Section 414: Approval and signing of accounts
667. This section replaces section 233 of the 1985 Act. It provides that a company’s annual accounts (its individual accounts and any group accounts) must be approved by the board of directors and the balance sheet must be signed. Subsection (3), which requires the balance sheet of accounts prepared in accordance with the small companies regime to carry a statement to that effect, re-enacts section 246(8) of the 1985 Act. Subsections (4) and (5) reenact the criminal offence in section 233 of the 1985 Act for approval of accounts that do not comply with the requirements of the Companies Act or, where applicable, of Article 4 of the IAS Regulation. Section 233 (4) of the 1985 Act, which required that a director of the company should sign the copy of the balance sheet delivered to the registrar, has not been reproduced. This requirement would have hampered developments in the electronic delivery of accounts.
Sections 415 to 419: Directors’ report
668. These sections concern the duty to prepare a directors’ report, its content, approval and signature. They replace sections 234, 234ZZA, 234ZZB, 234ZA, 234A, 246(4)(a) and 246A(2A) and 246(8) of the 1985 Act.
669. Section 416(4) gives the Secretary of State power to make provisions by regulations as to other matters that must be disclosed in the directors’ report. These regulations replace the provision formerly made by Schedule 7 to the 1985 Act. The regulations are subject to the Parliamentary procedure in section 473.
670. Section 417 provides for what must be contained in the business review element of the directors’ report. All companies, other than small companies, will need to produce a business review, as required by the EU Accounts Modernisation Directive (2003/51/EEC). Subsection (2) sets out the purpose of the review, that is, to inform members of the company and help them assess how the directors have performed their duty under section 172 (duty to promote the success of the company). Subsections (3), (4), (6) and (8) specify the content of the review. Subsection (5) specifies information that quoted companies in particular must include in their review where necessary for an understanding of the company’s business. Where directors of quoted companies have nothing to report on environmental, employee, social and community matters or essential contractual or other arrangements, their review must say so. Subsection (7) exempts medium-sized companies from reporting non-financial key performance indicators – an exemption allowed by the EU directive. Subsection (9) provides that where the directors’ report is a group report, all references in section 417 to the company are to be read as references to the company and its consolidated subsidiary undertakings. Subsection (10) enables directors to omit from the business review information about impending developments or matters in the course of negotiation where in their opinion disclosure would be seriously prejudicial to the interests of the company. Subsection (11) enables directors to omit from the business review information about a third party otherwise required by subsection (5)(c) (essential contractual or other arrangements) where in the directors’ opinion it would be seriously prejudicial to that third party and contrary to the public interest.
Sections 420 to 422: Quoted companies: directors’ remuneration report
671. These sections replace sections 234B and 234C of the 1985 Act. Those sections, which were inserted into the Act by the Directors’ Remuneration Report Regulations 2002 (S.I. 2002/1986), require quoted companies to:
• publish a report on directors’ remuneration as part of the company’s annual reporting cycle; and
• disclose within the report details of individual directors’ remuneration packages, the company’s remuneration policy, and the role of the board and remuneration committee in this area.
672. Section 421 gives the Secretary of State power to make provision by regulations as to the information that must be contained in a directors’ remuneration report and how it should be set out. These matters are currently set out in Schedule 7A to the 1985 Act, and regulations made under section 421 will replace the provisions in Schedule 7A. The regulations will also specify the extent to which the directors’ remuneration report should be subject to audit. Regulations under section 421 are subject to the Parliamentary procedure in section 473.
Section 423: Duty to circulate copies of annual accounts and reports
673. This section replaces section 238 of the 1985 Act. Subsection (1) provides that a company must send a copy of its annual accounts and reports (as defined in section 471 and including any relevant auditor’s report) to specified persons. Subsection (2) restricts the general obligation of companies to send copies of accounts and reports. The obligation will in future be to send the accounts and reports only to persons for whom the company has a current address. This is to avoid companies having to send copies of the annual accounts and reports to addresses from which correspondence has previously been returned marked not known at this address (or its electronic equivalent). General provisions about how to supply copies to joint holders are in Part 6 of Schedule 5 (Communications by a company).
Section 424: Time allowed for sending out copies of accounts and reports
674. This section makes changes to the time for distributing accounts and reports for both private and public companies. Private companies (unless they opted out of the requirement) were previously required to lay their accounts at a general meeting and to send their accounts and reports to members 21 days before that meeting. They are no longer required to hold any general meeting and the requirement now is to send out their accounts and reports no later than the earlier of the date of actual delivery to the registrar or the deadline for delivery (see section 442 for the time limits for filing). Public companies must still send the annual accounts and reports out at least 21 days before the general meeting at which the accounts and reports are to be laid (defined as the “relevant accounts meeting”).
Section 425: Default in sending out copies of accounts and reports: offences
675. There is no change to these offences (in section 238(5) of the 1985 Act).
Sections 426 to 429: Option to provide summary financial statement
676. These sections restate section 251 of the 1985 Act. All companies have the option under section 426 to provide summary financial statements instead of copies of the full accounts and reports. This section reproduces the existing power for the Secretary of State to make provision by regulations:
• as to the circumstances in which a company may send out summary financial statements; and
• as to the manner in which it is to be ascertained whether a person wishes to receive a copy of the (full) accounts and reports. It also makes new provision for persons nominated to enjoy information rights under section 146 (indirect investors) to be able to be provided with summary financial statements rather than the full accounts and reports.
677. Section 427 sets out the form and content requirements for summary financial statements prepared by unquoted companies, whilst section 428 sets out the form and content requirements for summary financial statements prepared by quoted companies. In both cases, the Secretary of State may make regulations as to the form and content of summary financial statements. There is also a new power for regulations to provide that any specified material be sent separately at the same time as the summary financial statement instead of being included in it. This is to cover the requirements of the Takeovers Directive as to necessary explanatory material (see section 992). As in the 1985 Act, these powers are subject to the negative resolution procedure. Section 429 restates the existing offences in section 251(6) of the 1985 Act.