With effect from 6 April 2008 a further set of totally unconnected provisions will come into effect. These range from new laws on mergers, divisions of public companies, arrangements and reconstructions, which will affect relatively few UK companies, to more important matters relating to company secretaries and the preparation and delivery of accounts and matters relating to auditors.
Very briefly, we note below one or two key sections as follows:
Part 12 - Company Secretaries
A private company is no longer required to have a secretary. However generally we see no reason why existing companies would want to remove that position as often two "officers" are required to execute certain documents.
Part 15 - Accounts and Reports
While there are few substantive changes, the provisions have been redrafted and reordered in order to group together those particularly relevant to companies of different sizes and types. The main substantive changes are as follows:
1. Directors have a new general obligation not to approve accounts unless they give a true and fair view of the financial position of the company and, in the case of group accounts, the undertakings included in the consolidation as a whole.
2. The current exemption for parent companies which head medium-sized groups from the requirement to prepare group accounts is abolished.
3. Notes to companies annual accounts no longer have to disclose transactions made between the company and officers other than directors.
4. The obligation to lay the annual accounts and reports before a general meeting is restricted to public companies. Therefore, the time for a private company to distribute its accounts and reports is no longer tied to the date of a general meeting. Instead it is required to send them out no later than the earlier of: (i) the date of actual delivery to the company's registrar; or (ii) the date of the six month deadline for delivery set out in section 442. This to our mind is yet another example of the legislation making the law for private companies harder to understand.
5. The period for filing accounts and reports is reduced to nine months after the end of the relevant accounting period for private companies and to six months for public companies. Was the one month reduction in each case really worthwhile?
Part 16 - Audit
This Part consolidates various provisions concerning auditors from the 1985 Act and makes some significant changes. For example where the auditor of a company is a firm, the auditor's report must now be signed by a "senior statutory auditor" who is defined as a person to be identified according to standards issued by the European Commission, or if there are no such standards, by guidance issued by the Secretary of State.
Two new criminal offences are created in relation to the auditors' report which apply both to an individual auditor and to any director or employee or agent of a firm of auditors who would be eligible to be appointed as auditor. Firstly, there is now an offence for any such person to knowingly or recklessly cause the report to include any matter that is misleading, false or deceptive in a "material particular". Alternatively, there is an offence for such person knowingly or recklessly to omit from the auditor's report any of the statements required where there are problems with the accounts. We wonder whether this will ever lead to any prosecutions - somehow we doubt it!
There are new rules on the departure from office of the auditor of a quoted company. There are also now new rights for members of quoted companies to require the company to publish on a website a statement raising questions about the accounts or about the departure of an auditor. These can be raised by members at the next meeting where accounts are to be discussed, although only in the case where members hold at least 5% of the total voting rights, or from at least 100 members holding shares on which an average sum of at least £100 per member has been paid up.
There are new rules by which a company and its auditor may enter into a liability limitation agreement ("LLA"), which is defined as an agreement seeking to limit the liability of an auditor to a company he has audited. This may cover, in relation to a company's accounts, negligence, default, breach of duty and breach of trust. This is made by the company approving the LLA by an ordinary resolution. This is a wholly new area of law and an interesting question arises as to why companies would enter into such an arrangement.
If you would like further information on any of these matters, please let us know.