their approval to a liability limitation agreement, without which approval the agreement will not be effective. The members of a private company can pass a resolution waiving the need for approval. The members in a private or a public company can pass a resolution before an agreement is signed approving its principal terms, or can approve the agreement after it is signed. The resolution may be an ordinary resolution, unless a higher threshold is set in the company’s articles.
825. Subsection (5) specifies what the principal terms of a liability limitation agreement are for this purpose, namely the terms that specify, or enable one to determine, (i) the sorts of faults by the auditor that are covered, (ii) the financial year in relation to which those faults are covered, and (iii) the limit on the auditor’s liability.
826. Subsection (6) provides that members, by passing an ordinary resolution, can withdraw their approval of a liability limitation agreement at any time before the agreement is entered into. If the company has already entered into the agreement, approval can be withdrawn, by ordinary resolution, only before the start of the financial year to which the agreement relates.
Section 537: Effect of liability limitation agreement
827. This section provides that a liability limitation agreement will not be effective to limit an auditor’s liability if the limitation would result in the company recovering an amount that was less that what was fair and reasonable, in all the circumstances of the case, having regard in particular to the auditor’s responsibilities, the auditor’s contractual obligations, and the standards expected of the auditor. If a court decides that a liability limitation agreement would limit the auditor’s liability to an excessive degree, the agreement will have effect as if it limited liability to the amount that the court determines is fair and reasonable.
828. Subsection (3) provides that in assessing what is fair and reasonable, the court should not take into account circumstances arising after the loss or damage in question has been incurred. Nor should it take into account the chances of the company successfully claiming compensation from any other people responsible for the loss or damage.